Supreme Court New South Wales Medium Neutral Citation: Swiss Re International SE v David Simpson [2018] NSWSC 233 Hearing dates: 31 October 2017, 1, 2, 6, 7, 8, 9, 13, 14, 15, 16, 20, 21, 22, 23, 24, 27, 28, 29, 30 November 2017, 4 December 2017 Decision date: 02 March 2018 Jurisdiction: Equity - Commercial List Before: Hammerschlag J Decision: The proceedings are dismissed. Catchwords: CONSUMER LAW – Competition and Consumer Act 2010 (Cth) – Schedule 2, ss 18(1) and 236(1) – Misleading or deceptive conduct – plaintiff insurers claimed that they were induced to issue surety performance bonds for a publicly listed company by misleading or deceptive conduct on the part of the defendant individual officers of the company – misleading or deceptive conduct claimed to be representations and non-disclosures – no claim of accessorial liability – HELD: no misleading or deceptive conduct on the part of the defendants established – the alleged misleading or deceptive conduct was not causative of the plaintiffs' loss. Legislation Cited: Civil Procedure Act 2005 (NSW) Competition and Consumer Act 2010 (Cth) Corporations Act 2001 (Cth) Law Reform (Miscellaneous Provisions) Act 1946 (NSW) Cases Cited: Awad v Twin Creeks Properties Pty Limited [2012] NSWCA 200 Barton v Croner Trading Pty Ltd (1984) 3 FCR 95 BFSL 2007 Limited & Ors (in Liquidation) v Steigrad [2013] NZSC 156 C H Real Estate v Jainran Pty Ltd (2010) 14 BPR 27,361 Cackett v Keswick [1902] 2 Ch 456 Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 Chappel v Hart (1998) 195 CLR 232 Chubb Insurance Co of Australia Ltd v Moore [2013] NSWCA 212 Commercial Union Insurance Co of Australia v Ferrcom Pty Ltd (1991) 22 NSWLR 389 Downey & Anor v Carlson Hotels [2005] QCA 199 Ellis v Wallsend District Hospital (1989) 17 NSWLR 553 Fabcot v Port Macquarie-Hastings Council [2011] NSWCA 167 March v (E & M) Stramare Pty Ltd (1991) 171 CLR 506 Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Limited (2010) 241 CLR 357 Rosenberg v Percival (2001) 205 CLR 434 Sidhu v Van Dyke (2014) 251 CLR 505 Travel Compensation Fund v Tambree (t/as R Tambree and Associates) and Others (2005) 224 CLR 627 Wallace v Kam (2013) 250 CLR 375 Wheeler Grace & Pierucci Pty Ltd v Wright (1989) ATPR 40-940 State of Western Australia v Bond Corporation Holdings Ltd (1991) ATPR 41-081 Texts Cited: J D Heydon, Trade Practices Law (Looseleaf Service) Category: Principal judgment Parties: Swiss Re International SE and QBE Insurance (Australia) Ltd - Plaintiffs David Simpson - First Defendant Donald Montgomery - Second Defendant Andrew Bell - Third Defendant Chubb Insurance Australia Limited - Fourth Defendant Allianz Australia Insurance Limited - Fifth Defendant Axis Specialty Europe SE (registered as a foreign company under the Corporations Act 2001) - Sixth Defendant Representation: Counsel: R.A. Dick SC with S.A. Goodman SC, R.D. Glover and L. Rich - Plaintiffs J. Lockhart SC with J. Hutton - First Defendant A.S. Bell SC with V. Whittaker - Second Defendant C.H. Withers with P. Meagher - Third Defendant E. Muston SC with J. Dooley - Fourth to Sixth Defendants Solicitors: DLA Piper Australia - Plaintiffs Wotton + Kearney - First Defendant Jackson McDonald - Second Defendant Kennedys - Third Defendant Clyde & Co - Fourth to Sixth Defendants File Number(s): 2015/220467 TABLE OF CONTENTS Introduction History Events leading up to the 15 November 2013 $3.85 million bond Issue of the 15 November 2013 $3.85 million bond The 28 November 2013 ASX announcement The 2 December cashflow The 3 December Assetinsure meeting The 4 December 2013 cashflow The 6 December 2013 QBE meeting The 12 December Assetinsure meeting The 12 December 2013 cashflow The Swiss Re Risk Underwriting submission – 13 December 2013 The ATO The QBE Credit and Surety submission – 16 December 2013 The 19 December 2013 $6 million bond Events leading to the 11 January 2014 cashflow Friday 10 January 2014 Saturday 11 January 2014 The 11 January 2014 cashflow Simpson speaks to Brereton – Saturday evening, 11 January 2014 Sunday 12 January 2014 Monday 13 January 2014 The Monday evening 13 January 2014 conversation The Banking Club Issue of the January bonds Events after the issue of the January bonds The Case The Claims and the Responses The 15 November 2013 telephone conversation with Bell The 28 November 2013 announcement The 2 December 2013 cashflow The 3 December 2013 Assetinsure meeting The 4 December 2013 cashflow The 6 December 2013 QBE meeting The 12 December 2013 Assetinsure meeting The 12 December 2013 cashflow The 19 December 2013 $6 million bond The 11 January 2014 cashflow The Saturday evening 11 January 2014 conversation between Simpson and Brereton The Monday evening 13 January 2014 conversation between Simpson and Brereton The 13 January 2014 draft ASX announcement Consideration Bell and the 15 November 2013 $3.85 million bond Simpson and Montgomery and the 19 December 2013 $6 million bond The 28 November 2013 announcement The 2 December 2013, 4 December 2013 and 12 December 2013 cashflows The 3 December 2013 Assetinsure meeting The 12 December 2013 Assetinsure meeting Simpson, Montgomery and Bell and the January bonds The 11 January cashflow The Saturday evening 11 January 2014 conversation between Simpson and Brereton The Monday evening 13 January 2014 conversation between Simpson and Brereton The 13 January 2014 draft ASX announcement Causation and Damage – the $6 million bond and the January bonds Significant factors The 19 December 2013 $6 million bond Quantum and other questions Conclusion Judgment Introduction 1. HIS HONOUR: Forge Group Ltd (Forge) was a publicly listed company which described itself as a multi-disciplinary Engineering, Procurement and Construction (or EPC) and Asset Management service provider, delivering end-to-end turnkey solutions in the power and infrastructure, minerals and resources, and oil and gas sectors in Australia, Asia, Africa and North America. 2. According to its 2013 financial statements, as at 30 June 2013, Forge had net assets of over $213 million and had made a net profit after tax for that year exceeding $62 million. 3. Yet, on 11 February 2014, Forge failed. 4. Its shares went into a trading halt. Its securities were suspended from quotation. It was placed into voluntary administration. 5. On 18 March 2014, its creditors appointed liquidators. 6. At all times material to these proceedings, Mr David Michael Simpson, the first defendant, was Forge's Managing Director and Chief Executive Officer. 7. Simpson holds a Diploma of Law and a degree Masters of Law and Management. He worked in legal and corporate roles at corporations before joining Forge. 8. Mr Donald James Montgomery, the second defendant, was its Chief Financial Officer. Montgomery was not a member of the board. He attended board meetings by invitation. 9. Mr Andrew Bell, the third defendant, was the Executive General Manager of Finance. Until his resignation on 26 November 2013, Bell was the public officer of Forge. He was previously company secretary. He had many years of financial management experience in the mining, oil and gas and construction industries. 10. Where I refer in this judgment to persons by their last names, I intend no disrespect. 11. Swiss Re and QBE, the plaintiffs, are insurers and reinsurers. 12. Assetinsure Pty Ltd (Assetinsure) is Swiss Re's Australian agent and approved attorney. The relationship between Swiss Re and Assetinsure is governed by an underwriting agency agreement and a quota share reinsurance for surety business. Assetinsure acts as an insurer and reinsurer in its own right. 13. Swiss Re, QBE and Assetinsure provide security bonds for clients, which secure performance of contractual obligations. These are an alternative to security over assets or bank guarantees. I will refer to these instruments as bonds. 14. Forge, in joint venture with a Spanish company, Duro Felguera Ltd, had a substantial subcontract with Samsung C & T Corporation (Samsung) for the construction of an iron ore project in Western Australia known as Roy Hill. 15. Under the Roy Hill Contract, Forge was required from time to time to put up security in the form of on-demand, unconditional, irrevocable bonds by an Australian branch of a bank or insurance provider. 16. These proceedings concern bonds issued in favour of Samsung for the benefit of Forge in connection with the Roy Hill Contract as follows: * 15 November 2013 Swiss Re for $3,850,000 (the $3.85 million bond); * 19 December 2013 Swiss Re for $6,000,000 (the $6 million bond); * 10 January 2014 (issued 13 January) Swiss Re for $20,748,825; * 10 January 2014 (issued 13 January) Swiss Re for $20,748,825; * 13 January 2014 QBE for $6,000,000; * 13 January 2014 QBE for $20,748,825; * 13 January 2014 QBE for $20,748,825. I will refer to the bonds issued in January 2014 collectively as the January bonds. 1. The last of the bonds was thus issued less than a month before Forge's demise. 2. Section 18(1) of Schedule 2 to the Competition and Consumer Act 2010 (Cth) (the Australian Consumer Law) provides: (1) A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. 1. References to sections are, unless otherwise stated, references to the Australian Consumer Law. 2. Section 236(1) provides, relevantly: (1) If: (a) a person (the claimant) suffers loss or damage because of the conduct of another person; and (b) the conduct contravened a provision of Chapter 2; the claimant may recover the amount of the loss or damage by action against that other person, or against any person involved in the contravention. 1. On 24 February 2014, Samsung called the bonds. Swiss Re paid Samsung $51,347,650. QBE paid Samsung $47,497,650. 2. Swiss Re and QBE say that they were misled and deceived by Simpson, Montgomery and Bell into issuing the bonds. They sue them for damages under the Australian Consumer Law. 3. Swiss Re received premiums for the bonds of $2,807,518.53 and has been paid $10,044,512.53 by the receivers from Forge assets realised. It claims as damages the amount it paid out, less what it has received, being $38,495,618.97. 4. QBE received premiums of $2,328,529.93 and has been paid $10,044,512.53 by the receivers from Forge assets realised. It claims as damages the amount it paid out, less what it has received, being $35,124,607.57. 5. I shall refer to Simpson, Montgomery and Bell collectively as the defendants. 6. The fourth and fifth defendants, Ace and Allianz are insurers of the defendants under directors and officers insurance policies. 7. Swiss Re and QBE sue those insurers directly pursuant to s 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW). Proceedings were also brought against the sixth defendant (Axis) but those are not pressed. I shall refer to Ace and Allianz as the insurers. 8. This case is fact-heavy. 9. The hearing occupied 21 hearing days. 10. The Court Book is 30 volumes containing over 17,000 pages. The plaintiffs' affidavits are extensive. The defendants served affidavits but did not read any. 11. The Amended Commercial List Statement runs to 86 pages comprising 257 paragraphs. It is an instrument which does not conduce to the just, quick and cheap disposition of the real issues in this case. It contains numerous unnecessary definitions and cross-references. It repeatedly pleads misleading or deceptive conduct by pleading representations without pleading falsifications which correspond to those representations. [1] It contains lengthy factual narrative which has little role to play in the pleading of the case. 12. Different complaints, sometimes overlapping, are made against different defendants. However, leaving aside the 15 November 2013 $3.85 million bond, the same loss is claimed from each of them because of different conduct complained of. 13. Misrepresentations as to the solvency and non-disclosures as to the insolvency, or near insolvency, of Forge are asserted. However, save in a very limited way concerning 11 January 2014 – dealt with in detail later – all misrepresentations in relation to the solvency of Forge were abandoned. [2] 14. In this List, whilst the Court does not operate as one of strict pleading, it is also not one of no pleading. 15. Where plaintiffs, in a proceeding such as this, wish to make significant charges of misleading or deceptive conduct with potentially very significant consequences, it is incumbent on them to articulate their case with precision; see Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Limited (2010) 241 CLR 357 at 364-5 at [5]-[7]. [3] 16. The problems of resolving the issues (both factual and legal) in a satisfactory fashion were exacerbated by a number of other things. 17. The plaintiffs' closing written submissions, including submissions supposedly in reply, run to 124 pages. They narrow the plaintiffs' case in some respects, but impermissibly seek to change and expand it in others. Simpson, Montgomery and Bell repeatedly and justifiably complained about the attempted changes and expansions. The plaintiffs' submissions do not deal with the complaints in the order in which they were pleaded. In some cases more than one claim is rolled up into one. 18. The evidentiary material was presented by way of a haphazard non-chronological Court Book with numerous duplicates, particularly of email chains. The difficulties this puts in the way of reciting the facts in a comprehensible fashion are obvious. [4] During the hearing, I requested the plaintiffs to produce a comprehensive chronology of events backed up with evidentiary references, and where appropriate, with documents. A document purporting to meet this request was produced but it transpired to be nothing more than a chronological index to the Court Book. The plaintiffs then produced what was said to be a comprehensive and definitive statement of their case, factually and legally, in a document entitled 'Plaintiffs' Amended Outline of Closing Submissions' and a document entitled 'Plaintiffs' Outline of Reply Submissions'. The result was that the defendants were, somewhat unfairly, presented with the final articulation of the plaintiffs' case (sought impermissibly to be widened) at the tail of the proceedings. It puts the Court in the invidious position of having, in final judgment, to consider whether matters (including ones put in reply) are properly in contest. 19. I have had regard to all the evidence, but I have only recited the facts which I consider to be necessary for the reader to understand why I have reached the conclusions I have reached. 20. Many relevant communications took place across the time zone from Sydney to Perth. I have endeavoured to account for time zone differences and to place such communications in the order in which they were made and received. 21. I have considered all the arguments but have not restated them. 22. I refer below to 'cashflows'. Unless the context otherwise indicates, these are a type of document usually entitled 'Forge Group (Australian Operations) Consolidated Cashflow Forecast', produced by Forge in a particular abbreviated form, usually incorporating a set of stated key assumptions. 23. Cashflows were prepared by consolidating forecasts prepared for each of Forge's divisions. Divisional forecasts were in turn prepared by consolidating cashflows for each of Forge's projects. They were prepared by a team. Bell had the main responsibility for their preparation. He reported directly to Montgomery. History Events leading up to the 15 November 2013 $3.85 million bond 1. In January 2012, Forge acquired an entity called CTEC Pty Ltd (CTEC). With this acquisition, came two construction projects involving power stations in Western Australia, the Diamentina Power Station (DPS) and the West Angelas Power Station (WAPS). 2. As at 21 October 2013, Forge had a bond facility with Swiss Re for $100 million which was then drawn to $91.8 million. It asked Assetinsure (on behalf of Swiss Re) for an increase in the facility to $150 million. This was approved on 21 October 2013. 3. Assetinsure expected its bond exposure to reduce by retirement of bonds to $85 million by 31 December 2013, by a further $9.4 million by 31 March 2014 and to $57 million by the end of 2014. 4. As at 22 October 2013, Forge had a bond facility with QBE for $100 million which was then drawn to approximately $80 million. It expected that by April 2014, 50% of these bonds would be retired. Forge asked QBE for an increase to $125 million. This was approved on 22 October 2013. 5. The acquisition of CTEC was not a wise one. By 3 November 2013, Forge knew that DPS and WAPS were a significant problem and were going to mulct it with massive losses. The loss estimates at that time were $50 million on DPS and $16 million on WAPS. 6. Forge's cashflow was affected to the point that it recognised that it may need an injection of funds either through a working capital loan or an equity raising. It sought advice from investment bankers Goldman Sachs and lawyers Herbert Smith Freehills (HSF) regarding various avenues to address its disclosure obligations and immediate cash flow concerns. The proposed equity raising project was given the name Project Fiat. A due diligence committee was formed. 7. Such was the significance of the losses, that Forge's Board of Directors resolved to request a trading halt of the company's shares from the opening of trading on Monday 4 November 2013 and, if necessary, a suspension of trading on 6 November 2013. The Australian Stock Exchange (ASX) announced on 6 November 2013 that Forge's shares were suspended from quotation pending the release of an announcement. 8. Minutes of the due diligence committee of 9 November 2013 record that the preliminary view was that around $60 million would be required from the equity markets. 9. On 11 November 2013, Forge requested the ASX to extend the suspension until it made a market announcement, which it anticipated would happen by 13 November 2013. Minutes of a board meeting on 11 November 2013 record a discussion about insolvency and the board needing to be satisfied that Forge had a reasonable expectation that it could pay its debts as and when they fell due. 10. By 11 November 2013, Forge had withheld an amount exceeding $14 million from the Australian Tax Office (ATO), and therefore had defaulted in complying with its Pay As You Go Withholding (PAYGW) tax obligations by not paying. 11. Forge instructed solicitors to approach the Australian Securities and Investments Commission (ASIC) to permit it to utilise the so-called 'low-doc' disclosure provisions in the Corporations Act 2001 (Cth) for its proposed equity raising, rather than having to issue a full prospectus which would take much longer. By 13 November 2013, however, ASIC had made it clear that no waiver would be forthcoming. This would cause a delay to the timetable in raising equity. Montgomery undertook to conduct a review of Forge's ability to pay its debts as and when they fell due and to provide the board with a short term cashflow. 12. Bell prepared cashflows and sent them to Montgomery and Simpson. He prepared one on 14 November 2013. From 22 November 2013 to 3 January 2014, it showed significant cash deficits, before borrowings, ranging on a weekly basis from a high on 29 November 2013 of -$34.4 million to a low on 3 January 2014 of -$5.7 million. 13. Forge sought advice from KPMG, an accountancy firm, amongst others, on its solvency, on the basis of potentially raising money through an equity injection, trade sale or special situation debt raising. KPMG advised that Forge was not trading whilst insolvent as at 23 November 2013. Apparently, there had been discussions with an organisation called Anchorage, which might have been a source of equity. At a board meeting attended by management, management noted that Forge was fast running out of time and alternatives, and should request the bank to consider last resort scenarios. 14. At all times material to these proceedings, Forge's bankers were Australia and New Zealand Banking Group Ltd (ANZ). The individual at ANZ who had principal carriage of the relationship with Forge was Mr Greg Gardiner. Other ANZ personnel were Mr Isaac Rankin and Mr Dean Travis. 15. Sometime before 5 November 2013, following a request by Forge for an extension of its overdraft facility and waivers of covenant breaches, ANZ appointed KordaMentha, an accountancy firm operating in corporate recovery, to engage with Forge on behalf of ANZ. 16. At this time, Forge had various banking facilities with ANZ including revolving guarantee facilities of $80 million, a multi-currency cash advance acquisition facility for $39 million and a general working capital facility for $11 million. 17. The board met on 14 November 2013. It noted that Simpson and Montgomery had met the previous night with KordaMentha on behalf of ANZ, who had indicated that ANZ would provide support to Forge as it worked its way through its short term liquidity concerns. The board received a paper from Goldman Sachs detailing two equity raising options. The minutes record: Given the short term liquidity concerns, the Board requested a daily cashflow forecast from management in order to continually assess the Company's solvency. Whilst the Board was conscious of potential insolvent trading, it was satisfied that the Company was solvent. The Board noted that the Bank had outlined that if necessary, it could pay employee wages (given they are prioritised under law surrounding insolvency) as an alternative to providing an additional facility. It was further noted that the Bank would only make this option available should the current $11 million overdraft facility be fully drawn down. Mr Kempton requested management to furnish the Board with evidence that all superannuation payments were up to date. The Board was advised that all of the Company's insurers, including in respect of professional indemnity and directors & officers indemnity insurance, had been notified of matters surrounding Project Fiat. 1. That day, Bell sent Montgomery an updated daily and weekly cashflow for the following eight weeks. Montgomery replied to Bell that it was likely that Mr Mark Mentha (of KordaMentha) would want to sit down with him the following day to analyse it to ensure its credibility. That cashflow showed a cash deficit as at 29 November 2013 of $33.8 million. Later that day, Bell sent cashflows to KordaMentha, Montgomery and Simpson. Issue of the 15 November 2013 $3.85 million bond 1. Forge needed two advance payment bonds in favour of Samsung under the Roy Hill Contract, one for $3.85 million and one for $6 million. 2. On 14 November 2013, Forge applied to Assetinsure for the issue of a $3.85 million bond. At the time, Forge's facility through Assetinsure had a limit of $100 million. The issue of a $3.85 million bond could be issued within the limit but an additional $6 million would exceed the limit. 3. Assetinsure had an internal watchlist, called the Amber List, of companies which had a deteriorating credit position. On 15 November 2013, Assetinsure placed Forge on the list. The Amber List had risk classification categories of low, medium and high. Forge was placed in the high risk category. 4. Mr Mark Coulson of Australian Contract Guarantee Services was Forge's surety bond broker. 5. Mr Peter Wedgwood was the Executive Director of (and an equity holder in) Assetinsure. Mr Andrew Calvert was Head of Surety at Assetinsure and Mr Damian Gorman was Head of Credit. Mr Andrew Sim was Senior Relationship Manager, Surety. 6. On 15 November 2013 at 8am, the Forge board met. Simpson and Montgomery were present. Montgomery tabled a summary of the weekly consolidated cashflows for 10 weeks ending 10 January 2014, and noted that Forge was forecast to move to a negative cash position in the week ending 22 November 2013. 7. At about 10:30am on 15 November 2013, a telephone conference took place between Calvert, Gorman, Coulson and Bell. Calvert and Gorman both gave evidence of it. The substance of the message which Bell conveyed is the same. Gorman's version is: Calvert: We were surprised by the trading halt. What is the likely impact on FY 2014 results? Bell: It is an unfortunate series of events and a shock to Forge as well. A number of issues in the power division had not been brought to management's attention and as a consequence key staff have moved on, including the project director, Kevin Robinson. A major 'post mortem' is being conducted, a thorough review of all projects. We've identified two problem projects in respect of our power division, the Diamantina power project and the WAPS project. Our review has revealed cost overruns, delay and mismanagement. We are looking at a material profit write down. To deal with the problem we are investigating a capital raising of circa $62 million. Calvert: Will banking covenants be breached as a result of the write down? Bell: The covenants have not been breached as yet. However, the next testing date will be 31 December 2013. Based on where the Forge results are going there will be a breach at the time - that is the EBITDA coverage and the shareholder funds covenant. It is caused by the material write down on the projects. However ANZ remain supportive and we have good support from the ANZ. Calvert: How will you rebuild the balance sheet? Bell: We propose to do a capital raise to raise $62 million. The outlook is good, we have a large order book. We will take the hit this year, but will be very strong and healthy come the new financial year. Calvert's version is: Calvert: What is the trading halt all about, given that you have just released your annual report and we were with you a month or so ago and there were no problems raised? Bell: There are problems on two of our projects, DPS and WAPS with cost overruns and delays. There was mismanagement by the prior owners CTEC. We are conducting a thorough review of our projects. There are no other problem projects that have been identified at this stage. There will be a write down of about $125 million as a result. Calvert: Can Forge cover the write down? Bell: It is under control. We are looking at a $60 million capital raise or debt funding from the ANZ. ANZ is supporting us. There are no breaches of covenants. Our EBITDA and shareholder funds covenants may be breached on 31 December but that will be covered by the additional capital raise or funding from ANZ. The outlook is good and we can cover these issues. Forge is a strong company and will have a very strong performance overall going forward. Bell: We inherited these problems from CTEC and have only now just discovered them. It's not our fault. We are taking action. There have been big changes with management. The contracts are structurally flawed and required payments to be made before we get paid. But we have put in measures now to deal with this. Calvert: What about the additional bonding requirements? Bell: As you know we need a $3.85 million bond and a $6 million bond for Roy Hill. Calvert: Our facility has a current limit of $100 and while we can go ahead with the $3.85 bond, the additional $6 million bond would need approval of an increase in limit before we could issue. Bell: There will be a hit this year but our outlook is very positive and we will be healthy and robust going forward. 1. Gorman and Calvert were cross-examined, searchingly and at length. I have no reason to consider that they did anything other than give an honest account of their recollections and understandings. The same can be said of Sim, to whom reference is made below. Bell did not give evidence. 2. Calvert gave evidence that Wedgwood had given conditional approval for the issue of the $3.85 million bond, subject to Calvert speaking first with Forge and collating information. Calvert knew that Bell was the Group Financial Controller and Head of Treasury and that he reported to Montgomery. He had known Bell for a number of years and says he gave a lot of weight to what he said. He says he took the decision to issue the bond based upon what Bell had told him. 3. Gorman testified that Assetinsure had requested the call to 'get comfort around the issuance of the bond'. He says that Bell did not indicate any concerns around insolvency. 4. He says that the teleconference gave him comfort because he observed Bell as being forthright and candid in discussing the problems Forge faced and in giving an assurance that the problems had been addressed and that Forge had a readily available solution, namely a capital raising and the support being provided by ANZ. He says that based on the teleconference, he supported the issue of the bond. He says that he had a discussion with Calvert to the following effect: Gorman: Based on the earlier discussion with Andrew Bell, I think we can issue the bond. Calvert: I agree. 1. Gorman says that if he had been told that Forge was or was nearly insolvent or that there were concerns as to its solvency, he would not have supported the issue of any further bonds to Forge or an increase in Assetinsure's exposure to Forge. [5] 2. On 15 November 2013, Swiss Re issued the $3.85 million bond in favour of Samsung. The 28 November 2013 ASX announcement 1. The board met on 16 November 2013. The minutes record the purpose of the meeting being to receive a progress update on the resolutions being sought with respect to concerns identified in relation to potential underperformance on the DPS and WAPS projects. 2. The board met by teleconference early in the morning on 26 November 2013 for the purpose of receiving a progress update on the DPS and WAPS situation. Project Fiat was discussed. There had been extensive negotiations with an organisation called the M + W Group for a loan or possible scheme of arrangement, but at this point, no arrangement had been made. Simpson advised that ANZ had extended every concession possible to the M + W Group in an attempt to close the transaction. Management advised that it would now pursue a transaction with an organisation called Anchorage. Montgomery advised that based on cashflows which were continually being updated the company would have sufficient funds until the week ending 13 December 2013. 3. Forge's solicitor, Mr David John of HSF, took the board through 'the usual steps to assess' Forge's solvency. The minutes record that in light of Forge's tenuous position with its key customers and short term liquidity concerns, management had requested ANZ to extend further funds to Forge, and that ANZ had stated that its Credit Department had advised that under no circumstances could it advance further funds to Forge. 4. The Chairman, Mr David Craig, noted the considerable concern of the board as to Forge's ongoing solvency, and asked that John be in a position to advise the board as to the mechanics of voluntary administration should this be required. 5. The board met again at 1pm that day. Gardiner and Rankin of ANZ, and Mentha and Mr Scott Langdon of KordaMentha joined the meeting at some point. The minutes record, amongst other things, the following: Mr Gardiner advised that following consideration of the Company's current predicament and the potential exposure of the ANZ Bank to the Company's solvency concerns, the ANZ Bank/KordaMentha (Bank) had agreed to offer the Company the following proposal: • A restructure of the Company's existing banking facilities to provide additional liquidity. • An increase in the Company's working capital facility from $11 million to $20 million. • An additional $15-20 million in funding pursuant to s.560 of the Corporations Act (payment of wages). [6] • A proposal to involve the Company's insurance bond providers and to free up $20-30 million otherwise tied up in surety bonds. Mr Mentha advised that the proposal would allow the Bank and the Company to control the liquidity funding required by the Company, rather than being in the hands of Goldman Sachs regarding equity, 333 Capital regarding debt, or M+W Group with respect to a trade sale. Mr Mentha advised that given the exposure held by the insurance bonding providers, they were the natural parties to bring into the equation. The proposal would see surety bond providers placed into a club banking facility to sit pari passu with the Bank, and allow the Bank to free up additional funds. It was noted that it would be the Company's obligation however to satisfy the bond providers of the Bank's proposal, and that the mechanism for the proposal was uncertain at this point. Mr Mentha also noted that bonds could be issued to replace bank guarantees in some instances and it could be achieved simply and quickly. Mr Mentha advised that he was hopeful of a solid position by close of business on 27 November 2013, given the Bank had already been working behind the scenes and that the proposal was consequently already well advanced in the ANZ Bank's credit approval process. Mr Mentha advised that given the Bank was taking a risk by supporting the Company in the proposed fashion, especially given it was an equity style transaction that was rare for the Bank to undertake, it would be seeking penny warrants as a restructure fee. The proposal for the Bank to receive warrants had not yet been credit approved, however initial indications suggested that it would likely be acceptable to the Bank's credit department. It was a condition of the offer from the Bank that, even though the proposal represented a "full fix" to the Company's liquidity problems, the Company pursue a transaction in the new year, such as an equity raising or trade sale, to bolster the Company's balance sheet and ultimately facilitate a mechanism for the Bank to divest its investment in the Company (on the basis that it was highly unusual for the Bank to hold an equity position in any of its clients). In responding to a question from the Board as to what would happen if the surety providers did not support the proposal, Mr Mentha advised that a transaction with Anchorage would become paramount, and that he expected an indicative term sheet during the evening of 26 November 2013, subject to sign off by the Anchorage investment committee following its meeting on the morning of 27 November 2013. An Anchorage proposal would likely provide a bridging loan to the Company that would also require the Board to facilitate an equity raising or trade sale in the new year. With respect to the Company's cashflow, the Bank's proposal would effectively cover the $13 million withheld payment under the Roy Hill Project until it was received by Samsung. Management would also seek an agreement from the Australian Taxation Office for the Company to defer some of its taxation obligations. The Board noted that whilst the proposal from the Bank had not yet received credit approval, there was a high degree of confidence that the proposal would provide a suitable solution for the Company to continue trading. Mr de Kerloy advised that in addition to the Board's duty to ensure the Company remained solvent, it also had a duty to act at all times in the interests of all shareholders, and the Bank proposal certainly trumped the alternative of ceasing trading on the basis of solvency. 1. After the meetings, Bell received from Forge's Statutory Reporting Manager, Ms Gabrielle Deane, a Forecast Tax Payment Summary which he forwarded to KordaMentha and Montgomery. It forecast that by the end of January 2014, Forge would owe the ATO $37,276,527. 2. That evening, Bell sent Montgomery an updated cashflow which contained a key assumption that all payments of PAYG and BAS [7] (GST + FBT) [8] between the week ending 29 November 2013 to the week ending 31 January 2014 totalling $29.6 million, would be deferred. 3. On that day, Bell resigned as Forge's public officer. I do not consider that any relevant inference against Bell is to be drawn from this. 4. Throughout 27 November 2013, Simpson was involved in the preparation of a draft ASX announcement dealing with the proposed new ANZ facilities. 5. On 27 November 2013 at 1.38pm (Perth time), Bell provided a cashflow to Mr Glen Smith, Forge's Company Secretary, with a copy to Montgomery. At 3.03pm (Perth time), Smith forwarded that cashflow to the board, including Simpson and Montgomery. 6. At 4.30pm, the board met. Simpson and Montgomery were present. Simpson advised the board that ANZ's proposal had received credit approval within ANZ. 7. Simpson directed the release of the announcement to the ASX. Montgomery was at the meeting. 8. Montgomery tabled an updated cashflow, noting that it had been prepared on the basis that Forge would defer $30 million of taxation, and that within the next week or two management would draft, with the assistance of HSF, appropriate documentation to obtain approval for this deferral from the ATO. 9. The cashflow forecast cash shortfalls of $10.7 million with effect from the week ending 20 December 2013, and $3.3 million with effect from the week ending 17 January 2014. John noted that whilst there appeared to be a negative gap in the cashflow during the week ending 20 December 2013, this gap was capable of being filled should Forge proceed with ANZ's proposal. Under the heading 'Solvency Considerations', the minutes record the following: Mr John noted that whilst there appeared to be a negative gap in the cashflow forecast during the week ending 20 December 2013, this gap was capable of being filled should the Company proceed with the Bank's proposal to restructure its existing banking facilities. Management noted that it was reasonable to suggest that the ATO would agree to the Company's proposed deferral of taxation and a payment plan over the next 18-24 months, and that this position was communicated to management by Mr Konrad de Kerloy of Herbert Smith Freehills, and based on advice from Mr Mark Mentha of Korda Mentha. Management confirmed that the conditions precedent to the Bank's proposal would not impose an onerous position on management of the Company, and that it could provide all information required by the Bank. In that respect, Mr John advised that the Company's case was effectively a cashflow shortage, and much less of an insolvency risk. Following confirmation from management that, based on previous cashflow forecasts, the return of the required cash amounts into the cashflow forecast would be achievable, Mr John noted that the Board could form the view that there was a reasonable basis that the Company would remain solvent. 1. The cashflow included as a key assumption, [9] the deferral of taxation totalling $29.6 million between 29 November 2013 and 31 January 2014. 2. The board was informed that Anchorage had provided a very preliminary proposal, but that KordaMentha, who were reviewing the proposal, had advised that some terms would be highly unacceptable to the board. 3. A draft ASX announcement was tabled. The board agreed that the final announcement would contain all matters not currently known to the market and would therefore be an effective 'cleansing' statement. 4. On 27 November 2013, Simpson and ANZ signed a Facility Letter, [10] the effect of which was that the facility of $11 million (known as Facility D) was increased to $20 million. Additionally, ANZ agreed to make available a further and new overdraft facility of $40 million (Facility E) of which $10 million would be a sub-facility for six months, and of which $30 million would be made available as a 12 month sub-facility progressively in the amount of the face value of 'Contingent Instruments' (meaning, in effect, bank guarantees) nominated by the ANZ as and when they were returned to or cancelled by it, or were fully collateralised and supported by way of 'back to back' contingent instruments. [11] 5. Under the Facility Letter ANZ agreed to waive certain events of default on conditions including that the increase in Facility D and the new overdraft facility could be provided in ANZ's absolute discretion by way of a loan facility pursuant to s 560. 