Geoffrey William Vines V Australian Securities & Investments Commission

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Geoffrey William Vines v Australian Securities & Investments Commission -

[2007] NSWCA 75
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Attribution
Original court site URL: http://www.caselaw.nsw.gov.au/decision/549fd38e3004262463beb391
Content retrieved: September 26, 2015
Download/print date: January 23, 2019
Reported Decision: 62 ACSR 1(2007) 25 ACLC 448

Appeal Outcome: Special leave refused with costs by the High Court - 14 December
2007
New South Wales
Court of Appeal
CITATION: Geoffrey William Vines v Australian Securities & Investments

Commission [2007] NSWCA 75
This decision has been amended. Please see the end of the
judgment for a list of the amendments.
HEARING 10, 16 & 17 November 2006

DATE(S):
JUDGMENT 4 April 2007

DATE:
JUDGMENT OF: Spigelman CJ at 1; Santow JA at 579; Ipp JA at 805
DECISION: 1 Appeal from the judgment of Austin J, being ASIC v Vines [2005]
NSWSC 738, allowed in part; 2 Declarations 6, 8, 9, 10 and 11 set
aside; 3 Appeal dismissed with respect to Declarations 1, 2, 3, 4, 5
and 7; 4 Appeal from the judgment of Austin J, being ASIC v
Vines [2005] NSWSC 1349, dismissed; 5 Direct each party to file
further submissions on the issue of penalty within three weeks of
the date hereof; 6 No order as to the costs of the appeal.
CATCHWORDS: Corporations – Management and administration – Duties and

liability of officers of corporation – Statutory Duty of Care and
Diligence – Standard of care for contraventions under the
statutory provisions equivalent to the civil standard – s232(4) Corp
orations Law - Corporations – Management and administration –
Duties and liability of officers of corporation – Statutory Duty of
Care and Diligence – The statutory duty set out in s232(4) Corpora
tions Law is a duty owed to the corporation - Corporations –
Management and administration – Duties and liability of officers
of corporation – Procedural fairness is informed by the context of
civil penalty proceedings - Corporations – Management and
administration – Duties and liability of officers of corporation –
s1317 & s 1318 Corporations Act – Appellate intervention in
discretionary judgments - Procedure – Judgments and orders –
Effect of delay in delivering judgment.
LEGISLATION Companies Act 1958 (Vic), s107

CITED: Companies (NSW) Code, ss229(1), 229(7)
Corporate Law Reform Act 1992
Corporations Law 1991, ss232(4), 232(11), 232(8), 670A, 1001A,
1317EA, 1317EB, 1317ED, 1317FA, 1317GF, 1317GH, 1317 JA, 1317 HB,
1317HD, 1317JA, 1318, 1324
Uniform Companies Act 1961, s124(1)
CASES CITED: Adler v ASIC (2003) 46 ACSR 504

Akerele v The King [1943] AC 255
Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [198
3] 1 NSWLR 1
Amalgamated Television Services Pty Ltd v Marsden [2002]
NSWCA 419
AMP General Insurance Ltd v Victorian Workcover Authority [20
06] VSCA 236
Andrews v DPP [1937] AC 576
Australian Securities Commission v Gallagher (1993) 11 WAR 105
ASIC v Adler (2002) 41 ACSR 72
ASIC v Maxwell (2006) 59 ACSR 373
ASIC v Vines [2003] NSWSC 1116
AWA Limited v Daniels (t/a Deloitte Haskins & Sells) (1992) 7
ACSR 759
Banque Commerciale SA En Liquidation v Akhil Holdings
Limited (1990) 169 CLR 279
Blackburn v Allianz Australia Insurance Ltd (2004) 61 NSWLR 632
Briginshaw v Briginshaw (1938) 60 CLR 336

Browne v Dunn (1893) 6 R 67
Buller v Black (2003) 56 NSWLR 425
Byrne v Baker [1964] VR 443
Callaghan v The Queen (1952) 87 CLR 115
Clout v Hutchinson (1950) 51 SR (NSW) 32
Coal and Allied Operations Pty Ltd v AIRC (2000) 203 CLR 194
Dabholkar v The King [1948] AC 221
Daniels v Anderson (1995) 37 NSWLR 438
Dare v Pulham (1982) 148 CLR 658
Darvall v North Sydney Brick & Tile Co Ltd (1987) 16 NSWLR 212
Clout v Hutchison (1950) 51 SR (NSW) 32
Figliuzzi v Yonan [2005] NSWCA 290
Flower & Hart v White Industries (Qld) Pty Ltd (1999) 87 FCR 134
Gould v The Mount Oxide Mines Limited (in liq) and Ors (1916) 22
CLR 490
GPG (Australia Trading) Pty Ltd v GIO Australia Holdings Pty
Ltd [2001] FCA 1761
Greek Herald Pty Ltd v Nikolopoulos (2002) 54 NSWLR 165
House v The King (1936) 55 CLR 499
Leotta v Public Transport Commission of New South Wales (1976)
50 ALJR 666
Martin v Rowling [2005] QCA 128
Mercer v Commissioner for Road Transport and Tramways
(NSW) (1936) 56 CLR 580
Mernhard v Salmon 249 NY 458 (1928)
Monie v Commonwealth of Australia [2005] NSWCA 25
Murphy v Overton Investments Pty Ltd [2002] FCAFC 129
Neat Holdings Pty Limited v Karajan Holdings Pty Limited (1992)
67 ALJR 170
Norbis v Norbis (1986) 161 CLR 513
Palmer v Dolman [2005] NSWCA 361
Permanent Building Society (in liq) v Wheeler (1994) 14 ACSR 109
Perpetual Trustee Company Ltd v Khoshaba [2006] NSWCA 41
Provident International Corporation v International Leasing
Corporation [1969] 1 NSWLR 424
R v Bateman (1925) 19 Crim App R 8
R v Birks (1990) 19 NSWLR 677
R v D [1984] 3 NSWLR 29
R v Maxwell (1998) 217 ALR 452
R v Minister for Immigration and Multicultural and Indigenous
Affairs: Ex parte Lam (2003) 214 CLR 1
R v White (1951) 52 SR (NSW) 188
Re City Equitable Fire Insurance Co [1925] Ch 407
Re HIH Insurance Ltd (in prov. liq); ASIC v Adler (2002) 41 ACSR
72
Re Property Force Consultants Pty Ltd (1995) 13 ACLC 1051
Rich v Australian Securities & Investments Commission (2004)
220 CLR 129
Russo v Aiello (2003) 215 CLR 643
Seymour v Australian Broadcasting Commission (1977) 19
NSWLR 219
Sheahan v Verco [2001] SASC 91
Singer v Berghouse (1994) 181 CLR 207
Thomas v Van Den Yssel (1976) 14 SASR 205
Townsville City Council v Chief Executive, Department of Main
Roads [2005] QCA 226
Vrisakis v Australian Securities Commission (1993) 9 WAR 395
Warren v Coombes (1979) 142 CLR 531
Water Board v Moustakas (1988) 180 CLR 491
Whitlam v Australian Securities and Investments Commission (20
03) 57 NSWLR 559
Wyong Shire Council v Shirt (1980) 146 CLR 40
PARTIES: Geoffrey William Vines (Appellant)

Australian Securities & Investments Commission (Respondent)
FILE NUMBER CA 40490/06

(S):
COUNSEL: B Oslington QC, Andrew Bell SC (Appellant)

S Robb QC, R Beech-Jones SC, E Collins (Respondent)
SOLICITORS: Geoffrey Pike, Sparke Helmore (Appellant)

Georgina Hayden, ASIC (Respondent)
LOWER Supreme Court - Equity Division

COURT
JURISDICTION:
LOWER 3138 of 2001

COURT FILE
NUMBER(S):
LOWER COURT Austin J

JUDICIAL
OFFICER:
LOWER 22 August 2005
COURT DATE 23 December 2005
OF DECISION: 2 August 2006
LOWER ASIC v Vines [2005] NSWSC 738

COURT ASIC v Vines [2005] NSWSC 1349
MEDIUM ASIC v Vines [2006] NSWSC 760
NEUTRAL
CITATION:
- 298 -
CA
40490
/06
SPIG
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CJ
SAN
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JA
IPP
JA
Wednesday 4
April 2007
Geoffrey William VINES v AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION
In these proceedings ASIC alleged breaches of s 232(4) of the Corporations Law b

y the Appellant. This section requires officers of the corporation to exercise
care and diligence in the performance of their duties. The Appellant, a
chartered accountant and former auditor, was the Chief Financial Officer of
the GIO Group, but not a director, when a hostile takeover bid for GIO was
launched by AMP Limited in 1998. The Appellant had general responsibility
for the financial affairs of the GIO Group and undertook specific
responsibilities with respect to GIO’s response to the takeover, co-ordinating
the work of the Due Diligence Committee set up for this purpose.
The alleged contraventions related to the calculation of, and communication

concerning, a profit forecast for the year 1998-1999, which included a profit
forecast for the reinsurance division of GIO Insurance Ltd, GIO Re. GIO Re
was exposed to significant claims as a result of Hurricane Georges, which
struck North and Central America a month after the takeover bid was
announced. Consideration of the impact of exposure to claims from Hurricane
Georges on the profit forecast involved three elements: the magnitude of
exposure; the possibility, ultimately not realised, of GIO Re obtaining a
“retrocession policy” with another reinsurer effective to protect the profit
forecast; and the reassessment of reserves maintained to provide for other risks
to which GIO Re was exposed, which was achieved. This issue arose during the
period in which GIO was preparing its Part B Statement in response to the
AMP takeover bid.
The conduct of Mr Vines found by Austin J to have contravened the Corporation

s Law commenced on 9 November 1998 and continued up to, and after, the
publication of the Part B Statement on 16 December 1998. At issue was the
inclusion of an $80 million profit forecast for GIO Re in the GIO profit forecast
at a time when, on ASIC’s case, the Appellant knew or ought to have known of
facts that should have led him to advise it was improbable that the company
would achieve that forecast.
Encompassed within the seven contraventions was:
(i) A profit forecast of 9 November 1998;
(ii) A report and media release of 17 November 1998;
(iii) An email of 22 November 1998;
(iv) A management sign-off and draft Part B Statement of 8 December 1998;
(v) Advice to the Due Diligence Committee of 8 December 1998;
(vi) Advice to the Auditor of 8 December 1998;
(vii) Conduct after 8 December 1998.
The Appellant sought relief from liability under s1317JA or s 1318 of

the Corporations Law .
Both the Appellant and ASIC appealed from the penalty imposed
by Austin J.
HELD
A Standard of negligence
(1) Per Spigelman CJ, Santow & Ipp JJA agreeing
The standard of care applicable to the statutory duty is of a

generally similar character with respect to the identification of the
standard of care as under the director’s or officer’s common law
duty and does not call for a higher order of negligence to be
established. The civil penalty regime does not attach serious
consequences to a finding of contravention without an additional
element of seriousness being established. [134], [142]-[143], [146], [150]
-[151], [587], [779], [805]
Rich v Australian Securities & Investments Commission (2004) 220 CLR

129 considered.
Re City Equitable Fire Insurance Co [1925] Ch 407; Byrne v Baker [1964]

VR 443; Vrisakis v Australian Securities Commission (1993) 9 WAR 395;
Daniels v Anderson (1995) 37 NSWLR 438 explained.
Sheahan v Verco [2001] SASC 91; Australian Securities Commission v

Gallagher (1993) 11 WAR 105; AWA Limited v Daniels (t/a Deloitte
Haskins & Sells) (1992) 7 ACSR 759; R v Bateman (1925) 19 Crim App R
8; Andrews v DPP [1937] AC 576; Akerele v The King [1943] AC 255; Clout
v Hutchinson (1950) 51 SR (NSW) 32; R v White (1951) 52 SR (NSW) 188;
Callaghan v The Queen (1952) 87 CLR 115; Dabholkar v The King [1948]
AC 221; R v D [1984] 3 NSWLR 29 referred to.
(2) Per Spigelman CJ, Ipp JA agreeing
The statutory duty set out in s 232(4) of the Corporations Law is a

duty owed to the corporation. It may be that further development
of the law will identify a duty owed to creditors or shareholders or
employees, but that does not arise in this case. [84]-[86], [805] S 232
(4) is based on the common law duty. Other statutory duties are
based on the fiduciary relationship of directors to the corporation.
[85], [805]
GPG (Australia Trading) Pty Ltd v GIO Australia Holdings Pty Ltd [2001
] FCA 1761; Vrisakis v Australian Securities Commission (1993) 9 WAR
395; Daniels v Anderson (1995) 37 NSWLR 438; ASIC v Maxwell (2006)
59 ACSR 373 referred to.
Per Santow JA
The statutory duty set out in s 232(4) of the Corporations Law while
owed to the company must be accommodated to the overarching
related duty to act honestly and in the interests of the company as a
whole, meaning for the benefit of shareholders present and future.
In so doing it provides a perspective to judge the conduct in
question in the context of a hostile takeover where shareholders
seek to be informed as to the choice they make whether or not to
accept that takeover offer and do not want to be forced to sell on
the cheap. [580], [603], [795viii]
(3) Per Ipp JA, Spigelman CJ and Santow JA agreeing
The duty of a director or officer cannot be defined without

reference to the nature and extent of foreseeable risk of harm to the
company as well as prospective benefit from the conduct in
question. [310], [539], [600], [814]
B Denial of procedural fairness: findings outside of the pleaded

case
(1) Per Spigelman CJ, Santow & Ipp JJA agreeing
The context of civil penalty proceedings, and the seriousness of the

consequences of the orders sought, inform the content of the
requirement of procedural fairness. Whether a denial of procedural
fairness occurred if a finding of contravention departs from the
pleaded case must be determined in the context of each
contravention, subject to the fact, if it exists, that the parties have
chosen to fight the case on a different basis: [55], [57], [59], [586],
[805]
Gould v The Mount Oxide Mines Limited (in liq)and Ors (1916) 22 CLR
490; Dare v Pulham (1982) 148 CLR 658 applied.
Banque Commerciale SA En Liquidation v Akhil Holdings Limited (1990)

169 CLR 279; Leotta v Public Transport Commission of New South
Wales (1976) 50 ALJR 666 considered.
Whitlam v Australian Securities and Investments Commission (2003) 57

NSWLR 559; Adler v ASIC (2003) 46 ACSR 504; Greek Herald Pty Ltd v
Nikolopoulos (2002) 54 NSWLR 165; Water Board v Moustakas (1988)
180 CLR 491; R v Minister for Immigration and Multicultural and
Indigenous Affairs: Ex parte Lam (2003) 214 CLR 1 referred to.
(2) There was no departure in the 12 October 2005 findings from the
pleaded case, except with respect to the declarations relating to the
sixth contravention. [240], [297], [301], [441], [449], [478]-[479], [485],
[535], [586], [679], [706], [762], [773], [805]
C Denial of procedural fairness: failure to put matters during

cross-examination
Per Spigelman CJ, Santow & Ipp JJA agreeing
Whether the rule in Browne v Dunn has been observed is a matter

of fact and degree. It should be determined with respect to each
particular contravention. However, a cross-examination which
covered each possible contingency in the context of a number of
uncertain variables was not only impractical, but would have been
oppressive; [62], [409], [588], [805]. Also see [428].
R v Birks (1990) 19 NSWLR 677; Seymour v Australian Broadcasting

Commission (1977) 19 NSWLR 219; Browne v Dunn (1893) 6 R 67; Thoma
s Van Den Yssel (1976) 14 SASR 205 ; Martin v Rowling [2005] QCA 128;
Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1
NSWLR 1; Flower & Hart v White Industries (Qld) Pty Ltd (1999) 87
FCR 134; Amalgamated Television Services Pty Ltd v Marsen [2002]
NSWCA 419; Townsville City Council v Chief Executive, Department of
Main Roads [2005] QCA 226 referred to.
D Effect of delay in delivery of contraventions judgment

There was no substance in the contention that the findings of

contravention were compromised by the delay in delivery of the
contraventions judgment. The judgment was comprehensive and
carefully reasoned: [26]-[27], [31], [588], [805]
Monie v Commonwealth of Australia [2005] NSWCA 25; R v Maxwell (1

998) 217 ALR 452 distinguished.
E The relevance of Briginshaw

Per Ipp JA, Spigelman CJ agreeing
A serious allegation may be proved by circumstantial evidence.

[811], [539]
Briginshaw v Briginshaw (1938) 60 CLR 336 explained.
Neat Holdings Pty Limited v Karajan Holdings Pty Limited (1992) 67

ALJR 170; Palmer v Dolman [2005] NSWCA 361 referred to.
The Contraventions
(1) The First Contravention: 9 November Profit Forecast
The Appellant did not contravene his statutory duty of care and
diligence by making an unqualified statement of management
confidence in the profit forecast for GIO Re to the board. [247]
-[248], [670], [805]
(2) The Second Contravention: 17 November Report & Media

Release
Notwithstanding the fact that the purpose of the report and media
release was to advise the market, the Appellant’s conduct did not
contravene his statutory duty by failing to provide information
about the basis on which the profit forecast was computed. [316]
-[317], [679], [691], [805]
(3) The Third Contravention: 22 November Email

It was not negligent for the Appellant to fail to include in his email
the qualification, found to be necessary by Austin J, with respect to
the assumptions on which the profit forecast was based. [359], [360],
[366], [697], [700], [805]
(4) The Fourth Contravention: Management Sign Off of 8

December
Per Spigelman CJ, Ipp JA agreeing; Santow JA dissenting
The Appellant contravened his duty of care and diligence when he

signed the Management Sign Off having failed to take positive
steps to advise the Due Diligence Committee of the basis of the
assumptions underlying the profit forecast. [451]-[453], [456], [458],
[460], [711], [730], [733], [736], [750], [759], [794], [805], [874] The
Appellant failed to take the positive steps which his role and
responsibilities required be taken. [412] There was no need to
identify an event indicating the estimates should be checked, but
there were such matters. [446]-[449], [451]-[453]
Per Ipp JA, Spigelman CJ agreeing
There were warning signals that would have lead a reasonable

person in the position of the Appellant to take steps to verify Mr
Fox’s advice. [419], [452], [863], [866]
Per Santow JA
Absent grounds for suspicion the Appellant was entitled to

continue to rely on Mr Fox’s estimate of the exposure to Hurricane
Georges in accordance with the reporting relationship between
them then in place and was not required to advise the Due
Diligence Committee of the basis of the assumptions underlying
the forecast when they were aware of them. [728]-[729], [734]
(5) The Fifth Contravention: Advice to Due Diligence Committee

of 8 December
The Appellant contravened his duty of care and diligence when he

supported the integrity of the GIO profit forecast to the Due
Diligence Committee, for the reasons given with respect to
Contravention 4. [481], [489]-[490], [763]-[764], [795], [805], [874]
(6) The Sixth Contravention: Advice to the Auditor of 8

December
Per Spigelman CJ; Santow and Ipp JJA agreeing
The findings of Austin J did depart from the pleading. The relevant
test for a finding that the parties had deliberately chosen to fight
the case on a different basis has not been met. ASIC abandoned its
cross-appeal and no declaration in accordance with the pleading
can be made. [506], [515], [768], [805]
Dare v Pulham (1982) 148 CLR 658; Gould v The Mount Oxide Mines
Limited (in liq) and Ors (1916) 22 CLR 490 applied.
(7) The Seventh Contravention: Conduct After 8 December

The Appellant contravened his duty of care and diligence in the

period after the Part B issued by failing to give attention to whether
the GIO Re profit forecast would be achieved. [537]-[538], [774]-[775],
[794], [805], [874]
The Honesty Defence

(1) Per Spigelman CJ, Ipp JA agreeing; Santow JA expressing no
view
No basis was made out for interfering with the trial judge’s
discretionary judgment. [556]-[557], [560], [805]
(2) Per Spigelman CJ, Ipp JA and Santow JA agreeing
The statute requires a value judgment, prior to the exercise of

discretion, which may invoke a less restrictive test for appellate
intervention. [572], [556], [558], [802], [805]
Warren v Coombes (1979) 142 CLR 531; House v The King (1936) 55 CLR
499 considered.
Norbis v Norbis (1986) 161 CLR 513; Singer v Berghouse (1994) 181 CLR
207; Coal and Allied Operations Pty Ltd v AIRC (2000) 203 CLR 194; Rus
so v Aiello (2003) 215 CLR 643; Buller v Black (2003) 56 NSWLR 425; Bla
ckburn v Allianz Australia Insurance Ltd (2004) 61 NSWLR 632; Figliuzz
i v Yonan [2005] NSWCA 290; Perpetual Trustee Company Ltd v
Khoshaba [2006] NSWCA 41; Murphy v Overton Investments Pty Ltd [2
002] FCAFC 129; AMP General Insurance Ltd v Victorian Workcover
Authority [2006] VSCA 236 cited.
(3) Per Spigelman CJ, Ipp JA agreeing, and Santow JA dissenting
On the less restrictive test, given the seriousness of the

contraventions, relief should not be granted. [561], [573], [802], [805]
(4) Per Santow JA
Relief should be granted given the nature of the contraventions as no more than
errors of judgment, as not being flagrant, as involving no dishonesty on the
Appellant’s part, and where only three out of seven contraventions were upheld
on appeal so discounting the cumulative factor relied on by Austin J. [799]-[802]
CA
40490
/06
SPIG
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Wednesday 4
April 2007
Geoffrey William VINES v AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION
Judgment
TABLE OF CONTENTS
Paragraphs
SPIGELMAN CJ 1
I INTRODUCTION 2
II THE GROUNDS OF APPEAL

1 Overview 20
2 Delay 26
3 Departure from Pleaded Case 32
4 Failure to Cross-Examine 60
III STANDARD OF CARE 63

1 Austin J’s Analysis of the Standard of Care 66
2 Austin J’s Analysis of the Higher Standard
Submission 88
3 The Statutory Duty Case Law 98
4 Standard of Care in Crime 117
5 The Statutory Standard 128
6 The Statutory Regime 138
7 Conclusion on Standard of Care 142
IV PRE CONTRAVENTION EVENTS

1 The Appellant’s Role 153
2 The Development of the $80 million Forecast 168
3 The Extent of the Exposure to Hurricane
Georges 175
4 Retrocession Cover 204
5 Excess Reserves 217
V THE FIRST CONTRAVENTION: THE PROFIT FORECAST

OF 9 NOVEMBER 228
VI EVENTS BETWEEN 9 NOVEMBER AND 17 NOVEMBER

1 31 October Results 250
2 Draft Four Month Results 258
3 Hurricane Georges Register 260
4 Mr Vines’ Knowledge 265
5 The American Re Agreement 269
6 Due Diligence Documents 276
VII THE SECOND CONTRAVENTION: THE REPORT AND

MEDIA RELEASE 17 NOVEMBER 1998 280
VIII THE THIRD CONTRAVENTION: THE EMAIL OF

22 NOVEMBER 1998 319
IX DEVELOPMENTS BEFORE THE PART B
1 The Federal Court Judgment 368
2 The American Re Agreement 369
3 Maintaining the Profit Forecast 376
4 DDC Meeting of 6 December 383
5 Events of 7 December 387
X THE PART B CONTRAVENTIONS
1 The Part B Statement 396
2 The Position on 8 December 402

3 The Appellant’s Knowledge as at 8 December 414
XI THE FOURTH CONTRAVENTION: THE MANAGEMENT

SIGN OFF AND DRAFT PART B 421
XII THE FIFTH CONTRAVENTION: ADVICE TO THE DUE

DILIGENCE COMMITTEE 467
XIII THE SIXTH CONTRAVENTION: ADVICE TO THE

AUDITOR 492
XIV THE SEVENTH CONTRAVENTION: CONDUCT AFTER

8 DECEMBER 1998 517
XV REASONS OF IPP JA 539
XVI THE HONESTY DEFENCE 540
XVII PENALTY: APPEAL AND CROSS-APPEAL 575
XVIII ORDERS 577
SANTOW JA
XIX INTRODUCTION 579
XX THE STATUTORY DUTY OF CARE AND DILIGENCE

IN ITS BROAD APPLICATION 591
1 Elaboration of the Role and Responsibilities of Mr Vines 620
2 Outline of Salient Events with Commentary 628
3 Summing Up 661
XXI THE CONTRAVENTIONS

1 The First Contravention: The profit forecast of
9 November 1998 663
2 The Second Contravention: The report and media

release of 17 November 1998 673
a Conclusion 691
3 The Third Contravention: The email of
22 November 1998. 692
4 The Fourth Contravention: The management

sign-off. 701
a Reliance by Mr Vines on Mr Fox 723
b Recapitulation 726
c Conclusion 760
5 The Fifth Contravention: Advice to the Due

Diligence Committee on 8 December 1998 761
6 The Sixth Contravention: Advice to the Auditor

8 December 1998 765
7 The Seventh Contravention: Conduct after 8

December 1998 769
8 The Contraventions as a whole – a Perspective 778
9 Summation 795
XXII OUGHT MR VINES FAIRLY TO BE EXCUSED? 796
XXIII OVERALL CONCLUSION 804
IPP JA
XXIV THE ISSUE ADDRESSED IN THESE REASONS 805
XXV THE RELEVANCE OF BRIGINSHAW 808
XXVI THE POTENTIAL HARM TO GIO ARISING FROM

MISLEADING PROFIT FORECASTS AND ITS
RELEVANCE TO MR VINES’ DUTY 814
XXVII HOW THE PROFIT FORECAST IN THE PART B

STATEMENT WAS ARRIVED AT 824
XXVIII MR VINES’ RESPONSIBILITY FOR THE PROFIT

FORECAST 835
XXIX FACTS KNOWN BY MR VINES RELATING TO THE

ACCURACY OF THE PROFIT FORECAST 839
XXX WARNING SIGNALS 863
XXXI CONCLUSION 875
1 SPIGELMAN CJ:
I INTRODUCTION
2 The Appellant appeals from the judgment of Justice Austin in which he was found to have
contravened s 232(4) of the Corporations Law , as preserved in force by subsequent legislation,
in proceedings for a civil penalty instituted by the Respondent (“ASIC”).
3 Section 232(4) provided:
“In the exercise of his or her powers and the discharge of his or her
duties, an officer of the corporation must exercise the degree of
care and diligence that a reasonable person in a like position in a
corporation would exercise in the corporation’s circumstances.”
4 His Honour rejected the case of the Respondent in a number of respects. In the respects in
which his Honour upheld that case and made findings of contravention, the Appellant
appeals.
5 It is convenient to refer to his Honour’s first judgment as the Contraventions Judgment ( AS

IC v Vines [2005] NSWSC 738; 55 ACSR 617).
6 This judgment also dealt with contraventions by two other officers of the same
corporation, which proceedings were heard together with the proceedings against the
Appellant.
Following paragraph cited by:
ASIC v Flugge (No 2) (10 April 2017) (ROBSON J)
57. An application for relief under ss 1317S and 1318 involves three stages of
inquiry: [22]
(a) whether the applicant for relief has acted honestly;
(b) whether, having regard to all the circumstances, the applicant

ought fairly to be excused; and
(c) whether the applicant should be relieved from liability wholly or

in part, and if partly, to what extent.
It is for the director to satisfy the Court under each of those limbs. [23] Mr
Flugge has the burden of persuading me in relation to this evaluative
judgment.
via
[23] Dominium Insurance Company of Australia Limited (in liquidation) v Finn (19
89) 7 ACLC 25 (‘Dominion’) 33–34 (Powell J); ASIC v APCH [2014] FCA 1308 [68] ; V
ines v ASIC (2007) 73 NSWLR 451 [7] .
7 The Appellant sought relief from liability under s1317JA or s 1318 of the Corporations Law .
Those sections provide, relevantly:
“1317JA(2) Where, in eligible proceedings against a person, it

appears to the court that the person has, or may have, contravened
civil penalty provisions but that:
(a) the person has acted honestly; and
(b) having regard to all the circumstances of the case
(including, where applicable those connected with the
person’s appointment as an officer of a corporation or
of a Part 5.7 body), the person ought fairly to be
excused for the contravention;
the court may relieve the person either wholly or partly from a
liability to which the person would otherwise be subject, or that
might otherwise be imposed on the person, because of the
contravention.”
“1318(1) If, in any civil proceeding against a person to whom this
section applies for negligence, default, breach of trust or breach of
duty in a capacity as such a person, it appears to the court before
which the proceedings are taken that the person is or may be liable
in respect of the negligence, default or breach but that the person
has acted honestly and that, having regard to all the circumstances
of the case, including those connected with the person’s
appointment, the person ought fairly to be excused for the
negligence, default or breach, the court may relieve the person
either wholly or partly from liability on such terms as the court
thinks fit.”
8 His Honour rejected these defences in a second judgment. ( ASIC v Vines [2005] NSWSC
1349; 65 NSWLR 281.) The Appellant appeals from this decision. It is convenient to refer to
this as the Honesty Judgment.
9 Save with respect to this aspect of the appeal, the Honesty Judgement is not directly
relevant to other grounds of appeal. However, the Respondent often referred to it as a useful
summary of the Contraventions Judgment and did so without objection. Furthermore, the
Appellant expressly relied on it, again without objection, to elaborate on findings in the
Contraventions Judgment. Some limited reference to the Honesty Judgment on the
principal appeal is, in these circumstances, appropriate.
10 In a third judgment his Honour considered penalty. His Honour made eleven
declarations of contravention. He imposed a fine of $100,000 and disqualified Mr Vines
from acting as a director for three years. ( ASIC v Vines [2006] NSWSC 760; 58 ACSR 298.) It is
convenient to refer to this as the Penalty Judgment. The Appellant appeals from the
penalties imposed upon him.
11 Mr Vines was the Chief Financial Officer of GIO Australia Holdings Ltd (“GIO”), a
company listed on the Australian Stock Exchange and engaged in insurance. On 25 August
1998, a takeover bid for the shares in GIO was announced by another insurance company,
AMP Limited. This was a hostile takeover bid and was resisted by the board of GIO.
12 As required by the Corporations Law , GIO in due course published its Part B Statement on
16 December 1998. That Part B Statement contained a profit forecast for the year 1998-1999 of
A$250 million for the GIO Group. The amount included a forecast profit of A$80 million for
GIO Re, the reinsurance division of GIO Insurance Ltd, a subsidiary of GIO.
13 As can readily be appreciated, the profit forecast was of considerable significance in the
context of a hostile takeover battle. The Part B Statement was accompanied by a number of
documents which are pertinent to specific contraventions. I will refer to those documents in
the context of dealing with each contravention.
14 These proceedings focused on the validity of the $80 million profit forecast for GIO Re.
That division was exposed to significant claims as a result of Hurricane Georges which
struck Puerto Rico and the United States Virgin Islands, moved into the Gulf of Mexico and
made land fall in Mississippi in the period from 21 to 28 September 1998. This was about a
month after the takeover bid had been announced and occurred during the period in which
GIO was preparing its Part B Statement.
15 The conduct found to have contravened the Corporations Law on the part of Mr Vines
commenced on 9 November 1998 and continued up to and, indeed, after the publication of
the Part B Statement on 16 December 1998. The principal issue with respect to each of the
alleged contraventions was whether Mr Vines contravened the statutory duty of care and
diligence in or in connection with the profit forecast for GIO, by reason of the impact of
Hurricane Georges on GIO Re, having appropriate regard to other matters relating to the
making of the profit forecast for the GIO Group.
16 There were, relevantly, three elements which were under consideration for the purposes
of determining the profit forecast for GIO Re. Each of these elements varied from time to
time.
17 The first element was the magnitude of the exposure to Hurricane Georges. The
hurricane had occurred but the final size of the claims to which GIO Re’s policy would have
to respond could only be estimated.
18 The second element was the possibility of GIO Re obtaining a policy with another
reinsurer, known as a “retrocession policy”, which would enable it to assert, relevantly for
accounting purposes, that it had transferred the risk of its exposure to Hurricane Georges
exceeding the amount of A$25 million that had been taken into account in the computation
of the $80 million GIO Re profit forecast.
19 The third element was a reassessment of the reserves made by way of provision for other
risks to which GIO Re was exposed. The reserves for GIO Re’s exposure to professional
negligence insurance is referred to as MIPI. The argot of insurers used the terminology of an
“unders and overs” analysis by which extant reserves would be assessed, some of which
made inadequate provision (“unders”) while others made excessive provision (“overs”). MIPI
was accepted to have been one of the “overs” for which an adjustment needed to be made.
II THE GROUNDS OF APPEAL
1 Overview
20 The further Amended Notice of Appeal contains 34 separate grounds. I will deal with
these grounds under a series of headings and subheadings to encompass the following
matters:
(i) Failure to adopt a higher standard of negligence.
(ii) Denial of procedural fairness by the making of findings outside

of the pleaded case.
(iii) Denial of procedural fairness by the failure to put matters to

the Appellant by way of cross-examination.
(iv) The effects of delay in delivery of the Contraventions

Judgment.
(v) The failure to deal with the full range of submissions made on
behalf of the Appellant.
(vi) Challenges to findings of fact including assertions that the findings were not
supported by the evidence, that findings were not made on constituent
elements and the implications of the rejection of constituent elements, together
with specific error in a finding in the judgment at [916].
(vii) Challenges to each finding of contravention which I will consider under the following
subheadings (the contraventions being dealt with in their order chronologically rather than
as numbered in the pleadings):
· The Profit Forecast of 9 November 1998. (The First Contravention)
· The Report and Media Release of 17 November 1998. (The Second Contravention)
· The Email of 22 November 1998. (The Third Contravention)
· The Management Sign-Off and Draft Part B of 8 December 1998. (The Fourth
Contravention)
· Advice to the Due Diligence Committee of 8 December 1988. (The Fifth Contravention)
· Advice to the Auditor of 8 December 1998. (The Sixth Contravention)
· Conduct after 8 December 1998. (The Seventh Contravention)
21 As noted above, a number of the contraventions found by his Honour occurred on 8

December 1998, being the date on which the contents of the Part B Statement were finalised.
The sting in each of the contraventions found by Austin J concerned the fact that statements
were made on the basis of an $80 million profit forecast for GIO Re at a time when the
Appellant knew or ought to have known of facts that should have led him to advise it was
improbable that the company would achieve that forecast.
22 There was, in substance, a single course of conduct on 8 December constituted by a series

of discreet acts which I will consider, as noted above, in the following sequence:
(a) Execution by the Appellant of a document headed

“Management Sign-Off” for purposes of inclusion in the Part B
Statement.
(b) Advice to the Due Diligence Committee of the Board (the

“DDC”) for purposes of Board approval of the Part B Statement.
(c) Advice to Price Waterhouse Coopers Securities (“PwC”) for the purposes of
that company’s report to be included in the Part B Statement.
23 Each of the matters set out as (v), (vi) and (vii) in par [20] above – failure to deal with
submissions, challenges to findings of fact and to each finding of contravention – are best
considered in the context of each contravention. I will set out his Honour’s factual findings
which determine the overall context and the findings of fact up to the time of the first
contravention. Thereafter I will consider each contravention chronologically, under the
subheadings I have indicated, with sections indicating developments between
contraventions.
24 With respect to the assertion that certain submissions were not dealt with, I note his
Honour’s express observation at the outset of his judgment:
“Although the judgment is long, I have not set out and expressly
dealt with every written and oral submission (cf Digi-Tech
(Australia) Ltd v Brand [2004] NSWCA 58, at [282]-[291] ). I have done
my best to consider every submission, but I have confined my
express reasons for judgment to the findings of fact and
submissions that I regard as material, in the sense of being
significant to "the decision-making process": see Customs and Excise
Commissioners v A [2003] 2 All ER 736, at 753-4 ; and Digi-Tech at [284]
.”
25 His Honour’s approach was entirely appropriate. No submission was made that it was not.
Nor that the authorities to which his Honour referred were inapplicable.
2 Delay
26 The Appellant relies on the fact that some 16 months elapsed between the conclusion of
oral submissions and the delivery of the Contraventions Judgment. Reliance was placed on
the principles applied in R v Maxwell (1998) 217 ALR 452 and Monie v Commonwealth of
Australia [2005] NSWCA 25; 63 NSWLR 729. I observe, first, that the careful detailed and
comprehensive judgment of Austin J under appeal in this case does not suggest even a
glimmer of a comparison with either of the judgments dealt with in Maxwell and Monie. Inde
ed, throughout the Appellant’s submissions frequent reference is made to the care and
cogency of his Honour’s analysis and reasoning, whenever it suits the Appellant’s case.
27 In the event the Appellant was reduced to submitting that, whilst his Honour’s careful
and detailed analysis of the facts was “full and closely reasoned”, this Court should hold that
the ultimate findings of contravention should be regarded in a different way.
28 During the course of this submission the Appellant relied on a document produced by
Austin J after the Contraventions Judgment was handed down, setting out 147 corrections to
the original judgment. Almost all of these corrections were typographical and I can see no
basis for drawing any kind of adverse inference from their number, in the context of a
judgment of this size and complexity. The 147 corrections upon which the Appellant relied
in his written submissions included a significant number of omitted commas and trifling
spelling errors, missing letters or numbers in the typescript and occasionally inappropriate
capitalisation. Even so, the number of 147 corrections was, as the Respondent submitted,
something like 0.08 percent of the number of words in the Contraventions Judgment.
29 These proceedings involved three interrelated cases against three different individuals.
The reasons in the case of Mr Vines were only one part of this judgment. There were 56 days
of hearing, 4,740 pages of transcript, around 3,000 pages in the original tender bundle and
over 800 pages of written submissions. The final judgment itself consists of 1,495 paragraphs
over 292 pages. A lengthy delay was to be expected in a case of this magnitude. That was not
the case in either Maxwell or Monie.
30 In the event, in submissions in reply the Appellant advanced a limited number of

propositions, abandoning a number of matters that it had emphasised in its original written
submissions. It first said that this was a case that required “greater scrutiny” than other
judgments that come on appeal. This Court has given the appeal appropriate scrutiny. It was
also submitted that the Court should not “readily assume” that the trial judge took into
account evidence and submissions not expressly referred to in the judgments. This Court is
not in the habit of “readily assuming” anything of the character. The Appellant’s
submissions to the effect that his Honour failed to deal with certain submissions or made
inappropriate factual findings, or failed to make appropriate factual findings will be dealt
with on their merits in the context of the respective contraventions that his Honour
ultimately found.
31 The length of time that elapsed before delivery of the final judgment was much longer
than anyone would have wished. However, the case involved a considerable level of
complexity with numerous factual issues needing to be decided in the three separate
proceedings that had been heard together. Furthermore, this Court is not in a position to
allow a trial judge to concentrate on a single case to the exclusion of other cases. Austin J
would have been interrupted frequently in the course of preparing judgment in this matter.
In the event, his Honour has prepared a judgment which deals comprehensively with the
full range of issues in a sensitive, detailed and thorough manner. The reliance placed on the
delay and on the list of typographical errors by the Appellant is entirely unwarranted.
3 Departure from Pleaded Case
32 The Appellant submits that none of the trial judge’s findings of contravention fall within
the pleaded case. The Appellant submits that each finding of contravention was materially,
substantially and prejudicially outside the pleading. The Appellant submits that in each case
the departure from the pleadings was such as to constitute a denial of procedural fairness.
He further submits that the gravity of the consequences that attend civil penalty proceedings
is such that the significance of any departure from the pleaded case is magnified.
33 The Respondent asserts that his Honour’s findings of contravention did not depart from
each charge as pleaded. It acknowledges that, as the trial developed, certain further
particulars of conduct emerged which were within the scope of the pleading properly
understood. These particulars became the subject of findings by Austin J, but only after the
Appellant had had a full opportunity to deal with them.
34 Accordingly, ASIC submits that insofar as these particulars were either within the scope
of the pleading, or constituted particulars of matters that were not the subject of any
pleading, there was no denial of procedural fairness. As will appear below, each charge as
pleaded took the form of identifying an act together with, generally, particulars of Mr Vines’
state of knowledge. As will appear, some of the matters of which complaint is made are not
particulars of knowledge and, therefore, are not a departure from the pleaded case. Even if,
as appears to be the case, no particulars of such matters were sought or received, an issue of
procedural fairness could still arise. It will be necessary to assess whether there was a denial
of procedural fairness in any respect.
35 The Appellant relied particularly on the following passages from the judgment in Banque
Commerciale SA En Liquidation v Akhil Holdings Limited (1990) 169 CLR 279.
36 In the joint judgment of Mason CJ and Gaudron J, their Honour’s said at 286:
“The function of pleadings is to state with sufficient clarity the case

that must be met: Gould and Birbeck and Bacon v Mount Oxide Mines
Ltd in liq) (1916) 22 CLR 490 at p517, per Isaacs and Rich JJ. In this
way, pleadings serve to ensure the basic requirement of procedural
fairness that a party should have the opportunity of meeting the
case against him or her and, incidentally, to define the issues for
decision. The rule that, in general, relief is confined to that
available on the pleadings secures a party’s right to this basic
requirement of procedural fairness. Accordingly, the circumstances
in which a case may be decided on a basis different from that
disclosed by the pleadings are limited to those in which the parties
have deliberately chosen some different basis for the determination
of their respective rights and liabilities. See, e.g. Browne v Dunn (1893
) 6 R at p76; Mount Oxide Mines (1916) 22 CLR 490 at pp 517-518 .”
37 Furthermore, Brennan J said at 288:
“When the pleadings bring the parties to the issue, the court’s
function is to determine that issue and to grant relief founded on
the pleadings unless the parties are allowed to alter the issues at the
trial without amendment of the pleadings (as to which, see the
observations in London Passenger Transport Board v Moscrop [1942]
AC 332 at pp 340, 347, 351, 356 . The rule is clearly laid down in the
judgment of this Court in Dare v Pulham (1982) 148 CLR 658 at p664:
‘Apart from cases where the parties choose to
disregard the pleadings and to fight the case on issues
chosen at the trial, the relief which may be granted to a
party must be founded on the pleadings ( Gould and
Birbeck and Bacon supra at pp 517, 518 ; Sri Mahant
Govind Rao v Sita Ram Kesho (1898) LR 25 Ind App 195 at
p207).’ “
38 The Appellant also relied on the observations of this Court in Whitlam v Australian
Securities and Investments Commission (2003) 57 NSWLR 559 at 603 where the Court said:
“[164] In our opinion, a finding of breach of s.232(2) was not open on

the way the case was put by the respondent. This was a charge of
serious misconduct, and as such had to be formulated with
precision. Neither of the two possibilities we have raised was
canvassed in the case, either in the pleadings or during the twelve-
day hearing before the primary judge. Even now, they have not
been advanced by the respondent, either in a Notice of Contention
or in any other appropriate way. In relation to them, natural justice
has not been afforded to the appellant. It would not in those
circumstances be right for this Court to consider and rule upon
some new basis which it has itself formulated, such as these two
possibilities.
[165] In those circumstances, our conclusion must be that, even if
the appellant had been found to have deliberately failed to sign the
poll paper, this could not, on the way the case was pleaded and
conducted, have been found to be a breach of s.232(2). Accordingly,
we do not think it would be appropriate to order a new trial on this
issue.”
39 In response to these submissions, the Respondent referred to the observations of Giles JA,
with whom Mason P and Beazley JA agreed, in Adler v ASIC (2003) 46 ACSR 504, where his
Honour said, after referring to Banque Commerciale v Akhil Holdings, with respect to the
function of pleadings:
“[139] But their function as a foundation for procedural fairness

means that whether matters were within or outside ASIC’s pleaded
case must have regard to the pleading as a whole and should not be
approached with undue pedantry.”
40 Giles JA went on to repeat the observations of Mason P in Greek Herald Pty Ltd v
Nikolopoulos (2002) 54 NSWLR 165, with respect to a pleading of defamatory imputations,
where his Honour said at [18] :
“The pleader’s task is to capture the essence of the specific matters

imputed in relation to the plaintiff. Necessarily there will be
questions of degree and ‘if a problem arises, the solution will
usually be found in considerations of practical justice rather than
philology’ (per Gleeson CJ in Drummoyne Municipal Council v
Australian Broadcasting Corporation (1990) 21 NSWLR 135 at 137 ). In
this as in other areas, pleadings serve the ends of justice; they must
not be permitted to assume an independent self-referential
function. The pleaded imputation remains ‘the statement which, as
the plaintiff alleges, the publication gives the reader or viewer to
understand’ (per Mahoney JA in Singleton v Ffrench (1986) 5 NSWLR
425 at 428 ). It is not a straitjacket, although the rules of procedural
fairness place limits upon judge and jury’s capacity to enlarge the
issues.”
41 In Adler v ASIC Giles JA noted at [140] that “particulars serve the same function, but for a
further reason are not a straitjacket”. His Honour went on to refer to Dare v Pulham (1982) 148
CLR 658, to which I will further refer below. Giles JA concluded:
“[141] The underlying regard to procedural fairness is material to

whether it should be concluded that a pleaded and particularised
case, fleshed out by evidence, was not open to a party.”
42 It was recognised in the two judgments from Banque Commerciale v Akhil Holdings that I
have quoted above, that there was an exception to what was described as a general rule that
the case is confined by the pleadings. That exception was characterised as one where the
parties have “deliberately chosen some different basis” for the determination of the issues.
The two High Court authorities referred to for this proposition are Gould v The Mount Oxide
Mines Limited (in liq)and Ors (1916) 22 CLR 490 and Dare v Pulham supra. As the Respondent
relies on this proposition it is pertinent to set out the reasons of the High Court in these two
cases.
43 In Mount Oxide Mines supra at 517-518 Isaacs and Rich JJ said:
“Undoubtedly, as a general rule of fair play, and one resting on the

fundamental principle that no man ought to be put to loss without
having a proper opportunity of meeting the case against him,
pleading should state with sufficient clearness the case of the party
whose averments they are. That is their function. Their function is
discharged when the case is presented with reasonable clearness.
Any want of clearness can be cured by amendment or particulars.
But pleadings are only a means to an end, and if the parties in
fighting their legal battles choose to restrict them, or to enlarge
them, or to disregard them and meet each other on issues fairly
fought out it is impossible for either of them to hark back to the
pleadings and treat them as governing the area of context … There
are qualifications, no doubt, and each case must depend for the
proper application of the principle upon its own facts. It has been
laid down by the Privy Council that ‘as a rule relief not founded on
the pleadings should not be granted’. ‘But in this case’ (said their
Lordships) ‘the substantial matters which constitute the title of all
the parties are touched, though obscurely, in the issues; they have
been fully put in evidence, and they have formed the main subject
of discussion and decision in all three courts. The High Court are
right in treating the cases as not within the rule. [ Srimahant Govind
Rao Sita Ram Kesho 25 Ind App 195 at 207.]”
44 In Dare v Pulham supra the joint judgment of the High Court said at 664 :
“Pleadings and particulars have a number of functions: they furnish

a statement of the case sufficiently clear to allow the other party a
fair opportunity to meet it ( Gould and Birbeck and Bacon v Mount
Oxide Mines Ltd (In liq) (1916) 22 CLR 490 at p517); they define the
issues for decision in the litigation and thereby enable the
relevance and admissibility of evidence to be determined at the
trial ( Miller v Cameron (1936) 54 CLR 572 at pp 576-577 ); and they
give a defendant an understanding of a plaintiff’s claim in aid of the
defendant’s right to make a payment into court. Apart from cases
where the parties choose to disregard the pleadings and to fight the
case on issues chosen at the trial, the relief which may be granted to
a party must be founded on the pleadings ( Gould and Birbeck and
Bacon at p517, 518); Sri Mahant Govind Rao v Sita Ram Kesho (1898) LR
25 Ind App 195 at p297). But where there is no departure during the
trial from the pleaded cause of action, a disconformity between the
evidence and particulars earlier furnished will not disentitle a party
to a verdict based upon the evidence. Particulars may be amended
after the evidence in a trial has closed ( Mummery v Irvings Pty Ltd (1
956) 96 CLR 99 at pp 111, 112, 127 ), though a failure to amend
particulars to accord precisely with the facts which have emerged
in the course of evidence does not necessarily preclude a plaintiff
from seeking a verdict on the cause of action alleged in reliance
upon the facts actually established by the evidence ( Leotta v Public
Transport Commission (NSW) (1976) 9 ALR 437 at p446; 50 ALJR 666 a
t p668).”
45 The last mentioned authority in this extract is Leotta v Public Transport Commission of New
South Wales (1976) 50 ALJR 666 and the reference was to the judgment of Stephen, Mason
and Jacobs JA, who said at 668 :
“The pleadings should have been amended in order to make the

facts alleged and the particulars of negligence precisely conform to
the evidence which had emerged … Now and for many years past, a
plaintiff does not fail while being refused leave to amend or
through failure formally to apply for amendment, where the
evidence had disclosed a case in the cause of action fit to be
determined by the tribunal of fact.”
Their Honours went on to contrast a situation at 668-669:

“ … Where amendment would not raise a fresh issue based on a
different duty of care but would only amend the expression of the
course of events so that the facts pleaded would conform with the
evidence given.”
46 It is, of course, of significance that these observations were made in the context of
proceedings in negligence for damages.
47 ASIC submits that the Appellant’s submissions were based on an over simplified version
of the way in which the trial was conducted. It submits that a simple comparison between
the Statement of Claim and the reasons for judgment was not appropriate and that what was
required, in order to determine whether “the trial judge correctly addressed the issues
which were contested before him”, was a detailed consideration of the Statement of Claim
and certain other matters.
48 The ASIC submissions referred to the expert witness called by ASIC, Mr Hogendijk,
giving particular attention to the nature of the objections which the Appellant made to the
admissibility of Mr Hogendijk’s evidence and to the detailed cross-examination of Mr
Hogendijk, together with the evidence in chief given by the Appellant and his cross-
examination. ASIC placed particular reliance on the fact that the Appellant did not object to
those parts of Mr Hogendijk’s evidence at issue in the appeal on the basis that any of them
fell outside the pleaded case. There were objections, including objections as to relevance,
but no objection on the basis that they were outside the pleaded case. This submission
appears to be correct. Particular attention was drawn to the detailed cross-examination by
counsel for the Appellant about each of the matters said to constitute the conduct about
which there was a finding of contravention.
49 ASIC also drew attention to the fact that, with two exceptions which it submits are not
material, no submission was made in written or oral submissions before Austin J to the
effect that ASIC’s submissions with respect to the contraventions were not permissible on
the ground that any one of them was outside the pleaded case.
63. As was said in ASIC v APCH , the Court is bound to consider all of the
circumstances of the case when determining whether the defendant
ought fairly to be excused and whether to exercise the discretion; ‘it
must be the case that if a matter is relevant to be considered by the
court in deciding on the questions of disqualification and pecuniary
penalty it must be relevant in deciding whether to grant relief from
liability. Accordingly the factors that may be considered include the
lists of considerations in [ASIC v] Adler.’ [30]
via
[30] [2014] FCA 1308 [74] citing Morley (2011) 83 ACSR 620 [50] ; Maelor Jones (1
989) 54 SASR 285, 292 ; Re Turner Barker v Ivimey [1897] 1 Ch D 536, 542 (Byrne J);
ASIC v Adler [2002] NSWSC 483 [56], [125]–[126] ; Healey (2011) 196 FCR 430 [91] ;
Vines v ASIC (2007) 73 NSWLR 451 [50] .
50 ASIC further submitted to this Court:
“The Appellant has adopted an unduly technical approach to the

function of pleadings and circumstances where the contraventions
were squarely raised at trial.”
51 In many respects his Honour accepted the evidence given by the Appellant and, for that
reason, made findings adverse to the ASIC case which had been set out in the pleadings and
particulars provided by ASIC in the absence of knowledge of the case to be mounted by way
of defence. A specific example was the use by the Appellant of his own “Unders and Overs”
schedule, to which I will refer below, which played a significant role in the evidence in a
number of respects. There can be no basis, ASIC submits, for a conclusion that the
Appellant has been denied procedural fairness in circumstances where he has been given a
full opportunity to be heard.
52 In conclusion, ASIC’s submission to this Court was:
“While the specific findings of contravention made by the trial

judge are not always formulated in terms identical to ASIC’s
pleaded contraventions, they capture the substance of, and are not
inconsistent with, the specific matters pleaded and reflect the
evidence at trial.”
53 Nevertheless, it is of significance that at no stage of the case, including after the evidence
given by Mr Vines in his own case, did ASIC seek to amend its pleadings or particulars. This
may have been advisable in a context where, given the fact that Mr Vines was not obliged to
disclose his case or any evidence before the close of the ASIC case, that case could have been
modified, consistently with the requirements of procedural fairness, after it closed. Indeed,
even an indictment can be amended during the trial. (See s 21 of the Criminal Procedure Act 19
86 .)
54 However, primarily with reference to the evidence of Mr Hogendijk, ASIC relied upon
the following observations in Water Board v Moustakas (1988) 180 CLR 491 at 495 :
“In deciding whether or not a point was raised at trial no narrow or

technical view should be taken. Ordinarily the pleadings will be of
assistance for it is one of their functions to define the issues so that
each party knows the case which he is to meet. In cases where the
breach of a duty of care is alleged, the particulars should mark out
the area of dispute. The particulars may not be decisive if the
evidence has been allowed to travel beyond them, although where
this happens and fresh issues are raised, the particulars should be
amended to reflect the actual conduct of the proceedings.
Nevertheless, failure to amend will not necessarily preclude a
verdict upon the facts as they have emerged. (See Dare v Pulham (198
2) 148 CLR 658) In Leotta v Public Transport Commission (NSW) (1976)
50 ALJR 666 at p668; 9 ALR 437 at p446), a case having been
submitted to the jury which was factually different from that
alleged in the pleadings and particulars, Stephen, Mason and
Jacobs JJ observed that the pleadings should have been amended in
order to make the facts alleged and the particulars of negligence
precisely conform to the evidence. The failure to apply for the
amendment in that case was held not to be fatal. But in Malone v
Commissioner for Railways (NSW) (1978) 53 ALJR 291 at p294; 18 ALR
147 at pp 151-152 ), Jacobs J, with whom the other members of the
Court agreed, pointed out that the conclusion in Leotta was reached
only upon the presupposition that the new issue or new way of
particularizing the existing issue had emerged at the trial and had
been litigated.
It is necessary to look to the actual conduct of the proceedings to
see whether a point was or was not taken at trial, especially where a
particular is equivocal.”
55 In the present case, this matter must be assessed in the context of civil penalty
proceedings. The seriousness of the consequences that may arise in such a case is greater
than in a civil action for damages. Accordingly, the necessity to formally amend is
significantly higher than would otherwise be the case. Particulars which are, to use the
terminology of Moustakas “equivocal” or, to use the terminology of Mr S Robb SC, who
appeared for ASIC, which have a “penumbra of uncertainty”, will not readily be understood
in their broadest sense. Nevertheless, the issue is one of procedural fairness and the course
of the trial may determine that there has been no failure in that regard.
56 It will be necessary below to consider the alleged departure from pleadings in the context
of some of the contraventions which his Honour found. If necessary at all, the role of Mr
Hogendijk’s evidence may need to be considered. The Respondent contends that in no
respect did the Appellant object to the evidence of Mr Hogendijk as falling outside the
pleaded case, indeed, that there was extensive cross-examination with respect to the very
matters that were found to have constituted the contraventions. Furthermore, both ASIC
and the Appellant addressed Mr Hogendijk’s evidence in submissions.
57 If necessary at all, each contravention will have to be addressed separately with a view to
determining whether, in any respect in which there is found to be a departure between the
pleadings and the finding of contravention, the test that the parties have chosen to fight the
case on a different basis has been met. (The relevant test being that as set out in Mount Oxide
Mines and Dare v Pulham, quoted above.)
58 It may also be necessary to assess the significance of any departure from the pleadings in
view of the express statutory requirement in s1317EA(2), set out above, that any declaration
of contravention must identify “a specified act or omission” which constitutes the
contravention.
CRABMAN & CRABMAN (03 July 2013) (May J)
48. Arguments are regularly made by self-represented litigants in appeals

in this Court about what is said to be procedural fairness or natural
justice. In Vines v Australian Securities and Investments Commission (2007)
62 ACSR 1, Spigelman CJ considered the rules of natural justice. His
Honour said at paragraph 59 :
The appellant’s submissions rely on the application, in the circumstances

of the proceedings, of the requirement of procedural fairness. The
seriousness of the consequences of the orders sought and, in the event,
visited upon the appellant, must inform the content of that requirement.
Nevertheless, as is well established, procedural fairness does not involve
a fixed body of rules to be applied in a formulaic manner. As Gleeson CJ
said in R v Minister for Immigration and Multicultural and Indigenous Affairs;
Ex parte Lam (2003) 214 CLR 1 … at [37] :
59 The Appellant’s submissions rely on the application, in the circumstances of the

proceedings, of the requirement of procedural fairness. The seriousness of the consequences
of the orders sought and, in the event, visited upon the Appellant, must inform the content
of that requirement. Nevertheless, as is well established, procedural fairness does not
involve a fixed body of rules to be applied in a formulaic manner. As Gleeson CJ said in R v
Minister for Immigration and Multicultural and Indigenous Affairs: Ex parte Lam (2003) 214 CLR 1
at [37] :
“Fairness is not an abstract concept. It is essentially practical.

Whether one talks of procedural fairness or natural justice, the
concern of the law is to avoid practical injustice.”
4 Failure to Cross-Examine
Mobileciti Pty Limited v Vodafone Pty Limited (25 September 2009) (Hamilton AJ)
86 As was said by Mahoney JA in Seymour v Australian Broadcasting

Commission (1977) 19 NSWLR 219 at 236 :
“... failure to cross-examine a witness may not ...

render the course of the trial unfair if it is clear
from the manner in which generally the case has
been conducted that his evidence will be
contested… . The nature of the defendant’s case
and the particulars given, and otherwise the
conduct of it may make it sufficiently clear that
such an assumption is unwarranted and that there
has been no surprise or prejudice concerning the
matter.”
This passage was cited with approval by Heydon JA in Knight v

Maclean [2002] NSWCA 314 at [34] . See also per Spigelman CJ in
Vines v Australian Securities and Investments Commission (20
07) 62 ACSR 1 at [60] , [61] and [409] .
60 The test of “practical injustice” also reflects Chief Justice Gleeson’s analysis of the “rule”
in Browne v Dunn in R v Birks (1990) 19 NSWLR 677 at 688 :
“It is plain that their Lordships, whilst recognising and affirming a

rule of practice in the terms in which they expressed themselves,
also recognised the need for flexibility in its application. That need
arises from the very nature of the subject matter which it concerns.
The central purpose of the rule is to secure fairness in the conduct
of adversary proceedings. That consideration provides the best
guide, both to the practical requirements of the rule in a given case,
and to the consequences which may properly flow from its non-
observance, including the remedies that are available to deal with a
problem so created.”
See also Seymour v Australian Broadcasting Commission (1977) 19 NSWLR 219 at 235
-237 .
61 There is no unfairness where the relevant witness has had notice before giving evidence
of the matter in issue, e.g. of an “intention to impeach the credibility of the story he is
telling” ( Browne v Dunn (1893) 6 R 67 at 71 ), as in personal injury cases where damage is
always in issue (Thomas Van Den Yssel (1976) 14 SASR 205 at 207-208 ; Martin v Rowling [2005]
QCA 128 at [4] ); or where notice has been given of reliance on certain matters; ( Allied
Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1 at 16 ; Flower & Hart v
White Industries (Qld) Pty Ltd (1999) 87 FCR 134 at 148 ) e.g. where material was already in
evidence and a witness “could have dealt with it but chose not to” ( Amalgamated Television
Services Pty Ltd v Marsden [2002] NSWCA 419 at [438] ) or where it was clear from one expert’
s report that the methodology and opinion of another expert was contested ( Townsville City
Council v Chief Executive, Department of Main Roads [2005] QCA 226; [2006] 1 Qd R 77 at [51]-[52]
).
Australian Securities & Investments Commission v Fortescue Metals Group Ltd [No
5] (23 December 2009) (GILMOUR J)
111. Austin J noted that in Vines v ASIC (2007) 62 ACSR 1 at [62]
Hope v Hunter and New England Area Health Service (27 November 2009) (Levy SC
DCJ)
184. First, there is the difficulty that the attack the defendant sought to make
was made in circumstances where it was not suggested to the plaintiff that he
had exaggerated in his answers to the Beck inventory, dishonestly or
otherwise, when this inventory was administered to him by Dr Jungfer : Browne
v Dunn (1893) 6 R 67. Whilst it is sometimes impractical or oppressive to fully
observe the rule in Browne v Dunn in complex cases so that degrees of
observance are at times permissible – Vines v ASIC [2007] NSWCA 75 per
Spigelman CJ at [62] and [409]
62 The Appellant relied on the “rule” in Browne v Dunn supra as a rule of procedural fairness
requiring that the “central propositions in a particular party’s case and/or matters central to
critical facts found” be put to a witness or party. This matter arises in the context of specific
findings and it is appropriate to consider this ground where it is raised with respect to
particular contraventions. Matters of fact and degree necessarily arise with respect to the
application of this principle. No submission was made to the effect that the rule in Browne v
Dunn, as an application of procedural fairness, was not applicable. Whether the rule was not
observed has to be determined with respect to each particular contravention.
III STANDARD OF CARE
63 The Appellant repeated in this Court the submission made before Austin J that the
degree of negligence that must be established to constitute a contravention of s232(4) is
higher than that which would support a claim of negligence at common law. The Appellant
directed attention to the consequences of a finding of a breach of the statutory provision
which include a declaration of contravention, penalties in the form of monetary fines,
disqualification from office and compensation orders. These consequences are wider than
the damages that could be awarded in a claim of negligence at common law. The Appellant
submits that in this statutory scheme the failure to act with care and diligence must be
“gross enough to become a matter of public concern, to interest the State by reason of its
gravity”.
64 In support of this submission the Appellant relied on the case law for criminal offences
which can be committed by negligent conduct, where a higher standard of care had been
adopted. I will discuss these cases below. The Appellant relied, by way of analogy, on the
general approach to the legislative scheme here under consideration adopted by the High
Court in Rich v Australian Securities & Investments Commission (2004) 220 CLR 129.
65 His Honour rejected this submission after a consideration of the cases relied upon by the
Appellant. The Respondent submits that his Honour was correct for the reasons he gave.
1 Austin J’s Analysis of the Standard of Care
66 When Austin J considered the Appellant’s submission on the standard of care in the
Contraventions Judgment, his Honour expressly referred to and adopted his own earlier
analysis in the course of a ruling on the admissibility of expert evidence with respect to the
conduct of a competent chief financial officer of a corporation. (See ASIC v Vines [2003]
NSWSC 1116; 48 ACSR 322). I will refer to this as the Expert Evidence Judgment. In that
judgment his Honour indicated that his ruling on evidence would not preclude further
submissions on the matter but, having heard such submissions, his Honour remained of the
view that he had expressed in the ruling on evidence. In substance, his Honour incorporated
the Expert Evidence Judgment into the Contraventions Judgment.
67 Both in the Expert Evidence Judgment and in the Contraventions Judgment his Honour
gave particular attention to the question of whether s 232(4) of the Corporations Law adopted
an objective standard of care and found that it did. The Appellant does not question this
aspect of the reasoning. His Honour also held that the words “in a like position” in s232(4)
incorporate both the designated executive office held by each defendant (in Mr Vines’ case
the post of Chief Financial Officer) and any additional responsibilities relevantly, in Mr
Vines’ case, the particular responsibilities he acquired after the announcement of the AMP
takeover bid, especially with respect to the formulation of the Part B Statement. (See at
[1062].) The Appellant does not challenge this aspect of his Honour’s analysis.
68 His Honour commences his consideration of the issue of standard of care in the following
way:
“[1070] Given the language of s 232(4) and the case law interpreting
it (especially the recognition in Daniels v Anderson that the statutory
formula includes a standard of skill), it seems to me that the general
law of torts may now be called in aid as a source of guiding principles for
the content of the statutory standard of care of company directors and
officers. The statutory standard should not be treated as an
idiosyncratic and isolated phenomenon, at any rate so far as the
content of the duty is concerned. It seems to me that this is so
whether the general law duty of care of company directors and
officers is an equitable duty arising out of a fiduciary relationship,
or now part of the general law of torts; and if it is equitable,
whether it is the equitable standard that is adopted by the statute.
Ascertaining whether the statutory standard adopts the substance
of an equitable duty may be a matter of significance where the issue
is (say) measure of compensation or causation, but that matter does
not appear to be significant where the issue is the content of the
standard of care. It is therefore of assistance to look to the general law of
torts .” [Emphasis added]
69 His Honour referred to the well-known passage in the judgment of Mason J in Wyong
Shire Council v Shirt (1980) 146 CLR 40 at 47 identifying the significance of an assessment,
when determining what reasonable care required in particular circumstances, of both the
magnitude of the relevant risk and the degree of probability of its occurrence.
70 In this, as in many other respects, the structure of proceedings for contravention of the
statutory duty of skill and diligence differs from that which is usually to be found in a case
based on negligence at common law. The proceedings do not have the benefit of the
particular focus occasioned by having a specific plaintiff before the Court who suffered
damage in specific circumstances.
71 With respect to the issue of “magnitude of risk” his Honour referred to a formulation of
Dixon J in Mercer v Commissioner for Road Transport and Tramways (NSW) (1936) 56 CLR 580
at 601 when his Honour said:
“In considering the extent and nature of the measures that due care
demands, the first question must be the gravity, frequency and
imminence of the danger to be provided against.”
72 Austin J went on to say:
“[1074] In the present case the danger to be provided against was

that the GIO shareholders might be left in a position of making
their decision whether to accept or reject the AMP takeover bid on
the basis of inaccurate or incomplete information, if the defendants
or any of them failed to discharge their statutory duty of care and
diligence. If, in consequence of the defendants (or any of them)
breaching their duty by conduct which allowed too high a profit
forecast to be published, GIO shareholders were to decide not to
accept the takeover offer, the risk to them would be that they would
find themselves locked into a minority position in a company,
management control of which had passed under the bid. Without,
at this stage, making any findings about causality or remoteness of
damage, the court can infer that this risk was a substantial one,
because the liquidity of the market for a listed target company's
shares, and the share price, will ordinarily be adversely affected
once control has passed and any control premium has evaporated.
[1075] The statutory standard set by s 232(4) establishes an inquiry
as to the degree of care and diligence that a reasonable person
"would exercise", not what a reasonable person might do. The
standard is similar in concept to the standard that applies in professional
negligence cases . If a professional person acts as a reasonable
professional would act, he or she is not negligent even if many
others would have acted differently in the circumstances. In
applying the general standard of care and diligence to a
professional person such as a lawyer, auditor, actuary, reinsurance
manager or chief financial officer, the law distinguishes between
negligence and mere mistakes.” [Emphasis added]
73 With respect to the issue of “probability of occurrence” his Honour said:
“[1072] … The three defendants occupied positions which, in

somewhat different ways, were capable of influencing the content
of GIOs Part B Statement and in particular, the profit forecast. It
seems reasonable to infer that the content of the Part B statement,
and in particular, the level of the profit forecast, was likely to
influence GIO shareholders in making their imminent decision
whether to accept or reject the AMP bid. Therefore in this case
there was a significant likelihood that failure by the defendants, or
any of them, to discharge their duty of care and diligence would be
likely to cause harm.”
74 After referring to other authorities his Honour then said:
“[1077] … Forecasting in a reinsurance business is a difficult and

uncertain process, where there is much room for differences of
opinion and even small variations of input can produce widely
different outcomes (see section 1.2). The issue under s 232(4) is not
whether the defendants made mistakes during the course of the
due diligence process, but whether they failed to meet the standard
of care and diligence that the statute lays down. The statutory
standard, like the general law, permits the court to take into
account the circumstances of the particular case, and requires the
standard to be applied to those circumstances as they existed at the
relevant time, without the benefit of hindsight.”
75 Austin J went on to discuss the role of the law in protecting investors in the context of
public fundraising and takeover battles. His Honour identified the significance of a profit
forecast in this context, outlined the practice that had emerged of a formal due diligence
process and referred to the particular role of Part B Statements. In this context his Honour
said:
“[1082] … the Part B process shared with prospectus offerings the

fundamental characteristic that the information to be conveyed to
investors was vitally important information for the purposes of the
decision they were invited or required to make.
[1083] … What is important for present purposes is that the process
was very much the formal due diligence committee-dominated
process that had become the practice in other areas. Mr Vines
made clear in his letter to executives dated 10 November 1998 that
the purpose of the due diligence process was to identify matters to
be disclosed in the Part B statement and to ensure that the
document complied with the law …
[1084] It was plain to anyone who read those documents, and must
have been plain to the defendants, that the information given to the
DDC would be considered for inclusion in the Part B statement.
The same is true of information given to PwC, since it was well-
known that PwC Securities was preparing a report upon which the
DDC and the board of directors of GIO Australia Holdings would
rely for the purposes of the Part B statement …”
76 His Honour concluded:
“[1085] … the matters that I have described affected the standard of

care and diligence to be met by the three defendants. When they
provided information for the purposes of the Part B statement,
either to the DDC or to PwC, their standard of care and diligence
was influenced by the circumstance that the information was
provided within the framework of a due diligence process that was
designed to ensure adequate and materially complete disclosure to
GIO shareholders in compliance with the law and in a fashion that
would protect those involved in the process from liability should a
defect later be discovered in the document. These circumstances
made it necessary for the defendants to take particular care in
providing information. Moreover it was or should have been clear
from the questionnaire that it would not be enough for them to
confine their attention to what they knew, in circumstances where
they could uncover material information by appropriate inquiries.
It was apparent that the DDC was relying on senior executives
including the three defendants to give their conscientious and
careful attention to the documents they were asked to complete
and to the information they were to provide in other contexts, such
as in discussions with PwC.”
77 As appears from par [1074] of the judgment of Austin J, set out in par [72] above, that his
Honour identified a particular risk, namely the “danger” that GIO shareholders might make
their decision as to whether or not to accept or reject the AMP bid on the basis of inaccurate
information. He referred to the possibility that some could reject the bid in the case of a high
profit forecast and then be locked into a minority position. However, in the passage of his
judgment which identified the higher “due diligence” standard, which the board of GIO had
determined should be applicable to the Part B process, as set out in pars [75]-[76] above, his
Honour held that the standard of care and diligence applicable to Mr Vines extended to the
contents of the Part B Statement, irrespective of the position of particular GIO shareholders.
I do not understand his Honour in the ultimate analysis to have restricted himself to the
limited danger he identified in his par [1074].
78 The section of his judgment which was concerned with the relevant standard
encompassing a “due diligence” element, commenced with the following:
“[1078] The law imposes heavy civil, and sometimes criminal,

