Australian Securities and Investments Commission v Cohen [2025] FCA 1255

961P Responsible licensee

For the purposes of this Part, the, or a, responsible licensee, in relation to a contravention of a provision of this Part, is:

(a) if the person who contravenes the provision is a representative of only one financial services licensee - that financial services licensee; or

(b) if the person who contravenes the provision is a representative of more than one financial services licensee:

(i) if, under the rules in section 917C, one of those licensees is responsible for the person's conduct - that licensee; or

(ii) if, under the rules in section 917C, 2 or more of those licensees are jointly and severally responsible for the person's conduct - each of those licensees.

1. Thus, s 961P of the Act provided two methods of establishing the requisite relationship between the person who has contravened a provision of Part 7.7A (which includes ss 963E(2), 963F and 963J) and a licensee.
2. The first method is proof that each prize-winning sales agent was a representative only of Freedom Insurance: s 961P(a) of the Act. ASIC relied upon this method. However, I was not directed to evidence in support of the proposition that each of the prize‑winning sales agents was a representative only of Freedom Insurance.
3. Instead, ASIC submitted that there is no evidence, nor any suggestion by Mr Cohen or Mr Oayda, that the prize-winning sales agents were representatives of any other financial services licensee and thus s 961P of the Act renders Freedom Insurance the responsible licensee. However, ASIC bears the onus of proof, and that onus is not discharged by suggesting that Mr Cohen and Mr Oayda did not adduce particular evidence.
4. Absent evidence capable of establishing that the prize‑winning sales agents were representatives only of Freedom Insurance, I am unable to conclude that this was the case.
5. ASIC did not rely upon the second method, namely by proving that the sales agents were representatives of more than one financial services licensee (and how s 917C of the Act would operate on the facts). For completeness, I note that I was not directed to evidence establishing that the sales agents were representatives of more than one financial services licensee, or as to the operation of s 917C of the Act.
6. I note that during the course of his opening address, senior counsel for ASIC stated "[a]s we understand it, it's accepted that Freedom Insurance was the responsible licensee" (T44.5). This suggestion was not answered by senior counsel for Mr Cohen, nor by Mr Oayda. However, I do not regard such silence as an acceptance of the position, particularly in view of the pleaded denials of that proposition. Further, ASIC's closing submissions did not refer to such an understanding and instead set out the basis for its contention that Freedom Insurance was the responsible licensee (as per [334] above).
7. Thus, I am not satisfied that Freedom Insurance was the, or a, responsible licensee in relation to any contravention by the prize-winning sales agents.

1. I turn now to consider whether Mr Cohen contravened s 180 of the Act.

180 Care and diligence - civil obligation only

Care and diligence - directors and other officers

(1) 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:

(a) were a director or officer of a corporation in the corporation's circumstances; and

(b) occupied the office held by, and had the same responsibilities within the corporation as, the director or officer.

Business judgment rule

(2) A director or other officer of a corporation who makes a business judgment is taken to meet the requirements of subsection (1), and their equivalent duties at common law and in equity, in respect of the judgment if they:

(a) make the judgment in good faith for a proper purpose; and

(b) do not have a material personal interest in the subject matter of the judgment; and

(c) inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate; and

(d) rationally believe that the judgment is in the best interests of the corporation.

The director's or officer's belief that the judgment is in the best interests of the corporation is a rational one unless the belief is one that no reasonable person in their position would hold.

...

business judgment means any decision to take or not take action in respect of a matter relevant to the business operations of the corporation.

1. It is common ground that Mr Cohen owed a duty, pursuant to s 180 of the Act, to each of Freedom Insurance and INSA, to exercise his powers and discharge his duties with the degree of care and diligence that a reasonable person would exercise if they: (1) were a director or officer of a corporation in the circumstances of; and (2) occupied the office held by, and had the same responsibilities within, each of Freedom Insurance and INSA.

1. The essence of ASIC's s 180 case as pleaded is that Mr Cohen contravened s 180 of the Act - in circumstances where Mr Cohen was a director, and the managing director and CEO of each of Freedom Insurance and INSA and a responsible manager on the Freedom AFSL - by:

(1) engaging in particular conduct with respect to each of the Incentives;

(2) failing to take reasonable steps to prevent:

(a) Freedom Insurance from engaging in contraventions of s 963E(2) and s 963F of the Act of the kind pleaded by ASIC;

(b) INSA from engaging in contraventions of s 963J of the Act of the kind pleaded by ASIC; and

(3) thus, exposing Freedom Insurance and INSA to a foreseeable risk of harm.

1. The two elements which shape the content of the duty of reasonable care and diligence under s 180 of the Act are: (1) the circumstances of the company (s 180(1)(a)); and (2) the position and responsibilities of the officer (s 180(1)(b)): Shafron v Australian Securities and Investments Commission [2012] HCA 18; (2012) 247 CLR 465 at 476 [18] (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ).
2. These are considered, in turn, below.

1. In Australian Securities and Investments Commission v Rich [2009] NSWSC 1229; (2009) 75 ACSR 1, Justice Austin explained at 614 [7201(a)]:

[T]he reference to the "corporation's circumstances" in s 180(1)(a) requires that consideration be given to the type of company involved, the size and nature of its business or businesses, the provisions of its constitution (not a significant issue here), the composition of the board and the distribution of the work between the board and other officers: Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115 at 123 (Friedrich); Daniels at NSWLR 505; ACSR 668; ASIC NSWSC 85 at [35]; ASIC NSWSC 738 at [1070]. I would add, relevantly to the circumstances of this case, that it is necessary to have regard to the status of the company as a listed or unlisted entity, and in the case of a parent company, to have regard to the size and nature of the businesses of its subsidiaries if they are under the general supervision of the parent: and generally, see Austin, Ford and Ramsay, 2005, at [6.2];

1. Neither ASIC nor Mr Cohen sought to draw a distinction between the circumstances of Freedom Insurance and the circumstances of INSA, and I will treat those circumstances as relevantly the same. Those circumstances are as follows.