6. On 28 November 2013, Forge made a market announcement. Its introductory heading is: Forge Group Ltd provides trading and financial update and requests end to voluntary suspension 1. In the introductory section, it announces that: • Australia and New Zealand Banking Group Limited ("ANZ") has agreed to provide further support to Forge Group through new facilities and certain amendments to existing debt facilities ("ANZ Debt Facilities Amendments") • The ANZ Debt Facilities Amendments will provide sufficient facilities to cover the liquidity challenges and strengthen Forge Group's balance sheet 1. The announcement contains the following section: Update on Liquidity At the end of October 2013, Forge Group's cash balance was approximately $44 million (excluding restricted cash), and its net debt was approximately $25 million. As a result of the net cash outlay required to complete the DPS and WAPS projects, near-term working capital requirements and the current market conditions, Forge Group was facing a challenging liquidity position in early December 2013. Since entering a trading halt on 4 November 2013, the Board has explored a range of options, including a potential capital raising and alternative funding arrangements, to secure additional liquidity and strengthen Forge Group's balance sheet. In particular, the Board was focussed on delivering an outcome which could be executed in a short time frame in order to secure Forge Group's order book and enhance its ability to win new work. Forge Group's existing financier, ANZ has agreed to the ANZ Debt Facilities Amendments. These amendments include: • Formal waiver to exclude the impact of various covenants in relation to Forge Group's existing banking facilities which remain in place • Exclusion of the impact of the profit writedowns in certain covenant calculations • An increase in the working capital facility, resulting in an increase to the total working capital facility size from $11 million to $60 million, with $30 million available immediately and the balance available progressively as performance guarantees are returned or cancelled • The issue of warrants on the terms set out in Annexure A • Deferral of quarterly principal repayments of an existing acquisition facility of $3.3 million per quarter for the next three quarters The ANZ Debt Facilities Amendments will solve the liquidity issues and strengthen Forge Group's balance sheet. Mr Simpson added: "The overall funding support gives Forge Group the financial flexibility to continue to trade on a business as usual basis and deliver on our current work in hand. Additionally, it underpins our future growth and tendering prospects." … For further information, please contact: David Simpson Donald Montgomery Managing Director Chief Financial Officer & Chief Executive Officer +61 8 6389 8500 +61 8 6389 8500 Investor enquiries: Forge Group Investor Relations +61 8 6298 8199 InvestorRelations@forgegroup.com Media enquiries to Blake Wilshaw (+61 8 9334 8288 or +61 448 803 494) 1. After the announcement, Forge's share price plummeted. The 2 December cashflow 1. Mr Jonathan Malone of Price Waterhouse Coopers (PWC) was Forge's tax adviser. On 29 November 2013, Malone made contact with the ATO, on a no names basis, with a view to initiating discussions with the ATO about the extension of payment terms. Montgomery was made aware of this contact. 2. On 29 November 2013, Bell sent a cashflow for the ten weeks ending 31 January 2014 to Coulson. It contained as a key assumption the deferral of tax totalling $29.6 million between 22 November 2013 and 31 January 2014. [12] This version of the cashflow was not given to Assetinsure or QBE. 3. On 2 December 2013, Bell sent an email to KordaMentha attaching a cashflow dated 27 November 2013 with the deferral of taxation as a stated assumption. Cashflows with this assumption were also sent to Montgomery and Simpson and to the board. It showed a cash deficit of -$0.8 million as at 20 December 2013. 4. However, on 2 December 2013, a different cashflow, omitting the tax deferral assumption, was sent by Bell to Coulson who sent it on to Sim. [13] During the proceedings, the parties referred to this cashflow as the 2 December 2013 cashflow. 5. The 2 December 2013 cashflow projected a shortfall in total funds available of $0.8 million in the week ending 20 December 2013 and $3 million in the week ending 21 February 2014. It showed cash surpluses to meet obligations on a weekly basis from 15 November 2013 to 4 April 2014 and that Forge would have access to an additional $19 million of funding from ANZ by way of overdraft facility with immediate effect from the week ending 29 November 2013. 6. The 2 December 2013 cashflow was emailed by Coulson to Sim on 5 December 2013. The 3 December Assetinsure meeting 1. On 3 December 2013, Gorman and Calvert, who had flown to Perth, met with Montgomery and Bell. Coulson and Gardiner were present. By all accounts Montgomery did most of the talking and Bell said little, if anything. Coulson spoke intermittently. 2. Gorman's account of the discussion is as follows: Montgomery: We've investigated to understand exactly what went wrong with DPS and WAPS. These are both significant projects, with DPS being a $43 million project. DPS was tendered for prior to our acquisition of CTEC in 2012. West Angeles is a $280 million project which will be moving into commissioning phase from February or March 2014. The problem with DPS was the acquisition of one of the boilers by Siemens that needed to be reworked so that it was fit for purpose. Both projects have been damaged by poor management practices by the project managers. Management received their earn outs prior to completion of those projects. We are undertaking further forensic work to determine what went wrong. We have engaged Graham White to undertake an independent analysis. Calvert: Does this mean that there will be problems with other projects? Montgomery: There are no other projects with material issues. A number of power division executives have been terminated, including the CEO and CFO. KordaMentha are vetting our cash flows on a daily basis. We will provide to you a weekly cash flow forecast out until the end of March / April 2014, through Mark Coulson. Cashflow will be tight over the coming weeks and then be positive from January 2014. $30 million is available from the ANZ from 6 December 2013, which is sufficient to meet our needs. An additional $30 million may or may not be required or made available depending on the return of bonds. We are looking to enter into an arrangement with the ATO. David Simpson has also met with Duro Felguera. The recent announcement did not cause a default and the contract will move ahead as planned. The plan to restore the balance sheet is through strong profits for future projects. Calvert: What about the equity raising? Montgomery: There is no equity raising proposed at this stage. We have some large bonding requirements in respect of Roy Hill in January 2014. Gorman: Who are you looking at for those bonds? Which providers? Montgomery: Well other than AI, we have facilities with QBE, Chubb and AIG. We are talking to each bond provider. These bonds are expected to be issued by the end of January 2014. Gardiner: From the bank's perspective, AI's continued support for Forge is important. We're all in this together. A second ranking security position may be available for new debt which is advanced to support Roy Hill. Calvert: We need access to full information and we need to meet with David Simpson. Coulson or Montgomery: No problem. We'll give you access to information including the financials and arrange a meeting with David Simpson in Sydney before Christmas. 1. Calvert's account is as follows: Coulson: Well, let's get started. Monty do you want to begin? Montgomery: Yes ok. Well, firstly, DPS and WAPS were poorly managed. We inherited the underlying difficulties associated with those two projects when we acquired them from CTEC. There was a project manager in there who was failing to give accurate progress update reports. We've undertaken a thorough investigation and identified all potential risks on those projects and we are confident that $127 million is the total loss. There are no other projects affected at this stage and there won't be any further losses on DPS and WAPS. We have engaged Graham White to undertake an independent analysis of the situation. Calvert: Will there be problems with other projects? Montgomery: We've quarantined the losses and undertaking forensic work on other projects. None appear to be affected at this stage. Calvert: What is the position of the Banks? Montgomery: ANZ continue to be fully supportive of Forge. They've appointed KordaMentha as IA to review systems and accounting processes generally, and they are vetting cash flows. Gardiner: That's right, we are supportive of Forge. They have identified the issues and we're all in this together. Calvert: I would like access to the reports KordaMentha is giving to the Bank. Coulson: Ok yes that can be arranged. Gardiner: Yes. We could agree to that on a non-reliance basis. Gorman: So what does your balance sheet and cash flow look like? We need to see updated financials. Montgomery: We've got a strong balance sheet and a full order book. Cash flow will be tight for the next month or so but with the ANZ's debt support we will be fine. ANZ is going to advance a $30 million overdraft for working capital to get us through this patch. Plus there is an additional $30 million available as bonds on projects are returned if we need it. That debt funding patches the hole. There is no problem now with liquidity. We're proposing doing the capital raising in due course but not right now. Goldman Sachs were not up to speed, they were incompetent and not west coast based, so did not understand our market. We've got a new firm, Euroz, to do a capital raising in due course but not now. Roy Hill is a massive contract. It will generate significant cash flow during the 2014 financial year. With ANZ's debt funding we can get through the $45 million loss and within the next six months expect to see massive cash flow surplus. With Roy Hill, we have a large bonding requirement coming up in January. It will be about $80 million. More immediately though we require an advance payment bond of $6 million by end of December. Calvert: Who are you asking to issue those bonds? Montgomery: Other than AI, we have facilities with QBE, Chubb and AIG. We are talking to everyone. Calvert: Well we will need to see up to date financials - balance sheet, profit and loss, cash flows, work-in-progress - at a minimum - so that we can properly consider what we do going forward. That is in addition to the KordaMentha reports. Montgomery: Ok no problem. Coulson: Yes, that's fine. I'll send it to you in a pack. Gorman: I think we will need to meet again after we have the chance to review and consider that information. Montgomery: Yes, that is fine. We will be in Sydney in the next week or so for other meetings so we can arrange a time. 1. Montgomery did not give evidence. 2. Gorman made notes during the meeting and prepared a written diary note after it. The diary note includes the following: ● Cash flow forecasts-what key assumptions have been made (project by project, overheads, capex, etc.)? ○ Cash flows vetted daily by KordaMentha. ○ Additional $30m facility to be made available by ANZ, another $30m (dependent on return of bonds) may be required / made available. ○ Cash flow will be very tight over coming weeks and then be positive from January 2014. ○ Looking to enter an arrangement with ATO. The 4 December 2013 cashflow 1. At all material times, Mr Greg Brereton was Head of Global Risk Management for Credit and Surety at QBE. He was responsible for leading and managing QBE's Global Risk Management team in relation to its Credit and Surety business. He left QBE in July 2015. 2. On 3 December 2013, Bell emailed Coulson a 2014 forecast profit and loss statement, balance sheet and a cashflow (in a more detailed form than the usual cashflow) covering the period October 2013 to June 2014. This form of cashflow was sent by Coulson to QBE on 3 December 2013 and to Assetinsure (Sim) on 4 December 2013. [14] Sim sent it on to Calvert and Gorman. During the proceedings the parties described this cashflow as the 4 December 2013 cashflow. It was reviewed by Brereton. 3. The 4 December 2013 cashflow forecast positive 'headroom' from October 2013 to June 2014 taking into account $30 million to be obtained from the ANZ facility. As at January 2014, total group headroom on this basis is shown as $28.59 million. It makes no reference to deferral of tax payments. 4. Shortly after Sim received the 4 December 2013 cashflow, he phoned Coulson and requested to be given the assumptions behind it. 5. There are in evidence, various other cashflows prepared around this time (known, the evidence shows, to Bell and in some cases Montgomery) which broadly show the same result as at the end of January 2014. However, these seem invariably to identify the deferral of taxation payments as a key assumption. It seems clear that the detailed version has this assumption, but it is not stated. 6. There is in evidence an exchange of emails between Montgomery and Bell on 4 December 2013 which reveals their understanding that access to the additional $30 million component of the ANZ facilities was dependent on the conversion of bank guarantees issued by ANZ in connection with DPS to surety bonds. 7. As is mentioned earlier, the 2 December 2013 cashflow was sent by Coulson to Sim on 5 December 2013. The 6 December 2013 QBE meeting 1. Brereton wished to discuss Forge's position directly with Forge representatives. 2. On 6 December 2013, he and a number of other QBE personnel, including Wright, met Simpson, Montgomery and Bell in Perth. Coulson was present, as were representatives of ANZ and KordaMentha. This was the first time Brereton met with Forge executives and Coulson. Simpson did most of the talking. According to Brereton, the conversation was to the following effect: Brereton: You will appreciate we are concerned about the recent events. We would like to know how your business is tracking in the light of the DPS and WAPS write-downs and what steps have been put in place to ensure these issues do not arise again. Simpson: The main problem with the DPS and WAPS projects was a system error, which we did not identify earlier. Both the DPS and WAPS projects were acquired when we bought the old CTEC business (now Forge Power) in 2012, and Forge had ventured into areas of work that were not managed as well as they could have been. Management practices have been put in place to resolve the issues so they will not happen again. We have acted very cautiously to protect all parties. Brereton: Are there any further steps you are looking to take to address liquidity issues? Simpson: We ran with three options, being equity, debt and trade. Our plan A was to look at raising equity via a low doc raise but ASIC did not approve that. We are also still looking to undertake an equity raising. The process is on-going and we are reasonably confident we will be able to progress. We are having daily update calls with our merchant bankers and we would be happy for you to join those discussions if that would help. In the meantime, we had approached the bank to increase our existing facility. Brereton: Tell us about the ANZ debt arrangements? Is the new facility from ANZ enough to resolve the liquidity and cash flow situation? We also need to understand how much support ANZ is going to give you. Simpson: We have secured additional debt funding from the ANZ that have us covered. ANZ was not our last option by any means but ensures less dilution to our shareholders. ANZ have increased the facility by $49 million to $60 million to accommodate funding to complete the problem projects. So our working capital has increased from $11 million to $60 million. $30 million of the new monies are available immediately with the additional $30 million to be progressively available as bank guarantees are returned. The new ANZ facilities are more than enough to cover cashflow requirements and all contingencies and to fix any liquidity problems. We know liquidity and cash-flow is going to be tight compared to what we have previously experienced. The Roy Hill project is starting soon and this is key to our long-term growth. We are and will remain cash positive. Our representatives are meeting with ANZ on a daily basis and as you know, KordaMentha have been engaged by ANZ to conduct a review of the business. We would like QBE to issue the surety bonds required under the Roy Hill contract along with Assetinsure. ANZ is open to discussing whether QBE and Assetinsure might be able to take security in respect of those new Roy Hill bonds on a pari passu basis. Brereton: Any increases will need credit committee approval and there will be a lot of work to do in order to get any approval over the line. Simpson: I understand that. Brereton: It would be helpful if you contact trade credit providers in the market who support you about the trade credit exposure they carry on your behalf. It would be beneficial if a dialogue was opened with them as they enable your suppliers to trade with you. We would then like to be free to contact them. Simpson: There is no problem with that - I will do so. Brereton: To assess further bonding requirements we need updated financial information from you on a regular basis. Simpson: I understand. Brereton: It would be helpful if we could see the reports that KordaMentha are providing to ANZ. Can we please be provided with those? Gardiner: I'm sure that we can arrange that. Langdon: We are happy for our reports to be shared with QBE so long as ANZ and Forge are OK with that and so long as it is understood that QBE can't rely on the reports and they will be provided for information only. Rankin: Subject to David's views, we also have no problem with QBE contacting us directly to discuss any concerns. Simpson: That is fine with me. Rankin: Please do then give us a call if there are any concerns going forward. Brereton: In my experience, these announcements tend to come in threes. Is there any further disclosure that Forge has not as yet made, or that Forge wants to tell us that is not already in the public space? Simpson: No, there is nothing more to disclose. We have disclosed and announced everything. 1. Wright made a handwritten note of the meeting, which contains the following recording: ANZ believe that the facilities are more than enough to cover all contingencies. 1. Brereton was cross-examined at length. He had a comprehensive grasp of all aspects of the matter. He was careful and considered, albeit a trifle longwinded. By the time of the hearing he no longer worked for QBE. Simpson did not give evidence. 2. On 6 December 2013, Malone sent a letter to the ATO seeking a further period of time to make a full submission to the ATO concerning tax deferral, given that in his discussions with the ATO to date, the ATO had asked for Forge to provide a response by 9 December 2013. 3. On 9 December 2013, Ripp of PWC (who seems to have reported to Malone) followed up the ATO to seek a response to the 6 December 2013 letter that Malone had prepared and sent. The ATO informed Malone that it had received the letter and the relevant team within the ATO would be briefed on the issue and that 'no information is required today'. Ripp updated Forge as to the position. 4. On 9 December 2013, Sim emailed Coulson raising a number of queries, including with respect to the shortfall of $800,000 shown in the 2 December 2013 cashflow for the week ending 20 December 2013. Coulson responded stating 'I'll get the latest cashflow for you this morning along with the Roy Hill info'. 5. On 9 December 2013, Bell provided a cashflow dated 6 December 2013 to Coulson. That cashflow included the assumption of deferral of taxation payments. It showed a cash flow deficit of $1.6 million in the week ending 20 December 2013. 6. Coulson responded: 'This one is worse! Can you give me a smoothed out [15] one wit (sic) appropriate commentary on the bottom?' 7. On 10 December 2013, Sim emailed Coulson repeating his request for information which addressed the cash flow deficit in the 2 December 2013 cashflow. The 12 December Assetinsure meeting 1. Wedgwood wanted to meet with the Forge executives to obtain an update on Forge's financial position directly from Simpson and Montgomery. 2. On 12 December 2013, Wedgwood, Gorman, Calvert and Sim met with Simpson, Montgomery and Coulson. Simpson did most of the talking. Montgomery hardly spoke. 3. Wedgwood's account of the conversation is as follows: Wedgwood: I want to hear what the position is at Forge. Simpson: As a company, we have had a big shock. The post audit accounts had uncovered $127 million in cost overruns relating to two CTEC projects. The problem was the management of CTEC. The past owners who sold CTEC to us had colluded and not brought the cost overrun to our attention. We were unaware of the cost overruns on the projects. The previous management held back those figures from us. The costs were hidden by the previous owners. As a result of the revelations, we have fired the relevant management staff. We knew nothing about this when we acquired CTEC. Wedgwood: What about the previous shareholder? Can you take action against them? Simpson: The previous owner has already been paid his earn out however we are considering all options. Wedgwood: What is your financial position? Simpson: KordaMentha and 333 have been brought in by ANZ to do a thorough review of Forge and to fully understand the impact of the cost overrun situation. That review has now been completed. We are now satisfied that $127 million is all we need to meet cost overruns. ANZ will provide a working capital facility to meet the cost overruns and allow Forge to keep trading. Wedgwood: But how confident are you that the cost overruns are limited to $127 million? Simpson: We have been over it ourselves and with KordaMentha with a fine tooth comb and we are all absolutely confident that $127 million is the total provision required for cost overruns on those two projects. There are no other holes and our problems are confined to those two projects. There are no more issues. We can take this hit, it's a one off event. Wedgwood: Give us all the facts. We want to ensure there are no more surprises. Simpson: There will be no more surprises. We now have the situation under control. Wedgwood: What is the position with ANZ and their support? Simpson: ANZ have provided a new working capital facility and are one hundred precent supportive of Forge. That facility covers all funding that we need. It has solved any liquidity problems and is a complete fix. The reality is that the acquisition of CTEC was a disaster. Our main business is construction. Moving into Power was a big mistake. However, it was not a mistake I am responsible for. The move was not on my watch. The previous management made a bad decision. We have a very strong order book. And we now need bonds for Roy Hill from QBE and Assetinsure. We are looking for $45 million from each of you, which is due in January 2014. We also have an immediate requirement for an advance payment bond of $6 million which is required by 19 December 2013. The Roy Hill contract is critically important to Forge - given it is worth over $800 million and will sustain the business over the next 2 to 3 years. The cash flow from Roy Hill will start coming in next year and will return us to strong profitability. If we don't deliver the required bonds to Samsung under the Roy Hill contract by their due dates, then Forge will lose the contract and its future will be in doubt. The larger bonds of $45 million must be delivered by January 2014 under the Roy Hill contract, but we need approval for those bonds prior to Christmas. 1. As with the other witnesses, I have no reason to believe that Wedgwood gave anything but an honest recollection. He was restrained in his responses under cross-examination. He made concessions where appropriate. He clearly had a good grasp of the relevant issues. 2. Sim's account of the conversation is as follows: Wedgwood: The purpose of the meeting is to discuss the trading halt and the Roy Hill bond requirements. I want to hear what the position is at Forge. Simpson: Thanks for meeting with us. Let me talk you through the position. The write downs have been a terrible surprise. The problems are with CTEC. The previous management caused the issues. We only realised there was a problem at the end of September 2013. CTEC management did not disclose any problems with DPS or WAPS. We have worked through the full costs to complete the projects and conducted our analysis. The projects are approximately 80 to 90% complete. We have worked out the total costs and that led to the recent profit downgrade. Now we know the costs we are setting about fixing the problem. We have addressed all issues. We have put in place steps to ensure this doesn't happen again. We have had to have significant management changes. The management responsible have been sacked. The COO of CTEC has gone and we are now confident that the project is under control. The problems were caused by management incompetence or maybe fraud. We have Freehills investigating. We may take action. So the hole is limited to a profit write down of $127 million and we have additional costs of $45 million in order to complete the projects. The problems are confined to the power division. There'll be no further losses. There is nothing more to disclose beyond what we said in our market announcement. There will be no more surprises. 1. Gorman's account of the conversation is as follows: Simpson: I want to be fully transparent here. We inherited a number of contracts when we bought CTEC. The average size of the contracts was $40 million but WAPS and DPS are as much as $600 million combined. The project was showing full profit and early delivery. The losses on DPS and WAPS were unexpected and came as a big shock and surprise. There were large variations from the electrical and mechanical aspects of the projects. This is not normal for this stage of a project. A full 'cost to complete' reassessment was done. I went and saw the principals. The problems with the contracts were that there was no contingency built in. Forge's previous management failed to disclose the problems with the projects. At tender time, CTEC didn't properly allow for design, engineering variations and there was no contingency built in. The due diligence was done by a predecessor. As a result of the problems a new tender process has been introduced by Forge so it doesn't happen again. Two new project managers have been brought in to complete the project and the previous project managers have been terminated. We have been through everything. We have done a thorough and independent review. Forge has booked all the costs but not the upside. So the position will only improve. There will be no more surprises. Forge's projects represent only 16% of the current order book. After our investigation we have determined that there will be a $12 million write down, $50 million of which relates to last year. ANZ is providing a short term working capital facility for the next 3 months, which is a complete fix for our cash flow position and enables us to deliver other works. An equity raising is planned for the first quarter of 2014. ANZ have been supportive. A lot of work has been undertaken by ANZ on the forward order book. 1. Calvert's account of the conversation is as follows: Calvert: Thank you for meeting with us. As you know, we wanted the opportunity to speak with you again, following our 3 December meeting, to get an update from you as to Forge's position generally, the two problem projects and get further comfort around what measures have been put in place to contain the losses, and how the business is tracking going forward. You will appreciate that it is important that we get that comfort from you as part of our decision making process as to Forge's further bonding requirement for Roy Hill. Peter wasn't at the last meeting and I know that he, in particular, wanted to meet with you to ask particular questions he has, so I might hand over to him in the first instance. Wedgwood: David - I'll address this to you if you don't mind. You've announced these losses on DPS and WAPS. How can you be confident that there will be no further losses? Simpson: Well, Peter, can I firstly say that the losses on DPS and WAPS came as a huge surprise to us. We've gone through the contracts and we've done a lot of work to identify the cause of the problems. We've done an internal review of our reporting systems and processes and appointed an expert to undertake that review. There were a few underlying causes as to what went wrong on the DPS and WAPS projects. Firstly, there were design changes required by Siemens but the contracts did not allow for variations. Secondly, the management guys in the power division hadn't been properly reporting problems on the projects so we weren't aware of the issues until now. We've now terminated those particular persons. ANZ also engaged KordaMentha to review all of our projects, including our reporting procedures and the review came out "cleanly" and revealed no issues around Forge's procedures or governance. So when all is said and done, having now thoroughly investigated everything, we are entirely confident that there will be no further write downs in relation to these two projects and that there are no other affected projects. We have fully provisioned for the losses as per the announcement to the market on 28 November and that provisioning is final. Wedgwood: Ok. But how do the losses affect the business? Where is the business heading? What's the state of the balance sheet and cash flow? Simpson: Well as a consequence of the losses on DPS and WAPS we're now in a tighter cash flow position as we have to cover the $45 million cash outlay. But it is just for the next month, and it will be manageable because ANZ has agreed to provide a further line of credit of $30 million which will see us through. The ANZ debt funding is enough to cover us and complete our work and secure new work. The ANZ is a complete fix to our cash flow requirements. We're also looking at longer term options for a capital raising to generally strengthen the balance sheet. Calvert: So you'll be able to trade through this? Simpson: Yes absolutely we will. We have been through everything with a fine tooth comb. We've reviewed DPS and WAPS, and they are under control and we've contained those losses; the ANZ is fully supportive and the debt funding is sufficient to cover our cash needs; we've got Roy Hill and a full order book. It's business as usual. Calvert: Do you know Samsung's bonding requirements yet on Roy Hill? Simpson: Yes, it will be in the order of about $83 million and we expect they will be required in January. Calvert: Ok, well we'll continue to review our position. The 12 December 2013 cashflow 1. On 13 December 2013, Sim emailed Coulson indicating that Assetinsure's submission to Swiss Re was being finalised, and asking for a cashflow to 30 April 2014, as had been requested at the meeting on 12 December 2013. 2. Coulson sent that request to Bell who then sent an email to Coulson attaching a cashflow dated 12 December 2013, stating that appropriate assumptions have been shown in the cashflow for assistance to readers. 3. The 12 December cashflow projected a shortfall in total funds of $0.7 million in the week ending 21 February 2014, but otherwise provided for weekly cash surpluses from 15 November 2013 until the week ending 4 April 2014, assumed a deferral of Forge's taxation liabilities (but did not state it as an assumption), and indicated that Forge would have access to an additional $19 million of funding from ANZ. 4. Coulson forwarded the 12 December 2013 cashflow to Sim and to Wright. 5. The 12 December 2013 cashflow was considered by Brereton, Calvert, Gorman and Mr Pius Leupi who was at all material times Swiss Re's Senior Underwriter for Credit and Surety in Zurich, Switzerland. 6. At around the same time, Bell provided KordaMentha and the board with versions of cashflows which contained the stated assumption of deferral of taxation payments. The Swiss Re Risk Underwriting submission – 13 December 2013 1. Following the 12 December 2013 meeting, Calvert and Gorman sent a memorandum to Leupi describing its subject as Forge Planned Strategy. The memorandum said of the Roy Hill Contract that they have a good margin and would allow Forge to recover from the write-offs against the DPS and WAPS contracts. The memorandum said that if bonds were not made available, Forge would forfeit these contracts with the probable outcome that ANZ could withdraw future support. The first proposal mooted was that Swiss Re and QBE share the issue of the bonds in equal proportion i.e. $46 million each. The memorandum was also signed by Sim and Wedgwood. 2. Sim then prepared a comprehensive Risk Underwriting submission dated 13 December 2016 for Swiss Re. It recommended Swiss Re's approval to maintain the Forge facility limit at $100 million and in addition: 1. issue a $6 million advance payment bond as requested by Forge in favour of Samsung under the Roy Hill Contract by 16 December 2013; 2. split with QBE, on a 50/50 basis, Forge's requirement for approximately $97 million in bonding lines under the Roy Hill Contract, being approximately $48.5 million each, with both bond providers to be secured on a pari passu basis with ANZ's security. 1. Under the heading 'Security', the submission stated: From the 3rd July 2013, a first-ranking GSA [16] was granted to ANZ to support its new acquisition facilities. Since the restructure, it is proposed that AI will rank pari-passu with ANZ and the other bonding providers for any new (increased) lending, for what are essentially unsecured contingent exposures. Although it is likely that little will remain for the bonding providers in a wind-up scenario, this security concession from ANZ underlines the importance (to both Forge and ANZ) of continued support from the existing bond providers, particularly in providing the new bonds required for the Roy Hill project. 1. The 13 December 2013 submission stated that 'ANZ has solved the Group's immediate liquidity needs by increasing its working capital facility'. 2. At the time, Forge's facility limit with Swiss Re was $100 million, of which it had drawn $70.587 million. The submission recorded that the substantial balance sheet backing which underpinned Swiss Re's prior unsecured position, no longer existed and that Swiss Re was now reliant for comfort on their view of Forge's WIP/order book, in particular, the Roy Hill Contract to stabilise the company by rebuilding the capital base via retained earnings along with a further equity injection. 3. Under the heading 'Cashflow', the submission stated the following: A monthly cashflow forecast for FY14 has been provided, in addition to a weekly cashflow covering the period until 3rd April 2014 (including assumptions). Forecasts were prepared in the conservative manner possible (sic), with all costings included and no revenue claw-backs (such as those due from Siemens on the DPS project) included from the various subcontractors are factored into the revenue projections. Cashflows are vetted daily by KordaMentha. As evidenced from the weekly cashflow provided for Forge Group, net cash position remains very tight during Dec-2013 / Jan-2014, with some week-to-week volatility apparent until the end of Jan-2014. Position will be supported by ANZ's $30m overdraft facility, which is now available (commenced 6th December 2013). An unfunded cashflow deficit of $0.8m (assuming full overdraft utilisation) exists for the week ending 20th December 2013, although the client has advised some flex remains around payments in the weeks either side, and an excess position will not be required. The client is also looking at entering a payment arrangement with the ATO, in order to smooth out any statutory payment obligations. 1. The submission was signed by Wedgwood, Gorman, Calvert and Sim. 2. On 13 December 2013, Sim sent the submission to Leupi and Calvert. 3. Between 14 December 2013 and 18 December 2013, there were email communications between Leupi on the one hand and Sim and Calvert on the other in which Leupi asked for and was provided with additional information. 4. Leupi informed Calvert that the issue of the $6 million bond was within the automatic delegated authority of Assetinsure. 5. On 19 December 2013, Swiss Re issued the $6 million bond in favour of Samsung. 6. On 20 December 2013, Sim emailed Leupi requesting Swiss Re's approval to increase Forge's bonding facility limit with Assetinsure from $103 million to $119 million to accommodate the issue of bonds in the sum of $41,497,500. 7. On 23 December 2013, Calvert emailed Leupi requesting that Swiss Re provide approval to increase Forge's bonding facility limit with Assetinsure from $103 million to $119 million. 8. On 23 December 2013, Leupi emailed Calvert stating that Swiss Re would ensure that there would be capacity to issue the bonds by mid-January 2014. 9. On 24 December 2013, Leupi made a decision to approve the submission and permit the issue of bonds on a shared basis with QBE. Leupi then referred the matter to Mr Adrian Kaerle, Swiss Re's Managing Director, Head of Credit and Surety for a second approval, which was approved and received that day. 10. On 30 December 2013, Forge announced to the market that Samsung had provided formal notification to proceed with Phase 3 works for the Roy Hill Contract, and that the value of the contract attributable to Forge was approximately $830 million. 11. On 1 January 2014, Leupi emailed Calvert confirming Swiss Re's approval. 12. On 7 January 2014, Sim emailed Leupi seeking Swiss Re's approval of the issue of two bonds each for an amount of $20,748,825 for phase 3 of the Roy Hill Contract. Leupi gave that approval. 13. Leupi gave evidence that shortly after 28 November 2013 he read the 28 November 2013 announcement (the announcement). He says that in reviewing the announcement, he noted that the ANZ facilities would solve Forge's liquidity issues, and that in approving the December 2013 submission, one of the factors he considered was that the ANZ facility had solved Forge's liquidity issues. 14. Wedgwood gave evidence that he reviewed the announcement at the time and noted that the support from the ANZ solved Forge's liquidity issues and in supporting the 13 December 2013 submission and the decision to issue the January bonds the key factors he relied upon included that ANZ was supportive of Forge and provided the additional working capital to meet its liquidity needs. 15. Sim gave evidence that he reviewed the announcement and had regard to the fact that it said that ANZ would provide $60 million. A key factor which he regarded as supporting the issue of the January bonds was that the ANZ facilities solved Forge's liquidity issues. 16. Calvert gave evidence that in approving the 13 December 2013 submission, and the release of the January bonds, key factors included the contents of the announcement. 17. Gorman gave evidence that in approving the 13 December 2013 submission, he had regard to the contents of the announcement. The ATO 1. On 6 December 2013, Malone of PWC wrote to the ATO requesting until Friday 13 December 2013 for Forge to provide a response on its tax obligations. 2. On 13 December 2013, Forge, under the signature of Montgomery, wrote to the ATO, proposing a repayment plan to 'assist it to work through its liquidity issues and emerge as a profitable entity in due course'. 3. The letter proposed monthly payment amounts starting in March 2014 and ending in August 2015, totalling $37,269,668. 4. The letter included cashflows for the period from 1 November 2013 to 30 June 2014 at Appendix C, and for the period from 1 July 2014 to 30 June 2015 at Appendix D. The letter included the following statements: As can be seen from the forecasted cash flow at Appendices C and D, the immediate impact of Forge's cash flow results in potentially dire consequences. Whilst the overall "headroom position" as at 30 June 2015 would effectively "even out" from a mathematical and theoretical view point, the reality is that extreme pressures would be applied to Forge Group that are not necessarily able to be depicted in a forecast. This will put Forge Group in a very strained liquidity position from January 2014 to November 2014 (on the basis that the trend can reverse itself) and put in doubt Forge's ability to trade in a solvent nature. Some of the more specific consequences of not allowing Forge Group to enter the repayment plan are as follows: ● Potential loss of jobs for up to 3,000 employees; ● Loss of work for sub-contractors; ● Possible loss of contracted work and loss of future contractors resulting in a loss of cash flow; ● Loss of PAYG collection for the Australian government; ● Breaking of ANZ facility breaches; and ● Loss of State taxes for respective State governments. 1. The letter stated that by way of a 'goodwill' payment, Forge would make a payment of $200,000 within 3 business days of the date of the request. 2. On 6 January 2014, the ATO sent an email to PWC (copied to Mr Adriano Leon, Forge's Group Tax Manager) which said, relevantly: Due to the size of the debt & risk to ATO revenue, the Commissioner would like to explore the possibility of the entities offering securities over assets during the proposal period. As discussed, it is the intention of the ATO to issue Director Penalty Notices for unpaid PAYGW amounts immediately. This does not preclude the entities from entering into a payment arrangement with the ATO. We acknowledged (sic) that you have requested a teleconference to discuss the proposal & the issuing of the DPN's. I will convey this request to the appropriate senior debt officers. 