liability on those who provide misleading information to the public
securities markets about the price or value of ‘securities’. The law is
concerned with the protection of investors by endeavouring to
ensure that the information upon which they make their
investment decisions is materially accurate and complete. Issues of
high public policy are involved.”
79 A focus on the risk of existing GIO shareholders being locked in as minority shareholders,
as suggested in his Honour’s [1074], is too narrow a focus for the scope of the duty and the
determination of the relevant standard of care. Nor, in my opinion, did his Honour adopt so
narrow a focus as his consideration of the significance of the “due diligence” process
indicated. His Honour held that the standard of care and diligence was determined and, it
would appear, rendered higher than usual, by reason of the decision of GIO to approach the
bid on the basis of adopting a “due diligence” approach.
80 In his Honour’s par [1085], which I have quoted at [76] above, he referred not only to the
necessity of “disclosure to GIO shareholders” but went on to refer to the need to “protect
those involved in the process from liability should a defect later be discovered in the
document”.
81 The reference to “parties involved in the process” would encompass the directors and
auditors who could be exposed to liability if, relevantly, the profit forecast proved to be
negligently wrong. Most significantly, the reference to “parties” included the GIO itself as a
corporate entity.
82 No submission was made that his Honour’s reference to the risk to existing shareholders
being locked in was inappropriate. In any event, the reference to the exposure of “parties
involved in the process” is sufficient to extend the relevant “danger”, against which the
exercise of care and diligence was required, to actions by shareholders against, most
relevantly, the company itself.
83 Indeed, somewhat accidentally, one of the authorities which indicates the possible
exposure of the company to such a suit by shareholders – albeit not in a way which is
pertinent factually to the present case – is an action by shareholders of the GIO with respect
to subsequent conduct concerning the exposure of the GIO’s reinsurance business which,
with respect to an earlier time, is in issue in this appeal. (See GPG (Australia Trading) Pty Ltd
v GIO Australia Holdings Pty Ltd [2001] FCA 1761; 117 FCR 23.)
84 The statutory duty set out in s232(4) is, in my opinion, a duty owed to the corporation.
That is suggested by the statutory context and the scope of the parallel common law duty.
(See e.g. Vrisakis v Australian Securities Commission (1993) 9 WAR 395 at 449 ; Daniels v
Anderson (1995) 37 NSWLR 438 at 505 ; ASIC v Maxwell (2006) 59 ACSR 373 at [102], [105]-[110] ;
R P Austin et al Company Directors: Principles of Law and Corporate Governance Lexis Nexis
Butterworths, Australia 2005 at [5.3], [6.2] and [6.16].)
85 The relationship is implicit in the historical origins of the common law duty, upon which
the statutory duty is based and in the fiduciary relationship of directors to their corporation
upon which other statutory duties are based. That duty has been extended, relevantly by
statute, to other officers of the corporation.
86 It may be that further development of the law will identify a duty owed to creditors or
shareholders or employees. (See e.g. Gower and Davies Principles of Modern Company Law (7th
ed) London, Sweet & Maxwell, 3003 at pp371-379.) However, no such issue arises in the
present case.
87 It is sufficient for present purposes to note that his Honour did not confine the scope of
the relevant risk to a shareholder being locked in and, even in that case, such an eventuality
carries with it clearly identifiable risks to the corporation.
2 Austin J’s Analysis of the Higher Standard Submission
88 I return to consider his Honour’s reasoning with respect to the submissions made by the
Appellant as to whether there was a special standard of care and diligence under the statute.
His Honour said:
“[1086] A finding of negligence in a civil penalty proceeding attracts
a declaration of contravention and may attract penalties in the form
of monetary fines, disqualification from managing a corporation
and compensation orders which are potentially wider in some
respects than the damages that could be recovered in a common
law negligence action. Mr Vines submitted that, whereas in a
common law case the slightest degree of negligence is sufficient to
found a suit for damages, in a civil penalty proceeding such as the
present one the degree of negligence to be proved must be of a higher
level (that is, as I understand the submission, the statutory standard of
care and diligence must be a lower standard than the general law ). His
submission … was that the negligence ‘must be gross enough to
become a matter of public concern, to interest the State by reason
of its gravity’, and the degree of negligence must be ‘sufficient to
merit the punishment which can be imposed’.
[1087] Sometimes the legislature enacts a law creating a criminal
offence for merely negligent conduct. For example, the Crimes Act
1900 (NSW) s 54 provides that ‘whosoever by any unlawful
negligent act, or omission, causes grievous bodily harm to any
person, shall be liable for imprisonment to 2 years’. The
interpretation of that provision was at issue in the Court of
Criminal Appeal of New South Wales in R v D [1984] 3 NSWLR 29, i
n which Yeldham J usefully brought together some of the earlier
authorities. The case law shows that the courts have generally
interpreted such provisions as setting a standard of care distinctly
higher than the common law standard.” [Emphasis added]
89 His Honour went on to refer to other authorities including Andrews v DPP [1937] AC 576; D
abholkar v The King [1948] AC 221; Clout v Hutchison (1950) 51 SR (NSW) 32; R v White (1951) 52
SR (NSW) 188 and Callaghan v The Queen (1952) 87 CLR 115. I will consider these authorities
below.
“[1092] Civil penalty proceedings share many of the characteristics

of other civil proceedings. For example, the burden of proof is on
the balance of probabilities (subject to the Briginshaw standard), the
trial is before a judge sitting alone, and the civil laws of evidence
and procedure apply. But they have some of the characteristics of
criminal proceedings. For example, they are concerned with public
wrongs rather than the vindication of rights and duties between
subjects. They may lead to the imposition of penalties not typical of
the civil law such as pecuniary penalties and disqualification
orders. They are contests between the power of a government
agency and one or more citizens. They have been held to attract the
privilege against exposure to a penalty: Rich v ASIC (2004) 78 ALJR
1354.
[1093] Callaghan is authority for the proposition that the content of
the standard of care may vary depending on the purpose for which
it is invoked. The High Court thought it appropriate to apply a
higher standard where the statutory description, though using the
language of civil negligence, was intended to describe fault so
blameworthy as to be punishable as a crime. It is arguable, by
analogy with this reasoning, that the civil penalty provisions single
out certain contraventions for special treatment on the basis that
those provisions describe conduct that is more blameworthy than
civil negligence, though not as blameworthy as, at least, some kinds
of criminally negligent conduct. It would follow, if this argument were
accepted, that the statutory duty of care for company directors and
officers would be set at a lower standard than the civil duty of care
applicable to professionals and employees, so as to confine the statutory
provision to the more serious kinds of negligent conduct .
[1094] While the point seems open to argument, at least at the
appellate level, my view is that to hold that [the] legislature has
lowered the statutory standard of care and diligence below the civil
standard by rendering the statutory provision a civil penalty provision
would be inconsistent with the legislative history of s 232(4) and also with
the present case law .” [Emphasis added]
91 His Honour then went on to refer to the legislative history of s232(4), giving particular
attention to the Second Reading Speech and Ch 3 of the Cooney Report. This was a
reference to the Report of the Senate Standing Committee on Legal and Constitutional
Affairs entitled Company Director’s Duties: Report on the Social and Fiduciary Duties and
Obligations of Company Directors AGPS, Canberra 1989. This Report was influential in the
removal of criminal sanctions for breach of a range of director’s duties and the adoption of
the civil penalty regime. Nevertheless, the Report was expressed in general terms and
further widespread consultation and detailed drafting, including amendments made during
the course of Parliamentary consideration, occurred before the Corporate Law Reform Act 1992
was enacted.
92 As part of his consideration of the legislative history Austin J said:
“[1095] … In Chapter 3 of the Cooney Report there is a discussion of

the case law dealing with the duties of care, skill and diligence of
company directors. Plainly the discussion proceeds on the basis
that the general law standard of care was relevant to, though not
determinative of, the proper interpretation of the statutory
provision, at that time s229 of the Companies Code , which
establishes a criminal offence punishable by fine. The Cooney
Committee concluded that the common law duty of care of
company directors was unsatisfactory because there was no
objective common law standard of the reasonably competent
company director, as there are objective standards for other
professions (Report para 3.25). The Committee said that the state of
law was not satisfactory, and therefore recommended that an
objective duty of care for directors be provided in the company’s
legislation (Report para 3.28). Far from recommending that the
statutory standard of care be made (or remain) less demanding
than the common law, the Cooney Committee recommended that
the standard be raised.”
“[1096] The case law since that time has proceeded on the basis that
developments with respect to the general law standard of care and
diligence of company directors and officers are relevant and highly
persuasive, if not directly applicable, to the interpretation of the statutory
standard . Daniels v Anderson (1995) 37 NSWLR 438, a case about the
general law standard of care of company directors, has been
applied at first instance in the statutory context. I referred to the
principal authorities in ASIC v Vines (2003) 48 ACSR 322. Sitting at
first instance, I would not be justified in holding that the location of s 232
(4) in the civil penalty regime had the effect of setting the standard of care
at a lower and less demanding level than the general law . I reject Mr
Vines' submission.” [Emphasis added]
94 His Honour said that the general law standard of care was “relevant and highly
persuasive, if not directly applicable”. This was a recognition that his Honour had to apply a
statutory formulation, rather than the common law. However, it is clear that his Honour did
reject the Appellant’s contention that a higher order of negligence was required.
95 This is apparent from his Honour’s incorporation by reference of his Expert Evidence
Judgment, which analysis, as noted above, he expressly affirmed in the Contraventions
Judgment. In the Expert Evidence Judgment his Honour set out earlier authorities to which I
will have regard below. These included Vrisakis v Australian Securities Commission supra; Byrn
e v Baker [1964] VR 443; Daniels v Anderson supra.
96 The Expert Evidence Judgment was directed to determining whether s 232(4) of the Corpor
ations Law imposed an objective standard of reasonable competence so that it could be the
subject of expert evidence concerning what a reasonably competent officer would do in the
circumstances. His Honour upheld the admissibility of such a report and in doing so
referred to case law which he ultimately held, in his Contraventions Judgment, also resolved
the separate issue of the applicability of a general law standard of care. His Honour
concluded that as a judge sitting at first instance the authorities required him to act on that
basis. The issue for this Court is whether those authorities which constitute decisions of
intermediate courts of appeal, have determined the question in a manner in which this
Court should follow.
97 I note that in Sheahan v Verco [2001] SASC 91; 79 SASR 109, Mulligan J came to a similar
conclusion as Austin J when he said at [97] :
“ … The nature and extent of the duty imposed upon a director of a

company by s232(4) and the common law … is in essence the same.”
3 The Statutory Duty Case Law
98 The legislative history of s232(4) commences with s107 of the Companies Act 1958 (Vic)
which, for the first time, made a director who failed to perform his duty of due diligence
liable to being convicted of a criminal offence. This provision was adopted in s124(1) of the U
niform Companies Act 1961, then in s229(2) of the Companies Code and then in s232(4) of the Corp
orations Law 1991.
99 Each of these sections created an offence. When the Corporations Law was first enacted,
the penalty on conviction was a maximum of $5000. (By the combined effect of s1311 and Sch
3.) This changed after the Corporate Law Reform Act 1992, which replaced the criminal
sanction with the civil penalty regimes applicable to the present proceedings, save in the
circumstances I will mention below.
100 The statutory duty of care operates in parallel with the common law duty of diligence,
skill and care, which had received an early and for a long time influential exposition in the
judgment of Romer J in Re City Equitable Fire Insurance Co [1925] Ch 407 at 428-9 .
101 The relevant case law commences with Byrne v Baker supra which was a prosecution for
contravention of s107 of the Companies Act 1958 (Vic). The Full Court of the Supreme Court of
Victoria referred to s107(1), and compared it with the analysis of Romer J in Re City Equitable
Fire Insurance. It stated at [1964] VR 443 at 450:
“A comparison of the language … would suggest that the [section]

was inspired by the [judgment].”
The Court went on to consider why the Parliament had not adopted the
reference which Romer J made to “skill”.
102 In Byrne v Baker the principal issue was whether the charge which specified a number of
separate acts or omissions was bad for duplicity. The issue now before this Court was not
under consideration. However, the Full Court went on to say that the statutory words
adopted “one aspect of the concept of negligence, as known and acted upon for many years
by the courts on misfeasance summonses against directors” (at 453).
103 Austin J referred to these parts of Byrne v Baker in his Expert Evidence Judgment ( (2003)
48 ACSR 322 at [13] and [14] ).
104 Of more direct relevance are the observations of Malcolm CJ in Vrisakis supra where his
Honour set out the legislative history, referred to the judgment of Romer J in Re City
Equitable Fire Insurance and the observations by the Full Court in Byrne v Baker and said of
the latter, at 172 :
“The approach adopted by the Full Court was that the degree of
diligence demanded by s107(1) was no higher than that required
under the general law.”
105 I should note that on my reading of Byrne v Baker it is by no means clear to me that this
was the actual conclusion reached by the Full Court but, to describe this as the “approach”
of the Full Court is accurate in the sense that their Honours proceeded on the basis that the
judgment of Romer J was clearly the origin of the statutory formulation. Malcolm CJ’s
characterisation – the statutory standard was “no higher than” the common law duty – does
not resolve the issue before this Court.
106 In Vrisakis the Court was concerned with a prosecution for contravention of s229(2) of
the Companies (WA) Code. With respect to that section, Malcolm CJ said at 172:
“The duties so imposed reflect the general concept of negligence at

common law.”
107 This statement played no further role in his Honour’s analysis of the issues before the
Court. It was, however, picked up in the later judgment of Clarke and Sheller JJA in Daniels
v Anderson supra at 504-505, where their Honours said:
“Although there was no reference to skill in s229(2) of the Companies

(NSW) Code – nor is there in s 232(4) of the Corporations Law , Malcol
m CJ in Vrisakis ( at 407-8) thought that the duties imposed by the
section reflected the general concept of negligence at common law.
This means conduct ordinarily measured by reference to what the
reasonable man of ordinary prudence would do in the
circumstances. Skill is that special competence which is not part of
the ordinary equipment of the reasonable man but the result of
aptitude developed by special training and experience which
requires those who undertake work calling for special skill not only
to exercise reasonable care but measure up to the standard of
proficiency that could be expected from persons undertaking such
work …”
108 The fact that the statutory formulation made no reference to “skill” was originally raised
in Byrne v Baker supra at 450 by way of contrast with the use of that term in the judgment of
Romer J in Re City Equitable Fire Insurance. It is not a matter which is the focus of attention
before this Court.
Entirity Business Services v Garsoft (10 February 2011) (MOORE J)
61. The scope of s 180 and director’s duties has more recently been
considered by the Court of Appeal in Morley & Ors v Australian Securities
and Investments Commission [2010] NSWCA 331 observing at [817] :
We do not think this was an occasion of reasonable reliance on

management or others… The postulated reasonable person in s 180(1) em
braces any special skill or expertise the director or officer possesses, and
the non-executive directors were expected to bring to their knowledge
and experience to performance of their duties.
and at [33]:
In Vines v Australian Securities and Investments Commission [2007] NSWCA

75; (2007) 73 NSWLR 451 at [109] Spigelman CJ took up the conclusion of
Austin J at first instance ( Australian Securities and Investments Commission
v Vines [2003] NSWSC 995; (2003) 48 ACSR 282 at [38] ), in relation to the
proceeding ss 229(2) and 232(4) of the Companies (New South Wales)
Code, that they-
Morley & Ors v Australian Securities and Investments Commission (17 December
2010) (Spigelman CJ; Beazley JA; Giles JA)
33 In Vines v Australian Securities and Investments Commission [2007] NSWCA 75;

(2007) 73 NSWLR 451 at [109] Spigelman CJ took up the conclusion of Austin J
at first instance ( Australian Securities and Investments Commission v Vines [2003]
NSWSC 995; (2003) 48 ACSR 282 at [38] ), in relation to the preceding ss 229(2)
and 232(4) of the Companies (New South Wales) Code , that they -
“ … encompass an objective standard measured by

reference to what a reasonable man of ordinary
prudence would do, enhanced where the
directorial appointment is based on special skill by
an objective standard of skill referable to the
circumstances.”
109 In his Expert Evidence Judgment, Austin J referred to the judgment of Clarke and
Sheller JJA in Daniels, with its internal reference to the judgment of Malcolm CJ in Vrisakis. (
See (2003) 48 ACSR 322 at [37] .) The passage quoted by his Honour concluded with the
statement that a director owed a duty of care at common law, which was the issue before the
Court in Daniels v Anderson. That case did not involve an allegation of contravention of the
statutory duty. Nevertheless, the passage from the judgment of Clarke and Sheller JJA,
which Austin J set out at some length, did treat the statutory duty and the common law duty
together and in such a manner as to justify the conclusion of Austin J:
“[38] I take this to be an expression of opinion by their Honours that

the statutory formulations in ss229(2) and 232(4) encompass an
objective standard measured by reference to what a reasonable
man of ordinary prudence would do enhanced where the
directorial appointment is based on special skill by an objective
standard of skill referrable to the circumstances.”
110 For present purposes, the feature of most significance is the degree of identification
between the two duties suggested by Clarke and Sheller JJA, which Austin J accepted. That
identification also appears in the judgment of Powell JA in Daniels v Anderson, when his
Honour said at 603, reflecting the “no higher than” formulation of Malcolm CJ in Vrisakis :
“Such authorities as there are in relation to statutory provisions

such as s229 of the Companies (NSW) Code would seem to
demonstrate that the duty imposed upon the directors of a
company by such provisions is no greater than that which was
imposed upon directors by the general law.”
111 Powell JA went on to refer to Byrne v Baker at some length and its application in Australian
Securities Commission v Gallagher (1993) 11 WAR 105 at 115-116 and Vrisakis supra. His Honour
concluded at 606 :
“Not only was the duty imposed on a director by the provisions of

s229(2) of the Companies (NSW) Code no greater than that to which
he would have been subject under the general law, but the remedy
provided by s229(7) of the Companies (NSW) Code in respect to a
failure to fulfil that duty – a right to recover, as a debt, an amount
equal to any loss or damage suffered by the company – was akin to
that – equitable compensation for the value of any loss or damage
suffered by any breach – provided by the general law in respect of
any breach of director’s duty to the company under the general
law.”
112 I note that s229(7) of the Companies (NSW) Code upon which Powell JA relied, was
continued as s 232(8) of the Corporations Law as originally enacted, but was deleted by the
1992 Act and replaced by s1317HD, which I will set out below.
113 It is noticeable that in none of these judgments was any particular attention given to the
criminal consequences of contravention of the statutory provisions. Both Byrne v Baker and V
risakis were criminal prosecutions in which the line of authority upon which the Appellant
now relies could have been invoked. It does not appear that it was.
114 In Vrisakis Ipp J referred to the judgment of Rogers CJ CommDiv in AWA Limited v
Daniels (t/a Deloitte Haskins & Sells) (1992) 7 ACSR 759 at 872-3 which referred to the
possibility that a standard of care required from a director might vary depending upon the
circumstances. Ipp J then added at 211:
“It does not follow, however, that the duty imposed on a director
under s229(2) of the Code is entirely equivalent to the common law
duty not to be negligent. Nor does it follow that the test for an
offence under s229(2) is precisely the same as for a breach of the
common law duty of care. Nevertheless, to paraphrase Byrne v
Baker at 452, the language used in s229(2) is appropriate and was
designed to introduce aspects of the concept of negligence, as
known and acted upon for many years by the courts in misfeasance
summons against directors.”
115 Ipp J said at 213, significantly, for present purposes:
“An important distinction between the failure to exercise care and

diligence under s229(2), leading to the commission of a criminal
offence, and the breach of a common law duty of care is that the
negligence necessary to establish a criminal charge is greater than
that required to establish civil liability. For a crime to have been
committed the negligence of the defendant must go beyond a mere
matter of compensation and must show such disregard for the
interests of others as to amount to a crime against the State and
deserving of punishment. There is a significant difference between
the negligence which gives a right to compensation and the
negligence which is a crime. R v Bateman (1925) 94 LJ KB 791; (1925)
19 Crim App R 8, approved by the Privy Council in Akerele v R [1943]
AC 255. It would be most unusual for negligence to constitute a
crime where no harm is caused by that negligence. For this reason
it would ordinarily be expected of the prosecution in proceedings
under s229(2) to prove that the conduct complained of had adverse
consequences to the company, which could not be categorised as
insignificant.”
116 It does not appear that Malcolm CJ adopted this particular analysis, although he agreed
with other parts of the judgment of Ipp J. The third member of the bench in Vrisakis, Rowlan
d J dissented and did not consider this issue. It may be that some aspects of the reasoning of
Ipp J is not consistent with the subsequent judgment of this Court in Daniels v Anderson, as
Austin J noted at par [39] of the Expert Evidence Judgment. Nevertheless, his Honour’s
views are open to be adopted, as recognised by Austin J, by an intermediate court of appeal.
4 Standard of Care in Crime
117 The origins of contemporary doctrine with respect to the test of negligence in a criminal
context is found in the judgment of Hewart LCJ in R v Bateman (1925) 19 Crim App R 8 where
his Lordship said at 11:
“In a civil action, if it is proved that A. fell short of the standard of

reasonable care required by law it matters not how far he fell short
of that standard. The extent of his liability depends not on the
degree of negligence, but on the amount of damage done. In a
criminal Court, on the contrary, the amount and degree of
negligence are the determining questions …
In explaining to juries the test which they should apply to
determine whether the negligence, in the particular case,
amounted or did not amount to a crime, judges have used many
epithets, such as ‘culpable’, ‘criminal’, ‘gross’, ‘wicked’, ‘clear’,
‘complete’. But, whatever epithet be used and whether an epithet
be used or not, in order to establish criminal liability the facts must
be such that in the opinion of the jury, the negligence of the
accused went beyond a mere matter of compensation between
subjects and showed such disregard for the life and safety of others
as to amount to a crime against the State and conduct deserving
punishment.” (11-12)
118 This reasoning was referred to with approval, save in one no longer pertinent respect, by
Lord Atkin in Andrews v Director of Public Prosecutions supra. His Lordship described the
judgment as “both valuable and correct” (at 593). His Lordship added:
“Simple lack of care such as will constitute civil liability is not

enough: for purposes of the criminal law there are degrees of
negligence: and a very high degree of negligence is required to be
proved before the felony is established. Probably of all the epithets
that can be applied ‘reckless’ most nearly covers the case.”
119 The observations of Hewart LCJ were also approved by the Privy Council in Akerele v The
King [1943] AC 255 at 262 .
120 The reasoning in Bateman and Andrews v DPP was applied by Street CJ in this Court in Cl
out v Hutchinson supra at 34 and R v White supra at 191 . In Clout Street CJ referred to the case
law as authority for the proposition that, with respect to a criminal statute:
“ … the negligence referred to in such a section, and which must be

proved before an accused can be convicted, is of a different type or
degree to that which is sufficient in order to establish civil liability.”
121 This issue was considered by the High Court in Callaghan v The Queen supra, where the
Court said at 121 :
“The words ‘use reasonable care and take reasonable precautions’

smack very much of the civil standard of negligence; yet
particularly of late, defaults involving no moral blame at all are
treated as exposing the party to civil liability for negligence in
respect of any damage which results. It is out of keeping with the
conceptions of the purpose of the Criminal Code to regard such
defaults as making the person guilty of manslaughter or the lesser
crime created by s291A.”
(Section 291A of the Criminal Codes (WA) created an offence arising from failure
to use reasonable care in the use and management of a vehicle.)
122 The High Court went on, at 121, to pose a choice between “a single and unvarying
standard no matter what the purpose for which the description is employed” and a
recognition that “it may have different applications when it is a description of fault so
blameworthy so as to be punishable as a crime and when it is used to describe a basis of civil
responsibility for harm that is occasioned by the omissions”.
123 Their Honours concluded at 124:
“The conclusion we have formed is that the expression ‘omission to

perform the duty to use reasonable care and take reasonable
precaution’ … must be regarded from the point of view of the
context where it occurs. It is in a Criminal Code dealing with major
crimes involving grave moral guilt. Without in any way denying the
difficulties created by the text of the Criminal Code we think it
would be wrong to suppose that it was intended by the Code to
make the degree of negligence punishable as manslaughter as low
as the standard of fault sufficient to give rise to civil liability.”
124 It is pertinent to note that not all criminal statutes can be regarded as requiring the same
degree of negligence. In Andrews v DPP Lord Atkin referred to Road Traffic Acts which
regulate the degree of care to be taken in driving motor vehicles. His Lordship said at 584:
“Their prohibitions, while directed no doubt to cases of negligent

driving, which if death be caused would justify convictions for
manslaughter, extend to degrees of negligence of less gravity.
Section 12 of the Road Traffic Act 1930, imposes a penalty for driving
without due care and attention. This would apparently cover all
degrees of negligence.”
125 This approach was applied by the Privy Council in Dabholkar v The King where the Court
was concerned with a statutory offence of negligent surgical treatment. The Court
concluded supra at 225 :
“ … Although the negligence which constitutes the offence in these

circumstances must be of a higher degree than the negligence
which gives rise to a claim of compensation in a civil court, it is not,
in their Lordships opinion, of so high a degree as that which is
necessary to constitute the offence of manslaughter.”
126 This line of authority was considered in R v D [1984] 3 NSWLR 29 which concerned the
validity of the direction given by a trial judge in terms of the formulation set out above from
R v Bateman i.e. that the test of negligence is whether or not the accused showed “such
disregard for the life and safety of others as to amount to a crime against the State and
conduct deserving punishment”. The direction was upheld.
127 The Court rejected the contention on behalf of the Attorney General that, however
appropriate this direction may have been for the crime of manslaughter by a negligent act, it
was not applicable to the offence of negligent infliction of grievous bodily harm. The Court
referred to authority which indicated the possibility of varying degrees of negligence with
respect to criminal liability, including Andrews v Director of Public Prosecution, Clout v
Hutchison, R v White and Dabholkar v The King . The Court concluded, however, that in the
case of the statutory offence of negligent infliction of grievous bodily harm the same
standard of negligence as that held to be appropriate for the crime of manslaughter was
applicable. ( [1984] 3 NSWLR 29 at 34 .)
5 The Statutory Standard
128 I have referred above to Austin J’s reliance on that part of the legislative history
constituted by the Cooney Report. There was, as his Honour indicated, a reference in the
relevant Second Reading Speech to “provisions which implement the report” of the Cooney
Committee (Hansard House of Representatives, 3 November 1992 at 2401). However, the
consideration by the Committee in its Report is discursive and general and does not
sufficiently focus upon the matters now before this Court.
Entirity Business Services v Garsoft (10 February 2011) (MOORE J)
60. In Vines the position of chief financial officer was accepted as a

recognised position in large corporations with identifiable specialised
skill attaching to the office. The defendant had been appointed because
of special skill to a designated position. The degree of care and diligence
expected is that encompassing the special skill that is brought to that
office and the degree of care and diligence that a reasonable person
with similar responsibilities would exercise. Austin J's findings in this
regard were upheld on appeal: Vines v ASIC [2007] NSWCA 75, in which
the Full Court of Spigelman CJ, Santow JA and Ipp JA said at [129] :
129 Austin J approached the matter in terms of whether or not Parliament has established a
standard of care by s232(4) which was “lower and less demanding” than the common law
standard of care. It was in this respect that his Honour referred to the legislative history
which suggested it was not the intention of legislators to adopt a lower standard.
130 It is quite clear that it was the intention of Parliament to adopt an objective standard, so
that the earlier debate about whether or not directors could be excused by reason of their
own particular lack of relevant experience or skill was resolved. The significance of the
objective standard was, of course, determinative with respect to the admissibility of expert
evidence in his Honour’s Expert Evidence Judgment.
131 I can see no evidence in the Cooney Report, the Second Reading Speech or the
Explanatory Memorandum prepared in 1992 which suggests that the matter now before the
Court received any attention whatsoever. The issue must be determined in accordance with
the law of statutory interpretation, which requires this Court to apply the intent of the
Parliament in an objective rather than any subjective sense. That requires a consideration of
the legislative scheme as a whole.
132 The cases which identify the high level of negligence required where negligent acts or
omissions can give rise to a finding of criminal guilt, are no longer directly relevant to the
case before the Court. Nevertheless, those cases which indicate that, even in the criminal
context, there can be variations in the level of negligence required, are instructive. The civil
penalty regime does not carry with it the particular stigma of criminal guilt. Nevertheless,
the ability to impose penalties which are indistinguishable from a fine, together with the
serious consequences of a disqualification order, are such as to suggest that the approach to
the determination of the standard of care, applicable in a context of civil liability for
damages, may not be appropriate.
133 As I have noted, the Appellant relied in this respect by way of analogy on the judgment
of the High Court in Rich v ASIC supra. The issue there before the Court was whether a
disqualification order constituted exposure to a penalty for purposes of the application of
common law principles which establish a privilege from disclosure in a context of exposure
to penalties and forfeitures.
134 The reasoning of the High Court in that case is not directly in point because the question
turned on the application of that privilege to the statutory regime which permitted a
disqualification order. Nevertheless, the consequentialist analysis of the joint judgment of
the High Court (see e.g. at [37]) is of analogous force in the present context. It is because of
the severity of the consequences that can follow a finding of criminal guilt that the common
law developed an approach, in the context of the law of statutory interpretation, which
required a higher standard of negligent conduct. The emphasis of the High Court in Rich v
ASIC upon the significance of the consequences of a disqualification order is, in my opinion,
relevantly analogous to the principle of the law of statutory interpretation that has been
invoked by the Appellant in the present case.
135 As indicated in the passages from the judgment of Austin J that I have italicised above in
Part C.1, his Honour approached the matter on the basis of determining whether or not the
Parliament intended to adopt a lower standard of care than that applicable at common law,
when it enacted the statutory duty of care. The other way of approaching the issue is to
determine the obverse of that proposition, that is to say, did the Parliament intend a higher
level of negligence before a finding of contravention of the statutory duty could be made.
136 It is clearly the case that the Parliament did have reference to the existence of a duty at
common law for purposes of enacting the statutory standard. Nevertheless, when a common
law formulation is incorporated as a provision in a statute, its legal nature is altered. The
words must now be interpreted as statutory language, albeit having regard, in an
appropriate way, to the origins of the statutory formulation. The whole of the law of
statutory interpretation must be applied including, relevantly, the statutory context which
provides for a structure of sanctions for breach of the statutory standard.
137 This is not the occasion on which to trace the development of the liability of directors
and managers in tort. It is quite clear that the scope of that liability has significantly been
expanded over the years. The expansion commenced about the time that the first such
provision was inserted in the Companies Act 1958 of Victoria. (See, for example, the analysis of
the trend in authority by Sir Douglas Menzies “Company Directors” (1959) 33 ALJ 156.) At the
time that the Cooney Committee reported and, indeed at the time that the Corporations Law
was enacted, including the 1992 amendments, the trend to expand the liability of directors
and managers for negligence had still not culminated. It may be that in Australia that
occurred with the decision of this Court in Daniels v Anderson in 1995. The particular
statutory formulation adopted in the Corporations Law reflected this trend and was clearly
influenced by it. In my opinion, for the reasons I set out below, when Parliament used
language clearly derived from the common law it had in mind creating a statutory duty of a
generally similar character with respect to the identification of the standard of care.
6 The Statutory Regime
138 The directly relevant provisions of the Act are:
“1317EA(1) This section applies if the Court is satisfied that a person

has contravened a civil penalty provision, whether or not the
contravention also constitutes an offence because of section 1317FA.
(2) The Court is to declare that the person has, by a specified act or
omission, contravened that provision in relation to a specified
corporation, but need not so declare if such a declaration is already
in force under Division 4.
(3) The Court may also make against the person either or both of
the following orders in relation to the contravention:
(a) an order prohibiting the person, for such period as
is specified in the order, from managing a corporation;
(b) an order that the person pay to the Commonwealth
a pecuniary penalty of an amount so specified that
does not exceed 2,000 penalty units.
(4) The Court is not to make an order under paragraph (3)(a) if it is
satisfied that, despite the contravention, the person is a fit and
proper person to manage a corporation.
(5) The Court is not to make an order under paragraph (3)(b) unless
it is satisfied that the contravention is a serious one.
(6) The Court is not to make an order under paragraph (3)(b) if it is
satisfied that an Australian court has ordered the person to pay
damages in the nature of punitive damages because of the act or
omission constituting the contravention.
…
1317EB(1) An application for a civil penalty order may be made by:
(a) the Commission; or
(b) a Commission delegate; or
(c) some other person authorised in writing by the
Minister, under this paragraph, to make the
application.”
(Section 9 of the Corporations Law , defines a civil penalty order to mean either a
declaration or order under s1317EA.)
“1317ED(1) In hearing and determining an application for a civil
penalty order, the Court is to apply the rules of evidence and
procedure that it applies in hearing and determining civil matters.
…
1317FA(1) A person is guilty of an offence if the person contravenes a
civil penalty provision:
(a) knowingly, intentionally or recklessly; and
(b) either:
(i) dishonestly and intending to gain, whether directly
or indirectly, an advantage for that or any other
person; or
(ii) intending to deceive or defraud someone
(2) A person who contravenes a civil penalty provision is not guilty
of an offence except as provided by subsection (1).
…
1317GF(1) This section applies if the person is tried on indictment for
the offence and the jury is satisfied beyond reasonable doubt that
the person committed the contravention, but is not satisfied beyond
reasonable doubt that the person did so as mentioned in subsection
1317FA(1).
(2) The jury may find the person not guilty of the offence, but guilty
of the contravention.
(3) If the jury does so, the court is to declare that the person has, by
a specified act or omission, contravened the civil penalty provision
in relation to a specified corporation.
(4) If the court is the Court, it may then proceed to make orders
under subsection 1317EA(3) on the application of the prosecutor or
someone else who has power under section 1317EB to apply for a
civil penalty order in relation to the contravention.
(5) Subsection (4) has effect despite section 1317EC.
(6) A declaration under subsection (3) is subject to appeal or review
as if it were a conviction by the court for an offence constituted by
the contravention.”
(Section 1317GG is a parallel provision to s1317GF with respect to proceedings for

summary conviction of an offence and establishes a similar alternative verdict
regime. Section 1317GH extends such an alternative regime to a finding by an
appeal court.)
“1317HA(1) Where, on an application for a civil penalty order against
a person in relation to a contravention, the Court is satisfied that:
(a) the person committed the contravention; and
(b) the corporation in relation to which the
contravention was committed has suffered loss or
damage as a result of the act or omission constituting
the contravention;
the Court may (whether or not it makes an order under subsection
1317EA)) order the person to pay to the corporation compensation
of such amount as the order specified.
(2) A corporation may intervene in an application for a civil penalty
order against a person in relation to a contravention, unless the
application was made under Division 4.
(3) A corporation that so intervenes is entitled to be heard:
(a) only if the Court is satisfied that the person
committed the contravention in relation to that
corporation; and
(b) only on the question whether the Court should
order the person to pay compensation to the
corporation because of the contravention.
1317HB(1) If:
(a) a court finds a person guilty of an offence
constituted by a contravention of a civil penalty
provision in relation to a corporation; and
(b) the court is satisfied that the corporation has
suffered loss or damage as a result of the act or
omission constituting the contravention;
the court may (whether or not it imposes a penalty) order the
person to pay to the corporation compensation of such amount as
the order specifies.
(2) If:
(a) a court declares under Division 4 that a person has,
by an act or omission, contravened a civil penalty
provision in relation to a corporation; and
(b) the court is satisfied that the corporation has
suffered loss or damage as a result of that act or
omission;
the court may (whether or not it makes an order under subsection
1317EA(3)) order the person to pay to the corporation compensation
of such amount as the order specifies.
…
1317HD(1) Where a person contravenes a civil penalty provision in
relation to a corporation, the corporation may recover from the
person, as a debt due to the corporation:
(a) if that or another person has made a profit because
of the act or omission constituting the contravention –
an amount equal to the amount of that profit; and
(b) if the corporation has suffered loss or damage as a
result of that act or omission – an amount equal to the
amount of that loss or damage;
whether or not:
(c) the first-mentioned person has been convicted of an
offence in relation to the contravention; or
(d) a civil penalty order has been made against the first-
mentioned person in relation to the contravention.
(2) Proceedings under this section may only be begun within 6
years after the contravention.”
139 In terms of the recovery of damages it is also pertinent to note s 1324 of the Corporations
Law , which empowers a court to issue injunctions where conduct occurred that was or
would constitute a contravention of the law, also provides in s 1324(10) that the court could,
either in addition to or in substitution for the grant of the injunction, order a person to pay
damages.
140 Parliament has turned its attention to the relationship between the regime of the
statutory duty and civil duty when it enacted, relevantly to the duty of care and diligence,
s232(11):
“232(11) This section has effect in addition to, and not in derogation
of, any rule of law relating to the duty or liability of a person by
reason of the person’s office or employment in relation to a
corporation and does not prevent the institution of any civil
proceedings in respect of a breach of such a duty or in respect of
such a liability.”
141 Where, as here, the Parliament has expressly turned its mind to the possibility of both
the statutory duty and the common law duty applying to the same conduct, it is not
necessary for purposes of implementing the statutory regime to adopt the same standard of
care as is applicable to the civil duty.
7 Conclusion on Standard of Care
Yeo & ors v Freeman & ors (14 August 2018) (Gardiner AsJ)
54. I agree with the submission of Mr Maiden, senior counsel for Mr

Freeman, that the plaintiffs’ claim of failure to exercise the degree of
care and diligence required by s 180 is one based on a failure to exercise
reasonable care. [48]
via
[48] In support of this proposition, reference was made to Trilogy Funds
Management Limited v Sullivan (No 2) (2015) 331 ALR 185 [200] (Wigney J) and Vin
es v ASIC (2007) 73 NSWLR 451 [142] , [151] (Spigelman CJ, Ipp, Santow JJA
agreeing).
142 As a starting point I would accept that Parliament, when it used language, albeit in a
slightly modified form, plainly derived from the civil case law, had in mind a standard of
care of a similar character. Nevertheless, Parliament must be taken to have acted on the
basis that the law of statutory interpretation will be applied. That may lead to a different
conclusion.
143 As the above outline of the statutory scheme makes clear, the consequences that may
flow from a finding of contravention of a civil penalty provision are of a different order of
severity to the consequences that may flow from a successful action for breach of the civil
duty of care by company directors or officers. Although such a contravention does not
invoke, directly, the particular stigma of a finding of criminal conduct, nevertheless the
consequences to an individual by way of penalty and or disqualification may be as severe as
any likely criminal sentence, save for a term of imprisonment. The law of statutory
interpretation requires this Court to have regard to these consequences.
144 The first step in the statutory scheme is the determination under s1317EA(1) that a judge
is satisfied that a person has contravened a civil penalty provision. The finding of a
“contravention” of a statutory provision carries of itself a significant sting, perhaps
somewhat higher than a finding of “breach” of a civil duty of care. Such a finding can have a
significant effect on the reputation of the individual about whom it is made with, one could
expect in the usual case, considerable commercial consequences.
145 At this stage of the application of the statutory scheme, it does not appear to me that the
effect on reputation is of a qualitatively different order to a finding of negligence in a civil
action, for example, the effect of such a finding in the most closely analogous sphere of
professional negligence. At this stage of the analysis I do not believe that the principle that
negligence of a higher order may be required is applicable.
146 In my opinion, it is of great significance and, indeed, it is determinative of this ground of
appeal, that no further consequence follows unless the Court forms an opinion with respect
to additional matters, each being of a kind which requires consideration of, and a
determination of, a higher level of seriousness with respect to the breach or contravention.
That is to say, the statutory regime makes its own provision in recognition of the seriousness
of the consequences that are attendant upon any order beyond a declaration of
contravention.
147 For the Court to make an order under s1317EA(3)(a) prohibiting a person from managing
a corporation it must apply s1317EA(4), which prevents such an order being made if the
Court is satisfied that “despite the contravention, the person is a fit and proper person to
manage a corporation”.
148 Similarly, the Court cannot make an order for the payment of a pecuniary penalty under
s1317EA(3)(b) unless, pursuant to s1317EA(5) it is “satisfied that the contravention is a serious
one”.
149 Finally, pursuant to s1317FA the contravention of a civil penalty provision, which is an
element in the commission of an offence, requires the additional elements of knowledge,
intention, recklessness and either dishonesty or intent to deceive or defraud to be
established in accordance with that section.
150 In my opinion, unlike the criminal statutes which adopt the language of negligence as an
element of an offence, the civil penalty regime here under consideration does not attach
serious consequences for which it makes provision without consideration of further matters
over and above the contravention itself. In one case, namely the disqualification order, the
Court must be satisfied of fitness and propriety, which imposes an evidentiary onus that the
contravener must bear. It is unnecessary to decide where the onus of proof lies. However, in
each other case the applicant for relief must establish an additional element going to the
seriousness of the contravention. In my view, this is sufficient to distinguish this statutory
regime from a regime where negligence constitutes an offence.
151 I am reinforced in this conclusion by the express provision in s1317HA that, upon an
application for a civil penalty order, the Court, after upholding the contravention is
empowered to order the contravener to pay to the corporation compensation for loss or
damage which arose as a result of the contravening conduct. Similarly, s1317HB empowers a
criminal court which has found a person guilty of a contravention, to make a compensation
order. Section 1317HD provides for the corporation to seek and receive damages, or an
account for profits from the contravener, whether or not any civil penalty order, which
includes even a declaration, has been made. It is clear that the purpose of s1317HA and
s1317HB is to avoid multiplicity of proceedings. They would not have that effect if the
standard of care applicable in proceedings in tort for negligence was different from the
standard of care applicable in the case of compensation orders under the Act.
152 This ground of appeal should be rejected.
IV PRE CONTRAVENTION EVENTS
1 The Appellant’s Role
153 The Appellant was a chartered accountant and auditor. He worked at Price Waterhouse
from 1968 to 1995, becoming an audit partner in 1981. He had been auditor of GIO. He
commenced work as Chief Financial officer within the GIO group in 1995. His Honour made
findings about the breadth of his responsibilities as a chief financial officer of GIO which are
not challenged. (See at [26]-[33].)
154 In June 1998, Mr N Steffey was appointed as managing director of GIO. Mr F Robertson,
the Second Defendant in the proceedings before Austin J, was the executive director of GIO
Insurance at the time. His aspirations to be appointed as managing director of GIO having
been disappointed, he had indicated that he would only stay on as executive director of the
subsidiary until a replacement was found. On 5 November 1998, Mr T Fox, the Third
Defendant before Austin J, was appointed to that position. Mr Robertson, however, retained
a diminished role, relevantly with respect to the profit forecast of GIO Insurance for the Part
B Statement (see at [58]).
155 Mr Steffey altered the Group’s governance structure from the then existing structure in
which the subsidiary companies of GIO Holdings, including GIO Insurance which included
GIO Re, were run as autonomous business ventures that reported to the Group every three
months. Mr Steffey introduced a more integrated arrangement, whereby the subsidiaries
became governed by executive boards, and reported to the Group on a monthly basis (at
[109], [141]–[146]).
156 Mr Steffey instructed Mr Vines to undertake an extensive review of the reserves and
provisions in place to ensure they were adequate. His Honour noted Mr Vines’ evidence
that:
“[133] … [T]he purpose of the exercise was to set reserves at a level

where the new chief executive would not inherit any of the ‘sins of
the past’. Evidently it is not uncommon for a new chief executive to
set the balance sheet on a very conservative basis when he or she
first arrives - perhaps in a manner similar to politicians who seek to
blame the predecessor government's financial management when
they are first elected to office.”
157 It is also relevant to note the manner in which Mr Vines implemented Mr Steffey’s
instructions, and his Honour’s remarks thereon:
“[135] Mr Vines did not pass Mr Steffey's instructions on to Mr

Robertson but instead, he spoke to Mr Schneider, asking him
whether there were any aspects of the valuation that were less than
conservative. That appears to be of some significance and tends to
explain Mr Robertson's anger when he later found out about the
proposals for increased provisioning. Mr Vines said that he knew
Mr Robertson's general attitude towards such a review, and knew
him to be ‘somewhat cynical of chief executives behaving in this
way’, and expected that Mr Robertson would be reluctant to make
‘large and precipitous changes’ to GIO's reserves. He said he wished
to avoid confrontation with Mr Robertson, an aspiration not
realised, as will be seen. The picture that emerges is that Mr
Robertson, frustrated in his desire to become chief executive,
occupying the position of executive director of GIO Insurance on a
temporary basis, and closely associated with the past management
of the Group, may have been somewhat marginalised after Mr
Steffey's arrival.”
158 The end result of this process of reprovisioning was to arrive at a loss for the reinsurance
division of $88.9 million for the six months to 30 June 1998. His Honour noted that:
“[138] Mr Vines reported his discussions to Mr Steffey and

expressed some concern that reporting such a large loss might have
a negative impact on GIO Re's commercial viability, but Mr Steffey
said he was not concerned about that ramification and wanted a
balance sheet that was ‘bulletproof’. He told Mr Vines to look
further into the aviation contracts, and subsequently Mr Vines
instructed Mr Schneider to conduct a review of what became
known as ‘the misbehaving contracts’. The review involved looking
at the underlying aviation contracts that had given rise to the poor
result and calculating ultimate loss ratios for each of those
contracts. This amounted to a form of ‘contract-by-contract
analysis’ generally similar to the analysis undertaken in respect of
contracts affected by Hurricane Georges ...”
159 Mr Schneider was an employee of GIO Insurance with a background in actuarial

valuation in the reinsurance industry. He reviewed the aviation contracts as instructed, and
agreed to strengthen those reserves ([160]ff). While that process was tangential to the matter
with which the proceedings below were concerned, his Honour noted the process was
relevant in two ways:
“[165] … First, as will be seen, subsequent calculations made in

connection with the profit forecast drew upon what was perceived
to be a generous reserve for aviation, to cover perceived losses.
Secondly, the episode is relevant to understanding the
relationships between Mr Vines, Mr Robertson and Mr Schneider
and the tensions between the latter two. Thirdly, the episode shows
the extent to which Mr Vines was prepared to become involved, as
early as August 1998, in the financial affairs of GIO Re.”
160 His Honour had earlier found at [65] concerning the relationship between Robertson
and Schneider: “there was a degree of tension between them, bordering on animosity”.
161 His Honour made findings about Mr Vines’ knowledge of Mr Schneider’s role:
“[113] … He understood that Mr Schneider would constantly

monitor the performance of GIO Re's business at the portfolio level,
and would be chiefly responsible for modelling GIO Re's aggregate
exposure to claim events. Mr Vines understood that Mr Schneider
was supposed to have systems in place to ensure that he remained
constantly aware of the aggregate exposure of each underwriter,
and he was supposed to be aware of potential clashes of exposures
between underwriters, and the overall position of GIO Re. Mr
Vines knew Mr Schneider was chiefly responsible for making
recommendations to the reinsurance committee about the design,
but not the implementation, of GIO Re's retrocession protections.
Generally, Mr Vines agreed that in so far as anyone in GIO Re was
carrying out the professional activities of an actuary, it was Mr
Schneider and those who assisted him, and if anyone was going to
take a view dependent upon actuarial investigation, it would be Mr
Schneider in the first instance.”
162 His Honour outlined what Mr Vines’ role was after July 1998 (and during the period of
the contraventions):
“[32] … Mr Vines' role thereafter put him in closer contact with

financial matters at a divisional level, though in a supervisory role.
Mr Vines agreed in cross-examination that his role as chief
financial officer required him to satisfy himself that such matters as
budgets were properly and reasonably formulated, and that it was
his function to investigate what was reported to him in order to
satisfy himself, through his own inquiry, that it was essentially
valid. As regards financial accounts and reporting, he agreed that as
chief financial officer of a substantial company group, he had the
following responsibilities:
· to review financial information on a consolidated basis;
· to respond to issues raised by management or auditors at the subsidiary level;
· to ensure that the financial statements of the Group as a whole and its divisions reflected
compliance with Australian accounting standards, and to give advice to the management
and the board to ensure that this happened;
· to ensure that accurate information about the company's financial position was prepared
and provided to management and the board of directors;
· to ensure that the information that was supplied to the stock exchange in the investment
community was accurate and meaningful; and
· to intervene if he became aware of some deficiency in a division's financial statements that

was not being dealt with.
[33] Mr Vines agreed that he ‘had, generally speaking, a supervisory

role in relation to [the financial affairs of the Group]’, and ‘had the
responsibility of a chief financial officer, as [he] saw it’. In cross
examination, senior counsel for ASIC explored with Mr Vines what
he understood by the responsibilities of a chief financial officer.
While he said that the chief financial officer's role is influenced by
how the group is managed and personalities involved, he accepted
that there is a substantial commonality of role and function in the
positions of chief financial officers of company groups, and agreed
that a chief financial officer of a company group has responsibility
for the financial integrity of the group.
[34] There were substantial additions to these functions in the
second half of 1998, particularly after AMP's takeover bid was
announced. The result was, in my opinion, to leave Mr Vines with a
very heavy workload (demonstrated by his diary entries, to which
he was taken during examination in chief), and also to put him in a
central position in the takeover response process. I shall deal with
some of these matters in more detail later, but it is appropriate to
bring together here the principal elements of his additional
responsibilities:
· he attended meetings of the takeover response committee and the Part B working group as
well as the DDC, where he had a co- ordinating role;
· he was in very frequent contact with the advisers, including Macquarie Bank, Chase, PwC
and the lawyers;
· he met with Mr Steffey and Macquarie Bank every day, often for hours on end;
· he participated in meetings organised by Macquarie Bank with institutional shareholders,

and had discussions with rating agencies (T 2565) and brokers;
· he devoted substantial time to discussions with McKinseys in relation to their strategic

review and with Trowbridge in respect of the capital adequacy study;
· there was additional work for him in the area of commentary on monthly management
reporting, and in redefining the delegation authorities to executive directors consequent
upon Mr Steffey's revised board structure;
· he was required to supervise projects which involved restating GIO's accounts under
United States Generally Accepted Accounting Principles;
· he supervised the outsourcing of the internal audit function, a task involving a tendering
process by external accountants who were briefed by Mr Vines;
· he reviewed the tax and accounting implications of various senior management

employment incentive programs formulated by the new general manager of human
resources hired by Mr Steffey, Stuart Yoland;
· he and his team continued their responsibilities for capital management, tax compliance
and tax planning.” [References removed]
163 As noted above the AMP takeover bid was launched on 25 August 1998. In response to
AMP’s Part A Statement, GIO commenced proceedings in the Federal Court. From the
service of the Part A Statement on 8 September until 30 November 1998, his Honour found
that there was uncertainty about whether the bid would proceed (see at [126]).
164 Nevertheless, GIO commenced the process of preparing the Part B Statement required of
a target company by the Corporations Law . As I have noted above a critical feature of the Part
B Statement, as eventually published, was a profit forecast of $80 million for GIO Re. The
seven contraventions which his Honour found to have been committed relate, directly or
indirectly, to this profit forecast.
165 Mr Vines’ involvement in the preparation of the Part B Statement on behalf of the Board
of GIO was the subject of non-contentious findings of fact by his Honour:
(1) A Part B working group was formed, responsible for

putting together what was described as the “selling
document” that was to appear at the front of the Part B
Statement. The working group included a number of
the company’s advisors as well as Mr Vines. [181]
(2) Under the direction of Mr Vines, a sub-committee

was established to review drafts of the profit forecast
which would then be considered by the auditor of GIO.
[182]
(3) The board of GIO established a Due Diligence Committee,

referred to in the proceedings as “DDC”, comprising five non-
executive directors, Mr Vines, a representative of the company’s
solicitors, and a representative of the merchant bank advising the
company. That committee performed the functions, inter alia, of
the audit committee of the Board with respect to the Part B
Statement. [183]
(4) In a document described as a planning memorandum, the DDC made it clear that Mr
Vines had the central executive role in the due diligence process including, relevantly, with
respect to changes in the financial position of the GIO group and the financial forecast. [185]
(5) Individual directors were deputed to become familiar with specific components of the
profit forecast relevantly, in the case of Reinsurance, Mr Lange. Mr Vines was to conduct
and support each director in this task. Mr Vines himself described his role as “the arms and
legs of the non-executive directors”. [186]
(6) A formal due diligence and verification procedure, of the kind

usually adopted for prospectuses, was adopted, on Mr Vines’
recommendation, for the Part B Statement.
(7) Pursuant to the DDC planning memorandum,

senior management, including Mr Vines, filled out due
diligence questionnaires and, in due course
“representations letters” which provided express
assurances as to the accuracy and completeness of the
process in which they had engaged including,
relevantly, the profit forecast. [190]
(8) The company’s auditors, when preparing a report
for the Part B Statement, forwarded to Mr Vines on 23
October 1998 a draft including a review of the 1999
profit forecasts, which draft had added to it a
comment: “consider Georges disclosure”. [282]
(9) On 29 October 1998 Mr Vines had a meeting with a

number of other officers, including representatives of
PwC, who made certain observations concerning the
exposure to Hurricane Georges. [287]
(10) His Honour concluded, in a finding that is not contested, that

by the end of October Mr Vines knew that PwC was concerned
about the catastrophe component of the profit forecast. [290]
166 It is also pertinent at this stage to repeat his Honour’s observations at [1085] quoted in
par [76] above that, by reason of the fact that the Board adopted a due diligence process for
the Part B Statement the standard of care and diligence required of the senior executives
necessitated “particular care” to be taken “in providing information” and “it would not be
enough for them to confine their attention to what they knew, in circumstances where they
could uncover material information by appropriate inquiries”. The DDC required “the
conscientious and careful attention” of the senior executives.
167 His Honour also held with respect to the scope of Mr Vines’ responsibilities:
“[1115] The only evidence before me is the evidence of Mr

Hogendijk himself, and some occasional statements by Mr Vines in
oral evidence, which did not contest the notion that there is a
recognised position in listed public companies entitled "chief
financial officer". I accept that there may be quite a range of
responsibilities borne by corporate officers bearing that title, but it
does seem to me that there is a core of common responsibilities
identified by Mr Hogendijk in his affidavit (paras 96-97), relating to
the financial operation of the corporate group, supervision of
preparation of financial statements, compliance with accounting
standards, provision of accurate financial information to
management, the board of directors and the stock exchange and
investment community.
[1116] In the present case an analysis of Mr Vines' full
responsibilities shows that by any measure, he was an executive
with a large portfolio of responsibilities going well beyond the
recognised core responsibilities of chief financial officers. It is
important to assess his position and responsibilities, and ultimately
his legal duties, by reference to the particular role that he played in
the GIO Group. Mr Hogendijk was, to a degree, sensitive to Mr
Vines' additional responsibilities (see, for example, affidavit para
98), although on the whole his opinions were directed to the
standard applicable to a competent chief financial officer.
…
[1127] Neither Mr Hogendijk nor Mr Vines has said that a chief
financial officer is, as such, subject to a special responsibility in
respect of a profit forecast issued by the company group, as
opposed to financial statements and other historical financial
information. I would expect his or her responsibility to depend
upon the precise role occupied by the chief financial officer in
respect of preparation of the forecast. Mr Vines' role in respect of
the Part B profit forecast for GIO Insurance and matters
surrounding it was a prominent one, as can be seen from my
detailed review of the evidence. I note, in particular:
1) Mr Vines' involvement in the increase in

GIO Re's aviation reserve for the purposes
of the June 1998 financial statements,
when he bypassed the executive director
of GIO Insurance, Mr Robertson, and dealt
directly with Mr Robertson's subordinate,
Mr Schneider (see section 3.2);
2) his involvement in the process of formulating GIO

Re's $80 million profit forecast, particularly by
suggesting, on the basis of his review of the budgets of
the business units, that GIO Re might be able to adopt
the approach taken by GIO General by bringing to
account as forecast profit some of the projected
premium income (see section 3.7);
3) his role in the takeover response

process, in which the profit forecast was a
central component, including his
membership of the takeover response
committee and the due diligence
committee and his co-ordinating role for
the latter, and his daily contact with
advisers (see section 2.1);
4) his active role in settling the October

1998 profit result for GIO Insurance, when
he reviewed Mr Schneider's figures, which
would have produced a loss of about $4
million, and suggested that some
components of the calculations (the level
of IBNR for the Air China catastrophe, and
the increase in the level of prudential
margin) should be reconsidered (see
section 3.19);
5) his involvement in the Guy Carpenter
and American Re negotiations, up to about
6 November (see sections 3.22 and 3.23);
6) his participation in the process of obtaining KPMG's

"educated view" of the American Re contract and his
discussions with PwC about the efficacy of the contract
(see section 3.26).
[1128] In these circumstances, it seems to me that Mr Vines was
given and assumed special responsibility with respect to the
integrity of the profit forecast. It was a responsibility the same as, or
closely similar to, his responsibility as chief financial officer for the
financial integrity of the Group. That encompassed a responsibility
(equivalent to the one he acknowledged to exist in respect of
financial accounts: T 2890) to exercise care and diligence to the
statutory standard, to ensure that accurate information about the
profit forecast was prepared and provided to management and the
board of directors.”
2 The Development of the $80 million Forecast
168 The $80 million profit forecast for the reinsurance division originated from work done
by Mr Schneider in the period from 26 August to 23 September 1998. His Honour noted the
relevant steps in the process at [195]ff.
169 On 26 August 1998, both Mr Robertson and Mr Schneider produced memoranda

forecasting a profit in the area of $50 million. Mr Robertson’s memorandum was sent to Mr
Vines. Both memoranda contained words to the effect “if there are no catastrophes, business
profits will be $85 million higher than shown above.”
170 Next, his Honour set out at [197]ff a process, instituted by Mr Vines, whereby a further
$30 million was added to the forecast. That process involved a reassessment of the
proportion of catastrophe premiums paid that would be recognised as profit. As a result of
the reassessment, the figures were altered to reflect an assumption that 33% of catastrophe
premiums for 1998/99 could be included as profit. However, on the evidence of Mr
Schneider, this additional profit was expressly based on the assumption that no major
catastrophe occurred (see at [200]).
171 His Honour described the final outcome of the process:
“[202] … Consequently the effect of including 33% of the premium

income as profit, along with some other changed assumptions, was
to increase the forecast profit from about A$50 million to about
A$80 million. … Mr Vines said in cross-examination that his
intervention in the formulation of the profit forecast was part of his
role as chief financial officer, but said he would not have proceeded
with the forecast if it did not meet with the approval of the
executive director.”
172 Hurricane Georges struck Puerto Rico and the United States in the period 21–28
September 1998, only days after the finalisation of the $80 million profit forecast. His
Honour noted the following:
“[208] Mr Murray of PwC gave evidence that ‘the reinsurance

industry as a whole underestimated the loss of Hurricane Georges
and the rest of the Australian reinsurance market also significantly
underestimated its share of the market’. He agreed that it was only
in early 1999 when the results of Hurricane Georges became widely
known that the extent of the underestimation began to be realised.
[209] It is plain from the evidence, explained in detail below, that:
GIO Re had issued reinsurance contracts under which claims
would be made in respect of Hurricane Georges;
· it had retrocession protection, under a contract with Overseas Partners Ltd referred to as
"the OP Re contract" and other marine retrocession cover, that had the effect of limiting its
marine losses to A$8 million in aggregate;
· it did not have any retrocession protection in respect of property claims at the level they
were likely to be made;
therefore Hurricane Georges had the potential to impact on GIO

Re's profit in the 1998/99 financial year, and hence to affect the 1998
/99 profit forecast.”
173 Plainly, the $80 million profit forecast so recently arrived at, had to receive careful
attention, particularly in the context of the need to publish a Part B Statement. There are
three interrelated and overlapping elements which are of particular significance for the
ASIC case upheld by his Honour:
(i) The size of GIO’s exposure.
(ii) The ability to limit exposure by a retrocession

policy.
(iii) The release of reserves to support the profit forecast.
174 The significance of these elements turn on what the Appellant knew or ought to have
known about them. The elements are interrelated and both the actual state of affairs, and
Mr Vines’ knowledge, changed from time to time. In these respects, it will be necessary to
treat each of the seven contraventions chronologically and separately with respect to the
impact on the $80 million profit forecast.
3 The Extent of the Exposure to Hurricane Georges
175 Over the relevant period a number of officers of GIO Re maintained records or made
estimates of the exposure to Hurricane Georges. Some were quite formal reports, others
were estimates. His Honour made a number of findings of fact, including after contested
evidence, about Mr Vines’ knowledge of these records and evidence. Generally those
findings were favourable to Mr Vines and caused his Honour to reject significant parts of
ASIC’s pleaded case.
176 The focus of attention was what information was in fact conveyed to Mr Vines with
respect to this matter.
177 The first information was contained in a document prepared by Mr Schneider and his
staff entitled “First Quarter Highlights” which contained the following statement:
“ … The GIO historically has a 0.6% market share of an insured loss

caused by natural catastrophes. On this basis the cost of Georges
would be $25M in Australian dollars …
Hurricane Marilyn and Hurricane Luis occurred in the Caribbean
in the same year, weeks apart. However Lloyds’ share of Marilyn
and Luis was 41% and 5% respectively to the property market. If
Georges turns out to be like Marilyn the cost to us could be
expected to reach $100M. On the other hand it could be a non-
event.
These issues remain unresolved. The 0.6% market assumption was
adopted, at this time, and hence Georges is included at $25M.”
178 Further, the report included:
“ … Given the level of uncertainty, it is my recommendation, that

we place a warning on the full year projection of earnings of $80M.
Without much time to prepare an analysis I would recommend
reducing the projection to $45M representing one of either Georges
or Karaha materializing moderately and assuming the whole
account is profit neutral.
Please note that if Georges does indeed turn out to be a significant
event to the GIO it has the potential to reduce the business profit
further.”
179 Mr Schneider’s opinion that, by reason of uncertainty, a “warning” should be placed on

the profit forecast, together with the comment about exposure to Georges was a significant
matter, known to Mr Vines. It was relied upon as a particular of knowledge in a number of
the pleaded allegations of contraventions which were upheld by his Honour.
180 His Honour considered the preparation of the First Quarter Highlights document
commencing at [229]. His Honour found the document to be significant. His Honour said:
“[241] The first quarter highlights are important for ASIC's case.
They constitute a clear warning, by a GIO Re executive discharging
actuarial functions, in a considered report prepared in connection
with quarterly reporting, that Hurricane Georges could lead to a
substantial ultimate loss for GIO Re having a direct impact on the
$80 million profit forecast. It was a warning that this loss could
reach $100 million, the majority of which would stem from the
Lloyd's and Company market in London, where the impact of
Hurricane Georges was at that time uncertain. On the other hand,
the opinions expressed about Hurricane Georges were not
expressed to be based on any actuarial or other analysis, and they
were expressed in terms of possibilities based only on comparison
with other hurricanes. The overall effect, in my opinion, was to draw
attention to the risk of loss from Hurricane Georges in such a fashion that
reasonable persons in the shoes of those responsible for the profit forecast
would have thereafter treated the development of Hurricane Georges loss
as a matter to be kept under particular review. But it does not seem to
me that a reasonable person in that position, acting on the basis of
the limited analysis and reasoning in the document, would have
immediately revised and adjusted the $80 million figure in the
manner recommended by Mr Schneider, or at all. On 19 October
Hurricane Georges was still a recent phenomenon and it was too
early to assess the Hurricane's full impact on the reinsurance
market, particularly the London market in which GIO Re might
have its main exposure. In its terms, Mr Schneider's
recommendation to reduce the forecast was not grounded in
analysis. Indeed, ASIC did not submit that the first quarter
highlights compelled an immediate revision of the forecast.” [ Emph
asis added ]
181 His Honour considered Mr Vines’ evidence on the First Quarter Highlights commencing
at [244]. His Honour found at [246] that Mr Vines obtained the document on 19 or 20 October
1998 and studied it [244]. His Honour held at [264] that Mr Vines and Mr Schneider
discussed the First Quarter Highlights document in October 1998, but accepted Mr Vines’
version of the conversation in preference to Mr Schneider’s.
182 Insofar as the Respondent relied on a particular of knowledge based on this document –
which it frequently did in the form of “Mr Schneider had warned that the profit forecast
should be reduced” – his Honour upheld that particular. (See at [1244].) Nevertheless, as the
italicised part of [241] set out at [180] above indicated, the effect of the warning was to
identify Hurricane Georges exposure to be “a matter to be kept under particular review”.
183 On 20 October 1998 Mr Schneider sent an email to Mr Robertson, copied to Mr Vines,

identifying a number of assumptions which would have to be made good if the $80 million
profit forecast were to be maintained. His Honour noted at [269] that the first assumption,
that the cost of Hurricane Georges would be GIO Re’s average historical market share for
property catastrophe losses, was the most important. His Honour found that, at the time the
email was sent, Mr Robertson was continuing to rely upon his own tracking mechanisms
which his Honour found to be inadequate (see [211]–[217]).
184 His Honour discussed Mr Vines’ evidence concerning this email:
“[270] Mr Vines gave evidence (T 2587-8) that, when he read Mr

Schneider's e-mail he thought the assumptions Mr Schneider
outlined were not unreasonable assumptions that might support
the $80 million projection, but he had the sense that Mr Schneider
himself was not convinced that the assumptions were sustainable.
He inferred that there was a continuing disagreement between Mr
Robertson and Mr Schneider about the projection but they were
not irreconcilable.
[271] In the following two days Mr Driessen supplied to Mr Vines,
by e-mail copied to Mr Robertson and others, figures with respect
to claims experience (PTB 0606). They included a table headed
"undiscounted ultimate claims" (PTB 0611), which recorded claims
of A$24.9 million for the July-September 1998 quarter in respect of
Hurricane Georges. Mr Vines explained that he asked for that
information so that he could get an understanding of the kind of
claims experience GIO Re had had in the first quarter (T 2590), and
he observed that the figure recorded for Hurricane Georges claims
was approximately the figure of $25 million referred to in the first
quarter highlights (T 2591). ASIC pointed out that this episode
demonstrates, if demonstration were needed, that Mr Vines could
have access to detailed information from within GIO Re if he
wished to have it. But for the reasons I have given, my view is that
in the third week of October Mr Vines was not under any
obligation to make his own enquiries separately from the executive
director, about claims developments for Hurricane Georges.”
185 The act constituting the first contravention, was the statement on 7 November that
management remained confident of the $80 million profit forecast. (Set out by his Honour at
[272]–[274].) Mr Vines’ evidence was that he was “drawing on Mr Robertson’s memorandum
of 4 November, as well as his own belief” in making that statement. In the following 180
paragraphs, his Honour made findings relevant to the formation of that belief.
186 At [275] his Honour found that Mr Vines was aware in October 1998 that Hurricane
Georges would result in claims on policies issued by or on behalf of GIO Re and that those
claims were relevant to the attainment of the $80 million profit forecast.
187 At [278] his Honour considered a draft report to the board of GIO dated 22 October,
prepared by PwC and faxed to Vines on the following day, referring to Hurricane Georges as
a “significant matter”. The report noted that hurricane exposure had varied significantly in
the past, relevantly for Georges, between $9 million and $178 million. The draft report said:
“There is significant uncertainty as to GIO Re’s exposure to this

event … and the ultimate exposure could be significantly more than
the $25 million currently reserved.”
188 His Honour noted at [279] that Mr Vines did not consider that anyone took the number
$178 million “seriously”. His Honour held:
“[280] In my view … the draft report did nothing more than to

reinforce the warning implied in the first quarter highlights, that
Hurricane Georges claims might develop in a manner impacting on
GIO Re's profit and therefore the claims development had to be
monitored. The statement merely gives a range from a very low to a
very high figure, evidently based on nothing more than a
comparison with GIO Re's losses in respect of two other hurricanes,
and draws attention to significant uncertainty. To say, as ASIC did,
that the statement should have been taken (very seriously) is not to
imply that any particular steps should be taken in response to it. It
does not seem to me that PwC's submission of its draft report to Mr
Vines had any separate effect on his duties in the circumstances.
The position explained by Mr Vines in cross-examination was,
therefore, not unreasonable.”
189 On 23 October 1998 Mr McClintock of PwC Securities sent a draft report suggesting that
Georges disclosure be considered (at [282]). PwC was also apprehensive about the 33 percent
profit assumption, and Mr Vines was aware of this concern (at [284]). The 33 percent profit
assumption is discussed at [197]–[202] and involves a reassessment of the proportion of
catastrophe premium that would result in profit. It will be recalled that, upon Mr Steffey’s
ascension to the role of Managing Director, it was determined that the June 1998 figures
would be particularly conservative to ensure it would contain no “sins of the past” (at [133]),
and hence it was determined that the catastrophe premium would be forecast to break even.
190 His Honour made a further finding at [290]:
“[290] It is clear… that Mr Vines and Mr Steffey had been made

aware, by the end of October, that PwC was concerned about the
catastrophe component of the profit forecast in light of both an
uneasiness about the assumption that the Hurricane Georges loss
would conform to the historical average, and an apprehension that
the shortfall in profit for the first quarter had undermined the 33%
profit assumption.”
191 His Honour also upheld the ASIC submission that by the end of October, Hurricane
Georges was regarded by PwC as a “very important issue” (at [290]).
192 On 4 November 1998 Mr McClintock of PwC Securities sent a further email to Mr Vines
advising of the need to reforecast, but still working on the assumption that Hurricane
Georges liability would be no greater than $25 million (see at [291]).
193 On 4 November 1998, a meeting occurred between Messrs Vines, McClintock, Murray
and Robertson, at which the impact on the profit forecast of falling interest rates was
discussed [301]. Shortly after that meeting Mr Robertson wrote a memorandum to Mr Vines
which is significant for the first contravention.
194 His Honour considered in detail Mr Robertson’s memorandum of 4 November 1998 at

[365]ff. His Honour noted at [368] that Mr Vines considered the memorandum to be Mr
Robertson’s response to his request to deal with the issues arising from the First Quarter
Highlights. His Honour summarised the content of the memorandum at [370]:
“[370] Mr Robertson began the memorandum by noting that an

error had been discovered in the reinsurance outstanding claims
valuation program, which had the effect of understating profit in an
environment of falling interest rates. He went on to identify the
result in space as disappointing, but observed that there had been a
valuation error from a previous reporting period, the correction of
which reduced the space result by A$8.1 million, most of that
adjustment being borne in the first quarter. He referred to
Hurricane Georges and explained the basis for estimating loss by
recourse to the average market share of 0.6%, without questioning
the adequacy of the reserve of A$25 million calculated in that
fashion. He said that the shortfall of A$8 million arising from the
error in the space result would be made up by favourable
development in the MIPI account, in which claims incurred had
reduced by A$6.7 million during the first quarter. He expressed the
opinion, ‘subject to all the usual caveats that must accompany any
forecast of reinsurance results’, that the A$80 million profit forecast
remained appropriate after considering the actual outcome of the
first quarter. He acknowledged, however, that if Hurricane Georges
should prove ‘much more expensive than’ the reserve allowed for it
of A$25 million, then ‘this would affect attainment of our profit
forecast’.”
195 At [377] his Honour noted the use made of the memorandum by Mr Vines, namely that
he took from it the major points that should Hurricane Georges become a greater cost than
$25 million it could impact on GIO Re’s ability to meet the forecast, but that $25 million was
the best view of what the loss would be at that time. The gist of Mr Robertson’s
memorandum was reflected in the board paper prepared by Mr Vines for the meeting of
GIO held on 9 November (at [378]).
196 A meeting occurred on 5 November between Messrs Vines, Robertson, Fox, McClintock
and Lange, a non-executive director of GIO who was a member of the DDC and had
particular responsibility for the reinsurance figures (see at [186]).
197 Mr Vines said that Mr Robertson’s memorandum of 4 November was used at this
meeting to discuss issues surrounding the re-insurance forecast (at [387]). It was at this
meeting that the difference of opinion between Mr Schneider and Mr Robertson was
discussed, and Mr Lange suggested that Mr Robertson and Mr Fox should meet with
Schneider to resolve differences that might remain.
198 For purposes of the First Contravention, his Honour made a significant finding at [392]:
“[392] ASIC submitted (written submissions, para 180) that Mr

Vines must have had it in the forefront of his mind, as a result of
the meeting with Mr Lange, that there was disagreement between
two of the most senior executives within GIO Re as to the likely
effect of Hurricane Georges on the profit forecast, and that this
issue was central to the concern as to whether the forecast could be
attained. I agree with this. Although Mr Schneider was junior to Mr
Robertson, he occupied an important position in GIO Re. The fact
that the opinion he expressed in the first-quarter highlights
seemed, on its face, to be speculative and not supported by analysis,
did not exonerate Mr Vines, as the most Senior Executive Officer
supervising the takeover defence process and Pt B profit forecast,
from making sure that the disagreement was adequately
investigated as proposed by Mr Lange, and either resolved or
presented clearly to the DDC as an issue for the committee’s
determination.”
199 The meeting between Messrs Fox, Robertson and Schneider to resolve their differences
was held on 5 November. It was at this meeting, his Honour held, that Mr Schneider
informed Mr Fox and Mr Robertson of a “contract by contract analysis” he had conducted
and its likely outcome (at [379]ff). His Honour’s findings are set out at [437]:
“[437] My findings are that:
§ a meeting of Mr Robertson, Mr Fox and Mr Schneider took place on 5 November, after the
meeting with Mr Lange at which he had suggested that it should occur;
· the purpose of the meeting was to consider the disagreement between Mr Robertson and
Mr Schneider about the impact of Hurricane Georges and whether the profit forecast to GIO
Re should be revised and reduced;
· during the meeting Mr Schneider expressed his opinion that Hurricane Georges was a
$100million type event, and he referred to the contract-by-contract analysis;
· Mr Schneider showed Mr Fox the Status of Registered Events report as at 31 October,

which recorded total claims of more than $25million; and
· the difference of opinion between Mr Robertson and Mr Schneider was not resolved, but
instead, they discussed a proposal to protect GIO Re against Hurricane Georges losses in
excess of $25million by a retrocession agreement, which Mr Schneider agreed would
remove the need to adjust the projection if it was deemed by APRA to be reinsurance.”
200 His Honour held that Mr Schneider did not tell Mr Vines that he was undertaking a
contract by contract analysis before it was completed [325]. Mr Vines’ evidence was that he
first discovered that claims on Hurricane Georges were up to about $100 million on 7
January 1999, immediately after AMP had closed its successful takeover bid (see at [970]).
201 As will appear below, Mr Vines’ state of knowledge of Mr Schneider’s references to

Hurricane Georges being a “$100 million type event” was a significant particular for a
number of the contraventions pleaded in ASIC’s case. Mr Schneider gave evidence about
conversations in which he made such a reference in the period between 9 and 13 November
and on 6 or 7 December. His Honour rejected that evidence and accepted Mr Vines’ denial.
202 His Honour said:
“[617] It seems to me that there is an important difference between

the statements in the first quarter highlights, which, as I have said,
were rather speculative and not expressed to be based on analysis,
and a statement by a person in Mr Schneider's position giving an
estimate within a broad category of loss, in the range of $100
million on the basis of a contract-by-contract analysis. A fortiori,
there is a very great difference between a statement of the latter
kind and a vague and speculative statement, without reasons, that
Hurricane Georges could reach $100 million. A statement that is
supported by an analytical and empirical process, within the
general area of expertise of the person making the statement,
demands to be taken seriously and should produce the kind of
reaction that, indeed, Mr Vines said he would have undertaken if
such a statement had been made. But it would be understandable if
a vague and speculative statement not based upon expert analysis
did not provoke a reactive course of conduct, or even (in light of the
statements already made in the first quarter highlights) an
invitation to explain the basis of the speculation. I do not agree with
ASIC (written submissions, para 136) that the mere fact that the
statement was made by a person holding a position equivalent to
the position of internal actuary meant that it should be acted upon,
where the statement was vague and speculative and did not
purport to be based on analytical or empirical grounds.”
203 However, his Honour also found with respect to Mr Vines’ state of knowledge after the 5
November meeting:
“[392] ASIC submitted (written submissions, para 180) that Mr