1. During the relevant period, Freedom Insurance and INSA formed part of Freedom, which was headed by FIG, a company listed on the ASX. The companies within the group were each managed by the same persons.

1. As described above, the business carried on by Freedom Insurance and INSA (and the Freedom group generally) was the sale of insurance products.

D.3.1.4 The composition of the board and the distribution of work between the board and other officers

1. Mr Cohen was one of the directors of FIG. The other directors were Mr David Hancock, Mr Menzies, Mr Andrew Jensen, and Ms Katrina Glendinning. The prospectus described Mr Menzies, Mr Jensen, and Ms Glendinning as non‑executive directors.
2. Mr Cohen was also the managing director and CEO of the companies in the Freedom group, including Freedom Insurance and INSA. Other senior management included:

(1) Ms Andrews, CFO;

(2) Mr McCool, Head of Legal and Product Development;

(3) Mr Light, Head of Shared Services;

(4) Ms De Torres, Head of Marketing; and

(5) Ms Osborne, Head of Risk Management and Compliance. As noted above, Ms Osborne left in late 2017 and was replaced by Ms Delahunty.

1. Of particular relevance are Mr McCool and Ms Osborne.
2. Mr McCool was, during the relevant period, a highly experienced lawyer with specific experience in the life insurance industry. The prospectus ([69] above) recorded that Mr McCool was a senior lawyer with 30 years' experience in a range of corporate legal and management positions in the financial services industry with legal, product, process development and business and management skills ideally suited to a specialist life insurance business such as that conducted by Freedom. This is confirmed by Mr McCool's evidence as to his experience. The prospectus also recorded that Mr McCool had become "a leading practitioner in the financial services reform laws that now regulate the insurance industry". There is no reason to doubt this description.
3. Further, as noted above, Mr McCool accepted in cross-examination that:

(1) he was a senior lawyer with 30 years' experience in a range of corporate, legal and management positions in the financial services industry;

(2) he was a leading practitioner in the financial services laws that regulated the insurance industry;

(3) in issuing the prospectus, Freedom was representing to prospective investors that he, as the general counsel of Freedom, would exercise all of the skills described in that part of the prospectus in discharging his responsibilities as the group general counsel and would be applying his legal skills to ensure that there was no non‑compliance with any applicable financial services laws that related to Freedom's business; and

(4) one of the ways he would discharge his responsibilities would be to ensure that there was no non-compliance with any applicable financial services laws.

1. Mr McCool also accepted that in his role as Freedom's Head of Legal, it was incumbent upon him to be aware of what was happening in the business, to apply his decades of experience as a financial services lawyer so as to identify any risks and to take appropriate steps to address any identified risks.
2. Mr McCool's responsibilities within Freedom are described in several contemporaneous documents.
3. Mr McCool's employment contract describes his specific and general responsibilities ([49] and [50] above). His specific responsibilities included:

• Legal, contractual, licensing and product development and related tasks as requested.
• Legal advice and guidance on contractual, licensing, product, operational and HR issues as requested

1. Mr McCool was also a responsible manager on the Freedom AFSL. As noted above, ASIC added Mr McCool as a responsible manager after being notified, inter alia, of Mr McCool's experience.
2. Freedom's compliance policy ([76] above) provided that Mr McCool's obligations, qua Head of Legal, included the provision of specific, general and compliance advice and guidance to business units, management, team leaders and the directors of Freedom. It also provided for the "line 2" risk and compliance team to meet with Mr McCool qua Head of Legal. As noted at [78] above, Mr McCool regularly spoke with Ms Osborne and later Ms Delahunty as the "line 2 risk and compliance team".
3. Ms Osborne was, from late 2016 until December 2017, Freedom's Head of Risk and Compliance. This role was described in Freedom's compliance policy as including:

• Involving in, and having the authority to provide effective challenge to activities and decisions that may materially affect Freedom's risk profile.
• Reviewing the key business risks and risk reports and recommending internal control enhancements
• Being a custodian of any risk appetite statements, risk frameworks, policies and charters and facilitating updates and developments of those documents on an on-going basis as required for Board oversight and approvals.
• Ongoing monitoring and reporting of Risk and Compliance functions

1. Ms Osborne was also a responsible manager on the Freedom AFSL from 17 February 2017. In late 2017, Ms Osborne was replaced by Ms Delahunty, who became a responsible manager on the Freedom AFSL from 16 November 2017.
2. Thus, day-to-day responsibility for Freedom's compliance did not rest with Mr Cohen.

1. As explained at [104] to [106] above, in September 2017, Freedom experienced a significant downturn in sales. The effect of the downturn on FIG's revenue forecasts was of sufficient magnitude to require disclosure to the ASX; and such disclosure occurred in early November 2017.
2. The idea for the Incentives was born from discussions about how to arrest the sales slump.

1. As noted above, the proposed LIF Reforms were due to commence on 1 January 2018. There were two aspects of the LIF Reforms relevant to Freedom. The first, being the impact of those reforms upon payments made by Swiss Re to Freedom, was the subject of review by Swiss Re. Mr McCool was involved in that review and Mr Cohen was informed as to the progress of that review. The second aspect of the LIF Reforms relevant to Freedom was the impact upon payments made by Freedom to its sales agents, Mr McCool had been asked by Mr Cohen to consider this aspect ([157] above).