1. Leon forwarded it to Montgomery and Bell, adding: I have just spoken with PwC. Please see below. Point 6 is a concern. We need PwC to come out as soon as possible today to discuss the options with us. This may include how we notify the directors within the Group. What has happened is that our case has been assigned to an over-zealous tax officer and it contradicts the whole purpose of the plan. PwC are asking for the details of the director who looks after Gary Tripp. This issue itself gives credence to us being assigned a relationship officer immediately. Can you please let me know if and when you can make a time for a meeting today. I am currently looking at getting the information for points 1 through 3 which will also tell us our actual liability to date per entity. 1. On 6 January 2014, Malone emailed the ATO stating, relevantly: Thank you for your time this morning and for the discussion with Charles in relation to Forge Group. Forge is in the process of preparing the requested information, given this is the first step that we discussed. As to the second step, we understand there will be an internal ATO discussion on Wednesday, 8 January 2014 (with your Director and with the Strategic Recovery Team) to consider the ATO's approach and next steps. As discussed, and as part of the third step, we would appreciate the opportunity to understand the ATO's expected response on a call (i.e. prior to any finalised correspondence and/or Director Penalty Notices being issued). 1. Leon forwarded the email to Montgomery and Bell. 2. On 7 January 2014, Montgomery emailed Simpson asking him to call him about the discussions between PWC and the ATO, and referring to the possibility of Director Penalty Notices (DPNs). 3. On 7 January 2014, Bell emailed Langdon and Malone (copied to Montgomery): Per our discussion earlier today, please see below for amendment/improvement/discussion: Cash flow summary narration for ATO re unpaid PAYG: As at 7/1/2014, the current cash flow shows that the company is expecting to have Nil Headroom from the 17 Jan until mid-March 2014 (which is when Forge proposes to commence repayments of the PAYG to the ATO of the arrears). The Nil Headroom position is a best case 'managed position' - the un-managed cash flow position could be as high as $20M past the approved overdraft. An immediate payment of $16M of PAYG tax arrears (rather than the proposed payment plan) could lead to the company becoming insolvent, and 2,500 to 3,000 employees' positions would become at risk. The company requires the proposed payment plan in order to trade through the current cash flow deficiencies and make full payment to the ATO of all PAYG amounts. 1. On 8 January 2014, Malone prepared a memorandum to update on discussions with the ATO regarding Forge's outstanding tax liabilities. Malone reported that the ATO was entitled to issue DPNs to company directors where a company has an outstanding PAYGWT obligation. 2. On 8 January 2014, Malone emailed Montgomery and Bell, relevantly: 3. Call to discuss security - I have undertaken to arrange a call between Forge, the ATO and PwC (ideally tomorrow morning) in order to discuss the security arrangements that are already in place over Forge assets. Can you please advise whether ANZ or a representative from ANZ should be involved on this call to explain the security arrangements that exist? 4. DPNs - Ross Burns has indicated that Director Penalty Notices could be issued as soon as next Tuesday, and depending on the ability to agree an instalment arrangement in the next couple of days, the notices could be issued before any agreement is reached. Accordingly, I attach the finalised memo relating to DPNs, which has been updated with minor edits overnight. 1. On the morning of 9 January 2014, the director of the ATO Strategic Recovery Team advised Forge that the ATO would not accept any further PAYGWT deferral, or discussions with regards to existing deferred liabilities unless the appropriate security or payment for existing liabilities circa $15 million was offered by Forge immediately. DPNs were being drawn and were proposed to be issued to all Forge and subsidiary directors by 14 January 2014. Montgomery reported this, amongst others, to Gardiner and Simpson that day. 2. The board met on 9 January 2014. Simpson advised that he had called the meeting predominantly to update the board on Forge's cash flow position, certain projects, and discussions with the ATO concerning Forge's outstanding PAYGWT liabilities. Simpson chaired the meeting. Montgomery was present. 3. Under the heading Projects and Cashflow Update, the minutes include the following recording: [17] The potential cashflow impact of the slippage in the WAPS schedule needed to be monitored closely, especially considering that some major customers were overdue in their payments to the Company. Mr Montgomery advised that whilst the cashflow forecast was preliminary, he was now expecting an additional $30-40 million negative impact to the Company's cashflow over the next few months, made up of up to $10 million in stretched credit payments; circa $10 million of revenue adjustments and additional costs (such as higher than expected bonding rates for the Roy Hill project); a delay in the $16.5 million progress payment expected in relation to the Cape Lambert project (due largely to the ongoing land tenure negotiations and a delay in the provision of turbines by a third party); and a circa $0.5 million claim on the Yarnima project which was not as significantly advanced as first thought which would extend the expected timing of the receipt. Management was investigating various mitigation strategies to offset the cashflow concerns, and would be stress testing three main areas, being: 1. DPS bond – there existed an option under the DPS contract to replace the $30 million bank guarantee, provided by ANZ Bank, with a bond, effectively freeing up $30 million as an additional facility overdraft, which the ANZ Bank had already confirmed was acceptable. Negotiations would commence immediately with DPS; 2. Creditor payments – management advised that the Company was largely up-to-date with its creditor payments and could stretch payments to generate a positive short term swing in the cashflow of $15-20 million. Management would immediately analyse each creditor in terms of strategic importance; and 3. Outstanding claims – project managers were currently working through the submission of circa $10 million of claims not accounted for in the cashflow forecast. In response to a question of at what point would the Company become insolvent should none of the above three options be achievable, Mr Montgomery advised that it would be somewhere between the week ending 17 January 2014 and the week ending 24 January 2014. Mr Montgomery stressed that the Company's recent cashflow forecast did require validation which would be ready for consideration by the Board on 13 January 2014, and would detail all assumptions. Management undertook to continue to liaise with the ANZ Bank/KordaMentha in relation to the Company's cashflow forecasting. 1. The cashflow tabled at the meeting was sent by Bell to Montgomery on 8 January 2014. It forecast for the ten weeks ending 31 January 2014. It shows negative cash flow from the week ending 17 January 2014 until the end of the forecast period, ranging from –$4 million on 7 March 2014 to –$65.7 million on 21 February 2015. It is negative –$17.3 million for the week ending 17 January 2014. 2. Under the heading 'Outstanding Taxation Liabilities', the minutes record that Malone joined the meeting and the board received and discussed his 8 January 2014 memorandum. The minutes record: The Board discussed the prospect of the DPNs and its proposed strategy for dealing with them. The Board noted advice received in November 2013 when originally deciding to defer amounts of PAYWG tax, noting that KordaMentha had advised that such an arrangement was commonplace. In light of the Company relying on extended facilities from the ANZ Bank and the directors receiving ongoing assurances from the ANZ Bank that the Company had its full support, Mr Simpson undertook to immediately discuss this matter with the ANZ Bank. The Board was unanimous in its view that the directors were reticent to accept personal liability for the Company's PAYGW debt and that whilst the ANZ Bank was supporting the Company, the directors should not be required to accept this personal liability for the Company's PAYGW debt. 1. Under the heading 'Cashflow and Next Steps', the minutes include the following: Mr de Kerloy advised that Herbert Smith Freehills would review the Company's updated cashflow once it becomes available on 13 January 2014 and provide further advice on the Company's solvency at that point. Mr de Kerloy noted that that the solution to defer the Company's PAYGW debt was not as simple as first thought, contrary to advice from KordaMentha in November 2013, however he believed the Board was entitled to believe, subject to receipt of an acceptable cashflow forecast to be finalised on 13 January 2014, that there existed a reasonable expectation that the ATO would negotiate and agree an instalment repayment plan with the Company. In discussing solvency and concerns around deferring creditor payments, Mr de Kerloy noted that the directors needed to focus on the cashflow scenario which showed the creditors being paid in the ordinary course of business i.e. "unstretched". This would be the line that a prospective liquidator would focus on. The Board could decide to stretch creditor payments provided the cashflow forecast was adequately stress tested and the Board was satisfied that creditors would accept payments on that basis. Mr de Kerloy recommended that management continues to pursue assistance from ANZ Bank in the background. The Board agreed that the Company would be in a better position to disclose, if it was considered necessary, the matters of the WAPS project and dealings with the ATO on outstanding PAYGW tax on 13 January 2014 following further internal review. The Board considered that whilst it did not have confidence in the accuracy of the numbers relating to the WAPS project and other matters discussed above, it believed there was a high degree of certainty that the outcomes would be material. On this basis the Board agreed that management request a trading halt in the securities of the Company from the commencement of trading on the Australian Securities Exchange on Friday, 10 January 2014. 1. After the meeting, Langdon emailed Montgomery as follows: Don – as discussed, I have just had a call with Dean Travis (Head of Lending Services, Institutional) from ANZ and explained our discussions with the ATO and the general status. In short, I advised Forge's position with the ATO was: 1. The directors penalty notices will be issued by the ATO on Tuesday (9 January 2014) and that the ATO has rejected Forge's original payment plan. 2. The DPN provides the directors with 21 days prior to becoming personally liable for the amounts in the DPN. This was confirmed by PWC. 3. It is now up to Forge to provide a further repayment plan to the ATO and negotiate an outcome. The further repayment plan will need to consist of: a) Security over the Australian assets, behind the financiers – Dean advised ABNZ would most likely be amenable to that. As discussed with Mark Coulson, the other club members are also likely to be amenable to the security for the ATO. b) An initial payment of the arrears. This will need to be at least $3 million (estimate) c) A further plan on ATO payments going forward and the arrears. 4. Any repayment plan will require the ATO to accept that the directors are not liable for any outstanding tax. 5. Negotiate the repayment plan with the assistance with PWC within 21 days. In relation to key immediate next steps: 1. Forge to have a board meeting today. The board will be advised of the ATO position (above), the tightening of the cash flow forecast (although it has not been finalised and will be finalised on Monday), and instructions to direct Euroz to go to market to get the balance sheet fix (targeted and immediate). 2. Friday, Forge to commence discussions with DPS to swap the bonds and agree timetable if possible. 3. Monday, execute the new bonding agreement. 4. Monday, obtain a finalised cash flow forecast. 5. Tuesday, review the cash flow forecast to determine what a revised ATO payment plan could look like. 6. Tuesday, hopefully receive an updated plan from Euroz on the balance sheet fix and programme. 7. Wednesday, provide PWC with Forge's revised ATO payment plan based on the financial analysis and the in principle agreement of the ANZ/AI/QBE. 8. Thursday, PWC to issue the ATO with the revised payment plan. 9. Full bonding documentation to be completed by 24 January 2014. Key work streams: 1. Finalise the cash flow by Monday. Including scrutiny of the claims register. 2. Determine ATO payment plan by Tuesday. 3. Execute bonding agreement on Monday. 4. Swap the DPS bonds back asap. Next week there is $9 million of wage payments – s560 funding. Please let me know if you would like to discuss further. 1. Ultimately, as appears later, a binding instalment payment arrangement was entered into with the ATO on 31 January 2014. The QBE Credit and Surety submission – 16 December 2013 1. At all material times, Brereton was a member of QBE's Group Credit Committee. 2. On 16 December 2013, Brereton received from Mr Greg Randall, a Credit Analyst with QBE, a Credit and Surety submission. 3. The submission referred to and attached the 28 November 2013 announcement. 4. Prior to receiving the submission, Brereton had a number of conversations and meetings with Randall and Mr Greg Wright, QBE's National Underwriting Manager, Surety. Brereton, Randall and Wright discussed the recommendation and in particular whether to recommend an increase in Forge's facilities to provide capacity for QBE to issue bonds for the Roy Hill Contract. 5. The submission proposed an increase in Forge's facility limit to $145 million from $115 million (comprising an increase from $100 million to $130 million in respect of the surety facility limit with the trade credit facility limit remaining at $15 million) and recommended Forge's risk rating be reduced from a level 9 to a level 7. 6. The submission referred, amongst others, to the 6 December 2013 meeting. It referred to the 28 November 2013 announcement and the ANZ's agreement to provide further support through new facilities and amendments to existing facilities. It recorded that Forge had stated that the new facilities would solve the liquidity issues and strengthen the Group's balance sheet. It described the amendments to facilities as including an increase in working capital facility, resulting in an increase to the total working capital facility size from $11 million to $60 million, with $30 million available immediately and the balance available progressively as performance guarantees are returned or cancelled. It referred to the 4 December 2013 cashflow and 'noted that these are worst case numbers'. 7. The proposed higher facility limit required QBE to secure reinsurance in accordance with its internal requirements. Brereton sought special acceptance from QBE's reinsurers. 8. Brereton supported the submission. There was, however, not unqualified support for it. 9. Mr Eric Van Heyst, Vice-President and Senior Credit Officer Trade Credit and Surety, QBE North America, took a different view. On 17 December 2013, Van Heyst wrote, amongst others, to Randall, Brereton and Wright saying that he did not support 'the issuance of additional bonds until we have an understanding of what the deal with the bank and the other insurer is with the Roy Hill Contract (share in security is a bit vague)'. He recorded that he was 'not a fan of this company' because of, amongst others, 'lack of transparency, lack of solid due diligence on the company and the projects they acquired, reliance on one bank, limited and tight liquidity'. 10. Brereton responded in detail on 17 December 2013. He noted that based on the information provided by Forge, Forge had the ability to exit the problem contracts within the indicated time and budget, Forge had confirmed that there were no further provisions to emerge from other contracts or other acquisitions, a form of security would be put in place for the bonds to be issued in respect of the Roy Hill Contract, and the Roy Hill Contract, under which the bonds were shortly required, would add value to Forge over the upcoming two to three years. He referred to recovery of bonds (QBE, Assetinsure and Chubb) as key. 11. On 17 December 2013, Van Heyst emailed Brereton confirming that he would approve the 16 December 2013 submission. 12. Brereton gave the following evidence: he reviewed the 28 November 2013 announcement at the time, and noted in particular that the ANZ facilities would provide sufficient facilities to cover Forge's liquidity challenges, and would solve Forge's liquidity issues and strengthen its balance sheet; he understood the 28 November 2013 announcement to assert that with the assistance of ANZ, Forge had the ability to continue as a going concern; and in approving the QBE 16 December 2013 submission, he relied on the information contained in the announcement, including that ANZ's funding had solved Forge's liquidity problems. The 19 December 2013 $6 million bond 1. On 19 December 2013, Swiss Re issued the $6 million bond in favour of Samsung. Events leading to the 11 January 2014 cashflow 1. On 8 January 2014, Coulson emailed Bell, relevantly: QBE is currently drawn to $64m. They are about to issue ~ $48m bond for Samsung and as part of that transaction a ~ $18m bond will be returned leaving net drawn at ~ $94m + some other sundry bonds to BHP and others total $4m. They have an agreed limit of $130m so Forge will have uncommitted capacity of $32m available. DPS Swaps Early in this process we looked at doing this swap with CGU and at the time performance risk looked ok so issuing the bonds was likely. The security position with AI/QBE was considered a priority so we have put them aside for the time being. Given the availability of capacity and assuming the performance risk presents we can approach QBE for the issuance of these bonds. Ironically they have additional incentive to do this maintain the voting proportion of the club facility. Friday 10 January 2014 1. On 10 January 2014, the ASX announced to the market that the securities of Forge were to be placed in trading halt pending an announcement, until the earlier of the commencement of normal trading on Tuesday 14 January 2014 or the making of the announcement. 2. A number of significant communications occurred on Friday 10 January 2014. 3. Wright wrote to Coulson asking him to ensure that Forge was fully apprised of QBE's position (namely that until QBE was apprised in writing off the scope of the additional write-off, it would give no consideration to releasing the bonds whilst the trading halt was in place). Wright also requested that Coulson arrange a time with Simpson for Brereton to call Simpson. 4. There was a telephone call between Calvert and Sim of Assetinsure, Wright, Brereton and Sutherland of QBE, and Gardiner of ANZ. During this telephone call, Gardiner referred to the 'ATO issue' and said that 'Korda reckoned [it] can be managed'. Gardiner also said that ANZ was taking a pragmatic view and would continue to support Forge, and 'will await additional info over the weekend'. Brereton indicated that until the trading halt was lifted, no bonds would be issued, and that certainty was needed as to what Forge's position would be. 5. Brereton considered that it was necessary to obtain confirmation from Simpson that the taxation liability would not impact on the viability of Forge or materially change any of the information that QBE had previously been given. Brereton told Coulson that he needed a revised cashflow and to hear from Simpson directly. 6. At 1:39pm (Sydney time, 10:38am Perth time) Sim emailed Leupi: Pius, Forge Group advised this morning (our time) that they have entered a trading halt, due to an additional profit downgrade of between $10m and $20m for the West Angeles Power Station ("WAPS") project. This is on top of additional costs of ~$37m booked in Nov-2013, when deficiencies with the underlying contract was identified by Forge. A revised FY14 cash flow statement is currently being prepared by Forge and will be provided to ANZ Bank & the surety bond providers by next Monday 13-Jan-2014 (at the latest). The exact nature of these additional costs has been requested from Forge (currently awaiting a response). The initial report to the market offers on detail (sic), other than Forge is likely to exit the trading halt next Tuesday 14-Jan-2014. Assetinsure's current exposure to this project is 8 bonds totalling $9.34m. The external KordaMentha report commissioned by ANZ in Oct-2013 indicated the project was 87% complete, with an estimated completion date of 20-Feb-2014. Client Rio Tinto has today approved a 3 month extension, resulting in a new completion date (20-May-2014). KordaMentha indicated the risk of liquidated damages at the time of their report was minimal, as Rio Tinto were understanding of the position. The two new bonds for the Roy Hill project (Performance and Maintenance bonds totalling $41.5m) are currently in transit to Perth, for issuance next Monday. The bonds are to be held by Assetinsure's Perth office until the security documentation is finalised and executed, so our control over issuance of the bonds (in accordance with our approval) is maintained. We propose to issue the required bonds next Monday, as deferring to a later date triggers breach clauses within Forge's contract with Samsung, and beyond a 5 day remedy period, would commence action by Samsung C&T to cancel the Roy Hill contract. Given the importance of this project to Forge's cash flows over the next 2 years, the consequences of not issuing the bonds may adversely impact the entire Forge Group. Assetinsure participated on a conference call this morning with ANZ and QBE, with ANZ indicating they remain fully supportive … 1. Wright emailed Coulson: I think it is very important given the upper range for additional costs is higher than first indicated today, but whilst ANZ advised that they were still supportive, is this still the case given the range is now out to AUD20m. I'd like to know ANZ's position given the updated information to hand. Happy for ANZ to email or call me to discuss. Also, the ATO. Any update or change to this given the below? 1. Coulson responded: I'll let them confirm that ANZ they (sic) had that updated number this morning. The rest is all getting sorted out this afternoon. 1. At 1:37pm (Perth time, 4:37pm Sydney time), Simpson sent an update to the board (copied to Montgomery) stating, relevantly: Update as we stand at the moment: 1. We have spoken to KordaMentha and ANZ. KM and ANZ reiterate their full support. KM have indicated that in their experience an ATO notice on Directors is the start of a negotiation, whereby a payment plan will be entered over the 21 days that specifically excludes personal liability of Directors. We will seek our own advice on this (Rob Mancini to organise). 2. KM have advised that in relation to cash, DPS is essential ie swapping the guarantees for bonds. If we can get DPS to swap out, then the cash issue goes away. Discussions with DPS broke down last night with DPS at project level saying no. I have been in contact with the DPS chairman and told him of the consequences, and Don and I are having a call with him at 3pm Sydney time today to try to resolve. 3. I told KM that the boards expectation (sic) is that if the cash issue is not solved by DPS then the ANZ must step in and provide the additional liquidity. No response has been received other than an acknowledgement of the position. 4. QBE and ASSET Insure have committed to still provide the bonds for Roy Hill on Monday and enter the Club Facility, regardless of the potential WAPS further write-down. They have asked that I give my best estimate of size of blowout this evening once I have that information available. Both are happy to field any direct calls from directors if need be. 5. KM, ANZ, QBE and AI all have asked that we go back into trading as soon as possible after Monday, to reduce any further damage. 1. Simpson wrote to Coulson (who forwarded his email to Sim and Wright), telling him of a potential further profit downgrade on the WAPS Project of $10 million to $20 million, and that he hoped to be in a position to recommend to the board that Forge recommence trading on Tuesday, 14 January 2014. 2. Coulson emailed Simpson, Montgomery and Bell conveying his understanding of the then current position of QBE and Assetinsure. His email included: This is the current position with the surety providers: 1. They are able to issue the bonds on Monday if: The receive advise (sic), signed by a director, of the reason for the trading halt and the $ range of the impact (for Bonds to be issued on Monday Swiss Re needs this advise tonight so it can be seen in Zurich, Monday will be too late). This will need to be address individually to Issuer (see below). They may ask for a group cash-flow. QBE has a preference to issue outside of a trading halt but will be practical. 2. Both are aware of the importance of Monday as a delivery date for the bonds to Samsung. All the bonds are currently in Perth waiting for a go-ahead. 3. Both AI and QBE have stated that would (sic) welcome any board member to call them directly if the BM needs to as part of their own process. David, Greg Brereton has asked if you can call him directly this afternoon to discuss "A few things including hearing direct from Forge the situation, the feel of the board and so the CEO can convey to the Board that he has heard/spoken to QBE etc." 1. Wright forwarded Simpson's email to Brereton with the message: Please see below comments from Forge's CEO re estimated range for additional costs re the WAPS contract. It's potentially more than the AUD 10 - AUD 12m first indicated. Greg: Has David Simpson called you yet? 1. Wright emailed Sim, 'Andrew … a bit higher than the AUD 10-12m that was indicated early today', and Sim replied: 'Yes I was told 8m - 12m in additional costs'. 2. Brereton wrote to Wright, relevantly: Thanks mate. Had no call from Forge and In respect of cash flow it is important that ANZ are ok, as are issues with Forge tying to ATO issues et al 1. Wright responded: I've already asked for the revised cash flows for Forge Group and in the process of drafting another email re ANZ's Position and ATO issues. 1. At 2:36pm (Perth time, 5:36pm Sydney time), Coulson informed Simpson and Montgomery that the surety providers had requested an updated cashflow. 2. Sim sent an email to Wedgwood and Calvert in which he notified them of the trading halt. Sim's email included: Forge Group advised this morning that they entered a trading halt, due to an additional profit downgrade of between $10m and $20m for the West Angeles Power Station ("WAPS") project. A revised FY14 cash flow statement is currently being prepared by Forge and will be provided to ANZ/bond providers this evening. The initial report to the market offers no detail, other than Forge is likely to exit the trading halt next Tuesday 14-Jan-2014. … The two new bonds for the Roy Hill project (Performance and Maintenance bonds totalling $41.5m) are currently in transit to Perth, for issuance next Monday (13-Jan-2014). The bonds are to be held by AI Perth (Robert Kelly) until the security documentation is finalised and executed, so our control over issuance is maintained. We propose to issue the required bonds next Monday, as deferring to a later date triggers breach clauses within Forge's contract with Samsung, and beyond a 5 day remedy period, would commence action to Samsung C&T to cancel the Roy Hill contract. Given the importance of this project to Forge's cash flows over the next 2 years, the consequences of not issuing the bonds may adversely impact the entire Forge Group. AI participated on a conference call this morning with ANZ and QBE, with ANZ indicating they remain fully supportive. We will also advise Swiss Re this evening of the revised position. We did attempt to brief you at your office at midday today, but you had already left. However, this has enabled us to add further information from Forge as it has been forthcoming throughout the afternoon. If required, both Andrew Calvert and the writer are available to discuss. 1. Wright wrote to Brereton: Apparently ANZ updated their numbers this morning around what we've been told just now but have been asked to still confirm support to us given this information. Apparently the ATO matter is still progressing. 1. Bell sent Montgomery the following cashflow at 5:57pm (Perth time, 8:57pm Sydney time): text version of cashflow (63.4 KB, pdf) 1. At 8:09pm (Perth time, 11:09pm Sydney time), Coulson wrote to Simpson and Montgomery: AI will get approval tonight subject to a reasonable cash-flow position being provided before they release the bonds on Monday morning. QBE has local authority. Saturday 11 January 2014 1. Saturday 11 January 2014 too was a very busy day for the relevant protagonists. 2. Langdon of KordaMentha sent an email to various ANZ personnel including Gardiner, copied to Mentha and others from KordaMentha, providing an update. It recorded that the board remained 'concerned of solvency (and therefore an administrator appointment) if the bond-swap cannot be confirmed by Monday (13 January 2014) and the cashflow forecast shows a deterioration over the immediate term'. He wrote: 'as noted below, the bond-swap is yet to be confirmed and there are challenges to making it happen'. Under the heading 'DPS and bond-swap', Langdon wrote the following: DPS have not confirmed they are willing to swap the bonds on Monday. At the banking meeting with DPS, ANZ and WBC confirmed their willingness to swap the bonds, however, the balance of the banks did not agree. The banking group have requested advice from King Wood Mallesons as to the differences between the bank guarantees and the bonds. This advice will be circulated amongst the banking group tomorrow for their consideration. We will get a further update tomorrow. In relation to QBE and AI, it appears the documentation is close to final and this will be achieved by Monday. However, AI has requested a cash flow forecast from Forge prior to providing the bonding. This was requested by this afternoon and could not be provided due to the reasons below. AI is expected to get its final approval tonight subject to receipt of a 'reasonable' cash flow prior to releasing the bonds. QBE advised while it is not critical, they have a strong preference for Forge to relist on Monday. 1. At 1:10am Sydney time, Leupi responded to Sim's 1:39pm email: Thanks for the update although new from Forge are far from being pleasant and I am wondering if there are more bad news to come. (sic) I will give you a call first thing Monday morning (Zurich time) and would appreciate if you could hold back with physically issuing bonds until we talked. I recall from one of your e-mails that Forge had 14 days to present bonds after contract signature which if I am not mistaken was on Dec. 31, 2013, hence a deadline of Jan. 14, 2014. By that time we should also have received revised FY14 cash flow statements and explanations on the nature of the additional costs for the WAPS project. Trust proposed timing is acceptable. 1. Wright sent an email to Coulson: Revised cash flows. Anything through yet? 1. Coulson responded: Will come through later today as it just wasn't ready yesterday. 1. Wright wrote to Coulson and Sim: I think it very important (sic) given the upper range for additional costs is higher than first indicated today, that whilst ANZ advised that they were still supportive, is this still the case given the range is now out to AUD20m. I'd like to know ANZ's position given the updated information to hand. Happy for ANZ to email or call me to discuss. Also, the ATO issue. Any update or change to this given the below? 1. As to the proposed ATO deferral plan, Malone reported to Bell and Montgomery on the morning of 11 January 2014: As discussed, I spoke with Ross Burns (ATO) yesterday morning to inform him of the trading halt and the ongoing assessment of the financial position by the Board. I also made Ross aware of the 2nd lien over Australian assets that we discussed. Action required: Can you please send through the most recent balance sheets (eg Dec 13 or Nov 13) for the 5 relevant Australian entities, and I can forward these to Ross. This is relevant to his assessment of the security arrangements. Thanks 1. At 1:45pm (Perth time, 4:45pm Sydney time), Montgomery sent an email to Coulson attaching a cashflow. This cashflow differed from previous cashflows in that it contained the following assumption: (u) $30M of additional s 560 overdraft available via ANZ from W/E 30/1 arising from DPS swap out of bank guarantees for bonds. 1. The effect of this inclusion was to add an additional $30 million to total funds available. Without this, the total funds available would have been negative from week ending 17 January 2014, as per the cashflow prepared on 10 January 2014 by Bell. 2. Minutes later, Montgomery sent an email to Simpson attaching this cashflow with the message: Copy of latest cash flow as discussed. 1. Montgomery sent a further email to Coulson and Langdon stating, relevantly: Please use revised document as attached. 1. In the attached cashflow, assumption (u) was revised by the deletion of the words, 'arising from DPS swap out of bank guarantees for bonds'. 2. At 2pm (Perth time, 5pm Sydney time) the board met. Simpson and Montgomery were present. 3. Craig, the Chairman, advised that the purpose of the meeting was to provide an update to the board on matters including Forge's outstanding PAYGW taxation liabilities with the ATO. 4. On the subject of 'Outstanding Taxation Liabilities', the minutes record: Outstanding Taxation Liabilities The Board discussed the strategy of dealing with the proposed issuance of Director Penalty Notices (DPN) by the ATO to directors of the Board of the Company and certain Australian subsidiaries. The Board discussed the potential for the ATO to retract any DPNs issued (as raised as a possibility by Korda Mentha and based on anecdotal evidence), however noted advice from PwC that it had never seen DPNs removed, and was even unsure as to whether the ATO had the power to do so. The Board also noted that it was the view of PwC that the ATO would not enter into any instalment repayment arrangement should DPNs not be in place to hold directors accountable (sic). Regarding the issue of whether the DPNs and any arrangements with the ATO needed to be disclosed to the market, Mr Reed from Herbert Smith Freehills outlined that the Board should consider the Company's capacity and expectation to implement an instalment repayment plan with the ATO prior to the expiration of 21 days following the issuance of a DPN. The Chairman advised that Mr Mentha had previously noted that the ANZ Bank did not expect the directors to accept personal liability for the Company's PAYGW debts. Mr Simpson advised that he had been contacted by senior staff within the ANZ Bank advising that the ANZ Bank would support the directors through this process with the ATO. Mr O'Connor left the meeting at 2.57pm for a prior commitment. The Board discussed whether it should advise the market of the Company's negotiations with the ATO on the basis that the deferral of PAYGW tax was a key element of the Board's ongoing consideration of solvency. The Board noted that it undertook the process to defer PAYGW tax in November 2013 on the advice of KordaMentha, and that the Board would not have undertaken such a deferral should it have known about the possibility for the ATO to issue DPNs to directors. Mr de Kerloy advised that, having regard to KordaMentha's advice that it expected that the ATO would agree to the deferral of PAYGW tax, the Company's decision in November 2013 to continue to trade was based on a reasonable expectation that the Company would remain solvent. The Board noted that it would continue to work through discussions with the ANZ Bank to achieve a solid undertaking to assist the Board with a solution to these issues, and would continue to consider its disclosure obligations in this respect as and when required. 1. On the subject of 'Projects and Cashflow Update', the minutes include: Projects and Cashflow Update Mr Simpson advised that whilst management was continuing its review of the financial impact of the revised schedule for completion of the West Angelas Power Station (WAPS) project, it was now likely that the previously thought range of impact between $16-32 million, was now more likely to be between $32-35 million. It was now known that the revised schedule was a result of some additional design costs, some re-work costs and some prolongation costs. A full presentation would be made to the Board at its next meeting on Monday, 13 January 2014. … Mr Montgomery noted his expectation conveyed at the Board meeting on 9 January 2014 that an additional $30-40 million negative impact would occur to the Company's cashflow over the next few months. Mr Montgomery advised that following further work on the cashflow forecast, this range should be reduced on the basis of a number of events. Discussions between Mr Pollock and Mr Stacey Barlow of BHP Billiton had progressed whereby Mr Barlow had provided his verbal support for payment on account of a $15 million claim (worth circa $30 million) on the Yarnima Project. In addition, Mr Barlow was reviewing the Company's other current claims with a view to arranging payment on seven day account terms which would effectively bring forward payments of $15 million and $35 million due the week ending 7 March 2014 to the week ending 21 February 2014. Management was also working with BHP Billiton to bring another $15 million payment due early February 2014 to late January 2014. These advance payments in conjunction with the creditor stretch that management continued to work on, and an increase in late January 2014 of the working capital facility provided by the ANZ Bank would ensure that the Company's cashflow would not breach into negative levels and would remain in positive territory over the next few months. With respect to the proposed swap of the $30 million bank guarantee on the DPS project with a bond, management understood that both the ANZ Bank and Westpac Bank would likely support the swap, which was allowable pursuant to the terms of the contract for the DPS project, however, the other banks that formed the club facility on the DPS project may not support the move. Management had advised KordaMentha that it expected the ANZ Bank to extend its existing banking facilities or come up with another plan should the DPS bond swap not proceed. Mr Simpson noted that the ANZ Bank had communicated to him that it would support a backup plan should the DPS bond swap not be acceptable to the club banks on the DPS project. The Chairman advised that Mr Mark Mentha from KordaMentha had called him recently, noting that the ANZ Bank/KordaMentha would prefer that the bank guarantee be swapped for a bond on the DPS project, however ANZ could purchase the bonds. The Chairman advised that Mr Mentha had highlighted the concentrated risk in this area for the ANZ Bank and noted that it may seek to introduce a third party funding source, such as Anchorage Capital, to spread its risk. 1. At 2:29pm (Perth time, 5:29pm Sydney time), Brereton emailed Simpson stating: QBE, along with the ANZ and Asset Insure are looking to ensure that we can assist in any way possible. 1. Later, he emailed Wright and Sutherland stating: in respect of cash flow, it's important that ANZ are ok. 1. On the same day, at 10:13pm, Coulson emailed Sim and Calvert stating: For what its worth Anz / km (and board met on this today) they are comfortable this is a baseline version with some opportunities in it for improvement. It may be worth having a call with grant Gardner. Brereton has spoken to him this afternoon The 11 January 2014 cashflow 1. At 3:01pm Perth time (6:01pm Sydney time), Bell sent a cashflow to Montgomery. That cashflow included an assumption that the additional $30 million from ANZ would be available and included assumption (u) in the following form: $30M of additional s 560 overdraft available from ANZ from w/e 30/1 arising from DPS swap out of bank guarantees for bonds. 1. Simpson responded to Brereton's email, indicating that he would call Brereton at around 6pm Perth time (9pm Sydney time). 2. Bell sent a copy of the cashflow to KordaMentha. 