Vines must have had it in the forefront of his mind, as a result of
the meeting with Mr Lange, that there was disagreement between
two of the most senior executives within GIO Re as to the likely
effect of Hurricane Georges on the profit forecast, and that this
issue was central to the concern as to whether the forecast could be
attained. I agree with this. Although Mr Schneider was junior to Mr
Robertson, he occupied an important position in GIO Re. The fact
that the opinion he expressed in the first quarter highlights
seemed, on its face, to be speculative and not supported by analysis,
did not exonerate Mr Vines, as the most senior executive officer
supervising the takeover defence process and Part B profit forecast,
from making sure that the disagreement was adequately
investigated as proposed by Mr Lange, and either resolved or
presented clearly to the DDC as an issue for the committee's
determination.”
4 Retrocession Cover
204 At [560], his Honour set out the bases upon which Mr Vines, around 3 November,
considered it necessary, hastily, to obtain retrocession cover for Hurricane Georges. One
reason was that the agreement had to be in place before the Part B Statement was issued.
The timing of the Part B Statement was at that time uncertain as it depended upon the
Federal Court delivering judgment.
205 On 3 November 1998 Mr Steffey and Mr Vines met with Guy Carpenter, a reinsurance
broker, represented by Mr Grove, in relation to the possibility of obtaining retrocession
cover (at [564]). In an email to his colleagues, Mr Grove noted that the accounting issues
were the important issues to Mr Vines (at [566]).
206 On 5 November, a meeting was held regarding retrocession attended by Messrs Vines,
Fox and Grove (set out at [570]ff). According to Mr Grove’s file the “deterioration of the
Georges book” was discussed. In an email to his colleagues Mr Grove said: “the main
concern of Mr Vines and Mr Steffey was to obtain a cover which would protect/guarantee
their projected profit”.
207 At [572] his Honour said: “Mr Vines accepted that he said his main concern, and Mr
Steffey’s, was to obtain cover that would protect the projected profit of $80 million.”
208 His Honour made a finding at [573] that Mr Vines must have understood on 5 November
that the proposal was for cover to be obtained against the possibility that Hurricane Georges
would exceed the $25 million, up to a total of $50 million (which was later increased to $75
million, and then $100 million).
209 At [578] his Honour set out Mr Vines’ discussions with Mr Grove, during which Mr
Grove indicated that Guy Carpenter had been involved with similar retrocession
arrangements with two other insurance companies which had been approved by their
auditors.
210 From 6 November it appears that Mr Vines dropped out of negotiations for the
retrocession arrangement (see [586]). After this time the matter was primarily negotiated by
Mr Schneider, although Mr Fox was also closely involved. On 8 November Mr Fox made a
decision to negotiate with American Re rather than Guy Carpenter, for reasons set out at
[590], being that cover could probably be obtained more cheaply from American Re, and
brokerage fees would be avoided.
211 In order for a retrocession agreement to deliver the accounting advantages required to
support the $80 million profit forecast, it was necessary for the agreement to be classified as
a reinsurance agreement, rather than as a financing transaction. His Honour discussed the
regulatory requirements for an agreement to be so classified (at [716]ff). Relevantly, a
retrocession agreement must involve a transfer of risk.
212 However, as Hurricane Georges had already struck, protection of this kind did not
involve any transfer of risk. (Mr Vines understood this (see [564]), but was persuaded by Mr
Grove that such retrocession could be arranged (see [578]).)
213 The liabilities that are assumed under a retrocession agreement include premiums to be
paid in later years. If the agreement is a genuine retrocession agreement rather than a
financing transaction, then the future stream of liabilities can be reflected in the accounts in
the year in which they are paid. If, however, the agreement should be characterised as a
financing transaction, then the present value of the future stream of premiums should be
taken into account in the current year. On that basis, a genuine retrocession agreement
would support the profit forecast, insofar as exposure to Hurricane Georges exceeded the
amount for which provision had been made.
214 In the event, GIO entered into an agreement with American Re which was held, after
some delay, not to be a retrocession agreement which could be given the accounting
treatment required to support the profit forecast.
215 It is pertinent to note his Honour’s finding at [742] that “up to 1 December 1998, Mr Vines
believed it was probable that Hurricane Georges losses above $25 million would be covered
by the American Re agreement”.
216 It is also relevant to note his Honour’s findings as to Mr Vines’ evidence of a “high level
of understanding” of the Am Re agreement. His Honour said at [562]:
“[562] Mr Vines' ‘high level’ understanding was evidently still a

quite sophisticated grasp of the regulatory and accounting issues
raised by financial reinsurance, as is shown by the evidence of Mr
Vines' participation in negotiations for the retrocession contract,
and with the accounting firms concerning it. That is what one
would expect, having regard to his background as an auditor for
banks and for the GIO Group.”
5 Excess Reserves
217 The level of confidence in the profit forecast was also affected by recognition that, in
specific respects, GIO reserves as at 30 June 1998 may be able to be released. The focus of
attention was upon the reserves for professional indemnity claims known as MIPI.
218 On 12 August 1998, Mr Latham had produced a document that considered provisioning
for claims, in which a number of relevant comments relating to MIPI are found. His Honour
said:
“[158] … [Mr Latham] noted that … the development of GIO's claims

experience up to 30 June 1998 was over A$30 million less than the
[claims incurred but not reported] for which provision had been
made. But he said he was loath to suggest that the provision be
reduced, because the MIPI treaty was notorious in its experience
and it was plausible that the estimated [claims incurred but not
reported] would eventually emerge. This last statement needs to be
remembered when one comes to consider how Mr Vines and Mr
Robertson subsequently treated Mr Latham's report as the basis for
identifying, in effect, a hidden profit reserve of over $30 million to
counterbalance Hurricane Georges losses.”
219 The MIPI account was referred to by Mr Robertson in his memorandum of 4 November
which his Honour summarised at [370], set out above. This memorandum indicates that
MIPI was thought to contain redundancies at that time. At [374] his Honour noted that Mr
Robertson’s view concerning the MIPI redundancies arose from Mr Latham’s report dated
12 August 1998 and a discussion between Robertson and Latham in which Latham estimated
the MIPI surplus to be $7-8 million.
220 Mr Vines had prepared, what is called, in the argot of the industry, an “unders and
overs” analysis which reassesses the adequacy of reserves as at a particular date, in this case
as at 30 June 1998. ASIC conceded that an unders and overs analysis, properly conducted,
was a legitimate means of supporting the profit forecast (see at [455]).
221 The purpose for which the document was first created was explained by his Honour:
“[456] … Mr Vines described the document as ‘an inventory of all

the various adjustments we had put in place at 30 June’, and later
said it was his view of ‘redundancies and deficiencies and other
actions that had been taken at 30 June which had the effect of
underpinning the financial position of the Group and future
performance’.”
222 However, it is also clear that on 9 November Mr Vines believed that MIPI contained
significant redundancies. As his Honour said:
“[463] … Whereas Mr Latham had identified some redundancy in

the years up to 1994/95, Mr Vines (without disagreeing with Mr
Latham) believed that there would also be profit in the later years
(T 2540). He told Mr Mortimer that in his opinion, the later years
would generate at least a $30 million redundancy in due course.
That was in addition to the redundancy of approximately $30
million that appeared to emerge from Mr Latham's figures.”
223 The reference to Mr Latham’s figures is a reference to Mr Latham’s report of 12 August.
224 In the course of discussing Mr Vines’ unders and overs analysis, his Honour discussed
Mr Vines’ views of the excess reserves in the Reinsurance division as at 30 June:
“[461] It is appropriate to examine the ‘overs’ and ‘unders’ for

Reinsurance more fully. There was said to be an ‘over’ for Aviation,
‘per Robertson’, of $45 million. Mr Vines explained to Mr Mortimer
(T 2537) that this entry referred to the new provision of $105 million,
and reflected Mr Robertson's view that the new provision was
excessive in an amount of about $45 million. Next to that entry in
the schedule there was a handwritten note, ‘taken $9.3 million’. Mr
Vines said he made this note before his discussion with Mr
Mortimer, and that it signified that in the first quarter results, the
Swissair loss had been recognised and to the extent that premium
income from the aviation catastrophe book did not absorb the
effect of that loss, $9.3 million had been applied against the $105
million aviation reserve that had been created as at 30 June 1998 (T
2543). In other words, the Swissair loss had been accounted for in
the first quarter by applying premium income to it and setting the
remaining $9.3 million against the aviation reserve.
[462] There were ‘overs’ listed for property and general liability
attritional, and for D & O, totalling $48 million, which Mr Vines
said were derived from Mr Latham's opinion that there had been
over-provisioning to that extent (T 2537).
[463] There was an entry for MIPI expressed as ‘+???’. Mr Vines said
he told Mr Mortimer that in his report, Mr Latham had come as
close as you can get an actuary to come to saying he thought MIPI
had been over-reserved, without putting a number on it (T 2539).
Mr Vines said he had personal knowledge about MIPI. He said that
after the boom and bust of the late 1980s there had been some very
significant claims against accounting firms, and consequently the
accounting firms had reviewed their audit and risk management
techniques and had formed a series of captive insurers so that, in
effect, the accounting firms had become almost self-insured, other
than for very major claims (T 2539). For reserving purposes, Mr
Schneider had assumed that IBNR would equal premium income
derived between 1991 and 1998 and therefore MIPI would generate
no profit, but Mr Vines strongly believed that profit would emerge
in the later years by virtue of the actions that had been taken by the
profession and by the insurance industry (T 2540). Whereas Mr
Latham had identified some redundancy in the years up to 1994/95,
Mr Vines (without disagreeing with Mr Latham) believed that there
would also be profit in the later years (T 2540). He told Mr
Mortimer that in his opinion, the later years would generate at least
a $30 million redundancy in due course. That was in addition to the
redundancy of approximately $30 million that appeared to emerge
from Mr Latham's figures.
[464] Mr Vines said he discussed MIPI with Mr Schneider from
time to time. He said Mr Schneider was very wedded to the
methodology that he had introduced into GIO Re and was firmly of
the view that it produced the right answer (T 2605).
[465] Another ‘over’ for Reinsurance was said to be ‘Prudential
Margin earnings’, in the amount of $12 million. Mr Vines explained
that this was because the prudential margin, unlike other claims
liabilities, was not discounted. The discounting of liabilities would
match and negate the earnings produced by the assets put in place
to support the liabilities. Since there was no discounting for the
prudential margin, the earnings on assets supporting it would flow
through to the bottom line (T 2541). This schedule also identified
‘GIO UK’ as an ‘over’ of $5 million. Mr Vines was unable to recall in
the witness box the reason for this entry (T 2541).
[466] The list of ‘unders’ included Marine ($12 million) and
Malaysia ($14 million), both from Mr Latham's report. There were
two other items, namely Aviation and New Catastrophes, for which
there were question marks rather than figures. As to Aviation, this
was simply an acknowledgement of the possibility that the $105
million provision, expected by Mr Robertson to be excessive, might
prove inadequate. Mr Vines said he did not personally believe that
this was likely, and told Mr Mortimer his view (T 2541).
[467] As to ‘New Catastrophes’, there are handwritten notes next to
the question marks, identifying several catastrophes for a total
amount of $139 million, comprising Swissair ($42 million),
Hurricane Georges ($25 million), Gujarat ($21 million) and Space
($51 million), and then the handwritten words ‘but $195m premium
deferred 30/6’ appear. Mr Vines gave evidence that he made the
handwritten notes on the document immediately prior to his
discussion with Mr Mortimer on 9 November (T 2542). That was
shortly before conclusion of the American Re retrocession
agreement. The note signified that there was about $139 million
worth of catastrophe events that had occurred in the first quarter of
the year to June 1999, but there was said to be $195 million of
premium income deferred from the June 1998 year into the 1999
year. Mr Vines said he discussed these figures with Mr Mortimer on
9 November (T 2543).”
225 Mr Vines said he told Mr Mortimer, the Chairman of GIO, that in his report, Mr Latham
had come “as close as you can get an actuary to come to saying he thought MIPI had been
over-reserved without putting a number on it”. His Honour also recorded Mr Vines’ strong
belief that profit would emerge from MIPI in later years (also at [463]).
226 His Honour also noted at [467] that, next to the words “new catastrophes”, Mr Vines had
included hand written annotations including “Hurricane Georges ($25 million)”. Mr Vines
gave evidence that he made annotations immediately prior to his discussion with Mr
Mortimer on 9 November.
227 It is relevant to note the evidence of Mr Vines that an unders and overs analysis only
became necessary on 1 December, when he realised that the losses from Hurricane Georges
above $25 million would not be covered by the American Re agreement [742]. This appears
to recognise, as ASIC submitted in this Court, than an unders and overs analysis requires a
process of verification before it can be accepted as having an impact on a profit forecast. Mr
Vines’ unders and overs was too informal to have such an effect. Nevertheless, it may still be
pertinent for purposes of determining whether Mr Vines acted negligently and for the
honesty defence.
V THE FIRST CONTRAVENTION: THE PROFIT FORECAST OF 9

NOVEMBER 1998
228 On 9 November 1998 at a meeting of the directors of GIO, the Appellant tabled a report
entitled “Quarterly Results ended 30 September 1998”. The report set out the results for the
GIO group including a distinct section “Reinsurance”. In that section the following
statement appeared:
“Claims arising out of Hurricane Georges have been assumed to be

$25 million based on our average historical market share of such
catastrophes. Management remains confident the full year forecast
business profit of $80 million can be met.”
229 The pleading was as follows:
“[114] The 1st Defendant advised the board of GIO Australia as
pleaded in para 64 hereof that the management of GIO Re
remained confident that the $80m profit forecast could be met,
knowing full well that:
(a) Mr Schneider had warned that the profit forecast
should be reduced;
(b) An analysis of GIO Re’s reinsurance contracts had
led to an estimate that Hurricane Georges would be a
$100m type event;
(c) PwC Securities had warned that GIO’s exposure to
Hurricane Georges could be as high as $178m, as
pleaded in para 27 hereof; and
(d) He had not sought to obtain external advice as to
whether the views of the 2nd Defendant in relation to
the $80m profit forecast, as pleaded in para 31 hereof,
were reasonable and ought to be preferred to the views
of Mr Schneider, as pleaded in para 21 hereof.”
230 Paragraph [64] referred to the Quarterly Results document, the relevant part of which I
have extracted at par [228] above.
231 The reference to PwC Securities in par [27] of the Statement of Claim is to the draft
Report dated 22 October and sent to Mr Vines the following day, discussed at par [187]
above.
232 The difference of views between the Second Defendant (Mr Robertson) and Mr
Schneider was pleaded in pars [31] and [21].
233 Paragraph [31] referred to Mr Robertson’s memorandum of 4 November discussed at par

[194] above.
234 Paragraph [21] referred to the views of Mr Schneider expressed in the First Quarter
Highlights Document discussed at pars [180]-[182] above.
235 In the part of his judgment where his Honour set out his conclusions with respect to this
contravention his Honour identified the issue as whether:
“[1232] … in all the circumstances, a reasonable person in like

position to Mr Vines would have given the board a relevantly
unqualified assurance of management confidence in the forecast
when he knew that there was a dispute in the executive ranks about
a matter material to the forecast which, as far as he was aware, had
not been resolved. This is not a question about whether to
commission independent advice to resolve the dispute, or disclose
the dispute the board, but rather whether, in the circumstances of
the dispute, an unqualified affirmation of the profit forecast was
justified.”
236 His Honour had earlier said:
“[1231] For the reasons given above, I do not agree that the first
quarter highlights were a matter for disclosure to the board, or that
there was any obligation to disclose to the board on 9 November
the disagreement between Mr Robertson and Mr Schneider, or to
take some independent advice about it. The PwC draft report to
which the pleading and Mr Hogendijk refer (PTB 0618), a document
that was apparently never finalised, was simply a comparison based
on historical experience for other hurricanes, giving a range from
$9 million to $178 million, not expressing any view within that
range. I think it would have been premature to disclose that draft
report on 9 November.”
237 His Honour proceeded to conclude:
“[1234] My view is that Mr Vines failed to discharge his s232(4) duty

in respect of his report to the board meeting of 9 November,
because of his statement about management's confidence in the
forecast. My opinion is based on my own assessment of his role and
responsibilities in the particular position he occupied, in the
company's particular circumstances. He was responsible under the
planning memorandum for co-ordinating the due diligence process
and had a special responsibility for the financial forecast. His own
explanation to executive staff of the purpose of the due diligence
process for the Part B disclosure shows that he understood the
importance of management bringing forward all material matters
to the DDC, and ultimately the board, for consideration. He was
well aware of the nature and scope of the disagreement, by virtue of
his attendance at the meeting with Mr Lange on 5 November (and
also his reading of various documents such as the first quarter
highlights, Mr Schneider's ‘assumptions’ e-mail of 20 October,
PwC's draft report of 22 October, Mr McClintock's e-mail of 4
November and Mr Robertson's memorandum of 4 November), and
that it was a disagreement between the most senior officer of GIO
Re (Mr Robertson) and, relevantly, the second most senior officer
(Mr Schneider) about a matter of highly material significance to the
first-quarter results and the viability of the profit forecast.
[1235] In those circumstances a reasonable person in like position in
a corporation in GIO's circumstances, acting carefully and
diligently, would not have reported to the board, after merely
noting the $25 million reserve based on average historical market
share, that management remained confident that the full-year
forecast business profit of $80 million could be met. I accept, as Mr
Vines said, that at the time he had the view that the proposed
retrocession would deal with adverse development above $25
million, and he had in mind his unders and overs schedule. But he
did not tell the board about these things, or mention to the board
that there was a problem arising out of management disagreement
which led him to rely on such matters. Instead, the report made a
relevantly unqualified assertion about management's view, an
assertion that was, in my opinion, incomplete and misleading. The
fact that the statement was, objectively, a misleading statement
does not necessarily mean that there was a breach of the duty of
care and diligence in making it. One can be objectively misleading
notwithstanding all due care. But this was a statement that was
objectively misleading because of the omission of material facts
known to the maker of the statement. Such a statement was not one
that a reasonable person in like position in a corporation in GIO's
circumstances would make, exercising his or her powers and
discharging his or her duties with care and diligence.
[1236] In reaching this conclusion I do not hold that Mr Vines
intended to deceive the board by making this statement. His own
evidence implies that he believed the statement was true, as regards
his own view and the view of Mr Robertson, because of the
retrocession agreement and the unders and overs.
[1237] I have held it was not necessary for Mr Vines to make full
disclosure to the board on 9 November of the disagreement
between Mr Robertson and Mr Schneider. A reasonable person in
like position in a corporation in GIO's circumstances might well
have taken the view that the board had established a committee,
the DDC, for dealing with matters at that level of detail in
circumstances where the position had not reached finality and the
problem might be resolved before the Part B statement was
adopted. It might have been sufficient for Mr Vines to tell the board
that some issues had arisen about the impact of Hurricane Georges
on the profit forecast, and that they were being addressed by
management, in circumstances where the DDC would be kept fully
informed. But a statement to the board that was misleading,
because of the omission of material facts known to Mr Vines, was in
a different category.”
238 In the Honesty Judgment his Honour summarised the above reasoning:
“On 9 November 1998, Mr Vines should not have given the board
an unqualified assertion of management’s confidence that the GIO
Re profit forecast could be met. His statement to the board was
incomplete and misleading, in the absence of disclosure that a
problem had arisen out of management disagreement leading him
to rely on the proposed retrocession agreement and his unders and
overs schedule to protect the forecast [1234]-[1237].”
239 The relevant declaration made by Austin J was:
“8 The First Defendant contravened section 232(4) of the Corporation

s Law as carried over into the Corporations Act 2001 (Cth) in relation
to GIO Australia Holdings Limited, by his provision to the Board, as
an officer of that corporation, of an unqualified assertion of
management’s confidence that the GIO Re profit forecast could be
met on 9 November 1998, a statement which was incomplete and
misleading in the absence of disclosure that a problem had arisen
out of management disagreement leading him to rely on the
proposed retrocession agreement and his unders and overs
schedule to protect the forecast.”
240 The first ground of appeal is that his Honour erred in making a finding of contravention
in this, as in each, respect. I do not, in the circumstances, finds it necessary to deal with other
grounds of appeal, such as the alleged departure from the pleaded case.
241 Paragraph [114] of the Statement of Claim asserts that the Appellant contravened his
statutory duty of diligence and care by making a statement that “management remained
confident” of the $80 million profit forecast. His Honour held, in essence, that there was a
contravention of the duty of diligence and care by the making of such a statement, without
acknowledging the then extant disagreement between Mr Robertson and Mr Schneider. To
conclude that this constituted a contravention must depend on the persons to whom, and
the circumstances in which, the statement was made. As his Honour’s own analysis made
clear, it would not be sufficient to conclude, if it be fact, that the statement was misleading.
242 The mode in which this contravention was committed was in a report to the board.
Unlike the next contravention, there was no suggestion that this report would be the basis of
any kind of media release and the Part B Statement, although in preparation, was some way
off. Mr Vines was aware that Mr Lange, the non-executive director of the GIO who had
particular responsibility for the reinsurance figures and that component of the profit
forecast, was himself aware of the differences that had emerged in this regard between Mr
Schneider and Mr Robertson.
243 His Honour did not refer to that consideration in his analysis of the breach of duty. The
Appellant submits that it was a significant aspect of the alleged contravention. I agree.
244 In its submissions to this Court, ASIC relied on the proposition that Mr Lange, who had
left the 5 November meeting urging that Mr Schneider and Mr Robertson resolve their
differences, must have inferred from Mr Vines’ unqualified statement that such a resolution
had occurred. I can see no basis for such an inference. There was no evidence to that effect
from Mr Lange or any member of the board. His Honour made no finding of fact to that
effect. It is not appropriate for this Court to draw such an inference for the first time on
appeal.
245 It is by no means clear that an assertion that “management remained confident”

contains an implication of unanimity within management. Furthermore, it is by no means
clear that there was anything misleading about the statement at a time when Mr Vines and
Mr Robertson both held the view, as his Honour found that they did, which was accurately
described as confidence in the profit forecast as at that time.
246 To the knowledge of everyone involved, the due diligence process and the Part B
Statement had, at this stage, some way to go. There were proceedings in the Federal Court
challenging the takeover. There is no material before the Court which suggests that the
meeting to which this report was to be delivered was to consider any step in the process that
required the kind of qualifications to the statement about management opinions which his
Honour held to be required.
247 The member of the board with delegated responsibility for the very matter in issue was
aware of the matter which his Honour held should have been specifically addressed. In my
opinion, an officer in Mr Vines’ position could, acting with due diligence, make the
representation he did make, which accurately represented the predominant view then held
by senior management, without the qualifications which his Honour held to be necessary.
248 In these circumstances, it was not in my opinion, necessary for an officer in Mr Vines’
position to disclose at that time the existence of divergent views within management or even
that ‘some issues had arisen’ about the profit forecast. No conduct based on the profit
forecast was, at that time, likely to occur before the disagreement was addressed.
249 In my opinion, the appeal against this finding of contravention should be allowed.
VI EVENTS BETWEEN 9 NOVEMBER AND 17 NOVEMBER
1 31 October Results
250 His Honour found at [473] that:
“[473] Mr Vines also gave evidence that, when he was shown the
October results on 11 November, he held the belief that GIO Re
would become entitled to reinstatement premiums arising from
Hurricane Georges claims, although he did not give any particular
view as to the quantity of those premiums. He said he formed that
belief on the basis of an exchange of emails that included Mr
Schneider’s email to Mr Fox dated 10 November. In that email Mr
Schneider had said that one would expect significantly more
reinstatements arising from Hurricane Georges, not included in the
projection, which had used a ‘33% of claim premium’ approach.”
251 His Honour considered the formation of the 31 October results at [474]ff. These were the
second set of monthly figures produced, in accordance with the new monthly reporting
procedures instituted by Mr Steffey on his appointment as Managing Director of the Group.
252 For this purpose, Mr Schneider prepared a document entitled “GIO Re Analysis of
Results”. The document reflected an assumption on the part of Mr Schneider that the Am
Re contract would be in place and limit exposure to Hurricane Georges to $25 million. Mr
Schneider gave evidence that due to the pressure of time, he did not adjust the predictions
to reflect the contract by contract analysis (at [477]).
253 It is relevant to note that, with respect to Hurricane Georges, the analysis within the
document, while assuming the Am Re agreement would be in place, noted that, if it was not,
there would be a loss of $29.78 million for the month (at [478]).
254 Mr Vines attended a meeting on 11 November including Messrs Fox, Schneider and
Driesson, to discuss the October figures. At that meeting, Mr Schneider gave Mr Vines a
copy of the “GIO Re Analysis of Results” document and explained it. His Honour found,
however, that Mr Schneider did not tell Mr Vines about the contract by contract analysis or
that Georges “could be a $100 million event”. (See [485] and [608]-[618].) Mr Vines, was,
however, told at their meeting that the Am Re agreement was close to being finalised (at
[486]).
255 The 11 November meeting was the first occasion on which Mr Vines was held to have
learned that the liabilities for Hurricane Georges would exceed $25 million. He learned at
the meeting from the October results, that the gross estimate for Hurricane Georges was in
the region of $69 million, from which he understood that there was no longer a
disagreement between Robertson and Schneider, and that Robertson now agreed with
Schneider (at [488]).
256 His Honour also found:
“[491] Mr Vines gave evidence that the figures

discussed at the meeting had been prepared on the
basis that the American Re cover would be in place. He
said he was broadly comfortable with making that
assumption for management accounting purposes,
because he knew that the cover was close to resolution,
but he also knew that if the cover was not written, for
whatever reason, there were other ways in which a loss
for Hurricane Georges of the level being referred to by
Mr Schneider could be dealt with: T 2665. As to the
appropriateness of taking the American Re cover into
account without first receiving accounting advice, Mr
Vines said he relied on the representations received
from Guy Carpenter, which suggested that what was in
contemplation would receive accounting approval, and
therefore getting the slip in place was, in his opinion,
the first priority, and he expected the views of the
auditors to be obtained once the slip was in place: T
2665.
[492] Mr Vines said that if the auditors did not accept the American
Re cover, then it would be necessary to look at the ‘redundancies’
that existed within the reinsurance division as an alternative to the
retrocession: T 2665. He said his own “unders and overs” had
suggested that there was a substantial redundancy within the
reinsurance book, without any quantification of MIPI. MIPI had
behaved well in the first-quarter results and so, by 11 November, he
was even more strongly of the view that MIPI contained a
substantial redundancy that could be released, if necessary. He said
that if he had not had a belief in the existence of the redundancies,
he would not have been content to let the October results go
forward without first obtaining external accounting advice on the
efficacy of the American Re cover: T 2666.”
257 His Honour also made findings, contrary to the evidence of Mr Fox, as to what Mr Fox
must have known at this time. It must also follow that Mr Vines, whose version of the
meeting was accepted by his Honour, must also have had the following understandings, set
out by his Honour:
“[495] … It follows that Mr Fox heard at the meeting, and

understood, that $44 million of the total increase in ultimate claims
in the catastrophe model results was due to Hurricane Georges and
that the October figures were based on the assumption that the
American Re contract would be put in place so that there would be
protection for Hurricane Georges up to US $100 million and it
would not be necessary to recognise any additional Hurricane
Georges loss in October”
2 Draft Four Month Results
258 Following the 11 November meeting, a draft commentary on the first four month’s results
was prepared for Mr Vines’ review as part of the process of briefing Mr Steffey. This is
relevant, as the draft document contains phrases that appeared in Mr Steffey’s report to the
board on 17 November that constituted the second contravention (see [498]-[499]). In
particular, the document noted a “strong result” in property catastrophe.
259 His Honour noted Mr Vines’ awareness that the property catastrophe result depended
upon the Am Re agreement delivering the accounting benefits intended. However “Mr
Vines did not think it necessary to draw attention to that fact because he had every reason to
believe that the cover would be effective” (at [499]).
3 Hurricane Georges Register
260 His Honour considered the manner in which the Hurricane Georges register was
maintained at [503]ff. At [513], his Honour accepted that the register contained exaggerated
or precautionary claims, as Mr Vines thought. It was the view of management that, due to
the uncertainty created by the AMP bid, some claims notified would be precautionary rather
than actual (see [19], [222]-[223]). His Honour accepted Mr Vines’ evidence that he was told of
this phenomenon by Mr Steffey on 29 October, and that he thought it “made good sense” (at
[289]).
261 At [516]ff his Honour noted the development of a document known as the “Status of
Registered Events Report” which was distributed to Messrs Fox, Robinson and Schneider,
but not the Appellant, that tracks the evolution of the Hurricane Georges liability.
262 His Honour found at [547] that while the register contained errors, it was not useless and
was a tool for management to employ in the course of discharging their duties.
263 On 11 November 1998, Mr Vines was forwarded a document entitled “Catastrophe Claims
Spreadsheet”, considered by his Honour at [551], showing undiscounted claims for
Hurricane Georges at 31 October 1998 to be $69.06 million, an increase of $44 million from
30 September 1998. That document had been created in the first week of November. This
increase does indicate a significant adverse development.
264 It is also relevant to note his Honour’s findings at [557] that, had a request been made in
early November 1998, up-to-date data concerning the Hurricane Georges liability could have
been compiled within minutes (at [557]).
4 Mr Vines’ Knowledge
265 A series of conversations alleged by Mr Schneider to have occurred in the period 9 to 13

November between himself and Mr Vines are considered by his Honour at [606]. Mr Vines’
evidence that the conversations did not occur was preferred by his Honour. His Honour
found at [613], contrary to the evidence of Mr Schneider, that Mr Vines was not informed in
the period 9 to 13 November that Mr Schneider was of the opinion that Hurricane Georges
was a $100 million event or that he had carried out a contract by contract analysis.
266 His Honour referred, without criticism, to Mr Vines’ evidence that he only had a “vague
memory” that someone mentioned $100 million in connection with Hurricane Georges, and
that such a mention was “expressed in some sort of speculative terms”.
267 It is relevant to note that his Honour considered ASIC’s submission, also referred to in
oral argument on appeal, that Mr Schneider was unlikely to have made such a comment
about “speculative terms” given that he had by that stage completed the contract by contract
analysis, and the Hurricane Georges register was functioning. That submission was
considered at [615], along with a submission noting that at this stage the retrocession cover
proposed had been increased from $75 million to $100 million. His Honour accepted Mr
Vines’ evidence at [617].
268 His Honour also accepted Mr Vines’ evidence that had he been told in the period 9
through 13 November that Hurricane Georges losses were expected to be $100 million on the
basis of a contract by contract analysis, that statement would have prompted action, and he
would not have agreed to the profit forecast going forward (at [616]). His Honour gave his
reasons at [617]-[619] for accepting Mr Vines’ evidence, which analysis makes it clear that his
Honour applied a Briginshaw standard of proof.
5 The American Re Agreement
269 The American Re agreement was signed on 13 November, and provided retrocession
cover for losses in respect of Hurricane Georges in excess of $25 million up to US$100
million. His Honour accepted Mr Vines’ evidence that Mr Schneider did not discuss the
details of the slip with Mr Vines (at [636]). However, at [640] his Honour found that after the
slip was signed Mr Schneider “promptly sent a facsimile to Mr Fox, copies to Mr Steffey and
Mr Vines, attaching the signed cover note and saying ‘I think we can all rest easy’.” (at [639]).
His Honour found at [641] that Mr Vines would have glanced at it, and would have been
aware on 13 November, that cover for Hurricane Georges had been substantially increased
from what had been proposed to Mr Grove on 5 November, that is the extent of cover had
been increased from the initially proposed $50 million to US$100 million.
270 His Honour made the following finding about the entry into the American Re
agreement:
“[657] In my opinion the terms of the placement slip and the
evidence that I have set out show that Mr Steffey and Mr Vines (to
the extent that they were involved), and Mr Fox and Mr Schneider,
caused GIO Re to enter into the American Re placement slip for the
sole or primary purpose of protecting the profit forecast from
adverse movement in Hurricane Georges claims. Bearing in mind
that a whole account protection cover was contemplated by Mr
Steffey and Mr Fox for 1999 and subsequent years, and therefore
that the placement slip was a temporary cover, there is no plausible
basis for inferring that those who negotiated the placement slip on
behalf of GIO Re were concerned to protect the company from the
risk of a second US$10 billion Gulf of Mexico hurricane in any 12
month period. Plainly enough, that part of the transaction was
included in order to give the transaction an appearance of genuine
risk transfer, even though the real risk transfer was only very
remote, so that it would pass muster with the auditors and the
prudential regulator. The central part of the transaction
represented by the placement slip was an arrangement, not
involving any risk transfer, whereby American Re contracted to
cover GIO Re for surplus Hurricane Georges claims above US$15
million (A$25 million) in exchange for GIO Re's promise to pay
equivalent amounts in later years plus a substantial fee. This, it was
hoped, would enable GIO Re to remove the surplus Hurricane
Georges claims from its balance sheet at 30 June 1999 and therefore
justify a profit forecast which disregarded those surplus claims.”
271 His Honour set out the factual basis for this inference, an inference which is not
challenged in this appeal. However, amongst the matters his Honour referred to at [658] as
supporting the inference, was Mr Vines’ own evidence that “his main concern … was to
obtain cover that would protect the projected profit of $80 m”.
272 His Honour further held:
“[661] Mr Vines, on the other hand, did not have detailed

understanding of the regulatory and accounting issues and looked
to Mr Fox for expertise. Although he initiated negotiations, initially
with Guy Carpenter, for a retrocession arrangement along the lines
of what was eventually negotiated, he did not become involved in
the details of the contract or the details of its accounting treatment
before the placement slip was signed on 13 November. His evidence
was that he relied on what he was told by Guy Carpenter and by Mr
Fox as to the feasibility of obtaining retrocession cover that would
protect the profit forecast from deterioration of Hurricane Georges
claims.”
273 His Honour set out the background to the accounting treatment of reinsurance
arrangements such as the American Re agreement [716]ff. His Honour said:
“[723] It was important for GIO Re that the distinction between true
reinsurance and deposit or financing arrangements would impact
on the accounting treatment for the transaction. The question was
whether it was permissible, under the accounting standards and
proper accounting practice, for GIO Re to take to account, in GIO's
financial statements for the year to 30 June 1999, its entitlement to
be covered by American Re under the agreement for Hurricane
Georges claims received in the year, without being obliged to bring
to account in the 1999 year its obligation to repay equivalent
amounts to American Re by way of premium in later years.
[724] If this accounting treatment were permitted, then the
American Re agreement would protect the profit forecast, because
any Hurricane Georges claims that were to be brought to account
in the year ended 30 June 1999 in excess of the reserve of A$25
million would be offset, in the same year, by American Re's
obligation to make payments under the agreement. But if it was
necessary, under the accounting standards or by virtue of proper
accounting practice, to "accrue" or bring to account in the 1999 year
the obligation to repay American Re in later years, the agreement
would have no relevant effect, and the profit forecast would be
invalidated to the extent that claims with respect to Hurricane
Georges were required to be brought to account in the year to 30
June 1999 in excess of the A$25 million reserve. The issue turned on
the proper classification of the American Re agreement - was it a
true reinsurance agreement, or a deposit/financing arrangement?”
274 His Honour made the following findings with respect to Mr Vines’ understanding in this
regard:
“[726] Mr Vines gave evidence that statements made by Mr Fox and

by the Guy Carpenter representatives, during the negotiations with
Guy Carpenter, led him to believe that the retrocession contract
would be acceptable to GIO Re's auditors, and he therefore did not
think it necessary to consult with the auditors until the contract had
been negotiated and signed, and he thought it necessary to have the
agreement in place so that the auditors could consider the terms
and conditions (T 2789; T 3018). He added that he understood there
was a tacit agreement with American Re that the agreement would
be abandoned if approval was not received from APRA (T 2790; cf T
2790-1). But the signed placement slip was not provided to PwC
until 23 November, 10 days after it was signed. Mr Fox sent it to
PwC, after a meeting of Mr Fox, Mr Schneider and Mr Vines on
that day. Mr Vines explained in evidence that he wanted ‘an
educated view on the slip’, by obtaining an independent opinion
before approaching PwC (T 2702).
[727] In my opinion, there is an inconsistency in Mr Vines' evidence
here. If he was confident enough not to seek an accounting opinion
on the slip before it was signed, why did he consider it necessary to
obtain an independent opinion and an educated view (indeed, to
obtain two independent opinions) before putting the matter to the
auditors? Mr Vines said he wondered whether the terms and
conditions of the placement slip with American Re were consistent
with the sort of terms and conditions that Guy Carpenter had
referred to as acceptable to the auditors of other general insurers (T
2700). But apparently he had that thought only when he received
draft advice from KPMG. Weighing up this evidence, my view is
that, while Mr Vines received some encouragement from the
opinions of Mr Fox and Mr Grove that contracts of the kind that
had been entered into on 13 November would succeed as
reinsurance contracts, there was an element of uncertainty in his
mind, especially as to whether PwC would, as GIO's auditors, allow
the proposed accounting treatment of the arrangement. It seems to
me probable that he adopted the strategy that he would present
PwC with a signed slip reinforced by opinions from other auditors,
so as to create pressure at PwC to accept the arrangement, believing
that if they did not, American Re would unwind the contract.
Unfortunately for him, the strategy did not work because KPMG
would not approve the arrangement.”
275 A DDC meeting occurred on 16 November. The papers for this meeting did not refer to
the Am Re agreement (see at [785]).
6 Due Diligence Documents
276 On 10 November, Mr Vines circulated a memo to GIO executives, regarding the Part B
Statement, enclosing a “Due Diligence questionnaire” for senior management to return by
12 November. Mr Vines’ copy of the questionnaire was completed on 10 November (at [754]).
It identified Hurricane Georges as a catastrophe claim, stated there were “no” other matters
for disclosure, and listed only “retrocession” under the heading “Significant contracts
pending”, by which Vines said he meant the Am Re retrocession agreement.
277 His Honour made a finding as to Mr Vines’ state of mind at the time he filled out the
questionnaire on 10 November. His Honour said:
“[755] ASIC submitted … that when he answered the due diligence

questionnaire, Mr Vines knew that the $80 million profit forecast
could not be achieved if the ultimate loss to GIO Re for Hurricane
Georges exceeded the reserve of $25 million, subject to the
possibility of any shortfall being made up in other areas of GIO Re's
business. In my view the documentary evidence establishes that
this is correct.”
278 His Honour then listed the documentary evidence upon which he based this finding
which included:
· The first quarter highlights.
· Mr Schneider’s email of 20 October.
· PwC’s draft report on the first quarter figures dated 22 October.
· Mr McClintock’s email of 4 November.
· Mr Robertson’s memorandum of 4 November.
· The meeting with Mr Lange at which these differences between Mr Robertson and Mr
Schneider were aired (on 5 November).
279 His Honour also made findings as to what Mr Vines did not know at that time set out at
[756]:
“[756] … It is therefore not clear whether, at the time when Mr

Vines handed in his completed due diligence questionnaire, he was
aware of Mr Schneider and Mr Driessen's model which predicted,
as at 31 October, ultimate loss in respect of Hurricane Georges of
$69 million undiscounted and $67 million discounted, and which
therefore showed that the reserve of $25 million was no longer
adequate and that the profit forecast might have to be reviewed.
Since Mr Vines did not refer to these developments in his answers
to the due diligence questionnaire, where it would have been
relevant to do so, the correct conclusion on the balance of
probabilities is that he was unaware of the 31 October figures at that
time.”
VII THE SECOND CONTRAVENTION: THE REPORT AND MEDIA

RELEASE OF 17 NOVEMBER 1998
280 On 17 November 1998, GIO issued a Media Release which was entitled “GIO Post $88
million Pre-tax Profit for First Four Months of 1998/9”. This was described as a “strong
performance” and as having included “excellent results from personal insurance and
financial services and good profits from reinsurance”. As noted above, this Release was
issued in the middle of a hostile take-over battle.
281 Of particular relevance for present purposes was the statement in this Media Release
that:
“GIO Re’s insurance business achieved a sound profit despite

exposure to events such as the Swiss Air crash and Hurricane
Georges.”
282 The Board meeting that approved this Media Release had before it assurances in the
form of reports from, or referring to statements by, the Appellant.
283 The meeting of 17 November 1998 records the following as having been conveyed in the
Chief Executive Officer’s Report:
“Results for four months ended 31 October 1998. The Board

considered a paper from the Chief Executive Officer. The results
for the four months ended 31 October 1998 and additional material
provided by the Chief Financial Officer and approved the
announcement of group revenue, pre-tax and post-tax figures at the
Annual General Meeting.”
284 This meeting also recorded under the heading “Chief Financial Officer’s Report”:
“The Chief Financial Officer’s Report and the latest draft of the
Price Waterhouse Coopers Review of the 1998/1999 profit forecast,
(was close to finalisation) with tables.”
285 The events of the board meeting of 17 November, and the media release issued to the
stock market and approved by Mr Vines, are set out by his Honour at [777] and following. At
that meeting Mr Steffey presented a report, based upon Mr Vines’ work, stating that the
property catastrophe result was “strong”.
286 Mr Vines also tabled the PwC report on the $80 million profit forecast, noting the
assumptions upon which it was based, including a 33 percent profit on net premiums, and
PwC’s view that “performance of the space and catastrophe portfolios in the first quarter
would make the full year budget for those portfolios difficult to achieve” (at [780]).
287 His Honour also held at [781] that there was nothing to indicate that the operation and
effect of the Am Re agreement was explained to the board, or that the board was told that
the agreement had been entered into without accounting advice or auditor approval. His
Honour also noted that the statement issued to the market in the media release included a
quote that GIO was financially strong, which Mr Vines had reviewed and was “broadly”
happy with (at [783]).
288 Two paragraphs of the Statement of Claim relate to this contravention. They are pars
[116] and [117]:
“[116] The First Defendant advised the board of directors of GIO

Australia as pleaded in para 65 hereof that in the four months to 31
October 1998 GIO Re had achieved a strong result in its property
catastrophe portfolio, well knowing that:
should be reduced;
$100m type event;
(c) The property catastrophe portfolio’s results had
been prepared on the basis that the American Re
Agreement could be accounted for in the manner
referred to in para 113 hereof, and but for that fact,
would have returned a significant loss for that period;
and
(d) Expert actuarial or accounting advice had not been
obtained by GIO Re to the effect that the American Re
Agreement could be accounted for in the manner
referred to in para 113 hereof.
[117] The First Defendant was aware of and approved the media
release issued by GIO Australia on 17 November 1998, as pleaded in
paras 66 and 67 hereof, containing a statement that GIO Re’s
business had achieved a sound profit despite exposure to events
such as Hurricane Georges, well knowing that Mr Schneider had
warned that the profit forecast should be reduced, that an analysis
of GIO Re’s reinsurance contracts had led to an estimate that
Hurricane Georges would be a $100m type event, and that the
October 1998 results had shown that GIO Re would have suffered a
loss of $29.7m in October 1998 in the absence of retrocession cover
to limit total claims resulting from Hurricane Georges payable by
GIO Re to $25m.”
289 The reference to par [65] in [116] picks up a reference to a document tabled at the Board
meeting headed “Year to Date Results for the Four Months to 31 October 1998”. In that
document the Appellant stated:
“Reinsurance reported a four month result of $30.2 million, slightly

behind budget of $37.9 million space returned to profit in October
and a strong result was posted by property catastrophe.”
290 The reference to par [113] in [116] picks up the following:
“[113] The First Defendant caused, or participated in causing, GIO

Re to enter into the American Re agreement as pleaded in
paragraphs 56 to 63 hereof, and the revised American Re
agreement, as pleaded in paragraphs 96 to 100 hereof in
circumstances that:
(a) the real purpose for GIO Re’s entering into each
agreement was to maintain the $80 million profit
forecast by artificially deferring the requirement that
total Hurricane Georges claims in excess of $25 million
be brought to account in the 1999 financial year;
(b) neither agreement was a genuine retrocession
agreement in commercial terms, as the only apparent
underwriting risk undertaken by American Re was
extremely remote;
(c) the profit commission payable to American Re was
uncommercial and an excessive consideration for the
degree of apparent underwriting risk undertaken by
American Re;
(d) the profit commission payable to American Re was
substantially a consideration for American Re’s
facilitating GIO Re’s being able to defer bringing to
account total claims resulting from Hurricane Georges
in excess of $25 million until after the 1999 financial
year; and
(e) GIO Re entered into each agreement without any
expert actuarial or accounting advice that the
agreement was a proper retrocession agreement, or
that the deferral of the bringing to account of total
claims resulting from Hurricane Georges in excess of
$25 million until after the 1999 financial year was in
accordance with proper accounting practices.”
291 The Media Release pleaded in detail in par [66] included the particularly pertinent
passage that I have quoted above.
292 With respect to this contravention his Honour had made a pertinent finding regarding
Mr Vines’ state of mind in relation to the Am Re agreement at [778]. His Honour said:
“[778] Mr Vines agreed in cross-examination (T 3037; and see T

3014) that the statement that there was a strong result in property
catastrophe depended upon the American Re agreement being
effective, subject to the capacity to fall back on an ‘unders and
overs’ analysis, but he said he had no reason to believe that the
agreement would be ineffective, bearing in mind what he had been
told by the Guy Carpenter people. He said he could not recall
whether the board was told that the result depended upon the
efficacy of the American Re agreement. He also said (T 3037-8) that
at the time, he did not understand that the consequence of the
American Re agreement would in substance have been (if effective)
to defer the 1999 claims loss to later years. I do not accept this
evidence, for reasons given in my analysis of Mr Vines' similar
evidence with respect to his understanding of the first draft Guy
Carpenter placement slip.”
293 His Honour’s findings with respect to this contravention were as follows:
“[1244] The issues raised by allegedly inadequate disclosure to the

board and in the media release are essentially the same. The
allegation made in para 117 is that Mr Vines was aware of and
approved the media release knowing certain things. One of them,
which he clearly knew, was that Mr Schneider had warned that the
profit forecast should be reduced. That was in the first quarter
highlights. Another was that an analysis of reinsurance contracts
had led to an estimate that Hurricane Georges would be a $100
million type event. I have found that Mr Vines was not aware of
that matter on 17 November. The third matter alleged to have been
known by Mr Vines was that the October results had shown that
GIO Re would suffer the loss of $29.7 million in October in the
absence of retrocession cover.
[1245] ASIC submitted (written submissions, para 240) that Mr
Vines knew that the October results, which were part of the first
four months' figures announced to the market, had been supported
by the American Re agreement, which had not been approved by
APRA or the auditors, and at the time of the announcement it was
not certain that the American Re agreement could be accounted for
in a way that would protect the profit forecast and first four
months' profit. Additionally, as I have found, Mr Vines was aware
that if the American Re agreement was effective, it would follow
that claims recoveries from American Re in the 1999 year would
have to be repaid in premiums in later years. In those
circumstances, ASIC contended that even though Mr Vines had
limited influence on the terms of the media release, he was obliged
to bring to the board's attention the matters that he knew. In ASIC's
submission, the media release implied that sound profits had been
generated from the ordinary business activities of GIO Re, whereas
in fact the profits had been propped up by what was hoped would
be the effect of the American Re agreement.
[1246] In my opinion ASIC's submission has been made out. It was
important for the board to know the relationship between the
October results in the assumed efficacy of the American Re
agreement, so that the board would have the opportunity to
consider how, if at all, the full information should affect the media
release. Mr Vines claimed in cross-examination (T 3040) that, when
he participated in the process leading to the publication of the
media release, he believed in good faith that there would be
sufficient unders and overs to protect GIO Re against whatever
excess loss ( above the $25 million reserve) might arise for
Hurricane Georges. It seems to me that his belief in unders and
overs was not a justification for non- disclosure to the board but,
rather, an occasion for further disclosure so that the full facts would
be presented to the board.”
294 In the Honesty Judgment his Honour summarised these findings as follows:
“On 17 November 1998, Mr Vines failed to disclose to the board,

before the media release of that date was approved and issued, that
- the October results had been supported by the American Re
agreement;
- the American Re agreement had not been approved by APRA or
the auditors;
- it was not certain that the American Re agreement could be
accounted for in a way that would protect the profit forecast and
the first four months' profit;
- if the American Re agreement were effective, it would follow that
claims recoveries from American Re in the 1999 year would have to
be repaid in premiums in later years; and
- he believed that there would be sufficient redundancy in his
unders and overs analysis to protect the forecast (August judgment
at [1245]-[1246]).”
295 The declaration of contravention relating to the advice and Media Release of 17
November 1998 is:
to GIO Australia Holdings Limited by his failure, as an officer of
that corporation, on 17 November 1998 to disclose to the Board
before the media release of that date was approved and issued the
following matters:
(i) that the October results had been supported by the
American Re agreement;
(ii) that the American Re agreement had not been
approved by APRA or the auditors;
(iii) that it was not certain that the American Re
agreement could be accounted for in a way that would
protect the profit forecast and the first four months
profit;
(iv) that if the American Re agreement were effective, it
would follow that claims recoveries from American Re
in the 1999 year would have to be repaid in premiums
in later years; and
(v) that he believed that there would be sufficient
redundancy in his unders and overs analysis to protect
the forecast.”
296 As is clear, the declaration is based on the summary in the Honesty Judgment.
297 The Appellant submitted that his Honour did not make findings in accordance with the
pleaded case and, accordingly, denied the Appellant procedural fairness by departing from
the pleaded case. This submission should be rejected. There was, in my opinion, no such
departure.
298 His Honour clearly set out the structure of both [116] and [117] of the Statement of Claim
at [1244]. He expressly upheld the reference to Mr Schneider’s warning based on the First
Quarter Highlights document in the third and fourth sentences of [1244]. In the first
sentence of [1246] his Honour upheld the submission which his Honour set out at [1245]. This
constituted an express finding about Mr Vines’ knowledge of the significance of, and the
uncertainty about, the American Re agreement, as pleaded in (c) and (d) of par [116] of the
Statement of Claim and the equivalent part of par [117], being the words “in the absence of
retrocession cover”.
299 His Honour had rejected, after contested evidence, the knowledge alleged in par (b) of
par [116] and the equivalent passage in par [117]. Nevertheless, there was no departure from
the pleaded case in this respect.
300 Paragraphs [116] and [117] of the Statement of Claim, as with other paragraphs to be
considered below, plead the case in the form of identifying a particular act which occurred
when the Appellant had specific knowledge. The pleading does not purport to provide full
particulars of all of the circumstances which, taken together, constitute the breach of duty.
No doubt further particulars could have been sought. As far as the materials to which this
Court’s attention was directed indicates, they were not. Mr Robb so submitted without
contradiction.
301 It does not constitute a departure from the pleaded case if his Honour identifies
particulars of breach, unless they are relied upon as the equivalent of a particular of
knowledge or, as discussed above, the extension is permissible in accordance with the
requirements of procedural fairness.
302 His Honour accepted that the terms of the disclosure which ought to have been made by
an officer complying with the duty of diligence would have included a statement about
repayment in future years and Mr Vines’ own belief in his unders and overs analysis. These
findings did not depart in any way from the pleaded case. They were not particulars of
knowledge. These were additional elements with respect to which particulars were never
sought or supplied.
303 His Honour’s declaration had to comply with s 1317EA(2) of the Corporations Law and
‘specify’ the act or omission which constituted the contravention of the duty of care and
diligence. That is what his Honour’s declaration does. The “acts or omissions” so specified
identify the breach. The pleaded case did not purport to specify every such matter. The
pleaded case identified a specific act done with knowledge. His Honour did not go beyond
the pleaded case in this regard.
304 The “acts and omissions” identified in the declaration were fully agitated in the trial and
the Appellant had a full opportunity to deal with them. There was no denial of procedural
fairness in this regard.
305 The Appellant’s submissions also focused on the reference in (d) of par [116] to actual
knowledge that, but for the American Re agreement, there would have been “a significant
loss”. It was submitted first that there was no finding to that effect and secondly that no such
finding could be made because of Mr Vines’ unders and overs analysis, especially the
existence of a redundancy in MIPI.
306 This submission, in my opinion, misstates the pleading. The sting in the charge is
making the statement about “a strong result” knowing, relevantly, that that result was
prepared on a particular basis as set out. It is not an element of the pleading that there was
no other way of reaching the same result.
307 The unders and overs analysis may have been material to other aspects of the alleged
negligence. His Honour appropriately assessed that matter in his overall analysis. There
was, however, no departure from the pleading.
308 Mr Oslington QC, who appeared for the Appellant on appeal, submitted that it is
relevant to an assessment of negligence that Mr Vines had in mind his own unders and
overs analysis at the time of the Second and Third Contraventions. That analysis was based
in part on his own experience with professional indemnity insurance for accountants, a
major component of MIPI. The idea that there was a substantial excess in the reserves for
MIPI was to some degree supported by Mr Latham’s report of August. Mr Vines’ own
calculation was in general terms supported by subsequent calculations of the excess.
Furthermore at this time Mr Vines was, it was submitted, entitled to proceed on the basis
that retrocession cover would be available to limit exposure to Hurricane Georges. In these
circumstances, Mr Oslington submitted, it was not negligent for Mr Vines to believe in the
integrity of the profit forecast.
309 In assessing whether Mr Vines contravened the requisite standard of care and diligence,
considerable weight is to be given to the fact that the purpose of the report and the media
release was to advise the market, by means of that release, in the midst of a takeover battle.
Although this did not involve the high degree of formality associated with the Part B
Statement itself, it was nevertheless information which existing shareholders would use in
deciding whether or not to sell their shares on the market and, of course, by other
participants in the market. The consequences of any breach of duty were much higher than
the kind of internal communication which is the subject of the First and Third
Contraventions. Accordingly, the risk to the company from any breach of statutory duty was
also more significant.
310 The determination of whether a failure to make a full disclosure constitutes negligence
of the requisite degree is always affected by the consequences of the act or omission. The
consequences are always a material consideration when determining whether the conduct
falls below the requisite standard of care.
311 In the circumstances as they existed as at 17 November 1998, on the findings of Austin J,
Mr Vines had in mind two considerations, either of which could be such as to overcome the
then known exposure to Hurricane Georges. The first was the state of Mr Vines’ belief about
the efficacy of the American Re Agreement. The second was his understanding that there
was substantial excess reserves in the MIPI account.
312 As to the first matter his Honour made a finding that Mr Vines had a belief at that time
that it was probable that the Am Re Agreement would be effective in accounting terms.
Counter intuitive as it appears to be to accept that such treatment could be given to a
contract of insurance entered into after the event to be insured against has occurred,
nevertheless at least one major accounting firm had accepted it.
313 His Honour also made a finding that there was a level of uncertainty in Mr Vines’ mind
as to whether or not PwC would sign off on this approach and gave considerable weight to
that element of uncertainty in determining that Mr Vines ought to have informed the
directors of the full position prior to the media release being published.
314 The second element of Mr Vines’ knowledge, i.e. that there was a substantial element of
excess in the MIPI reserves, in the event, proved to be accurate. Nevertheless at this stage no
formal process of revaluing the reserves had occurred.
315 In these circumstances Mr Vines had in his mind two matters either of which could
support the relevant component part of the profit forecast. In neither respect was there a
finding that the belief was negligently held.
316 I have found this matter difficult to determine. But in the event, on balance, I have
concluded notwithstanding the significance of the media release, that Mr Vines’ conduct did
not fall below that to be expected of a person in his position at the relevant time.
317 Although market transactions would occur in the interim, the due diligence process
which would resolve any such issues was well advanced. In the absence of a finding that
either belief was negligently held, I do not think his omission to provide additional
information at that stage, when detailed consideration of both matters was in process,
constituted a contravention.
318 The appeal in this respect should be allowed.
VIII THE THIRD CONTRAVENTION: THE EMAIL OF 22 NOVEMBER 1998
319 On 22 November 1998 the Appellant forwarded to members of the Due Diligence
Committee an email entitled “Part B Forecast Clearance Commentary” which contained
what was described as the “latest forecast”. It projected a profit for both Reinsurance and
Corporate of $69 million. That forecast was based on the original assumption of an $80
million profit by Reinsurance, which was offset by an $11 million loss in Corporate. The
email concluded with a statement that Mr Vines regarded the forecast Group operating
profit to be “reasonable”.
320 The email of 22 November was prepared for a meeting of the DDC held on 23
November. As is clear from the minutes of that meeting, a range of matters required for the
Part B Statement were still in the course of preparation. That included, relevantly, the profit
forecast for the GIO Group, of which the $80 million forecast for GIO Re was a component.
The matter found to constitute a contravention appeared in a table of profit figures for the
respective divisions, introduced by the words “Latest forecast …” and concluding with:
“Before settling the final forecast; the following matters require consideration by the Due
Diligence Committee”.
321 Under the relevant heading of “Inwards Reinsurance” the following appeared:
“It is always worth bearing in mind the inescapable fact that the
reserves for outstanding claims of $2.2 billion totally dominate any
discussion on the reported profits of the Inwards Reinsurance
division for any given reporting period. An adjustment of 5% to the
claims reserves will impact the reported results by $110 million. No
one can predict claims to that level of accuracy particularly when
$1.4 billion of the liability is represented by an estimate of claims
that are thought to have been incurred but have not yet been
reported to us (IBNRs).
Reinsurance is forecast to earn a profit of $80 million in 1999.
Under our new accounting policy, no profit will be recognised on
current year premiums that relate to the attritional portfolios. In
other words this year’s profit is expected to emerge from the release
of profits on prior accident years based on our improved
knowledge of the ultimate loss ratios that apply to those accident
years. Profit expected to emerge from prior accident years in this
financial year totals $31.8 m, a mere 1.4% of outstanding reserves.
PwC have raised for debate whether or not the forecast results from
the Catastrophe portfolio of $29.7 m and Space of $14.0 m are
achievable given the high level of events that occurred in the first
quarter. Frank Robertson has concluded we can reasonably expect
better claims experience for the remainder of the year because the
seasonal factors affecting the first quarter have abated and we
expect to reduce our exposure to catastrophes through improved
retrocessions and the shedding of unprofitable business in the
January renewals process. Frank Robertson is of the view that
Space will produce a business in the January renewals process.
Frank Robertson is of the view that Space will produce a result of
$6 m and that the shortfall will be made up from favourable
development of the MIPI outstanding claims where for example, a
favourable variance on claims paid in the first quarter of $6m was
not released to profit.”
322 As his Honour’s reasons make clear, the reference to Mr Robertson constituted reliance
on the 4 November memorandum, set out at [194] above.
323 The pleading relating to this contravention is as follows:
“[117A] The First Defendant sent to members of the DDC the email
pleaded in para 68 hereof containing the representations therein
set out, well knowing that:
should be reduced;
$100m type event;
(c) GIO Re’s model predicted that Hurricane Georges
would cost the GIO $69m and that GIO had not
obtained expert actuarial or accounting advice to the
effect that the American Re agreement could be
accounted for in the manner set out in para 113 hereof;
(d) KPMG had advised that the American Re
Agreement should be booked in a manner inconsistent
with the manner set out in para 113 hereof, as pleaded
in para 63A hereof.”
324 Paragraph [68], containing the representations said to be made in the email, is as follows:
“68 On or about 22 November 1998 the First Defendant emailed the

members of the due diligence committee in relation to the forecast
profit for the 1999 financial year in the proposed Part B Statement
and made the following representations:
(a) reinsurance was forecast to earn a profit of $80
million in the 1999 year;
(b) while PwC Securities had questioned whether the
forecast of $29.7 million for the catastrophe portfolio
was achievable given the high level of events in the
first quarter, the Second Defendant had concluded
that GIO Re could reasonably expect better claims
experience for the remainder of the year; and
(c) while possible errors and omissions in the forecast
suggested a net overstatement of profit of $4 million,
this was immaterial and almost certainly not real given
that it relied on an assumption made that retrocession
costs would cost the same as for the 1998 financial year.
Particulars
Email from the First Defendant to the members of the due
diligence committee sent 22 November 1998.”
325 I have already set out par [113] of the Statement of Claim which is referred to in par 117A
of the Statement of Claim.
326 Paragraph 63A, which is also referred to, is as follows:
“63A On or about 20 November 1998, the First Defendant received a

copy of a draft letter from KPMG which advised, inter alia, that the
American Re agreement qualified as a split contract, with the
reinsurance portion represented by the ‘fee’ of $7.2 million and the
remainder being a deposit arrangement (as defined in the draft
letter).
Particulars
Facsimile from Mr Schneider to the First Defendant dated 20
November 1998, attaching a draft letter from Mr Greig of KPMG to
Mr Wright of GIO Insurance dated 20 November 1998.”
327 In the Honesty Judgment, his Honour summarised his findings on this matter as follows:
“Mr Vines' e-mail to the DDC dated 22 November 1998 failed to

disclose that the October results assumed that the American Re
agreement would qualify as reinsurance and would effectively
protect the results from adverse claims movement, and failed to
disclose the doubt that existed about that matter. It failed to
disclose Mr Vines' belief that if the American Re agreement were
ineffective, redundancies would be available to compensate for it.
The e-mail of 22 November was materially misleading in those
respects (August judgment at [1247]-[1252]).
Mr Vines should not have endorsed the GIO Re profit forecast in
his report to the DDC on 22 November, by reiterating the substance
of Mr Robertson's views in his 4 November memorandum, without
addressing the new ultimate loss figures in the catastrophe model,
which had invalidated Mr Robertson's view as to the adequacy of
the $25 million reserve. The report was materially misleading in
that respect (August judgment at [1254]).”
328 Two declarations relating to this contravention were made as follows:
“10 The First Defendant contravened section 232(4) of the Corporatio

ns Law as carried over into the Corporations Act 2001 (Cth) in
relation to GIO Australia Holdings Limited by his failure, as an
officer of that corporation to disclose in his email to the DDC sent
22 November 1998 that the October results assumed that the
American Re agreement would qualify as reinsurance and would
effectively protect the results from adverse claims movement, his
failure to disclose the doubt that existed about that matters, and his
failure to disclose his own belief that if the American Re agreement
were ineffective, redundancies would be available to compensate
for it, which rendered the email materially misleading in those
respects.
11 The First Defendant contravened section 232(4) of the Corporations
Law as carried over into the Corporations Act 2001 (Cth) in relation
to GIO Australia Holdings Limited in that he endorsed, as officer of
that corporation, the GIO Re profit forecast in his report to the
DDC on 22 November 1998 by reiterating the substance of Mr
Robertson’s views in his 4 November memorandum, without
which had invalidated Mr Robertson’s view as to the adequacy of
the $25 million reserve, which meant that the report was materially
misleading in that respect.”
329 Again, it is clear the declarations are based on the formulation in the Honesty Judgment.
No challenge was made to the formulation of the declarations.
330 In the section of his judgment dealing with this contravention, Austin J commenced with
the following statement:
“[1247] Mr Vines’ email to the DDC dated 22 November was an

important document because it endeavoured to be ‘the summation
of the situation up to that point’, written in preparation for the
meeting the following morning … ASIC submitted … that the email
ought to have disclosed a number of matters material to the
forecast and was in terms misleading.”
331 The first matter to which his Honour referred was the fact that the October results
assumed the accounting efficacy of the American Re agreement. His Honour found that at
the 23 November DDC meeting, for which the email of 22 November was a report, the DDC
had no knowledge of this matter. (See at [798] and [1248].) This finding is challenged.
332 His Honour further held with respect to this factor:
“[1249] As to the first matter, Mr Vines accepted that the October

1998 results had presumed that the American Re agreement would
be entered into (T 3015). The presumption implied that the
American Re agreement would qualify as reinsurance so that it
would effectively protect the results from adverse claims
movement, for if it were in truth a financial arrangement it would
have no effect on the profit and loss account apart from American
Re's fees. I have set out the evidence which shows that on 22
November (and before that time), Mr Vines realised there was an
issue as to whether the American Re agreement was a true
retrocession. Indeed, he had just received KPMG's draft advice,
partly illegible, with a covering note from Mr Schneider to the
effect that the response from Arthur Andersen was much better. In
my view Mr Vines' e-mail of 22 November was, in these
circumstances, misleading in omitting to disclose the extent to
which maintenance of the profit forecast depended upon the
efficacy of the American Re agreement, and in omitting to disclose
the doubt that existed about that matter, to Mr Vines' knowledge.
[1250] Mr Vines gave evidence (T 2707) that if the American Re
agreement was ineffective, redundancies were available to
compensate for it, particularly in the MIPI portfolio. In my opinion
the presence of redundancies would not exonerate Mr Vines from
disclosing the manner and extent to which the American Re
agreement affected the calculation and forecast of profit.
Redundancies, if they existed, were another matter for disclosure,
rather than a matter that would justify non-disclosure of reliance
on the American Re agreement and doubts about its efficacy.”
333 His Honour’s finding that “Mr Vines realised there was an issue” about the accounting
treatment of the Am Re Agreement, drew on his Honour’s earlier findings of fact.
334 His Honour discussed the relevant regulatory regime at [716]ff and explained the
distinction between a retrocession agreement and a financial arrangement, as well as the
accounting consequences of an agreement being classified as one or the other. His Honour
noted that “It is plain from the evidence of the negotiations for the placement slip, to which I
have referred, that the question of proper accounting treatment was identified as an issue by
those negotiating on behalf of GIO Re, and acknowledged by the American Re negotiators”
(at [725]).
335 On 13 November, the day that the Am Re slip was signed, GIO sought KPMG’s opinion as
to whether the arrangement would comply with regulatory requirements as far as risk
transfer was concerned. A draft response was received from KPMG on 20 November
indicating that in their opinion the transaction would not protect the profit forecast.
336 One factual issue was: when did Mr Vines read this draft advice, or the covering fax,
which was faxed to him on 20 November in the evening (a Friday), but which he claimed not
to have read as the document was obscured? Mr Vines was not given a fully legible version
until 23 November, after he had sent the email to the DDC relevant to this contravention.
337 The covering memorandum from Mr Schneider, which was legible, upon which his
Honour relied, stated: “Please find included some advice from KPMG. We have had a much
better response from Arthur Andersen”.
338 His Honour’s finding appears at [733]:
“[733] In my opinion I would not be justified in rejecting Mr Vines'

evidence that he did not read the report. I do not find implausible
that, important though he may have regarded it, Mr Vines might
have put the facsimile to one side in frustration on the Friday
evening, when he found that some parts of the draft opinion could
not be read, without turning to the unobscured conclusion.
However, it seems to me more likely than not that he would have
read Mr Schneider's covering facsimile, which implied that KPMG's
advice was less positive that Arthur Andersen's, and therefore that
the proper accounting treatment of the American Re agreement
was at least problematic or subject to doubt. I agree with ASIC that
he understood, on 22 November, that there was a real issue as to
whether reliance could be placed on the American Re agreement at
all, as protection against adverse development in Hurricane
Georges claims.”
339 His Honour’s finding that Mr Vines would have read the covering fax is challenged.
“[1252] My conclusion is that Mr Vines' e-mail of 22 November was

materially misleading in omitting to refer to the assumed treatment
of the American Re agreement inherent in the October results, and
the doubts that had emerged about the efficacy of the agreement in
an accounting sense. In my opinion a reasonable person in Mr
Vines' position, acting carefully and diligently, would have realised
the materiality of these matters to the GIO Re profit forecast, and
would have recognised that the time had come to inform the DDC
of the risk that the assumption of efficacy of the American Re
agreement underlying the October results might not be made out.”
341 His Honour held that two other matters had similarly not been drawn to the attention of
the DDC, either before or at its 23 November meeting. First, that the debate between Mr
Robertson and Mr Schneider about the appropriate reserve for Hurricane Georges had been
resolved in Mr Schneider’s favour. Secondly, that the catastrophe model was predicting that
Georges would produce claims of $67 million .
342 In these respects, his Honour concluded:
“[1253] As the second and third matters, it was clear from the
evidence that on 11 November, Mr Vines was shown a catastrophe
model that predicted the Hurricane Georges loss as $69 million
(undiscounted) and $67 million (discounted). Mr Vines' evidence
was that this catastrophe model had resolved the dispute between
Mr Robertson and Mr Schneider in Mr Schneider's favour. He was
therefore aware of these matters when he wrote his report to the
DDC on 22 November. As I have explained, the new figures in the
model implied that the view of Mr Robertson in his memorandum
of 4 November, that $25 million was an adequate reserve for
Hurricane Georges, was wrong, a proposition that Mr Vines
accepted in cross-examination (T 3055).
[1254] Mr Vines was not obliged, in his position at the Group level,
to provide reports to the DDC on claims development for
Hurricane Georges. He was entitled to assume that the reinsurance
division was properly monitoring claims developments and would
report to him any matters of significance. But the information from
the catastrophe model had a particular significance for Mr Vines,
because it signified to him the view Mr Schneider had expressed
about Hurricane Georges in the first quarter highlights was being
validated by other evidence, and Mr Robertson's view now
appeared to be wrong. It had not been necessary to disclose the
figures in his answers to the due diligence questionnaire, because it
appears that he completed those answers on 10 November and he
was given the figures on 11 November. But on 22 November, 11 days
later, it was materially misleading for Mr Vines to endorse the $80
million profit forecast (subject to a net overstatement of $4 million)
in his report to the DDC, by reiterating in substance Mr
Robertson's views in his 4 November memorandum, without
addressing the new ultimate loss figures which had invalidated Mr
Robertson's view as to the adequacy of the $25 million reserve. The
emergence of the $69 million estimate was a significant
development that had occurred since Mr Robertson wrote his
memorandum.”
343 It is convenient to deal with the challenge to his Honour’s factual finding with respect to
the email of 22 November that Mr Vines had read the covering facsimile from Mr Schneider
on the Friday evening prior to the email of 22 November. The submissions in this Court on
behalf of Mr Vines, challenged his Honour’s finding and particularly the basis of that
finding which his Honour had set out at [731]:
“Mr Vines gave evidence that he tried to read the draft advice late
on 20 November, which was a Friday (T 3054), but it was illegible.”
344 The basis of his Honour’s finding in this respect was the passage in cross-examination of
Mr Vines which included the following:
“Q And when you read that, you saw that Mr Schneider had said:
‘We have had a much better response from Arthur Anderson’.
A Yes.
…
Q … What Mr Schneider had said in the covering facsimile caused
you to try to read the draft advice you were given?
A I started to, and it was late on the Friday evening, and I gave up.”
345 Counsel for the Appellant placed particular reliance on the fact that in evidence in chief
Mr Vines had said expressly that he was unable to recall whether he received the facsimile
on the Friday. It was submitted that in that context the question and answer to which His
Honour referred should be understood as meaning that “if the Appellant had received the
facsimile on the Friday, that is an explanation why he did not read it on that day”.
346 I do not see any reason why the clear answer should be understood in that manner. The
statement explicitly refers to an attempt to read the document on the Friday evening. The
cross-examiner had obtained an admission which went further than the Appellant’s
evidence in chief. This is not an unusual phenomenon. On the basis of this admission it was
open for his Honour to infer that the covering memorandum, which had no difficulty with
legibility, had in fact been read at that time.
347 The Appellant also challenged his Honour’s finding that Mr Vines understood that the
KPMG advice was not likely to be helpful. It is the case that Mr Vines did not acknowledge
that proposition in cross-examination. However, his Honour was, in my opinion, entitled to
draw the inference that Mr Vines did understand this. Two opinions were sought for the
purpose of, at least, supporting the profit forecast. One of the opinions is described as “a
much better response”. The inference that the other is not helpful for the purpose was
obvious to anyone who read the covering fax.
348 In written submissions, the Appellant accepted that it may be appropriate for a finding
to be made of breach of the statutory duty of diligence and care on the basis that statements
were made that were materially misleading by reason of the omission of material facts. He
also submitted that it was necessary for the Court to be satisfied to the Briginshaw standard
that the persons to whom the email were addressed did not know of the material fact in
question. As noted above, the Appellant challenges the finding that members of the DDC
were unaware that the October results assumed the efficacy of the Am Re agreement.
349 The Appellant relied on the fact that no member of the DDC was called to state that s/he
was not aware of the matters said to have been required to be disclosed. He also relied on
the fact that one of the members of the DDC was the auditor from PwC, who was
considering the very matter. Another was Mr Lange, who had assumed particular
responsibility as the managing director for this particular aspect of the profit forecast. The
Appellant submitted that it was not adequate for his Honour to act on the basis of the fact
that the minutes of the meetings of the DDC did not suggest that any such disclosure had
occurred at such a meeting. The members of the DDC who did not already know, could
have discovered the relevant facts from other kinds of communications.
350 His Honour noted that there was no reference in the minutes of 23 November 1998 to the
October 1998 results for GIO Re, to the American Re agreement or to the estimate of
Hurricane Georges losses contained in the catastrophe model. His Honour also said at [798]:
“Mr Vines did not assert in evidence that he raised any of these
matters at the DDC meeting. I infer that none of them were raised
or discussed at the meeting.”
351 Similarly, he noted that there was no such reference in the minutes and, after applying
the Briginshaw standard, he concluded that the email itself together with the minutes were a
proper basis for an inference that the DDC, as a whole, was not aware of the relevant
matters at this time.
352 In my opinion, an inference of the character that his Honour drew was entirely
appropriate in the circumstances. The DDC’s principal focus of attention was upon the
profit forecast. The accounting treatment of the American Re agreement was of significance.
If doubt about that treatment had been raised for consideration one would have expected
some reference in the minutes.
353 As I have indicated above, when dealing with the First Contravention, a finding of
negligence must depend on the whole of the circumstances, particularly the stage that the
profit forecast and associated documents had reached at the relevant time. In oral
submissions the Appellant relied on this proposition to the effect that Mr Vines would have
known that further steps were yet to be taken with respect to the profit forecast prior to its
finalisation.
354 Nevertheless, the position had developed from that under consideration with respect to
the first and second contraventions. Furthermore, the final Part B Statement was only a
fortnight or so away. However, as Mr Oslington submitted, the Part B would not go ahead
until the review by the auditors of GIO had been concluded.
355 I have set out the position with respect to the American Re agreement as at 17 November
in my discussion of the Second Contravention above. The only material change relevant for
present purposes is the finding of fact that Mr Vines had become aware, by reading Mr
Schneider’s covering memorandum on 20 November, that KPMG had cast doubt on the
preferred accounting treatment.
356 I have concluded that the confidence Mr Vines attributed to the profit forecast at the
time of the second contravention, based as it was on a level of uncertainty with respect to the
purported retrocession agreement, was not negligent in the requisite sense at that time.
Even though this third contravention focuses on a later point of time, it was put as a discreet
contravention and must be considered as such.
357 With respect to the Am Re agreement Mr Vines did become apprised, between 17
November and 22 November, of a relevant additional fact, namely that the KPMG support
for the strategy was doubtful. Nevertheless, the context in which his continued reliance on
the October results, and his confidence in the profit forecast occurred, was one in which the
very persons to whom he was reporting would, to his knowledge, in due course receive the
PwC assessment about this very matter, before any action was taken. It is not suggested that
any decision was to be taken at the meeting of 23 November which would have an effect of
any kind prior to that assessment being available.
358 My mind has fluctuated as to whether or not it was a contravention of the requisite
standard of care for Mr Vines to fail to acknowledge the somewhat precarious basis upon
which the profit forecast was being put forward. The longer that GIO management,
including Mr Vines, maintained their position of confidence in the forecast and in each of its
component parts, the more difficult it would be for them, if the original assumption proved
false, to review the matter with the degree of objectivity that the significance of the forecast
required in the circumstances. The importance of this matter is made clear by his Honour’s
finding that the entire purpose of the American Re agreement was to prop up the particular
figure that had earlier been resolved upon.
359 Nevertheless, the circumstance that the company’s auditors were engaged in an exercise
to check the validity of the basis upon which the October figures had been computed, and
the profit forecast itself, is entitled to considerable weight. I do not believe it was negligent in
the requisite sense for Mr Vines not to disclose, on 22 November, the assumptions on which
the October figures were based.
360 Where the Board was taking a keen interest in the quality of the forecast as a whole, and
had deputed individual members of the board to acquire the requisite degree of familiarity,
of a character which normally only management would have, with the quality of each
component part of the forecast (in the case of GIO Re, Mr Lange), Mr Vines’ failure to fully
apprise the DDC of the true basis of the evolving position, could be open to criticism. That
does not, however, mean that it was in contravention of the requisite standard of care. With
respect to the uncertainty surrounding the American Re agreement, in my opinion, the
consequences of the representation made in the email of 22 November were not such as to
require further disclosure pursuant to the duty of care and diligence.
361 The second matter upon which His Honour relied in this respect, and which led to a
separate declaration, was the Appellant’s continued reliance upon the analysis of Mr
Robertson in the 4 November memorandum, when matters had changed in terms of the
exposure to Hurricane Georges. This, of course, is not unrelated to the American Re
agreement in that the intention of the agreement, if it was effective in the accounting sense,
was to limit the size of the exposure consistently with the forecast.
362 The relevant passage of the 22 November email begins with the following:
“It is always worth bearing in mind the inescapable fact that the
reserves for outstanding claims of $2.2 billion totally dominate any
discussion on the reported profits of the Inwards Reinsurance
Division for any given reporting period.”
This, in itself, puts the position in a different perspective.
363 Furthermore, the paragraph in which the reliance on Mr Robertson’s memorandum

occurs, begins with the following:
“PwC have raised for debate whether or not the forecast results
from the catastrophe portfolio of $29.7 million and Space of $14
million are achievable given the high level of events that occurred
in the first quarter.”
364 This passage also indicates that the matter of the exposure in the catastrophe portfolio
was one for “debate”. This also was not a matter that had been resolved and it was still under
consideration.
365 It is also relevant to note that the email concluded with the statement:
“The forecast includes elements that are conservative and elements

that are less conservative. On balance I believe the forecast pre tax
operating profit is reasonable …”
366 As indicated, although the Part B was only two weeks away, in my opinion, the
consequences of the failure to make the qualifications in this email, which Austin J held to
be required, were not such as to require detailed exposition at this time.
367 The appeal in this regard should be allowed.
IX DEVELOPMENTS BEFORE THE PART B
1 The Federal Court Judgment
368 On 25 November 1998, the Federal Court handed down judgment in the proceedings
challenging the takeover. The effect of that judgment was that the Part B Statement had to
be in the hands of shareholders by 16 December. Accordingly, allowing for printing and
mailing, the Part B had to be finalised within a week or ten days (see at [805]).
2 The American Re Agreement
369 The DDC meeting held on 27 November is significant as at this meeting Hurricane
Georges was discussed. His Honour said:
“[815] The DDC met again on 27 November 1998 (draft minutes at