D.3.2 Mr Cohen's offices and responsibilities

1. I turn now to Mr Cohen's offices and responsibilities.
2. In Australian Securities and Investments Commission v MacDonald (No 11) [2009] NSWSC 287; (2009) 256 ALR 199 at 247 [241], Justice Gzell explained:

A director or officer's "responsibilities within the corporation" in s 180(1)(b) include not only matters of specific delegation but also the manner in which work is distributed in fact within the corporation and the expectations placed by those arrangements on the shoulders of the individual director or officer: Rich at [50]. They include arrangements flowing from the experience and skills that the director brings to his or her office and any arrangements within the board, or between the director and executive management affecting the work that the director would be expected to carry out: Rich at [49].

1. Mr Cohen's experience is described in a summary form in the prospectus ([66] above). A more detailed description is set out at [34(3)] above. His qualifications were as an actuary and he had no legal qualifications.
2. During the relevant period:

(1) Mr Cohen was a director and officer of, and held the positions of managing director and CEO of, each of Freedom Insurance and INSA (as well as FIG and Freedom Administration);

(2) Mr Cohen was a responsible manager on the Freedom AFSL;

(3) Mr Cohen was:

(a) ultimately responsible for the day-to-day management decisions of Freedom, and he reported to the directors of FIG in respect of Freedom's business;

(b) delegated authority by the board of directors of FIG in respect of certain matters necessary for the management of Freedom, which authority was exercised by him;

(c) with the exception of his own accountability to the board of directors of FIG, at the apex of the reporting lines within Freedom;

(4) qua managing director and CEO, Mr Cohen received written and verbal reports and had access to information about the business operations of Freedom from various executives and employees within the Freedom including through:

(a) Ms Andrews, who reported directly to Mr Cohen in respect of financial matters and had regular contact with him;

(b) Mr McCool, who reported directly to Mr Cohen in respect of legal and corporate matters;

(c) Mr Oayda, who had regular contact with Mr Cohen and provided updates or reports to Mr Cohen, including in respect of: (i) the status of work undertaken by Mr Oayda; and (ii) each of the Incentives;

(d) Mr Turner, who reported directly to Mr Cohen until about February 2018 and who during that period provided information to Mr Cohen in respect of sales matters (including sales results and sales reports) and who met with Mr Cohen on a weekly basis to discuss the performance of sales agents;

(e) Mr Orton, who from in or about February 2018, reported directly to Mr Cohen in respect of operational matters and business activities;

(f) his involvement in sub-committees of the directors of FIG - such as the Audit and Risk Committee and the Remuneration and Nomination Committee - and attendance on occasion at meetings of those sub-committees;

(g) risk and compliance reports tabled at monthly meetings of the board of directors of FIG that he attended;

(h) his attendance at meetings of executive or senior management (and on occasion of team leaders) in relation to sales;

(i) his custom of regularly attending informal lunch or coffee meetings with Mr Oayda, and with members of the senior management team including Ms Andrews, Mr Light, Ms De Torres and on occasion Mr Orton;

(j) the location of his office in the same premises as the call centre and the proximity to the offices of senior management;

(k) his access to Freedom Insurance's "Sales Force" internal reporting system and an electronic dashboard, which tracked the numbers of insurance policy sales made, policies created and lives covered;

(l) his receipt of updates or reports as to the progress of each of the Incentives; and

(m) his receipt of, or access to, scripts created for sales agents to use in their selling, or attempting to sell, the FPP.

1. It was common ground between ASIC and Mr Cohen that a reasonable director or officer in the position of Mr Cohen would have known that, as a financial services licensee, Freedom Insurance had obligations under the Act in relation to the financial services that it provided, and would have appreciated the real and foreseeable possibility that: (1) any contraventions of those obligations may have come to the attention of ASIC; (2) ASIC may have taken regulatory action in relation to contraventions of those obligations; and (3) Freedom Insurance could have been exposed to litigation and/or reputational damage because of contraventions of those obligations.
2. ASIC contends that Mr Cohen had (or ought reasonably to have had) knowledge or awareness of Freedom Insurance and INSA's obligations under the Act, including the prohibition of conflicted remuneration under Division 4 of Part 7.7A of the Act. Mr Cohen admits that he had (or ought reasonably to have had) a high level knowledge or awareness of those matters, but as he was not a legal practitioner he did not have (nor ought reasonably to have had) detailed knowledge or awareness of them. ASIC has not established that Mr Cohen had such detailed knowledge. Nor has it established that Mr Cohen ought to have had such knowledge. In this regard, I accept that Mr Cohen remained as a responsible manager on the Freedom AFSL, but do not accept that this required him to have a detailed knowledge of the provisions of Division 4 of Part 7.7A of the Act, particularly in circumstances where Mr McCool, a specialist lawyer in this area, had been appointed as a responsible manager in 2016.
3. ASIC also contends that Mr Cohen had (or in the alternative ought reasonably to have had) knowledge or awareness of the sales performance of sales agents during the relevant period. Mr Cohen admits that he had (or in the alternative ought reasonably to have had) a high level knowledge of the sales performance of sales agents in the Freedom group but says that he did not have (and ought not reasonably to have had) detailed knowledge or awareness of the performance of individual sales agents on a daily, weekly or monthly basis. There is considerable ambiguity in the expression "sales performance of sales agents" - it is not clear whether it means number of sales achieved, the manner in which the sales were made, or something else. ASIC has not established that Mr Cohen had any detailed knowledge. Nor has ASIC established that the "sales performance of sales agents" is a matter that Mr Cohen ought to have known, beyond the high level knowledge that Mr Cohen has admitted.
4. Mr Cohen's responsibilities are described in several contemporaneous documents.
5. Mr Cohen's employment contract describes Mr Cohen's specific and general responsibilities ([48] above). As might be expected, those responsibilities are primarily supervisory and required Mr Cohen to provide strategic guidance and direction to Freedom's business.
6. The prospectus ([66] above) recorded that Mr Cohen had responsibility for the development and execution of Freedom's long-term strategy and for day-to-day management decisions.
7. Freedom's compliance policy set out the division of responsibility within Freedom for compliance ([76] above). In particular:

(1) the directors of FIG (as a group) were charged with ultimate responsibility for compliance; and the role of the directors (again, as a group) was to provide strategic guidance for Freedom and effective oversight of management; and

(2) Mr Cohen, qua managing director, was charged with the responsibility of ensuring that Freedom's compliance framework was fit for purpose and that Freedom's senior managers and team leaders were aware of their obligations and had implemented processes to adhere to and sustain compliance. There is no allegation that Mr Cohen failed to discharge this responsibility.

1. As noted above, day-to-day responsibility for compliance matters did not rest upon Mr Cohen and there was a compliance team headed by Mr McCool.

1. I turn now to the contended contraventions. As set out at [343] above, ASIC contends that by dint of particular positive acts of conduct on the one hand and failures to take particular steps on the other, Mr Cohen exposed Freedom Insurance and INSA to a foreseeable risk of harm, and thus breached the duties he owed to those companies, in contravention of s 180 of the Act.
2. Before addressing the particular acts and omissions for which ASIC contends, it is convenient to address the knowledge that Mr Cohen had at the relevant time.
3. Mr Cohen's knowledge generally is addressed at [369] to [372] above. His knowledge concerning the Incentives is addressed below.

D.4.1 Mr Cohen's knowledge concerning the First Bali Sales Incentive

1. It is common ground that Mr Cohen knew that the First Bali Incentive was being offered to sales agents.
2. The evidence establishes that Mr Cohen was aware of the First Bali Incentive and that a trip to Bali was the prize on offer to sales agents who met their individual targets.

D.4.2 Mr Cohen's knowledge concerning the Vespa Incentive

1. Mr Cohen knew that the Vespa Incentive was being offered to sales agents.
2. The evidence establishes that Mr Cohen was aware of the Vespa Incentive and that he was the genesis of it ([148] above). His knowledge of the criteria for that Incentive is to be inferred from his receipt of the 24 November 2017 email from Mr Oayda which set out those criteria ([151] above).

D.4.3 Mr Cohen's knowledge concerning the Second Bali Sales Incentive

1. Mr Cohen knew that the Second Sales Incentive was being offered to sales agents.
2. The evidence establishes that Mr Cohen was aware of the Second Bali Incentive and that the prize on offer to sales agents who met their individual targets.

1. I turn now to the conduct in which Mr Cohen is alleged to have engaged. Not all of the pleaded conduct was the subject of final submissions. I am satisfied that ASIC has established the following conduct of Mr Cohen.
2. First, that Mr Cohen approved and/or authorised the expenditure of monies on each of the Incentives, and the offering of each of the prizes as a means of increasing sales of the FPP.
3. Secondly, that Mr Cohen took no steps to prevent the Incentives taking place, nor any steps to prevent the giving of the prizes to, or acceptances of the prizes by, the prize-winning sales agents.
4. Thirdly, that Mr Cohen received reports and/or updates on the progress of each of the Incentives.
5. Fourthly, in the case of the Vespa Incentive, that Mr Cohen observed the Vespa sitting in the sales area of the Freedom offices, until about late January or early February 2018, when he observed that it was no longer there.

D.4.5 The alleged failure to take reasonable steps

1. I turn now to the alleged omissions on the part of Mr Cohen.
2. As noted above, ASIC alleges that Mr Cohen failed to take reasonable steps to prevent:

(1) Freedom Insurance from engaging in contraventions of s 963E(2) and s 963F of the Act of the kind pleaded by ASIC; and

(2) INSA from engaging in contraventions of s 963J of the Act of the kind pleaded by ASIC.

1. ASIC's case does not depend upon proof that such contraventions occurred.
2. ASIC alleged that Mr Cohen ought to have taken, but did not take, "some or all" of a number of steps with respect to each of Freedom Insurance and INSA. Not all of those steps were addressed in final submissions.
3. I am satisfied that Mr Cohen did not take the following steps. The question of whether he ought to have taken such steps is considered later.
4. First, Mr Cohen did not take steps to prevent sales agents from participating in each of the Incentives and from accepting the prizes. As noted above, Mr Cohen took no steps to prevent the Incentives taking place, nor any steps to prevent the giving of the prizes to, or acceptances of the prizes by, the prize-winning sales agents.
5. Secondly, before the start of the Incentives, Mr Cohen did not seek legal or regulatory compliance advice about the impact of the conflicted remuneration provisions on the Incentives.
6. Thirdly, Mr Cohen did not take steps to prevent the development and implementation of the Incentives by Freedom Insurance or INSA.
7. Finally, Mr Cohen did not take steps to prevent Freedom or INSA paying for the prizes offered to the recipients of the Incentives.

D.5 Has a contravention of s 180 of the Act been established?