3. At 4:20pm (Perth time, 7:20pm Sydney time) Coulson sent an email to Wright of QBE and Sim of Assetinsure attaching the cashflow which Montgomery had sent to Coulson. This is the cashflow which the parties refer to as the 11 January 2014 cashflow. It was in the following black and white form. (There was some debate during the hearing about whether those who read it could discern from the shading which of the assumptions were identified as being on track/likely or possible problem or timing issue. I find that they could.) 1. As will be observed, it included a number of key assumptions coded respectively as to their anticipated likelihood – 'on track/likely', 'possible problem or timing issue' and 'cashflow detriment realised or expected'. 2. Assumption (d), categorised as 'on track/likely', was: Have deferred all payments of PAYG & BAS (GST + FBT) between W/E 29/11/13 to WE 28/02/14 totalling $35.0M Catch up of deferral scheduled to begin 21/03/2014 – 18 monthly payments – see schedule (not agreed by ATO) A general interest charge (GIC) has been considered as a part of these deferred tax payments. 1. Assumption (u), also categorised as 'on track/likely', was: '$30M of additional s 560 Overdraft available via ANZ from W/E 30/1'. 2. Sim responded with a number of questions. Coulson replied that he would pass it on to Montgomery and suggested that they would get the response the following day. Coulson added that 'for what it was worth, ANZ, KordaMentha and the board met and they were comfortable that this is a baseline version with some opportunities in it for improvement and that it may be worth having a call with Gardiner'. 3. At 8:37pm (Sydney time, 5:37pm Perth time) Sim emailed Calvert attaching the 11 January 2014 cashflow, making a number of comments including, 'in relation to the proposed repayment plan over 18 months was not agreed to by ATO'. Simpson speaks to Brereton – Saturday evening, 11 January 2014 1. At about 9pm Sydney time on 11 January 2014, Simpson called Brereton. The conversation as recounted by Brereton (which is not in dispute) is set out below. 2. The conversation was preceded by the following communications. 3. Earlier, Wright had told Brereton that Forge had promised an updated cashflow later that evening and that he would make sure Brereton got a copy. He told Brereton that Coulson had mentioned that there may be an ATO liability that was going to be deferred when a payment plan was executed. 4. Given the impending deadline to issue the January bonds, Brereton wanted to speak to Simpson. He emailed Simpson asking him to call. Simpson said he would phone at 6pm Perth time (9pm Sydney time). 5. Brereton received the 11 January 2014 cashflow by email at 7:59pm Sydney time under cover of an email from Wright in which Wright said: Revised cash flows attached. The ATO liability is circa AUD35m (for PAYG and BAS) through from Nov 2013 to Feb 2014 and not resolved. Refer notes. Cashflow is going to be tight but with some management of creditors, they suggest they'll get through. Quite a few assumptions in this forecast too. I'm still looking at this. 1. Brereton responded almost immediately (eight minutes later): $35 mill tax liability over 3 months current...this is going to be tough... 1. At 8:18pm Sydney time, Brereton received an email from Wright forwarding the following email Wright had received from Coulson shortly before: Ive only had a look at it from my phone so far, its a little awkward to follow (sic). Talking to the km guys there is plenty of creditor management opportunities for flexing. Its not something forge has done historically (ie v.good payers) so they are trying to avoid it as much as possible. I also think anz will have a view on the ato position, ie if the ato doesnt play ball, but if needed they can articulate it. As I understand the board has met this afternoon and is happy with this as a baseline scenario and comfortable that there is enough alternative scenarios as well to keep it in control. (sic) 1. In his forwarding email, Wright added: Please note comments from the broker below re a board meeting held this afternoon. Another talking point for 9pm with David Simpson. 1. Of the 11 January 2014 cashflow, Brereton says that he noted and recorded that: it did not project any short fall in 'total funds available' for any week in the period covered and indicated that there were surplus 'total funds available' to Forge for the period through to the week ending 4 April 2014; the cash position forecast was stronger than the forecast in the 4 December cashflow and for some weeks there was materially greater cash available than forecast in the 12 December cashflow; the final $30 million under the ANZ facility would become available from 31 January 2014; Forge had or would have a tax liability of $35 million over the period 28 November 2013 to 28 February 2014; Forge had proposed a payment plan and schedule of payment in respect of the tax liability; it indicated that the payment schedule proposed had not been agreed by the ATO; it indicated by the colour coded key that whether the ATO would agree to the payment plan was 'on track/likely', being the highest level of certainty; it indicated that there was sufficient cash flow to pay the ATO the $35 million in a shorter period than the proposed 18 month deferral and by the week ended 31 January 2014; and it indicated that there was room for some supplier stretch. [18] 2. At about 8:30pm Sydney time, Brereton had the following conversation with Gardiner of ANZ: Brereton: What is ANZ's take on the latest trading halt and the cash flow we've been sent? The ATO liability was news to us. Gardiner: We're planning to hold the line for the time being. Please can you make sure you include Rhonda McCann on any correspondence. Brereton: OK thanks. I'm trying to speak to Mr Simpson now to get more information on this. 1. After the conversation, Brereton sent a summary of it by email to Wright in the following terms: Guys spoke to Grant Gardner of anz prior to speaking to Forge...anz not happy but ok to hold the line by all accounts. Will update more fully post a discussion with Forge. 1. Simpson called Brereton at the arranged time of 9pm. The following conversation took place: Brereton: Mate, what is this trading halt about? What is this further announcement going to be? Simpson: The board has met twice in recent days and will meet again at 3pm on Monday. ANZ and KordaMentha will be there too. There are a few issues we are looking at - firming up the quantum of losses on WAPS, the ATO issue and protecting the Roy Hill contract. As you know the bonds are due on Monday. The board is comfortable that the loss on WAPS will be $10 million to $20 million and that the bank's support will be sufficient. We are going to overstate the correction so that we take a conservative approach and to ensure that we don't have to make a further correcting statement down the track. Brereton: The further losses are less than the ATO liability. Simpson: The repayment schedule is on track with the ATO. There is no concern about it at all and you don't need to worry. We have enough wiggle room and time with the ATO. Brereton: We need to get formal confirmation that the trading halt will be lifted and confirmation that the cash flow situation is covered including by the bank, so we can issue the bonds. Simpson: Yes, ok, understood. I will be able to get the board support to lift the halt on Tuesday. We'll get in touch as soon as the board has met and resolved to lift the halt. Brereton: We will need to see the draft ASX announcement. Simpson: I will ensure it is sent through. 1. After the conversation, Brereton sent the following email to Wright at 9.39pm Sydney time: I have spoken to David Simpson CEO of Forge this evening (11/1/14). My desire to speak to him was more to get a view on what the Board is doing, and their timeframes on the issues. The board has met twice in recent days, with a further meeting 3pm Perth time Monday 13/1/14 (after ASX close). This meeting is to cover proposal and recommendation to make an announcement on revised losses circa $10-20 million as previously advised. Issues apparently 1. Quantum of losses on existing contracts 2. Resultant cash flow squeeze 3. ATO position 4. Protection of Roy Hill contracts (bond issuance due 13/1/14) I am advised that the board is comfortable on point 1 (losses to be crystallised) and 2 (interim bank support) and is satisfied Forge have sufficient timing/wiggle room on point 3 (Discussions with ATO ongoing) Mr Simpson is pretty confident that the halt will lift obviously with board support. I pointed out that unless QBE had formal confirmation that the trading halt lifts, and Forge continues...inclusive of satisfaction as to banking/cash flow support (I am advised anz will attend the board meeting with Korda Mentha - at least in part)...we would not issue bonds to support Forge. Mr Simpson accepts and understands our position. He has indicated he will arrange to contact us in order to clarify/issue bonds once the board has voted on the continuation/uplift of trading halt issue Monday afternoon to enable activity to take place. There are a number of issues re cashflow and taxation position that need to fleshed out...(sic) 1. Brereton says that as a result of his conversation with Simpson, he understood that there would be no difficulty in Forge formalising arrangements with the ATO. He says that if there had been a significant issue with the ATO, he would have expected it to have been announced to the market in accordance with Forge's continuing disclosure obligations. He says the 11 January 2014 cashflow had made it clear that the payment schedule was 'on track/likely' and there was no issue, which Simpson confirmed. He suggested that had Simpson advised him that there were any issues with the ATO agreeing to a payment plan, or intimated that it was unlikely that the ATO would agree a payment schedule or would require security, he would not have proceeded to issue the January bonds. 2. He gave oral evidence that he would have gone back to QBE's reinsurers. Sunday 12 January 2014 1. Communications between the relevant protagonists continued over Sunday 12 January 2014. These included the following. 2. At 11:10am Sydney time, Sim wrote to Calvert about the 11 January 2014 cashflow that: I am not sure how ANZ/KM are comfortable - from my reading, the next 5 weeks net cashflow -ve [19] from operations and reliant upon delaying supplier payments. 1. At 6:30pm Sydney time, Sim sent an email to Leupi (copied to Calvert and Wedgwood) in which he indicated that the further cashflow had been received but that he was waiting on further information which had been requested. Sim noted that there was a deadline of 13 January 2014 in which to issue the bonds. Sim wrote: Thank you for your prompt response. We too are immensely disappointed with the senior management of Forge Group for this late news. As noted earlier, we have sought an (sic) revised FY14 cash flow statement from Forge incorporating additional costs, plus a breakdown of the additional costs (AUD$10m to AUD$20m) and explanation on the nature of these costs. This cash flow statement was provided last night (our time), although we are still awaiting the breakdown and supporting commentary, which is due for receipt this afternoon (our time). The information sought is likely to provide greater detail and sensitivity than provided in an ASX release, so waiting for the Board to remove Forge from suspension prior to issuance is unnecessary in our opinion, as it won't provide any additional information we don't already have. We should be in a position to make a decision based on the information supplied. The additional cost overrun relates to West Angeles Power Station ("WAPS") project, which was flagged in our initial submissions last month as one of the two troubled projects arising from Forges's Power segment. The bonds due to be issued for the Roy Hill project are to be utilised for their core Construction business. This cost overrun represents an increase on the existing profit downgrade previously identified on this (Power) project and does not reflect a wider deterioration across the Forge business. Roy Hill is part of the wider Construction business for Forge, which has always been very profitable (unlike the Power business), thus we are confident it will be successful, particularly with the involvement of joint & several j.v. partner Duro Felgeuro. Two other parties have costed the contract and its clear that Forge and Duro Felgeuro have priced it correctly. We see little downside on the Roy Hill project and the rest of the business is performing well, its banker ANZ is fully supportive and we are fully secured for this project. Due to when the contract with principal Samsung C&T was entered, the final date for the contractor to provide the requisite performance & maintenance bonds is definitely Monday 13-Jan-2014 (4:00pm Perth time). If this deadline is not met, then it allows Samsung C&T to commence action, which may include cancellation of the contract. Issuance is required prior to the projected exit from the ASX trading halt, which is scheduled at the earliest for Tuesday 14-Jan-2014. Due to the time difference between Sydney and Zurich, the proposed meeting of 8:00am Monday (Zurich time) is unsuitable, as this is 6:00pm Sydney time (3:00pm Perth time), and does not allow any time to issue (pending satisfactory credit approval). As previously noted, this contract is fundamental to Forge's recovery, and we strongly urge issuance of the required bonds, in order to allow Forge to execute and protect our existing bond exposure. We urgently seek a telephone conference with yourself, the writer and Assetinsure's Head of Surety (Andrew Calvert) to discuss our position tonight (Sydney time), following receipt of the requested information. If a telephone discussion cannot be arranged, we alternatively seek an e-mail confirming we can proceed on Monday issuing the bonds. We will contact via e-mail when this information is held to confirm your availability, and will advise of after-hours contact details. 1. Leupi responded: thanks for the update although news from Forge are far from being pleasant and I am wondering if there are more bad news to come (sic). I will give you a call first thing Monday morning (Zurich time) and would appreciate if you could hold back with physically issuing bonds until we talked. I recall from one of your e-mails that Forge had 14 days to present bonds after contract signature which if I am not mistaken was on Dec. 31, 2013, hence a deadline of Jan. 14, 2014. By that time we should also have received revised FY14 cash flow statements and explanations on the nature of the additional costs for the WAPS project. Trust proposed timing is acceptable. 1. Sim wrote to Coulson and Calvert: Any news from Forge, specifically the requested cash-flow comments and the a contracted time required for receipt of the bonds? Frankly, I'm disappointed in the (lack of) response from Forge - given the efforts being undertaken behind the scenes to issue bonds for their project, Forge should be timely and forthcoming with our information requests - we should not have to wait for a market announcement to find out what is happening. 1. Leupi wrote to Sim requesting an electronic copy of the revised cashflow as well as a breakdown of additional costs. 2. Coulson sent an email to Montgomery, Simpson and Bell describing the further information which Swiss Re required. Montgomery responded by saying that he would get something back to Coulson later that night but 'with the caveat that it hasn't been reviewed by the exec'. 3. At 6:53pm (Perth time, 9:53pm Sydney time), Calvert wrote to Leupi: Thanks for getting back to us Pius on your Sunday off. We are still awaiting the revised information from Forge (AI felt the original cash-flow was inadequate and required further details which Andrew Sim has requested). I have literally just got off the telephone to the broker to ask the status of this outstanding additional information as your email, came through. Andrew Sim has sent as additional email (just now) to Forge explaining exactly what our requirements are so there are no misunderstandings (sic). Forge are working on the matter as we speak. We understand that additional working capital is not required by Forge from ANZ bank. Forge believe they can manage through managing creditor payments. However will ask Forge to update/confirm. Pius, as soon as we receive the information we will send it to you. We understand that the trading halt will be lifted tomorrow afternoon (Monday). 1. At 8:47pm (Perth time, 11:47pm Sydney time), Coulson wrote to Simpson and Montgomery: Andrew Sim (a i Sydney) is up waiting for the waps response so he can finalise credit tonight. 1. Later, Montgomery sent a response to Coulson providing a high level summary of the WAPS project. 2. On Sunday 12 January 2014 in Switzerland (1.56am Sydney time on 13 January 2014), Sim sent an email to Leupi attaching the 11 January 2014 cashflow and recommending that the bonds be issued: As already acknowledged by Andrew Calvert, Assetinsure is extremely appreciative of you taking time from your weekend to meet our timing. Please find attached a copy of the revised cash flow provided by Forge. The cost overun amount recognized is AUD$20m, arising from additional engineering and construction costs associated with the WAPS project. Of these costs, $15m is captured within the cash flow ($5m of Project Management costs are contingent) and are conservatively treated as an up-front expense for reporting purposes, although in practice, these costs are scheduled to progressively flow from now until the new Practical Completion date (end of May 2014). Once the $5m in Project Management costs are finalised and subject to Board approval, they too will be incorporated within the cash flow. These additional costs were discovered after the baseline schedule for the WAPS project was revised, capturing previously unplanned scope (commission of GTG2 plant) and extended time (delay of 94 days). As detailed in our previous submission, WAPS was a "legacy" contract inherited by Forge on the acquisition of CTEC. The CTEC Power contracts were poorly drafted and costed, with inadequate mechanisms for recouping costs for scope changes / variations and insufficient contingency buffer, with these overruns adversely impacting project profit margin. Breakdown of these additional costs are: GE Subcontract: $ 3.0m Engineering: $ 0.8m HV Electrical: $ 0.5m LV Electrical: $ 1.5m Construction/Civil: $ 5.0m Mechanical: $ 3.0m Site Establishment: $ 1.0m Sub-Total: $15.0m Project Management: $ 5.0m (Contingent) Total: $20.0m Some upside may be available from the creditor terms negotiated, improving the baseline position presented in the cash flow. As noted within the Operational Assumptions (Note q), WAPS has deferred a claim of $8.3m to a later date, as it was not sufficiently advanced to be presented to the client. As already noted in an earlier e-mail by Andrew Calvert, no additional debt funding from ANZ is required. Although the resultant net cash flow position remains tight, the cash flow assumptions indicating some flex is available with suppliers/creditors over payments. A Forge Board meeting is scheduled for tomorrow afternoon (Monday), where it will be recommended to lift the trading halt following market close. The finance providers (including AI) will be advised immediately following the meeting once the trading halt is removed. Approval is recommended as submitted. 1. Leupi was unable to open the cashflow because he was not in his office and he says he was unable to access it remotely on his Blackberry. Monday 13 January 2014 1. Brereton explains that the facility increase and issue of the January bonds had been approved by the General Credit Committee (GCC) and the approval remained on foot as at 13 January 2014. Although there had been a material change in circumstances, by reason of the trading halt, there was no formal requirement that the matter be put back before the GCC. 2. He explains that given the changes in Forge's position since the approval by the GCC of the 16 December 2013 submission and of the increase in facilities, he had ultimate authority to exercise his power of veto and refuse to proceed with the issue of the January bonds as requested by Forge. 3. Over the course of Monday 13 January 2014, he had a number of conversations with Wright and Sutherland regarding the issue of the January bonds, during which he said words to the effect: We cannot release the bonds until we get confirmation that Forge is coming out of the trading halt, we know that Assetinsure are on board and issuing simultaneously with us, and the new security has been given. 1. He was anticipating that Simpson would confirm that the board had voted to lift the trading halt by the morning of 14 January 2014. 2. At 5:28am (Sydney time) on 13 January 2014, Leupi emailed Sim in which he wrote: Thanks for the additional information and detail you have provided. For whatever reason I am not able to view the .PDF-file containing the revised CF projection on my smartphone. I trust you have duly reviewed the projection and consider it prudent enough to reasonably assume that any imminent CF crunch is not likely. On that basis I am prepared to sign off on the releasing the two captions pending bonds on Jan. 13, 2014 before 4.00pm Perth time in order to avoid that Forge Group is in breach of its contractual obligations towards Samsung C & T under the Roy Hill contract. Trust the captioned meets your requirements, I look forward to catching up by phone on latest developments with respect to Forge Group's communication to finance providers and lifting of the ASX trading halt first thing tomorrow Zurich time. 1. At 5:57am Sydney time, Sim wrote to Coulson: "Swiss Re Approval Now Held" 1. At 6:51am Sydney time, Calvert responded to Leupi's email indicating that he would send the cashflow that Leupi was unable to open (this was after Leupi had given approval). 2. At 10:56am (Perth time, 1:56pm Sydney time) Brereton emailed Simpson in the following terms: Thanks for taking the time to contact me Saturday evening (11/1/14). Per our discussions at that time, this afternoon/evening I would expect to hear from Forge with detail that the board has voted to lift the self-imposed trading halt on the ASX in the morning of 14/1/2014. On the basis that the Forge Board and Executive, the ANZ Bank, Assetinsure (Swiss Re) are in lockstep with QBE we will then be able to direction to our Perth lawyers re the bonds. Feel free to email or ring me …. as required, and as per our Saturday evening discussion. 1. At 11:10am (Perth time, 2:10pm Sydney time), Simpson received a draft ASX announcement. The covering email from Mr Mark Rankmore, Chief Executive Operations Services of Forge, was in the following terms: David, please find attached early drafts of the ASX announcement in two forms, one with and one without the ATO reference. Rob and I have discussed through the ATO issues and have worded as such to provide an appropriate level of disclosure on payment given we have not received a formal notification from the ATO. Well will need to get Freehills opinion on this and will work through during the day prior to the Board meeting given the material size of the payment (ie can we wash the additional liability in the with WAPS cost to complete plus additional "working capital requirements")(sic). We will also need feedback from your and Don's discussion with ANZ during the day. 1. At 12:50pm (Perth time, 3:50pm Sydney time) Simpson received a further draft of the ASX announcement. 2. At 1:02pm (Perth time, 4:02pm Sydney time) Simpson received an email from Smith, which forwarded an email from Reed of HSF. Reed's email included: Appreciate the draft announcement is a work in progress…. But have a few comments (see attached mark up): Not sure the tax liability should be characterised as being a "deferred" tax liability, as we understand it was never agreed by ATO. 1. At 1:07pm (Perth time, 4:07pm Sydney time), Simpson responded to the 12:50pm email: Do not circulate. I will revise and give you one. 1. At 1:29pm (Perth time, 4:29pm Sydney time) Smith provided a cashflow to the board and copied it to Montgomery. That cashflow was provided for discussion at that afternoon's board meeting. That cashflow contained assumption (u) in its fullest form. 2. At 1:56pm (Perth time, 4:56pm Sydney time) Simpson received a letter from Mr Gersbach, the Chairman of DPS, in which Gersbach said that DPS was supportive of the proposed substitution of bank guarantees and was prepared to recommend it to its financiers subject to a series of conditions. [20] Simpson directed Smith to circulate the letter just received from DPS ahead of the board meeting scheduled for 3pm, which he did, together with a draft ASX announcement. 3. At 1:59pm (Perth time, 4:59pm Sydney time) Wright sent an email to Sim in the following terms: I take it you are hanging around to the death (bad choice of words) to hear the outcome of the board meeting and assuming all goes according to plan, they advise they will exit trading halt tomorrow, no other bad news apart from what we know, just a return to business as usual etc and also that ANZ's position remains solid, that AI will be in a position to release bonds? Let ensure (sic) we check with each other first to ensure if it's a yes, then we both act in unison late today. 1. At 2:02pm (Perth time, 5:02pm Sydney time), Simpson sent a further draft ASX announcement to Smith, under cover of an email: Draft for the board discussion. Still preliminary. 1. At 3pm on Monday 13 January 2014 (Perth time), the board met. Simpson and Montgomery were in attendance. Travis and McCann of ANZ were present by invitation. 2. The minutes include: Australian Taxation Office (ATO) Discussions Mr Jonathan Malone from PwC joined the meeting at 3.53pm. Mr Malone advised the Board that Director Penalty Notices (DPNs) had now been issued to directors of the Board of the Company and certain Australian subsidiaries in respect of outstanding pay as you go withholding (PAYGW) amounts owed to the ATO specifically by Forge Group Ltd. ($1,174,037) and Forge Group Power Pty. Ltd. ($838,057). Considering that the aggregate outstanding PAYGW debt for all Forge Group companies was circa $14.86 million, receiving DPNs for those amounts was considered a sign of good faith from the ATO and that it was comfortable that management was negotiating a suitable instalment repayment plan with the ATO. During discussions between Mr Malone and Mr Ross Burns, Director of Complex and Strategic Recovery at the ATO, Mr Burns had advised Mr Malone that if the total amount involved ($2,012,094) could be paid immediately, no further DPNs would be issued until at least Monday, 20 January 2014, allowing further time for the Company to finalise an acceptable instalment repayment agreement with the ATO. Management noted that an amount of $2,012,094 would be paid to the ATO immediately to extinguish the DPNs on issue. The Board requested Mr Malone to continue negotiating with the ATO on the basis of trying to remove the prospect of personal liability for directors, and offering security over the outstanding PAYGW debts in the place of cash. ANZ Proposal Mr Travis outlined to the Board that the ANZ Bank could see a genuine commercial pathway out of the Company's short to medium term cashflow concerns and that the ANZ Bank remained committed to fully supporting of the Company through this time. Mr Travis advised that the ANZ Bank fully understood and appreciated that directors did not find it acceptable to be taking personal liability for the debts of the Company, and were working in conjunction with KordaMentha to assist in the strategy of negotiations with the ATO. Cashflow Update Mr Montgomery tabled an updated cashflow forecast out of the week ending 4 April 2014, which listed all assumptions made including a stretch to the normal credit terms for supplier payments. It was noted that KPMG had offered to assist the Company to initiate standstill arrangements with suppliers if required. With respect to the proposed swap of the $30 million bank guarantee on the DPS project with a bond, management advised that the Chairman of DPSCo had undertaken to recommended (sic) to the DPS project financiers that the swap should proceed and advised management that he believed there was a greater than average chance that the transaction would be completed during the week ending 24 January 2014. Another major assumption impacting the current cashflow forecast was the movement of funds due to be received from BHP Billiton, which assumes a positive result from ongoing discussions concerning bringing forward some payments and having some paid on account by BHP Billiton. Repayment of the deferred PAYGW has now been inputted into the cashflow forecast with repayments set to commence during the week ending 21 March 2014. Mr de Kerloy raised two issues for management to consider in respect of its ongoing assessment of solvency, being the proposed supplier stretch and the proposed issue of further DPNs to reflect an additional amount of $12 million of outstanding PAYGW debt. Mr Montgomery advised that KPMG would assist management in the supplier stretch process. Regarding the issue of further DPNs, Mr Langdon advised that it was the view of KordaMentha that the ATO would seek security over the Company's Australian assets, which could be provided, and that it was confident that management would continue open dialogue with the ATO and successfully agree a suitable instalment repayment plan. The Board agreed that the Company should not be placed into voluntary administration because of the recently issued DPNs, which represented amounts that would be immediately paid, and that management should continue negotiating in good faith with the ATO with a view to agreeing an instalment repayment plan. Any further DPNs to be issued by the ATO would be dealt with by the Board as and when received. The Board requested management to obtain independent taxation legal advice to test whether DPNs could be withdrawn, and to obtain general advice on negotiations with the ATO in respect of the DPNs. ASX Announcement The Board received and discussed the tabled draft ASX announcement. The Board agreed, given the ANZ Bank remained supportive of the Company and its financial position and that there was no reason to believe that any cashflow initiatives currently being pursued would not be successful, that it would be unnecessary and potentially misleading to provide specific detail in the ASX announcement about any issues outside of the Company's control that were currently being negotiated, however a brief sentence would be included advising that the Company was continuing dialogue with key stakeholders to secure their ongoing support. Mr Simpson undertook to work with Herbert Smith Freehills, the ANZ Bank and KordaMentha to revise the draft ASX announcement, which would then be recirculated to the Board before being released prior to market open on Tuesday, 14 January 2014. 1. At 3:55pm (Perth time, 6:55pm Sydney time), Wright sent Brereton a message from Coulson that the board meeting would end in 15 to 20 minutes and he could expect contact from Simpson soon thereafter and that the directors wanted to take no chances and proposed to add a contingency of $4 million, bringing the amount to be announced to $24 million. Wright said that this had apparently not changed ANZ's position but that this was a matter that Brereton could confirm with Simpson when they spoke. 2. Also at 3:55pm (Perth time, 6:55pm Sydney time) Sim emailed Calvert: Mark Coulson just called - CEO just texted from the meeting. Trading halt is to be lifted. No real surprises (no capital raising, etc), but seeking additional Contingency of $4m-$5m (ie. total additional costs for WAPS are now $24m-$25m). I suppose this can be seen as a conservative view. The Contingency (previously $5m, now $9m-$10m) was not incorporated into revised cashflow. 1. At 4:06pm (Perth time, 7:06pm Sydney time), Sim emailed Calvert: In addition, QBE are speaking with Don Simpson (sic) in 5 mins when out of the Board meeting, who is to have a discussion with Greg Brereton and will verify content of market announcement via email. Have requested this be on-forwarded to AI. Probably happy to issue, based on receipt of that email. Any views to the contrary, please advise. 1. At 5:04pm (Perth time, 8:04pm Sydney time), Brereton wrote to Wright: Haven't heard anything yet. 1. At 5:09pm (Perth time, 8:09pm Sydney time), Sim emailed Gardiner and Wright in the following terms: I understand you are currently sitting in the Forge Board meeting. Would you kindly advise David Simpson that the bond providers on the east coast are keenly awaiting his advice on the market announcement. Both QBE and AI currently have staff in Perth waiting with bonds to issue to Forge, pending receipt of this information. 1. At 5:43pm (Perth time, 8:43pm Sydney time), Wright emailed Brereton and Sutherland: [21] Just had Mark Coulson on the phone. The board meeting is still progressing. So much for Dave's advice to Mark two hours ago!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! Anyway, apparently getting the bonds to Samsung doesn't rely on a normal business day. Apparently they have till midnight. I'll grin and bare it and do what has to get done but AI and I are getting mighty PO'ed. 1. At 6:14pm (Perth time, 9:14pm Sydney time), Coulson responded to Sim's email: Thanks and apologies again for the wait. I believe from a text message from Simpson inside the board meeting that the board wants to announce $24-$25m and include contingency. Andrew Bell confirmed to me that the board instructed number won't the cash-flow(sic). (this was corrected in a subsequent email to read 'wont impact the cashflow') 1. At 6:17pm (Perth time, 9:17pm Sydney time), Coulson emailed Sim and Calvert: I just spoke to Simpson. They are finesing (sic) release now. Board wants a range of $22-$27m included. Notice will confirm full ANZ support also. The Monday evening 13 January 2014 conversation 1. At 9:20pm (Sydney time, 6:20pm Perth time), Simpson called Brereton and told him: The board has voted. There will be an announcement for a full contingency of $23 million-$28 million. However, the cash flow effect is $15 million by the end of March and a further $10 million in the further 3 months. This is already factored into the cash flow circulated to you, there are no further changes. This is a conservative estimate and takes everything into account, and it is one that the ANZ facility can finance. ANZ is fully supportive and Forge continuing in dialogue with all other parties. We will come out of the trading halt tomorrow and it is business as usual. 1. At about 9:25pm Sydney time, Brereton and Calvert had the following conversation: Brereton: Are you ready to issue your bonds in respect of Roy Hill? Calvert: Subject to seeing a copy of the market announcement that Forge will release to the market tomorrow morning, and the announcement accurately reflecting what they've told us this evening, yes, we are ready to go. 1. At 6:47pm (Perth time, 9:47pm Sydney time), Simpson sent the draft announcement to Coulson with a request to circulate and comment if needed. The draft announcement included the following: Forge Group Ltd provides trading and financial update • Additional $23 to $28 million profit write down in FY2014 attributable to the West Angelas Power Station project • $[XX] million net cash outlay is required to complete WAPS in FY2014 which is funded from existing cash and facilities • Financiers including Australian and New Zealand Banking Group remain fully supportive of the Company • New bonding facilities provided to complete full bonding for Roy Hill Project … Financing Update The Companies financiers have agreed to continue to provide overall support to Forge Group through existing facilities. The Company continues its dialogue with other key stakeholders to formalize and secure their ongoing support. Mr Simpson added: "The ongoing support provided by our financiers gives Forge Group the confidence to continue to trade on a business as usual basis and deliver on our current work in hand." New bonding facilities have been provided by our surety providers to fully bond phase three of the Roy Hill Project. 1. At 9:57pm Sydney time, Brereton received a draft ASX announcement from Wright, which Wright had received from Coulson. Brereton says that he reviewed the draft and noted that there would be profit write-down on WAPS of $23 million to $28 million and that there was sufficient existing cash and facilities to fund the net cash outlay required; there was no reference to the ATO liability which reflected his understanding that there was no concern or issue that the ATO would be not execute a payment plan. He says that had this not been the case, he would have expected the draft announcement would have to refer to the ATO liability since it was a material matter. He noted that Forge had full support from its financiers including ANZ and that Forge had confidence to continue to trade on a business as usual basis and deliver on its current work in hand. 2. Wright and Brereton had the following conversation: Wright: Assetinsure have just confirmed they are ready to go and are arranging delivery of the bonds to Forge. Are we OK to proceed? Brereton: Yes, please go ahead. The Banking Club 1. In the afternoon of 13 January 2014, ANZ, Swiss Re, QBE and Forge executed an instrument styled 'Side Deed – Security Trust Deed – Forge Security Trust'. This instrument recorded the state of Forge's facilities with ANZ, QBE and Swiss Re respectively, and provided that all recovered monies would be distributed first to ANZ in respect of a secured principal amount of $50 million and then in agreed pro rata proportions. This arrangement was referred to as the Banking Club. The process of forming the Banking Club had commenced in early December 2013. The commercial rationale for Swiss Re and QBE joining the Banking Club was to help stabilise Forge to raise equity, to obtain security for the bonds and be in a position to influence exercise by ANZ of its covenants. It would inhibit any one member of the Banking Club from tipping Forge into an insolvency regime. Issue of the January bonds 1. On 13 January 2014: Assetinsure, acting on behalf of Swiss Re, issued the following bonds in favour of Samsung for the benefit of Forge: (1) unconditional undertaking dated 10 January 2014 for $20,748,825; (2) unconditional undertaking dated 10 January 2014 for $20,748,825. QBE issued the following bonds in favour of Samsung for the benefit of Forge: (1) performance bond dated 13 January 2014 for $20,748,825; (2) maintenance bond dated 13 January 2014 for $20,748,825; (3) advance payment bond dated 13 January 2014 for $6,000,000. Events after the issue of the January bonds 1. On 14 January 2014, Forge exited its trading halt. It announced to the ASX that there was an 'Additional $23 to $28 million profit write-down in FY2014 attributable to the [WAPS] project' and that '$14 million to $19 million net cash outlay is required to complete WAPS which is to be funded from existing cash and facilities'. 2. On 15 January 2014, Coulson emailed Simpson relevantly: DPS Swap: The full volume of these will put QBE past the approved limit at 30 June so they will need additional limit approvals. The proposition would be to create short term liquidity via ANZ by swapping a very long term contingent liability for surety which will not be well received by them… 1. Simpson responded that: …DPS swap out is essential and needs to be immediate. 1. On 16 January 2014 during a telephone conference, QBE and Swiss Re through Assetinsure were told (apparently for the first time) that the ATO required security, that the ATO would issue DPNs and that there was a need to replace the DPS guarantee with a bond to unlock the next $30 million from ANZ. 2. On 17 January 2015, Wright emailed Coulson (copied to Sim): Interesting that the discussion around a secured position for the ATO appear to pre-date finalisation and execution of the side deed on Monday 13 Jan 2014, plus the ATO is wanting to prohibit the issuance of any new secured bonds of BG's by ANZ/QBE/Assetinsure. 1. Wright forwarded the email to Brereton who responded: Being rational I would accept the proposal for what it is worth. 1. On 17 January 2014, Bell sent Simpson and Montgomery a paper to assist with collating the relevant documentation regarding the ATO payment plan. It recorded the 'Current status of negotiated position' as follows: ○ Forge is in the final stages of a negotiated repayment plan with the Australian Taxation Office ('ATO'). ○ The current status of the proposal with the ATO is: ● Subordinated security (behind the club facility) over the Group's Australian companies. ● Director penalty notices ('DPN') to be issued to the director group totalling $900k. ● No further secured bonds to be issued by the club, or additional secured funding to be granted without consent of the ATO. ● ATO confirmed consent cannot be withheld unreasonably. ● Repayment of c. $36m of liabilities is to be repaid over 18 months at c.