PTB 1487; confirmation at PTB 1593). There was discussion of
Hurricane Georges and the Committee passed a resolution on the
basis that it was an event occurring in the normal course of GIO's
reinsurance business of which account had already been taken in
the four-monthly results to 31 October 1998, which had been
released to the ASX on 17 November. Mr Vines tabled an amended
draft of the profit forecast, forecasting operating profit, before
abnormal items and tax, of $250 million (PTB 1373ff; T 2715). Mr
McClintock of PwC reported that his firm was reviewing the
October figures and had identified some issues in relation to
reinsurance, which they were discussing with relevant personnel
within GIO.”
370 Amongst these issues was the accounting treatment of the Am Re agreement. PwC
would soon conclude that that the Am Re agreement, on the basis of which the October
results were computed, would not work.
371 His Honour considered at [657]ff the purposes of the Am Re agreement:
“[657] In my opinion the terms of the placement slip and the

evidence that I have set out show that Mr Steffey and Mr Vines (to
the extent that they were involved), and Mr Fox and Mr Schneider,
caused GIO Re to enter into the American Re placement slip for the
sole or primary purpose of protecting the profit forecast from
adverse movement in Hurricane Georges claims. Bearing in mind
that a whole account protection cover was contemplated by Mr
Steffey and Mr Fox for 1999 and subsequent years, and therefore
that the placement slip was a temporary cover, there is no plausible
basis for inferring that those who negotiated the placement slip on
behalf of GIO Re were concerned to protect the company from the
risk of a second US$10 billion Gulf of Mexico hurricane in any 12
month period. Plainly enough, that part of the transaction was
included in order to give the transaction an appearance of genuine
risk transfer, even though the real risk transfer was only very
remote, so that it would pass muster with the auditors and the
prudential regulator. The central part of the transaction
represented by the placement slip was an arrangement, not
involving any risk transfer, whereby American Re contracted to
cover GIO Re for surplus Hurricane Georges claims above US$15
million (A$25 million) in exchange for GIO Re's promise to pay
equivalent amounts in later years plus a substantial fee. This, it was
hoped, would enable GIO Re to remove the surplus Hurricane
Georges claims from its balance sheet at 30 June 1999 and therefore
justify a profit forecast which disregarded those surplus claims.”
372 The terms of the Am Re agreement negotiated by Fox and Schneider (after Mr Vines
dropped out of negotiations on 6 November – see [586]) sought to add an element of risk to
the transaction by adding to the agreement a second, unrelated, component providing cover
against the possibility of a “defined event”, being a second major hurricane in the Gulf of
Mexico.
373 With respect to Mr Vines his Honour said:
“[661] Mr Vines … did not have detailed understanding of the

regulatory and accounting issues and looked to Mr Fox for
expertise. Although he initiated negotiations, initially with Guy
Carpenter, for a retrocession arrangement along the lines of what
was eventually negotiated, he did not become involved in the
details of the contract or the details of its accounting treatment
before the placement slip was signed on 13 November. His evidence
was that he relied on what he was told by Guy Carpenter and by Mr
Fox as to the feasibility of obtaining retrocession cover that would
protect the profit forecast from deterioration of Hurricane Georges
claims.”
374 His Honour set out in some detail the regulatory and accounting treatment of
retrocession arrangements which it is unnecessary to repeat (see at [716]-[724]). For present
purposes, however, the opinion of PwC was the opinion that mattered. PwC were the
auditors of GIO and had to sign off on the Part B Statement. At a meeting between Mr
Hammond and Mr Vines on 1 December, PwC informed Mr Vines that they did not think
the contract would work. Mr Vines presented them with Arthur Andersen’s contrary view,
which they agreed to think about, but Mr Vines was not confident that they would change
their mind (at [741]).
375 On 7 December, PwC gave its final opinion that the American Re agreement would not
work [750]. The $80 million profit forecast for GIO Re could no longer be supported in this
way.
3 Maintaining the Profit Forecast
376 The profit forecast was subject to a process of review, including by way of an “unders
and overs” analysis. This required reassessment of existing provisions, relevantly for MIPI. It
also required the latest information about the extent of exposure to Hurricane Georges to be
taken into account.
377 His Honour found:
“[742] It seems to me to follow from this evidence that up to 1

December 1998, Mr Vines believed it was probable that Hurricane
Georges losses above $25 million would be covered by the
American Re agreement, but from that date he understood that
GIO Re would not be permitted to account for the agreement in a
way that would protect the $80 million profit forecast from
reduction by Hurricane Georges losses greater than $25 million. In
cross-examination, Mr Vines agreed that 1 December 1998 was the
first time he realised it would be necessary to investigate whether
unders and overs existed. Any ‘unders and overs’ analysis at 1
December would have to come to grips with the fact that the then
current estimate of ultimate gross claims for Hurricane Georges (as
at 30 November 1998) had risen to $92.8 million discounted, having
moved up from $67 million discounted as at the end of October.”
378 At the meeting of 1 December, Mr Vines suggested that there were “redundancies”,
particularly within the MIPI reserve, and instructed Mr Latham to review the MIPI reserves
(at [743]).
379 His Honour made the following findings about this review:
“[748] On 3 or 4 December, and in any case before the DDC

meeting on 6 December, Mr Hammond or Mr Murray informed Mr
Vines that Mr Latham had undertaken a review of the MIPI
reserves and had reported back that, in his opinion, there was a
surplus of at least $34-35 million, but it would be necessary to have
the agreement of GIO management that there was a redundancy in
the MIPI reserve before it could be used to counteract the
ineffectiveness of the American Re contract. Mr Vines said he was
confident that this agreement would be forthcoming, believing that
the people who would need to agree were Mr Fox and Mr
Robertson. Mr Vines said that when he had this discussion, he still
believed that the reinsurance profit forecast was achievable
without reliance on the American Re contract, because in addition
to the surplus identified by Mr Latham, which related to the early
years of MIPI, Mr Vines believed from his experience in the
accounting profession that there was a redundancy in respect of the
later years of MIPI.”
380 It is pertinent to note that at trial, and on appeal, ASIC accepted the validity of this
general approach:
“[455] ASIC concedes that it would be legitimate for GIO Re, in

deciding whether to adhere to the A$80 million profit forecast, to
take into account not only reductions in areas where it was no
longer reasonable to expect that the forecast figures would be
achieved, but also increases where it had become reasonable to
believe that the forecast figures would be exceeded. The process of
consideration which takes into account both shortfalls and excesses
in reviewing a profit forecast was referred to in evidence as an
‘unders and overs’ exercise.”
381 At [817] and following his Honour set out a process, initiated by Mr Vines around 2
December, aimed at locating areas of conservatism within the reinsurance figures. Mr Vines
gave evidence, recorded at [817], that he initiated this process after he had been told that the
Am Re agreement was unlikely to be effective. Mr Schneider prepared a document entitled
“Particular areas of conservatism” which was sent to Mr Vines on 2 December (see at [818]
-[819]). On 3 December Mr Latham, the GIO actuary, produced a report for PwC in which he
expressed the opinion that there was a redundancy of $33 million in MIPI (at [821]).
382 The position at this point was summarised by his Honour:
“[826] As I shall explain, at a meeting with representatives of PwC

on 7 December 1998, Mr Fox said the ultimate net loss for
Hurricane Georges would be $60-65 million. That meant that,
taking the lower end of that range, the Hurricane Georges loss was
an ‘under’ of A$35 million - that is, A$35 million in excess of the
A$25 million reserve that had been made for the purposes of the
profit forecast. If the American Re retrocession contract could not
be relied on, it was necessary on Mr Fox's figures to find ‘overs’ of
A$35 million in order to maintain the profit forecast at the same
level.”
4 DDC Meeting of 6 December
383 The Due Diligence Committee met again on 6 December and considered the draft Part B
Statement and a DDC report dated 3 December. His Honour found:
“[828] … They were also provided with another draft of PwC's

report to the Committee reviewing the profit forecast, which had
been altered to say (at PTB 1551) that the first-quarter result for the
catastrophe portfolio had assumed that GIO's exposure to
Hurricane Georges would be A$25 million, being 0.6% of a total
market loss estimate of US$2.55 billion; but that up to 31 October
1998, claim notifications for Hurricane Georges had increased to
$65 million, and this increase suggested that "the 33% profit
assumption used for this portfolio is no longer appropriate". There
was a notation after this sentence, indicating that this statement
was to be discussed with the DDC on 6 December 1998.”
384 Hurricane Georges was discussed at that meeting, and his Honour set out the matters
raised at [832]:
“[832] The second issue related to Hurricane Georges. Mr

Hammond noted that the forecast had assumed that claims in
respect of Hurricane Georges would not develop beyond $25
million. To the end of October 1998, claim notifications were
approximately $20 million. He said that by comparison with prior
catastrophes of the nature of Hurricane Georges, the current level
of claims notifications indicated that claims in respect of Hurricane
Georges could rise to the order of $60 million. According to the
minutes, Mr Steffey commented that the existence of the AMP bid
may have caused a number of entities to make early claim
notifications to GIO. He also said that GIO had entered into a
retrocession contract to protect it from claims in excess of $25
million.”
385 This meeting of the DDC was also the first meeting at which the accounting treatment of
the retrocession contract was raised. His Honour found:
“[833] The minutes noted that a question had arisen as to the

accounting treatment of the retrocession contract, as to whether the
premium for that contract should be brought into account in the
1999 accounting year or in a subsequent year. This was apparently
the first time that the committee was told there were doubts about
the American Re contract. It was noted that PwC had requested
GIO management sign-offs confirming the availability of a
redundant provision in MIPI, and Mr Vines had advised that he
was confident that these sign-offs would be forthcoming. Mr
McClintock gave evidence (T 1628) that one of the PwC
representatives said ‘in words of one syllable that we wouldn't
accept it [the American Re agreement] from the point of view of
being reinsurance’, and that one of the other members of the DDC,
Marina Darling, said ‘well, why did we enter into it if it's not going
to be effective?’ Later, Mr McClintock observed that PwC from time
to time made inquiries of GIO's staff about claims notifications for
Hurricane Georges (T 1638).”
386 On 6 and 7 December a conference of GIO management occurred at Terrigal. The ASIC
case against Mr Vines relied on evidence by Mr Schneider that in conversation with the
Appellant he again referred to his contract by contract analysis and his belief that Hurricane
Georges was a $100 million event. Again his Honour refused to make that finding (at [852]).
5 Events of 7 December
387 His Honour set out the events of 7 December at [861] and following. The three
defendants met with representatives of PwC at what was described by ASIC as the “final
sign off meeting”, although Mr Vines was not there for the whole meeting. His Honour
accepted the version of the meeting as recorded by Mr Murray of PwC (summarised at [866]
and following, finding at [898]).
388 Mr Fox told the meeting that notifications had reached $60-$65 million, albeit with
some “precautionary” claims. However, after a “contract by contract” review the calculated
maximum potential loss from Hurricane Georges was $105 million. However, Mr Schneider’
s contract by contract analysis computed a maximum of $211 million.
389 The Murray note, which Austin J found reported Mr Fox’s comments in the presence of
Mr Vines was, relevantly:
“TF stated that a detailed review of GIO’s Re’s exposure, contract

by contract, had indicated a maximum potential loss of $105
million. Notifications to date were $60-65 million, up from $27
million … While further developments cannot be ruled out,
management’s best estimate of the liability is of the order of $60-65
million.”
390 According to Mr McClintock’s unders and overs analysis, the profit forecast should be
reduced by $14 million, but this was not material for the Part B Statement.
391 Mr Vines told the meeting that, in management’s view, the American Re agreement
would deliver the accounting outcomes sought (at [871]), and he confirmed he said this (at
[886]). The basis for his belief in this statement was that the Agreement was under
renegotiation. However, he said he was not relying on this agreement to support the forecast
(at [886]).
392 Mr Vines said that this meeting was the first time he learned that Hurricane Georges had
reached $60-$65 million, but accepted Mr Fox’s estimate of ultimate exposure (at [872]). At
[873] his Honour noted Mr Vines’ evidence that had he known of the 39 percent increase in
the Status of Registered Events concerning Hurricane Georges over the month of
November, he would have required proof of Mr Fox’s figure of $60-$65 million.
393 His Honour set out his findings concerning the 7 December meeting at [898] and
following. He referred to earlier findings and had to interpret some of the entries in Mr
Murray’s notes. Relevantly, his Honour appears not to have resolved the tension between
Mr McClintock’s evidence that the exposure was computed as at 30 November, with his note
that the computation was based on “notifications to date”.
“[900] … The Hurricane Georges register for 30 November 1998

recorded property claims as $59.7 million (PTB 2881). According to
the Georges register of 4 December (PTB 2496) the total gross
claims for Hurricane Georges were $89.7 million on that day, and
the figure had risen to $91.9 million by 7 December.”
(His Honour referred to Mr Schneider’s analysis which suggested an exposure

of $211 million, but found this was only shown to Mr Fox.)
“[914] There is no evidence that Mr Vines saw the post-November
figures before the meeting with PwC on 7 December. However,
ASIC submitted that the court should find that he was aware that
total gross claims for Hurricane Georges received to the end of
November were approximately $85 million. ASIC submitted
(written submissions, para 293) that when he chose to do so, Mr
Vines had a close involvement in and control over GIO Re's
financial affairs. ASIC instanced his role in the determination of the
$105 million aviation reserve, his initiation of the increase in the
GIO Re profit forecast by $30 million to $80 million, his
participation in the meeting on 5 November with Mr Lange, his
requests for information from Mr Driessen, and his role in the
meeting on 11 November in causing the October profit figure to be
uplifted by $15 million.
[915] It seems to me that those events show Mr Vines had the
capacity and inclination to intervene at the divisional level when he
thought, from his perspective at the Group level, that intervention
was needed. But the evidence does not establish that Mr Vines
usurped the divisional role by directly monitoring the development
of Hurricane Georges claims, and there is no proper basis for
inferring, therefore, that he was made aware of the state of claims
in early December. His own evidence was that as of 7 December, he
had no up-to-date knowledge of the current estimate of Hurricane
Georges losses, and the latest information he had in the estimate
was the model as at 31 October. My conclusion is that on 7
December, Mr Vines did not have actual knowledge that the $60-65
million estimate was wrong.
[916] I agree with ASIC's contention … that it must have been
apparent to Mr Vines, on 7 December, that Mr Fox may have still
been proceeding on the basis that the American Re agreement
could be relied upon for accounting purposes, and that he would
probably not have investigated alternative means of maintaining
the profit forecast. Mr Fox was not present at the 1 December
meeting between Mr Vines and Mr Hammond and Mr Murray.
Therefore, when he heard Mr Fox's views at the meeting, it would
not have been appropriate for Mr Vines to infer that Mr Fox was
taking into account some ‘unders and overs’ process.”
395 In addition to his Honour’s conclusion concerning the meeting of 7 December, it is also
pertinent to note his Honour’s further findings of the position as at that date:
“[1179] At the end of 7 December the ship was in an unsteady state.

The position could be clarified by conducting further
investigations, including investigations leading to some form of
report on the unders and overs analysis as a whole (MIPI was
already supported by Mr Latham's report). Alternatively, it would
have been appropriate for Mr Vines, in my view, to present all of
the facts to the DDC, and to see whether the problem might be
accommodated by appropriate disclosure in the Part B statement. I
am not able to say, on the evidence, whether the latter approach
was feasible, but since the evidence has not ruled it out, I do not go
as far as ASIC does in asserting that the making of further inquiries
was necessary. But I do agree with ASIC that in the delicate
circumstances that existed on 8 December, Mr Vines' duty of care
and diligence should have precluded him from confirming to PwC
that ‘appropriate inquiries of other Directors and officials of GIO’
had been made, in the solemn circumstances in which that
confirmation was given.”
X THE PART B CONTRAVENTIONS
1 The Part B Statement
396 His Honour made findings concerning the Part B Statement at [954] and following. In
particular, his Honour noted at [956] that the profit forecast was a fundamentally important
component of the reasoning throughout the take-over documentation.
397 Appendix One of the Part B Statement is headed “1999 Forecast”. That forecast for GIO is
in the amount of $250 million. With respect to Operating Profit, the line item of “Inwards
Reinsurance and Corporate Insurance” is stated to be $69 million. This amount is, as I have
mentioned above, comprised of an $80 million profit forecast for Reinsurance offset by an
$11 million loss for Corporate Insurance.
398 The Appendix also stated:
“Proper care and attention has been given to the preparation of the
Forecast and associated assumptions. However, forecasts by their
very nature are subject to significant uncertainties and
contingencies many of which are outside the control of GIO and
not reliably predictable. Accordingly, the directors do not represent
the GIO’s actual results for the year ending 30 June 1999 will be
represented by the Forecast and, indeed, actual results for the 1999
year may vary significantly from the Forecast …
Price Waterhouse Coopers Securities Limited has reviewed the
Forecast and the underlying assumptions and the report on that
review is attached.
The Forecast should be read in conjunction with the ‘Risk Factors’
outlined below.”
399 Under the heading “Inwards Reinsurance and Corporate Insurance” Appendix One also
stated:
“There are inherent difficulties in forecasting the results of the

Inwards Reinsurance Portfolio given that profits can be
significantly influenced by relatively small variations between
assumed and actual experience. Factors which can materially
impact profits include actual versus expected development of long
tailed classes of business and unpredictable events such as
earthquakes, hurricanes, storms, freezes, floods, fires, tornadoes
and other manmade or natural disasters.”
400 The Appendix went onto refer to “significant assumptions used in the preparation of
the Forecast” one of which was:
“The performance of the catastrophe portfolio in the year to date
has been adversely affected by Hurricane Georges. This adverse
experience has been offset to a large extent by favourable
experience in other classes in the year to date. For the remainder of
the year it is assumed that the catastrophe portfolio will incur no
further significant losses. The assumption is based on the fact that
the Caribbean hurricane season has ended, that exposure to losses
will be significantly reduced as a result of the non-renewal of
certain contracts at 1 January 1999 and as a result of revisions to
retrocession arrangements.”
401 The Part B Statement was in final draft form when each of the four closely interrelated
steps, which his Honour held to be contraventions, occurred on 8 December. The act of
executing the “Management sign off”, which I have designated the Fourth Contravention,
encapsulates in a single culminating act each of the matters that have occurred by way of
advice to the DDC (the Fifth Contravention) and the advice to the auditor (the Sixth
Contravention).
2 The Position on 8 December
402 His Honour made findings that up to and including 7 December, Mr Vines was entitled
to rely on those responsible for computing the extent of exposure to Hurricane Georges to
make the calculations and to bring them to his attention. Accordingly, he was not required
at the 7 December meeting to go behind Mr Fox’s assertion that the extent of exposure was
$60-$65 million. However, his Honour held, that changed on 8 December.
403 His Honour found:
“[1144] In my opinion Mr Vines had no duty to "usurp the divisional

role" by initiating his own inquiries as to the level of Hurricane
Georges claims prior to the meeting on 7 December. He had had
discussions with PwC and realised that the accounting treatment
for the American Re retrocession agreement was in doubt, but he
had put a case to PwC for treating the agreement as a true
retrocession and the matter was unresolved. It was only at the
meeting on 7 December that it became clear that his argument had
not been accepted and that PwC would not agree to the American
Re agreement being accounted for as a true retrocession
agreement. Up until that point, he had no obligation to inform
himself of the level of claims received. That was a matter on which
he relied on the reinsurance executive director, Mr Fox.”
404 His Honour also held:
“[1183] Mr Vines' evidence was that he expected the reinsurance

division to monitor Hurricane Georges in accordance with its usual
practices and to report any material adverse development to him.
In my opinion, while it was adequate for Mr Vines to assume that in
Hurricane Georges would be monitored in the usual fashion at a
divisional level up until 7 December, the situation changed after
that day. PwC's decision not to accept the American Re agreement,
and the reliance placed on a "tight" unders and overs analysis, made
it urgently necessary for those with central responsibility to the
parent entity for keeping the market informed during the currency
of the bid to have a clear and up-to-the-minute understanding of
the development of Hurricane Georges claims. Mr Vines was one of
the executives who had that responsibility, because of his position
in respect of the takeover defence and due diligence process, and in
light of the impending board decision on the Part B statement and
profit forecast. Once that decision was made, Mr Vines' duty to
exercise care and diligence to facilitate the parent company's
compliance with the continuous disclosure listing rule meant that it
was necessary for him to be sure that the monitoring arrangements:
upon which he had previously relied, were continuing in the new
circumstances.”
405 His Honour’s reference to a “‘tight’ unders and overs analysis” was a reference to Mr
Hogendijk’s evidence considered at [1152]-[1155], referring to par [181] of his affidavit. This was
Mr Hogendijk’s characterisation of the result of Mr McClintock’s unders and overs analysis.
At [1152] his Honour accepted the evidence of Mr Hogendijk that: “ … a competent CFO
would have understood that the exercise was very tight and strongly depended on the
reliability of the $60-65 million assessment of the ultimate Hurricane Georges’ liability, and
that the validity of the unders and overs exercise would have appeared to a competent CFO
to be very sensitive to the accuracy of that estimate”.
406 His Honour found at [942] that Mr McClintock’s figures were “just above the minimum
materiality threshold and well below the maximum materiality thresholds”. This is a
reference to the Materiality Guidelines applied by PwC which provided that an amount
equal to or less than 5 percent was presumed not to be material, but an amount equal to or
greater than 10 percent was presumed to be material. Mr McClintock’s unders and overs
analysis, taking into account the full range of matters impinging on the profit forecast and
not just exposure to Hurricane Georges, produced a net negative adjustment of $15 million.
This was, as his Honour found, in excess of the amount “presumed not to be material”
namely, 5 percent of $250 million, being $12.5 million, but less than the amount presumed to
be material namely, $25 million. This computation was based on the lower end of the range
provided by Mr Fox on 7 December, i.e. the estimate of $60 million. If the top of the range
had been taken then the negative adjustment taking into account all considerations would
have been $20 million being 8 percent of the profit forecast of $250 million which could not
be described as ‘well below’ the maximum materiality threshold.
407 It is convenient to deal at this point with the Appellant’s submission that it was never
put to him in cross-examination that anything changed in this respect on 8 December. This
submission should be rejected. There was no denial of procedural fairness.
408 It was part of the ASIC case that Mr Vines knew, or ought to have known, of the extent
of exposure to Hurricane Georges. The Appellant was successful, for example, in having his
Honour reject the ASIC case that Mr Schneider had told him more than once that Georges
was a $100 million event. The Appellant was also successful in having his Honour accept
that he was entitled to rely on others to compute the exposure, albeit only up to a certain
time. In this regard, his Honour relied on the evidence of Mr Vines adduced at trial without
notice to ASIC. He also relied on the evidence of ASIC’s expert, Mr Hogendijk.
409 Procedural fairness did not require that the cross-examination put, in the alternative,
that should the ASIC case be rejected in some respects, that the position had changed as at a
particular date. There were a number of variables, including factual disputes which needed
to be resolved. A cross-examination which covered each possible contingency was not only
impractical, any attempt to undertake such a task would have been oppressive.
410 In any event, it was in part the Appellant’s own reliance on Mr Hogendijk’s evidence,
that led his Honour to reach the conclusion that he did. Mr Hogendijk said in cross-
examination that such reliance was appropriate at the 7 December meeting, but not
thereafter. The Appellant was on notice that he should, if he wished to, address this matter.
411 His Honour’s conclusion that, on 8 December, Mr Vines could no longer rely on others to
inform him of the extent of exposure to Hurricane Georges, is relevant to both the “tight”
unders and overs analysis of Mr McClintock and to his own unders and overs analysis, on
which reliance was placed both at trial and on appeal. The Appellant’s own experience with
professional indemnity insurance for accountants, which was a major component of MIPI,
put him in a good position to make his own assessment of the adequacy of the reserves for
MIPI. However, by 8 December that “over” had been computed by an actuary. In any event,
the extent of exposure to Hurricane Georges was an essential component of any such
analysis.
412 In my opinion, Austin J was too generous to the Appellant in concluding that his duty of
care and diligence did not require a more proactive role until 8 December. The scope of his
responsibilities which his Honour correctly found to be wide and which I have summarised
at pars [162]-[165] above, were such that, in my opinion, he should have taken steps to satisfy
himself that he was being kept informed of relevant matters when so critical a matter as the
assumptions underlying the profit forecast in the Part B Statement were strained to the
point of significant vulnerability. It is, however, sufficient for present purposes to confine
the analysis to his Honour’s conclusion, which I will set out below, that Mr Vines should
have disclosed various matters to the directors.
413 December 8 was, in a sense, the last day on which any change was feasible. Many
positions held by the interrelated parties – directors, managers, advisers, auditors,
independent experts – were in a sense locked in by that time. The time to check facts or
acquire further information was too short. I would have found that the level of diligence
required of Mr Vines escalated shortly after the Federal Court judgment (handed down 25
November 1998) established a definite, and short, time period for the finalisation of the Part
B. However, as there was no alleged contravention between that time and 8 December,
nothing turns on this and ASIC did not challenge his Honour’s finding.
6 The Appellant’s Knowledge as at 8 December
414 I have set out above a number of factual findings which form the background to his
Honour’s analysis of the contraventions relating to the Part B Statement.
415 His Honour summarised his findings with respect to Mr Vines as at 8 December, before
proceeding to deal with the allegations of contravention of that date:
“[1155] It is appropriate to pause, before proceeding to the next

group of pleadings, to consider the position Mr Vines was in at the
beginning of 8 December. He had known since about 20 October
that there was an issue as to whether there would be an adverse
development in Hurricane Georges claims that would render
inadequate the $25 million reserve that had been provided. The
disagreement between Mr Robertson and Mr Schneider on that
subject appeared to him to have been resolved in favour of Mr
Schneider when the catastrophe claims model predicted as at 31
October that Hurricane Georges claims would be substantial. He
had regarded the American Re agreement as a transaction that
would protect the profit forecast from adverse Hurricane Georges
claims movement, but he was concerned from the beginning of the
negotiations that there would be insufficient risk transfer to make it
a retrocession agreement acceptable to the auditors. It became
evident early in December that his strategy for persuading PwC to
accept the efficacy of the American Re agreement might not
succeed, and he received confirmation of PwC's attitude on 7
December. These were issues that had been building up for some
time. At the same meeting, in what must have been somewhat
strained circumstances in view of the timetable for publication of
the Part B statement, some ‘unders and overs’ were calculated that
would just, but only just, be adequate to maintain the profit
forecast within the materiality threshold of the Part B statement.
But this calculation was, as Mr Hogendijk remarked, tight, and Mr
Vines must have been aware that it depended crucially on the
accuracy and reliability of Mr Fox's assessment of the Hurricane
Georges liability. Questions accordingly arise as to what Mr Vines
should have said and done from that time onwards.”
416 This introductory finding should be taken as being incorporated as a finding in his
Honour’s analysis of what I have designated as the Fourth, Fifth and Sixth Contraventions.
417 Mr Oslington submitted that it was never put to Mr Vines that he had a “strategy for
persuading PwC” about the American Re agreement. His Honour’s reference in [1155] is
clearly a reference back to his Honour’s finding at [727]:
“[727] … [M]y view is that, while Mr Vines received some

encouragement from the opinions of Mr Fox and Mr Grove that
contracts of the kind that had been entered into on 13 November
would succeed as reinsurance contracts, there was an element of
uncertainty in his mind, especially as to whether PwC would, as
GIO's auditors, allow the proposed accounting treatment of the
arrangement. It seems to me probable that he adopted the strategy
that he would present PwC with a signed slip reinforced by
opinions from other auditors, so as to create pressure at PwC to
accept the arrangement, believing that if they did not, American Re
would unwind the contract. Unfortunately for him, the strategy did
not work because KPMG would not approve the arrangement.”
418 In this Court, ASIC did not suggest that the existence of any such “strategy” to put
pressure on PwC had been raised with Mr Vines. I have not been able to locate any such
cross-examination. Mr Vines was asked why he had bothered to get these further opinions,
which would seem to be redundant when the opinion that mattered, i.e. PwC’s, was already
in train.
419 This cross-examination can and does support his Honour’s conclusion that Mr Vines
manifested uncertainty about the likely accounting treatment of the Am Re agreement. It
cannot, however, support a finding of a deliberate strategy to put pressure on PwC.
420 I have set out above the legal principles underlying the “rule” in Brown v Dunn. The
suggestion of motive which, if not improper was, at least, inappropriate and manifesting a
level of bias, is something which should, as a matter of fairness, have been put to Mr Vines.
It was not. In my opinion, it was not open to his Honour to make such a finding. I will set out
below his Honour’s findings with respect to each of the remaining contraventions. There is
no suggestion that his Honour’s finding of motive played any role in the analysis. Nor did it
play any role in the Honesty Judgment.
XI THE FOURTH CONTRAVENTION: THE MANAGEMENT SIGN OFF

AND DRAFT PART B
421 Included in the Part B Statement was a statement signed by the Appellant dated 8
December 1998 headed “Management Sign-Off”:
“Management Sign-Off
I have reviewed the due diligence questionnaires completed by
senior management and the statement of issues identified in
responses to those questionnaires. To the best of my knowledge,
information and belief the answers given to those questionnaires
are true and correct in respect of that part of the GIO Group
business and affairs for which I have responsibility.
I have drawn the attention of the due diligence committee to any
other matter of which I am aware which has occurred in the period
since 1 July 1998 and which I consider may be material to a decision
by a GIO Australia Holdings Limited shareholder whether or not to
accept the takeover offer by AMP Insurance Investment Holdings
Pty Limited. I am not aware of any other matter of such a nature
which I have not already drawn to the attention of the due
diligence committee or which is not contained in responses to the
due diligence questionnaires.”
422 The pleading with respect to this matter is par [126]:
“[126] The First Defendant signed and delivered to the DDC the
First Defendant’s management sign-off, as pleaded in para 88
hereof, without advising the DDC that, by reason of the matters of
which the First Defendant then knew, or ought to have known, it
was improbable that GIO Re would achieve the $80m profit
forecast in the 1999 financial year.”
423 Paragraph [88] of the Statement of Claim referred to is a paraphrase of the document
signed by the Appellant, which I have quoted above.
424 His Honour considered par [126] together with par [125]. However, on this appeal ASIC
abandoned any reliance on [125] and it is unnecessary to set it out.
425 His Honour had found, with respect to the Management Sign-Off:
“[925] Mr Vines completed a ‘Management Sign-Off’, dated 8

December 1998. His document certified to a review of the due
diligence questionnaires completed by all senior management, as
well as the statement of issues identified in responses to those
questionnaires. He said that to the best of his knowledge,
were true and correct ‘in respect of that part of the GIO Group
business and affairs for which [he had] responsibility’. There was
no definition of the part of the business for which Mr Vines had
responsibility. I take it, however, that his area of responsibility was
a large one, because his certification related to the answers to the
questionnaires given by all senior management, and he was, under
the planning memorandum, in a position of central responsibility,
as I have explained. As in the case of the documents signed by Mr
Robertson and Mr Fox, Mr Vines' document certified that he had
drawn the attention of the DDC to any other material matters
occurring since 1 July 1998, and said he was not aware of anything
which he had not drawn to the attention of the DDC.”
426 His Honour’s findings with respect to the Fourth Contravention were as follows:
“[1160] ASIC made three submissions about Mr Vines' management

sign-off. One of them can be despatched summarily. ASIC
submitted that Mr Vines should have told the DDC that according
to Mr Schneider's opinion, based upon a contract-by-contract
analysis, Hurricane Georges was likely to be a $100 million type
event, and further, that claims to the end of November 1998 had
reached $85 million. I do not accept this submission, because I have
preferred Mr Vines' evidence to the evidence of Mr Schneider with
respect to their relevant conversations.
[1161] The first of the other two submissions was that Mr Vines
ought to have formally advised the DDC that until 7 December,
GIO Re had proceeded on the basis that the American Re
agreement would effectively limit Hurricane Georges losses in the
1999 year to $25 million, but on that day PwC had refused to agree
with the accounting treatment that would produce this result. ASIC
said Mr Vines should have explained that the first four months'
profit figures had been prepared on the basis of the same
assumption.
[1162] I agree with this submission, in the sense that this
information should have been conveyed to the DDC either by
addendum to the management sign-off, or in some other fashion
before the sign-off was made operative. The management sign-off
invited Mr Vines to consider whether the DDC had been told
everything material for the purposes of the Part B statement, which
included the profit forecast. While his certification of the accuracy
of answers to the questionnaire was confined to the part of the GIO
Group business for which Mr Vines was responsible, and the scope
of that responsibility might have been open to interpretation, the
second paragraph of the document related to all matters of which
he was aware, whether within his field of responsibility or not. The
question that he was required to address was whether he was aware
of something not reported to the DDC which he considered might
be material to a shareholder's decision whether or not to accept the
AMP takeover offer. Information known to Mr Vines, going to the
question, whether the American Re agreement protected GIO Re
from Hurricane Georges losses in excess of $25 million, was
obviously material in that sense, because if there was no protection,
then the ultimate Hurricane Georges net loss would be likely to
reduce the profit forecast, and hence the value of the shareholding,
to a material degree.
[1163] Secondly, ASIC submitted that Mr Vines should have told the
DDC that on 7 December PwC had been given information
concerning the effect of Hurricane Georges in circumstances where
he had no evidence that the information had been supported by
reasonably reliable investigations. I disagree with this submission,
as framed, although in my view there was something else that
should have been disclosed, in responding to the second paragraph
of the sign-off document.
[1164] The developments on 7 December had made the accuracy
and reliability of Mr Fox's statements to PwC matters of crucial
importance to maintaining the profit forecast, but it was not Mr
Vines' role to accumulate evidence to support or undermine Mr
Fox's statements. On the other hand, just as he ought to have told
the DDC what he knew about the American Re agreement, he
should also have told them that in the new circumstances, the
accuracy and reliability of management's best estimate of the
Hurricane Georges liability had become especially important.
[1165] The presence of ‘unders and overs’ was also a material matter
for disclosure. The fact that there were redundancies that might or
would protect the profit forecast in the absence of the American Re
agreement was no justification for non-disclosure of the material
facts to the DDC. It was not appropriate for Mr Vines to deprive the
DDC of the information necessary for it to make an informed
decision as to whether to adhere to the profit forecast or alter the
Part B disclosure, in light of the accounting treatment of the
American Re agreement and the presence of unders and overs.
[1166] Mr Hogendijk gave evidence to the same effect. He said
(affidavit para 195) that a competent CFO in Mr Vines' position
would have explicitly noted the basis upon which the profit
forecast was maintained in the 8 December management sign-off.
This was because a competent CFO would have understood that
the makeup of the profit was very significant to the market, and
investors were likely to be misled if they were allowed to believe
that the GIO Re profit forecast was likely to be achieved on the
basis upon which it was originally estimated as a result of the
ordinary operations of the business. He said that a competent CFO
would have regarded it as being part of his or her duty explicitly to
bring the issue to the attention of the DDC and PwC Securities. I do
not agree, as far as PwC Securities were concerned, because they
were already aware of the relevant matters, but my view is that Mr
Vines had a duty to inform the DDC regardless of what PwC said to
them.
[1167] A reasonable person in like position to Mr Vines in a
corporation in GIO Australia Holdings' circumstances would have
exercised care and diligence to ensure that the DDC was properly
informed of all material aspects of the maintenance of the
reinsurance profit forecast, before or in the course of giving the
management sign-off. In terms of the pleading, such a person
would have informed the DDC that the achievement of the $ 80
million profit forecast was improbable, given the unavailability of
the American Re agreement, unless the unders and overs analysis
that had been considered at the PwC meeting, and the estimate of
Hurricane Georges liability made by Mr Fox, were correct.
[1168] A corollary to these findings is that a reasonable person in the
position of Mr Vines would have drawn the attention of the DDC to
those parts of the draft Part B statement that implied that the
reinsurance profit forecast, as part of the Group forecast, would be
achieved on the basis of assumptions that did not spell out the
position known to Mr Vines. In other words, Mr Vines ought to
have invited the DDC to consider some redrafting of the Part B
statement in light of the matters of disclosure that he was obliged to
bring to their attention. Mr Hogendijk reached a similar conclusion
(affidavit para 192), drawing attention to a statement on page 14 of
the booklet that spoke of GIO's ‘strong performance’ in the first
four months, and said that the company was ‘well on track to
achieve a significant profit in the current year’. The booklet
referred to ‘key highlights’ of the first four months' result, one of
which was ‘a solid profit achieved by GIO's reinsurance business as
recent changes to personnel and management practices took effect
…’.
[1169] A reasonable person in the position of Mr Vines would not
have relied upon Mr McClintock's presentation to the DDC as a
means of discharging his or her duty of care and diligence. Mr
Vines was personally required, by the terms of the management
sign-off, to commit his name to the opinions that it contained. By
that document the DDC looked to Mr Vines to take personal
responsibility.”
427 The reference to “Mr McClintock’s presentation” is a reference to his “unders and overs
analysis” that I have referred to above.
428 In the Honesty Judgment, his Honour summarised the aspects of this lengthy passage
which relate directly to the Fourth Contravention as follows:
“Before or in the course of giving his management sign-off on 8

December 1998, Mr Vines failed to ensure that the DDC was
properly informed of all material aspects of the maintenance of the
reinsurance profit forecast. He failed to inform the DDC that the
achievement of the $ 80 million profit forecast was improbable,
given the unavailability of the American Re agreement, unless the
unders and overs analysis that had been considered at the PwC
meeting and the estimate of Hurricane Georges liability made by
Mr Fox, were correct (August judgment at [1167]).”
429 The declaration relevant to this contravention was:

that corporation, to ensure that the Due Diligence Committee
(‘DDC’) was properly informed of all material aspects of the
maintenance of the reinsurance profit forecast in the course of
giving his management sign-off on 8 December 1998, and failed to
inform the DDC that the achievement of the $80 million profit
forecast was improbable.”
430 The focus of attention in [126], of the pleading as it is in [127] and [127A], which I call the
Fifth and Sixth Contraventions, is on the improbability of the $80 million profit forecast
being achieved. It states that by reason of certain matters that the Appellant knew or ought
to have known, he should have advised DDC, before executing the Management Sign Off,
“it was improbable that GIO Re would achieve the $80 million profit forecast”. I deal first
with the submission that his Honour went outside the pleaded case in this respect.
431 The Appellant advanced the proposition that pars [126], [127] and [127A] asserted that Mr
Vines “knew or ought to have known that it was improbable that GIO Re would achieve the
$80 million profit forecast”. That is not what the paragraphs state. Paragraph [126] says that
he ought to have advised the DDC that such achievement was improbable, “by reason of
matters which Mr Vines knew or ought to have known”.
432 The Appellant submitted that Austin J did not make a finding that Mr Vines knew that it
was improbable that GIO Re would achieve the $80 million profit forecast. The reference to
“knew” in this submission is, to say the least, ambiguous. An understanding or appreciation
of improbability is implicit in the pleading. The Appellant’s submission that the pleading
required actual “knowledge” of improbability should be rejected. Indeed it is not a natural
use of language to talk of “knowledge” of a statement of probability. In any event, the
pleading cannot be so confined. It expressly extends to matters of which the Appellant
“ought to have known”. The pleading is that, in view of matters he knew, or ought to have
known, he should have advised of such improbability before delivering his sign off letter.
433 In the second sentence of par [1167], his Honour expressly refers to the “terms of the
pleading” and finds that a person in Mr Vines’ position should have informed the DDC “that
the achievement of the $80 million profit forecast was improbable”. That is an accurate
statement of the charge in par [126]. His Honour goes on, in that second sentence of par
[1167], to identify facts and matters, or at least the most significant ones, which constituted
the matters which the Appellant “then knew or ought to have known”. There was no
departure from the pleading. Paragraph [126], unlike other paragraphs, does not identify or
confine the facts and matters to those of which Mr Vines had actual knowledge.
434 The first matter of knowledge to which his Honour referred was the unavailability of the
American Re agreement. Retrocession cover had played an important role, indeed a
determinative, role in the formulation of the profit forecast for most of the period that it was
under consideration. Once it was removed as a pertinent factor, finally on 7 December, that
was a matter appropriate to be considered as part of the knowledge of Mr Vines for the
making of the judgment by his Honour contained in par [1167]. I have already set out the
relevant findings by his Honour that identify this consideration.
435 The second matter to which his Honour referred in [1167] was the unders and overs
analysis. This was a matter to which his Honour had expressly referred in par [1165] and
which his Honour had found also required disclosure to the effect that a judgment had to be
made that it had to be correct.
436 The third matter to which his Honour referred in [1167] was the enhanced significance of
the extent of liability for Hurricane Georges, as estimated by Mr Fox, which his Honour
mentioned in pars [1161], [1162] and [1164]. This drew on his Honour’s analysis elsewhere in
his judgment, particularly his further summary of his findings at par [1183]. There is a
convincing basis for his Honour’s finding that this was one of the matters of which Mr Vines
had knowledge and was a reason for informing the directors that the achievement of the
profit forecast was improbable unless the estimate was correct.
437 His Honour’s reference to Mr Fox’s estimate being correct is clearly a reference to the
passage at par [1164], where his Honour indicates why it was that the accuracy and reliability
of Mr Fox’s statements were “matters of crucial importance to maintaining profit forecast”.
These estimates had, he said, “become especially important”. His Honour’s conclusion in
this respect, in the context of a “tight” unders and overs analysis, was clearly correct.
438 What his Honour did in this passage was to express a conclusion, after having made
many interrelated findings of fact and drawing inferences elsewhere in his judgment, that
the Appellant should have informed the DDC that the $80 million profit forecast was
“improbable”. This was expressed in terms of the pleading in par [126], together with the
reasons, or at least the ones his Honour regarded as critical, why that was so.
439 In this respect it does not appear, as expressed, that his Honour was relying upon his
earlier finding at par [916] to the effect that Mr Vines ought to have understood at the
meeting on 7 December that Mr Fox was proceeding on the basis that the American Re
agreement could be relied upon and that he could not infer that Mr Fox was taking into
account some kind of unders and overs analysis. This finding was challenged by the
Appellant and relied upon by ASIC, but I do not need to deal with this challenge. Nor did
his Honour rely on his finding that Mr Vines sought opinions from KPMG and Arthur
Andersen as a strategy to put pressure on PwC.
440 One purpose of the management sign off was to enable the DDC and the Board to make
a fully informed judgment with respect to the profit forecast. His Honour’s analysis, in this
respect, was expressed by reference to the particular assurances given by Mr Vines in the
Management Sign Off that he had drawn the attention of the DDC to matters of which he
was aware and which he considered material to a decision by a shareholder whether or not
to accept the offer and the express statement that he was not aware of any such matter
which had not been drawn to the attention of the DDC.
441 The submission of the Appellant that in some way Austin J had recast par [126] and
answered a different question should be rejected.
442 With respect to the third matter identified in the passage, namely the significance of Mr
Fox’s estimate of exposure to Hurricane Georges, the Appellant relies on findings by his
Honour in other passages of the judgment that held Mr Vines was entitled to rely upon the
computations of exposure made by, in particular Mr Fox, by reason of the fact that these
matters were not matters for which Mr Vines had direct responsibility.
443 The 8 December events constituted the final exchange of advice and opinions amongst
and between the directors, senior management, the auditor and the independent expert. All
of this was designed to finalise each component part of the Part B Statement. The
consequences of any failure to comply with the duty of diligence and care were high, which
his Honour set out and summarised metaphorically as “solemn circumstances” [1179]. The
standard of care was at its height.
444 It was by reason of these circumstances that his Honour found that, as it had become
clear that the American Re agreement was ineffective and the “unders and overs” produced
a “tight” result, any increase in exposure to Hurricane Georges over $60 million must
adversely impact on the profit forecast. For that reason, his Honour indicated, Mr Vines’
duty of diligence and care required a different level of attention to that exposure on his part.
445 The Appellant’s submission that Austin J did not provide adequate reasons for holding
that Mr Vines could no longer rely on those with direct responsibility to bring the extent of
exposure to his attention, should be rejected.
446 His Honour had summarised at [135] and [138], set out at [157] – [158] above and [914]-[915],
set out at [394] above, the frequency with which Mr Vines had directly intervened in matters
within the operational responsibility of Mr Fox at GIO Re, including increasing profit
forecasts and determining profits or determining reserves. As his Honour concluded he “had
the capacity and inclination to intervene at the divisional level when he thought, from his
perspective at the Group level, that intervention was needed” [915]. (See his finding at [165],
set out at [159] above).
447 I agree with Austin J, that such intervention was not only “needed” by 8 December, it
was required by his responsibilities with respect to the Part B Statement. He could not
simply accept Mr Fox’s estimate of $60-65 million without further inquiry. In my opinion,
his duty at that time was to be proactive. This was not an “operational” issue. By reason of
the Part B Statement it was a Group issue and one for which he had express responsibility.
448 It was not, in my opinion, necessary for there to be any particular event indicating that
Mr Fox’s estimate should be checked. In any event, there were such matters – for example
the past doubts expressed by Mr Schneider and the substantial increase in exposure over
the month of November, reaching $60-65 million at sometime before the 7 December
meeting [872]. Furthermore, as I have outlined in par [406] above, the negative adjustments
required on the auditor’s unders and overs analysis, taking into account the full range of
matters required to be adjusted, was $15 million which was above the level of $12.5 million at
or below which a variation in the profit forecast would be presumed not to be material. It
was, however, below the amount of $25 million which was presumed to be material. That
analysis was based on the lower of Mr Fox’s estimated range of an exposure to Hurricane
Georges of $60-65 million. If the top of the range, i.e. $65 million, was included then the
negative adjustment of $15 million would increase to $20 million. This was high in the range
where a decision had to be made about materiality. See also [539] and [863]-[874] below.
449 Whatever may have been Mr Vines’ previous entitlement to rely on Mr Fox, his Honour’
s conclusion that the position had changed on 8 December was, in my opinion, open.
Indeed, as indicated above, I would have concluded that it changed before that, but nothing
turns on this.
450 If Mr Vines had instituted inquiries on 8 December as to the extent of exposure to

Hurricane Georges, he would have discovered that the Register on 7 December already
recorded claims at $91.9 million ($74 million net) [548]. (I do not suggest he had to personally
inspect the Register.) He would also have discovered Mr Schneider’s long held opinion that
it was a $100 million event, and that he had conducted a contract by contract analysis to
confirm his opinion. These were matters which, in my opinion, Mr Vines ought to have
known.
451 His Honour was correct to conclude that Mr Vines’ responsibility required him to be
proactive, as he had been with other aspects of the accounts of GIO Re, as set out at [446]
above, referring to [135]-[138] and [914]-[915] of his Honour’s judgment set out at [157]-[158]
and [394] above. As his Honour observed at [1085], set out at par [76] above, the due diligence
process required the Appellant and others “to take particular care” and “that it would not be
enough for them to confine their attention to what they knew, in circumstances where they
could uncover material information by appropriate inquiry”.
452 The Appellant’s duties, particularly when the Board had directed a due diligence process
occur, did not entitle him to fail to take the initiative unless some reason to do so had come
to his attention. In any event, there were such reasons: exposure to Hurricane Georges had
increased to $60-65 million in the month of November and there was no basis on which it
could be assumed that the process had stopped. Indeed, as his Honour found at [241], set out
at [180] above, as early as the First Quarter Highlights document: “reasonable persons in the
shoes of those responsible for the profit forecast would have thereafter treated the
development of the Hurricane Georges loss as a matter to be kept under particular review”.
453 In the context of a “tight” unders and overs analysis the Appellant’s responsibilities
required him, in my opinion, to take steps to ensure that the monitoring process was
continuing and was up-to-date.
454 With respect to the first and second matters to which his Honour referred, namely the
unavailability of the American Re agreement and the unders and overs analysis, the
Appellant challenges his Honour’s conclusion that it was negligent of Mr Vines not to have
advised the DDC, on the basis that the DDC was already aware of them. The Appellant
submits that his Honour’s conclusion was based on the false premise that the DDC did not
know about the unavailability of the American Re agreement or of alternative unders and
overs analysis, particularly Mr McClintock’s exercise and in any event did know of the
reserves available in MIPI.
455 This submission does not place sufficient weight upon his Honour’s findings about the
significance of Mr Vines’ role, relevantly, in the Part B Statement process. That role went
beyond the scope of the role of chief financial officer. The submission also does not give
appropriate weight to the express assurances contained in the Management Sign Off which
he had to execute, clearly of great significance to all of the other parties to the Part B
Statement including the auditors, but most significantly, the directors. Furthermore, this
submission ignores the finding of just how “tight” the profit estimate was at the end of the
process.
456 That some of the directors may have had other sources of information with respect to
the matters, which indicated that the profit forecast was improbable of achievement, did not
absolve Mr Vines, in the exercise of due care and diligence, from adding the weight of his
particular authority to the relevant proposition, even on the basis of facts that were known
to others. What was involved was a matter of judgment that required a number of
considerations to be balanced. The directors were not relying simply on Mr Vines to draw
their attention to facts. The directors were entitled to expect a properly formed judgment,
most relevantly about the enhanced significance of exposure to Hurricane Georges.
457 As his Honour put it at par [1169], Mr Vines was required by the terms of the
Management Sign Off “to take personal responsibility”. His role was such that he ought to
have “drawn the attention of the DDC” to the fact that the reinsurance profit forecast had
been made “on the basis of assumptions that did not spell out the position known to Mr
Vines” (at [1168]). As his Honour further put it, that obligation was such that “Mr Vines ought
to have invited the DDC to consider some redrafting of the Part B Statement” in the light of
those matters of disclosure that he was obliged to bring to the attention of the committee (at
[1168]).
458 These findings constitute a clear, and in my opinion justified, finding of contravention of
the duty of care and diligence that does not turn on an assumption that the persons to whom
such a statement was required to be made were unaware of the facts and matters upon
which Mr Vines should have acted in order to discharge his own responsibility in this
regard.
459 Obviously, there will be circumstances in which such knowledge has the result that the
consequence of the relevant act or omission is not such as to constitute a breach. In view of
Mr Vines’ responsibilities that was not the case here. His opinion could, indeed it appears to
be clear, would have influenced the directors’ decision-making process.
460 For the reasons given by Austin J and the additional reasons outlined above, the
Appellant contravened his statutory duty. The appeal from this contravention should be
rejected.
461 In par [1168] of his judgment, set out above, his Honour set out what he described as a
“corollary to” the findings in the preceding paragraphs. This passage was summarised, in
the Honesty Judgment, as:
“On 8 December 1998, Mr Vines failed to draw the attention of the

DDC to those parts of the draft Part B statement that implied that
the reinsurance profit forecast would be achieved on the basis of
assumptions that did not spell out the position known to him, and
he failed to invite the DDC to consider some re-drafting in light of
the matters of disclosure that he was obliged to bring to their
attention (August judgment at [ 1168]).”
462 This formed the basis of the following declaration:

to GIO Australia Holdings Limited by his failure on 8 December
1998, as an officer of that corporation, to draw the attention of the
DDC to those part of the draft Part B statement that implied that
the reinsurance profit forecast would be achieved on the basis of
assumptions that did not spell out the position known to him, and
his failure to invite the DDC to consider some redrafting in light of
the matters of disclosure that he was obliged to bring to their
attention.”
463 Paragraph [1168] and Declaration 2 make no reference to the management sign off. The
declaration refers to advice to the DDC, but it is not dealt with as pertinent to par [127] of the
pleadings, considered as the Sixth Contravention.
464 ASIC sought to support the declaration made as falling within [126], notwithstanding the
absence of any of the language of that paragraph. This is a matter which also arises with
respect to a number of the declarations made with regard to the Fifth Contravention.
465 In the case of Declaration 2, ASIC submitted that, as a “corollary” the finding in [1168]
should be regarded as a natural consequence of the earlier analysis.
466 In my opinion, it is appropriate for a court, having found and declared there to have
been a contravention in accordance with the pleaded case, as Declaration 1 does, to also
make associated declarations which identify the conduct which, if it had occurred, would
have ensured that there was no contravention. In any event, the Appellant did not
separately challenge Declaration 2 or, indeed, the formulation of any declaration.
XII THE FIFTH CONTRAVENTION: ADVICE TO THE DUE DILIGENCE
COMMITTEE
467 As noted above Mr Vines advised the members of the Board, through the Due Diligence
Committee, for the purpose of the directors performing their obligations with respect to the
Part B Statement.
468 In the minutes of the meeting of the DDC of 8 December 1998 the following statement
appeared:
“In relation to the Forecast Nick Steffey and Geoff Vines confirmed
to the meeting that each of them was comfortable with the integrity
of the forecast result of $250 million as set out in the Forecast in the
Draft Take-Over Response Booklet.”
469 The relevant paragraph of the Statement of Claim with respect to this contravention is
par [127] which provides:
“[127] The First Defendant confirmed to the DDC, as pleaded in

para 89 hereof, that he was comfortable with the integrity of the
GIO Group forecast profit for the 1999 financial year of $250m, a
component of which was the $80m profit forecast for GIO Re,
when the First Defendant knew, or ought to have known, of
matters which made it improbable that GIO Re would achieve the
$80m profit forecast in the 1999 financial year.”
470 Paragraph [89] in substance recites the extract from the minutes of the DDC which I
have set out above.
471 The events of the final DDC meeting are set out by his Honour at [940] and following:
“[940] The DDC met early in the morning on 8 December 1998. Mr

Vines reported on the management sign-offs, copies of which were
provided to the Committee. Both Mr Steffey and Mr Vines
confirmed to the meeting that they were comfortable with the
integrity of the forecast. Mr McClintock recommended that a new
assumption in relation to the catastrophe portfolio be added to the
Takeover Response Booklet, drafted with Mr Fox, Mr Robertson
and Mr Vines, and that was approved (see also T 2749). The
Committee recommended that the board should resolve to approve
the Part B statement in principle and appoint a subcommittee to
approve minor changes.”
472 With respect to this contravention his Honour referred to par [127] of the Statement of
Claim and to the ASIC submissions and concluded:
“[1172] I partially agree with ASIC's submission. Mr Vines'

responsibility, given his role in the due diligence process as well as
his position as chief financial officer, and in circumstances where
reliance on the American Re agreement was no longer possible,
was to exercise care and diligence to the statutory standard, to
ensure that on 8 December the DDC was informed of all matters
material to the estimate of loss so that the committee could exercise
its judgment as to the viability of the forecast and the disclosure to
the shareholders that should be made. My view is that Mr Vines
should have drawn the DDC's attention to the fact that Mr
McClintock's figures had been taken from Mr Fox's statement
about management's best estimate of liability, the accuracy and
reliability of which had become crucial because of the
unavailability of the American Re agreement and reliance on an
unders and overs analysis.
[1173] Secondly, ASIC criticised Mr Vines for confirming at the
DDC meeting that he was comfortable with the integrity of the
Group forecast. ASIC conceded that it might have been reasonable
for Mr Vines to make such a statement if he had sound grounds for
believing that the anticipated shortfall in reinsurance would be
made up by greater than expected profit from other businesses. But
in ASIC's submission, unless there was a sound basis for such a
belief, Mr Vines should have declined to give the DDC such an
assurance about the Group forecast, and should have told the
committee about the doubts surrounding the ability of GIO Re to
achieve its part of the forecast.
[1174] In my opinion it is unnecessary to determine whether, by
virtue of the unders and overs schedule or otherwise, Mr Vines had
a sound basis for affirming the Group forecast notwithstanding
doubts about the reinsurance forecast. My view is that a reasonable
person in like position to Mr Vines, acting with care and diligence
in a corporation in GIO Australia Holdings' circumstances, would
not have given the kind of unqualified assurance about the Group
forecast that was given by Mr Vines, in circumstances where real
doubts had emerged about a material component of that forecast,
without making accurate and complete disclosure of all the
material circumstances that had led him to believe that, on balance,
the forecast Group forecast could still be achieved and should be
adopted. Given the existence of substantial doubts emerging from
the unavailability of the American Re agreement and the need to
rely on unders and overs, and the need for judgment to be
exercised, the responsibility of Mr Vines was to ensure that the
DDC had before it the information necessary for it to make the
appropriate judgment, rather than to make his own assessment and
then give the DDC his conclusions without the judgmental steps in
his reasoning process.
[1175] The pleading alleges that Mr Vines knew, or ought to have
known, of matters which made it improbable that GIO Re would
achieve the $80 million profit forecast. Mr Vines knew of PwC's
attitude to the American Re agreement, which was in terms a
matter making it improbable that the profit forecast would be
achieved, and therefore was disclosable. The fact that there were
some other balancing matters that might have assisted the
company to reach the profit forecast did not absolve Mr Vines from
the obligation of disclosure, but added that obligation.”
473 The Honesty Judgment summarises these findings as:
“At the DDC meeting on 8 December 1998, in circumstances where

reliance on the American Re agreement was no longer possible, Mr
Vines failed to ensure that the DDC was informed of all matters
material to the estimate of loss from Hurricane Georges so that the
committee could exercise its judgment as to the viability of the
forecast and the disclosure to shareholders that should be made.
Mr Vines failed to draw the DDC's attention to the fact that Mr
McClintock's figures had been taken from Mr Fox's statement
about management's best estimate of liability, the accuracy and
reliability of which had become crucial because of the
unavailability of the American Re agreement and reliance on an
unders and overs analysis (August judgment at [1172]).
Mr Vines should not have given the kind of unqualified assurance
about the Group forecast that he gave to the DDC meeting on 8
December, in circumstances where real doubts have emerged
about a material component of that forecast, without making
accurate and complete disclosure of all the material circumstances
that had led him to believe that, on balance, the Group forecast
could still be achieved and should be adopted. Given the existence
of substantial doubts emerging from the unavailability of the
American Re agreement and the need to rely on unders and overs,
and the need for judgment to be exercised, he should have ensured
that the DDC had before it the information necessary for it to make
the appropriate judgment, rather than to make his own assessment
and then give the DDC his conclusions without the judgmental
steps in his reasoning process (August judgment at [1174]).
On 8 December 1998, Mr Vines failed to disclose to the DDC PwC's
negative attitude to the American Re agreement, which was in
terms a matter making it improbable that the profit forecast would
be achieved, and he failed to disclose some other balancing matters
that might have assisted the company to reach the profit forecast
(August judgment at [1175]).”
474 The declarations his Honour made were:

that corporation, to ensure that at the meeting on 8 December 1998
the DDC was informed of all matters material to the estimate of
loss from Hurricane Georges so that the committee could exercise
its judgment as to the viability of the forecast and the disclosure to
shareholders that should be made, and his failure to draw the DDC’
s attention to the fact that Mr McClintock’s figures had been taken
from Mr Fox’s statement about managements best estimate of
liability, the accuracy and reliability of which had become crucial
because of the unavailability of the American Re agreement and
reliance on an unders and overs analysis.”
Law as carried into the Corporations Act 2001 (Cth) in relation to GIO
Australia Holdings Limited by his provision, as an officer of that
corporation, of an unqualified assurance about the group forecast
to the DDC meeting on 8 December 1998 without making accurate
and complete disclosure of all material circumstances that led him
to believe that on balance the group forecast could still be achieved
and adopted, and his failure to ensure that the DDC had before it
the information necessary for it to make the appropriate judgment,
rather than to make his own assessment and then give the DDC his
conclusions without the judgmental steps in his reasoning process.
Law as carried over into the Corporations Act 2001 (Cth) in relation
to GIO Australia Holdings Limited by his failure as an officer of
that corporation, to disclose to the DDC on 8 December 1998 Price
Waterhouse Coopers’ (‘PwC’) negative attitude to the American Re
agreement, which was in terms a matter making it improbable that
the profit forecast would be achieved, and by his failure to disclose
some other balancing matters that might have assisted the
company to reach the profit forecast.”
475 The Appellant submits that his Honour made findings outside the pleaded case. As in
the case of the Fourth Contravention, he submitted that his Honour had to make a finding,
which he did not make, that the Appellant had actual knowledge of the improbability that
the $80 million profit forecast would be attained.
476 The pleading in [127] is in almost identical terms to the pleading in [126]. Each focuses
upon Mr Vines knowing of matters which made it improbable that the $80 million profit
forecast would be achieved. As in the case with respect to the same submission I have
discussed under the Fourth Contravention, the Appellant’s submissions misread the
pleaded case. (See par [441] above.)
477 Paragraph [127], like par [126] does not assert that Mr Vines “knew” that it was
improbable that the profit forecast would be achieved. The focus is on knowledge of facts
and matters which make it improbable that the profit forecast would be achieved. When the
language of probability is used, necessarily so in the case of estimates of such matters, it is
the knowledge of the facts and matters rather than the inference of probability, which is
appropriately the focus of attention.
478 Paragraphs [1174] and [1175] do, in my opinion, address the pleaded case. In par [1174] his
Honour holds that a reasonable person in Mr Vines’ position would not have made the
unqualified statement about the integrity of the profit forecast in the circumstances his
Honour sets out in that paragraph. His Honour then set out reasons why a person acting
reasonably in all the circumstances would not have acted in that manner. His Honour then
turns, in par [1175], to address the terms of the pleading just as he had done in the second
sentence of par [1167], when dealing with the Fourth Contravention. With respect to that
contravention his Honour had already held, of course, that Mr Vines ought to have
informed the DDC that the achievement of the profit forecast was improbable. In par [1175]
his Honour, on a proper reading, comes to the same conclusion in terms of the pleaded case
in par [127] that Mr Vines knew of matters which made it improbable that the profit forecast
would be achieved.
479 The Appellant also attacked the various findings of fact in [1174] and [1175] on the basis
that they were not pleaded in par [127]. However, these various facts and matters are the
matters said in [127] to have been known, or which ought to have been known, by the
Appellant. Paragraph [127] does not restrict the lists of facts and matters in the same way as
appears in other paragraphs e.g. par [114], [116], [117] and [125] discussed above.
480 Again, as with respect to the Fourth Contravention, reliance is placed on the proposition
that members of the DDC were aware of certain matters, in particular the fact that the
American Re agreement was no longer a basis for supporting the profit forecast. For the
same reasons I have indicated at pars [350]-[352] above, I am of the opinion that his Honour
was entitled to conclude that the unavailability of the American Re agreement was one of
the matters to which Mr Vines should have had regard when advising the DDC in the terms
of the pleading, namely that an unqualified assurance was negligent in the requisite sense
when, for this and other reasons, the achievement of the profit forecast had become
improbable.
481 What Austin J has done in this part of his reasoning is to indicate that a full disclosure of
certain matters, including the American Re agreement, would in total have discharged Mr
Vines’ duty of diligence and care. That observation does not detract from the fact that his
Honour also made a finding in terms of the pleaded case, identifying in the course of that
finding the particular matters which were known to Mr Vines and which made it
improbable that the profit forecast would be obtained, leading to the result that the actual
assurance referred to in par [127] was negligently made. For the reasons I have already set
out in the context of the Fourth Contravention, his Honour’s analysis was correct.
482 His Honour goes on to make declarations both in terms of the pleaded case and in terms
of the facts and matters which, if they had been disclosed, would have meant that no
contravention would have occurred.
483 In par [1175], where his Honour states his conclusion in terms of the pleading his Honour
refers to the American Re agreement as a matter that made the profit forecast improbable. It
is not, however, appropriate to treat this reference as if it was the only such matter. The
matters referred to in the immediately preceding paragraph were also clearly of this
character. So were the matters set out by his Honour at par [1155], set out at [415] above,
which were expressed by way of an introductory finding pertinent to each of the
contraventions which his Honour went on to hold had occurred.
484 It is unnecessary for a judge, particularly in reasons of such length and complexity, to
repeat himself or herself. It is quite apparent, on a full reading of the reasons, that his
Honour held that there were a number of matters which were known to Mr Vines and
which rendered the profit forecast improbable.
485 Declaration 5 is based, albeit not precisely, on [1175] in the form of the summary in the
Honesty Judgment. It does, in my opinion, reflect the pleaded case with respect to one
“matter” known to Mr Vines, as pleaded.
486 The Appellant did not challenge the formulation of the declarations. The Appellant did
not submit that Declarations 3 and 4 are not within the pleaded case. They reflect his
Honour’s reasons in pars [1164], [1165] and [1173] (Declaration 3); and [1174] (Declaration 4), in
each case as summarised in the Honesty Judgment.
487 As I have indicated above, the Appellant did not seek full particulars of breach. With
respect to these findings the case was not relevantly confined by the pleadings. The matters
which are the subject of the declarations were fully considered at trial. There was no denial
of procedural fairness.
488 As with Declaration 2 dismissed above, where a declaration is made within the scope of
the pleaded case, subject to issues of procedural fairness, it is appropriate for a court to make
ancillary declarations identifying conduct which would have meant there was no
contravention.
489 I have already discussed, particularly in the context of the closely related Fourth
Contravention, the reasons why the Appellant’s conduct fell below the requisite standard of
care and diligence.
490 For the reasons given by Austin J, and for the above additional reasons, this
contravention has been established.
491 The appeal from this finding of contravention should be dismissed.
XIII THE SIXTH CONTRAVENTION: ADVICE TO THE AUDITOR
492 In a document signed by the Appellant in the first position, as Chief Financial Officer,
and also signed by Mr Steffey, as Chief Executive Officer and by Mr David Mortimer as
Chairman, for an on behalf of the Board, the following statements were made to Price
Waterhouse Coopers Securities:
“PROFIT FORECAST 1999

1 In relation to the prospective profit and loss financial information
for the year ending 30 June 1999 (‘the Forecast’) to be included in
the Part B Statement prepared in response to the takeover offer of
GIO Australia Holdings Limited (‘GIO’) by AMP Insurance
Investment Holdings Pty Limited we make the following
representations.
Responsibility for preparation
2 Responsibility for the preparation and presentation of the
Forecast, including the assumptions on which the Forecast is based
and the related risk factors which have been disclosed in the Part B
statement, is that of the GIO.
Statements
3 We confirm to the best of our knowledge and belief, and having
made appropriate enquiries of other Directors and officers of GIO
the following information and representations given in connection
with your engagement.
(a) we are not aware of any event which has occurred
which would lead us to believe that the Forecast for the
twelve months ending 30 June 1999, and provided to
you is incorrect or misleading in any material respect
or contains any material omission.
(b) full disclosure has been made to you of all materials
transactions as they relate to the Forecast.
(c) we are not aware of any material information in the
Forecast, assumptions and risk factors which is
materially false, misleading or deceptive, or which is
likely to mislead or deceive.
(d) the Forecasts have been prepared on a basis
consistent with accounting policies adopted and used
by the GIO in the preparation of its accounts for the
year ended 30 June 1998, Accounting Standards and
other mandatory professional requirements.
(e) the forecast has been properly compiled on the
basis of the underlying assumptions the most material
of which have been detailed in the Part B Statement.
The Directors have considered each of the
assumptions underlying the Forecast and believe them
to be appropriate in all the circumstances. Specifically
the Directors believe that, notwithstanding the
position with respect to Hurricane Georges, no
adjustment to the Forecast result for the reinsurance
division is required.
…”
There are additional paragraphs that do not need to be set out.
493 Following the board meeting, PwC Securities delivered a report dated 9 December on
the profit forecast. His Honour set out the portion concerning Hurricane Georges at [949]:
“[949] Under the heading "Matters for consideration by the Due