1. I turn now to consider whether in light of the established acts and omissions, Mr Cohen exposed Freedom Insurance or INSA to a foreseeable risk of harm; and if so, whether he acted in contravention of the duties he owed to Freedom Insurance and INSA under s 180 of the Act.

1. The relevant principles are well-established. ASIC relied upon the following principles as explained by Justice White in Termite Resources NL (ACN 112 036 398) (in liq) v Meadows, [2019] FCA 354; (2019) 370 ALR 191 at 225 to 228:
   1. The principles developed by the Courts concerning the duty imposed by s 180(1) were not in issue. It is convenient to adopt the summary which Brereton J gave in Australian Securities and Investments Commission v Maxwell (2006) 59 ACSR 373; [2006] NSWSC 1052:

[99] The statutory duty imposed by s 180(1) reflects, and to some extent refines, that which obtains at general law. As Santow J (as his Honour then was) explained in Australian Securities and Investments Commission v Adler (2002) 42 ACSR 80; [2002] NSWSC 483... both the common law and equity imposes on directors a duty of care and skill ... the content of which is essentially the same as the statutory duty .... Similarly, the statutory duties imposed by s 181 and s 182 reflect, and to some extent refine, corresponding obligations of directors under the general law.

[100] 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 ....

[101] Directors are not required to exhibit a greater degree of skill in the performance of their duties than may reasonably be expected for persons of commensurate knowledge and experience, in the relevant circumstances ...And while directors are required to take reasonable steps to place themselves in a position to guide and monitor the management of the company ... they are entitled to rely upon others, at least except where they know, or by the exercise of ordinary care should know, facts that would deny reliance ....

[102] The constitution of the corporation, and concomitantly the identity of those to whom the duty is owed, is of importance because the duties referred to in ss 180, 181 and 182 are not duties owed in the abstract, but duties owed to the corporation. As Clarke and Sheller JJA observed in Daniels (formerly practising as Deloitte Haskins & Sells) v Anderson (1995) 37 NSWLR 438 at 504; 16 ACSR 607 at 665, the duties imposed by former s 232 (the predecessor of s 180) reflected the concept of negligence at general law, in that a director owes to the company a duty to take reasonable care in the performance of the office. In Vrisakis v Australian Securities Commission (1993) 9 WAR 395 at 449-50; 11 ACSR 162 at 211-13; Ipp J (as his Honour then was) (with the concurrence of Malcolm CJ) held that although the statutory duty of care and diligence would be contravened if a director had not exercised a reasonable degree of care and diligence in the exercise of his powers or the discharge of his duties, even if there was no actual damage, that could only be so if it was reasonably foreseeable that the relevant conduct might harm the interests of the company - which means the corporate entity itself, the shareholders, and, where the financial position of the company is precarious, the creditors of the company - and, moreover, that in determining whether the relevant duty had been breached, the foreseeable risk of harm must be balanced against the potential benefits which could reasonably be expected to accrue to the company from that conduct [see also Australian Securities and Investments Commission v Doyle (2001) 38 ACSR 606; [2001] WASC 187at [102]]. As His Honour explained:

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.

1. The standard of care required by s 180(1) is objective but account must be taken of the circumstances of the company and of the particular director or officer involved. The Court enquires as to what an ordinary person, with the knowledge and experience of the director or officer, could be expected to have done in the circumstances if he or she was acting on their own behalf: Australian Securities and Investments Commission v Adler (2002) 41 ACSR 72; 168 FLR 253; [2002] NSWSC 171 at [372]. The "corporation's circumstances" include the type of company, the size and nature of its business, the provisions of its constitution, the composition of the Board and the distribution of the work between the Board and other officers: Australian Securities and Investments Commission v Rich (2009) 75 ACSR 1; [2009] NSWSC 1229 (ASIC v Rich) at [7201]. In Australian Securities and Investments Commission v Mariner Corporation Ltd (2015) 241 FCR 502; 327 ALR 95; 106 ACSR 343; [2015] FCA 589, Beach J elaborated the position:

[440] It is not in doubt that the circumstances of the particular company concerned inform the content of the duty. These include the size and type of the company, the size and nature of the business it carries on, the terms of its Constitution, and the composition of the board of directors.

[441] It is also not in doubt that in considering the acts or omissions of a particular director, one looks at factors including the director's position and responsibilities, the director's experience and skills, the terms and conditions on which he has undertaken to act as a director, how the responsibility for the company's business has been distributed between the directors and the company's employees, the informational flows and systems in place and the reporting systems and requirements within the company.

[442] Further, one then looks at the relevant acts, omissions and circumstances in the given case.

1. In ASIC v Cassimatis (No 8), Edelman J reviewed the historical basis and nature of the common law, equitable and statutory bases for the duty of directors and officers to act with due care and diligence. His Honour's conclusions included the following:

(a) the dominant position is that directors owe a single general law duty, recognised by both common law and equity, to take reasonable care, at [427]; and

(b) the duty is concerned with negligence and not gross negligence, at [428].

1. Edelman J also concluded that the foreseeable risk of harm to be considered in relation to an alleged breach of s 180(1) is not confined to financial harm but includes harm to all of the interests of the company, including its reputation; that the question of whether a director has exercised reasonable care and diligence is to be answered by balancing the foreseeable risk of harm against the potential benefits which could be expected to accrue to the company from the conduct in question; that the balancing of the risk against potential benefits should be carried out in a way which is similar to the negligence calculus discussed by Mason J Wyong Shire Council v Shirt [1980] HCA 12; (1980) 146 CLR 40 at 47-8; [1980] HCA 12; 29 ALR 217 at 221 (Wyong Shire Council v Shirt); and that the exercise is "forward looking" to what a reasonable person would have done, not "backward looking" at what would have avoided the injury: ASIC v Cassimatis (No 8) at [483]-[487]. See also Australian Securities and Investments Commission v Drake (No 2) (2016) 340 ALR 75; 118 ACSR 189; [2016] FCA 1552 (ASIC v Drake (No 2)) at [395]-[401].