$2m per month. 1. On 17 January 2014, Sim emailed Coulson: The perception from the e-mail chain is that the ATO negotiation commenced long before issuing the Roy Hill bonds, and that Forge have presumptuously assumed the financiers would automatically consent to the final document. Please advise if there are any mitigating circumstances to this view. To say that AI is very disappointed in the approach of Forge in this matter is an understatement. 1. On 17 January 2014, Sim emailed Wedgwood and Leupi about Forge's 'Outstanding ATO position' to which Leupi responded: whilst this is another piece of disappointing development with Forge Group I am prepared to accept ATO being 3rd ranging for an obligation of AUD 36m…in order to avoid ATO placing payment demands on Forge Group. 1. On 21 January 2014, Wright emailed Bell indicating QBE's consent to the ATO being provided with a subordinated security position to rank behind the Banking Club arrangements. Coulson forwarded the email to Bell on 22 January 2014. 2. On 21 January 2014, Bell emailed Coulson on behalf of Simpson (copied to Simpson and Montgomery) referring to Forge's request for the supply of bonds to replace bank guarantees of approximately $31 million on the DPS project. This was apparently the first request which Forge made to QBE to provide a bond in substitution for the DPS bank guarantee. 3. On 22 January 2014, Wright wrote to Coulson: QBE cannot agree to this request from Forge re the DPS bank guarantees. 1. On 22 January 2014 the board met. The discussions with the ATO and Forge's cash flow position were canvassed. Montgomery undertook to provide a cashflow update on a daily basis. 2. On 24 January 2014, Forge requested a trading halt until it made an announcement expected to be on 29 January 2014. 3. On 24 January 2014, Bell emailed Simpson and Montgomery, identifying that the proposed ATO agreement would affect Forge's cash flow in a negative way with immediate effect. 4. On 24 January 2014, Simpson emailed Travis of ANZ, [22] (copied to Mentha and Langdon) the following 'Request for Support': I understand that you have been keeping across our most recent events via KordaMentha. Background: In short, as part of the ANZ support in November, a facility of $30m was to become available to Forge once Forge had replaced the ANZ guarantees for Surety bonds on the DPS project. At the same time, Forge has been negotiating with the ATO in relation to the deferral of tax with a repayment over 18 months. The ATO has required security ranked behind the club facility, and this has been agreed by ANZ and the surety. The DPS surety bond "swap" would effectively put another $30m in priority in front of the ATO and this was not acceptable to the ATO. Accordingly we are pressing ahead with the ATO payment plan deal (including reduced DPN's for the Directors), and as such have had to delay the DPS bond swap to a later time or in a different form. Cash Flow Impact: The impact of the delayed DPS bond swap is that Forge breaches its present facilities during week ending 7 February 2014, and then more significantly in the week ending 14 February 2014. Euroz Recapitalisation Plan: Timetable for the Euroz recapitalisation plan requires offers on or before 5 February, with consideration the following week. Once one of the offers is accepted there is a further few weeks for process and I would envisage close in March or if a Scheme of Arrangement is involved June. Request for Support: It is my (and the Forge Boards) request that the ANZ unlock that $30m facility for Forge to use as cash prior to the week of the 7th of February. We will work with our finance team, and Korda Mentha to determine the exact cash flows necessary (which will be signed off by Korda Mentha) but presently we anticipate it will be in the order of: • W/E 7th Feb - $10M – further overdraft of $10M • W/E 14th Feb - $25M – further overdraft of $15M on the $10M • W/E 21st Feb - $35M – further overdraft of $10M on the $25M • W/E 28th Feb - no further increase required until 14th March This will enable Forge and the ANZ to consider the offers of recapitalisation, and then determine a way forward from that point. Potential ways forward include a loan from the intended purchaser, recutting the DPS swap to the ATO for approval, ANZ funding bridge to completion of the transaction etc. Further, in the coming weeks Mark Mentha and I will visit with the ATO in Brisbane in order to update them in relation to the recapitalisation program and negotiate a compromised outcome on security to test the potential of the DPS swap happening in some form. To enable the board to assess its liquidity, your urgent response would be appreciated. Please let me know if there is any further information you would like provided. 1. The board met on 28 January 2014. Simpson reported that the proposed swap out of the $30 million bank guarantee on the DPS project with a bond would not proceed. He reported that he had written to the ANZ requesting funding support for the cash flow shortage identified that would have otherwise been covered by that swap out. 2. Later on 28 January 2014, ANZ wrote to Simpson: The Club Lenders consider a successful outcome of the Euroz recapitalisation/trade sale process on 5 February as key to their ability to effect a swap out of the DPS and/or other bonds to unlock the ANZ liquidity funding lines to meet the requested funding need. 1. On 30 January 2014, Coulson sent a cashflow to Wright who forwarded it to Sim. It showed significant and persistent cash deficits from the week ending 14 February 2014. 2. On 31 January 2014, Forge and the ATO entered into a 'Binding Instalment Payments Term Sheet' under which Forge agreed to pay its tax debts in equal monthly instalments over a period of 18 months, starting on 28 March 2014. Forge agreed to execute all necessary documentation to grant subordinated security over its Australian assets in favour of the ATO, subject to a Priority and Subordination Deed, acceptable to Forge's senior lenders (acting reasonably). 3. On 5 February 2014, Alceon addressed to the board a non-binding and indicative offer for a proposed recapitalisation of Forge. Amongst the conditions were provisions for a thorough confirmatory due diligence process. 4. The board met on 6 February 2014. It was informed that Forge would require $12 million by the end of the week commencing 10 February 2014, and that the ANZ would discuss sharing the provision of those funds with surety providers. 5. Amongst others, the minutes record: Mr Brian Beresford from Euroz Limited (Euroz) tabled a proposals overview presentation, noting that whilst a number of parties had submitted expressions of interest and confirmed their interest in a recapitalisation solution for the Company, most had requested more time to undertake due diligence. The only indicative offer received was from Alceon Group Pty Ltd (Alceon), however the highly conditional proposal does not address the Company's immediate funding requirements as it requires further funding from the ANZ Bank prior to completion of the proposed transaction. … Mr Travis noted that KordaMentha had advised the ANZ Bank that the Company would require $12 million by the end of the week commencing 10 February 2014, and that the ANZ Bank would discuss sharing the provision of these funds with the Company's surety providers. The $12 million would provide an additional two weeks to continue negotiations with the surety providers for the replacement of the $30 million bank guarantee on the Diamantina Power Station project with a bond. 1. The board met again on 11 February 2014. Amongst others, the minutes record: Mr Simpson advised the Board that he had received a telephone call overnight and confirmation this morning from the ANZ Bank noting that it would not be providing the $12 million short term funding to the Company as discussed and foreshadowed at the Board meeting held on 6 February 2014. Mr Simpson understood that the ANZ Bank did not receive any support from the surety providers to share in the provision of funds to the Company, and that the ANZ Bank did not believe providing the full $12 million itself was a viable alternative. … The Board agreed that given the Company no longer had the financial support of the ANZ Bank, the Company would not be able to continue to pay its debts as and when they fall due. Whilst the Board did not have a reasonable expectation that an immediate transaction with Alceon was achievable, Mr Simpson undertook to contact Alceon in this regard immediately. The Company's shares would now immediately be placed into trading halt pending the flnalisation of either a transaction with Alceon or the appointment or a voluntary administrator (sic). In the absence of an acceptable and immediate proposal from Alceon, the Board agreed that a voluntary administrator be appointed 1. On 11 February 2014, the board appointed voluntary administrators. 2. On 24 February 2014, Samsung called upon the bonds. 3. On 27 February 2014, QBE paid Samsung $47,497,650. On 28 February 2014, Swiss Re paid Samsung $51,347,650. 4. On 10 March 2014, the Administrators published their report pursuant to s 439A(4)(a) of the Corporations Act 2001 (Cth). 5. On 18 March 2014, Forge's creditors resolved to appoint the Administrators as Liquidators of Forge. The Case 1. The plaintiffs seek to recover the amounts paid to Samsung under the bonds, less the premiums they received for the bonds and the amounts subsequently recovered from Forge. They claim that they were misled by the defendants as to Forge's financial position and that they issued the bonds as the consequence of that misleading or deceptive conduct. 2. The plaintiffs also seek under the provisions of s 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW), [23] to recover their losses from the providers of directors and officers insurance to Simpson, Montgomery and Bell. 3. A number of initial observations are apt. 4. The claims against Simpson, Montgomery and Bell are separate and distinct, but overlap in some respects. 5. The claims are pleaded as specific and discreet instances of misrepresentation – including as to future matters [24] – and in a few cases misleading non-disclosure. 6. This conduct complained of is part of a continuum of events which started, relevantly, when Forge made the mistake of acquiring CTEC, which ultimately caused Forge's destruction and culminated in Samsung calling on the bonds with Swiss Re and QBE then having to pay a total of $98,845,300. 7. In the case of Swiss Re, the amount claimed is $38,495,618, being $51,347,650 (the total amount paid out), less net premiums received of $2,807,518 and less secured recoveries of $10,044,512 (plus interest and costs). In the case of QBE, the amount claimed is $35,124,607, being $47,497,650 (the total amount paid out), less net premiums received of $2,328,529 and less secured recoveries of $10,044,512. 8. The primary case with respect to damage (as regards the January bonds) is that it was necessary for each of them to have approved the submissions (of 13 and 16 December 2013 respectively) for the bonds ultimately to have been issued. The plaintiffs say that these approvals were induced by the conduct of Simpson, Montgomery and Bell, and that this sufficiently establishes causation of loss. 9. Whilst they accept that there were other factors which played a role in them issuing the January bonds, in particular the events over the weekend of 11 January 2014, they say that the conduct complained of which played a role in them giving the earlier approvals is sufficiently a cause of their loss. 10. As a secondary position, they argue that the Court should conclude that the misleading conduct complained of over that weekend, mainly if not exclusively the presentation of the 11 January 2014 cashflow, caused them to issue the bonds. 11. Swiss Re and QBE say that over the weekend, there were two material changes in the information that had previously been provided by the defendants to the plaintiffs. The loss on the WAPS project had increased and there was a tax liability disclosed in the amount of $35 million. The fact of the further loss on WAPS did not cause them to lose confidence in the defendants with whom they had been dealing with since November 2013, but there remained an expectation on the part of the plaintiffs that the financial and other information provided over the weekend of 11 January 2014 was accurate and reliable. Their critical concern was to obtain a revised cashflow that took account of the new losses on the WAPS project. 12. They say that the 11 January 2014 cashflow addressed both the financial impact of the WAPS losses and the $35 million tax deferment, the inclusion of which was a key difference from earlier cashflows. 13. They say that the 11 January 2014 cashflow conveyed that the tax deferment would be achieved. They say that the two new matters (WAPS losses and $35 million tax deferral) were presented in the 11 January 2014 cashflow in a way that conveyed to the plaintiffs that Forge would still be in the same financial position as had previously been represented throughout December 2013. That is, provided the January bonds were issued and the Roy Hill Contract proceeded, Forge would have positive cash flows enabling it to continue as a going concern, trading on a business as usual basis. [25] 14. They say that the presentation of Forge's financial position in the 11 January 2014 cashflow was also consistent with representations made in December by the defendants that the ANZ facilities solved Forge's liquidity issues and was a strong reinforcement of that position. They say that even with the significant new losses on the WAPS project, the ANZ facilities as presented in the 11 January 2014 cashflow were sufficient to ensure Forge's ability to trade solvently, on a going concern/business as usual basis. [26] 15. They argue that the 11 January 2014 cashflow was misleading for the same reasons as the December 2013 cashflow, mainly that the ANZ facilities did not solve Forge's liquidity issues, there was no extant plan to defer Forge's tax liabilities, and there were insufficient funds to meet any tax deferment assuming one could be agreed. 16. They argue that Simpson's misrepresentations and omissions in his conversations with Brereton on 11 and 13 January 2014 confirmed and continued the misleading representations in the 11 January 2014 cashflow. 17. They say that decision makers for Swiss Re (Leupi in consultation with Sim) and for QBE (Brereton) relied on the misleading conduct of all defendants made in the 11 January 2014 cashflow and the misleading conduct of Simpson in his 11 and 13 January 2014 conversations with Brereton. 18. They put that neither plaintiff would have released its bonds unless the other plaintiff did likewise, as they were acting in unison and in lockstep, and each checked with the other before releasing their bonds. 19. They say that if the Court were to find that one of the plaintiffs released its bonds by reason of the misleading or deceptive conduct of one or more of the defendants, it follows that the release of the bonds by the other plaintiff was also caused by such conduct. 20. The claims as ultimately articulated all seem to concern Forge's cash flow prospects and the dependence of those prospects on first, the additional $30 million worth of support the ANZ had committed to give Forge as bank guarantees given by it were released or substituted, and second, on the necessity for Forge to enter into a repayment plan with the ATO. 21. In the 11 January 2014 cashflow – and various other cashflows – Forge's cash position was made positive by the inclusion of the $30 million to come from the ANZ and the exclusion by way of deferral of a tax debt to the ATO of $35 million. 22. In the event, Forge entered into the necessary agreement with the ATO but the $30 million was not available when ANZ and QBE declined further support. There seems to be no issue that the immediate cause of Forge's collapse was the unavailability of additional cash. 23. All claims are made on the footing that the conduct complained of against each of Simpson, Montgomery and Bell was engaged in on his own behalf (in addition to being on behalf of Forge). No claim is made on the basis of accessorial liability, that is, that Simpson, Montgomery and Bell were persons involved in any contravention of s 18 by Forge. [27] 24. Simpson, Montgomery and Bell put in issue that they engaged in misleading or deceptive conduct at all and, in any event, that the conduct complained of was conduct in their own right as opposed to conduct of Forge. 25. They put in issue that Swiss Re and QBE suffered any damage by the conduct complained of in any event. They say that Swiss Re and QBE would have issued the bonds anyway even if they establish one or more of the alleged contraventions. 26. Their response to the argument that damage was caused to them because they were misled in approving the submissions of 13 and 16 December 2013, is that whilst those approvals may have been a prerequisite to the ultimate issue of the January bonds, the issue of those bonds cannot in a common sense way be viewed as having been caused by the conduct alleged to have brought about those approvals or by those approvals themselves. The Claims and the Responses The 15 November 2013 telephone conversation with Bell [28] 1. This is a complaint against Bell of misleading or deceptive conduct by non-disclosure with respect to the $3.85 million bond. 2. Swiss Re and QBE argue that Bell's conduct in not disclosing that Forge's cashflows had demonstrated an imminent negative cash flow position and that Forge had not been meeting its PAYGWT obligations to the ATO, was misleading or deceptive or likely to mislead or deceive in circumstances where: 1. Bell knew that Swiss Re (through Assetinsure) was being asked to provide the $3.85 million bond, and Assetinsure did not know that Forge was near insolvent and the Assetinsure representatives were looking to him for an update as to Forge's financial position; 2. Forge's financial position was directly relevant to Assetinsure's decision to issue the bond; 3. significant funding was required by Forge in the short term to address the financial impact on the company caused by the DPS and WAPS Projects, and there was no prospect of an imminent capital raising, there was no plan or proposal to pay or defer existing or future tax liabilities of Forge and the cashflows prepared by Bell did not make provision for the payment of such liabilities and there was no certainty from ANZ around any liquidity relief; and 4. Bell had arranged for cashflows to be provided to the board of Forge. 1. The plaintiffs described Calvert's evidence as being that he had conditional approval from Wedgwood to issue the $3.85 million bond, subject to Calvert speaking first with Forge and collating information; he understood that Bell was the group financial controller and head of treasury as at 15 November 2013, and that he reported to Montgomery, the CFO; he gave a lot of weight to what Bell said because he had known him for a number of years and he was a senior person within Forge; and the decision to issue the bond was based upon what Bell had told him. 2. The plaintiffs described Gorman's evidence as being that Assetinsure had requested the call in order to 'get comfort around the issuance of the bond'; Bell did not indicate that there were any concerns around insolvency on the call; and he supported the issue of the bond because of what Bell had said during the call. 3. Although in their written submissions the plaintiffs do not expressly say so, I take it that they seek to imply that the $3.85 million bond would not have been issued had Bell disclosed that Forge was near insolvent (which entails the plaintiffs establishing that Forge was in fact near insolvent – whatever that means – something which they did not seek to establish), that significant funding was required by Forge in the short term to address the financial impact on the company caused by the DPS and WAPS Projects, and there was no prospect of an imminent capital raising, there was no plan or proposal to pay or defer existing or future tax liabilities of Forge and the cashflows prepared by Bell did not make provision for the payment of such liabilities and there was no certainty from ANZ around any liquidity relief. 4. Bell accepts that the matters said not to have been disclosed, were not disclosed. 5. Bell argues that the conduct complained of here was not his personally, but that of Forge. He argues that he was a natural person through which Forge was acting and the omissions are not to be properly characterised as his own. He argues that he made it clear that he was speaking as Forge, that he did not convey his own personal views of Forge's financial position, or offer his own personal assurances or opinions as to any of the matters discussed. 6. He denies that the non-disclosures were misleading. 7. He argues that his failure to disclose Forge's negative cash flow position was not misleading because Forge's forecast cash position was in a state of flux, Forge had prospects of securing equity at the time, the ANZ had given its support and the board was satisfied that the company was solvent. 8. He argues that the non-disclosures were not misleading because of Assetinsure's own state of knowledge about Forge's precarious financial position at the time. [29] Assetinsure had put Forge on the Amber List. Forge was, and had since 4 November 2013, been in a trading halt and had not made any announcement to the market regarding its cash flow or liquidity position. Forge was still investigating the impact of the causes of the trading halt on its financial position and was in continuing discussions with its financiers and advisors, did not have sufficient certainty regarding its present financial position to provide an update to the market and the anticipated write-down would adversely affect its cash flow. Also, Forge was looking to raise equity. 9. He argues that the omission of any express disclosure that Forge's forecasts projected near term cash deficits did not give rise to the obverse inference that there would be no deficits in the near term and thus was not misleading or deceptive. 10. He argues that the failure to disclose that Forge had not been meeting its PAYGW tax obligations was not misleading because there was no evidence that Bell was aware of a default as at 15 November 2013; the period of the default and the quantum were insignificant for a company of Forge's size; and there existed the possibility of claiming a tax credit in an equivalent amount. 11. He argues that there could have been no reasonable expectation on the part of Assetinsure that if Forge was late in paying its PAYGW tax, it would have been disclosed during the 15 November 2013 teleconference, because the topics discussed were dictated by the three questions posed by Calvert, none of which related to or called for a discussion of tax payments, none of the questions posed by Calvert had anything to do with the status of Forge's tax payments, and the telephone conference was high-level and brief, lasting about ten minutes. 12. He puts that assuming he was aware of the default, he could not reasonably have been expected to disclose it where Forge, a publicly listed company, itself had not announced it to the market. 13. He argues that the omission of an express statement to the effect that Forge had not been meeting its PAYGW tax obligations did not give rise to an obverse inference that Forge had been meeting those obligations. 14. He argues that Swiss Re has not established that it suffered any loss because of the conduct complained of. 15. He argues that none of the witnesses gave evidence that they supported the issue of the $3.85 million bond in reliance upon an understanding or assumption that cashflows did not project any near term cash deficits or gave evidence that they supported the issue of the bond in reliance upon an understanding or assumption that Forge had no outstanding PAYGW tax obligations. 16. He argues that it should be inferred that Assetinsure would have issued the bond anyway. On 13 January 2014, it issued over $40 million worth of bonds although it knew that Forge had defaulted in its PAYGW tax obligations from November 2013. Assetinsure thought that Forge's order book was strong, it had a strong performance history and track record, and it was seeking to raise capital or to obtain further debt funding. 17. He argues that Assetinsure would not have been concerned by the fact that Forge was two days late on payment of a small amount of tax (relative to a company of Forge's size), in light of its history of tax compliance. The stretching of creditors was not unusual, particularly in the construction industry, where cash flow can be 'lumpy'. 18. He argues that at the lowest, Assetinsure would not have refused to issue the $3.85 million bond without first investigating the likely impact of that action upon Forge. Had it done so, it would have become aware that this would have had devastating consequences and would have consulted with Swiss Re before refusing to issue it. There is no evidence from Swiss Re about what it would have done, but it is more likely than not that Swiss Re would have approved it consistently with the way it behaved later. The 28 November 2013 announcement [30] 1. This is a complaint against Simpson and Montgomery for making misleading representations (pleaded also as statements) by the 28 November 2013 announcement. The only complaint pleaded is misrepresentation, not some other conduct. [31] 2. They claim that by the announcement, Simpson and Montgomery made representations that the ANZ facilities would: 1. cover and solve Forge's liquidity challenges and liquidity issues; and 2. enable Forge to trade on a business as usual basis, deliver current work in hand, and underpin future growth and tendering prospects; [32] whereas those ANZ facilities did not cover or solve Forge's liquidity issues or enable it to trade on a business as usual basis. 1. They claim that the representations were misleading or deceptive because as at 20 December 2013, the ANZ facilities were insufficient to cover Forge's liquidity challenges or solve its liquidity issues because Forge was projected to have a cash flow deficit of about $42 million and a deficit of about $44 million by 31 January 2014 and that to obtain sufficient funding Forge needed: 1. immediate access to the full working capital facility offered by ANZ which it did not have because there was no prospect of any surety provider issuing a bond to replace existing ANZ bank guarantees, and the facilities included restrictions that funds could only be used for payment of wages in accordance with s 560; [33] and 2. to defer and then pay its tax obligations whereas there was no arrangement in place with the ATO for such deferral and there was no funding resource to make those payments in due course. 1. Swiss Re and QBE claim that the 28 November 2013 announcement caused them damage because it played a non-trivial role in the approval given by Swiss Re to the 13 December 2013 submission and by QBE to the 16 December 2013 submission, both of which were necessary for the issue of the bonds in January 2014 and was therefore a cause of their loss. 2. Swiss Re relies on the evidence respectively of Leupi, Wedgwood, Sim, Calvert and Gorman which it describes, relevantly, as being to the following effect: * Leupi - shortly after 28 November 2013, he read the 28 November 2013 announcement; in reviewing the announcement, he noted that the ANZ facilities would solve Forge's liquidity issues; in approving the 13 December 2013 submission, one of the factors he considered was that the ANZ facility had solved Forge's liquidity issues; * Wedgwood - he reviewed the 28 November 2013 announcement at the time and noted that the support from the ANZ solved Forge's liquidity issues; and in supporting the 13 December 2013 submission and the decision to issue the January bonds the key factors he relied upon included that ANZ was supportive of Forge and provided the additional working capital to meet its liquidity needs; * Sim - he reviewed the 28 November 2013 announcement and had regard to the fact that it said that ANZ would provide $60 million, which would solve any liquidity issue, and a key factor which he regarded as supporting the issue of the January bonds included that the ANZ facilities solved Forge's liquidity issues; * Calvert - in approving the 13 December 2013 submission, and the release of the January bonds, the key factors he had in mind included the contents of the 28 November 2013 announcement; * Gorman - in approving the 13 December 2013 submission, he had regard to the contents of the 28 November 2013 announcement. 1. Swiss Re observes that the 13 December 2013 submission stated that 'ANZ has solved the Group's immediate liquidity needs by increasing its working capital facility'. 2. QBE relies on the evidence of Brereton which it describes as being to the following effect: he reviewed the 28 November 2013 announcement at the time, and noted in particular that the ANZ facilities would provide sufficient facilities to cover Forge's liquidity challenges, and would solve Forge's liquidity issues and strengthen its balance sheet; he understood the 28 November 2013 announcement to assert that with the assistance of ANZ, Forge had the ability to continue as a going concern; and in approving the QBE 16 December 2013 submission, he relied on the information contained in the 28 November 2013 announcement, including that ANZ's funding had solved Forge's liquidity problems. 3. QBE observes that the 16 December 2013 submission referred to and attached the 28 November 2013 announcement. 4. Simpson responds that the 28 November 2013 announcement was not his but that of Forge to the market in which its shares were traded. He argues that none of the statements ultimately relied on, and as confined in the plaintiffs' final submissions, are attributed in the announcement to him; the drafting of the announcement was a collective task; the announcement was reviewed and vetted by lawyers and KordaMentha; and his naming as a contact in the announcement does not make representations made in it his. 5. Montgomery takes the same position. Additionally, he puts that the evidence does not show that he drafted, amended, approved the contents of or authorised the release of the announcement, and no comments in it are attributable to him. The 2 December 2013 cashflow [34] 1. This is a complaint against Simpson, Montgomery and Bell. 2. Swiss Re and QBE plead that by the 2 December 2013 cashflow, Forge represented that there would be a shortfall in funds available for the weeks' ending 20 December 2013 and 21 February 2014, but otherwise cash surpluses to meet obligations on a weekly basis from 15 November 2013 to 4 April 2014; that Forge had unrestricted access to the restricted ANZ s 560 facility from the week ending 29 November 2013; that it was accurate and reliable; and that Forge was, and would remain, solvent. [35] 3. They plead that these representations were made by Forge, Simpson, Montgomery and Bell and that the making of them by the individuals is to be inferred from at least [36] the positions held by each of them within Forge; their 'involvement in the matters the subject of this claim including communications with Assetinsure and QBE as to Forge's financial position'; the provision of the cashflow to Assetinsure; and the likelihood that the cashflow would not have been so provided without their participation in the creation of and/or approval of the cashflow. 4. In their written submissions, Swiss Re and QBE seek to make a somewhat different case with respect to the 2 December 2013 cashflow. 5. They roll up their complaints with respect to the 2, 4 and 12 December 2013 cashflows into one, asserting that each of these cashflows was misleading or deceptive because they projected a positive cash flow position in circumstances where there was no disclosure that Forge had defaulted on its tax obligations and was looking to enter into an agreed deferral plan with the ATO; no such deferral plan had been agreed, or even proposed; the cashflows supplied to QBE were prepared on the basis of an assumption that approximately $30-$35 million of tax payments would be deferred; in the absence of such a deferral, Forge's cash flow position was hopelessly negative and Forge had no funding to meet the deferred tax payments because the ANZ facilities were not able to be used to meet those obligations, and no other source of funding had been identified or even pursued. 6. They add circumstances making these cashflows misleading or deceptive that around the same time those cashflows were supplied to the plaintiffs (sometimes within hours), cashflows were supplied to the board and KordaMentha on a regular basis in which the tax deferral assumption, and the amount being deferred, was expressly identified, but do not articulate any consequence said to flow from this. 7. More about this is said below in connection with the 4 and 12 December 2013 cashflows. 8. Their written outline in support of the contention that representations by way of these cashflows were made by Simpson, Montgomery and Bell diverges from the pleaded case. 9. As to Simpson, the only proposition now relied on in support of representations by him in this context is that he was the CEO and was aware that the cashflows were provided to the plaintiffs via an intermediary or conduit, Coulson, and that he directed the preparation of cashflows which were prepared by Bell, including for the purpose of being provided to Coulson and the plaintiffs. 10. As to Montgomery, they argue that he was the CFO and was responsible for Forge's finance function, was ultimately responsible for the preparation of cashflows, was provided with and to have reviewed cashflows being produced at a time when the Forge board had required the production of daily cashflows and was aware that the subject cashflows were to be provided to the plaintiffs, in a context in which the support of the plaintiffs was necessary for Forge to continue with the Roy Hill Contract. 11. As to Bell, they argue that he was the Executive General Manager of Finance; supplied each of the 2, 4 and 12 December 2013 cashflows to Coulson, and it may be inferred, was involved in the preparation of those cashflows, aware of their contents at the time they were sent to Coulson, was aware that they were to be provided to the plaintiffs, and prepared and provided cashflows for distribution to the board and to KordaMentha that expressly recorded the deferral of taxation assumption. The 3 December 2013 Assetinsure meeting [37] 1. This is a complaint against Montgomery and Bell. 2. In their Amended Commercial List Statement, Swiss Re and QBE plead as representations made by Montgomery at the 3 December 2013 meeting that he stated that Forge's cash flow would be tight over the coming weeks and then be positive from January 2014, and that ANZ had agreed to provide further facilities which would solve Forge's liquidity issues, including a $30 million overdraft facility which would be available on 6 December 2013. 3. They plead that Bell did not correct the statements made by Montgomery, and that Forge, Montgomery and Bell adopted and repeated the representations made by the 28 November 2013 announcement that the ANZ debt facilities amendments would provide sufficient facilities to cover Forge's liquidity challenges and strengthen Forge's balance sheet. 4. They plead, relevantly, that this was misleading or deceptive because there were not reasonable grounds to believe that Forge's cash flow would be positive from January 2014, and that Forge would still be insolvent with the ANZ debt facilities amendments, and the amendments would not solve Forge's liquidity issues. 5. They put that Bell's failure to contradict statements by Montgomery amounts to a representation by him that what Montgomery said was true because he was a senior executive and was attending in that capacity, he had an intimate knowledge of Forge's financial position which bore directly on Montgomery's statements, and he knew that the meeting was held to convey to Assetinsure the views of the executive team. 6. They put that there was an objectively reasonable expectation on the part of Assetinsure that Bell would speak up and correct misleading representations. 7. So far as the statements complained of were as to future matters, they say that neither Montgomery nor Bell had any reasonable basis for making them. 8. In their written argument, they put, diverging from their pleading, [38] that at the meeting, Montgomery represented that there were no other projects with problems other than WAPS and DPS; [39] that cashflows were vetted on a daily basis by KordaMentha; that an additional $30 million was to be made available by ANZ on 6 December 2013, which was sufficient to meet Forge's needs; [40] that an additional $30 million may or may not be required and made available from ANZ depending on the return of bonds; that the debt funding had patched the hole and there was now no problem with Forge's liquidity; [41] that Forge was looking to enter into an arrangement with the ATO; [42] that Forge had some large bonding requirements in relation to the Roy Hill Contract in January 2014; that bonds in the amount of $80 million would be required for the Roy Hill Contract in January and an advance payment bond in the amount of $6 million would be required by 16 December 2013; that cash flow would be tight over the coming weeks and then positive from January 2014; that there was no equity raising proposed at that stage; and that ANZ's debt funding solved Forge's liquidity issues. 9. They argue that these representations were misleading because ANZ facilities had not solved Forge's liquidity issues or needs and for these reasons they say the 28 November 2013 announcement was misleading, because as at 3 December 2013 nothing had changed from the factual position that pertained on 28 November 2013. 10. They argue that Gorman and Calvert had regard to what they were told at the meeting in approving the 13 December 2013 submission. 11. Bell argues that it is not part of the plaintiffs' pleaded case that Bell's silence was a representation that what was said by Montgomery was true, and that they should not be permitted to travel beyond the pleaded case. Bell disputes that he made any representations and argues that any representations were made by Forge or Montgomery and not by him. 12. He also puts that there is no evidence of any reliance on what is said to be Bell's verification of what was said by Montgomery. 13. Montgomery too makes the point that there is a divergence between the representations argued to have been made by Montgomery at the meeting as articulated in the plaintiffs' closing written submissions, as opposed to the representations pleaded in their Amended Commercial List Statement. [43] 14. Under cross-examination, Calvert gave the following evidence: Q. You knew Forge was seeking to defer payment of its tax in order to manage its cash flow? A. Yes. Q. You knew that from the meeting that had occurred on 3 December? A. It had been mentioned that they were looking to defer their payments, yes. 1. Montgomery argues that any representation by him as to Forge being cash flow positive in January was, and is revealed by Gorman's note and Calvert's evidence to have been expressed to be based upon the assumption of there being in place an 'arrangement with the ATO', which it was clear had not yet been made. 2. He argues that, having regard to the fact that Montgomery was asked about key assumptions and made the statements based on them, nothing he said was misleading. 3. Finally, he submits that any statements made by Montgomery about cashflows were overtaken by subsequent cashflows provided by Forge to Assetinsure and QBE. The 4 December 2013 cashflow 1. This is a complaint against Simpson, Montgomery and Bell. 2. The articulation of the complaint in the plaintiffs' closing written submissions impermissably diverges from the pleaded case. The complaints in the written submissions are the same as they are with respect to the 2 December 2013 cashflow referred to earlier, although the submissions make no mention of Montgomery in this context at all. 3. The pleaded complaint commences by averring that by providing the 4 December 2013 cashflow, Forge represented that liquidity by way of a $30 million facility would be available on the most conservative assumptions; that there would be a shortfall in total funds available (prior to any facility) for each month to June 2014 but a surplus in 'headroom' once the ANZ facility was taken into account; that Forge had unrestricted access to the restricted ANZ s 560 facility from November 2013; that the cashflow was accurate and reliable and the most conservative version of Forge's future cash flows available; and that Forge was, and would remain, solvent. 