Diligence Committee", the report said:
76 We consider that the full year budget for the space
portfolio will be difficult to achieve given the prior
period error of $ 8.1 million recognised in the first
quarter. Further, the first quarter results for the
catastrophe portfolio assumed that GIO's exposure to
Hurricane Georges would be 0.6% of the then market
loss estimate of US$2.55 billion, i.e. $25 million. To 30
November 1998, we understand that claim notifications
for Hurricane Georges have increased to $60-65
million and that the ultimate expected loss falls within
this range. The increase in notifications with respect to
Hurricane Georges suggests that the 33% profit
assumption used for the catastrophe portfolio is no
longer appropriate.
77 Management have advised us that losses on
Hurricane Georges in excess of $15 million (up to $55
million) are protected by a retrocession policy entered
into in November 1998 with American Re. Our review
of this contract however has led us to conclude that,
amongst other things, whilst the policy will allow GIO
to claim for Hurricane Georges, additional premiums
payable under the policy for claims experience mean
that no benefit from the policy can be recognised in the
Forecast.
78 Whilst management have not accepted his view,
they point to positive development in the MIPI
contracts in the period to date in 1999 to demonstrate
that no adjustment to the Forecast is required. Our
report to the Board Audit Committee for the 1998 year
highlighted potential overstatements of provisions for
MIPI and positive experience in this account since 1
July 1998 would support management's view that the
Forecast is still achievable.
79 We also acknowledge, that:
the attritional property book has performed well in the
first quarter 1999
changes in retrocession arrangements under
consideration could alter the risk profile of the
business at lower cost given the current 'soft' market."
494 This report was published, as was intended and known to all, in the Part B Statement.
495 The allegation in the Statement of Claim with respect to this matter was par [127A]
which in turn referred to par [90A] of the Statement of Claim:
“[127A] The First Defendant advised PwC Securities of the matters

pleaded in para 90A hereof, but failed to advise them that by
reason of the matters then known to the First Defendant, or which
ought to have been known, it was improbable that GIO Re would
achieve the $80m profit forecast in the financial year.”
“[90A] On or about 8 December 1998 the First Defendant informed
PwC Securities that, to the best of his knowledge and belief, and
having made appropriate enquiries, nothing had occurred which
would lead him to believe that the forecast profit by GIO Australia
for the 1999 financial year for inclusion in the Part B Statement was
misleading, and that, notwithstanding the position with respect to
Hurricane Georges, no adjustment to the forecast result for the
reinsurance division was required.
Particulars
Letter from the First Defendant, Mr Steffey and Mr Mortimer to
PwC Securities dated 8 December 1998.”
496 Extensive particulars were given of par [127A], they do not need to be set out in full.
497 In that part of the Contraventions Judgment where his Honour summarised his findings
with respect to this contravention, his Honour said:
“[1176] Para 127A pleads that Mr Vines signed the letter of

representation to PwC securities dated 8 December 1998 but failed
to advise that by reason of the matters known to him or which
ought to have been known, it was improbable that GIO Re would
achieve the $80 million profit forecast. There are very lengthy
particulars setting out the matters alleged by ASIC to have been
known to Mr Vines.
[1177] ASIC submitted (written submissions, paras 322-324) that in
spite of the representation to the contrary in his letter to PwC (PTB
1662), Mr Vines did not carry out any "appropriate inquiries" with
directors or officials of GIO at any time after 11 November. ASIC
contended that Mr Vines either realised or ought to have realised
that PwC's decision not to accept the American Re agreement had
changed everything, and after that decision there needed to be an
inquiry and investigation into the profit forecast of a kind that did
not take place. Mr Vines accepted in cross-examination ( T 3012; T
3089-90) that he understood that the schedule of catastrophe model
movements sent to him by Mr Driessen on 11 November (PTB
0976A) was a monthly process, and that he could have requested
the equivalent November information at some point after 30
November, but he did not do so. He said his expectation was that if
there was any adverse movement he would have been told about it.
[1178] I partially agree with ASIC's submission. I have said that in
my opinion, Mr Vines did not have any obligation to make direct
inquiries as to the development of Hurricane Georges claims and
was entitled to rely on the reinsurance division to inform him of
any adverse claims movement. But the decision by PwC not to
accept the American Re agreement had a significant effect. It was
made just before the finalisation of the due diligence process, a
process for which Mr Vines had central responsibility, and at a time
when Mr Vines was aware of some adverse claims movement up to
the end of October and the prospect that further adverse
movement may have occurred in November. PwC's decision had
put the profit forecast directly under threat, and the defendants'
response had been to develop an unders and overs analysis, in the
course of the same meeting, which was acceptable to PwC.
[1179] At the end of 7 December the ship was in an unsteady state.
The position could be clarified by conducting further
investigations, including investigations leading to some form of
report on the unders and overs analysis as a whole (MIPI was
already supported by Mr Latham's report). Alternatively, it would
have been appropriate for Mr Vines, in my view, to present all of
the facts to the DDC, and to see whether the problem might be
accommodated by appropriate disclosure in the Part B statement. I
am not able to say, on the evidence, whether the latter approach
was feasible, but since the evidence has not ruled it out, I do not go
as far as ASIC does in asserting that the making of further inquiries
was necessary. But I do agree with ASIC that in the delicate
circumstances that existed on 8 December, Mr Vines' duty of care
and diligence should have precluded him from confirming to PwC
that ‘appropriate inquiries of other Directors and officials of GIO’
had been made, in the solemn circumstances in which that
confirmation was given.”
498 In this part of his reasons his Honour does not restate, in the way he did in his reasons
with respect to pars [126] and [127] of the Statement of Claim, his findings in the express
terms of the pleadings. There is nothing in [1179] equivalent to the second sentence of [1167]
or to [1175]. It was not, in my opinion, incumbent upon his Honour to do so. His Honour had
made a clear finding, on two separate occasions, that Mr Vines knew of facts and matters
which made it improbable that the $80 million profit forecast would be attained. His
Honour repeated in par [1178] the findings that such facts were known to Mr Vines.
499 Paragraph [1179] is, as is the case for earlier paragraphs relevant to other contraventions,
a statement of the steps which would, if they had been taken, have meant that the conduct
complained of, namely the failure to advise that attaining the profit forecast was
improbable, would not have been a contravention.
500 The summary of this contravention in the Honesty Judgment is:
“In the delicate circumstances that existed on 8 December 1998

(namely: PwC had decided not to accept the American Re
agreement; the due diligence process for which Mr Vines had
central responsibility was due to be finalised; Mr Vines was aware
of some adverse claims movement up to the end of October and the
prospect that further adverse movement may have occurred in
November; an unders and overs analysis acceptable to PwC had
been developed at the meeting on 7 December), Mr Vines should
not have confirmed to PwC that "appropriate inquiries of other
Directors and officials of GIO" had been made, in the solemn
circumstances in which that confirmation was given (August
judgment at [1178]-[1179]).”
501 The declaration relating to this contravention was declaration 6:

to GIO Insurance Limited by confirming, as an officer of that
corporation, to (‘PwC’) on 8 December 1998 that ‘appropriate
enquiries of other directors and officials of GIO’ had been made.”
502 The particulars that follow par [127A] are said to be inclusive. They are in any event wide
ranging and make reference to most of the matters to which regard was had by his Honour,
including the extent of exposure to Hurricane Georges, the absence of retrocession cover
and the ability of the American Re agreement to remedy the situation. Reference is made in
these particulars to the evidence that will be adduced at the trial. This only confirms what is
implicit in the inclusive nature of the particulars provided. A number of the asserted
particulars were rejected in his Honour’s reasons. Some were upheld, sometimes in slightly
different form, based on the evidence in the trial.
503 His Honour in par [1179] focused on one aspect of the letter to which par [127A] referred,
namely that aspect which asserted that appropriate inquiries had been made. Nevertheless,
par [127A] did, as the Respondent submitted in this Court, plead the matters advised to PwC,
by reason of the reference to s90A.
504 The Respondent also identified in par [134] of its written submissions to this Court a
range of particulars about which his Honour had earlier made findings, again with the
suggestion that it was unnecessary for them to be repeated in the context of dealing with this
specific contravention. This is particularly true by reason of the general terms of par [1155]
which I have set out at par [415] above that serves as an introductory paragraph for all of the
8 December contraventions.
505 Nevertheless, there is force in the contention of the Appellant that the pleaded
allegation was not, in terms, an allegation of a failure to make appropriate inquiries of other
directors and officers, contrary to the representation that such had been made. It does
appear from the declaration that was actually made in this respect that his Honour regarded
that as the relevant contravention.
506 Originally the Respondent did seek, by way of cross-appeal, relief which would have
entitled this Court to substitute a declaration of contravention in terms of the pleading that
was actually made. However, that cross-appeal was abandoned. In the circumstances, in my
opinion, this is a case in which a declaration in accordance with the terms of a pleading
could have been, but was not, made. In view of the abandonment of the cross-appeal, this
Court cannot make the declaration in accordance with the terms in which it should have
been made.
507 His Honour’s finding of contravention in this respect can only be supported if during the
course of the trial the parties had “deliberately chosen” to fight the case on a basis different
to that pleaded as discussed in pars [32]-[59] above. As I have noted, ASIC submitted that
there was no denial of procedural fairness, largely because of the evidence of Mr Hogendijk.
508 As ASIC submitted, neither in the course of objecting to Mr Hogendijk’s evidence, nor in
the final submissions, did the Appellant ever contend that his evidence fell outside the
pleaded case.
509 With respect to the statement in the letter to PwC, Mr Hogendijk said:
“In my opinion Mr Vines as CFO did not make appropriate

inquiries, because he did not require the difference of opinion
between Mr Robertson and Mr Schneider to be properly resolved
when it came to his attention. As I understand the assumptions, Mr
Vines effectively accepted Mr Robertson’s opinion without proper
verification.”
510 His Honour’s analysis of the “appropriate inquiries” representation did not turn on the
disagreement between Mr Robertson and Mr Schneider. Indeed, his Honour had found at
[1155], to repeat: “The disagreement between Mr Robertson and Mr Schneider on that
subject appears to him to have resolved in favour of Mr Schneider when the catastrophe
claims model predicted as at 31 October that Hurricane Georges’ claims would be
substantial”. That was why the Am Re arrangement and the MIPI reserves adjustment were
required.
511 ASIC drew this Court’s attention to the extensive cross-examination of Mr Hogendijk by
counsel for the Appellant. It did not suggest that that cross-examination extended to the
advice to PwC. I have not been able to identify any such cross-examination.
512 In the ASIC submissions to Austin J it stated:
“[323] In ASIC’s submissions nothing occurred after 11 November

1998 which qualified as an ‘appropriate enquir(y)’. In particular, Mr
Vines either realized, or clearly ought to have realized, at the
moment PwC declined to accept the American Re agreement, that
that changed everything. That called for enquiry and investigation
which, to Mr Vines’ knowledge, did not take place.
[324] While Mr Vines gave evidence that he understood that the
schedule of catastrophe model movements Mr Driessen sent him
on 11 November 1998, which particularized the increase in
catastrophe claims during the month of October 1998, was a
monthly process, and that he could have requested the November
information shortly after 30 November 1998 and been provided
with it, he admitted that he took no such steps.”
513 It is to this submission that Austin J was referring at [1179] when he said “I do not go as far
as ASIC does in asserting that the making of further inquiries was necessary”. It is, however,
significant, that this submission did not rely on Mr Hogendijk’s evidence to which I have
referred.
514 In his written submissions to Austin J, the Appellant addressed the pleadings and
particulars in terms. In oral submissions, reference was made to the ASIC written
submissions, but not to the passage I have quoted. Although the submission was made that
another statement in this section of ASIC’s submissions was outside the pleaded case, there
is no such express statement with respect to pars [323] and [324].
515 Notwithstanding this omission I am not prepared, in the context of civil penalty
proceedings, to conclude that the tests set out in Mount Oxide Mines supra and Dare v Pulham
supra have been met.
516 In this respect, the appeal should be allowed.
XIV THE SEVENTH CONTRAVENTION: CONDUCT AFTER 8 DECEMBER
1998
517 On 9 December AMP announced that it was increasing its bid (at [952]). As the takeover
battle for GIO proceeded no correction to the profit forecast made in the Part B Statement
was made.
518 The relevant pleading in the Statement of Claim was par [128] as follows:
“[128] The First Defendant failed after the date of publication of the
Part B Statement and before the end of the period in which the
takeover offer remained open to have any, or any adequate, regard
to the available evidence concerning whether it was likely that GIO
Re would achieve the $80m profit forecast.”
519 The takeover offer closed on 4 January.
520 The key finding with respect to this contravention occurs at [966] where his Honour
said:
‘[966] It does not appear, on the evidence, that Mr Vines did

anything after 8 December to monitor the continuing development
of Hurricane Georges, or to ascertain whether the representations
he and other GIO Re executives had made concerning the
maintenance of the profit forecasts had been eroded by later
events.”
521 In that part of his Honour’s judgment were he summarised the evidence and outlined his
conclusion with respect to this contravention his Honour commenced with a detailed
subheading paraphrasing the terms of par [128]. I will set this out, in view of the reliance
placed on this matter in the Appellant’s submissions to the effect that this was not the
pleaded allegation. The passage is as follows:
“ SASC, para 128 - after 8 December 1998, Mr Vines did not

ensure that investigations were carried out to determine
whether the statements in the Part B statement remained
correct
[1180] The allegation in para 128 is that Mr Vines failed after the
publication of the Part B statement and before the end of the period
to have any, or any adequate, regard to the available evidence
concerning whether it was likely that GIO Re would achieve the
$80 million profit forecast.”
522 Despite the terms of the subheading, the immediately succeeding par [1180] does set out
the pleaded allegation. The submission that the subheading itself established that his
Honour went outside the pleaded case should be rejected.
523 His Honour went on to make the following findings:
“[1181] Mr Hogendijk expressed the opinion (affidavit, paras 197-8)
that a competent chief financial officer would have understood that
he was under a continuing obligation to be satisfied that later
financial results did not undercut any statements to the market
made in the Part B statement, or any aspect of the process leading
up to the Part B statement, and in the circumstances the competent
chief financial officer would at least have called for the November
results and any development in Hurricane Georges claims.
[1182] In December 1998 there was no express statutory obligation
for the target company to update its Part B statement so as to
disclose material new circumstances (cf Corporations Act 2001, s 644
(1)(c)) . However, there was a ‘continuous disclosure’ statutory
obligation for listed entities, not to intentionally, recklessly or
negligently fail to comply with stock exchange listing rules
concerning timely disclosure of material information to the market
(Corporations Law, s 1001A). As chief financial officer, Mr Vines
had a duty to exercise care and diligence to facilitate the listed
entity's compliance with these requirements as regards financial
matters. In circumstances where the company had announced to
the market a profit forecast which was highly material to the
impending decision of shareholders whether to accept the AMP
bid, and it had become clear that adverse development in
Hurricane Georges might impact on the profit forecast in the
absence of protection by the American Re agreement,
notwithstanding an unders and overs analysis, Mr Vines had a duty
to exercise care and diligence to the statutory standard, to ensure
that the development of Hurricane Georges was monitored during
December 1998 (cf Mr Hogendijk, affidavit para 202).
[1183] Mr Vines' evidence was that he expected the reinsurance
division to monitor Hurricane Georges in accordance with its usual
practices and to report any material adverse development to him.
In my opinion, while it was adequate for Mr Vines to assume that in
Hurricane Georges would be monitored in the usual fashion at a
divisional level up until 7 December, the situation changed after
that day. PwC's decision not to accept the American Re agreement,
and the reliance placed on a ‘tight’ unders and overs analysis, made
it urgently necessary for those with central responsibility to the
parent entity for keeping the market informed during the currency
of the bid to have a clear and up-to-the-minute understanding of
the development of Hurricane Georges claims. Mr Vines was one of
the executives who had that responsibility, because of his position
in respect of the takeover defence and due diligence process, and in
light of the impending board decision on the Part B statement and
profit forecast. Once that decision was made, Mr Vines' duty to
exercise care and diligence to facilitate the parent company's
compliance with the continuous disclosure listing rule meant that it
was necessary for him to be sure that the monitoring arrangements:
upon which he had previously relied, were continuing in the new
circumstances.
[1184] That did not mean it was necessary for him personally to
review the Hurricane Georges register or any other such
information. But it was necessary for him to take care to give
directions to ensure that the work was done at the divisional level,
and that its results were brought forward promptly to the
appropriate senior corporate officer so that an assessment could be
made about further disclosure.”
524 His Honour summarised these findings in the Honesty Judgment:
“After 8 December 1998, Mr Vines failed to give directions to ensure

that monitoring arrangements were continuing at the divisional
level and that the results were brought forward promptly to the
made about further disclosure to the market (August judgment at
[1184]).”
525 This contravention was the subject of declaration 7 as follows:

that corporation, after 8 December 1998 to give directions to ensure
made about further disclosure to the market.”
526 His Honour had already set out the evidence as to what would have been discovered
about exposure to Hurricane Georges if monitoring had occurred.
527 The starting point was his Honour’s finding relating to the availability of information:
“[557] Mr Fricke gave affidavit evidence that if he had been asked, in

early November 1998, to obtain up-to-date information about the
level of Hurricane Georges' claims that had been received, he
would have entered the registered event numbers for Hurricane
Georges into COGEN, which would have displayed the claims paid
and outstanding, together with a list identifying contract numbers
and the number of cedants. The entire process would have taken a
matter of minutes. All claims department staff had access to this
function of COGEN, and they could obtain such information
provided they knew the relevant event numbers. The information
would, of course, be confined to registered claims.”
528 COGEN was the claims recording system used by GIO Re (see [67]), and was used by Mr
Fricke for preparing Management Committee reports, and for updating the Hurricane
Georges Register, which was sent on a daily basis after 9 November to, inter alios, Mr Fox
and Mr Schneider (see at [534]).
529 The evidence of the increasing size of Hurricane Georges liability was as follows:
· 25 November – Management Committee. Mr Fricke presented report in which he noted

that claims for Hurricane Georges at that time totalled $57 million for property and $25
million for marine ([526]);
· 4 December – Hurricane Georges Register recorded total claims at $89.6 million ($72
million net) ([548]);
· 7 December – Hurricane Georges Register recorded total claims at $91.9 million ($74
million net) ([548]);
· 8 December – Hurricane Georges Register recorded total claims at $92.4 million ([549]);
· 16 December – Management Committee. Mr Fricke commented that Hurricane Georges

losses on property claims had increased considerably. The status on 10 December was $65.1
million property claims incurred, $25.7 million incurred loss ([527]);
· 17 December – Mr Fricke’s email to Mr Fox noting that further claims had been reported
and that his “market losses” assessment showed GIO Re’s share of the market losses for
Hurricane Georges was three times the average of all events listed in his report ([550]);
· 23 December – Mr Fricke’s email to Mr Fox stating that “unfortunately, ‘Georges’ is

stubbornly moving up’” ([550]).
530 As appears most clearly from par [1183] of his Honour’s reasons, this finding of
contravention is based on his Honour’s earlier finding that Mr Vines’ responsibilities
changed on 8 December. The Appellant’s submissions on this contravention reiterated the
proposition that there was no such change. I have rejected this submission at par [407]
above.
531 I have also rejected at par [409] above, the proposition that it was incumbent to cross-
examine Mr Vines to the effect that something had changed in this regard.
532 In this regard the Appellant relied on evidence given by Mr Hogendijk that, in his
opinion, Mr Vines was entitled to expect that others would properly monitor and assess the
exposure to Hurricane Georges. However, his Honour was not obliged to accept this
evidence. He gave reasons why he formed the view that, relevantly, the position had
changed as set out above.
533 The Appellant relied on his submissions to Austin J that the pleading in [128] did not
identify the “available evidence” referred to. That was a matter for particulars before trial,
which were not, it appears, sought.
534 The Appellant also submitted that the finding at [1184] repeated in the Honesty
Judgment and reflected in Declaration 7, was outside the pleaded case. The sting in [128] is
that Mr Vines failed to avail himself of such information as may exist within GIO about the
continued validity of the profit forecast.
535 In my opinion the finding and declaration identify the steps that would have been
sufficient, if taken, for Mr Vines to avail himself of whatever information existed within GIO
to that effect. This falls within the pleaded case.
536 His Honour concluded that the duty to do this, in view of the continuous disclosure
requirement, involved the same high standard of care as was involved in the formulation of
the Part B Statement.
537 I have already set out the reasons of Austin J, with additional observations of my own,
which justify his Honour’s conclusion that the Appellant contravened his duty of care and
diligence as at 8 December because, on the basis of facts he knew or ought to have known,
the achievement of the $80 million profit forecast was improbable. As Austin J emphasised,
in the context of a “tight” unders and overs analysis, the extent of exposure to Hurricane
Georges had become, and remained, of critical significance. For those reasons, although the,
in part, self imposed “due diligence” standard, may no longer have been operative in terms,
the position on 8 December required particular attention be given to the extent of exposure
to Hurricane Georges for the period the takeover process continued. It was not given.
538 In my opinion, his Honour was correct to conclude that there was a contravention for
the reasons he gave and the additional reasons set out above, including with respect to the
earlier contraventions. The appeal should be dismissed in this respect.
XV REASONS OF IPP JA
539 Since writing the above, I have read the judgment of Ipp JA in draft. I agree with his
Honour’s additional observations.
XVI THE HONESTY DEFENCE
540 As I have noted above Austin J rejected the Appellant’s claim for relief from liability
under s1317JA and s 1318 of the Corporations Law with respect to each of the contraventions
that his Honour found to have occurred. Although his Honour dealt with the matters
compendiously, it was not suggested that his analysis did not apply to each contravention
considered separately.
541 It is necessary for this Court to consider the Appellant’s appeal from Austin J’s Honesty
Judgment with respect to each of the contraventions that this Court has upheld, namely:
Contraventions 4, 5 and 7.
542 Austin J did not doubt that Mr Vines had acted honestly throughout. Nevertheless his
Honour found that the discretion in the two statutory provisions should not be exercised in
his favour. To summarise briefly s1317JA(2) empowers the court, relevantly, “having regard
to all the circumstances of the case … the person ought fairly to be excused for the
contravention … the court may relieve the person … from a liability ….” and s 1318(1) similarly
empowers the Court, relevantly, when “the person … having regard to all the circumstances
of the case … ought fairly to be excused for the negligence default or breach, the court may
relieve the person … from liability”.
543 His Honour, having found that Mr Vines acted honestly, posed the test for himself in
that manner (at [83]). (This and subsequent references are to the Honesty Judgment.) His
Honour noted:
“[84] There was no finding that he obtained personal gain or

benefit from his contraventions, or that any of his contraventions
was ‘flagrant’, or that he engaged in impropriety or deceptiveness,
or that he was conscious of impropriety on the part of others.”
544 His Honour went on to consider “the nature and seriousness of the contraventions” (at
[86]) and said (noting that “item 7” refers to the post Part B contravention):
“[87] Except for item (7), my findings of contravention were failures

to exercise due care and diligence by misleading or inadequate
disclosure of material information to the board of directors or the
DDC. The defective disclosures related to matters within Mr Vines'
personal knowledge, in circumstances where the directors or the
DDC were relying on him to make timely, accurate and complete
disclosure of material matters.
[88] The elements of materiality, knowledge and reliance make it
difficult, per se , to present a case for excusing the contraventions
which have those ingredients. These elements also make it difficult
to argue that Mr Vines' conduct was in any meaningful sense
"reasonable" or (given the finding of failure to meet the standard of
reasonable care and diligence) ‘unreasonable only on balance’. In
respect of the contraventions other than item (7), Mr Vines was
aware of material information that he ought to have presented to
the board or the DDC, which (as he knew) were relying on him to
present them with financial information material to their decisions
on important matters relating to disclosure to investors, and he did
not do so. That is unreasonable conduct. As regards item (7) of the
contraventions, it was also unreasonable for Mr Vines not to take
appropriate steps to ensure that the monitoring arrangements in
respect of Hurricane Georges claims continued after publication of
the Part B statement, so that an assessment could be made at a
senior level about further disclosure to the market, given his
knowledge by 8 December of the progress of Hurricane Georges
claims.
[89] Further, I agree with ASIC (written submissions at [89]) that
the contraventions are not eleven separate, isolated incidents. One
can perceive in them a continuity and a pattern. Considered
together, the contraventions paint a picture of an executive whose
responsibility was to provide the board with all the information
available to him and material to their decisions concerning the Part
B statement and the profit forecast. Rather than discharging that
responsibility, he limited the disclosure of material information to
the board and its committee in a manner that deprived board
members of the opportunity to make fully informed decisions on
some important matters. To the extent that he decided not to give
the board information on certain material matters, he effectively
substituted his own decisions for board decisions.
The seriousness of the contraventions
[90] Under our system of corporate governance it is the board of
directors who have the ultimate decision-making responsibility on
matters of management. But they cannot discharge their
responsibility unless the senior executives of the company, having
responsibility to do so, lay before them all the matters material to
their decision. Mr Vines' pattern of contraventions is incompatible
with these principles governing the board/senior executive
relationship and has the tendency to undermine the efficacy of
corporate boards. The contraventions are therefore matters of real
significance, not trivial matters or matters of inadvertence.
[91] These general considerations of corporate governance are
reinforced in the special context of defending a hostile takeover.
The corporations legislation imposes heavy civil, and sometimes
criminal, liability on those who provide misleading information to
the public securities markets about the price or value of quoted
securities. The law seeks to protect investors, and in particular
target shareholders, by endeavouring to ensure that the
information upon which they make their decisions is materially
accurate and complete.
[92] Where the vehicle for provision of information to investors is a
Part B statement, the law prescribes the required content in some
detail, while also demanding that the document must disclose all
information material to the making of a decision by target
shareholders whether or not to accept the offer, being information
known to any of the directors and not previously disclosed (see, at
the time relevant to these proceedings, Corporations Law, s 750, Part
B, para 13).
[93] The principal responsibility for ensuring that the target
company complies with its statutory obligations and that the
information in the Part B statement is materially accurate and
complete is borne by the directors of the target. They are not
expected to treat their disclosure obligation as an occasion for
exercising entrepreneurial flair and risk-taking. They are expected
to satisfy a standard of reasonable care and diligence that is
informed by the seriousness of the disclosure obligation.
Correspondingly, the executives who provide information to the
board must meet a standard of reasonable care and diligence that
reflects their position in the process of assisting the directors and
the company to discharge their duties.”
545 Thereafter his Honour gave detailed consideration to the case made by Mr Vines which
emphasised the considerably expanded nature of his responsibilities as at the relevant dates
and the pressures under which he was acting. Save in one respect, with respect to the email
of 22 November 1998 which is no longer pertinent, his Honour accepted that he had made no
express findings that Mr Vines “gave conscious consideration to whether material matters
ought to be disclosed” ([98]).
546 Nevertheless his Honour found:
“[98] … More importantly and generally, in respect of all of the

contraventions the findings implied that Mr Vines ought to have
considered whether to disclose material information of which he
was aware. And the findings show that in each case, he acted in a
manner having the effect of excluding disclosure of material
information although he was aware of it.”
547 His Honour went on to hold:
“[99] … The matters not conveyed were material to the important

decisions of the board and its committee with respect to the Part B
statement and its profit forecast. If disclosed, they would have
qualified or clarified what Mr Vines actually conveyed, but they
were much more than mere qualifications or clarifications. Mr
Vines’ failure to provide the directors with that material
information left them to make their decisions, one each occasion of
contravention, on the basis of a significantly incomplete factual
matrix.”
548 His Honour went on to emphasise his findings as to the scope of the responsibilities
which Mr Vines had been given, particularly the “special responsibilities in relation to the
Part B statement” and that his duty of care and diligence had to have regard to these matters
([100]).
“[101] Mr Vines' heavy responsibilities and workload, and the

associated pressure, would not be a sufficient general excuse for
failing to discharge his statutory duties. The relevance of workload
and pressure is more at the margins. If, hypothetically, the question
was whether Mr Vines should have undertaken some additional
investigations or should have obtained some additional level of
expertise in a reinsurance matter beyond the scope of his normal
Group responsibilities, it would be relevant to have regard to his
workload as an impediment to his doing so. But by and large, the
contraventions found against Mr Vines related to the inadequacy of
his disclosure to the board and the DDC of matters within his
knowledge, contraventions for which workload and pressure would
not be persuasive excuses.”
550 In this regard, it is pertinent to note that the Fourth and Fifth Contraventions which, in
my opinion, this Court should uphold, are expressed in terms of what the Appellant “knew
or ought to have known”. Austin J’s analysis in this regard, directed as it was to allegations of
both actual and constructive knowledge, remain pertinent when restricted to matters of
which Mr Vines “ought to have known”. Nevertheless, it does appear that his Honour did
not expressly consider the “ought to have known” considerations separately.
551 His Honour went on to rely on his Honour’s own findings which uphold Mr Vines’
version of the events and his state of knowledge and belief. It is unnecessary to set this out.
His Honour correctly concluded that, but for these findings, the contraventions would have
been even more serious than in fact they were.
552 Austin J then dealt with a submission that there had been no loss to the company. His
Honour rejected that submission as follows:
“[111] To say that Mr Vines' breaches did not cause any loss to the
company involves reaching the conclusions that amongst the
various inputs the DDC received, it was the adjustment to the MIPI
reserve that persuaded the committee to go ahead, and the same
decision would have been taken by the DDC and the board, and
consequently the Part B statement would have been published
without proper disclosure of the magnitude of GIO Re's exposure to
Hurricane Georges (see Mr Vines' written submissions at [34]), if Mr
Vines had made full disclosure, on 8 December and on earlier
occasions, of the information on which I found his disclosure to be
deficient.”
553 His Honour went on to deal with the risk that had arisen that the published Part B
Statement would not comply with the disclosure obligations of the company. He concluded:
“[112] … There is a plausible contention that target shareholders

who did not accept AMP’s bid relied on the board’s advice in doing
so, given a Part B statement that laid emphasis on the profit forecast
as a reason for rejecting the bid … Any such shareholder losses may
have been recoverable against the company because of the
defective disclosure. If such losses occurred, the risk against which
the corporations legislation and the due diligence process were
designed to give protection may have materialised …”.
554 His Honour also dealt with the submission that an ASIC media release which had
referred to claims of dishonesty and propriety, a case which ASIC later abandoned, had
caused the Appellant damage. The Appellant had also relied on the extent of his success in
litigation after a long hearing.
“[121] Doing my best to weigh up the discretionary considerations

put before me in favour of and against granting relief to Mr Vines,
as reviewed above, I have decided that this is not an appropriate
case in which to grant relief, wholly or in part. The considerations
pointing against relief, including the importance of the
contraventions, and their nature (suggesting a continuity and
pattern of defective disclosure), are matters of substantial
significance, whereas the contentions in favour of granting relief, to
the extent that they have some validity, are of less weight and are
generally matters that may be addressed in the exercise of the
court's discretion as to the appropriate orders to be made.”
555 In this Court the Appellant’s submissions reiterated the matters on which he had relied
before Austin J. He submitted that this was a clear case for the exercise of the discretion and
the trial judge ought to have done so. He also submitted that his Honour’s assessment was
vitiated “by his assessment of the seriousness of the contraventions found”, particularly with
respect to those contraventions about which the Appellant had not had an opportunity to
defend himself. For reasons I have indicated above, save in the respect that the Appellant’s
submissions has been accepted, there was no denial of procedural fairness by his Honour.
Nor in any relevant respect was there a finding outside the pleaded cases.
556 In the case of each of s1317JA and s 1318 there are words of discretion: “may relieve”.
Insofar as his Honour’s conclusion turned on the exercise of such a discretion, there are well-
known restraints on an appellate court. No basis has been suggested of a character that
would justify interfering with a discretionary judgment. Indeed, no appellable error has
been identified in the submissions to this Court.
557 In the Appellant’s submissions the primary error is said to be his Honour’s finding of
“the seriousness of the contraventions found”. This does not involve a basis for appellate
intervention. This was a matter of fact and degree for Austin J to assess.
62. If a finding of honesty is made, a broad range of matters are relevant to

whether an applicant for relief ‘ought fairly to be excused’ and also to
whether to exercise the discretion to grant relief. [27] The authorities
set out a broad range of factors, many of which are set out by Austin J in
Vines v ASIC. [28] This can be seen as a ‘value judgment rather than an
exercise in discretion.’ [29]
via
[29] Morely v ASIC (No 2) (2011) 83 ACSR 620 (‘Morley’) [16] (Spigelman CJ,
Beazley and Gilles JJA); ASIC v APCH [2014] FCA 1308 [72] (Murphy J); Vines v
ASIC (2007) 73 NSWLR 451 [558] (Spigelman CJ with whom Ipp JA agreed);
[802] (Santow JA).
Morley v Australian Securities and Investments Commission (No 2) Shafron v

Australian Securities and Investments Commission (No 2) (06 May 2011) (Spigelman
CJ, Beazley JA, Giles JA)
16. The judge said at PJ [194] that if he were wrong in that view, he would
reject relief "under one or other of the two discretions in [ss 1317S(2) and
1318(1)]". The reference to two discretions should be understood with
reference to PJ [68] in relation to the non-executive directors. His
Honour regarded the element of whether the person ought fairly to be
excused as discretionary, as well as the subsequent discretionary
element of whether the person should be relieved from liability. The
former element is better regarded as the formation of a value judgment,
not the exercise of a discretion: Vines v Australian Securities and
Investments Commission [2007] NSWCA 75; (2007) 73 NSWLR 451; (2007)
62 ACSR 1 at [558] per Spigelman CJ,
558 Although not the subject of any submission, another approach may be available. By
reason of the inclusion of the words “may relieve … from liability”, the judgment appealed
from in this respect involves the exercise of a discretion. However, there is, in the case of
each statutory provision, a prior judgment expressed in terms of a finding that “having
regard to all the circumstances … the person ought fairly to be excused for” the
contravention. This calls for the formation of a value judgment not the exercise of a
discretion. Not every broadly based value judgment can be described as discretionary. (C/f N
orbis v Norbis (1986) 161 CLR 513 at 518 ; Singer v Berghouse (1994) 181 CLR 207 at 210-212 ; Coal
and Allied Operations Pty Ltd v AIRC (2000) 203 CLR 194 at [19]-[21] ; Russo v Aiello (2003) 215
CLR 643 at 27 ; Buller v Black (2003) 56 NSWLR 425 at [37]-[38] ; Blackburn v Allianz Australia
Insurance Ltd (2004) 61 NSWLR 632 at [2]-[4] ; Figliuzzi v Yonan [2005] NSWCA 290 at [31]-[36],
[67]-[68] and the analysis of the authorities in Perpetual Trustee Company Ltd v Khoshaba [2006
] NSWCA 41 at [31]-[41], [106], [109]-[111] ; Murphy v Overton Investments Pty Ltd [2002] FCAFC
129 at [104]-[109] ; and AMP General Insurance Ltd v Victorian Workcover Authority [2006] VSCA
236 at [22]-[28] .)
559 In such a case this Court may invoke the principles reflected in Warren v Coombes (1979)
142 CLR 531, rather than those in House v The King (1936) 55 CLR 499.
560 Insofar as the House v The King approach is appropriate, no suggestion has been put
forward that his Honour’s exercise of discretion failed in any relevant sense.
561 If the test for appellate intervention is less restrictive, I would still refuse to intervene.
The judgment that his Honour made with respect to the seriousness of the contraventions
was not only open to him, in my opinion it was the correct judgment. For the reasons his
Honour gave in his Contraventions Judgment and to which he referred in his Honesty
Judgment and which, with some elaboration I have accepted, these contraventions were
contraventions of a high level of significance. I include in that conclusion particular
reference to his Honour’s findings (and my own conclusions) about the matters of which the
Appellant ought to have known at or about the time of the three contraventions which I
would uphold.
562 The obligation upon directors with respect to the making of profit forecasts, particularly
in the context of a Part B Statement in a contested takeover, are of considerable significance
for a fully informed market. The Board adopted, in the present case, an entirely appropriate
and high level “due diligence” standard for the formulation of the profit forecast. The Board
depended to a substantial degree upon the performance by Mr Vines of the responsibilities
it conferred upon him for the preparation of the forecast.
563 In the period prior to the finalisation of the Part B documentation not, in my opinion,
restricted to the last day as Austin J does (but nothing turns on that and there was no
challenge to the finding) those responsibilities required Mr Vines to be proactive. I would
myself, if it were open to do so, have gone beyond the findings of Austin J in terms of what
was required on the part of Mr Vines at that time. Not least, although not only, by reason of
the final “tight” unders and overs analysis, Mr Vines was, in my opinion, obliged to ensure
that the most up-to-date information with respect to the extent of exposure to Hurricane
Georges was obtained and, by reason of the particular responsibilities imposed upon him, it
was not sufficient for him to act on the assumption that he had in fact been given the most
up-to-date information, unless he had expressly put in place reporting arrangements that
ensured that he had. He had not.
564 His Honour’s analysis was open to him. Indeed I would have gone further as indicated.
565 Mr Vines’ responsibilities continued in the period after the Part B Statement was issued,
at least for such time as the takeover was proceeding on the basis of the information
contained in the Part B Statement.
566 In the case of projected profits, particularly with respect to profits of an insurance
company, there is a wide range of legitimate opinion that can be held by directors with
respect to the component parts of a profit, many of which involve matters of judgment.
Nevertheless, it is the task of the directors, particularly in a context such as the Part B
Statement, to formulate a profit forecast which they regarded as appropriate. However, it is
not correct for directors to maximise forecast profits. Directors are obliged to produce
forecasts which they regard as appropriate. Senior management are expected to assist
directors in carrying out this task.
567 Santow JA correctly draws attention in his judgment, which I have read in draft, to the
proposition that there are risks involved in directors under-estimating profits as well as risks
involved in over-estimating profits.
Hall & Ors v Poolman & Ors (23 November 2007) (Palmer J)
327 Likewise, in Australian Securities & Investments Commission v Vines (2005) 56

ACSR 528, Austin J, following Friedrich , considered that “honesty” for the
purpose of the sections meant “without moral turpitude”: at [43] . His Honour’s
conclusion as to the meaning of honesty was upheld in the Court of Appeal: Vin
es v Australian Securities & Investments Commission (2007) 62 ACSR 1, at [568] per
Ipp JA and at [797] , [800] per Santow JA
568 In my opinion, the appeal from the Honesty Judgment should be dismissed for the
reasons given by Austin J, which are sufficient to dispose of this appeal although, as
indicated, there are additional reasons.
569 Although I would, in any event, come to the same conclusion, I wish to add some
observations about the circumstances in which the profit projection was determined in the
present case.
570 As Mr Vines candidly admitted in evidence, management had determined upon a profit
forecast of significant size. Thereafter an objective of the exercise was not to determine what
an appropriate profit projection was, but to “protect” the original projection. The entire
flirtation with retrocession cover, as Mr Vines himself said, was designed to “protect the
projected profit of “$80 million”. (See Austin J’s judgment at [572], [657] and [658] referred to
above at pars [207], [270] and [271].)
571 No matter how counter intuitive the idea might be of obtaining insurance for an event
that has already happened, which could be treated in the accounts to postpone recognition
of the loss from the year in which it occurred, Mr Vines has the advantage of favourable
findings in this regard. Although this has not been in issue on the appeal, I would not have
been so charitable. Directors, and especially a chief financial officer with high level
accounting qualifications and experience, cannot engage in manipulation of the accounts so
long as an auditor is prepared to sign off on the process. A person in such a position should
be satisfied that the accounting treatment is appropriate, not just permissible. However, this
matter was not the subject of evidence or submissions, and I do not determine the defence
on this basis.
572 Nevertheless, irrespective of the disappointed expectation that the auditor would
support this kind of treatment for accounting purposes, the process of seeking to engage in
an accounting exercise of this character in order to “protect” a profit previously arrived at, is
a circumstance which, in my opinion, supports the refusal by Austin J to find that the
contravention should be excused. This is not conduct which the Court should accept, let
alone encourage.
573 In my opinion, for these reasons this Court should not conclude that the Appellant
“ought fairly to be excused” within the meaning of either s1317JA(2) or s 1318(1) . Nor should
the discretion to grant relief be exercised in his favour.
574 The appeal from the Honesty Judgment should be dismissed.
XVII PENALTY: APPEAL AND CROSS-APPEAL
575 Detailed submissions were made with respect to penalty both by way of appeal and by
way of cross-appeal. Necessarily, this will be affected by the outcome of the appeal from the
Contraventions Judgment.
576 It is appropriate that the parties be given an opportunity to file additional written
submissions taking into account the outcome of the appeal. It does not appear to me to be
necessary for the matter to be placed in the list for further oral hearing. However, if the
parties wish to do so they should approach one of the judges of this bench to fix a date. It is
appropriate that directions be made for further written submissions on the issue of penalty.
XVIII ORDERS
577 In the event, the Appellant has succeeded in part and failed in part, more or less in equal
measure. Each party should bear its own costs of the appeal.
578 The orders I propose are:
1 Appeal from the judgment of Austin J, being ASIC v Vines [2005]
NSWSC 738, allowed in part.
2 Declarations 6, 8, 9, 10 and 11 set aside.
3 Appeal dismissed with respect to Declarations 1, 2, 3,

4, 5 and 7.
4 Appeal from the judgment of Austin J, being ASIC v

Vines [2005] NSWSC 1349, dismissed.
5 Direct each party to file further submissions on the issue of

penalty within three weeks of the date hereof.
6 No order as to the costs of the appeal.
579 SANTOW JA:
XIX INTRODUCTION
This appeal concerns the statutory duty of care and diligence under s 232(4) of
the Corporations Law as applicable to a senior executive officer of a corporation
who was not a director. That duty applied to the appellant Mr Vines as Chief
Financial Officer of GIO Australia Holdings Limited (“GIO”) and of the GIO
corporate group. The GIO group carried on insurance business including
reinsurance through GIO Re, the reinsurance division of GIO’s subsidiary, GIO
Insurance Ltd.
580 It is an important case for a number of reasons including the following. First, it is a rare
instance of a senior executive officer being held to account who is not a director, for what
was said to be a failure in the degree of care and diligence required, and implicitly skill,
under the statutory standard. Second, this was a case where the executive officer concerned
was held to account principally, though not only, for relying on another senior executive to
report to him on a critical financial matter where that other officer had operational
responsibility with respect to the particular subject matter of his reporting. Third, there was
no suggestion of dishonesty on the part of the chief financial officer though on one view an
error of judgment in continuing to rely upon the other officer concerned to provide critical
financial information for a profit forecast undertaken as part of a defence to a hostile
takeover. Finally, this was a case where shareholders were seeking to be informed as to the
choice they make whether or not to accept a takeover offer and did not want to be forced to
sell on the cheap. In those circumstances, the statutory duty of care and diligence needs to
be accommodated to the duty to act in the interests of the company as a whole so these do
not produce an inconsistent outcome.
581 The events in question began with a hostile bid for GIO announced by AMP Limited on
25 August 1998. The seven contraventions of s232(4) found by Austin J against Mr Vines
relate directly or indirectly to the reinsurance component ($80 million) of a profit forecast of
$250 million later to be incorporated in GIO’s bid response to the AMP’s bid contained in its
Part B Statement. That $80 million forecast was finalised around 23 September 1998.
Contemporaneously, between 21 and 28 September 1998 Hurricane Georges struck Puerto
Rico and the United States, generating reinsurance claims against GIO Re, whose amount
increased over the time in question. The Part B Statement with the profit forecast and
accompanying auditor’s report was finalised by 8 December 1998 and was sent by GIO to its
shareholders on 16 December 1998. The offer closed on 4 January 1999. At the close of that
day AMP had received acceptances from shareholders representing 57% of the shares; see
Contraventions Judgment at [967]. The then increased bid price, for a bid described by the
GIO Board as (still) inadequate was $5.35 in cash (increased from $4.75) or one AMP share
for four GIO shares (Contraventions Judgment [952]). These events therefore cover that span
of time.
582 The conduct of Mr Vines found to have contravened s 232(4) of the Corporations Law conc
erned in the main, what in that evolving state of affairs, Mr Vines conveyed or failed to
convey about the profit forecast to GIO’s Due Diligence Committee (“DDC”) and what he
should have conveyed. It was formed to perform the functions, inter alia, of the audit
committee of the Board with respect to the Part B Statement, where Mr Vines played a co-
ordinating role. However, the second contravention concerned what it is said Mr Vines
conveyed or failed to convey to GIO’s Board preparatory to a media release of 17 November
1998 concerning GIO Re’s October quarterly profit report. The seventh contravention
concerned what it was said Mr Vines failed to do by way of direction with regard to
monitoring the loss from Hurricane Georges.
583 That the $80 million forecast proved later to be an overestimate is not of itself pleaded as
the basis for breach. In relation to contraventions on 8 December 1998 (but not before) the
forecast’s “improbability” is pleaded, but by reference to a failure to disclose certain matters.
The ultimate question in this appeal is whether the Chief Financial Officer Mr Vines, as
ASIC alleged, breached s 232(4) of the Corporations Law in the exercise of his powers and the
discharge of his duties in GIO’s circumstances, in or in connection with that profit forecast.
That focuses attention on GIO’s circumstances, what Mr Vines’ powers and duties were in
the position he occupied, taking into account his legal duties to GIO and its shareholders as
they affected his executive responsibilities. The standard to be applied is objective; that
applicable to a reasonable person in Mr Vines’ position.
584 The trial judge imposed civil penalties on Mr Vines consisting of disqualification from
acting as a director for three years and a fine of $100,000. Mr Vines appeals against all seven
contraventions and the civil penalties imposed.
585 I have had the advantage of reading Spigelman CJ’s judgment in draft. The Chief Justice
sets out in comprehensive detail both the relevant events which form the background to this
appeal and the issues which arise from the twenty-four separate grounds of appeal. In the
reasons which follow, I will not traverse in detail that factual background, save where closer
consideration is necessary to explain the conclusions I have reached. It is however necessary
to look more closely at the primary evidence, when it comes to considering Mr Vines’
reliance on a senior executive (Mr Fox) who was charged with the responsibility of
quantifying the loss from Hurricane Georges and reporting on it to Mr Vines. I shall, like the
Chief Justice, refer to the seven contraventions found by the trial judge by reference to their
chronological date order, rather than as pleaded. I shall likewise refer to the judgments of
the trial judge by the same abbreviation (Contraventions Judgment, Honesty Judgment).
Where such reference is omitted, it can be taken to refer to the Contraventions Judgment.
586 I agree with the chief justice that six of the seven contraventions found fell sufficiently
within ASIC’s pleaded case. Accordingly, I too would not uphold any of the appeals so far as
reliant on that ground, except as to the sixth contravention where I would agree with the
Chief Justice that the appeal should be upheld.
587 I also agree with the Chief Justice that the fact that the statutory standard of care and
diligence is sanctioned by civil penalty does not require ASIC to demonstrate any greater
deficiency of care and diligence than would have been the case without there being such a
civil penalty sanction. I agree with the Chief Justice that this follows as a matter of statutory
construction from the relevant provisions of the Corporations Law , in particular those
applying the civil penalty (s1317EA(4) and (5)). In my view, that gradation only comes into
play when it comes to determining whether to apply a civil penalty following the finding of a
contravention, not at the anterior step of declaring a contravention to have occurred.
However, as the trial judge recognised, in weighing the evidence, the Briginshaw standard
must still be applied (Judgment [89]).
588 I agree with the Chief Justice that the following matters arising from the appellant’s
further Amended Notice of Appeal should be resolved against the appellant:
(a) that there was any denial of procedural fairness by the making of findings
outside of the pleaded case;
(b) that there was any denial of procedural fairness by the failure to
put matters to the appellant by way of cross-examination;
(c) what were said to be the effects of the sixteen months delay in
delivery of the Contraventions Judgment;
(d) what was said to be the trial judge’s failure to deal with the full
range of submissions made on behalf of the appellant;
(e) the appellant’s challenges to findings of fact including assertions

that the findings were not supported by the evidence, that the
findings were not made on constituent elements and the
implications of the rejection of constituent elements together with
specific error and a finding in the judgment at [916].
589 The Chief Justice would uphold the appeal, but not on those two rejected grounds, in
the case of the first, second, third and sixth contraventions. I respectfully agree. My reasons
for doing so largely though not entirely accord with those of the Chief Justice. The Chief
Justice would dismiss the appeal with respect to the remaining contraventions, namely the
fourth, fifth and seventh contraventions. For reasons I will explain I respectfully differ and
would uphold those appeals.
590 That difference ultimately turns on whether Mr Vines was in breach of the statutory
standard of care and diligence in continuing to rely on Mr Fox on and from 7 December 1998
to quantify the loss from Hurricane Georges and report on it to Mr Vines; the Chief Justice
and the trial judge conclude that Mr Vines, in the circumstances then prevailing, should
have taken more proactive steps himself to ascertain the position. I respectfully conclude to
the contrary. This is for reasons elaborated under the heading “Fourth Contravention” and
in particular the sub-heading “Reliance by Mr Vines on Mr Fox”, where I undertake a closer
look at the primary evidence. Reference should also be made to what I say more generally
under the heading “The Contraventions as a whole – a Perspective” with its “Summation” at
the end. I also conclude that, even if I were wrong in that result, Mr Vines, under the
applicable statutory provisions, “ought fairly to be excused” for the balance of only three
contraventions found on appeal.
XX THE STATUTORY DUTY OF CARE AND DILIGENCE IN ITS BROAD

APPLICATION
591 I first set out s232 and the relevant definition of “executive officer”.
SECT 232 Duty and liability of officer of corporation

(1) In this section:
officer , in relation to a corporation, means:
(a) a director, secretary or executive officer of the

corporation;
(b) a receiver, or receiver and manager, of

property of the corporation, or any other
authorised person who enters into possession or
assumes control of property of the corporation
for the purpose of enforcing any charge;
(c) an administrator of the corporation;
(ca) an administrator of a deed of company

arrangement executed by the corporation;
(d) a liquidator of the corporation; and
(e) a trustee or other person administering a compromise or

arrangement made between the corporation and another
person or other persons.
(2) An officer of a corporation shall at all times act

honestly in the exercise of his or her powers and the
discharge of the duties of his or her office.
(4) In the exercise of his or her powers and the

discharge of his or her duties, an officer of a
corporation must exercise the degree of care and
diligence that a reasonable person in a like position in
a corporation would exercise in the corporation's
circumstances.
……
(5) An officer or employee of a corporation, or a former

officer or employee of a corporation, must not, in
relevant circumstances, make improper use of
information acquired by virtue of his or her position as
such an officer or employee to gain, directly or
indirectly, an advantage for himself or herself or for
any other person or to cause detriment to the
corporation.
……
(6B) Subsections (2), (4), (5) and (6) are civil penalty
provisions as defined by section 1317DA, so Part 9.4B pr
ovides for civil and criminal consequences of
contravening any of them, or of being involved in a
contravention of any of them.
(11) This section has effect in addition to, and not in derogation of,
any rule of law relating to the duty or liability of a person by reason
of the person's office or employment in relation to a corporation
and does not prevent the institution of any civil proceedings in
respect of a breach of such a duty or in respect of such a liability.
592 In s9 of the Corporations Law , executive officer of a body corporate is defined as meaning
“a person who is concerned in, or takes part in, the management of the body (regardless of the person’
s designation and whether or not the person is a director of the body”. Section 232(4) therefore
applies to Mr Vines in relation to GIO though not a director.
593 Section 232(4) of the Corporations Law applies an objective standard of care, diligence
and, implicitly, skill by reference to:
(a) what a reasonable person would have done in Mr Vines’ position with his
ongoing responsibilities as Chief Financial Officer and with his additional
responsibilities in relation to GIO’s response to the contested takeover,
particularly the profit forecast;
(b) GIO’s circumstances in being required to respond to a hostile

bid where that response had as a key element GIO’s profit forecast
made at a time of escalating reinsurance claims from Hurricane
Georges; and
(c) the powers to be exercised and the duties to be discharged in

that position by Mr Vines, recognising that these powers and duties
must be accommodated to, and are themselves regulated, by what
the law, statute and general law, allows or requires of an executive
officer of a company; I refer here not only to the statutory duty of
care and diligence but other legal duties to be read in harmony and
in particular the duty to act in good faith in the interests of the
company as a whole.
594 At [142] of his reasons the Chief Justice observes:
142 As a starting point I would accept that Parliament, when it used

language, albeit in a slightly modified form, plainly derived from
the civil case law had in mind a standard of care of a similar
character. Nevertheless, Parliament must be taken to have acted on
the basis that the law of statutory interpretation will be applied.
That may lead to a different conclusion.
595 There are indeed differences in the structure and terms of s232(4) that lead to potential
differences in its application, as compared to civil liability in negligence. The first of these
differences relates to the absence of any express reference to detriment, harm or damage in
s232(4).
596 In Vrisakis v Australian Securities Commission (1993) 11 ACSR 162 at 212 Ipp J (as he then
was, with Malcolm CJ agreeing at 182, Rowland J not dealing with merit appeal issues)
observed in relation to the earlier criminal penalty version of s232:
Under s229(2), however, there is no reference to damage suffered by

the company, and an offence may notionally be committed under
that section without any damage having been sustained. The
question is merely whether the defendant director has exercised a
reasonable degree of care and diligence in the exercise of his
powers in the discharge of his duties.
597 He concluded that “a criminal offence will not have been committed if an omission to take care
did not carry with it a foreseeable risk of harm to the company” and that “no act of commission or
omission is capable of constituting a failure to exercise care and diligence under s229(2) [now s232(4)
with civil penalty] unless at the time thereof it was reasonably foreseeable that harm to the interests
of the company might be caused thereby” [emphasis added]. That conclusion was based on the
proposition that the “duty of a director to exercise a reasonable degree of care and diligence cannot
be defined without reference to the nature and extent of foreseeable risk of harm to the company that
would otherwise arise”.
Australian Securities & Investments Commission v Fortescue Metals Group Ltd [No
5] (23 December 2009) (GILMOUR J)
902. Forrest then submits that the mere fact that a director participates in
conduct that carries with it a foreseeable risk of harm to a company’s
interest does not necessarily mean that the director failed to exercise a
reasonable degree of care and diligence in the discharge of his duty: Vris
akis v Australian Securities Commission (1993) 9 WAR 395 per Ipp J at 449-
450 ; Vines v Australian Securities and Investments Commission (2007) 62
ACSR 1 per Santow J at [598] and [599]
598 His Honour then adds this caveat:
“Further, the mere fact that a director participates in conduct that

carries with it a foreseeable risk of harm to the interests of the
company will not necessarily mean that he has failed to exercise a
reasonable degree of care and diligence in the discharge of his
duties. The management and direction of companies involve taking
decisions and embarking upon actions which may promise much,
on the one hand, but which are, at the same time, fraught with risk
on the other. That is inherent in the life of industry and commerce.
The legislature undoubtedly did not intend by s 229(2) to dampen
business enterprise and penalise legitimate but unsuccessful
entrepreneurial activity. Accordingly, the question whether a
director has exercised a reasonable degree of care and diligence can
only be answered by balancing the foreseeable risk of harm against
the potential benefits that could reasonably have been expected to
accrue to the company from the conduct in question.”
599 That observation is apposite here. First, there was always the risk to shareholders of GIO
as the trial judge recognised (at [1077]), that a profit forecast, capable as it is of being affected
by variation in inputs such as the affect of Hurricane Georges, might turn out to be wrong.
Second, a target’s profit forecast, especially in a contested or hostile takeover, as here, is
directed to securing the benefit for all GIO shareholders of not being forced to sell for less
than their shares were worth in prospect and so that their decision whether or not to sell is
informed and not forced.
600 In balancing reasonably foreseeable risk of harm against potential benefits, the starting
point is to identify the powers being exercised and the duties being discharged by the officer
concerned in the context of the corporation’s circumstances.
601 The powers here being exercised by Mr Vines were those of a group chief financial
officer, one who was not a director of GIO but in a senior executive position just below that
of Mr Steffey, the Managing Director. Mr Vines had extensive responsibilities for group
financial affairs as well as for the specific takeover related responsibilities that he assumed
over the period of time spanned by the contraventions. Mr Vines was therefore required to
continue to exercise overall supervisory responsibility for financial operations across the
divisions of the group along with his additional workload. This was itself an onerous
responsibility requiring that he leave operational matters to others, unless he had sufficient
cause to intervene. In addition, he was exercising the central co-ordinating role for the
takeover response process. That included but was not limited to the group profit forecast. As
a practical matter, his onerous and extensive supervisory responsibilities meant he had to
rely on those with operational responsibility for assessing matters such as the anticipated
loss from Hurricane Georges, again unless he had sufficient cause to intervene at the
divisional level.
602 The reinsurance operation was but one important element of the forecast, though as
events turned out it became the crucial element. The profit forecast added a critical
dimension to what care and diligence required of Mr Vines in his position and in GIO’s
circumstances. In exercising care and diligence Mr Vines was also required to act in good
faith in the best interests of the company GIO as a whole; that is to say, having regard to the
interests of its shareholders present and future. The two sets of duties, referred to as they are
in related subsections of s232, and not expressed to be subordinate one to the other, clearly
have to be read in that context and in harmony with each other; see for one authority among
many Barwick CJ in Taylor v Public Service Board (1976) 137 CLR 208 at 213 . It could not be
expected that the statutory duty to act with care and diligence, referring as it does to the
discharge of the officer’s duties, would call for a course of action that conflicted with the
duty to act honestly in the interests of the company as a whole; see s232(2) and s232(11)
preserving duties of officers at general law.
603 The Corporations Law imposed specific obligations on GIO and its officers to ensure that
its takeover response did not include misstatements or contain omissions (s670A of the Corpo
rations Law ). Also that its public statements to its shareholders were not misleading or
deceptive (s995) or in breach of GIO’s continuous disclosure obligations (s1001A). I have
referred already to the overarching legal obligation on Mr Vines to act honestly and in the
interests of GIO’s shareholders present and future.
604 In the reasoning of the trial judge the danger to be provided against, or the risk to be
minimised, under what is loosely sometimes called the Shirt calculus (Mason J in Wyong
Shire Council v Shirt (1980) 146 CLR 40 at 47 ) was to avoid unjustified maintenance of a
favourable profit forecast for fear that, so misled, shareholders would hold back from
accepting and risk being locked in (Judgment [1074]). I quote:
“[1074] In the present case the danger to be provided against was

that the GIO shareholders might be left in a position of making
their decision whether to accept or reject the AMP takeover bid on
the basis of inaccurate or incomplete information, if the defendants
or any of them failed to discharge their statutory duty of care and
diligence. If, in consequence of the defendants (or any of them)
breaching their duty by conduct which allowed too high a profit
forecast to be published, GIO shareholders were to decide not to
accept the takeover offer, the risk to them would be that they would
find themselves locked into a minority position in a company,
management control of which had passed under the bid. Without,
at this stage, making any findings about causality or remoteness of
damage, the court can infer that this risk was a substantial one,
because the liquidity of the market for a listed target company's
shares, and the share price, will ordinarily be adversely affected
once control has passed and any control premium has evaporated.
605 I point out here that the countervailing risk should not however be overlooked that the
profit forecast might be unnecessarily conservative, in circumstances where a less
conservative approach was properly justified in terms of what was known or reasonably
ascertainable at the time.
606 In the events that happened as at the close of its offer on 4 January 1999, AMP had
received acceptances from GIO shareholders representing 57% of the shares [967] so the risk
did come home for the 43%. Subsequent events in September 1999 do not form part of the
evidence in this case; see GPG (Australia) Pty Ltd v GIO Australia Holdings Ltd (2002) 40 ACSR
252. They reveal that GIO shareholders were finally bought out at a significantly lower price
by a scheme of arrangement. By then, according to the evidence in the present case the
profit forecast had been long revealed as wrong (Contraventions Judgment [985]). Thus by 5
March 1999, GIO Re’s results as announced 5 March 1999 had reported a loss for GIO Re in
the half year ended 31 December 1998 of $19.6 million as against the earlier forecast profit for
GIO Re for the full year of $80 million [985]-[986].
607 I discuss the implications of this, insofar as bearing upon damage and detriment under
the later heading “The Contraventions as a Whole – a Perspective”.
608 Consider the reality of the risk of being locked in. If AMP were by reason of
shareholders holding back from accepting only to acquire less than the threshold
percentage for compulsory acquisition, AMP would have been able either to waive its
minimum acceptance condition or alternatively invoke its minimum acceptance condition
and withdraw. AMP did the former, by declaring its offer unconditional [952].
609 A countervailing shareholder risk, against which a chief financial officer with Mr Vines’
responsibilities had no less to guard against, would be for future profit to be understated
when a higher profit estimate could be properly justified on reasonable grounds, here
judged by what was known, or should have been known, to a reasonable person in Mr
Vines’ position. Thus if the profit forecast were less favourable than so justified the share
price could collapse, particularly if the offer were withdrawn, with shareholders forced to
sell for less than their shares were truly worth. In a hostile takeover, that latter risk is at least
as great as the risk of being locked in as a minority. Here some 57% of shareholders got the
higher price; the rest were left for the time being as minority shareholders, AMP was left
with a company (GIO) it could not consolidate as minority shareholders remained.
610 Suppose Mr Vines had overlooked GIO’s legitimate capacity to support the profit
forecast by adjusting for its over-provision for PI claims; the so-called “MIPI redundancy” of
$35 million. The resultant lower profit forecast could be expected to have led shareholders
to rush to accept AMP’s offer, removing any pressure on AMP to increase its offer, as it later
did and forcing shareholders to sell when otherwise they might not. Mr Vines would not
then have acted in the best interests of shareholders, in being able to maximise the value of
their shares. I emphasise that this is only so long as that favourable dimension of the
forecast was considered appropriate and could be properly justified on reasonable grounds,
judged by what was known, or should have been known, to a reasonable person in Mr
Vines’ position.
611 As we know in retrospect, the profit forecast of $80 million could not be properly
justified, because the ultimate loss from Hurricane Georges was later found to far exceed
$65 million. But if, looking at matters at the time, Mr Vines had been justified in relying on
the assurance he received from the executive director of GIO Re Mr Fox to the effect that the
likely loss was $65 million, then had he failed to support the profit forecast using the MIPI
redundancy, Mr Vines could have been justifiably held to account by GIO’s shareholders for
failing properly to take into account their interests in not being forced sellers at a price
which did not properly take into account their company’s prospects. This invokes Mr Vines’
overarching legal duty to act in the interests of the company as a whole and to which the
statutory duty of care and diligence must be accommodated. It is not in dispute that Mr
Vines acted honestly throughout.
612 It must be emphasised that a profit forecast is a matter of opinion and judgment. There
can be a range of reasonably based outcomes, as recognised by the trial judge at [1077]:
“[1077] … Forecasting in a reinsurance business is a difficult and

uncertain process, where there is much room for differences of
opinion and even small variations of input can produce widely
different outcomes (see section 1.2). The issue under s232(4) is not
whether the defendants made mistakes during the course of the
due diligence process, but whether they failed to meet the standard
of care and diligence that the statute lays down. The statutory
standard, like the general law, permits the court to take into
account the circumstances of the particular case, and requires the
standard to be applied to those circumstances as they existed at the
relevant time, without the benefit of hindsight.”
613 Section 670A(2) of the Corporations Law recognises that concept of reasonableness when,
under the heading “Forecasts and other forward-looking statements” the criterion for a
misleading statement in takeover documents about “a future matter” is whether the person
concerned has “reasonable grounds for making the statement”. There can be a spectrum of
legitimate forecast profit outcomes, from the pessimistic to the optimistic, capable of being
justified on reasonable grounds. In a contested takeover, the bidder will naturally focus on
the lower end of that spectrum while the target will focus on the upper end. In my judgment
provided Mr Vines made a genuine assessment of whether the profit forecast was the
appropriate one and so concluded on objective grounds, it was not unreasonable for Mr
Vines, in GIO’s circumstances, to do what he legitimately could thereafter to maintain the
profit forecast at its upper end having regard to the interests of GIO’s shareholders to
optimise their share price. But, importantly, it would cease to be legitimate if reasonable
care and diligence would have revealed to Mr Vines that the profit forecast could no longer
be properly justified, judging that by reference to what a reasonable person would do in his
position in the company’s circumstances. I emphasise that it is still incumbent on an
executive officer in Mr Vines’ position to exercise judgment on the relevant components of
the profit forecast, and to support that forecast which he genuinely regarded as appropriate.
Moreover, such an officer must not blindly choose a forecast at the upper end of the
spectrum merely to maximise the bid price. I here respectfully agree with the judgment of
the Chief Justice at [566].
614 To appraise Mr Vines’ conduct said to constitute each contravention, the focus is on
what Mr Vines knew at each relevant time and, where so pleaded in relation to the later
contraventions of 8 December 1998, what he ought to have known, the latter by reference to
a reasonable person in Mr Vines’ position in GIO’s circumstances. The latter concerns those
contraventions which have as an element Mr Vines’ reliance upon Mr Fox, the executive
director of GIO Re. Mr Fox had the responsibility for calculating the reinsurance loss from
Hurricane Georges, as it emerged as new claims were recorded on Hurricane Georges’
Claims Register.
615 It is important to emphasise that the trial judge found that Mr Vines’ reliance on Mr Fox
was justified but only until 7 December 1998. The trial judge concluded that Mr Vines’
reliance on Mr Fox ceased to be so justified when, by 7 December 1998, the profit forecast
was no longer able to be supported in PwC’s view as auditor by retrocession cover from Am
Re, though it could be still properly supported by the so-called MIPI redundancy. This was
always so long as the Hurricane Georges loss did not exceed $65 million. At that point, and
the Chief Justice would suggest even earlier by 1 December 1998, Mr Vines was no longer
entitled to rely on Mr Fox’s assessment of loss from Hurricane Georges. Instead he was
required to take proactive steps to ascertain the position for himself. If this was not to be by
direct inspection of Hurricane Georges’ Claims Register, then it would presumably require
enquiries of others than Mr Fox. Indeed the difficulty of determining what “proactive” steps
mean reinforces my conclusion, based on an analysis of the evidence, that Mr Vines
remained entitled to rely on Mr Fox’s assurance as to the level of loss from Hurricane
Georges, as I explain under the heading “The Fourth Contravention”.
616 In the events that happened, the loss from Hurricane Georges was significantly
underestimated by Mr Fox at $60-$65 million when, as of 4 December 1998 and again at 7
December 1998 the Hurricane Georges’ Claims Register revealed it to be significantly higher
and rising. It was this that rendered the profit forecast wrong when the profit forecast with
the Part B Statement was signed off on 8 December 1998. The Hurricane Georges’ Claims
Register as at the end of November 1998 appeared still to support Mr Fox’s estimate of $65
million. I should emphasise here that the profit forecast, and Part B Statement, were, in my
opinion reasonably, based on the end of October monthly management figures, as there was
insufficient time to review the November ones, including by the auditor; see below under
“The Fourth Contravention”.
617 At no time, as the trial judge found, was Mr Vines aware of this. In relation to each of the
contraventions including those that rely on what he ought to have known the principal
question is this. Was Mr Vines in breach of his statutory duty of care and diligence on each
occasion by failing to look beyond Mr Fox’s assurances and taking proactive steps such as to
view for himself Hurricane Georges’ Claims Register?
618 That with the other matters pleaded in relation to each contravention bears upon
whether Mr Vines:
(a) should have communicated as he did to the Due Diligence Committee or (in
the case of the second contravention) the board of GIO as described in the
pleading of the relevant contraventions up to and including 8 December 1998
(contraventions 1 to 6); and
(b) after 8 December 1998 should have given “directions to ensure that
monitoring arrangements were continuing at the divisional level [as to
the loss from Hurricane Georges] and that the results were brought
forward promptly to the appropriate senior corporate officer”
(contravention 7).
619 Finally, it must be borne in mind that it was always the GIO’s formal response to the
takeover in its Part B Statement, not what preceded, that would be understood as
constituting the definitive statement to shareholders in assessing whether to accept the
offer, taking into account the profit forecast it contained. Shareholders of GIO before that
time would naturally appraise what was said by the company as to its current and future
prospects with the knowledge that the Part B Statement had still to come. This has a bearing
on contravention 2, insofar as in a media release GIO asserted by reference to its October
quarterly results, that “GIO Re’s insurance business achieved a sound profit despite exposure to
events such as the Swiss Air crash and Hurricane Georges”. As events turned out, this was wrong.
But the question is to be judged not by that retrospective knowledge. Rather it is to be
judged by what Mr Vines knew at the time and what a reasonable person in his position
should have been led to conclude, exercising that degree of care and diligence, and
implicitly skill, required by s232(4) in GIO’s circumstances, when such a person was
exercising Mr Vines’ powers and discharging Mr Vines’ duties, including to shareholders as
a whole.
1 Elaboration of the Role and Responsibilities of Mr Vines
620 The Chief Justice sets out the role and responsibilities of Mr Vines along with the other
key executives at paras [152] to [167]. Read with that fuller description, this allows me to distil
what I consider to be the key matters.
(a) Mr Vines’ background and thus the expertise that he brought to the position
he occupied of Chief Financial Officer of GIO was that of a retired accountant
and auditor, albeit one who had retired four years earlier from his previous firm
of PwC in 1995. As an auditor of GIO in that earlier role, he would have acquired
a broad familiarity with GIO’s business including its reinsurance business;
(b) On 5 November 1998, Mr Fox, the third defendant before the

trial judge, was appointed to the position of Executive Director of
the relevant subsidiary in which the reinsurance business was
carried on, GIO Insurance. Mr Vines relied on Mr Fox in that role
throughout;
(c) Other executives playing a relevant role in relation to the profit

forecast for the Part B Statement were, Mr Robertson, the second
defendant in the trial proceedings, who was Executive Director of
GIO Insurance until displaced by Mr Fox on 5 November 1998. Mr
Robertson thereafter retained a diminished role, relevantly with
respect to the profit forecast.
(d) The third executive so involved was Mr Schneider, an employee

of GIO Insurance with a background in actuarial valuation in the
reinsurance industry.
621 The trial judge observed that, arising out of an earlier actuarial valuation of aviation
losses, there were some tensions between Mr Robertson and Mr Schneider.
622 Turning to Mr Vines’ role after July 1998 and during the period of the contraventions, his
duties remained supervisory so far as the divisional level was concerned rather than
operational. They covered not just GIO insurance but the overall responsibilities of a chief
financial officer in that context. Superimposed upon those extensive duties were
“substantial additions” to these functions (trial judge at [34]) in the second half of 1998
particularly after AMP’s takeover bid was announced (on 25 August 1998). These substantial
additional duties, in the words of the trial judge, left “Mr Vines with a very heavy workload”
encompassing the following:
· he attended meetings of the takeover response committee and the Part B working group as
well as the DDC, where he had a co- ordinating role;
· he was in very frequent contact with the advisers, including Macquarie Bank, Chase, PwC
and the lawyers;
· he met with Mr Steffey and Macquarie Bank every day, often for hours on end;
· he participated in meetings organised by Macquarie Bank with institutional shareholders,

and had discussions with rating agencies (T 2565) and brokers;
· he devoted substantial time to discussions with McKinseys in relation to their strategic

review and with Trowbridge in respect of the capital adequacy study;
· there was additional work for him in the area of commentary on monthly management
reporting, and in
· redefining the delegation authorities to executive directors consequent upon Mr Steffey's

revised board structure;
· he was required to supervise projects which involved restating GIO's accounts under
United States Generally Accepted Accounting Principles;
· he supervised the outsourcing of the internal audit function, a task involving a tendering
process by external accountants who were briefed by Mr Vines;
· he reviewed the tax and accounting implications of various senior management

employment incentive programs formulated by the new general manager of human
resources hired by Mr Steffey, Stuart Yoland;
· he and his team continued their responsibilities for capital management, tax compliance
and tax planning.” [References removed]”
623 In elaboration of Mr Vines’ duties with respect to the above, the trial judge made a
number of non-contentious findings of fact recorded by the Chief Justice at [165] in his
judgment which I quote below:
“(1) A Part B working group was formed responsible for
putting together what was descried as the “selling
document” that was to appear at the front of the Part B
Statement. The working group included a number of
the company’s advisors as well as Mr Vines. [181]
(2) Under the direction of Mr Vines, a sub-committee

was established to review drafts of the profit forecast
which would then be considered by the auditor of GIO.
[182]
(3) The board of GIO established a Due Diligence