2. The duty imposed by s 180(1) requires directors and officers to be familiar with the fundamentals of the company's business, to keep themselves informed about the company's activities, to monitor generally the company's affairs, to maintain familiarity with its financial status and, in most cases, to have a reasonably informed opinion of the company's financial capacity: ASIC v Rich at [7203]. Questions of whether a director or officer has failed to meet the required standard of care and diligence are to be assessed with regard to the circumstances existing at the relevant time, without the benefit of hindsight, and with the distinction between negligence and mistakes or errors of judgment kept firmly in mind: ibid at [7242]. Section 180(1) is not directed to mere mistakes or errors of judgment. The position was stated by Robson J in Australian Securities and Investments Commission v Lindberg (2012) 91 ACSR 640; [2012] VSC 332 at [72]:

... Making mistakes does not by itself demonstrate lack of due care and diligence. The business judgment rule in s 180(2) also recognises that business judgments made in good faith and on a proper basis do not fall within s 180(1). Directors and officers of corporations are expected to take calculated commercial risks. A company run on the basis that no risks were ever taken would be unlikely to be successful. The proper taking of risk in making business decisions is entirely consistent with exercising care and diligence. The proper assessment of the risks and potential rewards is a matter that demands the exercise of care and diligence. The two concepts complement each other in the management of corporations.

(italic emphasis in original; bold emphasis added)

1. More recently, in Australian Securities and Investments Commission v Noumi Limited (No 4) [2024] FCA 1192, Justice Jackman provided the following conspectus of relevant principles:
   1. There are two elements as to the content of the duty of reasonable care and diligence under s 180(1) of Act, namely: (a) the circumstances of the company; and (b) the position and responsibilities of the officer: ASIC v GetSwift Limited [2021] FCA 1384 (GetSwift) at [2530] (Lee J).
   2. As to the circumstances of the company, this includes: the type of company; the provisions of its constitution; the size and nature of the company's business; the composition of the board; the officer's position and responsibilities within the company; the particular function the director is performing; the experience or skills of the particular officer; the terms on which he or she has undertaken to act as an officer; the manner in which responsibility for the business of the company is distributed between its directors, officers and its employees; and the circumstances of the specific case: ASIC v Maxwell [2006] NSWSC 1052; (2006) 59 ACSR 373 (Maxwell) at [100] (Brereton J); GetSwift at [2531] (Lee J).
   3. The "responsibilities" referred to by s 180(1) do not just refer to statutory responsibilities that the Act imposes upon the officer, but include whatever responsibilities the officer has within the corporation, regardless of how or why those responsibilities came to be imposed on that officer: Shafron v Australian Securities and Investments Commission [2012] HCA 18; (2012) 247 CLR 465 at [18] (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ); Cassimatis v Australian Securities and Investments Commission [2020] FCAFC 52; (2020) 275 FCR 533 (Cassimatis) at [27] (Greenwood J) and [457] (Thawley J). The standard imposed by s 180 requires consideration of all of the circumstances of an officer's role including what others within the corporation expected the officer to do and including any special responsibilities that the officer had: ASIC v Vines at [1057]-[1069] (Austin J); Cassimatis at [27] (Greenwood J) and [455]-[457] (Thawley J). ...
   4. The test under s 180(1) is an objective one and is measured by what an ordinary person, with the knowledge and experience of the relevant director, would have done: GetSwift at [2527] (Lee J).
   5. Directors and officers are required to take reasonable steps to place themselves in a position to guide and monitor the management of the company: ASIC v Healey [2011] FCA 717; (2011) 196 FCR 291 (Healey) at [16]-[17] (Middleton J); GetSwift at [2535] (Lee J). A director or officer should become familiar with the fundamentals of the business in which the corporation is engaged; he or she is under a continuing obligation to keep informed about the activities of the corporation: Healey at [16]-[17] (Middleton J).
   6. The conduct of a director contributing to a company's breach of the Act which exposes the company to prejudice (including any actual or potential exposure to civil penalties or other liability under the Act) may give rise to breaches of s 180(1), but such liability does not automatically follow from the fact that the company contravened a provision of the Act at the time the defendant was a director: ASIC v Vocation Ltd (in liquidation) [2019] FCA 807; (2019) 136 ACSR 339 (Vocation) at [730] (Nicholas J).
   7. Section 180(1) does not impose an obligation on directors to conduct the affairs of the company in accordance with the law generally or the Act specifically: Cassimatis at [460] (Thawley J); GetSwift at [2538] (Lee J). However, liability under s 180(1) may be triggered where a director's failure to exercise reasonable care and diligence has caused or allowed the company to contravene the Act, at least where it was reasonably foreseeable that such contravention might harm the company's interests: Vocation at [730]; Maxwell at [104] (Brereton J); GetSwift at [2538] (Lee J).
   8. Relevant jeopardy to the interests of the company may be found in the actual or potential exposure of the company to civil penalties or other liability under the Act, and it may no doubt be a breach of a relevant duty for a director to embark on or authorise a course which attracts the risk of that exposure, at least if the risk is clear and the countervailing potential benefits insignificant: Maxwell at [104] (Brereton J); Cassimatis at [180] (Greenwood J) and [427] (Thawley J). It is the failure to guard against the foreseeable harm flowing from the company's contraventions that leads to the conclusion that the directors or officers did not discharge the degree of care and diligence required of them by s 180(1) of the Act: Cassimatis at [78] (Greenwood J) and [464]-[465] (Thawley J).