4. It is then pleaded that in fact and in truth the 4 December 2013 cashflow was not accurate or reliable; no entity had agreed to provide to Forge liquidity by way of a $30 million facility; the opening cash balance in the 4 December 2013 cashflow did not reflect the actual cash balance, meaning that the funds available to Forge were overstated by at least $23.8 million; Forge did not have access to the entire ANZ s 560 facility in November 2013 and had only restricted access to the ANZ s 560 facility from December 2013, and had the restrictions in the ANZ s 560 facility been taken into account, the cashflow would have shown shortfalls rather than surpluses for November and December 2013. The 6 December 2013 QBE meeting [44] 1. This is a complaint against Simpson, Montgomery and Bell. 2. The plaintiffs' written submissions limit this claim to one that Simpson represented that the new ANZ facilities were more than enough to cover cash flow requirements and all contingencies and to fix any liquidity problems, and that this was misleading because the ANZ facilities were not more than enough to cover contingencies in that the ANZ facilities were not sufficient to fix Forge's liquidity problems and contingencies because Forge needed to defer approximately $30 million in taxation, and there were insufficient funds under those facilities for that purpose. Further, there was no tax deferment plan or proposal which had been put to the ATO at this point in time. 3. Swiss Re and QBE put that Montgomery and Bell are to be taken as having represented that what Simpson said was true because they did not correct or disagree with what he said and knew of the inadequacy of the ANZ facilities to cover Forge's cash flow requirements and to solve Forge's liquidity problems. This is not how the case is pleaded in the Amended Commercial List Statement. The representations are pleaded to have been made by Forge, Simpson, Montgomery and Bell. 4. They argue that the statements made at the 6 December 2013 meeting were representations as to existing fact but if they were representations as to future matters, Simpson, Montgomery and Bell had no reasonable basis for making them. 5. QBE argues that in approving the 16 December 2013 submission, Brereton had regard to a number of factors including that: 1. Forge had secured sufficient funding from ANZ to cover its liquidity needs; and 2. ANZ had agreed to provide a facility of $60 million, which solved Forge's liquidity problems. 1. Simpson argues that the Court should not find that he represented that the ANZ facilities were more than enough to cover all contingencies, but that consistent with Wright's note, he said that the ANZ believed that the facilities were more than enough to cover all contingencies (or that the statement about covering all contingencies was made by Gardiner or Rankin). In the alternative, he puts that any statements as to the sufficiency of ANZ funding were made in a context where it was understood by Brereton that the 'strategy' was for the ANZ funding to see Forge through to a recapitalisation in 2014. 2. Montgomery and Bell dispute that they made any representations. The 12 December 2013 Assetinsure meeting [45] 1. This is a complaint against Simpson and Montgomery. 2. Yet again there is an impermissible divergence between the pleaded case and the argued case. 3. In the Amended Commercial List Statement it is pleaded that at this meeting, Simpson stated that the write-downs due to the DPS Contract and the WAPS Contract had come as a terrible surprise; that Forge's management had failed to disclose the problems with the DPS Contract and the WAPS Contract; that the management of Forge responsible had been terminated; that representatives of ANZ and KordaMentha 'had been through everything with a fine tooth comb'; that the problems were confined to Forge Power and its division; that there was nothing more to disclose than had been disclosed in the 28 November 2013 announcement; that there would be no more surprises; and that the ANZ facilities constituted enough cash to complete Forge's work and compete for new jobs – that it was a 'complete fix'. [46] 4. It is pleaded that these representations were made by Forge, Simpson and Montgomery. With respect to Montgomery, it is argued that he did not correct any statement made by Simpson during the meeting despite being aware of the true position and in those circumstances is taken to have represented what Simpson said was true. [47] 5. It is then pleaded that in fact and in truth the ANZ facilities did not constitute enough cash to complete Forge's work and compete for new jobs and were not a 'complete fix'; that the ANZ facilities did not provide sufficient funds to solve Forge's liquidity issues; that Forge was insolvent, or near insolvent, and that Forge, Simpson and Montgomery knew that the true financial position of Forge was a matter of importance to Assetinsure. [48] 6. In their written submissions, Swiss Re argue that the statements made by Simpson at the meeting were misleading or deceptive because there was no disclosure [49] that Forge had defaulted on its taxation obligations and was looking to enter into an agreed deferral plan with the ATO; no such deferral plan had been agreed or even proposed; the cashflows supplied to QBE were prepared on the basis of an assumption that approximately $30 million of tax payments would be deferred in the absence of such a deferral; Forge's cashflow position was hopelessly negative; the ANZ facilities were not a 'complete fix' to Forge's liquidity issues, particularly in circumstances where the ANZ facilities were not able to be used to pay the deferred taxation payments; $30 million of the ANZ facilities was dependent upon the return of bank guarantees in circumstances where Forge had taken no steps to secure the return of those guarantees and where Forge did not have access to that $30 million as at the date of the 12 December 2013 Assetinsure meeting, but all of the cashflows prepared by Bell and Montgomery, and known to Simpson, demonstrated that the additional $30 million was needed if Forge was to have sufficient liquidity to meet its taxation obligations and continue to trade. 7. The plaintiffs put that Simpson's assertion of a complete fix was part of the matters relied on by Wedgwood, Sim, Gorman and Calvert in supporting and approving the 13 December 2013 submission. 8. Wedgwood's evidence as described by the plaintiffs, was that a key factor that he relied upon in approving the 13 December 2013 submission included the statements made by Simpson at the 12 December 2013 meeting, including that the ANZ facilities resolved Forge's liquidity issues and was a 'complete fix'; that there was no indication of Forge being in an insolvent situation; and that they had been through the two CTEC projects with a 'fine-toothed comb' and there would be 'no more surprises'. The 'ATO issue' did not cause him concern in December 2013 because it had not been discussed at the meeting on 12 December 2013. 9. Sim's evidence as described by the plaintiffs was that he relied on the information provided at the 12 December 2013 meeting in preparing the 13 December 2013 submission, including that the ANZ facilities were a 'complete fix' and that the facilities would support 'the cash flow until such a point that the Roy Hill Contract became substantial' and 'enabled Forge to continue on a business as usual basis and deliver their existing workbook and pitch for future work', and further that 'the cost overruns had been contained, had been fully identified and fully costed, and that was the maximum extent of them', and that if at the 12 December 2013 meeting he had been told (inter alia) that the ANZ facilities were insufficient to meet Forges liquidity needs, he would not have recommended the increase of the facility or the issue of new bonds, including the January bonds. Sim also gave evidence that the 12 December 2013 meeting was held because Simpson had not attended the 3 December meeting, nor had Wedgwood, and Wedgwood wanted to hear from Simpson. 10. Gorman's evidence as described by the plaintiffs was that in approving the 13 December 2013 submission, the key factors that he relied upon included that the ANZ facility solved and was a complete fix for Forge's liquidity issues, and what he was told at the 12 December 2013 meeting. 11. Calvert's evidence was to similar effect. 12. Simpson points out correctly that the only representation now put against him as misleading is the statement that the ANZ facility was a 'complete fix' for Forge's cash flow requirements. 13. Simpson accepts that he used the words 'complete fix' but puts that there should be a finding that he said it was short term – meaning until a capital raising could be achieved. [50] 14. He puts that what he said was, in any event, not misleading or deceptive but correct, because there was a reasonable basis to expect the ATO debt to be deferred in the manner provided for in earlier cashflows. 15. In his closing submissions, Simpson makes the valid point [51] that the plaintiffs have made clear that the basis on which the representations as to the sufficiency of the additional ANZ funding are alleged to be falsified is that they only produced a tight but positive cash flow for Forge if the ATO debts were deferred and there was no reasonable basis to expect the ATO debts to be deferred in the manner provided for in the November 2013 and December 2013 cashflows. 16. As is referred to more fully below, what the plaintiffs seek to argue is impermissibly beyond their pleaded case. 17. Simpson puts that the representation that the additional ANZ funding, so far as it was dependent on the entry into of a tax deferral plan with the ATO, was true. He argues that this is established by the fact that the tax deferral plan that was ultimately agreed with the ATO on 31 January 2014 was more favourable to Forge than the deferral provided for in the 27 November 2013 cashflow in that it deferred more tax over a longer period. The deferral in the 27 November 2013 cashflow was of payments between the weeks ending 29 November 2013 and 31 January 2014, totalling $29.6 million, whereas the deferral agreed on 31 January 2014 was a deferral of all payments between 13 November and 28 February 2014, totalling some $35 million, with repayments to be made over 18 months commencing on 28 March 2014. 18. Simpson puts that his utterances about the sufficiency of the ANZ facilities were an expression of an opinion genuinely held by him, or a prediction for which there were reasonable grounds. In this context he relies principally upon the advice given by Mentha and de Kerloy at the 4.30pm 27 November 2013 board meeting that it was reasonable to suggest that the ATO would agree and that the 28 November 2013 announcement was vetted by the professional advisers. 19. Finally, Simpson puts that the plaintiffs have not established that they suffered loss by this conduct complained of because by 13 January 2014, Calvert, Sim, Leupi, Brereton, Sutherland and Wright all knew of the ATO deferral assumption and its effect on Forge's cash flow when they gave approval to proceed with the release of the bonds at a time when Swiss Re and QBE each could have withdrawn. The 12 December 2013 cashflow [52] 1. This is a complaint against Simpson, Montgomery and Bell. 2. As I have said earlier, in their closing submissions, the plaintiffs have rolled up this claim with their claims in connection with the 2 December 2013 and 4 December 2013 cashflows. As with the 2 December 2013 and 4 December 2013 cashflows, the plaintiffs' final submissions diverge from the Amended Commercial List Statement. 3. In the Amended Commercial List Statement, [53] the plaintiffs aver that by providing the 12 December 2013 cashflow, Forge represented that: 1. there would be a shortfall in funds available for the week ending 21 February 2014, but otherwise weekly cash surpluses to meet obligations from 15 November 2013 to the week ending 4 April 2014; 2. Forge had unrestricted access to the restricted ANZ s 560 facility from week ending 13 December 2013; 3. it was accurate and reliable; and 4. Forge was, and would remain, solvent. 1. During the course of the hearing, they sought, and were granted leave, to amend the Amended Commercial List Statement. In para 138 (as amended as indicated), they plead that in fact and in truth: 1. the 12 December 2013 cashflow was not accurate or reliable; 2. Forge had only restricted access to the ANZ s 560 facility from December 2013; 3. the 12 December 2013 cashflow: 1. did not record Forge's tax liabilities to the ATO which were in the order of $29.6 million (as reflected in the cashflow tabled to the board on 27 November 2013), or $37 million (as reflected in the ATO cashflow provided to the ATO on 13 December 2013); 2. did not record Forge's intention to enter into an arrangement with the ATO for the deferral of Forge's tax liabilities; 3. overstated available cash by failing to take into account restrictions on the use of the ANZ s 560 facility; and 4. failed to disclose the existence, nature and extent of creditor deferrals upon which it was based; 1. Forge had not paid its PAYGWT liabilities since 21 November 2013; 2. Forge did not have the financial capacity to pay those PAYGWT liabilities; 3. Forge was insolvent, or near insolvent; and 4. Forge, Simpson, Montgomery and Bell knew that the true financial position of Forge was a matter of importance to QBE and Assetinsure. 1. However, as is set out above, the articulation of the complaint in the closing submissions is the non-disclosure with respect to the ATO and the necessity for a deferral and the absence of funding needed to meet the deferred tax payments. 2. The plaintiffs argue that Leupi, Wedgwood and Sim relied on the 12 December 2013 cashflow in approving the 13 December 2013 submission, and that Brereton relied on it in voting in favour of the 16 December 2013 submission. [54] 3. Swiss Re relies on the evidence respectively of Leupi, Wedgwood, Sim, Calvert and Gorman which it describes, relevantly, as being to the following effect: * Leupi - he reviewed the cashflow attached to the 13 December submission (being the 12 December 2013 cashflow) and noted that it projected a cash flow surplus; the 12 December 2013 cashflow was important when making a decision on the 13 December 2013 submission; Swiss Re's existing exposure was a consideration in the decision to approve the facility, but it was not the only consideration and was not a major concern having regard to the information at hand; the decision to support to underwrite the January bonds was made on its own merits, and was not a plan to recover the existing, unsecured, bonds; there had been cases where Swiss Re had determined to realise a loss rather than continue to support a client by throwing 'good money after bad money'; one of the factors on which he based his decision to approve the 13 December 2013 submission was that the 12 December 2013 cashflow showed that Forge's cash flow and liquidity position was positive. * Wedgwood - in approving the 13 December 2013 submission, a key factor that he relied upon was that Forge was a viable going concern with sufficient cash flow to meet its obligations on a forward basis; although the existing exposure was one of a number of factors he took into account when making his decision, 'one of the key factors was the fact that the underwriters were comfortable that given the cashflows, Forge would be able to get through the period… so that was the key'; his decision to approve the 13 December 2013 submission was not driven by a desire to protect existing bond exposure; in approving the 13 December 2013 submission, he relied upon the 12 December cashflow, which projected that 'Forge would get through on those cashflows'; on 13 December 2013 he thought that any operational cash flow deficiency would be covered by the ANZ's ongoing support; if he had been made aware that the cashflows were inaccurate or unreliable in a material respect, or if Forge had a significant cash flow deficiency, he would not have approved the 13 December 2013 submission. * Sim - he reviewed the 2 December 2013 cashflow, and observed that apart from two weeks, it projected cash surpluses on a weekly basis; he reviewed the 4 December 2013 cashflow, and observed that it had significant surplus of headroom once the ANZ facility was taken into account; he reviewed the 12 December 2013 cashflow and noted that, apart from a shortfall of $700,000 in one week, it projected weekly cash surpluses; he relied on all of the cashflows in the preparation of the 13 December 2013 submission that recommended the issue of the January bonds. * Gorman - in approving the 13 December 2013 submission, he had regard to the cashflows provided by Forge. * Calvert's evidence is to similar effect. 1. QBE relies on the evidence of Brereton which it describes as being to the following effect: he reviewed the 4 December 2013 cashflow; he reviewed the 12 December 2013 cashflow; in considering the 16 December 2013 submission, he considered that the 4 December 2013 cashflow were the 'worst case numbers'; if he had been told that the 4 December 2013 cashflow or the 12 December 2013 cashflow were inaccurate, he would not have voted in favour of the 16 December 2013 submission, and if necessary would have exercised his power of veto (which he held in Mr Wulff's absence). 2. Each of Simpson, Montgomery and Bell put in issue that they made any representation by way of the 2 December, 4 December or 12 December 2013 cashflows, each putting that if any representations were made they were (as pleaded by the plaintiffs) made by Forge itself, through its broker Coulson. 3. Simpson maintains that the evidence does not establish that he saw the cashflows about which the plaintiffs make complaint, or that he provided them to the plaintiffs. In addition, he puts that there is no basis for him to be taken as having made particular representations in particular cashflows that he did not see. 4. Montgomery puts that there is no evidence that links him to the provision to the plaintiffs of the 12 December 2013 cashflow with the omitted tax deferral assumption. He argues that there is no other evidence which supports the fact that he had any role in the provision of this cashflow to the plaintiffs, that he knew that it had occurred, or that he knew that it did not contain any explicit assumption as to the deferral of tax. 5. Bell accepts that he played some role in the preparation of the cashflows, but puts that the evidence does not establish that he was their author, or the author of the assumptions upon which they were prepared, or that he made any decision to include or remove particular assumptions, or that he made any decision to authorise the provision of the cashflows to the plaintiffs. 6. He points to the involvement of several other persons in their preparation. 7. He argues that he did no more than act as a point of contact within Forge, and as between Forge and Coulson, as regards the coordination and distribution of cashflows. 8. Montgomery and Bell put that the significance of the 12 December 2013 cashflow was superseded or overtaken by the provision by Coulson to the plaintiffs of the 11 January 2014 cashflow, which included both the tax deferral assumption and the fact that there was no agreement with the ATO. The 19 December 2013 $6 million bond 1. Swiss Re's cryptic submission extends no further than that given the proximity between the 13 December 2013 submission and the issue of the bond, its issue was also the product of the same misleading or deceptive conduct which caused the 13 December 2013 submission to be made and it would not have been issued had the true position been known. 2. Swiss Re argues that the 13 December 2013 submission refers to the proposed issue of the $6 million bond, Sim relied on the defendants' conduct when preparing the submission, and Wedgwood, Gorman and Calvert relied upon that conduct in approving it. 3. The plaintiffs impose upon the Court the task of divining, from a significant body of evidence and submissions, what is intended to be covered by the same misleading or deceptive conduct which caused the 13 December 2013 submission to be made. 4. They appear to have in mind: 1. representations said to have been made by Simpson and Montgomery in the 28 November 2013 announcement (as Swiss Re articulates it) that the ANZ debt facilities would cover and solve Forge's liquidity challenges and liquidity issues and enable Forge to trade on a business as usual basis; and 2. the rolled up complaints made about the 2 December, 4 December and 12 December 2013 cashflows [55] that they projected a positive cash flow position but did not disclose that Forge had defaulted on its tax obligations and was looking to enter into an agreed deferral plan with the ATO; no such deferral plan had been agreed, or even proposed; the cashflows were prepared on the basis of an assumption that approximately $30-$35 million of tax payments would be deferred; in the absence of such a deferral, Forge's cash flow position was hopelessly negative and Forge had no funding to meet the deferred tax payments because the ANZ facilities were not able to be used to meet those obligations, and no other source of funding had been identified or even pursued; [56] 3. representations allegedly made by Montgomery and Bell at the 3 December 2013 Assetinsure meeting; and 4. statements made by Simpson at the 12 December 2013 Assetinsure meeting and representations said to have been made by Montgomery saying nothing. The 11 January 2014 cashflow [57] 1. Because of the centrality of this complaint, it is appropriate to set out the paragraphs of the Amended Commercial List Statement [58] in which it is made. 156. On or about 11 January 2014 Forge sent QBE and Assetinsure a cash flow dated 11 January 2014 (11 January 2014 Cash Flow Forecast). Particulars The 11 January 2014 Cash Flow Forecast was emailed by Mr Montgomery to Mr Coulson and then by Mr Coulson on behalf of Forge to Mr Greg Wright of QBE and Mr Andrew Sim of Assetinsure on 11 January 2014. 157. The 11 January 2014 Cash Flow Forecast did not project any cash short fall. 158. By providing the 11 January 2014 Cash Flow Forecast, Forge represented that: 158.1 it was "on track" or "likely" that the ATO would agree to the deferral of approximately $35 million in tax liabilities; 158.2 the 11 January 2014 Cash Flow Forecast was accurate and reliable; [59] and 158.3 Forge was, and would remain, solvent, (the 11 January 2014 Cash Flow Forecast Representations). 159. The 11 January 2014 Cash Flow Forecast Representations were: 159.1 representations as to existing facts; and 159.2 additionally or alternatively, representations as to future matters. 160. To the extent that the 11 January 2014 Cash Flow Forecast Representations were representations as to future matters: 160.1 there were no reasonable grounds for making them; and 160.2 the plaintiffs rely on section 4 of the ACL, alternatively, section 12BB of the ASIC Act. 161. In fact and in truth: 161.1 the 11 January 2014 Cash Flow Forecast was not accurate or reliable; 161.2 it was not likely that the ATO would agree to the deferral of approximately $35 million in tax liabilities in circumstances where: 161.2.1 the ATO had informed Forge of its intention to issue DPNs to various directors of Forge and of certain of Forge's subsidiaries; 161.2.2 the ATO required security as a condition of any arrangement for the deferral of payment of Forge's tax obligations; and 161.2.3 Forge did not have the consent of Forge's secured creditors to provide security to the ATO; 161.2.4 the ATO had rejected the proposed repayment plan set out in the 13 December 2013 Forge/ATO letter; and 161.2.5 no other repayment plan had been formulated or put to the ATO; 161.2A Forge proposed to obtain the Roy Hill Bonds first and before formulating a new deferral plan for presentation to the ATO; 161.3 the 11 January 2014 Cash Flow Forecast: 161.3.1 failed to disclose the existence, nature and extent of creditor deferrals upon which it was based; and 161.3.2 overstated available cash by failing to take into account restrictions on the use of the ANZ section 560 Facility; 161.4 the stretching of Forge's creditors was greater than was stated in the 11 January 2014 Cash Flow Forecast; 161.5 Forge was insolvent, or near insolvent; and Particulars Inter alia, [60] it was not on track or likely that $30 million of additional s 560 overdraft would be available via the ANZ from the week ending 30 January 2014 in circumstances where the availability of such funds depended upon existing bonds and guarantees being returned or fully collateralised 161.6 Forge, Mr Simpson, Mr Montgomery and Mr Bell knew that the true financial position of Forge was a matter of importance to QBE and Assetinsure. 162. In the premises, the 11 January 2014 Cash Flow Forecast Representations were misleading or deceptive, or likely to mislead or deceive. 163. The 11 January 2014 Cash Flow Forecast Representations were made by: 163.1 Forge; 163.2 Mr Simpson; 163.3 Mr Montgomery; and 163.4 Mr Bell. Particulars The making of these representations by Mr Simpson, Mr Montgomery and Mr Bell is to be inferred from at least (1) the positions held by each of them within Forge (2) their involvement in the matters the subject of this claim including communications with Assetinsure and QBE as to Forge's financial position (3) the provision of the cash flow forecast to Assetinsure and QBE (4) the likelihood that the cash flow forecast would not have been so provided without their participation in the creation of and/or approval of the cash flow forecast. Further particulars may be provided. 1. In their written outline, diverging from their pleaded case, the plaintiffs argue, and argue only, that the 11 January 2014 cashflow made the following representations: 1. a representation that it was 'on track/likely' that the ATO would agree to the deferral of approximately $35 million in taxation liabilities; 2. a representation that Forge was solvent and would remain solvent in the sense that it would, when taking into account the ANZ amended facilities and the issue of the January bonds, have a positive cash flow and remain viable and able to operate on a going concern basis for at least the period represented. 1. The first of these representations is said to arise from assumption (d) in the cashflow. 2. The second representation is said to arise from the surpluses shown in the cashflow together with the inclusion in it of $30 million of additional funds from ANZ and the deferral of $35 million of taxation, and the designation of those items as 'on track/likely'. 3. They put that the first representation, that the deferral was 'on track/likely', was misleading because: 1. the 13 December 2013 Forge proposal to the ATO had been rejected (on 9 January 2014); 2. the ATO had indicated that it was not prepared to negotiate further unless the outstanding taxation was first paid, the outstanding taxation was in the order of $15 million, and Forge did not have the capacity to pay this amount; 3. the ATO had informed Forge of its intention to issue DPNs to directors of Forge, the Forge directors (on 9 January 2014) were unanimous that they should not be required to accept personal responsibility for Forge's taxation debt, and PWC advised the directors of Forge (on 11 January) of PWC's view that the ATO would not reach an agreement with Forge absent DPNs being in place; 4. the ATO required security as a condition of any arrangement for the deferral of payment of Forge's taxation obligations; 5. there was no replacement proposal; 6. Langdon of KordaMentha had suggested an approach by which it was not proposed to formulate a revised ATO payment plan until after 13 January 2014 (when the bonds would issue). This reflected the factual position as at 11 January 2014. 1. They put that the above matters falsify the representation regardless of whether it is classified as one of present or future fact or opinion. 2. They put that the second representation, that Forge would remain viable and be able to operate as a going concern, was misleading because: 1. the positive cash position depended upon the availability of the $30 million from ANZ, but the dire position shown in the 8 and 10 January 2014 cashflows did not assume that the additional $30 million would be available; 2. that additional $30 million was not available: 1. as it depended upon the replacement of the $30m ANZ guarantee in favour of DPS - see assumption (u) in its full form; 2. the agreement of DPS was essential; 3. as at 11 January 2014, there was no agreement with DPS: 1. as at 10 January, negotiations had broken down; 2. on 13 January 2014, DPS made a conditional offer; 1. no replacement bond or bond provider had been identified; 1. the positive cash position also depended upon the deferral of $35 million in taxation, which was not on track or likely. 1. They argue that the provision of the 11 January 2014 cashflow to them via Coulson is conduct of each of Simpson, Bell and Montgomery. [61] 2. In the case of Simpson, they put that it may be inferred that he was aware that it would be forwarded to Coulson for the purpose of it being passed onto the plaintiffs because prior to 1:52pm Perth time, he had a discussion with Montgomery (inferentially, about the cashflow) and at 1:52pm received a version of it from Montgomery. 3. In the case of Montgomery, they put that it may be inferred that he provided it to Coulson for the purpose of it being passed onto the plaintiffs because at 1:45pm Perth time he sent an email to Coulson attaching the cashflow which Bell had provided to him, and at 1:52pm Perth time, following a discussion with Simpson, sent an email to Simpson attaching the cashflow which he had forwarded to Coulson, with the message: 'Copy of latest cashflow as discussed at 2:01pm Perth time', and he sent a further email to Coulson attaching a further version of the cashflow with a direction to use that version. 4. In the case of Bell, they put that it may be inferred that he was aware that it would be forwarded to Coulson for the purpose of it being passed on to the plaintiffs because at 12:01pm Perth time on 11 January 2014, he sent a cashflow to Montgomery which differed from the version ultimately provided to the plaintiffs only to the extent that it contained assumption (u) in its full form. 5. Swiss Re and QBE argue that neither plaintiff would have released its bonds unless the other plaintiff did likewise as they were acting in unison and in lockstep and each checked with the other before releasing its bonds. 6. QBE puts that Brereton was the sole decision maker with respect to the issue of the January bonds and his decision to issue was significantly influenced by the 11 January 2014 cashflow, his conversations with Simpson on 11 and 13 January 2014, and the contents of the 13 January 2014 draft ASX announcement. 7. It observes that upon learning of the taxation issue on 10 January 2014, Brereton considered that it was necessary to obtain confirmation from Simpson that the taxation liability would not impact on the viability of Forge or materially change any of the information that QBE had previously been given; also on that day, Brereton told Coulson that he needed a revised cashflow and to hear from Simpson directly; and on 11 January 2014, he sent an email to Simpson asking that Simpson call him that evening. 8. Brereton gave evidence of what he would have done 'had he known the true position of Forge'. He says that he would not have proceeded with the issue of the bonds if: the 11 January 2014 cashflow had attributed a low level of certainty to the deferral of the taxation liability, such that it was merely a 'possible problem or timing issue' or even 'cash flow detriment realised or expected'; he had been informed that the ATO was not prepared to agree a payment plan or had been in long term negotiations with Forge and had still not agreed to a payment plan; he had been informed that the ATO would only agree to a payment plan if it was granted security ahead of QBE's existing liability (if that occurred he would have raised this issue with reinsurers); he had known that the additional $30 million ANZ facility was not available, because there would have been a significant shortfall; Simpson had advised him that there were any issues with the ATO agreeing to a payment plan, or intimated that it was unlikely that the ATO would agree a payment schedule or would require security; or if he knew that: a payment plan with the ATO would not be entered into and the scheduled payments in the 11 January 2014 cashflow were not likely or on track; the ATO would not agree to a payment plan without security; $30 million in debt funding from ANZ would not be available at the end of January 2014; ANZ's debt funding did not solve Forge's liquidity issues; Forge was not a viable going concern; Forge could not continue business as usual; or that there were restrictions on the use of the ANZ debt funding such that the ANZ facility was not available as set out in the 11 January 2014 cashflow. Brereton accepted that the support of ANZ was important and that Forge would have been in difficulty without it. He accepted that ANZ's support was an essential consideration for him. 9. Each of Simpson, Montgomery and Bell adopted each other's responses so far as is relevant to him. Their respective written outlines overlap substantially. 10. Both Simpson and Montgomery submit that the plaintiffs are seeking impermissibly to travel beyond their pleaded case. This has substance and I uphold it. 11. There is no pleading about Forge being or remaining viable or able to operate on a going concern basis. That case cannot be made. Montgomery's submissions describe the plaintiffs' attempt to convert the pleaded representation of solvency into one that Forge was a viable and going concern, as involving a sleight of hand. 12. The pleaded case is that Forge was insolvent or near insolvent, the particulars of which are given as being that it was not on track or likely that $30 million of additional s 560 overdraft would be available via the ANZ from the week ending 30 January 2014 in circumstances where the availability of such funds depended upon existing bonds and guarantees being returned or fully collateralised. This is a pleading of insolvency because of the dependency of funds on return or collateralisation of bonds, not of insolvency because that return or collateralisation was improbable. The case as pleaded does not concern the factors surrounding whether there would be a return of the bonds, whereas the case sought to be argued requires that to be investigated. 13. Amongst others, evidence from the ANZ might have been called on that subject. [62] Mentha may have been called. On 26 November 2013, he expressed the view that in some instances a swap may be achieved simply and quickly. Forensic decisions not to call Simpson, Montgomery and Bell were undoubtedly made on the basis of the case as permissibly pleaded and correspondingly run. 14. The pleading does not include or comprehend an allegation as to the likelihood or unlikelihood of those bonds and guarantees being returned or collateralised. It is an assertion of insolvency because of the fact of that dependency alone. That case is unsustainable and Swiss Re and QBE opted not to run it. 15. It is now not open for them to argue the likelihood or unlikelihood of the fulfilment of that condition occurring as an element of some other misleading conduct concerning the availability of the facility. In what they described as their Outline of Reply Submissions, they sought impermissibly to further extrapolate these contentions. 16. To permit the plaintiffs to go beyond their pleading in the manner in which they seek to do prejudices the defendants and I disallow it. It was not the case they came to meet. Swiss Re and QBE did not make the case which they pleaded, and wish to run one which they did not. 17. Each defendant denies that he made any representations by the 11 January 2014 cashflow. Any representations were those of Forge. Any opinions were those of Forge. 18. Simpson says he did not prepare the cashflow, did not see it and was not a party to the communications between Bell and Coulson by which it was conveyed to the plaintiffs. Bell puts that there is no evidence that he saw the 11 January 2014 cashflow (in the form that it was provided to the plaintiffs) prior to it being provided to the plaintiffs, that he knew that the cashflow (in the form that it was provided to the plaintiffs) would be provided to the plaintiffs or understood that the cashflow he had provided to Montgomery earlier in the day on 11 January 2014 was intended for the plaintiffs (with or without amendments). 19. As to the first representation, that the tax deferral was on track/likely, they make the point that what is now put is different from the pleaded case and argue that the plaintiffs should not be permitted to travel outside of their pleaded cause. Montgomery points out that there is no pleading concerning viable and going concern. 20. They put that as at 11 January 2014, the ATO tax deferral was in fact on track/likely, and that given that it was actually achieved, an opinion that it was likely to be achieved could not be misleading. The opinion was accurate or at least genuinely, and insofar as is required, reasonably, held. 21. As to the particular respects identified by the plaintiffs as making the deferral not on track or likely, it is put that: 1. the 13 December 2013 proposal had not been 'rejected'. The ATO had 'not accepted' it because it wanted to 'explore' a possible security arrangement and to issue DPNs. Malone continued to engage with the ATO over that weekend and by 15 January 2014 the ATO and PWC were exchanging draft term sheets. The replacement proposal was to put forward a form of security and pay the DPNs issued on 13 January 2014 which was done on 13 January 2014; 2. the ATO had stated that if tax arrears could not be paid it would continue to negotiate so long as that could be explained in the submission. The ATO negotiated and agreed on a plan despite the tax arrears of $15 million not being paid; 3. the DPNs did not put the plan 'off track' – they made it more likely that the ATO was going to agree; and 4. the ATO's indication that it wanted to 'explore' taking security would not reasonably be thought to have put the plan off track. Forge had every reason to think that the surety providers and ANZ would consent to the ATO taking a subordinated security position, including being advised by Langdon on 9 January 2014 that ANZ and the other Banking Club members were 'likely to be amenable to the security for the ATO'. 1. As to the second representation, that Forge was solvent and would remain viable and able to operate on a going concern basis, they put that provision of the cashflow did not carry with it a representation that Forge was solvent, still less that it would remain so. They put that the cashflow was no more than an estimate of future flows of money in and out of Forge based on a series of assumptions. They put that the cashflow did not represent that Forge was a viable going concern, irrespective of any assumptions. Assumption (u) was described in the cashflow as an operational assumption and the representation was, if anything, one that Forge was expected to produce a positive cash position over the relevant period covered by the cashflow, subject to the stated assumptions, including the additional funding as a precaution. 2. Whilst maintaining their objection to the plaintiffs going beyond their pleading, they put that the plaintiffs have not shown that they (and the board) did not have a reasonable basis as at 13 January 2014 to consider that the additional $30 million would be made available by the end of January or that it was not then on track or likely to be made available. They rely on the expressed support by ANZ including that ANZ (as conveyed by Simpson to the board) would support a backup plan if the DPS bond swap, which ANZ and the board recognised faced challenges, did not proceed. 