Committee, referred to in the proceedings as “DDC”,
comprising five non-executive directors, Mr Vines, a
representative of the company’s solicitors, and a
representative of the merchant bank advising the
company. That committee performed the functions,
inter alia, of the audit committee of the Board with
respect to the Part B Statement. [183]
(4) In a document described as a planning

memorandum, the DDC made it clear that Mr Vines
had the central executive role in the due diligence
process including, relevantly, with respect to changes
in the financial position of the GIO group and the
financial forecast. [185]
(5) Individual directors were deputed to become

familiar with specific components of the profit forecast
relevantly, in the case of Reinsurance, Mr Lange. Mr
Vines was to conduct and support each director in this
task. Mr Vines himself described his role as “the arms
and legs of the non-executive directors”. [186]
(6) A formal due diligence and verification procedure,

of the kind usually adopted for prospectuses, was
adopted, on Mr Vines’ recommendation, for the Part B
Statement.
(7) Pursuant to the DDC planning memorandum,

senior management, including Mr Vines, filled out due
diligence questionnaires and, in due course
“representations letters” which provided express
assurances as to the accuracy and completeness of the
process in which they had engaged including,
relevantly, the profit forecast. [190]
(8) The company’s auditors, when preparing a report

for the Part B Statement, forwarded to Mr Vines on 23
October 1998 a draft including a review of the 1999
profit forecasts, which draft had added to it a
comment: “consider Georges disclosure”. [282]
(9) On 29 October 1998 Mr Vines had a meeting with a

number of other officers, including representatives of
PwC, which made certain observations concerning the
exposure to Hurricane Georges. [287]
(10) His Honour concluded, in a finding that is not contested, that

by the end October Mr Vines knew that PwC was concerned about
the catastrophe component of the profit forecast. [290]”
624 It should be emphasised that the due diligence committee (“DDC”) comprised, apart
from Mr Vines, five non-executive directors, a representative of the company’s solicitors and
a representative of the merchant bank advising the company. It was therefore a committee
not lacking in financial sophistication or access to it. The DDC made it clear “that Mr Vines
had the central executive role in the due diligence process including, relevantly, with respect to
changes in the financial position of the GIO group and the financial forecast”. Moreover,
individual directors were deputed to become familiar with specific components of the profit
forecast being relevantly in the case of reinsurance, Mr Lange, with Mr Vines having to
conduct and support each director in their specific task. Mr Vines described his role as “the
arms and legs of the non-executive directors”.
625 In appraising the extent of Mr Vines’ involvement in the preparation of the Part B
Statement on behalf of the board of GIO, it should be emphasised that he was not only
charged with that intense and time-consuming collection of takeover-related tasks but
retained the extensive role summarised by the trial judge at [32] with its attendant
responsibility as Chief Financial Officer for the financial integrity of the group.
“[32] … Mr Vines' role thereafter put him in closer contact with

financial matters at a divisional level, though in a supervisory role.
Mr Vines agreed in cross-examination that his role as chief
financial officer required him to satisfy himself that such matters as
budgets were properly and reasonably formulated, and that it was
his function to investigate what was reported to him in order to
satisfy himself, through his own inquiry, that it was essentially
valid. As regards financial accounts and reporting, he agreed that as
chief financial officer of a substantial company group, he had the
following responsibilities:
· to review financial information on a consolidated basis;
· to respond to issues raised by management or auditors at the subsidiary level;
· to ensure that the financial statements of the Group as a whole and its divisions reflected
compliance with Australian accounting standards, and to give advice to the management
and the board to ensure that this happened;
· to ensure that accurate information about the company's financial position was prepared
and provided to management and the board of directors;
· to ensure that the information that was supplied to the stock exchange in the investment
community was accurate and meaningful; and
· to intervene if he became aware of some deficiency in a division's financial statements that

was not being dealt with.” [emphasis added]
626 I particularly emphasise the words “if he became aware”. Mr Vines’ responsibilities as
chief financial officer for the group did not call for his intervention by “usurping the
divisional role” [1144] unless he became aware of some deficiencies requiring this. As the
trial judge noted, there had been one or two occasions where matters coming to his notice
which did cause him to intervene. The question remains whether in the present instance he
should have done so, rather than rely on Mr Fox, when it came to assessing the anticipated
loss from Hurricane Georges.
627 The trial judge at [1127] appeared to accept, as I would, that a chief financial officer, as
such, is not subject to a special responsibility in respect of a profit forecast issued by the
company group, as opposed to financial statements and other historical financial
information. The trial judge so concluded, based on ASIC’S expert Mr Hogendijk and Mr
Vines’ own evidence. Nonetheless, as the trial judge concluded at [1128], Mr Vines was given
and assumed special responsibility with respect to the integrity of the profit forecast.
2 Outline of Salient Events with Commentary
628 In what follows, I shall provide an outline and commentary upon the salient events,
their fuller elaboration being found in the reasons of the Chief Justice.
629 The $80 million forecast for the reinsurance division originated from work done by Mr
Schneider in the period from 26 August to 23 September 1998, Hurricane Georges struck in
the period 21 to 28 September 1998 only days after the finalisation of the $80 million profit
forecast. However, the document entitled “First Quarter Highlights”, containing reference to
the anticipated cost of Hurricane Georges at A$25 million, only came to Mr Vines’ attention
on 19 or 20 October 1998. Passing over the other preparatory events, the first contravention
was said to have occurred on 9 November 1998. It, with each subsequent contravention,
directly or indirectly concerned the profit forecast culminating in its inclusion in the Part B
Statement finalised on 8 December 1998. The period thereafter to 4 January 1999 is relevant
only to the seventh contravention. It is the period during which the Part B Statement with
the unaltered profit forecast was issued and at the end of which AMP’s increased offer
closed.
630 The insurance division’s profit for 1998-1999 as forecast was derived from a base of $50
million. To it, a further $30 million was then to be added representing 33% of catastrophe
premiums. That addition was intended to be included as profit.
631 This addition to profit was expressly based upon the assumption that no major
catastrophe occurred; see judgment of the trial judge at [200].
632 The trial judge appears to accept the evidence of Mr Vines in cross-examination that
(a) his involvement in the formulation of the profit forecast was part of his role
as chief financial officer, but
(b) “he would not have proceeded with the forecast if it did not meet with
the approval of the Executive Director”, being Mr Fox; judgment at
[202].
633 An earlier memorandum from both Mr Robertson and Mr Schneider contained words to
the effect “if there are no catastrophes, business profits will be $85 million higher than shown above”
, being the $50 million. It should not therefore be assumed that were a major catastrophe to
occur, this automatically would have cancelled out the whole of the additional $30 million
of profit.
634 Hurricane Georges struck Puerto Rico and the United States in the period 21 to 28
September 1998, only days after the finalisation of the $80 million profit forecast. While GIO
Re had issued reinsurance contracts under which claims would be made in respect of
Hurricane Georges, it did have pre-existing retrocession protection but only against marine
losses. This cover was limited to marine losses up to A$80 million in aggregate. But GIO Re
did not have retrocession protection in respect of property claims at the level they were
likely to be made; judgment at [209].
635 It is not in dispute that maintenance of the profit forecast depended upon the outcome of
the following interrelated and overlapping elements, given there was only a $25 million
provision for property losses in relation to Hurricane Georges. I set these out below:
(a) the size of GIO exposure to Hurricane Georges and the anticipated loss
thereof, beyond the $25 million provision; this I shall describe as “ the excess loss
”;
(b) GIO’s ability to preserve the estimated profit by a retrocession

policy covering what it anticipated to be the excess loss, it being
essential for its effectiveness to preserve the estimated profit that it
be accepted by PwC as GIO’s auditor as effective for this purpose; I
shall refer to cover satisfying this requirement as “effective
retrocession cover”;
(c) GIO’s ability, assuming management’s willingness to do so, to

release reserves from over-provision or redundancy in reserves, in
its professional indemnity cover (“MIPI”) by a proper unders and
overs process acceptable to PwC as auditor; this I shall refer to as “the
MIPI redundancy”. It was not in issue that management would have
been willing to make such a release.
636 As the Chief Justice observed in his judgment, the significance of these elements turn on
what Mr Vines knew, or in the case of those contraventions so pleaded (fourth, fifth and
sixth contraventions), ought to have known. It also turns upon the actual state of affairs.
Here one must recognise that the state of affairs changed over time and Mr Vines’ position
must be examined accordingly.
637 Mr Vines at no stage throughout the relevant period actually anticipated, or was ever
aware, that the excess loss would exceed a sum of the order of $60-$65 million from
Hurricane Georges. This was the estimate of Mr Fox. It was the subject of a catastrophe
claims spreadsheet forwarded to Mr Vines on 11 November 1998. That document showed
undiscounted claims for Hurricane Georges as at 31 October 1998 to be $69.06 million, an
increase of $44 million from 30 September 1998, the document having been created in the
first week of November.
638 The trial judge accepted Mr Vines’ evidence that had he been told in the period 9
through 13 November that Hurricane Georges’ losses were expected to be $100 million on
the basis of a contract by contract analysis that statement would have prompted action, and
he would not have agreed to the profit forecast going forward (Judgment [616]. His reasons
for accepting that evidence are to be found at [617] – [619]).
639 The trial judge also accepted that on 7 December 1998 Mr Vines still did not have actual
knowledge that the $60-$65 million estimate was wrong; judgment at [915]. Mr Vines’
understanding and belief was that this estimate was correct, based on what Mr Fox had
advised. That advice was repeated as recently as a meeting of 7 December 1998 with the
representatives of PwC and again accepted by Mr Vines. This was described as the “final sign-
off meeting” on the profit forecast for incorporation in the Part B Statement. As found by the
trial judge, the Hurricane Georges’ register for 30 November 1998 still recorded property
claims as $59.7 million. It was according to the Georges’ register of 4 December 1998 that the
total gross claims for Hurricane Georges were $89.6 million on that day though it was the
net loss figure which is significant; it stood at $72 million net [548]. The loss figures
subsequently rose to $91.9 million gross and $74 million net by 7 December 1998; judgment
[548]. There was a further increase as at 8 December (total claims $92.4 million [549]), and as
at 16 December (when losses had increased considerably according to Mr Fricke). That
strongly suggests that the register did not show significant change between the end of
October 1998 and the end of November 1998 though that position changed by 4 December
1998. But Mr Vines was not aware of this then or throughout the period to 4 January 1999.
The question is, should he have been? That is significant for all contraventions, but
particularly for the three contraventions (fourth, fifth and sixth) said to have occurred on 8
December 1998.
640 Mr Vines from 3 November 1998 to 1 December 1998 but not beyond that, believed that
cover for $100 million taken out with Am Re would provide effective retrocession cover and,
here subject in his mind to some uncertainty, would be acceptable to PwC as GIO’s auditors
to protect the profit forecast. From 1 December 1998 Mr Vines was on notice that PwC would
probably not accept retrocession cover as being effective in that sense and by 6 December
1998 was told again emphatically.
641 Mr Vines justifiably believed throughout that there was redundancy in reserves for MIPI
claims (MIPI redundancy), estimated by Mr Vines at between $30 million to $35 million.
642 That MIPI redundancy was subsequently confirmed at that figure by PwC at the
beginning of December 1998, subject only to the formality of management concurring in the
release of the redundancy amount from reserves, so as to be available to offset any excess
loss up to an equivalent amount.
643 There was a further tolerance under adopted guidelines of up to 10% in the profit
forecast by reason of the materiality threshold applicable to it; a variance below 5% in the
after-tax forecast profit being presumptively immaterial and above 10% being presumptively
material, in each case subject to evidence or convincing argument to the contrary (Blue, 236).
644 Mr Vines estimate of a MIPI redundancy of $30 million to $35 million was based on his
“unders and overs” analysis that was accepted by PwC in signing off on the Part B
Statement. It was maintained throughout the relevant period up to and beyond the Part B
Statement. Mr Vines’ belief was that, if the Am Re agreement were ineffective or not
accepted by the auditor to be effective, the MIPI redundancy amount remained available to
the extent of $35 million. Hence, based on Mr Vines’ acceptance of Mr Fox’s estimate of the
ultimate loss from Hurricane Georges at approximately $65 million, he believed that the
profit forecast could still be maintained.
645 I have explained earlier the importance of maintaining the profit forecast if it could be
properly justified, for GIO shareholders. I consider that for them, the risk of being locked in
as minority shareholders was a lesser one compared to the risk of being forced to sell their
shares too cheaply during a hostile bid. That explains Mr Vines and the DDC’s desire to
preserve the perceived benefit to shareholders of the favourable profit forecast, especially
when faced with a hostile bid, so long as it could be properly justified. A reasonable person
in Mr Vines’ position could have been expected to appreciate this in weighing risk and
benefit for shareholders.
646 The trial judge did not impugn the reasonableness of Mr Vines’ belief as such; namely
that the MIPI redundancy was available in an amount of $35 million as an offset against the
excess loss. What the trial judge did impugn was Mr Vines’ failure to advise the Due
Diligence Committee of the basis for that belief. This was both
(a) when the Am Re retrocession agreement was still thought to be effective (in
the sense of being acceptable to PwC as effective to protect the profit forecast)
(second and third contraventions) and
(b) when the Am Re cover was no longer thought to be effective

(fourth, fifth and sixth contraventions and implicitly the seventh
contravention) rendering, according to the trial judge, achievement
of the proper forecast improbable.
647 The trial judge did not accept that these contraventions were obviated by the Due
Diligence Committee being aware of
(a) the Am Re cover;
(b) the MIPI redundancy; and
(c) that only the MIPI redundancy could after 1 December 1998 be
relied upon as the auditors would not accept the Am Re
retrocession cover was effective to protect the profit forecast.
Indeed the Part B Statement made (a), (b) and (c) perfectly clear to
GIO shareholders, as I later show.
648 Essentially the trial judge’s conclusion is that from 7 December 1998 the profit forecast
was tight and highly vulnerable. His Honour concluded that this carried the consequence
that, though Mr Vines could rely on Mr Fox’s estimate of the loss from Hurricane Georges
up to 7 December 1998, Mr Vines could not do so after that, and was required to investigate
that for himself.
649 The seventh contravention deals with the period after the Part B Statement as finalised
(8 December 1998) up to 4 January 1999 when the AMP’s takeover offer closed. It is based on
the finding that Mr Vines “failed after the date of publication of the Part B statement and before
the end of the period in which the takeover offer remained open to have any, or any adequate, regard
to the available evidence concerning whether it was likely that GIO Re would achieve the $80M
profit forecast”
650 In the foregoing summation, I have not singled out the specific events of the first, second
and third contraventions which occurred respectively on 9 November 1998 (profit forecast
made at a board meeting), 17 November 1998 (report to the Board and consequent media
release) and 22 November 1998 (email to members of the DDC). Each of these events of
November 1998 are dealt with later under the heading “Alleged Contraventions”.
651 I will refer briefly to what is described by the Chief Justice as a single course of conduct
on 8 December 1998 constituted by a series of discrete acts in their connected sequence:
(a) execution by Mr Vines of the document headed “Management Sign-off” for

purposes of inclusion in the Part B Statement (the subject of the fourth
contravention);
(b) advice to the DDC for purposes of Board approval of the Part B
Statement (subject of the fifth contravention); and
(c) advice to PwC for the purposes of that company’s report to be

included in the Part B Statement (the subject of the sixth
contravention).
652 What is important as bearing directly upon the events of 8 December 1998 is that in a
series of meetings on 1st, 6th and 7th December 1998 PwC made clear not only to Mr Vines
but also to the DDC, in the latter case “in words of one syllable” that PwC would not accept the
Am Re agreement as reinsurance (judgment [833]). Thus insofar as it is said that Mr Vines
should have informed the DDC of that position taken by PwC, it is clear that before the Part
B Statement was finalised, the DDC as of 6 December 1998 were emphatically informed of
that salient fact.
653 I do not consider that the DDC needed further reminder from Mr Vines of the obvious.
The DDC were a sophisticated group, with financial advisers and auditor present. It is clear
that in the DDC the focus by then shifted from use of the retrocession contract to preserve
the profit forecast, to use of the MIPI redundancy to do so. This is recorded by the trial judge
at [833] quoted below:
“[833] The minutes noted that a question had arisen as to the

accounting treatment of the retrocession contract, as to whether the
premium for that contract should be brought into account in the
1999 accounting year or in a subsequent year. This was apparently
the first time that the committee was told there were doubts about
the American Re contract. It was noted that PwC had requested
GIO management sign-offs confirming the availability of a
redundant provision in MIPI, and Mr Vines had advised that he
was confident that these sign-offs would be forthcoming. Mr
McClintock gave evidence (T 1628) that one of the PwC
representatives said ‘in words of one syllable that we wouldn't
accept it [the American Re agreement] from the point of view of
being reinsurance’, and that one of the other members of the DDC,
Marina Darling, said ‘well, why did we enter into it if it's not going
to be effective?’ Later, Mr McClintock observed that PwC from time
to time made inquiries of GIO's staff about claims notifications for
Hurricane Georges (T 1638).”
654 PwC’s representatives on 7 December 1998, met Mr Vines, Mr Fox and Mr Robertson for
a “final sign-off meeting”. Mr Vines was there for part but not the whole of the meeting. At
that meeting PwC gave its final opinion that the retrocession agreement would not work
(judgment [750]) having already foreshadowed this on 1 December and told the DDC
emphatically so on 6 December. Importantly, Mr Fox reiterated his estimate to Mr Vines of
the ultimate exposure as between $60 million - $65 million. The trial judge found Mr Vines
accepted Mr Fox’s estimate of that ultimate exposure (judgment [872]).
655 At [873] the trial judge noted Mr Vines’ evidence that had he known of the 39% increase
in the Status of Register Events concerning Hurricane Georges over the month of
November, he would have required proof of Mr Fox’s figure of $60 million - $65 million.
The evidence is in fact that over the month of November there was no significant increase
recorded on the Register. That recorded increase took place rather in the first week of
December. So the trial judge found at [900], quoted below:
“Hurricane Georges register for 30 November 1998 recorded

property claims as $59.7m (PTB 2881). According to the Georges
register of 4 December (PTB 2496) the total gross claims for
Hurricane Georges were $89.7m on that day, and the figure had
risen to $91.9m by 7 December (PTB 2499).”
656 The trial judge concluded that on 7 December Mr Vines did not have actual knowledge
that the $60 million - $65 million estimate was wrong (judgment [915]). I do not consider that
conclusion is altered by the trial judge’s acceptance that
(a) it must have been apparent to Mr Vines on 7 December 1998 that Mr Fox
“may” have still been proceeding on the basis that the American Re agreement
could be relied upon for accounting purposes, and
(b) Mr Fox would probably not have investigated alternative means

of maintaining the profit forecast, namely via the MIPI redundancy;
judgment [916].
657 I have referred earlier to the shift from reliance on the Am Re retrocession agreement to
reliance on the MIPI redundancy. It is important to emphasise that as from 3 December
1998, the MIPI redundancy was actually verified at $30 million by Mr Latham, an actuary of
PwC. That MIPI redundancy amount was not disputed by ASIC and was accepted by the
trial judge. Moreover at the final DDC meeting of 8 December 1998 Mr McClintock of PwC
produced his own unders and overs schedule for the group and observed with reference to
that unders and overs schedule that the profit forecast of $250 million was justified.
658 It is important to record that PwC Securities actually gave a report in the Part B
Statement which the trial judge quoted concerning Hurricane Georges at [949]. This report,
to Mr Vines’ knowledge, did fully reveal to shareholders the actual basis for the profit
forecast. The report in particular made clear the following:
(a) to 30 November 1998, PwC records its understanding that claim notifications
for Hurricane Georges “ have increased to 60-65 million and that the ultimate
expected loss falls within this range ” suggesting that “ the increase in notifications
with respect to Hurricane Georges suggests that the 33% profit assumption used for the
catastrophe portfolio is no longer appropriate ”;
(b) notwithstanding management’s quoted view that losses in

excess of $15 million up to $55 million would be protected by the
Am Re retrocession policy, the auditors’ review of the contract has “l
ed us to conclude that … whilst the policy will allow GIO to claim for
Hurricane Georges, additional premiums payable under the policy for
claims experience means that no benefit from the policy can be recognised
in the forecast”,
(c) the auditors quote management’s view that “positive development

in MIPI contracts in the period to date in 1999 to demonstrate that no
adjustment to the forecast is required”, the auditors concluding that “po
sitive experience in this account since 1 July 1998 would support
management’s view that the forecast is still achievable”.
659 The significance I attach to that auditor’s report within the Part B Statement supporting
the profit forecast is that it makes clear to all GIO shareholders deciding whether or not to
accept the AMP offer that no reliance could be placed on the auditors accepting the efficacy
of the retrocession agreement but that reliance could be placed on the MIPI redundancy, to
maintain the profit forecast. This was so, always provided there was no material increase in
Hurricane Georges’ claim notifications beyond $60-65 million. This throws into relief what
was now the only critical question, discussed under the Fourth Contravention below. Was
Mr Vines on 8 December 1998 in breach of the statutory standard of care and diligence by
continuing to accept Mr Fox’s estimate of Hurricane Georges’ claim notifications at $60-65
million, without himself making a direct examination of the facts such as by checking the
Hurricane Georges’ Claims Register for himself?
660 Finally, as regards the events after 8 December 1998 to 4 January 1999 relevant to the
seventh contravention, it is clear that Mr Fricke (who maintained the Claims Register) did
inform Mr Fox but not it appears Mr Vines as to the increase in Hurricane Georges’ losses
on property claims. This is clear from Mr Fricke’s email to Mr Fox on 17 December 1998
noting that further claims had been reported and that his “market losses” assessment showed
GIO Re’s share of the market losses for Hurricane Georges was three times the average of all
events listed in his report (judgment [550]). There is also his further email of 23 December
1999 to Mr Fox stating that “unfortunately, Georges is stubbornly moving up” (judgment [550]).
3 Summing Up
661 I would particularly emphasise the following by way of summing up:
(a) Mr Vines had a supervisory rather than operational role, insofar as the
reinsurance division was concerned;
(b) Mr Vines was placed in a position where he not only had to

carry out his ongoing supervisory obligations as Chief Financial
Officer in relation to the GIO group of companies as a whole but
had specific, onerous and pressing duties related to the Part B
Statement and the integrity of its financial information. Those
duties were carried out under considerable pressure with frequent
meetings;
(c) This clearly placed practical limits on the extent to which it was
appropriate or feasible for Mr Vines to intervene at the divisional
level, despite that he had on occasion in the past done so where he
considered no doubt exceptional the circumstances warranted this;
(d) The integrity of the profit forecast was an important additional

responsibility that he had undertaken. In the circumstances I have
described, to be able to carry it out he necessarily had to rely upon
financial information obtained from the relevant divisions; in
particular he necessarily relied upon information concerning
Hurricane Georges from the reinsurance division and its chief
executive Mr Fox. Mr Fox had operational responsibility in
contrast to Mr Vines’ supervisory responsibility. Mr Vines
specifically relied on Mr Fox as to the quantum of claims and
consequently the likely ultimate loss from Hurricane Georges;
(e) The trial judge was satisfied that at no time did Mr Vines have
actual knowledge that the likely loss from Hurricane Georges
would exceed $65 million. The trial judge was satisfied that Mr
Vines was not aware of Mr Schneider’s view that it was “a $100
million event”. Nor was he aware that for the first time on 4
December 1998 Hurricane Georges’ Register recorded total claims
at above $65 million, namely $89.6 million ($72 million net) and as
of 7 December recorded total claims at $91.9 million ($74 million
net) and as of 8 December recorded total claims at $92.4 million
with subsequent increases as claims moved up (judgment [548],
[549], [527] and [550];
(f) He knew by 1 December 1998 that the Am Re retrocession

agreement was likely to prove unacceptable to PwC and he with the
DDC received subsequent emphatic confirmation of PwC’s
position on 6 December 1998 and again on 7 December 1999 at the
sign-off meeting.
(g) The emphasis had by then shifted, as the DDC knew, from
reliance upon an effective retrocession policy to reliance upon the
MIPI redundancy, accepted by the auditor as available in the
amount of $35 million, and so found as properly available to
support the profit forecast to that amount, there being a tolerance
for materiality of up to 10% (see Blue, 236);
(h) This position was fully revealed in the auditors’ report in the
Part B Statement accompanying the profit forecast (though still on
the basis of a loss of $65 million from Hurricane Georges) as would
have been anticipated by Mr Vines and the DDC;
(i) The critical consideration in terms of whether the profit forecast

could properly be supported became after 1 December 1998 not the
retrocession policy which was unavailable in any effective sense
nor the MIPI redundancy which was accepted as available in the
amount of $35 million but rather the justification for Mr Vines
continuing to accept Mr Fox’s continued and unaltered assurance
as to the $65 million anticipated, without making a further inquiry
himself;
(j) After the Part B Statement was finalised on 8 December 1998,

itself understood by all as containing the most definitive statement
of the profit forecast, and up to 4 January 1999, the focus turns to
the continuous disclosure obligations. The question is then
whether Mr Vines should have given directions to ensure that
monitoring arrangements (of Hurricane Georges’ claims) were
continuing at the divisional level and the results brought forward to
the appropriate senior corporate officer so that an assessment
could be made about further disclosure on the market. Mr Vines’
submission, rejected by the trial judge, is that such monitoring
arrangements were continuing at the divisional level; Mr Fricke
reported to Mr Fox as the appropriate senior corporate officer.
662 I turn now to each specific contravention in their chronological order.
XXI THE CONTRAVENTIONS

1 The First Contravention: The profit forecast of 9 November 1998
663 I set out a description of the contravention as found by the trial judge in greater detail
than the later ones, as it sets the scene for what follows.
664 On 9 November 1998 at a meeting of the directors of GIO, the Appellant tabled a report
entitled “Quarterly Results ended 30 September 1998”). The report set out the results for the
GIO group including a distinct section “Reinsurance”. In that section the following
statement appeared:
“Claims arising out of Hurricane Georges have been assumed to be

$25 million based on our average historical market share of such
catastrophe. Management remains confident the full year forecast
business profit of $80 million can be met.”
665 The pleading was as follows:
“[114] The 1st Defendant [Mr Vines] advised the board of GIO
Australia as pleaded in para 64 hereof that the management of GIO
Re remained confident that the $80m profit forecast could be met,
knowing full well that:

should be reduced;

$100m type event;
(c) PwC Securities had warned that GIO’s exposure to

Hurricane Georges could be as high as $178m, as
pleaded in para 27 hereof; and
(d) He had not sought to obtain external advice as to whether the

views of the 2nd Defendant in relation to the $80m profit forecast,
as pleaded in para 31 hereof, were reasonable and ought to be
preferred to the views of Mr Schneider, as pleaded in para 21
hereof.”
666 The cross-reference to paragraphs from the Statement of Claim and the associated
Particulars are quoted below:
“64. On 9 November 1998 at a meeting of the Directors of GIO
Australia, the First Defendant tabled a paper entitled “Quarterly
Results Ended 30 September 1998”, which stated, inter alia, that for
that quarter:
(a) GIO Re’s catastrophe book produced a profit

of $7 million against a budget of $20 million;
(b) the below budget result for the catastrophe

book was caused by the very high level of events
in the quarter, including Hurricane Georges;
(c) claims arising out of Hurricane Georges were

assumed to be $25 million based on GIO Re’s
average historical market share of such
catastrophes; and
(d) management remained confident the full year forecast

business profit of $80 million could be met.
Particulars
Board papers headed ‘Quarterly Results ended 30 September
1998’.
27. On or about 23 October 1998 the First Defendant and the Second
Defendant received a draft letter from PwC addressed to the board
of directors of GIO Australia (but not sent by PwC) which, inter
alia, stated that:
(a) a reserve of $25 million had been established

for GIO Re’s exposure to Hurricane Georges on
the basis of an estimated market share of 0.6% of
the current market loss estimate of US$2.556
billion;
(b) if GIO Re’s market share of Hurricane

Georges’ losses were 0.2%, the loss to GIO Re
would be $9 million and $178 million
respectively, before reinstatement premiums;
and
(c) GIO Re’s exposure could be significantly more than the

$25 million currently reserved.
Particulars
The draft letter was delivered by PwC at a meeting between
Mr Patrick Murray of PwC and the First Defendant.
31. On or about 4 November 1998 the Second Defendant [Mr

Robertson] informed the First Defendant [Mr Vines] that:
(a) nothing that had occurred in the first quarter
of the 1999 financial year persuaded him that the
forecast ought to be altered and that the forecast
overall business profit remained reasonable; and
(b) if Hurricane Georges should prove much more expensive

than the $25 million allowed, it would affect the attainment
of the $80 million profit forecast.
Particulars
Memorandum from the Second Defendant to the First
Defendant dated 4 November 1998.
21. On or about 19 October 1998 Mr Schneider, together with Mr

Driessen, prepared a report summarizing GIO Re’s results for the
period 1 July 1998 to 30 September 1998 (‘ the First Quarter
Highlights ’).
Particulars
GIO Reinsurance First Quarter 1999 Result Highlights
prepared by Mr Schneider and Mr Driessen dated 19 October
1998.”
667 It will be apparent from the above pleadings that the essence of the contravention is not
a failure by Mr Vines to make enquiry. Nor is it what ought to have been known to Mr
Vines. Rather it concerns the making of representations “well knowing” the matters specified.
668 In his Honesty Judgment the trial judge summarised his reasoning as follows:
“On 9 November 1998, Mr Vines should not have given the board
an unqualified assertion of management’s confidence that the GIO
Re profit forecast could be met. His statement to the board was
incomplete and misleading, in the absence of disclosure that a
problem had arisen out of management disagreement leading him
to rely on the proposed retrocession agreement and his unders and
overs schedule to protect the forecast [1234]-[1237].”
669 The relevant declaration made by the trial judge was as follows:

relation to GIO Australia Holdings Limited, by his provision to the
Board, as an officer of that corporation, of an unqualified assertion
of management’s confidence that the GIO Re profit forecast could
be met on 9 November 1998, a statement which was incomplete and
misleading in the absence of disclosure that a problem had arisen
out of management disagreement leading him to rely on the
proposed retrocession agreement and his unders and overs
schedule to protect the forecast.”
670 I agree with the conclusion reached by the Chief Justice, that the appeal against this
finding of contravention should be allowed. I agree with the reasons he states for so
concluding at [241] to [249]. However, I should make clear my own view on one particular
matter.
671 The Chief Justice at [248] gives as an additional reason for his conclusion that no conduct
based on the profit forecast was likely to occur, in particular via the issuance of the Part B
Statement. The latter was not issued until some four weeks later. However, even were the
timing closer to the date that the profit forecast was to be issued, I would not consider that
there was any requirement to disclose the existence of divergent views within management
when the predominant view was that the $80m profit forecast could be met, being thought
to be protected on two bases; the efficacy of the retrocession agreement and the unders and
overs schedule.
672 I have earlier indicated why I consider that the document that mattered most to GIO
shareholders in deciding whether or not to accept the AMP offer was the Part B Statement
still to be sent. It was not the earlier quarterly results for the period ending 30 September
1998 or, as I explain, the later press release of 17 November 1998. The Part B Statement was
the definitive statement of the profit forecast, and was likely to be so viewed by the market.
This is relevant to the second contravention to which I now turn.
2 The Second Contravention: The report and media release of 17 November

1998.
673 The description of the second contravention is fully set out in the Chief Justice’s
judgment at [280] to [296] to which further reference should be made. ASIC made clear on
appeal that it was no longer relying upon para (b) of the pleading at para (113), namely that
Mr Vines well knew that “an analysis of GIO Re’s reinsurance contracts had led to an estimate
that Hurricane Georges would be a $100m type event”.
674 ASIC accepted that Mr Vines was not aware of that matter, as found by the trial judge at
[756].
675 There was a statement made in a media release issued by the Board of GIO on 17
November 1998 with the concurrence of Mr Vines. It was made in the middle of a hostile
takeover battle. The statement read: “GIO Re’s insurance business achieved a sound profit despite
exposure to events such as the Swiss Air crash and Hurricane Georges.
676 In his Honesty Judgment the trial judge summarised his findings as follows:
“On 17 November 1998, Mr Vines failed to disclose to

the board, before the media release of that date was
approved and issued, that
- the October results had been supported by the

American Re agreement;
- the American Re agreement had not been approved

by APRA or the auditors;
- it was not certain that the American Re agreement
could be accounted for in a way that would protect the
profit forecast and the first four months' profit;
- if the American Re agreement were effective, it would

follow that claims recoveries from American Re in the
1999 year would have to be repaid in premiums in later
years; and
- he believed that there would be sufficient redundancy in his

unders and overs analysis to protect the forecast (August judgment
at [1245]-[1246]).”
677 The declaration of contravention relating to the advice and Media Release of 17
November 1998 is in the following terms:

officer of that corporation, on 17 November 1998 to disclose to the
Board before the media release of that date was approved and
issued the following matters:
(i) that the October results had been supported

by the American Re agreement;
(ii) that the American Re agreement had not

been approved by APRA or the auditors;
(iii) that it was not certain that the American Re

agreement could be accounted for in a way that
would protect the profit forecast and the first
four months profit;
(iv) that if the American Re agreement were

effective, it would follow that claims recoveries
from American Re in the 1999 year would have
to be repaid in premiums in later years; and
(v) that he believed that there would be sufficient

redundancy in his unders and overs analysis to protect the
forecast.”
678 The Chief Justice concluded that the appeal with respect to this contravention should be
allowed.
679 I agree with the Chief Justice and for the reasons he gives that there was no departure
from the pleaded case such as would justify an appeal succeeding on that basis. However I
also agree that the appeal should be allowed in relation to this second contravention. I set
out my own reasons below for considering this appeal should be upheld.
680 This second contravention is again based on Mr Vines “well knowing” certain specified
matters. The contravention is therefore not based upon what Mr Vines ought to have
known.
681 The trial judge records that Mr Vines did clearly know that Mr Schneider had warned
that the profit forecast should be reduced, as this was in the First Quarter Highlights;
judgment [1244]. However, the trial judge also concluded in Mr Vines’ favour that he was not
aware that Mr Schneider had warned that “an analysis of the insurance contract had led to an
estimate that Hurricane Georges would be a $100 million type event”; judgment [1244].
682 The third and last matter of knowledge referred to by the trial judge at [1244] is that “the
October results had shown that GIO Re would suffer the loss of $29.7 million in October 1998 in the
absence of retrocession cover to limit total claims resulting from Hurricane Georges payable by GIO
Re to $25m”.
683 The finding of knowledge that Mr Schneider had warned that the profit forecast should
be reduced was not mentioned by the trial judge in [1246] of his judgment as something
either giving rise, to or contributing to, the contravention. The trial judge had earlier found
at [241] and [280] that the warning was unreasoned and speculative. Moreover, the trial
judge accepted Mr Vines’ evidence that, when he was shown the October management
accounts on 11 November 1998, he formed the belief that there was no longer any
disagreement between Mr Robertson and Mr Schneider; at [488] and [1210].
684 That leaves the only non-disclosure to the Board of a matter within the actual
knowledge of Mr Vines, the matters pertaining to the American Re Agreement. This is
referred to above in the Honesty Judgment and again in the declaration of contravention.
685 The difficulty with holding that there was an absence of the necessary degree of care
and diligence by Mr Vines in these circumstances is that the board meeting which took
place on 11 November 1998 had as one of its purposes to consider the October results.
Moreover, those October management accounts actually recorded the retrocession cover.
The question then becomes why the Board needed to be told something which was self-
evident from the accounts, namely that there would be a loss but for the retrocession cover
recorded in the accounts. I do not consider that Mr Vines’ failure to state the obvious to the
DDC, a financially sophisticated group, breached Mr Vines’ statutory standard of care. Mr
Vines’ reasons for confidence in the Am Re agreement did have a reasonable basis at that
time. He had been told by Mr Guy Carpenter the insurance broker, that two other reputable
insurers had taken out the kind of retrocession cover in question and which had been
approved by KPMG and Arthur Anderson (judgment [578]). As found by the trial judge, Mr
Vines was told by Mr Fox, whom Mr Vines was reasonably entitled to believe was
experienced in the field, that retrocession of that kind was available (judgment [572]). Mr
Vines was not himself an expert on retrocession agreements and the technicalities of their
accounting treatment, despite his financial expertise. Nor did he hold himself out to be such
an expert. I would not myself criticise Mr Vines too strongly for failing to appreciate their
ineffectiveness in accounting terms, remembering this was as of 1998. The HIH Royal
Commission came only later, highlighting their artificiality; in any event they ceased to be
relevant.
686 The trial judge found that Mr Vines believed that the Am Re retrocession agreement
would be effective.
“[727] … [M]y view is that, while Mr Vines received some

encouragement from the opinions of Mr Fox and Mr Grove that
contracts of the kind that had been entered into on 13 November
would succeed as reinsurance contracts, there was an element of
uncertainty in his mind, especially as to whether PwC would, as
GIO's auditors, allow the proposed accounting treatment of the
arrangement. It seems to me probable that he adopted the strategy
that he would present PwC with a signed slip reinforced by
opinions from other auditors, so as to create pressure at PwC to
accept the arrangement, believing that if they did not, American Re
would unwind the contract. Unfortunately for him, the strategy did
not work because KPMG would not approve the arrangement.”
687 I agree with the Chief Justice’s qualification concerning that finding as to pressure at
[419] quoted below:
“[419] This cross-examination can and does support his Honour’s

conclusion that Mr Vines manifested uncertainty about the likely
accounting treatment of the Am Re agreement. It cannot, however,
support a finding of a deliberate strategy to put pressure on PwC.”
688 Even though the Am Re retrocession agreement was not finally accepted by the auditors
as effective, Mr Vines’ unders and overs analysis led him to believe that the redundancy in
MIPI by itself would suffice to underpin the profit forecast. As we know, the analysis made
by PwC of the MIPI redundancy confirmed Mr Vines’ view was correct, insofar as it was of
profit support in the amount of $30-$35 million. (There is at this point of time, no finding
that Mr Vines should have looked behind Mr Fox’s estimate of $60-$65 million from
Hurricane Georges.)
689 Against this it is said that notwithstanding that there would be sufficient redundancy in
the unders and overs analysis to protect the forecast were the Am Re agreement not
accepted by the auditor or, contrary to Mr Vines’ genuine belief, ineffective for its intended
purpose, nonetheless Mr Vines should have disclosed not only the uncertainty regarding the
Am Re agreement but also, to the extent relied upon as justification for not disclosing that
uncertainty should have expressly disclosed reliance upon the MIPI redundancy by way of
the unders and overs analysis; judgment [1246].
690 These were extraordinarily pressured times, when the company was resisting a hostile
takeover offer and when Mr Vines himself had not only his ordinary duties as chief financial
officer but also the specific additional duties under the stress of that takeover offer. In those
circumstances, while it may have been better in hindsight for Mr Vines to have stated the
matters in question to the board so bringing to bear his authority as Chief Financial Officer,
the fact remains that
(a) the board and DDC was fully cognisant of the Am Re retrocession
agreement;
(b) Mr Vines was not in doubt as to the efficacy of the retrocession
agreement but had only manifested some uncertainty as to whether
or not PwC as auditor would accept it;
(c) he had a reasonable basis for his confidence in the Am Re

agreement based on the assurances he had received; and
(d) he believed on strong grounds that the unders and

overs offered sufficient underpinning should the
agreement not eventually satisfy PwC; that was later
confirmed by PwC.
a Conclusion
691 I do not consider in relation to the press release of 17 November 1998 concerning the
October quarterly profit, that a reasonable person in the position of Mr Vines would, in
relation to a company in the circumstances of GIO, be failing to exercise the necessary
degree of care and diligence by omitting to make the additional disclosure in question. I do
not consider that the press release, itself secondary in importance to the later anticipated
Part B Statement, justifies any different conclusion, despite it being a communication to
shareholders but prior to the Part B Statement.
3 The Third Contravention: The email of 22 November 1998.
692 This contravention occurred only five days later. Again the relevant background to this
contravention is sufficiently set out by the Chief Justice at [319] and following. So too is the
relevant pleading relating to this contravention. It is convenient however that I set out the
summarised findings in relation to this contravention from the Honesty Judgment as well as
the two declarations relating to this contravention.
“Mr Vines' e-mail to the DDC dated 22 November 1998

failed to disclose that the October results assumed that
the American Re agreement would qualify as
reinsurance and would effectively protect the results
from adverse claims movement, and failed to disclose
the doubt that existed about that matter. It failed to
disclose Mr Vines' belief that if the American Re
agreement were ineffective, redundancies would be
available to compensate for it. The e-mail of 22
November was materially misleading in those respects
(August judgment at [1247]-[1252]).
Mr Vines should not have endorsed the GIO Re profit forecast in

his report to the DDC on 22 November, by reiterating the substance
of Mr Robertson's views in his 4 November memorandum, without
which had invalidated Mr Robertson's view as to the adequacy of
the $25 million reserve. The report was materially misleading in
that respect (August judgment at [1254]).”
693 Two declarations relating to this contravention based on the formulation in the Honesty
Judgment above, were made as follows:
“10 The First Defendant contravened section 232(4) of

the Corporations Law as carried over into the Corporati
ons Act 2001 (Cth) in relation to GIO Australia
Holdings Limited by his failure, as an officer of that
corporation to disclose in his email to the DDC sent 22
November 1998 that the October results assumed that
the American Re agreement would qualify as
reinsurance and would effectively protect the results
from adverse claims movement, his failure to disclose
the doubt that existed about that matters, and his
failure to disclose his own belief that if the American
Re agreement were ineffective, redundancies would be
available to compensate for it, which rendered the
email materially misleading in those respects.
11 The First Defendant contravened section 232(4) of the Corporatio

relation to GIO Australia Holdings Limited in that he endorsed, an
officer of that corporation, the GIO Re profit forecast in his report
to the DDC on 22 November 1998 by reiterating the substance of Mr
Robertson’s views in his 4 November memorandum, without
which had invalidated Mr Robertson’s view as to the adequacy of
the $25 million reserve, which meant that the report was materially
misleading in that respect.”
694 Again the focus is here upon the Am Re agreement, in circumstances where the relevant
email concluded with the statement that Mr Vines regarded the forecast group operating
profit to be “reasonable”. That email of 22 November was prepared for a meeting of the DDC
held on 23 November 1998.
695 Again the complaint is based upon Mr Vines’ actual knowledge. One may disregard the
matters pleaded in para [117(a)] insofar as they do not deal with Am Re.
696 I agree with the Chief Justice that, as in the case of the first contravention, the conduct in
the third contravention is far removed from the interest of GIO shareholders in need of
protection, being still some two weeks before the Part B Statement would be issued.
697 But to my mind a sufficient further reason for not finding a contravention to be here
made out is that Mr Vines was not in breach of the statutory standard of care in the
circumstances in failing fully to state to the DDC the underpinning or true basis for the
evolving position regarding the projected profit. The DDC well knew the position. And Mr
Vines had a genuine belief, reasonably based, that even if the Am Re agreement proved not
to be effective, contrary to his expectation that it would be, the MIPI redundancy still
underpinned the profit forecast. I have set out my reasons under the second contravention
for so concluding.
698 Moreover, as the Chief Justice points out, there is a relevant passage in the email of 22
November 1998 which begins with the following, “it is always worth bearing in mind the
inescapable fact that the reserves from outstanding claims of $2.2 billion totally dominate any
discussion on the reported profits of the Inwards Reinsurance Division for any given reporting period
”.
699 I also agree with the Chief Justice that it is irrelevant to note that the email concluded
with this statement, “the forecast includes elements that are conservative and elements that are less
conservative. On balance I believe the forecast pre-tax operating profit is reasonable …”.
700 Accordingly, and agreeing also in the reasons stated by the Chief Justice, I conclude that
the appeal in this regard should be allowed.
4 The Fourth Contravention: The management sign-off.
701 This is the first of three contraventions said to have occurred on 8 December 1998. The
management sign-off is described by the trial judge in these terms:
“[925] Mr Vines completed a ‘Management Sign-Off’, dated 8

December 1998. His document certified to a review of the due
diligence questionnaires completed by all senior management, as
well as the statement of issues identified in responses to those
questionnaires. He said that to the best of his knowledge,
were true and correct ‘in respect of that part of the GIO Group
business and affairs for which [he had] responsibility’. There was
no definition of the part of the business for which Mr Vines had
responsibility. I take it, however, that his area of responsibility was
a large one, because his certification related to the answers to the
questionnaires given by all senior management, and he was, under
the planning memorandum, in a position of central responsibility,
as I have explained. As in the case of the documents signed by Mr
Robertson and Mr Fox, Mr Vines' document certified that he had
drawn the attention of the DDC to any other material matters
occurring since 1 July 1998, and said he was not aware of anything
which he had not drawn to the attention of the DDC.”
The other details of the contravention can be found in the judgment of the
Chief Justice at [421] and following.
702 Here, unlike the previous contraventions, the pleaded contravention is for the first time
predicated upon what Mr Vines “knew or ought to have known ”.
703 Without reference to the extensive pleading, the contravention found by the trial judge
is sufficiently summarised in the Honesty Judgment as follows, with the declaration being
likewise as quoted below.
“Before or in the course of giving his management sign-off on 8

December 1998, Mr Vines failed to ensure that the DDC was
properly informed of all material aspects of the maintenance of the
reinsurance profit forecast. He failed to inform the DDC that the
achievement of the $ 80 million profit forecast was improbable,
given the unavailability of the American Re agreement, unless the
unders and overs analysis that had been considered at the PwC
meeting and the estimate of Hurricane Georges liability made by
Mr Fox, were correct (August Judgment at [1167]).”
704 The declaration relevant to this contravention was:

officer of that corporation, to ensure that the Due Diligence
Committee (‘DDC’) was properly informed of all material aspects of
the maintenance of the reinsurance profit forecast in the course of
giving his management sign-off on 8 December 1998, and failed to
inform the DDC that the achievement of the $80 million profit
forecast was improbable.”
705 The Chief Justice summarises the focus of attention in the pleaded case culminating in
the above declaration, as being on the improbability of the $80 million profit forecast being
achieved. The pleaded case states that by reason of certain matters that Mr Vines knew, or o
ught to have known, he ought to have advised DDC, before executing the Management
Sign Off, that “it was improbable that GIO Re would achieve the $80 million profit forecast”.
706 I agree with the Chief Justice’s conclusions and with the reasons he gives ([407] to [420])
for rejecting the submission that the trial judge in the above respect went outside the
pleaded case or had failed to make the findings necessary for the conclusion reached.
707 The Chief Justice deals with the other challenges made by Mr Vines to the trial judge’s
conclusion that it was negligent of Mr Vines not to have advised the DDC on the two
matters of the unavailability of the American Re Agreement and the unders and overs
analysis. Those challenges, which the Chief Justice did not uphold, were essentially on the
basis that the DDC was already aware of these matters. For convenience, I quote the
relevant passages from the Chief Justice’s judgment:
“454 … The Appellant submits that his Honour’s

conclusion was based on the false premise that the
DDC did not know about the unavailability of the
American Re agreement or of alternative unders and
overs analysis, particularly Mr McClintock’s exercise,
but in any event knew of the reserves available in
MIPI.
455 This submission does not place sufficient weight

upon his Honour’s findings of the significance of Mr
Vines’ role, relevantly, in the Part B Statement process.
That role went beyond the scope of the role of chief
financial officer. The submission also does not give
appropriate weight to the express assurances
contained in the Management Sign Off which he had
to execute, clearly of great significance to all of the
other parties to the Part B Statement including the
auditors, but most significantly, the directors.
456 That some of the directors may have had other

sources of information with respect to the matters
which indicated that the profit forecast was
improbable of achievement, did not absolve Mr Vines,
in the exercise of due care and diligence, from adding
the weight of his particular authority to the
proposition, even on the basis of facts that were known
to others.
457 As his Honour put it at par [1169], Mr Vines was

required by the terms of the Management Sign Off “to
take personal responsibility”. His role was such that he
ought to have “drawn the attention of the DDC” to the
fact that the reinsurance profit forecast had been made
“on the basis of assumptions that did not spell out the
position known to Mr Vines” (at [1168]). As his Honour
further put it, that obligation was such that “Mr Vines
ought to have invited the DDC to consider some
redrafting of the Part B Statement” in the light of those
matters of disclosure that he was obliged to bring to
the attention of the committee [1168].
458 These findings constitute a clear, and in my opinion justified,

finding of contravention of the duty of care and diligence that does
not turn on an assumption that the persons to whom such a
statement was required to be made, were unaware of the facts and
matters upon which Mr Vines should have acted in order to
discharge his own responsibility in this regard.
708 The Chief Justice, while accepting that para [1168] of the Contraventions Judgment and
the further “declaration 2” quoted below made no mention of management sign-off,
concluded that the declaration was properly capable of being regarded as a “corollary” of the
finding at [1168].
709 Declaration 2 is as follows:
relation to GIO Australia Holdings Limited by his failure on 8
December 1998, as an officer of that corporation, to draw the
attention of the DDC to those part of the draft Part B statement that
implied that the reinsurance profit forecast would be achieved on
the basis of assumptions that did not spell out the position known
to him, and his failure to invite the DDC to consider some
redrafting in light of the matters of disclosure that he was obliged
to bring to their attention.”
710 Para [1168] of the Contraventions Judgment states:
[1168] A corollary to these findings is that a reasonable person in the

position of Mr Vines would have drawn the attention of the DDC to
those parts of the draft Part B statement that implied that the
reinsurance profit forecast, as part of the Group forecast, would be
achieved on the basis of assumptions that did not spell out the
position known to Mr Vines. In other words, Mr Vines ought to
have invited the DDC to consider some redrafting of the Part B
statement in light of the matters of disclosure that he was obliged to
bring to their attention. Mr Hogendijk reached a similar conclusion
(affidavit para 192), drawing attention to a statement on page 14 of
the booklet that spoke of GIO's ‘strong performance’ in the first
four months, and said that the company was ‘well on track to
achieve a significant profit in the current year’. The booklet
referred to ‘key highlights’ of the first four months' result, one of
which was ‘a solid profit achieved by GIO's reinsurance business as
recent changes to personnel and management practices took effect
…’.
711 I agree with the Chief Justice that an ancillary declaration could be made if the primary
declaration were properly made. However, I respectfully differ that the first of the two
declarations could properly be made as I conclude that there was not a failure to comply
with the statutory standard of care in this instance, for the following reasons.
712 First, the DDC itself included not only non-executive directors of GIO but also its key
executives including Mr Lyons and, importantly, Messrs McClintock and Hammond from
PwC. There was also a representative from Macquarie Bank. There was thus no lack of
commercial expertise on the DDC as I have earlier pointed out.
713 Second, it is apparent that the DDC had been told by PwC (Mr McClintock) “in words of
one syllable” that it would not accept the Am Re Agreement as reinsurance, this having
occurred two days earlier on 6 December 1998; judgment [833]. That was reinforced on 7
December 1998 at a meeting of the three defendants (Messrs Fox, Vines and Robinson) with
representatives of PwC. That was the meeting described by ASIC as “the final sign-off meeting”
for the Part B Statement, when PwC (Mr McClintock) gave its final opinion that the Am Re
Agreement would not work; judgment [750].
714 Given that PwC were represented on the DDC by Messrs McClintock and Hammond,
the DDC hardly needed Mr Vines to bring to bear his authority as Chief Financial Officer to
tell it what the DDC already well knew. It was abundantly clear that the Am Re Agreement
was not accepted by PwC as effective to maintain the profit forecast in relation to Hurricane
Georges’ losses. That was repeated in the Part B itself, so GIO shareholders were fully
informed of that.
715 The DDC were similarly fully cognizant of the GIO’s reliance upon the redundancy of
$35 million in MIPI. Thus the minutes of the DDC meeting held on 6 December 1998 (on a
Sunday showing the urgency and time-pressure under which matters were proceeding)
included the statement that “PriceWaterhouseCoopers have requested GIO management sign-offs
confirming the availability of the redundant provision in MIPI and Geoff Vines advised that he was
confident that that would be forthcoming”; Blue, 194K.
716 This followed reference to the question having arisen as to the accounting treatment of
the retrocession contract in relation to whether the premium for that contract should be
brought to account in the 1999 accounting year or in a subsequent year. That matter was
fully resolved before 8 December against the effectiveness of the retrocession contract of
Am Re, as all on the DDC knew. I should note here the trial judge’s finding that “Mr Vines …
did not have detailed understanding of the regulatory and accounting issues and looked to Mr Fox for
expertise”; judgment [661].
717 Thus with the rejection by PwC of the efficacy of the Am Re Agreement but with PwC’s
confirmation of the MIPI redundancy at $35 million, the salient question was whether Mr
Vines’ could, without contravening s232(4), continue to rely on Mr Fox’s assessment,
repeated as recently as 7 December 1998, that the estimated loss from Hurricane Georges
would be $65 million.
718 Importantly, so far as disclosure to GIO shareholders deciding whether or not to accept
AMP’s offer, the actual Part B Statement contained the PwC report to which I have just
made reference. It makes crystal clear to shareholders the basis of the calculation; judgment
at [949]. What made the profit forecast improbable of achievement was not known to Mr
Vines, who relied on Mr Fox, namely the under-estimation of Hurricane Georges’ ultimate
loss.
719 The Honesty Judgment summarises the trial judge’s findings in these terms:
“At the DDC meeting on 8 December 1998, in

circumstances where reliance on the American Re
agreement was no longer possible, Mr Vines failed to
ensure that the DDC was informed of all matters
material to the estimate of loss from Hurricane
Georges so that the committee could exercise its
judgment as to the viability of the forecast and the
disclosure to shareholders that should be made. Mr
Vines failed to draw the DDC's attention to the fact
that Mr McClintock's figures had been taken from Mr
Fox's statement about management's best estimate of
liability, the accuracy and reliability of which had
become crucial because of the unavailability of the
American Re agreement and reliance on an unders and
overs analysis (August judgment at [1172]).
Mr Vines should not have given the kind of

unqualified assurance about the Group forecast that he
gave to the DDC meeting on 8 December, in
circumstances where real doubts have emerged about
a material component of that forecast, without making
accurate and complete disclosure of all the material
circumstances that had led him to believe that, on
balance, the Group forecast could still be achieved and
should be adopted. Given the existence of substantial
doubts emerging from the unavailability of the
American Re agreement and the need to rely on
unders and overs, and the need for judgment to be
exercised, he should have ensured that the DDC had
before it the information necessary for it to make the
appropriate judgment, rather than to make his own
assessment and then give the DDC his conclusions
without the judgmental steps in his reasoning process
(August judgment at [1174]).
On 8 December 1998, Mr Vines failed to disclose to the DDC PwC's

negative attitude to the American Re agreement, which was in
terms a matter making it improbable that the profit forecast would
be achieved, and he failed to disclose some other balancing matters
that might have assisted the company to reach the profit forecast
(August judgment at [1175]).”
720 Indeed had Mr Vines made his own direct investigation of the Claims Register it would
only have been if he had done so after the end of November 1998, and possibly only on or
after 4 December 1998, that it would have contradicted what Mr Fox had been telling him. It
was, on the evidence on 4 December 1998 that the Hurricane Georges’ Claims Register
records total claims at $89.6 million ($72 million net). On 7 December 1998 that climbed to
total claims of $92.9 million ($74 million net). One needs to relate this to the materiality
threshold as appears in Appendix B to the Part B Statement (Blue, 236) earlier adopted by
the DDC stating the guidelines to determine materiality. Under the quantitative portion of
those guidelines, an amount less than 5% of the appropriate base being post-tax forecast
profit of $160 million ($8 million) is presumed not to be material unless there is evidence or
convincing argument to the contrary whilst an amount equal to or greater than 10% of $160
million ($16 million) is presumed to be material unless there is evidence or convincing
argument to the contrary. Thus $65 million net loss from Hurricane Georges represents $5
million over and above $60 million (being the lower end of the $60-65 million estimate). In
percentage terms this is approximately 3% so significantly below the materiality threshold.
On the other hand $72 million net as of 4 December 1998 climbing to $74 million net as of 7
December 1998 represents an excess of $12-14 million over and above the $60 million. In
percentage terms it is 7.5% and 8.75% respectively so within a 10% threshold but with no
presumption of materiality either way.
721 Since dictating the above I have read what the Chief Justice says at [444], [445] and [448]
of his judgment. The $15 million calculated by Mr McClintock was taken into account in an
unders and overs analysis and the result still deemed by the auditor not to be material.
Moreover the auditors were given a range of an additional $35 million to $40 million
(corresponding to a range of $60 million to $65 million loss after adding back the $25 million
reserve) on 7 December 1998, as was accepted by the trial judge as relevantly an accurate
record of what occurred [898] and as was confirmed by Mr Murray’s memo (Blue, 208-9). It
is only if Mr McClintock assumed an ultimate loss estimate of $60 million (as against $65
million) that the extra $5 million (in substituting $65 million) would be added to the $15
million though still not material in the auditor’s estimation. There is nothing in the unders
and overs schedule (at Blue, 197) to bear out that Mr McClintock did assume $60 million,
though the trial judge at [942] cites his transcript of evidence (T, 1554-5) as his having so
assumed. It would be unsafe to make that assumption given the earlier evidence referred to,
including Mr Murray’s memorandum. Finally, as to tax, while the materiality guidelines
make the base for calculation of materiality post-tax profit, it should be borne in mind, as
indeed the under and overs schedule demonstrates (at Blue 197N), that any loss from
Hurricane Georges should be deductible for tax purposes. Therefore calculating materiality
as a percentage can be done consistently by either having the post-tax forecast profit related
to the post-tax adjustment for loss, or pre-tax forecast profit related to the pre-tax
adjustment for loss. It appears that the pre-tax calculation was used consistently in the
present case.
722 The trend however would have been of real concern. It would if known probably have
led to a qualification of the profit forecast and quite possibly its reduction; certainly there
would have been redrafting required to the Part B Statement. It was on 8 December 1998, the
day of the management sign-off (Blue, 214) that total claims reached $92.4 million (Judgment
[549]). We do not know the net figure but it was hardly likely to differ much from $74
million.
a Reliance by Mr Vines on Mr Fox
723 Where such information was in existence well capable of seriously affecting the accuracy
of the profit forecast, the critical question is this. What should a reasonable person in Mr
Vines’ position, and in similar circumstances, have done at the time (the first week of
December 1998) to establish what the position was regarding Hurricane Georges losses? In
particular:
(a) should Mr Vines have made further enquiry or taken further proactive steps
to investigate the position in relation to Hurricane Georges claims, rather than
merely rely on Mr Fox, and if so
(b) what enquiry should he have made or caused to be made and

what proactive steps should he have taken?
724 The answer to these questions depends, in my view, upon an understanding of (i) what
exactly Mr Vines knew during the relevant period concerning the progress of Hurricane
Georges claims, (ii) the nature of the role played by Mr Vines both generally and within GIO
Re as I have described it earlier, (iii) the basis for his reliance upon Mr Fox, and (iv) what a
reasonable person in Mr Vines’ position should have appreciated concerning the profit
forecast and its probability of achievement based on what he knew or ought to have known
about its key parameter, once it became, by 1 December 1998, that key parameter being now
the likely net loss from Hurricane Georges, with retrocession cover then known to all to be
ineffective to support the profit forecast.
725 The following emerges over the span of time from September 1998 onwards, taken from
the transcript of Mr Vines’ evidence in relation to his knowledge of Hurricane Georges, the
claims stemming from it, and the trial judge’s findings:
(a) Mr Vines suspected that he had heard about Hurricane Georges a short time
after it had occurred (hence towards the end of September 1998), probably from
Mr Robertson. He recalled Mr Robertson’s broad description of the event as it
stood at that time, namely that Hurricane Georges had not affected greatly the
east coast of the United States, and as such the general view was that it was
likely to be a non-event and would probably be absorbed within the attritional
book, not qualifying as a catastrophe as such (T, 2573).
(b) As at 30 September 1998, Mr Vines relates that he and others

had no real idea what Hurricane Georges was actually going to cost,
and that for the purposes of the then profit projection an
assumption had been made about its cost and that assumption
incorporated into results (T, 2576-2577).
(c) Mr Vines’ first knowledge of a figure attached to Hurricane

Georges claims, being $25 million, was stated to be through his
perusal of the GIO Re Result Highlights as at 30 September 1998,
the document itself being dated 19 October 1998 (T, 2901 and 2905).
(d) Mr Vines discussed during examination-in-chief the meeting

with PwC on 23 October 1998, his recollection of the meeting being
that a statement was made at the meeting to the effect that it was
too early to call what the cost of Hurricane Georges would be, that
the approach adopted in the first quarter (September) results was a
good one. Mr Vines recalled thinking that PwC had done
independent work on the outlying ranges of possible claims levels
for Hurricane Georges, reaching a similar result ($25 million) to
that of Mr Schneider (presumably referring to the $25M in the
September results) (T, 2597).
(e) In response to questions in his examination-in-chief regarding

events during the period between the end of October 1998 and the
release of the October results, Mr Vines related that he had no
belief as to the likelihood of Hurricane Georges claims exceeding
the $25 million level reached by the end of September, and
understood nothing to suggest that the figure would eventually be
higher or lower than $25 million (see T, 2616 and T, 2609-2611
respectively).
(f) The first change from the $25 million figure of which Mr Vines
became aware appears to have been through the release of the
October results at the start of November (see T, 3022). He was
informed at the meeting of 11 November in relation to the October
results that the gross estimate for Hurricane Georges losses was $69
million, the net figure being $67 million. These figures still
incorporated a substantial proportion of IBNR (unnotified) claims,
in the order of $42 million (gross) and $41 million (net). Mr Vines
stated that he only became aware of actual claims notifications
being $60-65 million at the meeting of 7 December (T, 2743). He
gave evidence that the increased notifications had seemed to him to
be broadly in accordance with the ultimate loss estimated in
October (T, 2743).
(g) From the time of the release of the September results, there was
also an issue, the subject of an extensive line of questioning, put to
Mr Vines, concerning the mention of the $100M figure by Mr
Schneider in the first quarter highlights. Mr Vines asserted in his
answers, and the trial judge accepted in his judgment at [1213], that
it was never expressed to Mr Vines by Mr Schneider (including as
late as the Terrigal meeting of 6 December 1998) that Mr Schneider
actually believed, on the basis of a contract-by-contract analysis
process, that Hurricane Georges would be “a $100 million-type event”
. That finding should be accepted.
(h) Mr Vines did not seek to investigate personally and directly the
claims levels in relation to Hurricane Georges at any stage. The trial
judge accepted at [915] that, “… the evidence does not establish that Mr
Vines usurped the divisional role by directly monitoring the development
of Hurricane Georges claims, and there is no proper basis for inferring,
therefore, that he was made aware of the state of claims in early
December.”
(i) The expression “usurp” the divisional role is significant. It

implies a boundary line that Mr Vines, at least ordinarily,
respected; that line being between Mr Vines’ supervisory role as
chief financial officer in relation to a large and complex group, and
the operational role played by Mr Fox, itself a very senior one.
When he did usurp the role it can be inferred that he needed to
perceive good reason; see judgment [914]-[915].
(j) Significance was attached in questions put to Mr Vines during

cross-examination (see T, 2912-2913) to the possibility for him to
have inferred from prior experience that a contract-by-contract
claims analysis process was available to GIO Re and that it was
possible to implement such a process in the case of Hurricane
Georges, as “one way of trying to come to grips with [its] probable effect.”
I here emphasise “one way”. There was no evidence that this was
the only way, or that Mr Vines assumed Mr Fox used that
particular method or some other method to ascertain the net loss.
(k) Mr Vines’ explanation for Mr Vines himself not pursuing the

possibility of there being a contract-by-contract analysis on foot
which might have yielded information concerning the
development of Hurricane Georges claims, was that it was not
necessary for him to do so. He said that he expected to be informed
of any adverse developments, as revealed by whatever process was
being conducted (T, 2584). It was put directly to Mr Vines towards
the conclusion of his cross-examination, that if he had wanted an
updated figure for Hurricane Georges claims as at 7 December 1998,
he merely had to ask for it and it would have been provided (see T,
3090). His response (T, 3090.9-.26) can be accurately summarised as
follows. His expectation was that he would be informed, but on a
monthly basis, of any adverse development in claims levels;
otherwise after 30 November he could request an update, not
instantly but at some point.
(l) Mr Vines states at one point during cross-examination that his

belief was in fact that “the form of investigation was to monitor the
claims that came in” (T, 2923). But he expresses earlier a more
general satisfaction at the time with the monthly accounting
processes and the involvement of PwC as being adequate to ensure
the eventual sufficiency of Hurricane Georges investigations (T,
2915).
(m) In relation to the availability of the November results prior to

the meeting of 7 December 1998 and the events of 8 December 1998,
Mr Vines gave evidence concerning the DDC meeting of 6
December 1998. At that meeting it was stated that the November
results were not going to be available in time for the Part B
timetable at the start of December, and certainly not in what Mr
Vines considered to be a suitably reviewed form (T, 2733). As the
trial judge accepted at [831], the DDC meeting therefore resolved to
rely instead on the October figures in relation to the Part B
Statement.
(n) That is of significance. I consider the decision to rely on the

October figures rather than the unreviewed November ones, was
not unreasonable. It was based on the need to proceed from an
accounting date that was as recent as possible but compatible with
there being sufficient time for a suitable review of that month’s
accounting figures. There would have been a week or less to
review the November figures, clearly not sufficient. The risk of so
doing had therefore to be balanced against the risk of a November
figure change – which could go either way in terms of whether
favourable – affecting the profit forecast. Hurricane Georges was
regarded as needing to be appraised within the same monthly
accounting figures as any other item. The reasonableness of so
doing is supported by the Murray file note referred to in (o) below.
(o) The trial judge concluded that up until and including 7

December 1998, Mr Vines had no actual knowledge of the
inaccuracy in the $65 million that emerged over that period (see
[915]). Mr Murray’s file note of 8 December 1998 in relation to the 7
December 1998 meeting (which the trial judge preferred at [913] to
rely upon as evidence of the meeting’s proceedings) relates the
discussion as to Hurricane Georges claims in the following terms:
“TF (Tim Fox) stated that a detailed review of GIO Re’s

exposure, contract by contract, had indicated a maxim
um potential loss of $105 million. Notifications to date
were $60-$65 million, up from $27m. Management is
firmly of the view that the impending renewal season
(at 1 January) and the uncertainty surrounding GIO
following the AMP takeover offer (including AMP’s
stated intention of reassessing the future of GIO Re in
the event their offer is successful) is prompting
cedants [the insurer who cedes risk to the reinsurer]
to notify claims early and on a precautionary basis .
While further development cannot be ruled out, mana
gement’s best estimate of the liability is of the order
of $60-$65 million .” [emphasis added]
(p) The inaccuracy of Mr Fox’s statement as to the figure for notifications to
date as of 7 December 1998 ($60-65 million as opposed to the true position on
the claims register of $91.9M on that date) was thought by the trial judge to be of
greater significance for Mr Fox’s position rather than Mr Vines’ (see at [913]). I
agree but would add this. Mr Vines had received from Mr Fox as recently as the
day before finalisation of the Part B Statement with its profit forecast both an
up-to-date assessment “ management’s best estimate ” of the net loss of $65 million
and a plausible explanation for the rapid rise in claims; namely as Mr Murray’s
file note makes clear, an understandable tendency for cedants to notify their
claims early and on a precautionary basis given AMP’s stated intentions. That if
anything indicated November’s figures would simply continue that trend,
justifying use of October’s figures consistently for all financial information
bearing on the forecast, including the net loss from Hurricane Georges.
(q) In relation to Mr Vines’ knowledge from 7 December onwards,

Mr Vines related in examination-in-chief that, on his recollection,
he learned only at a meeting on 7 January 1999 that Hurricane
Georges claims had escalated and were “up to about $100M”, and
that before that time he had not received any information of that
kind (see T, 2673-2674).
(r) Additionally, Mr Vines had received no information before that

time that would have served to undermine the statements by Mr
McClintock of PwC at the DDC meeting of 8 December 1998, that
the claims figures for Hurricane Georges were not of concern in
relation to the materiality threshold. At that meeting Mr
McClintock was reported to have stated the position in the
following terms:
“With respect to the PricewaterhouseCoopers report

on the Forecast, Steve McClintock confirmed that the
increase in the claims notified in respect of Hurricane
Georges, which on present estimates may increase to
an additional $35 to $40 million over that provided for
and the good performance on MIPI of $35 million had
been included in the unders and overs schedule with
the total on the schedule now approximately $14
million, (subsequently revised to $15 million) and this
amount is not material.” (Blue 211)
With
(i) the claims figures thus apparently being stable at

$60 to $65 million (corresponding to the additional $35
to 40 million over and above the $25 million provision)
until the 7 January 1999 update, and
(ii) given the materiality threshold being comfortably

satisfied at 3% even at $65 million,
there was in my view no reason to disturb the auditors’

findings as to materiality and hence the forecast, based
on what was known.
b Recapitulation
726 Recapitulating, what emerges from the foregoing so far is as follows:
(a) Mr Vines’ only actual knowledge of the level of Hurricane Georges claims
were the $25 million figure (from the time of release of the September results),
the $67 million net estimates (from the time of release of the October results),
the $60-65 million claims notification as at the meeting of 7 December 1998 and
the $100 million figure (but only as at 7 January 1999).
(b) Mr Vines’ most up-to-date awareness of the actual figures as

shown on the Hurricane Georges’ register came through the 7
December meeting. He did not receive another update, though he
thought he had arrangements in place to ensure that he would until
7 January 1999. In my view he had no sufficient reason for doubting
that he was not being kept up-to-date.
(c) He and the DDC, without demur from the auditors, based the
profit forecast on the October monthly figures; these were able to
be reviewed in time, rather than the November monthly figures
which were not, there being but a week to finalise the profit
forecast and Part B Statement. As it happens it was not till early
December that the Hurricane Georges’ register showed a higher
claims loss than the $65 million assumed.
(d) Mr Vines did not take steps at any stage to go behind the figures
he received from time to time from Mr Fox, nor did he turn his
mind to the precise method by which those figures were being
calculated, accepting as he did that this was an operational matter
for Mr Fox.
(e) Mr Vines believed that any adverse development in Hurricane

Georges claims levels that would affect the profit forecast, would be
notified to him.
(f) Mr Vines relied throughout upon the information provided by