(bold and italic emphasis in original; underline emphasis added)

1. I am not persuaded that the conduct and omissions which have been established constitute a contravention of s 180 of the Act for the following reasons.
2. First, in view of the management structure within Freedom and the events which occurred, Mr Cohen was entitled to rely upon others, and in particular Mr McCool, with respect to potential non-compliance with the conflicted remuneration provisions by dint of the Incentives. In particular, Mr Cohen was entitled to rely upon Mr McCool in circumstances where:

(1) Mr Cohen, as managing director of a relatively recently listed company had many responsibilities including pursuit of the St Andrews acquisition ([81] to [82] above);

(2) Mr Cohen had confidence in his experienced executive team, including Mr McCool ([83] above);

(3) Mr McCool was a highly experienced lawyer and a leading practitioner in the area of financial services laws ([69] to [70] above);

(4) Mr Cohen had known and worked with Mr McCool in several organisations over a number of years ([41] and [71(1)] above);

(5) Mr McCool was, as represented in the prospectus and as he acknowledged in cross‑examination, a person who, in the discharge of his responsibilities as group general counsel, was expected to apply his legal skills to ensure compliance with applicable financial services laws ([70] above);

(6) as Mr McCool accepted, it was incumbent upon him to be aware of what was happening in the business, to apply his decades of experience as a financial services lawyer so as to identify any risks and to take appropriate steps to address any identified risks ([355] above); and

(7) Mr Cohen had asked Mr McCool to consider the impact of the LIF Reforms ([157] above).

1. ASIC submitted that Mr Cohen was not entitled to rely upon Mr McCool, in circumstances where (it submitted) Mr Cohen was micro-managing that business.
2. In support of this submission, which appeared to be an attempt to draw an analogy with the facts of Australian Securities and Investments Commission v Select AFSL Pty Ltd (ACN 151 931 618) (No 2) [2022] FCA 786; (2022) 162 ACSR 1 (Abraham J), ASIC relied principally upon the following evidence:

(1) Mr Cohen's retention of a significant shareholding in the Freedom group. I accept that this might have given Mr Cohen another reason to be vigilant in his roles as managing director and CEO, however I am not persuaded that it establishes that Mr Cohen was a micro-manager of that business;

(2) the proximity of the offices occupied by senior management, including Mr Cohen, and that the whole of Freedom's operations filled two floors of the Bond Street building ([52] above). I regard this to be of little moment; and

(3) the following passage of transcript of the cross-examination of Mr McCool:

And we will come to it later, but when in 2018 you decided that it was prudent to obtain advice from Freehills, that was a step that you took, wasn't it?---That advice was at the instruction of Craig Orton.

And you say you couldn't have taken that step without Mr Orton's instruction?---The arrangements in this organisation was that it was Keith's - Keith's business, and he - he ran it, and there was no way in the world that I would have gone and got external legal advice without his approval.

You see, can I suggest to you that you're mistaken about the fact that it was Keith's business, aren't you, Mr McCool, because what we've been through is that the company was an ASX listed company and you had obligations to all of the shareholders; did you understand that?---I understand that, but what - that's not how the business was run. It was run by Keith.

Well, Mr Cohen was the CEO, so is that - is that - you're saying - - -?---That's right, and I went to the CEO, and if - and he ultimately made the decisions, and this was not a large organisation. It was a small - small business that - it still only had limited management, and Keith - Keith instructed me what to do. I told him what I thought and it was ultimately - he made the calls.

(emphasis added)

1. ASIC submitted that this transcript - which concerned the process at Freedom for obtaining external legal advice - summarised succinctly Mr Cohen's role in the business. I do not accept that submission. This evidence is relevant to the proposition that Mr Cohen's approval was required before external legal advice was obtained. However, it does not prove generally that Mr Cohen's approval was required for all aspects of the business.
2. ASIC has not established that Mr Cohen was micro-managing the business. Mr McCool's evidence in cross-examination does not establish such a proposition; and ASIC's proposition that Mr Cohen was micro-managing the business sits most uneasily with:

(1) the contemporaneous documents recording the division of responsibilities within Freedom, such as the prospectus and the compliance policy discussed above; and

(2) Mr McCool's evidence that Mr Cohen allowed him a high degree of autonomy and did not try to micro-manage his work ([71(1) and (2)] above).

1. Secondly, the conflicted remuneration provisions in Division 4 of Part 7.7A of the Act are not readily understood. There is a considerable degree of complexity, as is illustrated by the permutations in the case as framed by ASIC in this proceeding, the length of the submissions provided by the parties addressing these permutations, and the analysis set out at Part C above. As senior counsel for Mr Cohen submitted, Mr Cohen was not a lawyer and cannot have been expected to have anything but a high level understanding of those provisions. This is particularly so when Freedom had employed Mr McCool, a highly experienced lawyer with a speciality in this area.
2. Thirdly, the evidence establishes that: (1) Mr McCool was charged by Mr Cohen with considering the effect of the LIF Reforms upon the remuneration of sales agents, including incentives ([157] above); and (2) no-one within Freedom (including Mr McCool) notified Mr Cohen that the Incentives would contravene the Act, following the introduction of the LIF Reforms ([164] above).
3. Fourthly, Mr McCool formed the view that the conflicted remuneration provisions prior to the LIF Reforms were not applicable to incentives offered by Freedom ([158]) above).
4. Fifthly, the absence of evidence (as opposed to assertion) as to the actions that would have been taken by a reasonable person. ASIC has not established that a reasonable director would have known or acted in the manner pleaded: cf Australian Securities and Investments Commission v Drake (No 2) [2016] FCA 1552; (2016) 340 ALR 75 at 156 to 157 ([398] to [401]) (Edelman J).
5. Finally, I am not persuaded that there was, to a reasonable officer in the position of Mr Cohen, a foreseeable risk of harm to Freedom Insurance or INSA arising from Mr Cohen's conduct or omissions that outweighed the potential benefits to those companies from the Incentives.
6. In Diakyne Pty Ltd (ACN 099 168 402) v Ralph [2009] FCA 721; (2009) 72 ACSR 450, Justice Jagot explained at 469 [84]:

The principles relating to the application of these statutory provisions were also largely agreed. Those principles have been identified on numerous occasions. The parties in the present case referred particularly to the observations in Re HIH Insurance Ltd (in prov liq) and HIH Casualty and General Insurance Ltd (in prov liq); Australian Securities and Investments Commission v Adler (2002) 41 ACSR 72; [2002] NSWSC 171 at [372], [458] and [735] (Adler); Australian Securities and Investments Commission v Macdonald (No 11) (2009) 256 ALR 199; 71 ACSR 368; [2009] NSWSC 287 at [236]-[257] and Vrisakis v Australian Securities Commission (1993) 9 WAR 395; 11 ACSR 162. Among other matters, those decisions identify that:

(1) Sections 180, 181 and 182 involve duties owed to the corporation.

(2) The requirement of reasonable care and diligence is objective in the sense that it involves asking what an ordinary person of ordinary prudence, with the knowledge and experience of the director, 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.

(3) Putting the test another way, was the director 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": Vrisakis at WAR 450; ACSR 212 citing Overend & Gurney Co v Gibb & Darby (1872) LR5HL 480 at 486-7 (Overend).

(4) The circumstances of the corporation at the time are thus relevant to the content of the duty to act with reasonable care and diligence.

(5) Directors are not required to exhibit a greater degree of skill than may reasonably be expected from persons of commensurate knowledge and experience in the circumstances and are entitled to rely on others except where an exercise of ordinary care would deny reliance.

(6) There can be no failure to exercise reasonable care and diligence unless at the relevant time harm to the interests of the corporation is reasonably foreseeable by reason of the conduct and, to determine breach, the foreseeable risk of harm must be balanced against the potential benefits which might be expected to accrue to the corporation.

(7) Where the matter involves a potential conflict between the director's duties to the corporation and a personal interest, "the duty of care and diligence falls to be exercised in a context requiring special vigilance": Adler at [372].

(emphasis added)

1. The foreseeable risk of harm is particularised in two ways, namely that:

(1) it was foreseeable that failing to take reasonable steps, or any steps, to prevent contraventions of ss 963E(2), 963F and s 963J of the Act, would expose Freedom Insurance and/or INSA to the risk of reputational harm, litigation and/or regulatory action (and/or be exposed to liability for relief sought in litigation and/or regulatory action), in circumstances where the consequences of such contraventions were significant and serious, and the burden of taking alleviating action was minimal; and

(2) Mr Cohen exposed Freedom Insurance and/or INSA to a foreseeable risk of harm, because his conduct created a significant risk of non-compliance with financial services laws, and was likely to result in future contraventions by those companies, whether or not those contraventions ultimately eventuated, in circumstances where the consequences of the contraventions were significant and serious, and the burden of taking alleviating action was minimal.

1. The assessment of foreseeable risk must be undertaken by reference to the circumstances existing at the time of the alleged conduct and the alleged failures to act; and not using hindsight. Those circumstances relate to the period in which the Incentives were on foot. As is clear from the events of 2018 recounted at [183ff] above, there was a marked change in the circumstances which existed after the Incentives. Such circumstances are not relevant to the assessment of foreseeable risk.
2. As noted above, Mr McCool was of the view in 2017 that: (1) the sales agents were operating on a "no advice" model; and (2) the conflicted remuneration provisions of the Act were not applicable to the incentives offered by Freedom.
3. In circumstances where Mr McCool, a highly experienced lawyer in this field, did not consider the conflicted remuneration provisions applied, a conclusion that the risk that the Incentives would contravene those provisions was reasonably foreseeable to a person in Mr Cohen's position is far from obvious. Indeed, the proper conclusion is that such reasonable risk was not foreseeable to a person in Mr Cohen's position.
4. Further, it is necessary to balance any foreseeable risk of harm against the potential benefits which might be expected to accrue to Freedom: see e.g., Diakyne at [84(6)].
5. I am not satisfied that the potential foreseeable harm was not outweighed by the potential benefits to Freedom. Such evidence as there was concerning the potential benefits (again to be assessed without hindsight) that may have flowed from the Incentives (see e.g., the evidence at [166] above concerning the increased sales of policies during the First Bali Sales Incentive) suggests that there were considerable potential benefits available to Freedom.

1. I note that Mr Cohen pleaded a defence based upon s 180(2) and (3) of the Act. However, this defence was not developed during the hearing. In any event, it is unnecessary to address it.

1. For the reasons set out above, the originating process must be dismissed. There appears to be no reason why costs should not follow the event, at least with respect to Mr Cohen. Against the possibility that any party wishes to be heard on the question of costs, I will make orders to allow this to occur.

I certify that the preceding four hundred and twenty-three (423) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Goodman.