3. They put that the cashflow did not hold out that the ANZ would or was legally obliged to provide the additional $30 million. They put that the plaintiffs were aware that the additional $30 million was vital to Forge's solvency and (as put on behalf of Simpson) that it 'lay in the gift of' ANZ. 4. They argue that the plaintiffs were made aware of the restrictions on the availability of the additional $30 million facility and that its use required swapping ANZ guarantees for insurance bonds. Apart from the 28 November 2013 announcement, they put that the restriction was disclosed at the 3 December 2013 Assetinsure meeting, the 6 December 2013 QBE meeting and the 12 December 2013 Assetinsure meeting. QBE was provided on 3 December 2013 with the ANZ facility letter. They say that on the evening of 13 January 2014, Swiss Re and QBE received full copies of Forge's ANZ facility documents. 5. They argue that all concerned rationally formed the view that ANZ was likely to support Forge and proceeded on that basis. The Saturday evening 11 January 2014 conversation between Simpson and Brereton [63] 1. This is a claim against Simpson. Again, it is appropriate to set out the paragraphs of the Amended Commercial List Statement [64] in which it is made. 164. On the evening of 11 January 2014 Forge and Mr Simpson represented to QBE that: 164.1 there were four issues facing Forge: 164.1.1 the quantum of losses on existing contracts; 164.1.2 the resultant cash flow squeeze; 164.1.3 the ATO position; and 164.1.4 the protection of Roy Hill Contracts for which bonds were due on 13 January 2014; 164.2 the Board was comfortable on Point 1 (losses to be crystallised) and on Point 2 (interim bank support) and were satisfied Forge have sufficient timing/"wiggle room" on Point 3 (discussions with ATO ongoing); 164.3 Forge was, and would remain, solvent, (the 11 January 2014 Simpson/QBE Representations). [65] Particulars The 11 January 2014 Simpson/QBE Representations were made during a telephone call between Mr Simpson and Mr Greg Brereton of QBE 165. The 11 January 2014 Simpson/QBE Representations were: 165.1 representations as to existing facts; and 165.2 additionally or alternatively, representations as to future matters. 166. To the extent that the 11 January 2014 Simpson/QBE Representations were representations as to future matters: 166.1 there were no reasonable grounds for making them; and 166.2 the plaintiffs rely on section 4 of the ACL, alternatively, section 12BB of the ASIC Act. 167. In fact and in truth: 167.1 Forge was insolvent, or near insolvent; Particulars Inter alia, [66] it was not on track or likely that $30 million of additional s 560 overdraft would be available via the ANZ from the week ending 30 January 2014 in circumstances where the availability of such funds depended upon existing bonds and guarantees being returned or fully collateralised 167.2 Forge and Mr Simpson knew that the true financial position of Forge was a matter of importance to QBE; 167.3 the ATO had informed Forge of its intention to issue DPNs to various directors of Forge and of certain of Forge's subsidiaries; 167.4 the ATO required security as a condition of any arrangement for the deferral of payment of Forge's tax obligations; and 167.5 Forge did not have the consent of Forge's secured creditors to provide security to the ATO.; 167.6 the ATO had indicated to Forge that the repayment plan proposed in the 13 December 2013 Forge/ATO Letter had been rejected; 167.7 Forge proposed to obtain the Roy Hill Bonds first and before formulating a new deferral plan for presentation to the ATO; 167.8 the 8 and 10 January 2014 Cash Flow Forecasts predicted that Forge would reach a position prior to 17 January 2014 in which it would have no available funds from which to pay its debts, and to maintain that position thereafter until at least 4 April 2014; 168. In the premises, the 11 January 2014 Simpson/QBE Representations were misleading or deceptive, or likely to mislead or deceive. 1. In their Amended Outline of Closing Submissions, [67] the plaintiffs seek to argue that Simpson represented to Brereton that: 1. the board was comfortable in relation to the quantum of losses on existing projects; 2. the further write-downs would not have a material impact on the cash flow position; 3. the board was satisfied that Forge had 'sufficient timing/wiggle room' in relation to its position with the ATO, that there was no need to be concerned because a repayment schedule that was not too onerous would be put into place, and that a deal with the ATO was imminent; and 4. the ANZ's support was sufficient. 1. They go on to argue, somewhat cryptically, and in a manner which does not correspond with the articulated representations (which in turn do not correspond with the Amended Commercial List Statement) that: 287. The representation that the ANZ's support was sufficient was misleading for the reasons earlier discussed. 288. The representation that with respect to the ATO, the repayment schedule was on track, that there was no need to worry and that there was enough wiggle room and time with the ATO was misleading for the reasons earlier discussed. 1. Simpson submits that the argued case is not the pleaded case. He puts that the plaintiffs have not pleaded any facts which falsify any of the representations pleaded in the Amended Commercial List Statement. [68] I uphold this submission. 2. He puts that none of the pleaded representations were false or misleading, because at the time of the call: 1. he was not in a position to disclose the range of the write-down and it was correct to say that the board and management were undertaking investigation to crystallise losses, that is, to ascertain and announce to the market the range of the further profit write-down in FY2014 attributable to the WAPS project; 2. ANZ had reiterated its full support for Forge; and 3. discussions with the ATO were ongoing and later resulted in an agreement. The Monday evening 13 January 2014 conversation between Simpson and Brereton [69] 1. This is a claim against Simpson that he failed during the Monday 13 January 2014 telephone conversation with Brereton to disclose that: 1. the true status of Forge's proposed tax deferral, had the additional elements: 1. the discussion at the 13 January board meeting in which Langdon described the ATO discussions as very preliminary and Simpson said the discussion would be ramped up that week; and 2. a letter dated 13 January 2014 from Simpson to the ATO in which he acknowledged that Forge's proposal had been rejected and referred to another proposal yet to be formulated; 1. the position revealed by the 8 and 10 January 2014 cashflows; and 2. the additional $30 million from ANZ was not on track or likely. 1. It is put that the omitted information was material to Brereton's decision to release the bonds and information which he was reasonably entitled to expect to have been disclosed in the context of a conversation about Forge's financial position prior to the release of the bonds. 2. Simpson accepts that he did not inform Brereton of the matters concerned. He denies that the circumstances of the discussion gave rise to an objectively reasonable expectation of disclosure of them. The 13 January 2014 draft ASX announcement [70] 1. This is a claim against Simpson that the 13 January 2014 draft ASX announcement which was circulated at his direction was misleading because it did not disclose the true status of the proposed deferral, the position revealed by the 8 and 10 January 2014 cashflows and that the additional $30 million from ANZ was not on track or likely. 2. This substantially narrows and is different to the non-disclosures pleaded in the Amended Commercial List Statement [71] which are as follows: 182. The 13 January 2014 Draft Market Announcement did not disclose to Assetinsure or QBE that: 182.1 the ATO had informed Forge of its intention to issue DPNs to various directors of Forge and of certain of Forge's subsidiaries; 182.2 the ATO required security as a condition of any arrangement for the deferral of payment of Forge's tax obligations; and 182.3 Forge did not have the consent of Forge's secured creditors to provide security to the ATO; 182.4 the ATO had indicated to Forge that the repayment plan proposed in the 13 December 2013 Forge/ATO Letter had been rejected; 182.5 Forge proposed to obtain the Roy Hill Bonds first before formulating a new deferral plan for presentation to the ATO; 182.6 the 8 and 10 January 2014 Cash Flow Forecasts had predicted that Forge would reach a position prior to 17 January 2014 in which it would have no available funds from which to pay its debts, and to maintain that position thereafter until at least 4 April 2014; and 182.7 the board of Forge was operating on the basis of a cash flow forecast, which was dependent, for its forecast of solvency, upon an assumption that it was "on track" or "likely" that $30 million of additional s 560 overdraft funding, via Facility E2 would be available via the ANZ from the week ending 31 January 2014 and that the true position was that this was not "on track" or "likely", [72] 1. The plaintiffs argue that the omitted information was material to Brereton's decision to release the bonds and that Brereton was reasonably entitled to expect the information to have been disclosed in the context of a conversation about Forge's financial position prior to the release of the bonds. 2. Simpson's response is that the relevant rule is r 3.1A of the ASX Listing Rules, which requires an entity to disclose information which a reasonable person would expect to have a material effect on the price or value of the entity's securities. 3. Listing Rule 3.1A.1 of the ASX Listing Rules provides an exception where one or more of five situations applies, including '[t]he information concerns an incomplete proposal or negotiation' or '[t]he information comprises matters of supposition or is insufficiently definite to warrant disclosure'. 4. He submits that at least the first of these exceptions applied to each item of information that it is alleged ought to have been disclosed. In particular, he puts that there could have been no reasonable expectation that Forge would disclose to the market (and thus include in a draft market announcement): 1. the incomplete ATO negotiations; 2. the cash position indicated by two draft cashflows that had been superseded (by the 11 January 2014 cashflow), which were not circulated to the board (or to him), and were described by Montgomery as 'preliminary' and reflecting a 'potential' position only; or 3. that the second $30 million tranche of ANZ funding was not 'on track/likely' – particularly where Forge's external advisors and bank had vetted the assumption. 1. He puts that no non-disclosure can be sheeted home to him personally because in meeting its disclosure obligations as a listed company, Forge was performing a corporate function. Any non-disclosure was that of Forge, not of Simpson. Consideration 1. Each plaintiff must establish: 1. that each defendant engaged, in his own right, in the conduct alleged against him; 2. that that conduct was misleading or deceptive, or likely to mislead or deceive; 3. that because of that conduct it suffered loss or damage. 1. The 15 November 2013 $3.85 million bond is a subject which can be dealt with discreetly. The 19 December 2013 $6 million bond is a subject which is bound up, amongst others, with the 28 November 2013 announcement and the 2 December 2013, 4 December 2013 and 12 December 2013 cashflows, and the 13 December 2013 submission. The 16 December 2013 submission is bound up with the 6 December 2013 QBE meeting and the 2, 4 and 12 December 2013 cashflows. The 13 December 2013 and 16 December 2013 submissions are pivotal to causation on both Swiss Re and QBE's cases on the issue of the January bonds. As to the January bonds, they are additionally bound up on the plaintiffs' case with the 11 January 2014 cashflow, the Saturday evening 12 January 2014 and the Sunday evening 13 January 2014 conversations between Simpson and Brereton, and the 13 January 2014 draft ASX announcement. As well, Swiss Re and QBE argue that they were proceeding in lockstep. 2. The affidavits adduce a large volume of evidence from deponents about what he would have done or would not have done, [73] as the case may be on a series of hypotheses, many of which are not established or pressed, or both. They adduce evidence of what they say they relied upon. Montgomery's submission aptly describes this evidence as multi-layered. It would not be feasible or productive to attempt an assessment of the strength of this evidence based on the almost infinite combinations of hypotheses or factors. Common sense dictates, indeed necessitates, a broader approach. 3. Not each charge of misleading or deceptive conduct is made against each defendant. The evidence of witnesses as to what they took into account and as to what they otherwise would have done is - as the submissions of Montgomery aptly described - multi-layered. 4. The structure (perhaps the only feasible one) which I have adopted for these reasons and which might facilitate an understanding and the consideration of the claims which I understand the plaintiffs make is: 1. first, to deal with the $3.85 million bond as a discreet topic, including the damage said to have been suffered by Swiss Re because of the conduct complained of; 2. second, to deal with the $6 million bond but only as regards the conduct complained of, leaving the damage said to have been suffered to be dealt with in the context of the January 2014 bonds, where the question of causation comprehends the entirety of the matters on that subject pertinent to the $6 million bond; 3. third, to deal with the conduct complained of with respect to the issue of the January bonds; and 4. finally, to deal with causation and damage in relation to the $6 million bond and the January bonds. Bell and the 15 November 2013 $3.85 million bond 1. The complaint is by Swiss Re against Bell only. The assertion is that by not disclosing during the 15 November 2013 telephone conference with Calvert, Gorman and Coulson, that Forge's cashflows demonstrated an imminent negative cash flow and that it had not been meeting its PAYGWT obligations, Bell engaged in misleading or deceptive conduct in his own right and that the $3.85 million bond would not have been issued had Bell disclosed those matters. 2. The non-disclosures of which Bell is accused are that Forge's cashflows were demonstrating an imminent negative position and that Forge had not been meeting its PAYGWT obligations to the ATO. 3. Bell admits the non-disclosures. The first question is whether, in refraining from making reference during the telephone conversation to the matters complained of, Bell was engaging as principal (not accessory) in conduct for the purposes of the Act. 4. In my opinion, he was not relevantly engaging in actionable conduct in his own right. 5. The plaintiffs place heavy reliance on C H Real Estate v Jainran Pty Ltd (2010) 14 BPR 27,361 (Jainran), where the principal of a company selling land presented to the purchaser a contract which contained misleading representations (which were included on his instructions) and which conduct could be attributed to his direction as a matter of fact, was held himself to have engaged in conduct which was misleading or deceptive. At 27,378-9 [104]-[105] Basten JA said: There remains a question whether the conduct of the corporation in presenting the contract with its misleading representations to the purchaser, was also the conduct of Mr Sgro. Whilst, as the mind of the company, he directed the preparation of the contract and executed it on behalf of the company, he was not aware that the contract contained the precise representations relied upon, nor was he aware of the falsity. The latter element of ignorance is not presently relevant, there being at this stage no question of accessorial liability. The question is whether, because s 42 requires no intent, or even negligence, on the part of the person engaging in the prohibited conduct, the fact that Mr Sgro may not have been aware of the existence of the statements in the contract would relieve him of liability. Just as the corporation will be liable because it presented a contract to the purchaser containing statements which were in fact misleading or deceptive, so Mr Sgro will be liable under s 42 if he engaged in conduct of the same kind. Apart from the conduct involved in signing the contract, his conduct was engaged in through the agency of the solicitors. They, acting on instructions received from him (albeit on behalf of the vendor) prepared the contract and, after obtaining its execution by him (on behalf of the vendor), again acting on his instructions as the human embodiment of the corporation, forwarded the contract to the purchaser. Mr Sgro submitted that the acts of the solicitors were carried out purely as agent for the vendor, and not on behalf of Mr Sgro himself, who was not their client. In terms of legal analysis, that was correct; in terms of the characterisation of the conduct, it was nevertheless conduct which can be attributed to the direction of Mr Sgro, as a matter of fact. That the mechanical task of presenting the contract was delegated to someone in the solicitor's office (probably a clerk) does not prevent the conduct being properly attributed to Mr Sgro, as the person directing the affairs of the vendor. It follows that his Honour was correct at [91] in concluding that Mr Sgro was directly liable for the misleading or deceptive conduct because "he engaged in it" and "his liability is the product of his own conduct" and was not merely accessorial liability. 1. Jainran is distinguishable from this case. 2. Bell's acts are undoubtedly his own conduct if, as a matter of fact, they are. That is, if the consequences which flow from them may properly be viewed as the product of his own conduct. 3. Bell was not the principal of Forge, its mind, or directing it, but rather he was answering questions and providing information known by him about Forge. His conduct was only on behalf of Forge. [74] 4. Perhaps more importantly, Jainran involved positive acts by the protagonist. This complaint is about inaction. 5. It is one thing to attribute to him personally the consequences of what he said, because those flow from action which he took. It is another to take a non-disclosure by Forge as Bell's own because he was one, amongst many other potential human embodiments of Forge, who did not disclose it. The non-disclosure was always Forge's. It does not become Bell's non-disclosure because he was not the one on Forge's behalf to disclose it. In my view, Bell's silence cannot fairly be viewed as his own conduct for the purposes of the Australian Consumer Law in these circumstances. The consequences of Forge failing to make the disclosure, cannot fairly be said to flow from his inaction. 6. I am not satisfied that Bell's conduct (if the non-disclosure is to be attributed to him), was misleading or deceptive. Bell was answering questions which Swiss Re formulated. Those questions did not call for disclosure of the particular matters identified. Cashflows were constantly being developed and changed. In the context of all of the information which Swiss Re had (via Assetinsure), including that Forge was in a trading halt, the non-disclosures complained of are trivial. 7. The plaintiffs have not established that Bell engaged in conduct that was misleading or deceptive in connection with the $3.85 million bond. 8. It is accordingly not necessary to consider whether, had the conduct complained of been made out, they have established that they suffered any loss because of it. I will nevertheless do so. 9. The plaintiffs must establish that their loss was suffered because of the conduct complained of. The relevant question is whether or not there is sufficient connection between the conduct complained of (assuming it is made out) and the damage, for the damage to be regarded as because of or by the conduct. Whether or not that connection exists is essentially a question of fact to be determined by reference to common sense and experience and one into which policy considerations and value judgments necessarily enter: March v (E & M) Stramare Pty Ltd (1991) 171 CLR 506; Travel Compensation Fund v Tambree (t/as R Tambree and Associates) and Others (2005) 224 CLR 627 at 639-640; Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; Wallace v Kam (2013) 250 CLR 375 at 385-6. 10. They must establish that the conduct complained of caused them the loss they claim they suffered by issuing the bond. [75] They do not need to establish that the conduct complained of was the sole or predominant cause of the action they took, it is sufficient if it was a contributing cause. What they must show is that despite any other contributing factors, they would have adopted a different course, that is, not have issued the bond had the conduct complained of not occurred: Sidhu v Van Dyke (2014) 251 CLR 505 at 530-532 per Gageler J. 11. The conduct complained of here is non-disclosure. That there was no disclosure of the matters concerned and that Swiss Re issued the $3.85 million bond are established. It is incumbent on the plaintiffs to establish that taking into account all other contributing factors, they would not have issued the bond. Conversely, if taking into account all other contributing factors, they would have issued the bond anyway, they will not have suffered loss because of the conduct complained. 12. I find that Swiss Re has not established that it suffered any damage by the non-disclosure. 13. Indeed, I am satisfied that it is more probable than not that the bond would have been issued anyway. The suggestion that the mere additional disclosure of the two matters concerned would have made the difference between issuing and not issuing the bond is unrealistic. 14. Swiss Re and QBE's evidence as to how they would have acted is in substance no different from the hypothetical type of evidence which McHugh J described in relation to medical issue cases in Chappel v Hart (1998) 195 CLR 232. At [32] in footnote (64) his Honour said: Human nature being what it is, most plaintiffs will genuinely believe that, if he or she had been given an option that would or might have avoided the injury, the option would have been taken. In determining the reliability of the plaintiff's evidence in jurisdictions where the subjective test operates, therefore, demeanour can play little part in accepting the plaintiff's evidence. It may be a ground for rejecting the plaintiff's evidence. But given that most plaintiffs will genuinely believe that they would have taken another option, if presented to them, the reliability of their evidence can only be determined by reference to objective factors, particularly the attitude and conduct of the plaintiff at or about the time when the breach of duty occurred. 1. In Rosenberg v Percival (2001) 205 CLR 434, in the context of what a patient would have done in the face of a warning about a pending operation, McHugh J said the following at 449: In terms of causation theory, the critical fact is whether the patient would have taken action — refusing to have the operation — that would have avoided the harm suffered. But that fact can only be determined by making an anterior finding as to what the patient would have decided to do, if given the relevant warning. It is not possible to find what the patient would have done without deciding, expressly or by necessary implication, what decision the patient would have made, if the proper warning had been given. If the court finds that the patient would have decided not to have the operation, it concludes that he or she would not have had the operation. What the patient would have decided and what the patient would have done are hypothetical questions. But one relates to a hypothetical mental state and the other to a hypothetical course of action. The answer concerning the hypothetical mental state provides the answer to the hypothetical course of action. The onus is on the patient to prove that he or she would have decided not to have the operation if given a warning of the risk of harm. That means that the patient must prove what he or she would have decided to do. When the direct testimony of that person on the causation issue has been rejected, it is unlikely, as a matter of fact, that the patient will succeed on that issue unless the objective evidence in favour of the patient is very strong. 1. In a similar context in Ellis v Wallsend District Hospital (1989) 17 NSWLR 553 Samuels AJ said at 581: It is, of course, true that a patient's evidence about what he or she would have done if told of certain risks may be coloured by the fact that the risks did in fact eventuate; but it is open to a court to disbelieve evidence found to be tainted by hindsight: Manderson, 'Following Doctors' Orders: Informed Consent in Australia' (1988) 62 ALJ 430 at 434. Obviously, in endeavouring to ascertain what the plaintiff's response would have been to adequate information had it been conveyed at the appropriate time, a court will be greatly assisted by evidence of the plaintiff's temperament, the course of any prior treatment for the same or a like condition, the nature of the relationship between patient and doctor including pre-eminently, so far as it can be established, the degree of trust reposed in the doctor by the patient. The extent to which the procedure was elective or imposed by circumstantial exigency and the nature and degree of the risk involved will all be matters of considerable importance: see Robertson, 'Informed Consent to Medical Treatment' (1981) 97 LQR 102 at 122. 1. At 582 his Honour said: Moreover, it was correct for the Judge to take heed, as he did, of the likelihood that the appellant's account of her hypothetical response must be coloured by the catastrophe which the operation brought in its wake. 1. In Cackett v Keswick [1902] 2 Ch 456 Farwell J said (at 463-464) that: It is easy to be wise after the event, and many men can honestly persuade themselves when a company has failed that they would have been influenced by a circumstance which in all probability would have made no impression whatever on their mind when considering an investment ... [76] 1. I had the opportunity of observing the plaintiffs' witnesses. The evidence of each of them is, as one might expect, undoubtedly coloured by the fact that they were participants in the issue of bonds which resulted in their employers having to pay very significant amounts of money very shortly after the bonds were issued. I would not call this a catastrophe but it was far from a happy event. 2. An objective assessment of how Swiss Re (with Assetinsure) and QBE behaved, both up to the point at which the bonds were issued and afterwards, undermines any suggestion that they would have acted differently had Bell made the disclosure in question. 3. If the additional matters had been spoken of and were of any significance to Assetinsure as is suggested, I am satisfied that it would not without more have refused to issue the bond but would have discussed those matters in more detail and have been satisfied sufficiently to issue the bond. 4. It was obvious from what Bell said and from Gorman and Calvert's own knowledge at the time that Forge was in trouble. It had been in a trading halt and had suffered a significant write-down. Breach of banking covenants was imminent. 5. But, importantly, Forge had the support of its bankers and was looking at a capital raising or debt funding. 6. Much later, when Swiss Re (and Assetinsure) had more detailed information about Forge's perilous position and tax defaults, bonds for far greater amounts were nevertheless issued. 7. Calvert said that if for some reason he had formed the view in mid-November 2013 that the $3.85 million bond should not be issued, he would have consulted with Swiss Re about what to do. He accepted that it would have been up to Swiss Re to decide whether to issue the $3.85 million bond. 8. Gorman said that if he had come to the conclusion that refusing to issue the $3.85 million bond would have been catastrophic for Forge, it was 'very likely' that Assetinsure would have discussed any proposed refusal with Swiss Re. 9. The potentially catastrophic consequences for Forge of refusal were entirely apparent to Assetinsure. It would have caused Forge to default under the Roy Hill Contract at the risk of termination of the very valuable contract and the possible collapse of Forge. 10. At the time, Assetinsure with Swiss Re had an existing unsecured bond [77] exposure to Forge in the order of $90 million which would have been a strong factor against refusal. The bond was for a modest amount in comparison. 11. Swiss Re led no evidence from Leupi on this topic. It may be inferred that his evidence would not have assisted Swiss Re. [78] 12. Swiss Re has not established that it suffered any loss or damage because of Bell's non-disclosures during the 15 November 2013 telephone conversation. The claim against Bell with respect to the $3.85 million bond fails. Simpson and Montgomery and the 19 December 2013 $6 million bond The 28 November 2013 announcement 1. The first aspect of this claim concerns the alleged representations made by Simpson and Montgomery in the 28 November 2013 announcement that the ANZ facilities would cover and solve Forge's liquidity challenges and liquidity issues and enable it to trade on a business as usual basis. 2. The second apparent aspect, comprehends those complaints made about the 2 December 2013, 4 December 2013 and 12 December 2013 cashflows. 3. Apparently implicit in these contentions is that the $6 million bond would not have been issued absent the statements complained of in the 28 November 2013 announcement and had the complained of non-disclosures in connection with those cashflows not occurred. [79] 4. Both Simpson and Montgomery argue that what was said by Forge in the 28 November 2013 announcement was not their own representations. 5. It is to be stressed that there is no claim against them of accessorial conduct, nor of any conduct other than the making of representations, such as for example that they had no reason to consider that anything in the 28 November 2013 announcement was inaccurate. 6. In my view, neither Simpson nor Montgomery made any representation by the 28 November 2013 announcement as asserted. 7. The making of representations, which is all that is pleaded against Simpson and Montgomery, was the act and the act only of Forge. Even if it be accepted that each played a part, even a material part in causing Forge to make the announcement, that does not make the announcement their own. [80] 8. Neither was the human embodiment of Forge making the announcement. Neither was the principal, its mind or directing it on his own. It was a collective effort. If either had knowledge of facts which made the announcement inaccurate, he would be exposed as an accessory. The 2 December 2013, 4 December 2013 and 12 December 2013 cashflows 1. The plaintiffs have not established that by the transmission of these cashflows either of Simpson or Montgomery himself made any representation. 2. The plaintiffs have not established that Simpson saw these cashflows, or provided them to the plaintiffs. They were provided via Coulson. The plaintiffs' own pleading is that Coulson sent them on behalf of Forge. The plaintiffs' submissions rise no higher than that Simpson as CEO was aware since mid-November 2013 that the cashflows were being prepared, including for the purpose of being provided to Coulson and the plaintiffs. Even if this were correct it does not sustain a finding that representations made in these cashflows were Simpson's own. 3. The only relevant direct communication Montgomery had with Assetinsure or QBE appears to be at the 3 December 2013 meeting. He did not send any of the cashflows to the plaintiffs. The plaintiffs have not established that he made any representations personally by the relevant cashflows. The 3 December 2013 Assetinsure meeting 1. I accept the evidence of both Gorman and Calvert as to what was said at this meeting. 2. The substance of this complaint against Montgomery is the making by him of allegedly incorrect statements that cash flow would be tight over the coming weeks and then be positive from January 2014, and that ANZ had agreed to provide further facilities which would solve Forge's liquidity issues including a $30 million overdraft facility which would be available on 6 December 2013. 3. The plaintiffs have not established that any of this was wrong. [81] 4. The accounts of both Gorman and Calvert make it clear that Montgomery was talking (as he must have been) about the short term and as matters of assumption pertinent to Forge's projected cash flow – so much is made clear by Gorman's note of the meeting where these matters appear in that context. Montgomery referred to the fact that cashflows were being vetted daily by KordaMentha, the $30 million facility may or may not have been required or may or may not have been made available as bonds on projects were returned, Forge was looking to enter into an arrangement with the ATO and investigations were ongoing. 5. The falsifications articulated in the plaintiffs' written outline appear to be that the ANZ facilities had not resolved Forge's liquidity issues or needs because of the dependence on the availability of the ANZ facility on return or cancellation of ANZ performance guarantees, and there were no prospects of this occurring, and that no deferral had been agreed or requested from the ATO. 6. The first falsification is outside of the plaintiffs' pleaded case and cannot be relied upon. The second falsification does not correspond to the alleged representation. The 12 December 2013 Assetinsure meeting 1. Simpson does not dispute having referred to the ANZ facility as a 'complete fix' to Forge's cash flow requirements. It is clear that he was referring to a short term fix. 2. The only complaint against Simpson is that the so-called 'complete fix' he referred to was dependent on the ATO debt being deferred, and there was no reasonable basis to expect that this would occur in the manner provided for in the cashflows. 3. The tax deferral plan was progressed from about 16 November 2013 and throughout, Forge had the assistance of professional advisers. 4. The minutes of the 27 November 2013 board meeting contain the notation that: Management noted that it was reasonable to suggest that the ATO would agree to the Company's proposed deferral of taxation and a payment plan over the next 18-24 months, and that this position was communicated to management by Mr Konrad de Kerloy of Herbert Smith Freehills, and based on advice from Mr Mark Mentha of Korda Mentha. 1. On 29 November 2013, Malone of PWC initiated discussions with the ATO. 2. On 6 December 2013, Malone sent a letter to the ATO and this was followed up on 9 December 2013. 3. A tax deferral plan was actually agreed to by the ATO on 31 January 2014. That plan was more favourable to Forge than the deferral assumed in the 27 November 2013 cashflow – it deferred more tax over a longer period. The deferral in the 27 November cashflow was of payments of PAYG and BAS between the weeks ending 29 November 2013 and 31 January 2014, totalling $29.6 million. The deferral to which the ATO agreed on 31 January 2014 was of all payments between 13 November and 28 February 2014, totalling about $35 million, with such payments to be made over 18 months commencing on 28 March 2014. 4. The plaintiffs have not established that an agreement with the ATO was not on track or likely. I find that it was on track and likely, so much so that it happened. It follows that Simpson's expectation of it being likely was, at the time of the 12 December 2013 Assetinsure meeting, reasonably held. It certainly has not been established that his expectation was not reasonable. 5. The complaint against Montgomery is that he did not correct Simpson's statement. It is not in issue that he said nothing. The representation was accordingly not his in any event. He is not charged with non-disclosure. The complaint against him must fail for this reason as well. 6. The parties did not explore the subject of the impact on the plaintiffs' claim with respect to the January bonds, had they made out either this claim or the claim with respect to the $3.85 million bond. It seems to me at least arguable, that if either of those bonds had not been issued, Forge may have collapsed earlier and the January bonds would not have been issued. Simpson, Montgomery and Bell and the January bonds 1. As has been earlier observed, the individual complaints, which are said to comprise the misleading conduct which they say caused damage, are not all made against each of Simpson, Montgomery and Bell. The 11 January cashflow 1. The only exigible content of this complaint is that the cashflow was misleading because it assumed a deferral agreement with the ATO which was assessed as on track or likely when this was not so, and it made the representation that Forge was and would remain solvent when it was insolvent or near insolvent because $30 million was not unconditionally available, but subject to certain restrictions. 2. These complaints fail at the first hurdle because the representations made by way of the cashflow were not those of Simpson, Montgomery or Bell, but of Forge. No misleading conduct beyond representations on their part is pleaded. 3. The ATO arrangement is pleaded as being not on track or likely because the ATO had informed Forge of its intention to issue DPNs to various directors of Forge and to certain of Forge's subsidiaries, the ATO required security as a condition of any arrangement, Forge did not have the consent of its secured creditors to provide security to the ATO, the ATO had rejected the proposed repayment plan set out in the 13 December 2013 letter, no other repayment plan had been formulated or put to the ATO, and Forge proposed to obtain the January bonds first and before formulating a new deferral plan for presentation to the ATO. 4. Self-evidently it does not follow from any or all of these matters, even if they are correct, that the ATO arrangement was not on track or likely. DPNs were issued, but the deferral arrangement nevertheless went ahead. Security was given with the consent of Swiss Re and QBE. The ATO had not outright rejected a repayment plan. One was under formulation. The January bonds were always going to be issued before finalisation of the ATO arrangement, and they were issued at a time when both Swiss Re and QBE knew that the arrangement had not been made. 5. On 8 January 2014, Malone prepared a memorandum to update on discussions with the ATO regarding Forge's outstanding tax liabilities. Malone reported that the ATO was entitled to issue DPNs to company directors where a company has an outstanding PAYGWT obligation. 6. The minutes of the 9 January 2014 board meeting record the discussion about the proposed arrangement, including that it was commonplace, and de Kerloy's advice that subject to receipt of an acceptable cashflow to be finalised on 13 January 2014, there existed a reasonable expectation that the ATO would negotiate and agree an instalment repayment plan with the company. 7. PWC were negotiating and liaising with the ATO in respect of the repayment plan. Malone reported on the morning of 11 January 2014 to Bell and Montgomery that he had spoken to the ATO. 8. The minutes of the 11 January 2014 board meeting record that senior ANZ staff advised Simpson that the ANZ would support the directors through the process with the ATO and referred to KordaMentha's advice that it expected that the ATO would agree to a deferral. 9. The plaintiffs have failed to establish that an agreement with the ATO was not on track or likely as at 11 January 2014. This is because it was. 10. The second aspect, insolvency, can be dealt with briefly. 11. There is substance in the defendants' submission that the 11 January 2014 cashflow did not make any representation as to Forge's solvency or continued insolvency. In this context it is apt to observe that the cashflow was self-evidently an uncertain estimate at a single point in time of future cash flows based on a series of assumptions. This snapshot could change significantly and quickly because of income and expenditure timing considerations and extraneous matters. [82] 12. The existence of conditions attaching to the additional $30 million funding does not translate into insolvency or near insolvency. [83] 13. Although it is not incumbent on Simpson, Bell and Montgomery to meet a contention that the additional funding was unlikely because of the lack of prospects of existing bonds and guarantees being returned or collateralised, against the possibility that the plaintiffs were permitted (over their objection) to motivate it, they put submissions on the issue. 