Mr Fox, who had operational responsibility in this reinsurance
area, for the accuracy of Mr Vines’ own understanding of
Hurricane Georges claims as at 7 December 1998; that
understanding was only corrected on 7 January 1999 with his
learning of the escalation to approximately $100 million.
727 I have earlier set out the basis for Mr Vines’ reliance upon Mr Fox. Put shortly, Mr Vines’
had a supervisory role, not an operational role, so far as the reinsurance division was
concerned. His duties were onerous and he had no reason to have any suspicion that Mr
Fox, as executive director of GIO Re, had failed in his responsibility to provide a proper
estimation of the extent of loss from Hurricane Georges.
728 I return now to the questions posed above. In relation to the primary question, as to
whether Mr Vines should have made further enquiries or taken further steps to investigate
the Hurricane Georges claims position, it would appear that, as Mr Vines saw the situation,
there was simply no need to make further personal investigations. He was relying on Mr Fox
to report to him any important information as and when it appeared and assumed in the
meantime that whatever process had been adopted to analyse Hurricane Georges claims,
would proceed without his involvement. Those figures which were in fact provided to him
prior to the Part B Statement (being the $25 million and the $65 million figures, the latter
only a day prior to finalising the Part B and the accompanying profit forecasts) would not, in
my opinion, have been such as to put Mr Vines on notice that further investigation was
required. They did not reveal an escalation in claims levels that would have been alarming
to the extent that closer monitoring by Mr Vines personally could have been expected, in
particular where that would involve a usurpation of the divisional role without apparent
good reason and where cedants were apparently acting in a conservative and precautionary
way in notifying claims.
729 In the event, I am of the opinion that Mr Vines’ continuing to rely on Mr Fox was
justified. I have earlier set out the basis for Mr Vines’ reliance upon Mr Fox. He had no
reason to have any suspicion that Mr Fox, as executive director of GIO Re, had failed in his
responsibility to provide a proper estimation of the extent of loss from Hurricane Georges.
730 The cases concerning the capacity of officers to rely on others have principally
concerned those officers who were directors of the company and within that class those who
were non-executive directors. Observations in cases such as Daniels v Anderson (1995) 37
NSWLR 438 are primarily directed to non-executive directors. Indeed those considered
observations by Clarke and Sheller JJA raise the standard for non-executive directors, so it is
closer to those of executive directors. While not directly applicable to Mr Vines as a senior
executive who was not a director, they carry some force by analogy to his supervisory role in
the financial sphere in which he exercised it.
731 The degree of an officer’s permissible reliance on others will turn on similar
considerations as those that determine the overall standard of care for an individual
director. They focus particularly on the characteristics of the company, the skills and
experience of the officer concerned and the delegate, and the reasonably anticipated risks
entailed in so doing. What is expected here is a level of scrutiny as befits supervision, not the
detailed direct involvement that is associated with operational responsibility. Where there is
no cause for suspicion nor circumstances demanding critical and detailed attention, it is
reasonable for an officer to rely on advice, without independently verifying the information
or scrutinising the data or circumstances upon which that advice is based (see Re HIH
Insurance Ltd (in prov. liq); ASIC v Adler (2002) 41 ACSR 72 at 166–167 ).
732 In the present case, Mr Vines was an executive officer at a senior level rather than a
company director. The difference in position raises the question, to what extent can the
position of Mr Vines be compared to a director, for the purposes of determining the scope
for reliance within the applicable duty of care? And second, did the appellant meet this
standard?
733 As Chief Financial Officer Mr Vines was clearly operating on the higher plane of
corporate strategy and managerial direction with functional responsibility for financial
matters. He was not engaged in operations.
734 In my view, absent circumstances warranting intervention being brought to his

attention, Mr Vines was in the position he occupied justified in relying upon Mr Fox to
provide him with up-to-date information on the likely loss from Hurricane Georges. In that
sense, he was not unlike a non-executive director. Nothing Mr Fox had done was such as
should have excited the suspicion of a reasonably prudent chief financial officer in a similar
position to Mr Vines’ in GIO’s circumstances. Nor do I consider that anything in Mr Vines’
own responsibilities or skills should have given him any heightened sense that Mr Fox was
misinforming him. There is nothing in the evidence to suggest he was or should have been
on notice of any lack of competence on Mr Fox’s part.
735 Did the position differ by 7 December 1998 so as to require proactive steps from Mr Vines
and a cessation of sole reliance on Mr Fox? Here, one must grapple with what was said to be
the significantly changed circumstances that attended the abandonment of any reliance
upon the retrocession agreement, as a way of maintaining the profit forecast once PwC
made clear in the first week of December 1998 that PwC would not accept that it was
effective for this purpose. The trial judge, and ASIC’s expert Mr Hogendijk, referred to this
as giving rise to a “tight” unders and overs analysis with the MIPI redundancy being now the
sole basis for supporting the $80 million profit forecast. It moreover depended, indeed
crucially, on the $65 million loss estimate for Hurricane Georges remaining valid. With the
retrocession agreement with Am Re no longer effective, the MIPI redundancy was no longer
merely back-up but directly relied upon to support the profit forecast.
736 To conclude the position did differ so as to require Mr Fox to be bypassed by Mr Vines,
is to my mind, judging matters in hindsight and with a counsel of perfection. I so conclude,
taking into account what a reasonable person should have done in Mr Vines’ position in
GIO’s circumstances. It should be remembered that at the end of November 1998 the
Hurricane Georges’ Claims Register would still have shown a potential loss of $60-$65
million; indeed the trial judge records (at [900] that “the Hurricane Georges register for 30
November 1998 recorded property claims as $59.7 million”. It was only in the first week of
December leading to finalising the Part B on 8 December 1998 that the register would have
revealed a significantly worse position and trend though still, as I have earlier explained
within the materiality threshold for the forecast. But on 7 December 1998 Mr Vines received
the same assurance from Mr Fox as he had earlier received and with a plausible explanation
for the acceleration in claims. In giving the management sign-off that was the subject of the
fourth contravention, Mr Vines could fairly be said to have made all due inquiry, insofar as
he again had Mr Fox’s assurance.
737 Concededly the fact that the profit forecast was now based upon a tight situation would
have justified Mr Vines looking himself at the Hurricane Georges’ Claim Register, so far as
the prospective loss from Hurricane Georges was concerned. But it does not follow that he
was in breach of his statutory duty of care and diligence in failing to do so. That duty looks
to a sufficient degree of care and diligence; it does not assume absence of any room for error
of judgment. This step (of looking himself) would have meant what in practice? We are not
told. But presumably it would mean Mr Vines bypassing Mr Fox and Mr Vines himself
viewing the Register. It is unclear whether he would have also had to look at the relevant
contracts and claims that had come in or whether there he could still rely on Mr Fox. Mr
Vines, not himself an expert on reinsurance, would then really be usurping the divisional
role. Mr Vines, while unaware of precisely how Mr Fox verified the state of claims, it must
be remembered, had from Mr Murray’s file note confirmation, from Mr Fox that
notifications were $60-65 million. He also however had been given a plausible reason for the
acceleration in claims, namely AMP’s stated intention to review GIO’s reinsurance business
prompting cedants to notify early and on a precautionary basis. I discuss the implications of
“proactive” steps below.
738 That the profit forecast now depended on a tight unders and overs analysis, itself
confirmed by the auditors as correct and with still a 10% materiality threshold, does not to
my mind tip the balance in favour of Mr Vines being in breach of his statutory duty of care
and diligence unless he took proactive steps to verify Mr Fox’s reasoned estimate of $65
million. The fact remained he had no reason to doubt Mr Fox’s estimate even with its
enhanced importance. Mr Vines having a dog on the job, did not need to bark as well, unless
he had reason to believe the dog was asleep on the job. I conclude he did not.
739 The cases do not take matters much further. In Gould v Mt Oxide Mines Ltd (1916) 22 CLR
490 directors empowered a person who was not a director, officer or shareholder to draw
cheques from the company’s bank account and were subsequently held liable for losses
arising through that person drawing a cheque for an unauthorised purpose. One need only
state those facts to distinguish Mr Vines’ position vis-à-vis Mr Fox from the directors in Gould
(supra) who had clearly made an arrangement that was obviously imprudent and verging on
improper; it therefore called for proper supervision.
740 That case may be compared to Re Property Force Consultants Pty Ltd (1995) 13 ACLC 1051. It
was held that there was no breach of the corresponding provision of the Corporations Law .
There a director had relied on another director who subsequently committed fraud. In that
case the pair had previously worked together, there were no grounds for suspicion, a mutual
contact had expressed no reservations about the other director and the defendant knew that
the other director worked for a prominent commercial company.
741 In Daniels v Anderson (supra), grounds for suspicion are considered in similar terms.
Clarke and Sheller JJA refer to a subset of that category akin to wilful blindness, where
directors have been satisfied with superficial or inadequate answers on important issues that
they have failed then to investigate further. They observe (at 502 ) that: “the law of negligence
can accommodate different degrees of duty owed by people with different skills but that does not
mean that a director can safely proceed on the basis that ignorance and a failure to inquire are a
protection against liability for negligence”.
742 Similarly in Permanent Building Society (in liq) v Wheeler (1994) 14 ACSR 109 Ipp J (as he
then was) emphasised that it was not permissible for a director to avoid responsibility by
burying his head in the sand (at 159-161 ). In that case there were particular circumstances
arousing suspicion that required the managing director in question to adopt a more
inquisitive approach, and not simply rely on company officers.
743 The enquiry that is required to be made is what is adequate in the circumstances. It must
necessarily take into account whether the officer concerned has been put on enquiry or
should have been, as well as the risk involved in the transaction and its nature and the
known competence of the officer relied on; compare Re HIH Insurance Ltd (in prov. liq); ASIC
v Adler (supra) at 167-8.
744 Summing up: taking account of the nature of the transaction, Mr Vines did not cease to
be justified in relying upon Mr Fox by reason of the criticality of the key parameter of the
profit forecast as it had emerged by 8 December 1998 namely the loss from Hurricane
Georges. The position was that if the loss from Hurricane Georges exceeded the estimated
figure by an amount in excess of the materiality threshold, the profit forecast would need to
have been adjusted downwards. But otherwise there was no call to do so, as PwC had
confirmed that the MIPI redundancy was effective to maintain the profit forecast, even
though it had become tight.
745 Having so concluded, it follows that the second question posed above in relation to what
sort of enquiry and steps Mr Vines should have taken, had there been a requirement found
for him to do so, becomes largely redundant. This is save perhaps to test whether further
enquiry was required to avoid breach. In that regard, I ask what precisely Mr Vines would
have been called upon to do in the event of a finding that further action was required. His
Honour (with whom the Chief Justice agreed at [451]-[455] of his judgment) described a
general responsibility for Mr Vines to have been “proactive” in taking steps to ensure that the
monitoring process was continuing and was up-to-date. What that entailed is not stated. It
presumably meant more than asking Mr Fox was he sure of his estimate, or how he had
precisely made it. Neither would have likely led to a different result, or be calculated to do
so. To insist on viewing the Hurricane Georges claims register, or the actual contract by
contract claims, would be a far cry from the supervisory role properly exercised by a
reasonable person in Mr Vines’ position. It really would have “usurped” the divisional role.
746 The Chief Justice refers in his judgment at [452] to the fact that “exposure to Hurricane
Georges had increased to $60-65 million in the month of November, that there was no basis
on which it could be assured that the process had stopped” and that in the “tight” unders
and overs context, Mr Vines was required to take proactive personal action. He further
refers to the trial judge’s comments at [241] of the trial judgment that “reasonable persons in
the shoes of those responsible for the profit forecast would have [after the First Quarter Highlights]
treated the development of the Hurricane Georges Loss as a matter to be kept under particular review
”.
747 However the trial judge took a more favourable view, though he is here dealing with the
position pre-December 1998, namely as to the adequacy or otherwise of the arrangements
between Mr Vines and Mr Fox after the First Quarter Highlights. I quote:
“[1211] Mr Vines was entitled to assume, in the absence of some

ground for thinking otherwise, that GIO Re had in place adequate
arrangements for monitoring catastrophe claims experience and
that those arrangements would apply to Hurricane Georges. He
was also entitled to assume, in the same way, that any deficiencies
in the monitoring arrangements would be addressed by the
executive director. According to Mr Vines’ evidence, which I
accept, he believed adequate arrangements were in place and
would be implemented. It follows that nothing had been brought to
his attention that would require his intervention.
[1212] Consequently ASIC’s criticism of Mr Vines on

the ground that he did not personally make enquiries,
or personally ensure that inquiries were made, to
obtain information about the development of
Hurricane Georges claims, is misguided, For example,
Mr Vines’ evidence that he made no inquiry as to the
claims position at the end of November … although he
understood that later claims development might alter
the assessment of ultimate loss … is consistent with the
proposition that those updating inquiries were the
primary responsibility of the executive director
operating at the divisional level rather than the chief
financial officer operating at group level.”
748 This is an important conclusion. To my mind it remained no less valid throughout

December 1998 and to 4 January 1999 when AMP’s offer closed. That conclusion states in
clear terms the trial judge’s acceptance in principle of the arrangement between Mr Vines
and Mr Fox as a reasonable one for a chief financial officer in Mr Vines’ position to make.
The circumstances of the company GIO did not so change as to alter that conclusion. The
only change was the withdrawal of one of the two supports for the profit forecast, namely
the auditor accepting the retrocession agreement as effective for the purpose. Though no
longer with belt and braces, there was the now actuarially confirmed MIPI redundancy.
That was sufficient, so long as the $65 million estimate held good (with the 10% materiality
threshold tolerance). It is a view of the arrangement that I believe should be applied to the
relevant period as a whole. The adequacy of the arrangement in place regarding the division
of roles between Mr Vines and Mr Fox, and the consequent relationship of reliance by Mr
Vines on Mr Fox for information related to Hurricane Georges, remained in my opinion
reasonable. It meant that it was acceptable for Mr Vines to conclude as he did, that the likely
loss remained $65 million.
749 There was nothing to suggest that salient information would not flow from Mr Fox to
Mr Vines under that arrangement or that Mr Vines was no longer entitled to rely on Mr Fox
in December to provide that information. The status of Hurricane Georges claims levels was,
as far as Mr Vines knew, not predicted to shift so as to affect adversely the profit forecast.
Hence no basis existed for Mr Vines necessarily to be unduly concerned, believing as he did
that he would be informed of developments that were of concern. Likewise, the general
conduct by Mr Fox of his operational role revealed no reasons for Mr Vines to entertain
doubts as to whatever analysis process was on foot. That too, therefore, provided no basis for
Mr Vines to be alerted to the need to usurp the divisional role in this case.
750 If one returns to the fundamental underpinning to the fourth contravention, paragraph
125 of the Statement of Claim alleges that Mr Vines “knew, or ought to have known” that “the
assumption that Hurricane Georges’ claims on GIO Re would be in the order of $60-$65 m, and that
GIO Re’s attritional portfolio did not show accelerated loss developments were false”.
751 As I have sought to demonstrate, I do not consider that underpinning has been made out.
In particular I do not consider that Mr Vines “ought to have known” that the estimated loss on
Hurricane Georges’ claims exceeded $60-$65 m, as he was entitled to rely on the assurances
he had received in that regard from Mr Fox.
752 The essence of the declaration of contravention, as earlier quoted, is Mr Vines’ “failure …
to ensure that the Due Diligence Committee … was properly informed of all material aspects of the
maintenance of the reinsurance profit forecast in the course of giving his management sign-off on 8
December 1998, and failed to inform the DDC that the achievement of the $80 million profit forecast
was improbable”.
753 The three factors entering into the profit forecast were first the unavailability of the
American Re agreement, a matter known to all on the DDC. The second factor concerned
the unders and overs analysis that had been confirmed by PwC and which was again known
to the DDC as the basis for maintaining the profit forecast. None of this needed any
reinforcement from Mr Vines.
754 The third factor entering into the profit forecast was that (in the words of the Honesty
Judgment), “the estimate of Hurricane Georges’ liability made by Mr Fox [was] correct”. Again
there could be no doubt that the DDC understood that factor. For reasons earlier stated, I
consider that Mr Vines was not required by his duty of care and diligence to look behind Mr
Fox’s assurance on that matter. This is so even though, with the wisdom of hindsight, we
know that Mr Fox’s assurance was wrong.
755 The DDC clearly knew of the three factors upon which the profit forecast depended and
were a sophisticated audience who did not need them repeated by Mr Vines. Equally
important the Part B Statement again made clear that dependence.
756 The declaration of contravention is expressed in terms of the $80 million profit forecast
being “improbable”. It is not stated as a matter of Mr Vines’ knowledge. He genuinely
believed in the forecast as the trial judge found. Moreover, that conclusion of improbability
is immediately qualified in the declaration by the words “unless the unders and overs analysis
that has been considered at the PwC meeting and the estimate of the Hurricane Georges’ liability
made by Mr Fox were correct”. The unders and overs analysis had been considered at the PwC
meeting. Mr Vines was entitled to assume knowledge on DDC’s part of the unavailability of
the American Re agreement and had good cause to accept that the unders and overs analysis
was correct, as subsequent events have confirmed. He had accepted Mr Fox’s assurance of
Hurricane Georges’ loss level at $65 million. I do not consider he was required to inform the
DDC in those terms that achievement of the profit forecast was improbable, with or without
such qualification. The simple fact was that at the time he had reason to believe in the
forecast as did the auditors, and did so.
757 One may accept that management sign-off made no specific mention of these matters.
But for the reasons I have stated I do not consider that Mr Vines was in breach of his duty of
care and diligence in failing to so state them in the circumstances.
758 Finally, in terms of the overriding duty to act in the interests of the company as a whole
and by reference to the interests of shareholders present and future, accepting that Mr Vines
had a reasonable basis for considering that the profit forecast would be maintained, there
was no obligation upon him
(a) to advise the DDC of its improbability, or
(b) qualify further the statement of the basis for that profit forecast
in any greater detail than was already stated in the Part B
Statement.
759 I have referred earlier to the concern of shareholders during a hostile bid that the profit
forecast should not be unjustifiably low. Hence the likely tendency of a profit forecast in
these circumstances is to be at the higher end of the spectrum, though it must be genuinely
accepted as appropriate and the law still requires that it must not contain misstatements or
be without reasonable basis. We know in retrospect that this profit forecast was incorrect,
but the question is still whether there was a reasonable basis for it. I discuss later the
question of the significance of potentially unlawful conduct under the heading “The
Contraventions as a Whole – a Perspective”.
c Conclusion
760 I conclude that the fourth contravention was not made out with respect to what was said
by way of management sign-off by Mr Vines.
5 The Fifth Contravention: Advice to the Due Diligence Committee on 8
December 1998
761 The Chief Justice sets out the details of this contravention at [467] and following. I have
under the fourth contravention set out the relevant portion of the Honesty Judgment
summarising the trial judge’s findings which underpin his conclusion. The declarations His
Honour made are set out below.
“3 The First Defendant contravened section 232(4) of

the Corporations Law as carried over into the Corporati
ons Act 2001 (Cth) in relation to GIO Australia
Holdings Limited by his failure, as an officer of that
corporation, to ensure that at the meeting on 8
December 1998 the DDC was informed of all matters
material to the estimate of loss from Hurricane
Georges so that the committee could exercise its
judgment as to the viability of the forecast and the
disclosure to shareholders that should be made, and
his failure to draw the DDC’s attention to the fact that
Mr McClintock’s figures had been taken from Mr Fox’s
statement about managements best estimate of
liability, the accuracy and reliability of which had
become crucial because of the unavailability of the
American Re agreement and reliance on an unders and
overs analysis.”
4 The First Defendant contravened section 232(4) of the

Corporations Law as carried into the Corporations Act
2001 (Cth) in relation to GIO Australia Holdings
Limited by his provision, as an officer of that
corporation, of an unqualified assurance about the
group forecast to the DDC meeting on 8 December
1998 without making accurate and complete disclosure
of all material circumstances that led him to believe
that on balance the group forecast could still be
achieved and adopted, and his failure to ensure that
the DDC had before it the information necessary for it
to make the appropriate judgment, rather than to make
his own assessment and then give the DDC his
conclusions without the judgmental steps in his
reasoning process.
5 The First Defendant contravened section 232(4) of the Corporation

s Law as carried over into the Corporations Act 2001 (Cth) in
relation to GIO Australia Holdings Limited by his failure as an
officer of that corporation, to disclose to the DDC on 8 December
1998 Price Waterhouse Coopers’ (‘PwC’) negative attitude to the
American Re agreement, which was in terms a matter making it
improbable that the profit forecast would be achieved, and by his
failure to disclose some other balancing matters that might have
assisted the company to reach the profit forecast.”
762 I agree with the Chief Justice’s rejection of the appellant’s submission that the trial judge
made findings outside the pleaded case or otherwise made findings of fact that were not
pleaded. I also agree as to the relevant pleading (para (127)). It, like para (126) focuses upon
whether Mr Vines knew of matters, or ought to have known of matters, which (objectively)
made it improbable that the $80 million profit forecast would be achieved, yet made a
statement to the DDC that he was comfortable with the integrity of the GIO Group forecast
profit for the 1999 financial year.
763 However, I respectfully disagree that Mr Vines was in breach of that statutory duty of
care, in failing to disclose those matters to the DDC. They were:
(a) matters material to the estimate of loss from Hurricane Georges

(the trial judge accepting his actual knowledge at 8 December 1998
was that it was between $60 million to $65 million);
(b) inferentially, the MIPI redundancy amount; and
(c) PwC’s negative attitude to the Am Re agreement.
764 The trial judge in his reasoning indicates that a full disclosure of those matters,
including the Am Re agreement, would in total have discharged Mr Vines’ statutory duty of
care. I disagree, essentially for the reasons I gave earlier in relation to the fourth
contravention, including Mr Vines’ entitlement to rely on Mr Fox as of 8 December 1998
without contravening s232(4).
6 The Sixth Contravention: Advice to the Auditor 8 December 1998
765 The Chief Justice sets out the details of this contravention at [492] and following.
“In the delicate circumstances that existed on 8 December 1998

(namely: PwC had decided not to accept the American Re
agreement; the due diligence process for which Mr Vines had
central responsibility was due to be finalised; Mr Vines was aware
of some adverse claims movement up to the end of October and the
prospect that further adverse movement may have occurred in
November; an unders and overs analysis acceptable to PwC had
been developed at the meeting on 7 December), Mr Vines should
not have confirmed to PwC that "appropriate inquiries of other
Directors and officials of GIO" had been made, in the solemn
circumstances in which that confirmation was given (August
judgment at [1178]-[1179]).”
767 The declaration relating to this contravention is:

to GIO Insurance Limited by confirming, as an officer of that
corporation, to (‘PwC’) on 8 December 1998 that ‘appropriate
enquiries of other directors and officials of GIO’ had been made.”
768 I agree with the Chief Justice and with his reasons for allowing the appeal in relation to
this contravention. I have earlier concluded, though here respectfully differing from the
Chief Justice and the trial judge, that Mr Vines was entitled to rely on Mr Fox as of 8
December 1999 without contravening s232(4) as regards the anticipated loss from Hurricane
Georges at $60 million to $65 million.
7 The Seventh Contravention: Conduct after 8 December 1998
769 The Chief Justice sets out the details of this contravention at [517] and following.
“After 8 December 1998, Mr Vines failed to give directions to ensure

made about further disclosure to the market (August judgment at
[1184]).”
771 The declaration relating to this contravention is:

that corporation, after 8 December 1998 to give directions to ensure
made about further disclosure to the market.”
772 The trial judge’s reasoning in finding a contravention made out, I quote below:
“[1181] Mr Hogendijk expressed the opinion (affidavit,

paras 197-8) that a competent chief financial officer
would have understood that he was under a continuing
obligation to be satisfied that later financial results did
not undercut any statements to the market made in the
Part B statement, or any aspect of the process leading
up to the Part B statement, and in the circumstances
the competent chief financial officer would least have
called for the November results and any development
in Hurricane Georges claims.
[1182] In December 1998 there was no express statutory

obligation for the target company to update its Part B
statement so as to disclose material new circumstances
(cf Corporations Act 2001, s 644(1)(c)) . However, there
was a ‘continuous disclosure’ statutory obligation for
listed entities, not to intentionally, recklessly or
negligently fail to comply with stock exchange listing
rules concerning timely disclosure of material
information to the market (Corporations Law, s 1001A).
As chief financial officer, Mr Vines had a duty to
exercise care and diligence to facilitate the listed
entity's compliance with these requirements as regards
financial matters. In circumstances where the
company had announced to the market a profit
forecast which was highly material to the impending
decision of shareholders whether to accept the AMP
bid, and it had become clear that adverse development
in Hurricane Georges might impact on the profit
forecast in the absence of protection by the American
Re agreement, notwithstanding an unders and overs
analysis, Mr Vines had a duty to exercise care and
diligence to the statutory standard, to ensure that the
development of Hurricane Georges was monitored
during December 1998 (cf Mr Hogendijk, affidavit para
202).
[1183] Mr Vines' evidence was that he expected the

reinsurance division to monitor Hurricane Georges in
accordance with its usual practices and to report any
material adverse development to him. In my opinion,
while it was adequate for Mr Vines to assume that in
Hurricane Georges would be monitored in the usual
fashion at a divisional level up until 7 December, the
situation changed after that day. PwC's decision not to
accept the American Re agreement, and the reliance
placed on a ‘tight’ unders and overs analysis, made it
urgently necessary for those with central responsibility
to the parent entity for keeping the market informed
during the currency of the bid to have a clear and up-
to-the-minute understanding of the development of
Hurricane Georges claims. Mr Vines was one of the
executives who had that responsibility, because of his
position in respect of the takeover defence and due
diligence process, and in light of the impending board
decision on the Part B statement and profit forecast.
Once that decision was made, Mr Vines' duty to
exercise care and diligence to facilitate the parent
company's compliance with the continuous disclosure
listing rule meant that it was necessary for him to be
sure that the monitoring arrangements: upon which he
had previously relied, were continuing in the new
circumstances.
[1184] That did not mean it was necessary for him personally to
review the Hurricane Georges register or any other such
information. But it was necessary for him to take care to give
directions to ensure that the work was done at the divisional level,
and that its results were brought forward promptly to the
made about further disclosure.”
773 I agree with the Chief Justice and with his reasons in rejecting the grounds of appeal
relating to sufficiency of particulars and to the findings at [1184] being outside the pleaded
case.
774 I respectfully differ from the Chief Justice that Mr Vines was in breach of his statutory
duty of care in the respect set out in the declaration. My reasons are these.
775 First, it is clear that no direction was needed from Mr Vines to ensure monitoring
arrangements were continuing at the divisional level. We know from Mr Fricke’s evidence
that they were continuing; see [527] to [538] of the Chief Justice’s judgment. That such
direction should also have required that the results be brought forward promptly to the
appropriate senior corporate officer so that an assessment could be made about further
disclosure to the market would only be made out if it could be shown that Mr Vines should
have been that officer, rather than Mr Fox.
776 But to my mind Mr Fox, to whom those results had in fact been brought, was the
appropriate senior corporate officer, being the chief executive of GIO Re. Mr Vines’
responsibilities, as I have said, were supervisory not operational. He was not a director
including of GIO Re. His responsibilities were those of a heavily burdened group Chief
Financial Officer, and did not require him to receive such divisional information. He was
entitled, without beaching the statutory standard of care, to continue to rely on Mr Fox
informing him should a greater Hurricane Georges’ loss emerge than his estimate, made
again most recently at 7 December 1998, at $60-$65 million. Indeed ASIC’s expert Mr
Hogendijk accepted that Mr Vines could reasonably expect to be informed by Mr Fox (or Mr
Schneider or somebody else in the reinsurance division) if Hurricane Georges started to
blow out after 8 December 1998 (Black, 151R-152 S). I respectfully consider that the trial judge
was in error in not accepting that assessment.
777 That there was a continuing disclosure obligation on GIO does not to my mind alter the
position so as to render Mr Vines in breach of the statutory standard of care. Nor was it
altered by the unavailability, in the view of the auditors, of Am Re as effective retrocession
cover. Thus I do not accept that Mr Vines’ responsibilities fundamentally changed on 8
December 1998 just because
(a) finalisation of the Part B Statement was occurring,
(b) the profit forecast was now wholly reliant on the MIPI
redundancy, and
(c) it was tight.
The fact remained that had the $60-$65 million

estimate held good, the profit forecast could be
maintained. That indeed was PwC’s view, as reported
in the Part B Statement disclosed to all shareholders in
the careful manner I have described.
8 The Contraventions as a whole – a Perspective
778 Appeal ground 3 is as follows:
“The trial judge erred in failing to hold that, in the context of

statutory provisions capable of attracting consequences so
blameworthy as to be punishable by the civil penalty orders
including disqualification from acting as a director or officer of a
corporation, the standard of care and diligence by reference to
which a director or officer’s conduct fell to be assessed was no
different than in the case of a common law negligence claim against
a director or officer (see principal judgment at [1086]-[1096]).”
(appeal ground 3)
779 I have earlier agreed with the Chief Justice that the fact that the statutory duty is
attended by civil penalty does not require ASIC to demonstrate any greater deficiency of
care and diligence than would have been the case without civil penalty. However, there are
some other significant differences, as well as substantial equivalence, when it comes to
comparing the common law of negligence to the statutory standard of care and diligence.
Those differences can have a significant effect in turn on the result in a particular case, as
here.
First , the essential starting point in determining whether there has been breach
of the statutory standard of care and diligence is to identify what powers are
being exercised and what duties discharged. I mean here both legal duties and
executive duties assumed. Duties assumed are necessarily shaped by an officer’s
on-going legal duties; it would be artificial in the extreme to separate them.
Legal duties necessarily encompass the fundamental duty to act in good faith in
the interests of the company under its traditional formulation of shareholders,
present and future. For Mr Vines, as an executive officer with fiduciary
obligations, in the words of Cardozo CJ, acting honestly in dealing with GIO
and its shareholders was necessary but not enough ( Mernhard v Salmon 249 NY
458 (1928); 164 NE 545). But beyond that, Mr Vines was required to act with care
and diligence, that duty necessarily to be accommodated to acting in the
interests of the company as a whole. The latter places primary emphasis on the
interests of existing shareholders who have risked their capital in the hope of
gain, with a proper balancing between short and longer term. That for the
present context may properly justify a takeover defence pursued in good faith,
directed to achieving the best possible outcome in the interests of shareholders
of GIO, as understood at the time; compare Darvall v North Sydney Brick & Tile
Co Ltd (1987) 16 NSWLR 212. That consideration necessarily enters into the court’
s appraisal of the conduct said to be in breach of the statutory standard.
Second, unlike the tort of negligence whose gist is damage,

detriment does not need to be shown though its absence in a
successful prosecution would be rare indeed; see Vrisakis (supra)
per Ipp J at 213. Detriment is connected to the officer’s overarching
duty to act in the interests of the company, and to balance
reasonably foreseeable risk of harm to the company against
potential benefits to the company. That this detriment was at risk of
occurring or indeed did eventuate, does not of itself establish
breach of that officer’s duty:
(a) to act in the interests of the company and its shareholders, or
(b) to exercise the statutory standard of care and

diligence.
Rather that question is answered by reference to what

was in the circumstances reasonably foreseeable at the
time in order to determine without retrospective
hindsight what could reasonably be viewed as a
reasonable balance between risk and benefit in the
company’s circumstances.
Third, it must not be overlooked that exposure to risk is a concomitant of

business activity aimed at securing benefit for the company and its
shareholders, present and future.
780 What is here unusual about the contraventions as found, whether considered singly or
in combination, is fourfold:
First :
(i) Detriment on one view of matters was suffered by the holders of
43% of the shares in GIO who did not accept the AMP offer insofar
as they, did not accept the offer but remained as minority
shareholders.
(ii) there is also a possible countervailing detriment

both they and the remaining 57% who sold would have
suffered if the error in the profit forecast had been
picked up in time and the profit forecast adjusted
significantly down. What follows is on that hypothesis.
It is possible that AMP might have sought to withdraw,
or reduce its bid, based on the true facts revealed by
the corrected forecast. This would be either by
invoking ASIC’s discretion to permit withdrawal under
s 653-4 of the Corporations Law or, if a condition in the
bid (such as material adverse change to GIO’s financial
condition permitted this, invoking that condition or
minimum acceptance condition).
(iii) I consider withdrawal first. Withdrawal, which

would have required ASIC’s consent, is the subject of
ASIC Guideline PN 59. It, while making clear ASIC
requires exceptional circumstances, identifies a further
class of case that ASIC will consider. This is where,
though there be no express condition to that effect,
there is such a change in commercial circumstances
which make it unreasonable to require the bidder to
proceed; see Renard and Santamaria “Takeovers and
Reconstructions in Australia” at [917]. If that case were
based principally on the falsity of the profit forecast, as
repeated in the Part B it would face the difficulty that
the bid, though not its increase on 9 December 1998,
pre-dated the forecast. If a material adverse change of
circumstances were relied upon, an obvious response
is that this could have been protected against by a
condition in the bid, if indeed there were such a
condition. Hence ASIC’s likelihood of consent to total
withdrawal is a matter of speculation, there being no
evidence on the matter. However, the case would have
been considerably stronger, if the only thing sought to
withdraw was the bid increase as it was made only
after the Part B statement and the profit forecast.
(iv) Alternatively, if the bid had a condition which

AMP could rely upon based upon a material adverse
change in GIO’s financial condition or, as is likely
minimum acceptance, that would be expected to be
invoked by AMP had it learned of the erroneous profit
forecast in time.
(v) But for all shareholders revision downwards of the

profit forecast would as a matter of common sense lead
to an at least corresponding reduction in the share
price save to the extent underpinned by AMP’s bid,
that underpinning being dependent on the bid not
being capable of withdrawal or being terminated by
invoking a condition permitting this; the bid increase
would almost certainly not have occurred or remained.
Second : GIO itself as an ongoing commercial entity, though it remained at the
time only a partly- owned subsidiary of AMP under a hostile takeover, did not
suffer any identified detriment. Indeed no case was sought to be made out that
Mr Vines’ action caused any loss to GIO or GIO Re.
Third: So far as Mr Vines was concerned, as emerges from the

Honesty Judgment, there was no deliberate unlawful conduct
found but rather there was a finding that Mr Vines acted honestly,
the non-disclosures were not made with any intention to deceive
and were not flagrant. Moreover, Mr Vines did not obtain any
personal gain from the contraventions and was not conscious of
any impropriety on the part of others.
Fourth: It is true that the Part B Statement was found in retrospect

to have over-stated the future profit of GIO Re by reason of the
failure by the DDC and GIO’s board to appreciate the likely level of
loss from Hurricane Georges was not as represented by Mr Fox but
much higher. But it does not follow that this gave rise to any
corporate breach for example of s 670A(2) requiring “reasonable
grounds for making the [forward-looking] statement”.
781 The question is whether Mr Vines, in maintaining the profit forecast despite what
Hurricane Georges portended, failed properly to balance “the foreseeable risk of harm against
the potential benefits that could reasonably have been expected to accrue to the company from the
conduct in question” ( Vrisakis at 212-3 per Ipp J). This must be judged by what Mr Vines knew,
or reasonably should have known, at the time, not with the wisdom of hindsight, but by
reference to a reasonable person in his position and in GIO’s circumstances.
782 The reasonably foreseeable risk of harm identified by the trial judge (at [1074]) so far as
shareholders of GIO were concerned, was that, by being left in a position of “making their
decision whether to accept or reject the AMP takeover bid on the basis of inaccurate or incomplete
information”, some might decide not to accept the takeover offer. The risk to them, his
Honour found was “that they would find themselves locked in a minority position” in GIO after “m
anagement control has passed under the bid”. That occurred, with the consequences I have
earlier described.
783 The countervailing risk from the profit forecast collapsing was as I have described above.
At the least, accepting shareholders would likely not have received the increase in their bid,
if the profit forecast had been adjusted downwards before the bid’s increase on 9 December
1998. They also would have faced a significant reduction, at the least, in their share price,
depending on whether AMP could have withdrawn its bid with ASIC consent (see above) or
invoked a bid condition. That only 57% accepted suggests that the standard minimum
acceptance condition could have been invoked unless of course the hypothesised correction
downwards of the profit forecast led to a stampede to accept before the offer closed.
784 The fundamental point is that one cannot consider detriment without also considering
what would have happened had the steps been taken that would have led to the profit
forecast being adjusted downwards. This is from the viewpoint both of those who accepted
the AMP offer (57%) as well as those who did not (the remaining 43%). So viewed, detriment
is by no means clear-cut. To the extent detriment is relevant, it must be established by
reference to the Briginshaw standard and in my opinion it was not clearly established.
Indubitably some shareholders (43%) suffered by not selling into the bid, but the degree of
their detriment is unclear once one hypothesises correction to the forecast.
785 In speaking of the interests of shareholders present and future, I have so far directed
attention to the existing shareholders of GIO, whose board was faced with a hostile
takeover. Could it be said that the interests of the AMP should be taken into account as a
future shareholder, with as events occurred, 57% of GIO when the offer closed?
786 The short answer is that considering the interests of future shareholders in my opinion
means no more than considering the long-term interests of the company; see the discussion
by Renard in Finn (ed) “Equity and Commercial Relationships” (1987) at 138; Gower (1955) 68
Harv Rev 1176 at 1184 and Ford’s ”Principles of Corporations Law ” at 8.095.
787 But even if the position were otherwise (compare Helsham J in Provident International
Corporation v International Leasing Corporation [1969] 1 NSWLR 424 at 440 ), AMP’s interest as
a future shareholder was at the time contingent only; its bid might not succeed. Moreover,
AMP’s interest was a conflicting one. It was to purchase the company GIO as cheaply as
possible so paying the existing shareholders no more than was needed to succeed. Whereas,
the existing shareholders of GIO would have wanted the opposite by way of benefit; to be in
a position to have the benefit of maximising their sale price, should they elect to sell or be
forced to sell under compulsory acquisition. Even if they elected to retain their shares they
would not want the share price to collapse. However, in any of these contingencies their legit
imate expectation was to have a profit forecast that
(a) did not understate the profit forecast, but
(b) was fairly justified on reasonable grounds based on the known

facts.
788 Where the interests of existing and future shareholders are in that kind of conflict, I do
not accept that the interests of a contingent future shareholder should prevail over the
interests of existing shareholders who have already risked their capital in GIO. I shall return
below to the question of lawfulness, merely noting that so far as concerns the AMP as a
future shareholder, and as a bidder in a hostile takeover, it may well have had remedies
should the profit forecast in the Part B Statement have breached the law in terms of
disclosure.
789 But as against those risks actual and theoretical from maintaining the profit forecast,
there was the undoubted risk that, if the forecast had to be adjusted downwards,
shareholders at the least would not have received the increase in AMP’s offer depending on
whether this occurred before or after the increased bid was announced (9 December 1999).
Shareholders might well have faced other adverse consequences based on a lower price for
their shares. The potential benefit to GIO and its shareholders was the reciprocal of that,
namely maximising the price from AMP and saving shareholders from being forced sellers
or having to sell for less. That readily explains why Mr Vines, the DDC and GIO’s Board all
sought to maintain the profit forecast, first by a retrocession agreement and then when it
proved ineffective, by utilising the MIPI redundancy to maintain the profit forecast. There
was no evidence that Mr Vines did not genuinely believe the profit forecast was other than
appropriate, in an objective sense.
790 I would not accept that Mr Vines deliberately shut his eyes to the scale of anticipated
loss from Hurricane Georges, or that he accepted Mr Fox’s assurance because he did not
himself want to look too closely. As I have earlier explained, under the heading “The Fourth
Contravention”, the evidence does not support a conclusion that he had grounds for
suspicion. Nor, for the reasons there explained, do I consider that a reasonable person in Mr
Vines’ position should not have relied on Mr Fox, but taken proactive steps, whatever they
were, to ascertain the Hurricane Georges’ loss position for himself. Thus in my judgment he
was not required to look behind Mr Fox’s assurances from the first week in December 1998
by the way the profit forecast came no longer to be supported by the Am Re retrocession
agreement but only by the MIPI redundancy, and was tight. That we know in retrospect that
the profit forecast was unjustified does not alter the fact that Mr Vines did not know that its
key parameter, the likely loss from Hurricane Georges, was not as he was assured by Mr Fox.
Nor does the evidence support the conclusion that a reasonable person in his position in
GIO’s circumstances should have known otherwise.
791 But I should here make one thing emphatically clear. That benefit of a forecast at the
upper end of the spectrum does not justify supporting a forecast not genuinely believed in as
appropriate. Nor would it have justified Mr Vines deliberately putting GIO at risk of
prosecution if he knew or had reason to believe there was:
(a) a misstatement in the Part B Statement, or
(b) there were lacking in a forward looking statement reasonable

grounds for the forecast, or
(c) a failure to comply with continuous disclosure requirements, or
(d) otherwise, no sufficient objective basis for the profit forecast.
The evidence falls short, arguably well short, of establishing any of

the above. Nor is there any evidence that he acted simply to
frustrate the AMP takeover whether to preserve his own position or
for any other improper reason. There has been no prosecution of
GIO itself revealed by the evidence, nor of its directors. The
evidence does not establish Mr Vines deliberately set about putting
GIO, its directors or himself at risk from a course of unlawful
conduct or had no sufficient regard for the legal obligations
attendant on publishing the profit forecast or not correcting it after
8 December 1998. Had it been otherwise Mr Vines could not have
been excused by any motive of securing a higher bid for
shareholders or maintaining the current bid. Applying as one must
the objective test of a reasonable person in Mr Vines’ position in
GIO’s circumstances does not to my mind yield any different result.
792 By reference to what a reasonable person would have done in the circumstances, even if
Mr Vines arguably may have made errors of judgment in maintaining the profit forecast, or
in not looking behind Mr Fox’s assurance, to my mind is not enough to establish breach of
the statutory standard of care and diligence, or indeed skill. If errors there were, they were
not to my mind of that order. I accept that skill is to be implied and takes its content “from
the standard of proficiency that could be expected from persons undertaking such work”; being here
that of a chief financial officer ( Daniels v Anderson at 455 ). I have applied that standard here
in reaching the conclusions I have.
793 I need here to refer to the way the trial judge expressed the standard of care and
diligence. While I agree with it in the broad, in terms of what the situation called for, I
consider the primary emphasis should not be to “protect those involved in the [due diligence]
process from liability should a defect later be discovered in the document”. Rather the imperative
was to further the interests of the company, taking into account the interests of shareholders
as they arose “in GIO’s circumstances”. Those circumstances were a hostile takeover evoking
the shareholder concerns that I have earlier described but with a proper care to act lawfully.
The latter necessarily encompassed endeavouring to put out a profit forecast that complied
with the law in terms not only of not being misleading, but as genuinely considered
appropriate on objective grounds. I quote what the trial judge said below:
”[1084] It was plain to anyone who read those documents, and must
have been plain to the defendants, that the information given to the
DDC would be considered for inclusion in the Pt B statement. The
same is true of information given to PwC, since it was well-known
that PwC Securities was preparing a report upon which the DDC
and the board of directors of GIO Australia Holdings would rely for
the purposes of the Pt B statement. The criterion to be applied in
deciding whether the information that filtered up through the due
diligence process would be included in the Pt B statement was
whether the information was material to the decision of GIO
shareholders whether to accept or reject the AMP bid. Clearly
matters significantly affecting the profit forecast would meet that
materiality standard.
[1085] In my opinion, consistently with the case law on

the general law of torts to which I have referred (such
as Mercer v Commissioner for Road Transport and
Tramways (NSW)), the matters that I have described
affected the standard of care and diligence to be met by
the three defendants. When they provided information
for the purposes of the Pt B statement, either to the
DDC or to PwC, their standard of care and diligence
was influenced by the circumstance that the
information was provided within the framework of a
due diligence process that was designed to ensure
adequate and materially complete disclosure to GIO
shareholders in compliance with the law and in a
fashion that would protect those involved in the
process from liability should a defect later be
discovered in the document. These circumstances
made it necessary for the defendants to take particular
care in providing information. Moreover it was or
should have been clear from the questionnaire that it
would not be enough for them to confine their
attention to what they knew, in circumstances where
they could uncover material information by
appropriate inquiries. It was apparent that the DDC
was relying on senior executives including the three
defendants to give their conscientious and careful
attention to the documents they were asked to
complete and to the information they were to provide
in other contexts, such as in discussions with PwC.”
794 Risk is entailed in making and maintaining a profit forecast in the first place. But as Ipp J
said in Vrisakis , the management and direction of companies involves taking decisions and
embarking upon actions which may promise much, but can be fraught with risk.
9 Summation
795 (i) I consider that, though detriment of itself need not be shown for breach of s232(4)
though usually a feature, there was in the conduct of Mr Vines no such imbalance between
reasonably foreseeable risk and benefit as to constitute such a breach. I refer here on the one
hand to the foreseeable risk Mr Vines incurred in his maintaining the profit forecast (and
the earlier media release) relying on Mr Fox as he did throughout as to loss from Hurricane
Georges and on the other, the potential benefits to shareholders from so doing. This
supports a conclusion that none of the seven contraventions were made out.
(ii) I say “supports a conclusion” because that conclusion also crucially depends
upon whether, in the discharge of Mr Vines’ duties both at law and specifically
imposed in relation to the due diligence aspects of GIO’s takeover defence, a
reasonable person in his position could (not would) have held back from taking
any “ proactive ” steps beyond continuing to rely upon Mr Fox to give him
updated information on the net loss from Hurricane Georges. This is in Mr
Vines communicating to the due diligence committee for the purpose of
finalising the profit forecast in the Part B Statement.
(iii) For reasons I have earlier elaborated under the Fourth

Contravention, a close analysis of the evidence supports a
conclusion in favour of Mr Vines on reliance, including the fact
that, as minuted by Mr Murray, there was a plausible explanation
for the sharp rise in claims based on a perception of cedants that
AMP would take a different approach to reinsurance claims, so
accelerating the recording of possible claims as a precautionary
measure.
(iv) Other factors include the enormous work load that Mr Vines
was carrying, his supervisory rather than operational role and the
fact that nothing had emerged which would have given ground for
suspicion that Mr Fox was not telling him accurately what the
claims register would have revealed.
(v) The mere fact that as at 7 December 1998 the retrocession

agreement had ceased to be available as a support for the profit
forecast, leaving it supported, albeit with less tolerance for error by
an unders and overs analysis does not to my mind justify a different
conclusion as to the reasonableness of Mr Vines’ reliance on Mr
Fox. The fact remains that the auditors were satisfied that the so-
called “tight” unders and overs analysis was correct and within the
materiality threshold, so allowing the profit forecast to be
maintained. This was so stated in the Part B Statement along with
appropriate cautions to those reading it concerning this profit
forecast and profit forecasts generally. That level of “tightness” was
not to my mind a clear enough call to Mr Vines to usurp Mr Fox’s
role with proactive intervention of his own.
(vi) Even if there was error of judgment in not taking proactive

steps, there still remains the question what would have sufficed by
way of proactive steps. There is the fundamental point that a mere
error of judgment does not of itself connote a breach of the
statutory standard of care and diligence. The error must reflect
such a degree of lack of care and diligence as to breach the
statutory standard.
(vii) It should be borne in mind that the conclusions above do not

mean that there is no sheeting home of responsibility on anyone
within the corporate hierarchy from director to those involved in
the operations. Rather it reflects a conclusion that the responsibility
should here be sheeted home to those responsible in operations for
assessing the loss from Hurricane Georges at a time when that was
the crucial variable behind the $80 million element of the profit
forecast.
(viii) It is, with respect, simplistic to view the failure to take

proactive steps here as a failure to carry out Mr Vines’ duties to
ensure that shareholders receive accurate information to enable
them to decide whether or not to accept what was viewed by GIO’s
board as a hostile bid.
First : it ignores the fundamental duty that Mr Vines had to act in

the best interests of the company and its shareholders, present and
future, with particular reference to ensuring that existing
shareholders were not left with an unjustifiably depressed share
price at a time when they were most vulnerable to having their
shares acquired for less than their proper price. While there was a
countervailing interest in making sure that shareholders did not
hold on to their shares when objective circumstances would have
justified selling, it is simplistic to elevate the latter concern over the
former or to ignore the effect of adjusting the profit forecast
downwards.
Second: it must be remembered that this was a hostile

bid where the board had taken the view, rightly or
wrongly, that GIO’s offer was too low; there is however
no suggestion that that view was not genuinely held
and was the context in which Mr Vines himself was
called upon to exercise his powers as well as discharge
his duties. While there is no suggestion that he was so
acting to protect his position post takeover, a defence
based upon a genuinely held view that the offer price
was too low, necessarily would have led to a concern to
maintain the profit forecast for so long as it was
genuinely held as being the appropriate measure of
GIO’s prospects. Again, there is no suggestion that Mr
Vines was other than honest, even if in retrospect
mistaken, as to his assessment of those prospects.
(ix) In sum, and with due respect to those holding a different view, I
consider that Mr Vines did bring to bear the degree of care and
diligence, and implicitly skill, called for from a reasonable person
in his position, in the circumstances in which GIO found itself.
Section 232(4) does not call for perfection, still less judged
retrospectively. Nor does it preclude errors of judgment, though
their appraisal depends, inter alia , on the seriousness of their
potential consequences for the company. But not just for the
company. Under the parallel duty to act honestly in the interests of
the company as a whole, consideration must also be given to the
interests of GIO’s shareholders, present and future. That
overarching duty must be accommodated in considering the scope
of duty of care and diligence owed to the company. Though it could
have been otherwise, no adverse consequences befell GIO, whilst
the majority of its shareholders were better off. However, a
minority did not accept the bid when they might have done with a
less optimistic forecast – but only so long as the bid had remained
on foot. On any view if the profit forecast had been withdrawn the
bid would not have been increased and might conceivably have
been withdrawn altogether though there is no definitive evidence
on this. What is called for is a fair appreciation of what constituted
reasonable conduct in the prevailing circumstances of a hostile bid,
where Mr Vines and the board’s intention as well as fiduciary duty
was to get the best possible outcome for shareholders
endeavouring at all times to act within the law. I consider Mr Vines
sufficiently satisfied the statutory standard even if it could be said
with the wisdom of hindsight that he committed an error of
judgment in not checking the position for himself and continuing
to rely on Mr Fox.
XXII OUGHT MR VINES FAIRLY TO BE EXCUSED?
796 I consider that this appeal should succeed and would so order with the respondent to
pay the appellant’s costs. But were I wrong in concluding that no contraventions occurred I
would myself conclude in favour of the appellant in his application for relief from liability
under s1317JA and s 1318 of the Corporations Act, and thus uphold the appeal from the
Honesty Judgment.
797 The trial judge concluded that Mr Vines acted honestly. The contraventions found
against Mr Vines, on this assumption, are on appeal only the fourth, fifth and seventh. The
statement by the trial judge at [87] to [93] in the Honesty Judgment, particularly [89] needs to
be read now with that important qualification, which weakens the conclusion as to their
cumulative seriousness. I quote:
“[87] Except for item (7), my findings of contravention

were failures to exercise due care and diligence by
misleading or inadequate disclosure of material
information to the board of directors or the DDC. The
defective disclosures related to matters within Mr
Vines' personal knowledge, in circumstances where the
directors or the DDC were relying on him to make
timely, accurate and complete disclosure of material
matters.
[88] The elements of materiality, knowledge and

reliance make it difficult, per se, to present a case for
excusing the contraventions which have those
ingredients. These elements also make it difficult to
argue that Mr Vines' conduct was in any meaningful
sense "reasonable" or (given the finding of failure to
meet the standard of reasonable care and diligence)
"unreasonable only on balance". In respect of the
contraventions other than item (7), Mr Vines was aware
of material information that he ought to have
presented to the board or the DDC, which (as he knew)
were relying on him to present them with financial
information material to their decisions on important
matters relating to disclosure to investors, and he did
not do so. That is unreasonable conduct. As regards
item (7) of the contraventions, it was also unreasonable
for Mr Vines not to take appropriate steps to ensure
that the monitoring arrangements in respect of
Hurricane Georges claims continued after publication
of the Pt B statement, so that an assessment could be
made at a senior level about further disclosure to the
market, given his knowledge by 8 December of the
progress of Hurricane Georges claims.
[89] Further, I agree with ASIC (written submissions at

[89]) that the contraventions are not eleven separate,
isolated incidents. One can perceive in them a
continuity and a pattern. Considered together, the
contraventions paint a picture of an executive whose
responsibility was to provide the board with all the
information available to him and material to their
decisions concerning the Pt B statement and the profit
forecast. Rather than discharging that responsibility,
he limited the disclosure of material information to the
board and its committee in a manner that deprived
board members of the opportunity to make fully
informed decisions on some important matters. To the
extent that he decided not to give the board
information on certain material matters, he effectively
substituted his own decisions for board decisions.
The seriousness of the contraventions .
[90] Under our system of corporate governance it is the

board of directors who have the ultimate decision-
making responsibility on matters of management. But
they cannot discharge their responsibility unless the
senior executives of the company, having
responsibility to do so, lay before them all the matters
material to their decision. Mr Vines' pattern of
contraventions is incompatible with these principles
governing the board/senior executive relationship and
has the tendency to undermine the efficacy of
corporate boards. The contraventions are therefore
matters of real significance, not trivial matters or
matters of inadvertence.
[91] These general considerations of corporate

governance are reinforced in the special context of
defending a hostile takeover. The corporations
legislation imposes heavy civil, and sometimes
criminal, liability on those who provide misleading
information to the public securities markets about the
price or value of quoted securities. The law seeks to
protect investors, and in particular target shareholders,
by endeavouring to ensure that the information upon
which they make their decisions is materially accurate
and complete.
[92] Where the vehicle for provision of information to
investors is a Pt B statement, the law prescribes the
required content in some detail, while also demanding
that the document must disclose all information
material to the making of a decision by target
shareholders whether or not to accept the offer, being
information known to any of the directors and not
previously disclosed (see, at the time relevant to these
proceedings, Corporations Law, s 750, Part B, para 13).
[93] The principal responsibility for ensuring that the target

company complies with its statutory obligations and that the
information in the Pt B statement is materially accurate and
complete is borne by the directors of the target. They are not
expected to treat their disclosure obligation as an occasion for
exercising entrepreneurial flair and risk-taking. They are expected
to satisfy a standard of reasonable care and diligence that is
informed by the seriousness of the disclosure obligation.
Correspondingly, the executives who provide information to the
board must meet a standard of reasonable care and diligence that
reflects their position in the process of assisting the directors and
the company to discharge their duties.”
798 Insofar as the fourth, fifth and seventh contraventions have as their core element, Mr
Vines’ continued reliance on Mr Fox, the assumption that I now make that he was in breach
in doing so, presupposes not dishonesty or any improper motive, but a reliance on Mr Fox
that, as from 7 December 1998, was unjustified. That invoked for the first time a finding of
deficiency in the degree of care and diligence required of Mr Vines’ under the statutory
standard.
799 On the assumption I now make (of contraventions 4, 5 and 7 being made out but no
others), Mr Vines was guilty of a failure to appreciate that the “tightness” of the unders and
overs analysis, no longer supported by an effective retrocession agreement, required him to
take proactive steps to ascertain the loss from Hurricane Georges. He failed to do so. There is
no dishonesty. It follows in my view that he continued to believe in the profit forecast, rather
than that he thought it improbable.
800 His shortcoming on the assumption I now make was an error of judgment, albeit
leading to the profit forecast being maintained by the directors, with adverse consequences
for those shareholders who did not accept AMP’s offer, relying on a profit forecast that
proved far too optimistic. The majority and GIO itself, suffered no detriment though the
minority did, in failing to accept the bid. What that detriment would ultimately have
become if the profit forecast had been corrected downwards does however need to be
considered. There is little doubt that there would have been detriment in that circumstance
also. To the extent the degree of detriment overall is relevant to whether an officer ought
fairly to be excused, I do not find a high degree of it here.
801 It has not moreover been established that Mr Vines thereby led GIO, or its directors, to
be in breach of the law, and in particular the Corporations Law , though the profit forecast
insofar as based on a $65 million loss, was indubitably wrong. The most that could be said is
these events put GIO and its directors at risk of breaching the law, though I emphasise, with
no suggestion of dishonesty on Mr Vines’ part.
802 In all the circumstances, I would conclude that Mr Vines ought fairly to be excused
under the relevant provisions of the Corporations Act, recognising that I am here, as the Chief
Justice explains, invoking the principles reflected in Warren v Coombes (1979) 142 CLR 531
rather than in House v The King (1936) 55 CLR 499, in relation to what is a broadly based value
judgment under appeal.
803 However, on the assumption of contraventions 4, 5 and 7 being upheld and no relief
being allowed, I would agree with the Chief Justice that detailed submissions need to be
made with respect to penalty, affected as it is by the outcome of this appeal from the
contraventions judgment.
XXIII OVERALL CONCLUSION
804 I would propose orders as follows:
(1) Appeal allowed.
(2) Respondent to pay appellant’s costs at trial and on appeal.
(3) Set aside the orders made by Austin J on 9 August 2006

including the declarations made by Austin J in those orders.
(4) Declare the appellant did not contravene the Corpor

ations Act as alleged by the respondent.
IPP JA:
XXIV THE ISSUE ADDRESSED IN THESE REASONS
805 I have had the considerable benefit of reading the reasons to be published by Spigelman
CJ and Santow JA. Their Honours agree in respect of contraventions 1, 2, 3 and 6. The Chief
Justice would dismiss the appeals in respect of the fourth, fifth and seventh contraventions. I
agree with the reasons of the Chief Justice and the orders proposed by him.
806 The difference between the Chief Justice and Santow JA “ultimately turns on whether
Mr Vines was in breach of the statutory standard of care and diligence in continuing to rely
on Mr Fox on and from 7 December 1998” (see Santow JA at [590]). Mr Vines’ reliance on Mr
Fox, that is in issue in regard to the fourth, fifth and seventh contraventions, concerns the
estimated loss from Hurricane Georges and the profit forecast published in the Part B
statement (and elsewhere). The principal question that arises is whether Mr Vines breached
his statutory duty by not taking appropriate steps to assess the reliability of that estimate
and forecast.
807 The issues that have given rise to this difference are fundamental to the determination
of the appeal in regard to the fourth and fifth contraventions and bear to a significant degree
on the seventh contravention. In view of their importance, I shall set out, in my own words,
why I have concluded that Mr Vines contravened 232(4) of the Corporations Law in the
respects I have indicated.
XXV THE RELEVANCE OF BRIGINSHAW
808 Before coming to grips with the relevant factual issues, I propose to deal with some
questions of law that bear on the issues for determination. The first is the relevance of the
remarks of Dixon CJ in Briginshaw v Briginshaw (1938) 60 CLR 336.
809 Throughout these proceedings, reference has been made to the Briginshaw test and the B
riginshaw standard. But, in my view, Briginshaw is of limited assistance.
810 Dixon CJ said in that case at 361 to 362:
“Except upon criminal issues to be proved by the prosecution, it is

enough that the affirmative of an allegation is made out to the
reasonable satisfaction of the tribunal. But reasonable satisfaction
is not a state of mind that is attained or established independently
of the nature and consequence of the fact or facts to be proved. The
seriousness of an allegation made, the inherent unlikelihood of an
occurrence of a given description, or the gravity of the
consequences flowing from a particular finding are considerations
which must affect the answer to the question whether the issue has
been proved to the reasonable satisfaction of the tribunal. In such
matters ‘reasonable satisfaction’ should not be produced by inexact
proofs, indefinite testimony, or indirect inferences”.
Poole v Chubb Insurance Company of Australia Ltd (19 December 2014) (Stevenson
J)
91. It is a serious matter to allege fraud, especially in a case largely based on

circumstantial evidence. It is true, as Chubb submitted, that in an
appropriate case serious allegations can be proved by "circumstantial
evidentiary facts" and "inference and circumstances" (per Ipp JA, with
whom Spigelman CJ agreed in this respect, in Vines v Australian
Securities & Investments Commissions [2007] NSWCA 75; 73 NSWLR 451 at
[811]
811 Nothing in Briginshaw detracts from the proposition that a serious allegation might be
proved by “circumstantial evidentiary facts” and “inference and circumstance” (see Dixon CJ
at 366).
812 A more recent decision by the High Court on the same issue is Neat Holdings Pty Limited v
Karajan Holdings Pty Limited (1992) 67 ALJR 170 where Mason CJ, Brennan, Deane and
Gaudron JJ said at 171 :
“[T]he strength of the evidence necessary to establish a fact or facts

on the balance of probabilities may vary according to the nature of
what it is sought to prove. Thus, authoritative statements have
often been made to the effect that clear or cogent or strict proof is
necessary ‘where so serious a matter as fraud is to be found’.
Statements to that effect should not, however, be understood as
directed to the standard of proof. Rather, they should be
understood as merely reflecting a conventional perception that
members of our society do not ordinarily engage in fraudulent or
criminal conduct and a judicial approach that a court should not
lightly make a finding that, on the balance of probabilities, a party
to civil litigation has been guilty of such conduct”.
813 In Palmer v Dolman [2005] NSWCA 361, with the agreement of Tobias JA and Basten JA, I
said at [47] :
“The more recent authorities to which I have referred, and s 140 of

the Evidence Act 1995 (NSW) make it plain that there are no hard
and fast rules by which serious allegations might be proved from
circumstantial evidence. The inquiry is simply, taking due account
of what was said in Neat Holdings Pty Limited v Karajan Holdings Pty
Limited , has the allegation been proved on a balance of
probabilities”.
XXVI THE POTENTIAL HARM TO GIO ARISING FROM MISLEADING

PROFIT FORECASTS AND ITS RELEVANCE TO MR VINES’ DUTY
814 In Vrisakis v Australian Securities Commission (1993) 9 WAR 395 at 449 to 450, I expressed
the view that no act or omission is capable of constituting a failure to exercise care and
diligence unless at the time it was reasonably foreseeable that harm to the interests of the
company might be caused thereby. I expressed the view that the duty of a director to
exercise a reasonable degree of care and diligence cannot be defined without reference to
the nature and extent of foreseeable risk of harm to the company that would otherwise arise.
I pointed out that the question whether a director has exercised a reasonable degree of care
and diligence can only be answered by balancing the foreseeable risk of harm against the
potential benefits that could reasonably have been expected to accrue to the company from
the conduct in question.
815 GIO’s profit forecasts were made in connection with AMP’s hostile takeover bid for the
shares in GIO. The profit forecasts were not made in the course of the ordinary trading
business of GIO; that is, in the course of its insurance business. They were made in the
course of the management of GIO attempting to discharge their statutory obligations arising
out of the fact of the takeover bid. This context is relevant to the assessment of whether Mr
Vines exercised a reasonable degree of care and diligence in the discharge of his duties.
816 Management’s involvement (and that of Mr Vines) in estimating and publishing profit
forecasts in the course of defending AMP’s hostile takeover bid gave rise to only one
potential benefit to GIO, namely, due compliance by the company with its statutory
obligations.
817 On the other hand, the foreseeable risk of harm to the company, should its profit
forecasts be wrong and misleading, were grave. I refer in this regard to ss 670A, 995 and 1001A
of the Corporations Law .
818 Section 670A, if contravened, gives rise to criminal offences. Section 670A(1) provides, in
effect, that a person must not “give” a misleading or deceptive statement in a Part B
statement. A person is taken to make a misleading statement about a future matter “if they
do not have reasonable grounds for making the statement”. Under the Corporations Law (s
85A), a reference to a “person” includes a reference to a body corporate. By Schedule 3 to the
Corporations Law , the penalty for contravening s 670A is fifty penalty units (or imprisonment
for 1 year, or both).
819 Section 995, if contravened, gives rise to a civil penalty. Section 995 provides that a
person shall not, in, or in connection with, the making of, or the making of an evaluation of,
or of a recommendation in relation to, offers under a takeover bid, engage in conduct that is
misleading or deceptive or is likely to mislead or deceive. Conduct that contravenes s 670A
does not contravene s 995(2). Conduct that contravenes s 995 could give rise to any or all of
the various civil consequences of contravening civil penalty provisions as laid down in Pt 9.4
B of the Corporations Law (ss 1317E to 1317S). Such consequences include declarations of
contravention, pecuniary penalty orders of up to $200,000.00 and compensation orders.
820 Section 1001A of the Corporations Law might also be relevant. This section deals with the
continuous disclosure requirements of a listed disclosing entity. Sections 1001A(2) and (3)
provide for an offence if the disclosing entity, amongst other things, recklessly fails to notify
a security exchange of information that is not generally available and that a reasonable
person would expect, if it were generally available, to have a material effect on the price or
value of “ED [enhanced disclosure] securities” of the entity. The penalty for contravening s 1
001A(2) is two hundred penalty units (or imprisonment for 5 years, or both).
821 In addition to the penalties that would follow should a contravention of one or more of
ss 670A, 995 and 1001A be established, there would be substantial prejudicial flow-on effects.
These could include substantial claims by misled or deceived shareholders and public
opprobrium and loss of goodwill that could cause incalculable harm to an insurer such as
GIO.
822 Of course, a profit forecast may be inaccurate and misleading not only because it is too
high; it may also be inaccurate and misleading because it is too low. Santow JA has pointed
to the potentially grave consequences in estimating and publishing a misleading profit
forecast that is too low.
823 Undoubtedly, for Mr Vines and the management of GIO, there was a narrow channel of
accuracy and reliability through which they were required to pass. If they drifted too far
from the Scylla of an over-estimation of profits, an underestimation could result in them
being trapped in the whirlpool of Charybdis. But the existence of possibly fatal
consequences on each side of the safe channel of accuracy did not justify a lessening of the
standard of care required in order to navigate the channel properly.
XXVII HOW THE PROFIT FORECAST IN THE PART B STATEMENT WAS

ARRIVED AT
824 The overall profit forecast of GIO in the Part B Statement was $250 million. Of the $250
million, $80 million represented reinsurance profits. The $80 million was derived from a
base of $50 million that constituted ordinary business profits. Management regarded it to be
reasonable to add $30 million to the $50 million. The $30 million represented 33% of
catastrophe premiums (which were estimated to constitute profits). The $50 million plus the
$30 million made the estimate of $80 million.
825 During 21 to 28 September 1998, Hurricane Georges struck Puerto Rico and the United
States. Management thereupon provided a reserve of $25 million for losses from Hurricane
Georges.
826 Until 1 December 1998, Mr Vines believed that cover for $100 million taken out with
American Re would appropriately protect the $80 million profit forecast from reduction by
Hurricane Georges losses greater than $25 million (that is, up to $100 million).
827 As from 1 December 1998, Mr Vines believed that the American Re cover was not
effective. It would not protect the $80 million profit forecast.
828 On 7 December 1998, at a meeting at which, for part of the time, Mr Vines was present,
Mr Fox stated that Hurricane Georges claim notifications had reached $60 to $65 million,
albeit with some precautionary claims. According to Mr Fox, while further developments
could not be ruled out, management’s best estimate of the liabilities from Hurricane
Georges was of the order of $60 to $65 million.
829 As at 7 December 1998, taking into account the original reserve of $25 million, the
estimated liabilities from Hurricane Georges (being of the order of $60 to 65 million) meant
that the profit forecast of $80 million was $35 to $40 million short.
830 At the meeting of 7 December 1998, Mr Fox said that, taking the lower end of the range
of $60 to $65 million ($60 million), the Hurricane Georges’ loss would be $35 million in
excess of the $25 million reserve that had been made.
831 On 8 December 1998, at a meeting of the GIO Due Diligence Committee (“the DDC”), Mr
McClintock (a partner of Price Waterhouse having partial responsibility for verifying the
profit forecast) produced a revised version of an “unders and overs schedule” which showed
a positive adjustment for MIPI of $35 million. Mr McClintock’s schedule also showed a
negative adjustment for catastrophe adverse performance (that is, the effect of Hurricane
Georges) of $35 million. Mr McClintock said that the $35 million was based on the ultimate
loss estimate of $60 million (that is, the figure provided by Mr Fox at the meeting on 7
December). The $35 million represented the difference between the estimate of $60 million
and the reserve of $25 million.
832 It is necessary to say something about the involvement of Price Waterhouse. They were
auditors to GIO Australia Holdings Limited and GIO Insurance Limited. They had been
instructed to prepare a review of the financial forecast information that was to be included
in the Part B statement. Mr Hammond led the Price Waterhouse team for that purpose and
the work was co-ordinated by Mr McClintock. Mr Murray was responsible for the review of
two entities within the GIO Group.
833 On the basis of what had been said at the meeting of 7 December, Mr Vines accepted
that the $80 million profit forecast was reasonable. To summarise, it was made up of $50
million ordinary business profits, plus $30 million representing 33% of catastrophe
premiums; it took into account the reserve of $25 million, the “overs” reported by Mr
McClintock of $35 million, and the expected losses of $60 million from Hurricane Georges.
The expected losses from Hurricane Georges of $60 million (being the bottom of the range
of $60 to 65 million) would be covered by the reserve of $25 million plus the “overs” reported
by Mr McClintock of $35 million.
834 On this calculation (and subject to the materiality threshold in Appendix B to the Part B
statement referred to by Santow JA at [720]), there was no margin for error. What is more, its
accuracy depended on the legitimacy of taking the losses from Hurricane Georges as being
at the bottom of the range. Subject to the materiality threshold, any increase in GIO’s
exposure to liability from Hurricane Georges claims over and above the estimated $60
million would render the $80 million profit forecast (and hence the $250 million profit
forecast in the Part B statement) inaccurate. The greater the increase in net liability over $60
million, the greater the reduction in the Part B profit forecast.
XXVIII MR VINES’ RESPONSIBILITY FOR THE PROFIT FORECAST
835 In determining whether Mr Vines exercised the requisite degree of care and diligence,
regard must be had to the position he held in GIO.
836 Mr Vines agreed in cross-examination that his role as chief financial officer required
him to satisfy himself that such matters as budgets were properly and reasonably
formulated, and that it was his function to investigate what was reported to him in order to
satisfy himself, through his own inquiry, that it was essentially valid. He agreed that he had,
generally speaking, a supervisory role in relation to the financial affairs of the group and he
had responsibility for the financial integrity of the group.
837 Mr Vines had the central executive role in the due diligence process relating to the Part
B statement in general and the profit forecast in particular. He supported the individual
directors who had deputed to become familiar with the specific components of the profit
forecast. He described himself as “the arms and legs of the non-executive directors”. Austin J
found that “Mr Vines was given an assumed special responsibility with respect to the
integrity of the profit forecast. It was a responsibility the same as, or closely similar to, his
responsibility as chief financial officer for the financial integrity of the Group. That
encompassed a responsibility (the equivalent to the one he acknowledged to exist in respect
of financial accounts: T 2890) to exercise care and diligence to the statutory standard, to
ensure that accurate information about the profit forecast was prepared and provided to
management and the board of directors” (at [1128]).
838 There is no doubt, as Santow JA points out, that Mr Vines had substantial additional
duties, described by Austin J as “a very heavy workload”. Santow JA states at [626], “Mr
Vines’ responsibility as chief financial officer for the group did not call for his intervention
by ‘usurping the divisional role’ [1144] unless he became aware of some deficiencies
requiring this”. Santow JA bases his judgment, in particular, on the role played by Mr Fox
who, on 5 November 1998, was appointed as executive director of the GIO subsidiary in
which the reinsurance business of the group was carried on. As Santow JA points out [620],
Mr Vines relied on Mr Fox in that role throughout.
XXIX FACTS KNOWN BY MR VINES RELATING TO THE ACCURACY OF

THE FORECAST
839 On 19 or 20 October 1998, Mr Vines had obtained the First Quarter Highlights and
studied this document. Austin J (at [241]) said that the overall effect of the First Quarter
Highlights “was to draw attention to the risk of loss from Hurricane Georges in such a
fashion that reasonable persons in the shoes of those responsible for the profit forecast
would have thereafter treated the development of Hurricane Georges’ loss as a matter to be
kept under particular review”.
840 In the two days after 20 October 1998, Mr Vines received emails that recorded claims of
$24.9 million for the July-September 1998 quarter in respect of Hurricane Georges.
841 According to Mr Murray, on 23 October he had a discussion with Mr Vines in which it

was mentioned that it was extremely difficult to form a view about Hurricane Georges, given
it had occurred only four weeks beforehand. There was a considerable degree of uncertainty
involved (T 1437).
842 On 23 October, Price Waterhouse forwarded Mr Vines a draft report for the Part B
statement that included a review of the 1999 profit forecasts. The draft contained the
comment, “consider Georges disclosure”.
843 On 27 October, Mr Vines understood that Price Waterhouse had some concern about
the 33% profit assumption (on reinsurance premiums) but were not, at that stage,
recommending any change.
844 By the end of October 1998, Mr Vines knew that Price Waterhouse was concerned about
the catastrophe component of the profit forecast.
845 By 5 November, Mr Vines understood that retrocession cover was being sought against
the possibility that Hurricane Georges would give rise to losses of more than $25 million.
846 On 10 November, Mr Vines knew that, if the ultimate loss to GIO for Hurricane Georges
exceeded the reserve of $25 million, the $80 million profit forecast could not be achieved
unless the shortfall could be made up in other areas of GIO’s business.
847 On 11 November, Mr Vines was forwarded a catastrophe claims spreadsheet that showed
undiscounted claims for Hurricane Georges as at 31 October 1998 to be $69.06 million, an
increase of $44 million from 30 September 1998. On the same date, Mr Vines was shown the
October results and attended a meeting to discuss the October figures.
848 On 13 November, the American Re agreement was signed and provided retrocession
cover for losses in respect of Hurricane Georges in excess of $25 million to US$100 million.
849 On 22 November 1998, Mr Vines sent members of the DDC an email referring to the
“latest forecast” which projected a profit for both “Reinsurance” and “Corporate” of $69
million. This was based on the original assumption of an $80 million profit by Reinsurance,
which was offset by an $11 million loss in Corporate. Mr Vines regarded this forecast
operating profit to be “reasonable”. Mr Vines noted that Price Waterhouse had questioned
whether the forecast of $29.7 million for the catastrophe portfolio (that is, based on 33% of
catastrophe premiums) was achievable given the “high level of events in the first quarter”.
He noted that Mr Robertson had concluded that GIO could reasonably expect better claims
experience for the remainder of the year.
850 On 25 November 1998, by reason of the Federal Court’s judgment in the proceedings
challenging the takeover, the Part B statement had to be in the hands of shareholders by 16
December. That meant, in practice, that the Part B statement had to be finalised within a
week or ten days.
851 On 1 December 1998, Mr Vines understood that the retrocession cover (that is, from
American Re) could not be regarded as effective.
852 Between 3 and 6 December, Mr Vines was informed that Mr Latham had undertaken a
review of the MIPI reserves and had reported that in his opinion there was a surplus of at
least $34 to $35 million.
853 According to Hurricane Georges’ register of 4 December, the total gross claims for
Hurricane Georges were $89.7 million on that day and had risen to $91.9 million by 7
December. Mr Vines did not know of these facts when the contraventions were committed.
854 On 6 December, the DDC met and considered the Part B statement and its own report
dated 3 December. The DDC was also provided with a draft report from Price Waterhouse
which had been altered to say that the first quarter result for the catastrophe portfolio had
assumed the GIO’s exposure to Hurricane Georges would be A$25 million, being 0.6% of a
total market loss estimate of US$2.45 billion; but that up to 31 October 1998, claim
notifications for Hurricane Georges had increased to $65 million and this increase suggested
that “‘the 33% profit assumption used for this portfolio is no longer appropriate’”.
855 According to the minutes of the DDC meeting of 6 December 1998, Mr Hammond stated
that the profit forecast had assumed that claims in respect of Hurricane Georges would not
develop beyond $25 million and to the end of October 1998, claim notifications were
approximately $20 million. This is to be contrasted with the Price Waterhouse report that
stated that, up to 31 October 1998, claims notifications had increased to $65 million. Mr
Hammond went on to express the opinion that the current level of claims notifications
indicated that claims in respect of Hurricane Georges could rise to the order of $60 million.
856 On 7 December, Messrs Vines, Robertson and Fox met with Messrs Hammond,
McClintock and Murray. Austin J accepted the version of the meeting as recorded by Mr
Murray. It is to be borne in mind, however, that Mr Murray’s note, according to his
evidence, was not a word for word account of what took place on that day (T 1514).
857 Mr Murray’s note recorded that Mr Fox had stated that a detailed review of GIO’s
exposure to Hurricane Georges claims, contract by contract, had indicated a maximum
potential loss of $105 million. It recorded that notifications of claims “to date” were $60 to
$65 million, that is, up from $27 million. It recorded that management’s best estimate of GIO’
s exposure to liability was of the order of $60 to $65 million.
858 Although the Murray note recorded that Mr Fox had referred to claims notifications “to
date”, Mr McClintock testified that the claims notifications at the meeting were expressed to
be up to 30 November 1998. He said that the statement in the Murray note about
notifications to date being $60 million to $65 million should read as notifications to the end
of November 1998 (T 1641). Austin J said in this regard at [900]:
“I find that evidence [of McClintock] to be inconsistent with the

words of the notes itself, which speaks of notifications ‘to date’.
This is a matter of some significance”.
His Honour, however, does not resolve the issue.
859 In my opinion, Mr McClintock’s evidence should be accepted. Price Waterhouse

delivered a report dated 9 December on the profit forecast. The report stated:
“To 30 November 1998, we understand that claim notifications for

Hurricane Georges have increased to $60 to $65 million and that
the ultimate expected loss was within this range. The increase in
notifications with respect to Hurricane Georges suggests that the
33% profit assumption used for the catastrophe portfolio is no
longer appropriate”.
This report is confirmatory of Mr McClintock’s evidence that, at the

meeting of 7 December 1998, claims’ notifications for Hurricane
Georges were expressed to be as at 30 November 1998.
Moreover, as Santow JA notes at [616], the Hurricane Georges’ claims register as

at the end of November 1998 appeared still to support the estimate of $65
million, although that was not the case by 4 December.
860 According to Mr McClintock, the $105 million maximum potential loss to which Mr Fox
had referred at the meeting of 7 December was based on a contract-by-contract review.
861 On 8 December, the DDC met. Mr McClintock said that claims notified in respect of
Hurricane Georges might increase to an additional $35 to $40 million over the amount that
had been provided for. He said, however, that good performance in MIPI of $35 million had
been included in an under and overs schedule, which showed a pre-tax shortfall of
approximately $14 million which was not material.
862 Later that day the board considered the DDC report and authorised the signing of the
Part B statement.
XXX WARNING SIGNALS
863 In my opinion, the above facts revealed several important warning signals that, as at 8
December 1998, would have led a reasonable person in Mr Vines’ position to take steps to
verify Mr Fox’s advice that GIO’s exposure to liability for claims in respect of Hurricane
Georges would be of the order of $60 to $65 million. These signals did not produce
appropriate reactions.
864 The fundamental importance of the importance of the profit forecast in the context of
the Part B statement was fully understood by Mr Vines. Great care had to be taken in
arriving at a reliable figure. Sensible inferences had to be drawn from known facts.
Speculation was to be avoided. It seems that the profit forecast, at least on 8 December 1998,
was based to a significant degree on material that was not substantiated or verified as at that
date. Mr Vines should have ensured that no decision as to the publication of a profit forecast
would be taken without regard to the most recent information available.
865 The exercise of estimating the profit became unusually difficult once Hurricane Georges
began to have an impact. The ultimate liability from Hurricane Georges depended on
several factors and was difficult to predict (T 1607). In the time available, it was not possible
to do the usual kind of analysis to assess GIO’s liability (T 1608). This meant that even more
attention than usual had to be focused on those matters that were known. One of those
matters was the extent of claims notified from Hurricane Georges. As Austin J observed at
[241], the development of Hurricane Georges’ loss was a matter to be kept under particular
review. It would not have been difficult to obtain, each day, an updated report on claims
notified. Austin J observed in this regard (at [557]):
“Mr Fricke gave affidavit evidence that if he had been asked, in

early November 1998, to obtain up to date information about the
level of Hurricane Georges’ claims that had been received, he
would have entered the registered event numbers for Hurricane
Georges in COGEN, which would have displayed the claims paid
and outstanding, together with a list identifying contract numbers
and the number of cedants. The entire process would have taken a
number of minutes. All claims department staff had access to this
function of COGEN, and they could obtain such information
provided they knew the relevant event numbers”.
Mr Vines made no attempt, between 1 December and 8 December, to ascertain

whether the Hurricane Georges’ claims were being kept under review. He did
not bother to find out from the register whether there had been an increase in
claims as from 31 October.
866 Price Waterhouse had on more than one occasion warned that attention had to be given
to the extent of potential liability for Hurricane Georges losses. This emphasised the need
for current information, where that was available, to be considered. It was Mr Vines’ duty to
ensure that this occurred. He did not fulfil this duty.
867 As I have explained, there was little margin of error in the profit estimate calculations.
The comments I have made in the previous paragraph apply.
868 On 11 November 1998, Mr Vines learned that undiscounted claims for Hurricane
Georges as at 31 October 1998 were $69.06 million, an increase of $44 million from 30
September 1998. As Spigelman CJ notes, “[t]his increase does indicate a significant adverse
development”. The trend was obvious. As it was put by Mr McClintock, at the end of
September GIO’s exposure was seen as being $25 million and by the beginning of December
it was seen as being between $60 to $65 million “and during the period between those two
dates it changed a number of times, as the notifications arrived” (T 1601). These
developments were compelling reasons to have the claims register checked during the
period 1 December to 8 December; but Mr Vines made no request for this to be done.
869 The figures Mr Vines was given on 11 November implied that the view of Mr Robertson
that $25 million was an adequate reserve for Hurricane Georges was wrong. Mr Vines
accepted this proposition in cross-examination (T 3055). This, alone, called for a revision of
the profit estimate. It was the responsibility of Mr Vines to call for this to be done.
870 There seemed to be some confusion about Hurricane Georges losses amongst those at
the meeting of the DDC on 6 December. The Price Waterhouse report, tabled at the
meeting, stated that, as at 31 October, claim notifications for Hurricane Georges had
increased to $65 million, whereas Mr Hammond stated that, as at the end of October, claim
notifications were approximately $20 million. This, alone, called for investigation. It was Mr
Vines’ responsibility to require this to be done.
871 The profit forecast was known to depend for its accuracy on the lower extreme of the
range of Hurricane Georges’ losses ($60 million) being achieved. On 6 December, the Price
Waterhouse report considered at the DDC meeting on that date stated that claim
notifications for Hurricane Georges had increased to $65 million. Mr Fox’s statement at the
meeting of 7 December that notifications of claims were $60 to $65 million had to be
assessed against the information that Price Waterhouse had given. The uncertainty that had
arisen was another reason to have the claims register checked before the sign-off. This was a
matter that Mr Vines should have insisted upon.
872 By 7 December, management was not relying on the 33% profit assumption in respect of
catastrophe premiums and that assumption had been removed from the Part B statement (T
1484). This made the original estimate of $80 million highly problematic. It is not clear how
the $30 million estimate of profits from catastrophe premiums could be maintained and, if
not, how the profit estimate of $80 million was in fact maintained.
873 The opinion expressed by Mr Fox at the meeting of 7 December, that the maximum
potential loss, calculated on a contract-by-contract basis was $105 million, was an additional
important reason, once uncertainty had arisen, to double check the register on an ongoing
basis, and particularly before the sign-off. Mr Vines should have requested that this be done.
874 All the factors I have mentioned, when taken as a whole, meant that the profit forecast
was fraught with uncertainty. The inference is that reasonable care required the DDC and,
arguably the Price Waterhouse representatives, to consider all the up-to-date information
and then to attempt to arrive at an overall consensus as to the likely losses from Hurricane
Georges. It was dangerous, in the circumstances, to do otherwise. What in fact occurred was
that there was a discussion involving DDC and Price Waterhouse, but not on up-to-date
information. Mr Vines has to carry the ultimate responsibility for this.
XXXI CONCLUSION
875 For the reasons I have expressed (and those stated by Spigelman CJ), I consider that Mr
Vines contravened s 223(4) of the Corporations Law . As I have said, I agree with the orders
proposed by the Chief Justice.
**********
07/10 - typographical error in s 232(4) "in" should be "and"omission of "and" in s

/2009 1317JA(2) (a) - Paragraph(s) [3], [7]
Cited by:
Yeo & ors v Freeman & ors [2018] VSC 448 (14 August 2018) (Gardiner AsJ)
54. I agree with the submission of Mr Maiden, senior counsel for Mr Freeman, that the plaintiffs’
claim of failure to exercise the degree of care and diligence required by s 180 is one based on
a failure to exercise reasonable care. [48]
via
[48] In support of this proposition, reference was made to Trilogy Funds Management Limited v
Sullivan (No 2) (2015) 331 ALR 185 [200] (Wigney J) and Vines v ASIC (2007) 73 NSWLR 451 [142] , [151] (
Spigelman CJ, Ipp, Santow JJA agreeing).
United Petroleum Australia Pty Ltd v Herbert Smith Freehills [2018] VSC 347 (26 June 2018) (ELLIOTT J)
613. The degree of departure from the acceptable standard required to constitute a breach of the
director’s statutory duty of care and diligence is the same as that which would support a
claim of negligence at common law. [400]
via
[400] ASIC v Rich (2009) 75 ACSR 1, 611 [7191], 613 [7199]-[7200] (Austin J); Vines v ASIC (2007) 73
NSWLR 451, 459 [63] , 472-473 [137] , 475 [142] , 476 [145] , 477 [152] (Spigelman CJ), 554 [587] (Santow
JA) .
Vanguard Financial Planners Pty Ltd & Anor v Ale & Ors [2018] NSWSC 314 (14 March 2018) (Black J)
- Vines v Australian Securities and Investments Commission [2007] NSWCA 75 ; (2007) 73 NSWLR
451; 62 ACSR 1
Vanguard Financial Planners Pty Ltd & Anor v Ale & Ors [2018] NSWSC 314 (14 March 2018) (Black J)
The allegation of breach of fiduciary duties owed by Mr Ale as a director of VFP is extended, by
particulars and by paragraphs 22–24 of the Amended and Further Amended Statements of Claim,
to the broadly corresponding statutory duties under ss 180–183 of the Corporations Act. Section 180
of the Corporations Act requires that a director or other officer of a corporation must exercise their
powers and discharge their duties with the degree of care and diligence that a reasonable person
would exercise if they were a director or officer of a corporation in the corporation's circumstances
and occupied the office held by, and had the same responsibilities within the corporation as, the
director or officer. The statutory duty of care and diligence under that section overlaps with
directors’ duty of care arising at general law, and the circumstances of the particular corporation
concerned are relevant to the content of the duty, including the type of company, the provisions of
its constitution, the size and nature of its business, the composition of its board, the director’s
position and responsibilities within the company, the particular function the director is
performing, the director’s experience or skills, the terms on which he or she has undertaken to act
as a director and the manner in which responsibility for the business of the company is distributed
between its directors and its employees: Australian Securities and Investments Commission v Maxwell [
2006] NSWSC 1052; (2006) 59 ACSR 373 at [100] ; Vines v Australian Securities and Investments
Commission [2007] NSWCA 75; (2007) 73 NSWLR 451; 62 ACSR 1 .
In the matter of Central Management (NSW) Pty Ltd (in liquidation) ACN 139 989 852 [2017] NSWSC
1258 (19 September 2017) (Black J)
451; 62 ACSR 1
In the matter of Central Management (NSW) Pty Ltd (in liquidation) ACN 139 989 852 [2017] NSWSC
1258 (19 September 2017) (Black J)
The statutory duty of care and diligence under s 180 of the Corporations Act overlaps with directors’
duty of care arising at general law: Vines v Australian Securities and Investments Commission [2007]
NSWCA 75; (2007) 73 NSWLR 451; 62 ACSR 1 . In Australian Securities and Investments Commission v
Maxwell [2006] NSWSC 1052; (2006) 59 ACSR 373 at [100] , Brereton J observed that:
In the matter of AJ Roberts Removals & Storage Pty Limited [2017] NSWSC 1054 (11 August 2017) (Black J)
451; 62 ACSR 1; 25 ACLC 448
In the matter of AJ Roberts Removals & Storage Pty Limited [2017] NSWSC 1054 (11 August 2017) (Black J)
50. It seems to me that the proposition that Ms Shumack was involved in or participated in the
management of the Company or its business, prior to Mr Trent’s withdrawal from the
Company, has not been established. In my view, involvement in “management” of a
company or its business, as a matter of general usage, would generally involve an element of
decision-making as to the company’s direction, which distinguishes managerial tasks from
those of a company’s non-managerial staff. It is not necessary to give that concept any
narrow reading to conclude that purely administrative tasks, undertaken under the direction
of others, would not fall within it. That view is consistent with, although it does not depend
upon, the concept of being “involved in the management” of a Company used in the
corporations legislation. For example, in Cullen v CAC (NSW) (1988) 14 ACLR 789; 7 ACLC 121
at 126, Young J characterised a person involved in the management of a corporation as one
who made decisions as to the direction of the corporation, although not necessarily at the
highest level, and not necessarily without being subject to obtaining the approval of a higher
officer, and observed that a person's activities would not amount to taking part in
management of the corporation if that person was "merely carrying out the policy of the
corporation in charge of a branch or division of the business not making decisions as to its
direction"; see also Holpitt Pty Ltd v Swaab (1992) 33 FCR 474; 105 ALR 421; 6 ACSR 488 at 491 ;
Australian Securities and Investments Commission v Vines [2005] NSWSC 738; (2005) 55 ACSR 617
at [1049] , on appeal Vines v Australian Securities and Investments Commission [2007] NSWCA
75; (2007) 73 NSWLR 451; 62 ACSR 1; 25 ACLC 448 . The limited involvement of Ms Shumack
in the Company that has been established, in the period prior to 2009, does not seem to me
to amount to involvement in managing or running the Company or its business as the
Plaintiffs contended or to constitute oppression on that basis.
In the matter of FAL Healthy Beverages Pty Ltd and FAL Retail Pty Ltd [2017] NSWSC 476 (27 April 2017)
(Black J)
451; (2007) 62 ACSR 1
In the matter of FAL Healthy Beverages Pty Ltd and FAL Retail Pty Ltd [2017] NSWSC 476 (27 April 2017)
(Black J)
54. The statutory duty of care and diligence under s 180 of the Corporations Act overlaps with
directors’ duty of care arising at general law: Vines v Australian Securities and Investments
Commission [2007] NSWCA 75; (2007) 73 NSWLR 451; (2007) 62 ACSR 1 . Mr Arnott refers to
the observations of Brereton J in in Australian Securities and Investments Commission v Maxwell
[2006] NSWSC 1052; (2006) 59 ACSR 373 at [100] that:
“In determining whether a director has exercised reasonable care and diligence, as s 180(1)
expressly contemplates, the circumstances of the particular corporation concerned are relevant to
the content of the duty. These circumstances include the type of company, the provisions of its
constitution, the size and nature of the company’s business, the composition of the board, the
director’s position and responsibilities within the company, the particular function the director is
performing, the experience or skills of the particular director, the terms on which he or she has
undertaken to act as a director, the manner in which responsibility for the business of the
company is distributed between its directors and its employees, and the circumstances of the
specific case …”
General Manager of the Fair Work Commission v McGiveron [2017] FCA 405 (21 April 2017) (BARKER J)
16. Section 285 of the RO Act is in relevantly the same terms as s 180 of the Corporations Act that
deals with directors and other officers of a corporation. The test for determining a
contravention of s 285(1) is objective. It does not import a mental element. See Chew v The
Queen (1992) 173 CLR 626 at 642 (Dawson J); [1992] HCA 18 , citing Byrne v Baker [1964] VR 443
at 450 . It requires a court to ask what an ordinary person of ordinary prudence, with the
knowledge and experience of the officer, might be expected to have done in all of the
circumstances at the relevant time of the conduct if he or she were acting on his or her own
behalf. See Daniels v Anderson (1995) 37 NSWLR 438 at 504-505 ; Australian Securities and
Investments Commission v Vines (2003) 48 ACSR 322 at [38] (Austin J); [2003] NSWSC 116 ,
referred to with approval in Vines v Australian Securities and Investments Commission (2007) 62
ACSR 1 at 27 [109] (and see at 115 [593] (Santow JA)); [2007] NSWCA 75
General Manager of the Fair Work Commission v McGiveron [2017] FCA 405 (21 April 2017) (BARKER J)
16. Section 285 of the RO Act is in relevantly the same terms as s 180 of the Corporations Act that
deals with directors and other officers of a corporation. The test for determining a
contravention of s 285(1) is objective. It does not import a mental element. See Chew v The
Queen (1992) 173 CLR 626 at 642 (Dawson J); [1992] HCA 18 , citing Byrne v Baker [1964] VR 443
at 450 . It requires a court to ask what an ordinary person of ordinary prudence, with the
knowledge and experience of the officer, might be expected to have done in all of the
circumstances at the relevant time of the conduct if he or she were acting on his or her own
behalf. See Daniels v Anderson (1995) 37 NSWLR 438 at 504-505 ; Australian Securities and
Investments Commission v Vines (2003) 48 ACSR 322 at [38] (Austin J); [2003] NSWSC 116 ,
referred to with approval in Vines v Australian Securities and Investments Commission (2007) 62
ACSR 1 at 27 [109] (and see at 115 [593] (Santow JA)
ASIC v Flugge (No 2) [2017] VSC 117 (10 April 2017) (ROBSON J)
57. An application for relief under ss 1317S and 1318 involves three stages of inquiry: [22]
(a) whether the applicant for relief has acted honestly;
(b) whether, having regard to all the circumstances, the applicant

ought fairly to be excused; and
(c) whether the applicant should be relieved from liability wholly or in

part, and if partly, to what extent.
It is for the director to satisfy the Court under each of those limbs. [23] Mr Flugge has
the burden of persuading me in relation to this evaluative judgment.
via
[23] Dominium Insurance Company of Australia Limited (in liquidation) v Finn (1989) 7 ACLC 25 (‘D
ominion’) 33–34 (Powell J); ASIC v APCH [2014] FCA 1308 [68] ; Vines v ASIC (2007) 73 NSWLR 451 [7] .
62. If a finding of honesty is made, a broad range of matters are relevant to whether an applicant
for relief ‘ought fairly to be excused’ and also to whether to exercise the discretion to grant
relief. [27] The authorities set out a broad range of factors, many of which are set out by
Austin J in Vines v ASIC. [28]
via
[28] (2007) 73 NSWLR 451 . See also Gillifillan v ASIC [2012] NSWCA 370 [175]–[176] .
62. If a finding of honesty is made, a broad range of matters are relevant to whether an applicant
for relief ‘ought fairly to be excused’ and also to whether to exercise the discretion to grant
relief. [27] The authorities set out a broad range of factors, many of which are set out by
Austin J in Vines v ASIC. [28] This can be seen as a ‘value judgment rather than an exercise in
discretion.’ [29]
via
[29] Morely v ASIC (No 2) (2011) 83 ACSR 620 (‘Morley’) [16] (Spigelman CJ, Beazley and Gilles
JJA); ASIC v APCH [2014] FCA 1308 [72] (Murphy J); Vines v ASIC (2007) 73 NSWLR 451 [558] (Spigelm
an CJ with whom Ipp JA agreed); [802] (Santow JA).
63.
63. As was said in ASIC v APCH , the Court is bound to consider all of the circumstances of the
case when determining whether the defendant ought fairly to be excused and whether to
exercise the discretion; ‘it must be the case that if a matter is relevant to be considered by the
court in deciding on the questions of disqualification and pecuniary penalty it must be
relevant in deciding whether to grant relief from liability. Accordingly the factors that may
be considered include the lists of considerations in [ASIC v] Adler.’ [30]
via
[30] [2014] FCA 1308 [74] citing Morley (2011) 83 ACSR 620 [50] ; Maelor Jones (1989) 54 SASR 285,
292 ; Re Turner Barker v Ivimey [1897] 1 Ch D 536, 542 (Byrne J); ASIC v Adler [2002] NSWSC 483 [56], [1
25]–[126] ; Healey (2011) 196 FCR 430 [91] ; Vines v ASIC (2007) 73 NSWLR 451 [50] .
Moussa v Minister for Immigration and Border Protection [2016] FCA 1403 (24 November 2016) (FLICK J)
23. But no question arises in the present case of any assessment on the part of the Federal
Circuit Court of any witnesses or questions as to credibility of witnesses: Gaskell v Denkas
Building Services Pty Ltd [2008] NSWCA 35 at [54] per Bryson AJA (Hodgson and Basten JJA
agreeing). The questions to be resolved by that Court were directed to the reasons for
decision of the Tribunal and to ascertaining whether the Tribunal had committed
jurisdictional error. The resolution of such questions was, accordingly, far removed from the
task of a primary judge who may be called upon to resolve competing factual contentions
and questions as to the credibility and demeanour of witnesses. There has certainly been no
denial of procedural fairness occasioned by that passage of time: cf. Vines v Australian
Securities and Investments Commission [2007] NSWCA 75 at [26] to [31] , (2007) 62 ACSR 1 at 11 to
12 per Spigelman CJ
Australian Securities and Investments Commission v Cassimatis (No 8) [2016] FCA 1023 (26 August 2016)
(EDELMAN J)
468. In none of these cases does it appear that the characterisation of the duty was an issue.
Nothing turned upon this issue and no argument was made about it. However, one case
where the distinction, although not clearly argued, might have made a difference was the
decision in the New South Wales Court of Appeal in relation to the predecessor provision to
s 180(1) (ie s 232(4) of the Corporations Law ) in Vines v Australian Securities & Investments
Commission [2007] NSWCA 75; (2007) 73 NSWLR 451 . In that case, Mr Vines argued that
where the breach was asserted in its character as a public duty, such as for the purpose of a
pecuniary penalty or disqualification, then the standard of care required was higher. The
New South Wales Court of Appeal rejected that submission. One significant reason for this
was that the public consequences of civil penalties and disqualification require “consideration
of further matters over and above the contravention itself” which reflected a lack of intention
to adjust the standard of care (476 [150] per Spigelman CJ; Santow JA agreeing at 554 [587];
Ipp JA agreeing at 602 [805]).
Australian Securities and Investments Commission v Cassimatis (No 8) [2016] FCA 1023 (26 August 2016)
(EDELMAN J)
477. Fourthly, and finally, the dominant approach has support from the manner in which the
standard of care issue was resolved in Vines v Australian Securities & Investments Commission [2
007] NSWCA 75; (2007) 73 NSWLR 451
ASIC v Managed Investments Ltd & Ors (No. 9) [2016] QSC 109 (23 May 2016) (Douglas J)
Vines v ASIC (2007) 73 NSWLR 451; [2007] NSWCA 75 , cited
ASIC v Managed Investments Ltd & Ors (No. 9) [2016] QSC 109 (23 May 2016) (Douglas J)
In that context, Mr Withers submitted that Mr Hutchings had acted honestly, without moral
turpitude, namely without deceit or conscious impropriety, without intent to gain an improper
benefit or advantage and without carelessness or imprudence that negated the performance of the
duty in question.[635] He also focussed on the extent to which Mr Hutchings relied on the acts,
advice and assistance of others, submitting that where there is no cause for suspicion nor
circumstances demanding critical and detailed attention, it is reasonable for an officer to rely on
advice, without independently verifying the information or scrutinising the data or circumstances
upon which that advice is based. [636]
via
[636] Vines v ASIC (2007) 73 NSWLR 451 , 586 at [731] , referring to Re HIH Insurance Ltd (in prov liq);
ASIC v
Caason Investments Pty Ltd v Cao (No 2) [2015] FCAFC 192 (22 December 2015) (GILMOUR, FOSTER
AND EDELMAN JJ)
48. It seems that the alternative approach was also taken following the decision in Vines v
Australian Securities and Investments Commission [2007] NSWCA 75; (2007) 73 NSWLR 451
Trilogy Funds Management Limited v Sullivan (No 2) [2015] FCA 1452 (18 December 2015) (WIGNEY J)
200. First, the duty of care and diligence in s 180(1) of the Corporations Act is akin to the common
law duty of care and it reflects, and to some extent refines, corresponding obligations under
the general law: Australian Securities and Investments Commission v Vines (2005) 55 ACSR 617 at [
1070]-[1077] ; Vines v Australian Securities and Investments Commission (2007) 73 NSWLR 451 (
Wong v Wong [2015] NSWDC 274 (30 September 2015) (Gibson DCJ)
10. Mr Khan was not cross-examined about a number of disputed issues relevant to the
defendant’s case, such as whether the plaintiff shouted abuse at the defendant after the
incident, or about his observations, such as his statement that the defendant was washing his
car both prior to and after the incident. I have had regard to the principles enunciated in Bro
wn v Dunn (1893) 6 R 67 as explained by the NSW Court of Appeal in Vines v Australian
Securities and Investments Commission [2007] NSWCA 75 at [60] – [62] and, most recently, in Bra
dley v Matloob [2015] NSWCA 239 at [5] – [7] per McColl JA.
Wong v Wong [2015] NSWDC 274 (30 September 2015) (Gibson DCJ)
Vines v Australian Securities and Investments Commission [2007] NSWCA 75
Delaney v Winn [2015] NSWCA 124 (12 May 2015) (Ward JA at [1], Emmett JA at [226], Gleeson JA at [229])
Vines v ASIC [2007] NSWCA 75 ; (2007) 62 ACSR 1
Delaney v Winn [2015] NSWCA 124 (12 May 2015) (Ward JA at [1], Emmett JA at [226], Gleeson JA at [229])
It is certainly the case that the parties may, by consent, choose to disregard or abandon the case as
pleaded and fight their case on some other basis. So much has been recognised in Gould and Birbeck
and Bacon v Mount Oxide Mines Ltd (in Liq) [1916] HCA 81; (1916) 22 CLR 490 (at 517 per Isaacs and
Rich JJ); Dare v Pulham [1982] HCA 70; (1982) 148 CLR 658 (at [6] 664 per Murphy, Wilson, Brennan,
Deane and Dawson JJ); Vines v ASIC [2007] NSWCA 75; (2007) 62 ACSR 1 (at 17 [57] per Spigelman CJ
); Benton v Scott’s Refrigerated Freightways [2008] NSWCA 143 (see Campbell JA at [41]-[43] ); and see I
ngot Capital Investments Pty Limited v Macquarie Equity Capital Markets Limited [No 6] [2007] NSWSC
124; (2007) 63 ACSR 1 at first instance per McDougall J and on appeal, [2008] NSWCA 206; (2008) 73
NSWLR 653 per Ipp JA.
Poole v Chubb Insurance Company of Australia Ltd [2014] NSWSC 1832 (19 December 2014) (Stevenson
J)
Vines v Australian Securities & Investments Commissions [2007] NSWCA 75 ; 73 NSWLR 451
Poole v Chubb Insurance Company of Australia Ltd [2014] NSWSC 1832 (19 December 2014) (Stevenson
J)
91. It is a serious matter to allege fraud, especially in a case largely based on circumstantial
evidence. It is true, as Chubb submitted, that in an appropriate case serious allegations can
be proved by "circumstantial evidentiary facts" and "inference and circumstances" (per Ipp
JA, with whom Spigelman CJ agreed in this respect, in Vines v Australian Securities &
Investments Commissions [2007] NSWCA 75; 73 NSWLR 451 at [811]
Clarke (as trustee of the Clarke Family Trust) & Ors v Great Southern Finance Pty Ltd (Receivers and
Managers Appointed) (in liquidation) & Ors [2014] VSC 516 (11 December 2014) (CROFT J)
541. In Vines v ASIC Santow JA said: [939]
“The degree of an officer’s permissible reliance on others will turn on

similar considerations as those that determine the overall standard of care
for an individual director. They focus particularly on the characteristics
of the company, the skills and experience of the officer concerned and the
delegate, and the reasonably anticipated risks entailed in so doing. What
is expected here is a level of scrutiny as befits supervision, not the detailed
direct involvement that is associated with operational
responsibility. Where there is no cause for suspicion nor circumstances
demanding critical and detailed attention, it is reasonable for an officer to
rely on advice, without independently verifying the information or
scrutinising the data or circumstances upon which that advice is based
(see Re HIH Insurance Ltd (in prov. Liq); ASIC v Adler (2002) 41 ACSR 72 at 166
-167 ).”
via
[939] (2007) 73 NSWLR 451 at 585 to 586 [731] (CASE.001.449.0001 at 0135 to 0136 ).
Australian Securities and Investments Commission v Australian Property Custodian Holdings Limited
(Receivers and Managers appointed) (in liquidation) (Controllers appointed) [2014] FCA 1308 (02
December 2014) (MURPHY J)
72. The question as to whether an applicant for relief ought fairly to be excused is a value
judgment rather than an exercise of discretion: Morley at [16] ; Vines v Australian Securities and
Investments Commission (2007) 62 ACSR 1 (“
In the matter of Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789 (16 June 2014) (Black J)
409. At first instance in Australian Securities & Investments Commission v Vines above, Austin J in
turn noted (at [1058]-[1060] ) that the section adopted an objective standard of care measured
by reference to what a reasonable person of ordinary prudence would do, which could be
more demanding in circumstances where the individual has been appointed by reference to
a particular skill possessed by that individual. The Court of Appeal in Vines v Australian
Securities & Investments Commission above in turn observed (at [141]-[145]
Vines v Australian Securities & Investments Commission [2007] NSWCA 75 ; (2007) 73 NSWLR 451
407. The Plaintiffs plead (FASC [150]) breaches of s 180(1) of the Corporations Act, particularised by
reference to six matters. Section 180(1) of the Corporations Act requires a director or officer to
exercise his or her powers and discharge his or her duties with the degree of care and
diligence which a reasonable person would exercise if he or she was a director or officer of a
corporation in the corporation's circumstances and occupied the office within that
corporation held by the director or officer and had the same responsibilities within the
corporation as the director or officer. The Plaintiffs refer to well-known case law in respect of
this section, including Vrisakis v Australian Securities Commission (1993) 9 WAR 395; 11 ACSR 162
; Australian Securities Commission v Gallagher (1993) 11 WAR 105; 10 ACSR 43 and Australian
Securities & Investments Commission v Vines [2005] NSWSC 738; (2005) 55 ACSR 617, affirmed
by the Court of Appeal in Vines v Australian Securities & Investments Commission [2007]
NSWCA 75; (2007) 73 NSWLR 451
In the matter of Ledir Enterprises Pty Limited [2013] NSWSC 1332 (17 September 2013) (Black J)
- Australian Securities and Investments Commission v Vines [2007] NSWCA 75 ; (2007) 73 NSWLR
451; (2007) 62 ACSR 1
In the matter of Ledir Enterprises Pty Limited [2013] NSWSC 1332 (17 September 2013) (Black J)
75. The parties paid little attention to the relevant case law in submissions. The statutory duty of
care and diligence overlaps with directors' duty of care arising at general law: Australian
Securities and Investments Commission v Vines [2007] NSWCA 75; (2007) 73 NSWLR 451; (2007)
62 ACSR 1
CRABMAN & CRABMAN [2013] FamCAFC 104 (03 July 2013) (May J)
Vines v Australian Securities and Investments Commission (2007) 62 ACSR 1

WJD v TEK (1998) 72 ALJR 1323
CRABMAN & CRABMAN [2013] FamCAFC 104 (03 July 2013) (May J)
48. Arguments are regularly made by self-represented litigants in appeals in this Court about
what is said to be procedural fairness or natural justice. In Vines v Australian Securities and
Investments Commission (2007) 62 ACSR 1, Spigelman CJ considered the rules of natural
justice. His Honour said at paragraph 59 :
The appellant’s submissions rely on the application, in the circumstances of the

proceedings, of the requirement of procedural fairness. The seriousness of the
consequences of the orders sought and, in the event, visited upon the appellant, must
inform the content of that requirement. Nevertheless, as is well established,
procedural fairness does not involve a fixed body of rules to be applied in a formulaic
manner. As Gleeson CJ said in R v Minister for Immigration and Multicultural and
Indigenous Affairs; Ex parte Lam (2003) 214 CLR 1 … at [37] :
Feridun Akcan v Gabriel Cross [2013] NSWSC 802 (12 June 2013) (Rein J)
Vines v Australian Securities and Investment Commission (ASIC) [2007] NSWCA 75
Feridun Akcan v Gabriel Cross [2013] NSWSC 802 (12 June 2013) (Rein J)
45. When counsel agreed that no Browne v Dunn point would be taken the result, on my
understanding, is that it was not necessary for counsel to put all of the matters asserted by
counsel's own client to a witness who had given contrary evidence. Usually an agreement of
this kind is made because it is clear there is a controversy about fact X or Y relevantly
through the affidavits served by each side and counsel do not wish to expend time formally
putting every contested allegation to every witness. The question arises as to whether it is
necessary for counsel who wises to impugn a witness' veracity on some ground outside the
factual matters to which that witness has deposed, and to which witnesses for counsel's client
have responded or had the opportunity to respond, must put that particular matter to the
witness. The rule in Browne v Dunn has often been described as a rule of fairness not only to
a party but to the witness if a finding adverse to the witness is to be made: see Vines v
Australian Securities and Investment Commission (ASIC) [2007] NSWCA 75 , Bales &
Anor v Mills [2011] NSWCA 226. I accept that it is open to counsel to submit that it is relevant
in assessing a witness' reliability that the person is, or is not, connected with, or friendly with,
or employed by a party without counsel having put to the witness that his or her evidence is
less reliable by virtue of that fact. However, in my view, counsel ought not be permitted to
assert that a witness' evidence was fabricated because of friendship with the party calling
that witness without putting that proposition to the witness in question. Similarly if it is to be
submitted that the evidence which a witness has given in his affidavit or in Court is evidence
that was "fed" by the party calling that witness or by that party's legal advisor, then I think
that proposition should be squarely put to the witness. Mr Silver did obtain an admission
from Mr Nedjat that I have earlier described and an admission from Mr Isaac that Mr Akcan
had been present with Mr McCrudden when Mr Isaac's affidavit was prepared. Mr Silver did
ask them both about the process they went through in preparing their affidavits but did not
put to either of them that the evidence they had given was false and had come from Mr
Akcan or Mr McCrudden. He did challenge Mr Bicer and Mr Nguyen's evidence but did not
put to them that their evidence was not their own. Mr Silver did not put to Mr Nedjat that
the content of the critical conversations deposed to by him had come from Mr Akcan or Mr
McCrudden.
Mr Cross' credibility
N M Rural Enterprises Pty Ltd v Rimanui Farms Ltd [2013] NSWSC 309 (12 April 2013) (Harrison J)
Vines v ASIC [2007] NSWCA 75
YORSTON & YORSTON [2013] FamCAFC 49 (27 March 2013) (Strickland, Ainslie-Wallace, Murphy JJ)
43. Relevant to this case, in Vines v Australian Securities and Investments Commission (2007) 62
ACSR 1 , Spigelman CJ considered the applicability of the rules of natural justice in
circumstances where the appellant alleged findings of contraventions of s 232(4) of the Corpor
ations Act 2001 (Cth) by the trial Judge were “materially, substantially and prejudicially
outside the pleading”. His Honour said at paragraph 59:
The appellant’s submissions rely on the application, in the circumstances of the

proceedings, of the requirement of procedural fairness. The seriousness of the
consequences of the orders sought and, in the event, visited upon the appellant, must
inform the content of that requirement. Nevertheless, as is well established,
procedural fairness does not involve a fixed body of rules to be applied in a formulaic
manner. As Gleeson CJ said in R v Minister for Immigration and Multicultural and
Indigenous Affairs; Ex parte Lam (2003) 214 CLR 1 … at [37] :
… Fairness is not an abstract concept. It is essentially practical. Whether

one talks in terms of procedural fairness or natural justice, the concern
of the law is to avoid practical injustice.
In the matter of Idylic Solutions Pty Ltd - Australian Securities and Investments Commission v Hobbs
[2012] NSWSC 1276 (24 October 2012) (Ward J)
Vines v Australian Securities and Investments Commission (2007) 73 NSWLR 451 ; [NSWCA] 75
In the matter of Idylic Solutions Pty Ltd - Australian Securities and Investments Commission v Hobbs
[2012] NSWSC 1276 (24 October 2012) (Ward J)
1483. Mr Halley notes that the degree of negligence necessary to constitute a breach of s 180 is no
higher than that which would support a claim of professional negligence on the part of the
company director or officer at common law (referring to Vines v ASIC (2007) 73 NSWLR 451
Downer EDI Limited v Gillies [2012] NSWCA 333 (18 October 2012) (Allsop P at [1], Macfarlan JA at [150],
Meagher JA at [151])
Vines v Australian Securities and Investments Commission [2007] NSWCA 75 ; 62 ACSR 1
Downer EDI Limited v Gillies [2012] NSWCA 333 (18 October 2012) (Allsop P at [1], Macfarlan JA at [150],
Meagher JA at [151])
In reaching the above conclusions, the primary judge recognised that Mr Gillies' conduct had to be
assessed by reference to his obligations under the Corporations Act and that a failure to notify a
company's board of management or its chairman of dealing with the company's assets would or
may be misconduct or inappropriate. His Honour made reference in this context to the Corporations
Act, s 180 ; Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 at 466 ; Vines v Australian Securities and
Investments Commission [2007] NSWCA 75; 62 ACSR 1 ; Australian Securities and Investments
Commission v Rich [2009] NSWSC 1229 at [7178] et seq; Australian Securities and Investments
Commission v Nealey [2011] FCA 717; and Australian Securities and Investments Commission v Macdonald
(No 11) [2009] NSWSC 287.
Nu Line Construction Group Pty Ltd v Fowler (aka Grippaudo) [2012] NSWSC 587 (31 May 2012) (Ward J)
Vines v Australian Securities and Investments Commission (2007) 73 NSWLR 451; (2007) 62 ACSR 1;
[2007] NSWCA 75
Nu Line Construction Group Pty Ltd v Fowler (aka Grippaudo) [2012] NSWSC 587 (31 May 2012) (Ward J)
27. In some circumstances it seems that a court may take into account effect to matters that are
not specifically pleaded (see, for example, Sykes v Stratton [1972] 1 NSWLR 145 at 162, a case
where restoration was sought of trust property in the context of a transaction that was
considered by Helsham J, as his Honour then was, to be an illegal transaction). However, the
general rule is that a court would not be required to consider a defence not raised by the
parties ( North Western Salt Co Ltd v Electrolytic Alkali Co Ltd [1914] AC 461; Knowles v Fuller (194
9) 48 SR (NSW) 243) and that cases are to be determined on the issues raised by the
pleadings. It is recognised that the parties may by their conduct of the case acquiesce in a
departure from, or may disregard or enlarge, a pleaded case or, in the words of Spigelman CJ
in Vines v Australian Securities and Investments Commission (2007) 73 NSWLR 451; (2007) 62
ACSR 1; [2007] NSWCA 75, at 17 [57] ,
A v N & anor [2012] NSWSC 354 (13 April 2012) (Ward J)

[2007] NSWCA 75
A v N & anor [2012] NSWSC 354 (13 April 2012) (Ward J)
536. There are occasions when parties may by their conduct of the case acquiesce in a departure
from, or may disregard or enlarge, a pleaded case (or, as it was put by Spigelman CJ in Vines v
Australian Securities and Investments Commission (2007) 73 NSWLR 451; (2007) 62 ACSR 1; [2007]
NSWCA 75, at 17 [57] ,
Rafferty v Madgwicks [2012] FCAFC 37 (20 March 2012) (KENNY, STONE AND LOGAN JJ)
244. In his reasons, his Honour stated that he would not entertain the Donovan parties’ late
submission because it was not the case that the Donovan parties had pleaded against
Madgwicks (which was demonstrably correct) and “should not be entertained at this stage
having regard to the way in which the trial was conducted”: see Rafferty v Time 2000 at
[345]. On a question such as this, his Honour was undoubtedly in the best position to
determine whether or not the course of the trial attracted the principles stated in Leotta v
Public Transport Commission of New South Wales (1976) 50 ALJR 667 at 668 per Stephen, Mason
and Jacobs JJ (and discussed in Vines v Australian Securities and Investments Commission (2007)
73 NSWLR 451 at [32]-[59]
Gillies v Downer EDI Ltd [2011] NSWSC 1055 (09 September 2011) (Rothman J)
Vines v Australian Securities and Investments Commission [2007] NSWCA 75 ; (2007) 62 ACSR 1
Gillies v Downer EDI Ltd [2011] NSWSC 1055 (09 September 2011) (Rothman J)
98. The foregoing does not imply that a failure to notify a company's board of management, or
the chairman, of dealings with the company's assets would not, ordinarily, be misconduct or
inappropriate for purposes of the Corporations Act 2001 (Cth) : see Fraser v NRMA Holdings
Limited (1995) 55 FCR 452 at 466 A-B; Vines v Australian Securities and Investments Commission [2
007] NSWCA 75; (2007) 62 ACSR 1
Weston v Publishing and Broadcasting Ltd [2011] NSWSC 433 (13 May 2011) (Ward J)
Vines v Australian Securities and Investments Commission (2007) 73 NSWLR 451
I am of the view, having regard to the authorities referred to above, that inadequately or
improperly pleaded complaints should not ordinarily be determined by what is contained in the
particulars. (There are occasions when particulars have been allowed in effect to expand the scope
of a pleaded case but I consider that those can best be seen as an application of the principle that
parties may by their conduct of the case acquiesce in a departure from, or may disregard or
enlarge, a pleaded case or, as it was put by Spigelman CJ in Vines v Australian Securities and
Investments Commission (2007) 73 NSWLR 451 ; ( 2007) 62 ACSR 1 ; [2007] NSWCA 75, at 17 [57] , may
choose to fight the case on a different basis).
I am of the view, having regard to the authorities referred to above, that inadequately or
improperly pleaded complaints should not ordinarily be determined by what is contained in the
particulars. (There are occasions when particulars have been allowed in effect to expand the scope
of a pleaded case but I consider that those can best be seen as an application of the principle that
parties may by their conduct of the case acquiesce in a departure from, or may disregard or
enlarge, a pleaded case or, as it was put by Spigelman CJ in Vines v Australian Securities and
Investments Commission (2007) 73 NSWLR 451; ( 2007) 62 ACSR 1 ; [2007] NSWCA 75 , at 17 [57] , may
choose to fight the case on a different basis).
Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd [2011] NSWCA 109 (09 May 2011)
(Hodgson JA at [1]; Young JA at [11]; Whealy JA at [286])
250. The appellants' submission is that an action to recover in respect of uncommercial

transactions is neither an eligible proceeding under s 1317S nor is it a civil proceeding for
default under s 1318 . I agree with the first half of the proposition, but not the second. In my
view the word "default", at least in s 1318, covers the case of a breach in respect of an
uncommercial transaction. This approach is consistent with what Austin J said in ASIC v
Vines [2005] NSWSC 1349; 65 NSWLR 281, 287 [22] (affirmed (2007) 73 NSWLR 451
Morley v Australian Securities and Investments Commission (No 2) Shafron v Australian Securities and
Investments Commission (No 2) [2011] NSWCA 110 (06 May 2011) (Spigelman CJ, Beazley JA, Giles JA)
Vines v Australian Securities and Investments Commission [2007] NSWCA 75 ; (2007) 73 NSWLR
451; (2007) 62 ACSR 1 ;
16. The judge said at PJ [194] that if he were wrong in that view, he would reject relief "under one
or other of the two discretions in [ss 1317S(2) and 1318(1)]". The reference to two discretions
should be understood with reference to PJ [68] in relation to the non-executive directors. His
Honour regarded the element of whether the person ought fairly to be excused as
discretionary, as well as the subsequent discretionary element of whether the person should
be relieved from liability. The former element is better regarded as the formation of a value
judgment, not the exercise of a discretion: Vines v Australian Securities and Investments
Commission [2007] NSWCA 75; (2007) 73 NSWLR 451; (2007) 62 ACSR 1 at [558] per Spigelman
CJ,
127. Mr Morley drew attention to the warning by Santow JA, in Vines v Australian Securities and
Investments Commission at [202]-[203] ,
Entirity Business Services v Garsoft [2011] FCA 76 (10 February 2011) (MOORE J)
61. The scope of s 180 and director’s duties has more recently been considered by the Court of
Appeal in Morley & Ors v Australian Securities and Investments Commission [2010] NSWCA 331
observing at [817] :
We do not think this was an occasion of reasonable reliance on management or

others… The postulated reasonable person in s 180(1) embraces any special skill or
expertise the director or officer possesses, and the non-executive directors were
expected to bring to their knowledge and experience to performance of their duties.
and at [33]:
In Vines v Australian Securities and Investments Commission [2007] NSWCA 75; (2007) 73
NSWLR 451 at [109] Spigelman CJ took up the conclusion of Austin J at first instance (
Australian Securities and Investments Commission v Vines [2003] NSWSC 995; (2003) 48
ACSR 282 at [38] ), in relation to the proceeding ss 229(2) and 232(4) of the Companies
(New South Wales) Code, that they-
Entirity Business Services v Garsoft [2011] FCA 76 (10 February 2011) (MOORE J)
60. In Vines the position of chief financial officer was accepted as a recognised position in large
corporations with identifiable specialised skill attaching to the office. The defendant had
been appointed because of special skill to a designated position. The degree of care and
diligence expected is that encompassing the special skill that is brought to that office and the
degree of care and diligence that a reasonable person with similar responsibilities would
exercise. Austin J's findings in this regard were upheld on appeal: Vines v ASIC [2007]
NSWCA 75, in which the Full Court of Spigelman CJ, Santow JA and Ipp JA said at [129] :
Morley & Ors v Australian Securities and Investments Commission [2010] NSWCA 331 (17 December
Vines v Australian Securities and Investments Commission [2007] NSWCA 75 ; (2007) 73 NSWLR
451 ;
33 In Vines v Australian Securities and Investments Commission [2007] NSWCA 75; (2007) 73 NSWLR
451 at [109] Spigelman CJ took up the conclusion of Austin J at first instance ( Australian Securities
and Investments Commission v Vines [2003] NSWSC 995; (2003) 48 ACSR 282 at [38] ), in relation to
the preceding ss 229(2) and 232(4) of the Companies (New South Wales) Code , that they -
“ … encompass an objective standard measured by reference to what a

reasonable man of ordinary prudence would do, enhanced where the
directorial appointment is based on special skill by an objective standard
of skill referable to the circumstances.”
34 In summary, the non-executive directors submitted that their circumstances

included that, as non-executive directors, they were entitled to rely on competent
management and advisers and other directors unless there was cause for suspicion or
further enquiry. They cited Daniels v Anderson (1995) 37 NSWLR 438 at 502-3 ; Australian
Securities and Investments Commission v Adler [2002] NSWSC 171; (2002) 168 FLR 253 at [37
2] ; Vines v Australian Securities and Investments Commission at [109]-[110] , [730]-[731] , [743]
and [863]-[866]
Quick v Alpine Nurseries Sales Pty Ltd [2010] NSWSC 1248 (29 October 2010) (Ward J)
[2007] NSWCA 75
Quick v Alpine Nurseries Sales Pty Ltd [2010] NSWSC 1248 (29 October 2010) (Ward J)
123 I agree that it is not the function of particulars, strictly speaking, to amend or expand pleadings
and I accept Mr Kerr’s submission that inadequately or improperly pleaded complaints should not
ordinarily be determined by what is contained in the particulars. It seems to me that those
occasions when particulars have been allowed in effect to expand the scope of a pleaded case can
best be seen as an application of the principle that parties may by their conduct of the case
acquiesce in a departure from, or may disregard or enlarge, a pleaded case (or, as it was put by
Spigelman CJ in Vines v Australian Securities and Investments Commission (2007) 73 NSWLR 451;
(2007) 62 ACSR 1; [2007] NSWCA 75, at 17 [57] ,
Re S&D International Pty Ltd (No 4) [2010] VSC 388 (02 September 2010) (ROBSON J)
270. In ASIC v Gallagher ,[278] Pidgeon J of the Full Court of the Supreme Court of Western
Australia (with whom Franklyn and Walsh JJ agreed) said in regard to duty of a director to
exercise reasonable care that “the test is basically an objective one in the sense that the
question is what an ordinary person, with the knowledge and experience of the defendant,
might be expected to have done in the circumstances if he was acting on his own
behalf.” The duty of care is owed to the company and the potential damage must be assessed
from the company’s point of view. [279] In Vines v ASIC , [280] Ipp JA of the New South
Wales Court of Appeal (with whom Spigelman CJ agreed) held that a duty of a director
cannot be defined without reference to the nature and extent of the foreseeable risk of harm
to the company as well as the prospective benefit from the conduct in question, and cited
with approval the judgment of Ipp J in Vrisakis v ASIC ,[281] where his Honour said:
Under s 229(2), however, there is no reference to damage suffered by the

company, and an offence may notionally be committed under that section
without any damage having been sustained. The question is merely whether
the defendant director has exercised a reasonable degree of care and diligence
in the exercise of his powers in the discharge of his duties. Nevertheless, a
criminal offence will not have been committed if an omission to take care did
not carry with it a foreseeable risk of harm to the company. No act of
commission or omission is capable of constituting a failure to exercise care and
diligence under s 229(2) unless at the time thereof it was reasonably foreseeable
that harm to the interests of the company might be caused thereby. That is
because the duty of a director to exercise a reasonable degree of care and
diligence cannot be defined without reference to the nature and extent of the
foreseeable risk of harm to the company that would otherwise arise.
Further, the mere fact that a director participates in conduct that carries with it
a foreseeable risk of harm to the interests of the company will not necessarily
mean that he has failed to exercise a reasonable degree of care and diligence in
the discharge of his duties. The management and direction of companies
involve taking decisions and embarking upon actions which may promise
much, on the one hand, but which are, at the same time, fraught with risk on
the other. That is inherent in the life of industry and commerce. The
legislature undoubtedly did not intend by s 229(2) to dampen business
enterprise and penalise legitimate but unsuccessful entrepreneurial activity.
Accordingly, the question whether a director has exercised a reasonable
degree of care and diligence can only be answered by balancing the
foreseeable risk of harm against the potential benefits that could reasonably
have been expected to accrue to the company from the conduct in question.
The proper test to be applied in determining whether directors have exercised

a reasonable degree of care and diligence in accordance with the requisite
standard is that laid down more than a century ago by Lord Hatherley LC in Ov
erend & Gurney Co v Gibb (1872) LR 5 HL 480 at 486-7 and referred to by Romer J
in Re City Equitable Fire Insurance Company at 428, namely whether:
… they (ie the directors) were cognisant of circumstances of such

a character, so plain, so manifest, and so simple of appreciation,
that no men with any ordinary degree of prudence, acting on
their own behalf, would have entered into such a transaction as
they entered into.
It was put this way by Pidgeon J (with whom Franklyn and Walsh JJ agreed) in
ASC v Gallagher (1993) 10 ACSR 43:
The test is basically an objective one in the sense that the

question is what an ordinary person with the knowledge and
experience of the defendant might be expected to have done in
the circumstances if he was acting on his own behalf.
Inherent in this test is the balancing exercise, to which I have referred,

involving the risk of harm (on the one hand) and potential benefits (on the
other).
via
[280] (2007) 62 ACSR 1 .
VC & GC AND ORS [2010] FamCAFC 62 (29 March 2010) (Warnick, Boland & Thackray JJ)
144. Immediately prior to making these findings, her Honour had noted that it was necessary for
the wife to prove her case to the appropriate standard and she cited, with obvious approval,
the following statements made by Carmody J in Hinde & Hinde :
44. Where, as here, the alleging party relies on circumstantial rather

than direct evidence to prove a state of mind such as knowledge notice
or belief it is sufficient in a civil case that the circumstances support a
more probable inference in favour of the asserted fact, Vines v Australian
Securities and Investments Commission [2007] NSWCA 75 per Ipp JA at 813
and Spigelman CJ agreeing at [539] . Where competing inferences are
finely balanced or of equal likelihood or the choice between them can
only be resolved by conjecture or speculation the allegation is not
proved; Luxton v Vines (1952) 85 CLR 352 at 358 .
Australian Securities & Investments Commission v Fortescue Metals Group Ltd [No 5] [2009] FCA 1586
(23 December 2009) (GILMOUR J)
111. Austin J noted that in Vines v ASIC (2007) 62 ACSR 1 at [62]
Australian Securities & Investments Commission v Fortescue Metals Group Ltd [No 5] [2009] FCA 1586
(23 December 2009) (GILMOUR J)
902. Forrest then submits that the mere fact that a director participates in conduct that carries
with it a foreseeable risk of harm to a company’s interest does not necessarily mean that the
director failed to exercise a reasonable degree of care and diligence in the discharge of his
duty: Vrisakis v Australian Securities Commission (1993) 9 WAR 395 per Ipp J at 449-450 ; Vines v
Australian Securities and Investments Commission (2007) 62 ACSR 1 per Santow J at [598] and [59
9]
Brand v Monks [2009] NSWSC 1454 (21 December 2009) (Ward J)

Vines v ASIC (2007) 62 ACSR 1
Brand v Monks [2009] NSWSC 1454 (21 December 2009) (Ward J)
421 In the present case, while it is by no means clear that the same degree of prejudice
as that contemplated in Ingot would be suffered by Dr Monks if Mr and Mrs Brand
were to be allowed to depart from the pleaded case, it is relevant to note that Mr
Faulkner made it very clear on a number of occasions that the defendant did not
consent to or acquiesce in departure from the pleaded case. The authorities to which
Ipp JA referred suggest that the defendant’s consent or acquiescence (whether express
or implied) is necessary before a plaintiff can be allowed to depart from its pleaded
case. In Vines v ASIC (2007) 62 ACSR 1 at 17 [57]
Resource Equities v Carr Resource Equities v Garrett [2009] NSWSC 1385 (15 December 2009)
(McDougall J at 1)
Vines v Australian Securities and Investment Commission (2007) 62 ACSR 1
Resource Equities v Carr Resource Equities v Garrett [2009] NSWSC 1385 (15 December 2009)
(McDougall J at 1)
118 Although an appeal from the decision of Austin J succeeded in part ( Vines v Australian Securities
and Investment Commission (2007) 62 ACSR 1
Hope v Hunter and New England Area Health Service [2009] NSWDC 307 (27 November 2009) (Levy SC
DCJ)
Vairy v Wyong Shire Council [HCA] 62; (2005) 223 CLR 442 Vines v ASIC [2007] NSWCA 75
Hope v Hunter and New England Area Health Service [2009] NSWDC 307 (27 November 2009) (Levy SC
DCJ)
184. First, there is the difficulty that the attack the defendant sought to make was made in
circumstances where it was not suggested to the plaintiff that he had exaggerated in his answers to
the Beck inventory, dishonestly or otherwise, when this inventory was administered to him by Dr
Jungfer : Browne v Dunn (1893) 6 R 67. Whilst it is sometimes impractical or oppressive to fully
observe the rule in Browne v Dunn in complex cases so that degrees of observance are at times
permissible – Vines v ASIC [2007] NSWCA 75 per Spigelman CJ at [62] and [409]
Australian Securities and Investments Commission v Rich [2009] NSWSC 1229 (18 November 2009)
(Austin J)
Vines v ASIC [2007] NSWCA 75
Australian Securities and Investments Commission v Rich [2009] NSWSC 1229 (18 November 2009)
(Austin J)
Vines v ASIC (2007) 62 ACSR 1; [2007] NSWCA 75
Mobileciti Pty Limited v Vodafone Pty Limited [2009] NSWSC 899 (25 September 2009) (Hamilton AJ)
Mobileciti Pty Limited v Vodafone Pty Limited [2009] NSWSC 899 (25 September 2009) (Hamilton AJ)
86 As was said by Mahoney JA in Seymour v Australian Broadcasting Commission (1977) 19

NSWLR 219 at 236 :
“... failure to cross-examine a witness may not ... render the course of the
trial unfair if it is clear from the manner in which generally the case has
been conducted that his evidence will be contested… . The nature of the
defendant’s case and the particulars given, and otherwise the conduct of it
may make it sufficiently clear that such an assumption is unwarranted
and that there has been no surprise or prejudice concerning the matter.”
This passage was cited with approval by Heydon JA in Knight v Maclean [2002]
NSWCA 314 at [34] . See also per Spigelman CJ in Vines v Australian Securities and
Investments Commission (2007) 62 ACSR 1 at [60] , [61] and [409] .
Australian Securities and Investments Commission v Macdonald (No 12) [2009] NSWSC 714 (20 August
2009) (Gzell J)
Australian Securities and Investments Commission v Macdonald (No 12) [2009] NSWSC 714 (20 August
2009) (Gzell J)
12 In Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115 at 196 and 198, Tadgell J equated
acting honestly for the purposes of forerunners of Section 1317S(2) and Section 1318(1) with a lack of
moral turpitude. That meaning was adopted by Santow J in Re HIH Insurance (in prov liq); Australian
Securities and Investments Commission v Adler [2002] NSWSC 483; (2002) 42 ACSR 80 at 123 [166] and
by Austin J in Australian Securities and Investments Commission v Vines [2005] NSWSC 1349; (2005) 65
NSWLR 281 at 292 [43] . His Honour’s conclusion that Mr Vines acted honestly was upheld on
appeal in Vines v Australian Securities and Investments Commission [2007] NSWCA 75; (2007) 62 ACSR
1 at 110 [568] per Spigelman CJ, at 166-167 [797]-[800] per Santow JA and at 168 [805] per Ipp JA
Gould v Companies Auditors and Liquidators Disciplinary Board [2009] FCA 475 (12 May 2009)
(LINDGREN J)
233. It seems, in view of the seriousness of the consequences, that the failure to take “reasonable
steps” in the s 1308(4) offence, would have to be unreasonable or blameworthy, as distinct
from merely at a level that would give rise to a breach of the common law duty of care:
compare Vines v Australian Securities & Investments Commission (2007) 62 ACSR 1 at [142]-[152] p
er Spigelman CJ
Australian Securities and Investments Commission v Macdonald (No 11) [2009] NSWSC 287 (23 April
2009) (Gzell J)
Australian Securities and Investments Commission v Macdonald (No 11) [2009] NSWSC 287 (23 April
2009) (Gzell J)
238 That the statutory duty is akin to the common law duty of care was restated by Spigelman CJ in
Vines v Australian Securities and Investments Commission [2007] NSWCA 75; (2007) 62 ACSR 1 at [142]
-[151]
ASIC v Sydney Investment House Equities Pty Ltd [2008] NSWSC 1224 (21 November 2008) (Hamilton J)
ASIC v Sydney Investment House Equities Pty Ltd [2008] NSWSC 1224 (21 November 2008) (Hamilton J)
31 In Vines v Australian Securities and Investments Commission (2007) 62 ACSR 1 the

Court of Appeal rejected the submission that the degree of negligence that must be
established to constitute a breach of the statutory duty is higher than that which would
support a finding of negligence at common law: per Spigelman CJ at [63], [152].
Section 181
Horleck & Horleck [2008] FamCA 506 (07 July 2008) (Carmody J)
54. Where, as here, the alleging party relies on circumstantial rather than direct evidence to
prove a state of mind such as knowledge notice or belief it is sufficient in a civil case that the
circumstances support a more probable inference in favour of the asserted fact. [19]
via
[19] Vines v Australian Securities and Investments Commission [2007] NSWCA 75 per Ipp JA at 813 and
Spigelman CJ agreeing at [539] .
COSMETIC EQUIPMENT COMPANY PTY LTD v FORREST [2008] SASC 144 (29 May 2008)
(Judgment of The Honourable Justice White)
11. Nevertheless, it is not every departure from the pleaded case which will result in a denial of
procedural fairness. There are cases in which the parties disregard the pleadings and choose
to fight the case on issues not raised by the pleadings. In Banque Commerciale Brennan J said:
When the pleadings bring the parties to the issue, the court’s function is to determine that issue
and to grant relief founded on the pleadings unless the parties are allowed to alter the issues at the
trial without amendment of the pleadings … The rule is clearly laid down in the judgment of this
Court in Dare v Pulham :
Apart from cases where the parties choose to disregard the pleadings and
to fight the case on issues chosen at the trial, the relief which may be
granted to a party must be founded on the pleadings … . [6] (Citatio
ns omitted) (Emphasis added)
The relevant principle was stated by Isaacs and Rich JJ in Gould v Mount Oxide Mines Ltd (In
Liq) : [7]
Undoubtedly, as a general rule of fair play, and one resting on the fundamental
principle that no man ought to be put to loss without having a proper
opportunity of meeting the case against him, pleadings should state with
sufficient clearness the case of the party whose averments they are. That is their
function. Their function is discharged when the case is presented with
reasonable clearness. Any want of clearness can be cured by amendment or
particulars. But pleadings are only a means to an end, and if the parties in fighting
their legal battles choose to restrict them, or to enlarge them, or to disregard them and
meet each other on issues fairly fought out, it is impossible for either of them to hark
back to the pleadings and treat them as governing the area of contest. [8]
via
[8] Ibid at 517 . See also Dare v Pulham (1982) 148 CLR 658 at 664 ; Banque Commerciale SA (In Liq) v
Akhil Holdings Ltd (1990) 169 CLR 279 at 288 per Brennan J; Vines v Australian Securities and
Investments Commission [2007] NSWCA 75 at [42]-[44] ; (2007) 62 ACSR 1 at 14-15 .
COSMETIC EQUIPMENT COMPANY PTY LTD v FORREST [2008] SASC 144 (29 May 2008)
(Judgment of The Honourable Justice White)
12. Finally, it has been held that a failure to amend particulars to accord precisely with the facts
which have emerged in the course of the evidence does not necessarily preclude a party from
seeking a verdict in reliance upon the facts actually established by the evidence. [9] This can
only happen of course if the departure from the pleaded case does not involve procedural
unfairness.
via
[9] Dare v Pulham (1982) 148 CLR 658 at 664 ; Leotta v Public Transport Commission (NSW) (1976) 50
ALJR 666 at 668 ; Water Board v Moustakas (1988) 180 CLR 491 at 495 ; Vines v Australian Securities and
Investments Commission [2007] NSWCA 75 at [44]-[46] ; (2007) 62 ACSR 1 at 14-15 .
Shellharbour City Council v Stewart [2008] NSWLEC 151 (23 April 2008) (Biscoe J)
Shellharbour City Council v Stewart [2008] NSWLEC 151 (23 April 2008) (Biscoe J)
10 In Vines v Australian Securities and Investments Commission (2007) 62 ACSR 1, [2007]

NSWCA 75 at [808] – [813] Ipp JA addressed the Briginshaw test as follows:
Before coming to grips with the relevant factual issues, I

propose to deal with some questions of law that bear on the
issues for determination. The first is the relevance of the
remarks of Dixon CJ in Briginshaw v Briginshaw (1938) 60 CLR
336. Throughout these proceedings, reference has been made
to the Briginshaw test and the Briginshaw standard. But, in my
view, Briginshaw is of limited assistance. Dixon CJ said in that
case at 361 to 362 :
Except upon criminal issues to be proved by the
prosecution, it is enough that the affirmative of
an allegation is made out to the reasonable
satisfaction of the tribunal. But reasonable
satisfaction is not a state of mind that is attained
or established independently of the nature and
consequence of the fact or facts to be proved. The
seriousness of an allegation made, the inherent
unlikelihood of an occurrence of a given
description, or the gravity of the consequences
flowing from a particular finding are
considerations which must affect the answer to
the question whether the issue has been proved
to the reasonable satisfaction of the tribunal. In
such matters reasonable satisfaction should not be
produced by inexact proofs, indefinite testimony,
or indirect inferences.
Nothing in Briginshaw detracts from the proposition that a
serious allegation might be proved by circumstantial
evidentiary facts and inference and circumstance (see Dixon CJ at
366). A more recent decision by the High Court on the same
issue is Neat Holdings Pty Limited v Karajan Holdings Pty
Limited (1992) 67 ALJR 170 where Mason CJ, Brennan, Deane
and Gaudron JJ said at 171 :
[T]he strength of the evidence necessary to
establish a fact or facts on the balance of
probabilities may vary according to the nature of
what it is sought to prove. Thus, authoritative
statements have often been made to the effect
that clear or cogent or strict proof is necessary wh
ere so serious a matter as fraud is to be found .
Statements to that effect should not, however, be
understood as directed to the standard of proof.
Rather, they should be understood as merely
reflecting a conventional perception that
members of our society do not ordinarily engage
in fraudulent or criminal conduct and a judicial
approach that a court should not lightly make a
finding that, on the balance of probabilities, a
party to civil litigation has been guilty of such
conduct.
In Palmer v Dolman [2005] NSWCA 361, with the agreement of

Tobias JA and Basten JA, I said at [47] :
The more recent authorities to which I have
referred, and s 140 of the Evidence Act 1995 (NSW)
make it plain that there are no hard and fast rules
by which serious allegations might be proved
from circumstantial evidence. The inquiry is
simply, taking due account of what was said in Ne
at Holdings Pty Limited v Karajan Holdings Pty
Limited , has the allegation been proved on a
balance of probabilities.
Leeks v X Y [2008] VSCA 21 (20 February 2008) (BUCHANAN, VINCENT and REDLICH JJA)
9. In civil litigation the standard of proof is proof on the balance of probabilities. [3] The
balance of probabilities remains the standard of proof even where serious or criminal
allegations are made. The learned trial judge quoted the following passage from the joint
judgment of Mason CJ, Brennan, Deane and Gaudron JJ in Neat Holdings Pty Ltd v Karajan
Holdings Pty Ltd : [4]
The ordinary standard of proof required of a party who bears the onus in civil
litigation in this country is on the balance of probabilities. That remains so even
where the matter to be proved involves criminal conduct or fraud. The strength
of evidence necessary to establish a fact or facts on the balance of probabilities
may vary according to the nature of what it is sought to be proved. Thus
authoritative statements have often been made to the effect that clear [5] or
cogent [6] or strict [7] proof is necessary "where so serious a matter as fraud is to
be found". [8] Statements to that effect should not, however, be understood as
directed to the standard of proof. Rather, they should be understood as merely
reflecting a conventional perception that members of our society do not
ordinarily engage in fraudulent or criminal conduct [9] and a judicial approach
that a court should not lightly make a finding that, on the balance of
probabilities, a party to civil litigation has been guilty of such conduct. [10]
via
[10] Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170-2 ; Vines v Australian
Securities and Investment Commission [2007] NSWCA 75, [808]-[813] .
Hinde & Hinde and Anor [2008] FamCA 24 (25 January 2008) (Carmody J)
44. Where, as here, the alleging party relies on circumstantial rather than direct evidence to
prove a state of mind such as knowledge notice or belief it is sufficient in a civil case that the
circumstances support a more probable inference in favour of the asserted fact, Vines v
Australian Securities and Investments Commission [2007] NSWCA 75 per Ipp JA at 813 and
Spigelman CJ agreeing at [539]
Nationwide News Pty Ltd v Naidu & Anor; ISS Security Pty Ltd v Naidu & Anor [2007] NSWCA 377 (21
December 2007) (Spigelman CJ at 1; Beazley JA; Basten JA)
Australian Securities & Investments Commission [2007] NSWCA 75 ; (2007) 62 ACSR 1
Nationwide News Pty Ltd v Naidu & Anor; ISS Security Pty Ltd v Naidu & Anor [2007] NSWCA 377 (21
December 2007) (Spigelman CJ at 1; Beazley JA; Basten JA)
2 With respect to the issue of delay I wish to express my agreement with her Honour’s
analysis of the judgment of Adams J ( Naidu v Group 4 Securitas Pty Ltd [2005] NSWSC
618). His Honour clearly addresses the complex factual issues, particularly of credit,
comprehensively, directly and in a manner which indicates that the apprehensions
that considerable delay in delivery of judgment can occasion do not apply in the
present case. His Honour’s detailed analysis provides no analogy with the cases in
which appellate courts have concluded that delay has affected findings of fact. In this
regard, the position is the same as that found to exist in Vines v Australian Securities &
Investments Commission [2007] NSWCA 75; (2007) 62 ACSR 1 at [26]-[31]
Massey & Massey and Anor (No. 3) [2007] FamCA 1502 (30 November 2007) (YOUNG J)
27. More recently, the High Court in Neat Holdings Pty Limited v Karajan Holdings Pty Limited (1992
) 67 ALJR 170 further considered these standard of proof issues and thereafter the New South
Wales Court of Appeal in Palmer v Dolman (2005) NSWCA 361 and then in Vines v Australian
Securities & Investments Commission (2007) NSWCA 75 said:
Hall & Ors v Poolman & Ors [2007] NSWSC 1330 (23 November 2007) (Palmer J)
- Vines v Australian Securities & Investments Commission (2007) 62 ACSR 1
Hall & Ors v Poolman & Ors [2007] NSWSC 1330 (23 November 2007) (Palmer J)
327 Likewise, in Australian Securities & Investments Commission v Vines (2005) 56 ACSR 528, Austin J,
following Friedrich , considered that “honesty” for the purpose of the sections meant “without
moral turpitude”: at [43] . His Honour’s conclusion as to the meaning of honesty was upheld in the
Court of Appeal: Vines v Australian Securities & Investments Commission (2007) 62 ACSR 1, at [568] per
Ipp JA and at [797] , [800] per Santow JA
Geoffrey William VINES v AUSTRALIAN SECURITIES AND INVESTMENT COMMISSION [2007]

NSWCA 126 (22 June 2007) (Spigelman CJ; Santow JA; Ipp JA)
Vines v Australian Securities and Investments Commission [2007] NSWCA 75

(Vines v Australian Securities and Investments Commission [2007] NSWCA 75)

(See Vines v ASIC [2007] NSWCA 75 esp at [412]-[413], [436]-[437], [440], [443]-[449], [451]-[458], [536]
-[537], [539], [561], [563], [570], [572], [811]-[821], [837], [864]-[866], [874]

129 In Vines v Australian Securities and Investments Commission [2007] NSWCA 75 (the “appeal
judgment”), the result was:

211 By the decision of the majority in Vines v Australian Securities and Investments Commission
[2007] NSWCA 75 (“the Contraventions Appeal Reasons”), the fourth, fifth and seventh
contraventions were upheld and the appeals

Geoffrey William Vines V Australian Securities & Investments Commission - (2007) NSWCA 75

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Geoffrey William Vines v Australian Securities & Investments Commission -

Reported Decision: 62 ACSR 1(2007) 25 ACLC 448

New South Wales

CITATION: Geoffrey William Vines v Australian Securities & Investments

HEARING 10, 16 & 17 November 2006

JUDGMENT 4 April 2007

JUDGMENT OF: Spigelman CJ at 1; Santow JA at 579; Ipp JA at 805

CATCHWORDS: Corporations – Management and administration – Duties and

LEGISLATION Companies Act 1958 (Vic), s107

CASES CITED: Adler v ASIC (2003) 46 ACSR 504

Briginshaw v Briginshaw (1938) 60 CLR 336

PARTIES: Geoffrey William Vines (Appellant)

FILE NUMBER CA 40490/06

COUNSEL: B Oslington QC, Andrew Bell SC (Appellant)

SOLICITORS: Geoffrey Pike, Sparke Helmore (Appellant)

LOWER Supreme Court - Equity Division

LOWER 3138 of 2001

LOWER COURT Austin J

LOWER ASIC v Vines [2005] NSWSC 738

In these proceedings ASIC alleged breaches of s 232(4) of the Corporations Law b

The alleged contraventions related to the calculation of, and communication

The conduct of Mr Vines found by Austin J to have contravened the Corporation

Encompassed within the seven contraventions was:

(i) A profit forecast of 9 November 1998;

(ii) A report and media release of 17 November 1998;

(iii) An email of 22 November 1998;

(iv) A management sign-off and draft Part B Statement of 8 December 1998;

(v) Advice to the Due Diligence Committee of 8 December 1998;

(vi) Advice to the Auditor of 8 December 1998;

The Appellant sought relief from liability under s1317JA or s 1318 of

The standard of care applicable to the statutory duty is of a

Rich v Australian Securities & Investments Commission (2004) 220 CLR

Re City Equitable Fire Insurance Co [1925] Ch 407; Byrne v Baker [1964]

Sheahan v Verco [2001] SASC 91; Australian Securities Commission v

(2) Per Spigelman CJ, Ipp JA agreeing

The statutory duty set out in s 232(4) of the Corporations Law is a

(3) Per Ipp JA, Spigelman CJ and Santow JA agreeing

The duty of a director or officer cannot be defined without

B Denial of procedural fairness: findings outside of the pleaded

The context of civil penalty proceedings, and the seriousness of the

Banque Commerciale SA En Liquidation v Akhil Holdings Limited (1990)

Whitlam v Australian Securities and Investments Commission (2003) 57

C Denial of procedural fairness: failure to put matters during

Whether the rule in Browne v Dunn has been observed is a matter

R v Birks (1990) 19 NSWLR 677; Seymour v Australian Broadcasting

D Effect of delay in delivery of contraventions judgment

There was no substance in the contention that the findings of

Monie v Commonwealth of Australia [2005] NSWCA 25; R v Maxwell (1

E The relevance of Briginshaw

A serious allegation may be proved by circumstantial evidence.

Briginshaw v Briginshaw (1938) 60 CLR 336 explained.

Neat Holdings Pty Limited v Karajan Holdings Pty Limited (1992) 67

(2) The Second Contravention: 17 November Report & Media

(3) The Third Contravention: 22 November Email

(4) The Fourth Contravention: Management Sign Off of 8

The Appellant contravened his duty of care and diligence when he

Per Ipp JA, Spigelman CJ agreeing

There were warning signals that would have lead a reasonable

Absent grounds for suspicion the Appellant was entitled to

(5) The Fifth Contravention: Advice to Due Diligence Committee