14. Even on the available material, limited as it is, I would not find that the availability of the additional $30 million was not on track or likely or that Simpson, Montgomery and Bell did not have reasonable grounds for thinking that it was. In my view they did. ANZ's support was unwavering. Simpson, Montgomery and Bell had every reason to believe that if the DPS bonds were not acceptable to the other interested institutions, ANZ had a backup plan. ANZ had extended every concession to the M + W Group to facilitate a capital raising. 15. The minutes of the 11 January 2014 board meeting record that: * with respect to the proposed swap of the $30 million bank guarantee on the DPS project with a bond, management understood that both ANZ and WBC [84] would likely support the swap, which was allowable pursuant to the terms of the contract for the DPS project, however, the other banks that formed the Banking Club facility on the DPS project may not support the move; * management had advised KordaMentha that it expected ANZ to extend its existing banking facilities or come up with another plan should the DPS bond swap not proceed; * Simpson noted that ANZ had communicated to him that it would support a backup plan should the DPS bond swap not be acceptable to the Banking Club on the DPS project; and * the chairman advised that Mentha from KordaMentha had called him recently, noting that ANZ/KordaMentha would prefer that the bank guarantee be swapped for a bond on the DPS project, however ANZ could purchase the bonds. 1. Further evidence of known ANZ support at the time appears in Langdon's email of 11 January 2014 which records that DPS, ANZ and WBC had confirmed their willingness to swap the bonds but other banks had not agreed. 2. Shortly thereafter, at the 13 January 2014 board meeting, Travis of ANZ reiterated that bank's support. 3. In their so-called Outline of Reply Submissions, the plaintiffs suggest that reliance by the defendants on the 11 January 2014 minutes as evidence of a backup plan is misplaced because no such plan had been identified, it is not apparent on the evidence that a specific plan had been put to ANZ, ANZ was not called and there was no evidence of any call or request by Simpson on ANZ with respect to that backup plan. This submission is one of a number which demonstrate the vice to which the defendants would be subjected if the plaintiffs were allowed to motivate the point. The plaintiffs seek to change their case to make the probability of the additional facility being available a central issue. The defendants were not on notice of this claim. They possibly refrained from doing things which they might have done, such as call the ANZ and further investigate the issues. The plaintiffs then seek to use in aid of their contention the defendants' failure to call the bank or provide further information on the issues. The Saturday evening 11 January 2014 conversation between Simpson and Brereton 1. This claim is not intelligibly pleaded. What is sought to be put does not correspond with what is pleaded. This is sufficient to reject it. 2. In any event, if it is intended to be a reprise of the contention that Forge was insolvent because it was not on track or likely that the additional ANZ funding would be available and that there would be a deferral arrangement with the ATO, I would reject it for the reasons set out above in relation to those matters. The Monday evening 13 January 2014 conversation between Simpson and Brereton 1. Somewhat at odds with the restriction of this complaint to one of non-disclosure, the plaintiffs' written outline argues that each of the statements made in the telephone conversation were representations as to existing facts but even if they were representations as to future matters, Simpson had no reasonable basis (having regard to the contemporaneous and objective evidence) for those statements. 2. This complaint is not made out. 3. I have already found that the ATO repayment plan was on track or likely and that the bonds were always going to be issued before the repayment plan was agreed. The plaintiffs have not established that Simpson saw the 8 January 2014 and 10 January 2014 cashflows. They were drafts. By the time of this conversation, they had been superseded by the 11 January 2014 cashflow. It may be accepted that the board was operating on the basis of a cashflow which had an assumption that the $30 million additional facility from ANZ was on track or likely. It is not open for the plaintiffs to argue that it was not on track or likely because of the improbability of the bond swap. However, they have in any event not established that it was not on track or likely. 4. Earlier in the day (10:56am Perth time, 1:56pm Sydney time), Brereton had emailed Simpson that he expected to hear that the board had voted to lift the trading halt. The email stated that on the basis that the Forge board, ANZ, Swiss Re and QBE were in lockstep, they would then be able to direct the issue of the January bonds. 5. Importantly, when Simpson called Brereton later that evening, he was fulfilling Brereton's expectation. 6. Brereton already knew that the ANZ were supportive and he was being provided with the information he asked for. All the relevant players were in lockstep. 7. I do not consider that there was any reasonable expectation that Simpson would say the additional matters the subject of this complaint. The 13 January 2014 draft ASX announcement 1. The non-disclosures argued by the plaintiffs in this complaint are the same as those pleaded with respect to the 13 January 2014 telephone conversation. For the reasons set out with respect to that complaint, this complaint is also not made out. 2. It is not made out for the additional reason that I uphold Simpson's submission that the non-disclosure was not his personally. 3. It is not necessary to consider whether the matters the subject of the alleged non-disclosure fall within the exceptions to ASX listing rules. [85] This is not a charge of breach of the listing rules. Causation and Damage – the $6 million bond and the January bonds 1. I have found that the plaintiffs have not established that any of Simpson, Montgomery and Bell engaged in conduct that was misleading or deceptive or likely to mislead or deceive. It is thus not necessary to consider whether the conduct complained of caused the plaintiffs any loss. However, I will nevertheless do so on the hypothesis that all of the conduct complained of had been made out. 2. The plaintiffs' key propositions are that: 1. they were misled into approving the 13 December 2013 and 16 December 2013 submissions; 2. the conduct which caused Swiss Re to approve the 13 December 2013 submission induced it to issue the $6 million bond; 3. absent approval of both submissions, the January bonds would not have been issued; 4. it follows that if the conduct complained of with respect to the submissions is made out, the issue of the January bonds will have been sufficiently revealed to have been caused by that conduct; 5. the Court should in any event conclude that the defendants' misleading conduct over the period 11 to 13 January 2014 caused the plaintiffs to issue the bonds. 1. Their case is that they suffered damage by the issue of the bonds. What role, if any, in bringing about that event did the conduct complained of play? A full evaluative assessment [86] of this requires: 1. examination of the factors that were significant to Swiss Re and QBE in their decision to issue; 2. examination of the significance, if any, to that decision of the matters the subject of the complaint; 3. assessment of the effect on the outcome of eliminating from consideration the matters the subject of the complaint. Significant factors 1. It is apt to observe that the plaintiffs are substantial corporations and commercially highly sophistiacted. Their business is assessing and taking calculated risk. [87] Their operatives are knowledgeable, sophisticated and highly experienced with respect to their craft. [88] In making the judgments they made, they brought these qualities to bear. They were the recipients of significant and detailed financial information about Forge, little of which was good news. They brought their own judgment to bear on a large body of information. 2. The January bonds were issued notwithstanding: * continually emerging bad news; * knowledge of massive and successive write-downs; [89] * knowledge of default by Forge in its tax payment obligations without there being in place a binding deferment arrangement with the ATO; * knowledge that Forge was cash strapped; * knowledge that Forge was stretching its creditors; * knowledge that Forge had been in a trading halt; * knowledge that Forge's earlier substantial balance sheet backing for unsecured creditors no longer existed; * in the case of QBE, the significant reservations articulated by Van Heyst; * concerns about the 11 January 2014 cashflow; and * open scepticism as to the competence of Forge executives. [90] 1. The January bonds were issued despite and in the face of it being obvious (or perhaps because it was obvious) that without them Forge was dead. 2. I find that the critical matters which induced Swiss Re and QBE to act as they did are the following: * they had a direct and vital commercial interest in Forge's survival; * they had a long client history with Forge; * they had significant unsecured exposure to Forge which was expected to reduce substantially in the short term. Their option to issue or not to issue was stark. If they did not issue Forge was dead. If they did issue, Forge had a prospect of survival because of the lucrative Roy Hill Contract (which had a good margin over and above contingencies) and therefore a prospect that their unsecured exposure would be 'managed', that is reduced or eliminated, and the January bonds would ultimately be returned. Leupi saw the issue of the bonds as 'the only way forward to protect all our interests'; * Forge's prospects of achieving a trade sale or raising more equity were enhanced; * Forge had the continuing support of its bankers and both Swiss Re and QBE saw it as being in the bankers' interests to keep Forge alive; * the January bonds were secured; * Swiss Re and QBE became, together with the ANZ, part of the Banking Club which gave them commercial leverage. The security arrangements would prevent any one of Swiss Re, QBE or ANZ from tipping Forge into an insolvency regime; * Swiss Re and QBE were, and knew they were, acting in lockstep; and * Forge had come out of its trading halt. 1. The plaintiffs' central complaints are that they were misled as to the prospects of the additional $30 million ANZ funding and the deferral arrangement with the ATO, principally by being told that the ANZ funding solved Forge's liquidity issues and being told by way of the 11 January 2014 cashflow that both the funding and the deferral arrangement were on track/likely. 2. The ANZ funding was of course only part of a solution if it was available. 3. The counterfactual to the making of a representation that something is on track or likely is not a representation or communication that it is not on track or is unlikely. It could be to convey nothing, to convey that it might be on track or that there is an even chance of it happening, or that there is a possible problem or timing issue. [91] The counterfactual to a non-disclosure is not necessarily the precise obverse of it. 4. Had the on track/likely assumption not been communicated, what assumption would have been? Had no assumption or some different assumption been communicated, what would the state of knowledge of Swiss Re and QBE have been? Would they have asked further questions? If so, what would the answers have been? The same questions arise with respect to the ANZ funding solving the liquidity issues. If nothing had been said, what would have happened? Swiss Re and QBE had a massive body of information at their disposal. 5. If the defendants had provided more information to the plaintiffs about the ATO dealings, including that security was required, the plaintiffs would likely have asked more questions. One might think that they would have been given more information, along the lines that they were ultimately in fact given, and after which they accepted the ATO's position. If the counterfactual is to include disclosure of further information about the prospects of an ATO deal, it would have to include such further information as they would have been given. 6. Assuming – contrary to my earlier holding – that the plaintiffs were entitled to prosecute a case that a bond swap was unlikely, what would have been their state of knowledge had the defendants disclosed more information about the potential bond swap? It is likely, if not inevitable, that Swiss Re and QBE (particularly QBE since it was seen as a possible provider of the additional bonds) would have wanted to know more from the ANZ. It is likely, if not inevitable, that the defendants would have provided more information about support from the ANZ including as to the back-up plan should the DPS bond swap not be acceptable, which was referred to at the 11 January 2014 board meeting. If the counterfactual is to include the disclosure of further information about the prospects of the facility, it would also have to include, for example, the ANZ's expressions of support. [92] 7. The plaintiffs' case did not come to grips with these issues. It is not for the Court, of its own motion, to identify and then select the most likely counterfactual in these circumstances. This leaves aside the additional difficulties that would be caused if there had to be an assessment of what role each discreet complaint against each defendant had on the outcome. 8. On the footing that the defendants did not convey that the ANZ facility or the ATO arrangement was on track or likely, but said nothing, having regard to all the other information at the disposal of Swiss Re and QBE, it is difficult to see why the bonds would not have been issued anyway. 9. I should say that I am not at all satisfied, despite the evidence of the witnesses, that there was meaningful reliance specifically placed by Swiss Re or QBE on the on track/likely status given to the presently relevant assumptions in the 11 January 2014 cashflow. I do not accept the plaintiffs' submission that any decision was influenced by it to a substantial degree or indeed to any meaningful degree. 10. Leupi, the principal decision maker with respect to the January bonds, decided to authorise the issue of the bonds before reviewing that cashflow. The evidence did not clearly establish that he saw it before the issue of the bonds. The first suggestion by Leupi that he read it on the morning of 13 January 2014 was led orally for the first time at the hearing. He did not recall receiving it at the time he swore his affidavit. It is not altogether clear that Calvert saw it either. He told Sim on Sunday afternoon that he had not read it on his iPhone because he was on the Central Coast and could not open it. Gorman did not review it because he was away and Sim did not obtain much comfort from it – he was not sure how ANZ/KM were comfortable. Amongst others, Brereton said of the ATO arrangement: 'this is going to be tough'. 11. The specific conduct complained of in connection with the availability of the ANZ facility is entirely drowned out by the other information which Swiss Re and QBE had about the ANZ's support. 12. Amongst others, Swiss Re and QBE knew that the ANZ and KordaMentha had reviewed the 11 January 2014 cashflow, and had attended the 13 January 2014 board meeting, and were comfortable with the statements made in the draft ASX announcement of 14 January 2014 which they had seen on the evening of 13 January 2014. The ANZ had extended its support for Forge through a combination of new facilities and amendments to existing facilities, resulting in an increase to the total working capital facility size from $11 million to $60 million with $30 million available immediately. Brereton spoke directly with Gardiner. 13. During the 10 January 2014 telephone conference, Gardiner said that ANZ was 'taking a pragmatic view and would continue to support Forge' and that it was awaiting additional information over the weekend. On 11 January 2014, Wright wrote to Coulson and Sim that the ANZ advised that they were still supportive. Brereton also emailed Simpson that QBE along with ANZ and Assetinsure were looking to ensure that they could assist in any way possible and Sim reported to Leupi that ANZ indicated in this conference that 'they remain fully supportive'. 14. Shortly after 13 January 2014, Swiss Re and QBE agreed to the security which the ATO wanted. They did this even though there was some complaint that they had not been told before. This is particularly relevant to the evidence of Brereton who was not an unimpressive witness, but whose evidence I nevertheless do not accept with respect to how he says he would have acted differently. 15. The idea that the matters complained of with respect to the ANZ facility, looked at in their general factual context, could have had any real influence on Swiss Re and QBE, borders on the fanciful. The suggestion that they would have not proceeded had they been told about the security earlier also borders on the fanciful. 16. I reject the submission that were it to be established that the 13 December 2013 and 16 December 2013 submissions were induced by the conduct complained of, it follows that the January bonds were issued and loss suffered because of the same conduct. 17. Having regard to what occurred between the submissions and the final approval, the conduct complained of as having induced the approval of the submissions, was not causative of the final approval and the issue of the January bonds. In other words, the damage allegedly suffered by the plaintiffs in connection with the January bonds was not because of the conduct which induced the approval of the submissions. 18. It may be accepted that without the approvals the bonds would have not been issued. It does not follow that that which caused the approvals to be given caused the bonds to be issued. 19. Perhaps more importantly, Swiss Re and QBE were free at all times not to issue the bonds even though they had earlier approved the submissions. Based simply on their state of knowledge as at the date of the submissions, they would not have issued a further $80 million worth of bonds. They did that on the basis of what occurred subsequently. The 19 December 2013 $6 million bond 1. There is something of a lacuna in the plaintiffs' evidence as to who made the decision to issue this bond. Leupi made it clear that it was not his decision. He took the position that the $6 million bond was within the delegated authority of Assetinsure. The evidence does not disclose precisely who within Assetinsure made the decision to issue. 2. Swiss Re has fallen far short of establishing that the conduct complained of was causative of the issue of the bond. In context, the amount was modest but the consequences of refusal were great. 3. Given that Swiss Re were prepared to issue bonds for far greater amounts in January 2014, where the information at their disposal about Forge included material which placed Forge in a much more negative light, it is highly likely that Swiss Re would have issued this bond in any event. Quantum and other questions 1. It is for the plaintiffs to prove that they suffered loss and its quantum. 2. They claim as their loss the amount they have paid out, less the premiums they received, less recoveries paid to them from Forge assets. 3. It is clear that the process of recovery in the winding up or receivership of Forge has not yet been completed and there is some possibility of further recoveries which may result in payments to Swiss Re and QBE. 4. The defendants argue that the value of the rights of indemnification against Forge held by Swiss Re and QBE as a consequence of having paid out, must be taken into account in the calculation of (and reduction in) their loss. They argue that having not taken the course of attributing a value to these rights, Swiss Re and QBE have failed to quantify their loss. 5. The plaintiffs' response is that they suffered loss by paying out and none of it is avoided unless and until a recovery is actually paid to them. They have accounted for the sums received by them. 6. During the hearing, the plaintiffs offered to execute an assignment in favour of the defendants for any amounts subsequently received from Forge. 7. There is no contention that Swiss Re and QBE have failed to mitigate their loss. 8. Given my conclusion that there is no liability to the plaintiffs, it is not necessary to resolve this issue. 9. There is no evidence which enables the Court to make a finding as to the value, if any, of the further right of indemnification. It is therefore not possible to find on the evidence that any specific reduction is warranted. It is not necessary to resolve whether this means that the plaintiffs have not established quantum or that no reduction would be warranted in any event. I incline to the latter but I also incline to the view that any difficulty would have been resolved by an appropriately executed assignment. 10. Questions of proportionate liability do not arise. The plaintiffs' claims against the insurers must also be dismissed. 11. It is also not necessary to intrude into the question whether, had the plaintiffs succeeded, they would be entitled to the benefit of all the insurance monies under the policies with the insurers as they contend, or to a lesser amount, (i.e. less defence costs) incurred by the insurers in these and other proceedings as the insurers contend, or whether the insurers are liable to pay interest pursuant to ss 100 and 101 of the Civil Procedure Act 2005 (NSW) outside the policy limit [93] (as the plaintiffs contend) or are only liable to pay interest to the extent that it falls within policy limits (as the insurers contend). 12. The plaintiffs acknowledge that the insurers' position on both issues is supported by Chubb Insurance Co of Australia Ltd v Moore [2013] NSWCA 212 (Chubb) and that the Court is bound by the decision. The plaintiffs put a formal submission that Chubb is wrong and that the correct position is as decided in BFSL 2007 Limited & Ors (in Liquidation) v Steigrad [2013] NZSC 156. Conclusion 1. The proceedings are dismissed. 2. I will hear the parties on costs should this be necessary and on any other issues which remain to be decided. 3. The exhibits are to be returned. ********** Endnotes 1. See State of Western Australia v Bond Corporation Holdings Ltd (1991) ATPR 41-081 at 52,278-52,279 (per French J). 2. The plaintiffs filed and served a lengthy expert report by an accountant, Mr Silvia, expressing opinions – in my view, inadmissible ones – as to the insolvency of Forge. The plaintiffs ultimately did not read this evidence, and the defendants did not read their proposed expert evidence in response. 3. There must be a clear identification of the conduct said to be misleading or deceptive. Where silence of non-disclosure is relied upon, the pleading should identify whether it is alleged of itself to be, in the circumstances of the case, misleading or deceptive conduct or whether it is an element of conduct, including other acts or omissions said to be misleading or deceptive. 4. Preparation of the Court Book is the joint responsibility of the parties. 5. As is referred to earlier, misrepresentations as to solvency were abandoned. 6. Section 560 of the Corporations Act 2001 (Cth) provides that if (a) a payment has been made by a company on account of wages; or on account of superannuation contributions (within the meaning of section 556); or (iii) in respect of leave of absence, or termination of employment, under an industrial instrument; and (b) the payment was made as a result of an advance of money by a person (whether before, on or after the relevant date) for the purpose of making the payment; then (c) the person by whom the money was advanced has the same rights under this Chapter as a creditor of the company; and (d) subject to paragraph (e), the person by whom the money was advanced has, in the winding up of the company, the same right of priority of payment in respect of the money so advanced and paid as the person who received the payment would have had if the payment had not been made; and (e) the right of priority conferred by paragraph (d) is not to exceed the amount by which the sum in respect of which the person who received the payment would have been entitled to priority in the winding up has been diminished by reason of the payment. 7. Business Affairs Statement. 8. General Sales Tax and Fringe Benefits Tax. 9. Assumption (m). 10. Coulson sent a copy of this to Wright on 3 December 2013. 11. Clause 4.2(h)(ii). 12. Without this deferral, the cashflow would have been negative, amongst others, for the weeks ending 13 and 20 December 2013. 13. It seems clear that the tax deferral assumption is still made, but not stated. 14. After receiving this, Sim called Coulson and asked for the assumptions behind it. On 5 December 2013, Coulson forwarded the 2 December 2013 cashflow which Bell had sent him. Sim forwarded this to Calvert and Gorman, who reviewed it. 15. Smoothed out appears to be a euphemism for adjustments which will eliminate deficits. 16. General Security Arrangement. 17. On 8 January 2014, Bell emailed Coulson (with a copy to Montgomery) saying 'So when can we swap out the DPS Bank guarantee for a bond? (thereby redeeming $30 million of additional overdraft facility). Please advise an expected date. Will QBE do this alone or with Assetinsure? Please advise mechanics', and Coulson responded 'Swiss Re is across QBE ad (sic) well as being direct so they have a general exposure problem, ie this will have to be QBE solo.' 18. The term 'supplier stretch' appears to be a modern day euphemism for breaching an obligation to pay suppliers amounts due to them as and when due. 19. Connoting negative. 20. which one might view as onerous on Forge. 21. The reference to Dave is to Simpson, the reference to Mark is to Mentha. The expression PO'ed is apparently one of disaffection. 22. Head of Lending Services, Institutional. 23. Sections 6(1)-(7) provide relevantly: (1) If any person (hereinafter in this Part referred to as the insured) has, whether before or after the commencement of this Act, entered into a contract of insurance by which the person is indemnified against liability to pay any damages or compensation, the amount of the person's liability shall on the happening of the event giving rise to the claim for damages or compensation, and notwithstanding that the amount of such liability may not then have been determined, be a charge on all insurance moneys that are or may become payable in respect of that liability. (2) If, on the happening of the event giving rise to any claim for damages or compensation as aforesaid, the insured (being a corporation) is being wound up, or if any subsequent winding-up of the insured (being a corporation) is deemed to have commenced not later than the happening of that event, the provisions of subsection (1) shall apply notwithstanding the winding-up. (3) Every charge created by this section shall have priority over all other charges affecting the said insurance moneys, and where the same insurance moneys are subject to two or more charges by virtue of this Part those charges shall have priority between themselves in the order of the dates of the events out of which the liability arose, or, if such charges arise out of events happening on the same date, they shall rank equally between themselves. (4) Every such charge as aforesaid shall be enforceable by way of an action against the insurer in the same way and in the same court as if the action were an action to recover damages or compensation from the insured; and in respect of any such action and of the judgment given therein the parties shall, to the extent of the charge, have the same rights and liabilities, and the court shall have the same powers, as if the action were against the insured: Provided that, except where the provisions of subsection (2) apply, no such action shall be commenced in any court except with the leave of that court. Leave shall not be granted in any case where the court is satisfied that the insurer is entitled under the terms of the contract of insurance to disclaim liability, and that any proceedings, including arbitration proceedings, necessary to establish that the insurer is so entitled to disclaim, have been taken. (5) Such an action may be brought although judgment has been already recovered against the insured for damages or compensation in respect of the same matter. (6) Any payment made by the insurer under the contract of insurance without actual notice of the existence of any such charge shall to the extent of that payment be a valid discharge to the insurer, notwithstanding anything in this Part contained. (7) No insurer shall be liable under this Part for any greater sum than that fixed by the contract of insurance between the insurer and the insured. 24. Section 4 states relevantly: (1) If (a) a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act); and (b) the person does not have reasonable grounds for making the representation; the representation is taken, for the purposes of this Schedule, to be misleading (2) For the purposes of applying subsection (1) in relation to a proceeding concerning a representation made with respect to a future matter by: (a) a party to the proceeding; or (b) any other person; the party or other person is taken not to have had reasonable grounds for making the representation, unless evidence is adduced to the contrary. (3) To avoid doubt, subsection (2) does not: (a) have the effect that, merely because such evidence to the contrary is adduced, the person who made the representation is taken to have had reasonable grounds for making the representation; or (b) have the effect of placing on any person an onus of proving that the person who made the representation had reasonable grounds for making the representation. (4) Subsection (1) does not limit by implication the meaning of a reference in this Schedule to: (a) a misleading representation; or (b) a representation that is misleading in a material particular; or (c) conduct that is misleading or is likely or liable to mislead; and, in particular, does not imply that a representation that a person makes with respect to any future matter is not misleading merely because the person has reasonable grounds for making the representation. 25. This was not pleaded. 26. Again, this was not pleaded. 27. Section 2(1) gives the following meaning to the term involved: a person is involved, in a contravention of a provision of this Schedule or in conduct that constitutes such a contravention, if the person: (a) has aided, abetted, counselled or procured the contravention; or (b) has induced, whether by threats or promises or otherwise, the contravention; or (c) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention; or (d) has conspired with others to effect the contravention. 28. Amended Commercial List Statement, paras 42-46. 29. Calvert gave evidence that he formed the view that the situation at Forge was a complete debacle. 30. Amended Commercial List Statement paras 82-88. 31. This claim is an instance of the plaintiffs' written outline impermissibly going beyond its pleaded case. It refers to making 'and adopting' misleading representations and makes submissions as to their 'conduct' in relation to the 28 November 2013 announcement, much, if not all of which is not pertinent to the enquiry whether Simpson or Montgomery personally made misrepresentations by the announcement. 32. The Amended Commercial List Statement paras 82-88 which concern the 28 November 2013 announcement, does not plead a representation in these terms. 33. The so-called s 560 restriction played no relevant part in the plaintiffs' ultimate articulation of their case. 34. Amended Commercial List Statement paras 89-96. 35. Amended Commercial List Statement paras 96, 112 and 140. 36. What else, if anything, is relied upon is not identified. 37. Amended Commercial List Statement paras 97-104. 38. Amended Commercial List Statement para 98. The only representations pleaded and persisted in are that Montgomery stated that Forge's cash flow would be tight over the coming weeks and then be positive from January 2014, and that ANZ had agreed to provide further facilities which would solve Forge's liquidity issues, including a $30 million overdraft facility which would be available on 6 December 2013. It is pleaded that Bell did not correct the statements made by Montgomery and that Forge, Montgomery and Bell adopted the pleaded representations made in connection with the 28 November 2013 announcement. 39. This is not pleaded. 40. This is not specifically pleaded but is arguably pleaded in substance. 41. This is not pleaded. 42. The ATO arrangement is not pleaded in connection with this complaint. 43. In particular, the argued representations that there were no other projects with problems other than WAPS and DPS, that an additional $30 million was to be made available by ANZ on 6 December 2013, and that the debt funding had patched the hole and there was now no problem with Forge's liquidity. 44. Amended Commercial List Statement paras 117-124. 45. Amended Commercial List Statement paras 125-132. 46. The originator of the 'full fix' expression was not identified. It may well have been ANZ because the minutes of the board meeting at 1pm on 26 November 2013 record that it was a condition of the bank's offer that even though the proposal represented a 'full fix', Forge was to pursue a transaction in the new year. 47. This representation is not pleaded. 48. It will be readily apparent that the pleaded representations do not coincide with the averments of falsification. 49. There is no pleading of misleading or deceptive conduct by non-disclosure and the plaintiffs are not permitted to make that case. 50. He argues that this is consistent with Gorman's handwritten note of the meeting. 51. Para 102. 52. Amended Commercial List Statement paras 133-140. 53. Para 135. 54. The 16 December 2013 submission referred to an attached 4 December 2013 cashflow. 55. These are asserted against Bell as well but not for the purposes of the $6 million bond claim. The $6 million bond claim relies on 'the same conduct' as induced the 13 December 2013 submission. This conduct appears to include the 3 December 2013 Assetinsure meeting at which Simpson was not present and the 12 December 2013 Assetinsure meeting which was not attended by Bell, but only by Simpson and Montgomery. Nothing was said at that meeting by Montgomery. The difficulty in assessing what the plaintiffs say was the effect of each of Simpson's, Montgomery's and Bell's respective conduct is obvious. 56. As I have said elsewhere, the pleaded case does not comprehend the factors surrounding whether there would be a return of bonds to free up the additional $30 million ANZ facility. 57. Amended Commercial List Statement paras 156-163. 58. The underlined parts were included by amendment during the course of the hearing. It will be observed that there is no allegation of misleading conduct by non-disclosure. 59. This was not pressed. 60. No other particulars were identified. 61. It will be observed from what is said below that the basis upon which this is put bears little resemblance to the particulars provided to para 163 of the Amended Commercial List Statement. 62. ANZ itself apparently regarded the additional facilities as a 'full fix'. 63. Amended Commercial List Statement paras 164-168. 64. The underlined parts were included by amendment during the course of the hearing. It will be observed that there is no allegation of misleading conduct by non-disclosure. What is pleaded is a verbatim extract from Brereton's email to Wright at 9:39pm on 11 January 2014. 65. This allegation is plainly a recitation derived from Brereton's email to Wright at 9:39pm of 11 January 2014. This email, on any fair reading, conveys that discussions with the ATO were proceeding rather than that the issue had or would be imminently resolved. 66. No other particulars were identified. 67. Para 285. 68. It will be readily apparent that there is a difficulty with this claim as pleaded. The only falsification which is discernibly pleaded is to the allegation that Simpson represented that Forge was and would remain insolvent. The falsification is that Forge was insolvent or near insolvent, and the same particulars are given of insolvency as are provided with respect to the 11 January 2014 cashflow claim, with the same difficulties earlier identified. 69. Amended Commercial List Statement paras 170-174. These paragraphs include pleaded misrepresentations (including one as to Forge's solvency) which were not pressed. 70. Amended Commercial List Statement paras 180-184. 71. The underlined parts were included by amendment during the course of the hearing. 72. It is to be observed that this is not an allegation that the additional $30 million was not on track or likely, but one that the board was operating on the assumption that it was. The respects in which the plaintiffs are limited in their contentions with respect to the availability of this facility are dealt with earlier. 73. It remains something of an anomaly that this type of evidence is inadmissible in a claim based on negligence – see s 5D(3)(b) of the Civil Liability Act 2002 (NSW) – but is admissible here. 74. Wheeler Grace & Pierucci Pty Ltd v Wright (1989) ATPR 40-940 at 50,255-50,257 (per Lee J); see too Downey & Anor v Carlson Hotels [2005] QCA 199; Barton v Croner Trading Pty Ltd (1984) 3 FCR 95. It is uncontroversial that the conduct of an individual can be conduct in the trade and commerce of a corporation: Houghton v Arms (2005) 225 CLR 553. 75. As Gleeson CJ observed in Travel Compensation Fund v Tambree (2005) 224 CLR 627 at 639-640 [32]: 'Misrepresentation will rarely be the sole cause of loss. If, in reliance on information, a person acts, or fails to act, in a certain manner, the loss or damage may flow directly from the act or omission, and only indirectly from the making of the representation.10 Where the reliance involves undertaking a risk, and information is provided for the purpose of inducing such reliance, then if misleading or deceptive conduct takes the form of participating in providing false information, and the very risk against which protection is sought materialises, it is consistent with the purpose of the statute to treat the loss as resulting from the misleading conduct.' Here, it is not the alleged conduct complained of which directly caused the loss, or even the issue of the bonds, but Samsung's calling on the bonds which resulted from Forge defaulting. 76. Cited with approval in Fabcot v Port Macquarie-Hastings Council [2011] NSWCA 167 at [185], which also noted that J. D. Heydon has expressed the view that Farwell J's comments have application to questions of causation arising under the Trade Practices Act 1974 (Cth): J D Heydon, Trade Practices Law (Looseleaf Service) at [18.1290]. 77. Some of it was reinsured. 78. Commercial Union Insurance Co of Australia v Ferrcom Pty Ltd (1991) 22 NSWLR 389. 79. The plaintiffs' submissions did not extend to an analysis or assessment of the effect of what if any role was played by the host of matters, either individually or in conjunction, relied upon, for example, the role of Bell. 80. No reliance is placed, in this context, on the parts of the 28 November 2013 announcement quoting Simpson. Montgomery attended board meetings by invitation only. He was not a member of the board and had no voting rights at board meetings. There is no reference in the announcement to Montgomery by name or title, other than to name him as a contact person under the standard 'Company Information' section of the announcement. No comments are attributed to him in the body of the announcement. 81. It is not pleaded that these were opinions expressed by Montgomery which opinions he did not genuinely hold. 82. This was understood by Calvert, Sim and Brereton. 83. It was not suggested that it does. 84. Westpac Banking Corporation. 85. ASX Listing Rule 3.1A.1. 86. Awad v Twin Creeks Properties Pty Ltd [2012] NSWCA 200 at [43]-[45]. 87. Leupi described Swiss Re as a risk taker – T713:L25, T727:L11. 88. See Miller & Associates (2010) 241 CLR 357 at 384 [91]. 89. There had been a deterioration in the estimate as to the extent of the further write-down from an initial $8-10 million on the morning of 10 January 2014 to $10-20 million by that evening to a range of $23-28 million on the evening of 13 January 2014. 90. In an email on 13 January 2014, Sutherland wrote to Wright and Brereton of Montgomery: 'has that genius CFO been counting again…' 91. In accordance with the Key used in the cashflows. 92. This further demonstrates why the plaintiffs cannot in fairness be entitled to prosecute that case. 93. $50 million. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 02 March 2018