Cassimatis v Australian Securities and Investments Commission

RARES J: The statutory context [219] What is the content of a duty of care and diligence? [226] How should s 180(1) apply to Mr and Mrs Cassimatis? [265] Conclusion [286]

216 I have had the benefit of reading the reasons of Greenwood J and Thawley J. I have adopted Thawley J's abbreviations and summary of the facts. I agree with Thawley J's reasons for finding that the grounds of appeal challenging the primary judge's findings that Storm committed civil contraventions of s 945A(1)(b) and (c) of the Corporations Act 2001 (Cth) should be dismissed. However, I have reached a different conclusion on the question whether the primary judge was correct in finding that Mr and Mrs Cassimatis contravened s 180(1) of the Act by exercising their powers in a way which caused or "permitted" (by omission to prevent) inappropriate advice to be given to the relevant investors (Australian Securities and Investments Commission v Cassimatis (No 8) (2016) 336 ALR 209 at 370 [833]). 217 At trial and on appeal, ASIC presented their case on the basis that a precondition to finding that Mr and Mrs Cassimatis had contravened s 180(1) was that Storm had actually contravened s 945A(1) (the stepping stone approach). The primary judge did not necessarily agree that that was such a precondition or "stepping stone", but proceeded to decide the case on the basis on which ASIC had put it (336 ALR at 339 [679] and at 370 [834]). The primary judge reasoned that the assessment of the reasonable foreseeability and likelihood of a contravention occurring in the future, for the purposes of determining whether s 180(1) had been breached, "should take place at a higher level of generality" than by assessing whether it was reasonably foreseeable that the actual contravention, as found, would occur. In other words, his Honour reasoned that (336 ALR at 342 [698]): a director of a company in Storm's circumstances and with Mr or Mrs Cassimatis' responsibilities, and exercising his or her powers, would have considered that it was likely that persons in the position of the relevant investors would be given inappropriate advice in breach of s 945A. 218 For the reasons that follow, I am of opinion that ASIC failed to prove that Mr and Mrs Cassimatis contravened s 180(1) of the Act in the way in which ASIC alleged and, accordingly, their appeal should be allowed.

The statutory context 219 Relevantly, s 180(1) created a statutory duty of a director or officer to exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if that person was in the director's or officer's place in the corporation's circumstances. 220 If the Court was satisfied that a person had contravened a civil remedy provision listed in s 1317E(1), that section required the Court to make a declaration of contravention. Section 1317E(1) provided that s 180(1) was a civil penalty provision. The Court also had power under s 1317H(1) to order such a contravenor to compensate a corporation for damage that it suffered resulting from the contravention. However, a contravention of s 945A, unlike a corporation's obligation under s 674(2) of continuous disclosure of material information not generally available, was not a civil penalty provision, nor was any other provision of Pts 7.6 or 7.7 of the Act (in which ss 912A and 945A appeared). Rather, a contravention of s 945A(1)(b) or (c) created a criminal offence. 221 A difficulty with the stepping stone approach on which ASIC relied before the primary judge is that it seeks to enlist s 180(1) to prescribe a duty to prevent a substantive contravention by the corporation of another provision in the Act, that is not a civil penalty provision, on the basis that ASIC would then be likely to invoke regulatory or curial remedies against the corporation. 222 As his Honour noted, his findings against Mr and Mrs Cassimatis were based only upon civil, not criminal, contraventions of s 945A (Cassimatis 336 ALR at 371 [836]). Relevantly, a contravention of s 945A was a criminal offence but did not give rise directly to any civil liability for the corporation or an authorised representative. Thus, the primary judge found that ASIC's case alleged that Mr and Mrs Cassimatis had contravened a particular duty under s 180(1). His Honour summarised his conclusion as follows: (Cassimatis 336 ALR at 370 [833]): My conclusion is that Mr and Mrs Cassimatis each contravened s 180(1) of the Corporations Act by exercising their powers in a way which caused or "permitted" (by omission to prevent) inappropriate advice to be given to the relevant investors. Those relevant investors were members of a class of investor, as pleaded by ASIC, who (in summary terms) were retired or close to retirement, had few assets, little income, and little or no prospect of rebuilding their financial position in the event of suffering significant loss. A reasonable director with the responsibilities of Mr or Mrs Cassimatis would have known that the Storm model was being applied to clients such as those who fell within this class and that its application was likely to lead to inappropriate advice. The consequences of that inappropriate advice would be catastrophic for Storm (the entity to whom the directors owed their duties). It would have been simple to take precautionary measures to attempt to avoid the application of the Storm model to this class of persons. (emphasis added) 223 The obligation imposed by s 180(1) is in general terms and, as s 185 confirms, the Parliament intended that it operate in addition to, and not in derogation of, any rule of law at common law or in equity. A duty or obligation imposed by statute is not a "rule of law"; it is a law that imposes a statutory norm of conduct. And, s 180(1), as a norm of conduct, must be construed having regard to the Act as a whole, which creates various mechanisms for the imposition of liability on directors, officers and other persons, for example by: creating powers and imposing specific duties on directors and officers in a multitude of instances; imposing liability on the part of persons who are "involved" (within the meaning of s 79) in a company's contravention of select provisions of the Act; imposing civil liability under Pt 9.4B of the Act (in which ss 1317E and 1317H are found) on persons who contravene a civil penalty provision; imposing criminal liability under s 1311(1) of the Act and s 11.2(1) of the Criminal Code in the Schedule to the Criminal Code Act 1995 (Cth) on persons who commit offences under the Act as a principal or an accessory. Section 11.2(1) of the Criminal Code provides that "a person who aids, abets, counsels or procures the commission of an offence by another person is taken to have committed that offence and is punishable accordingly"; conferring powers on courts exercising jurisdiction under Pt 9.5 of the Act to enjoin, or make orders against, a person who has engaged, or is engaging, or purporting to engage, in conduct that, in effect, makes the person an accessory to a contravention of the Act (s 1324); and imposing duties on persons with specific roles, for example under s 945A(1) by requiring financial services licensees and their "authorised representatives" to provide advice to clients only where that advice was appropriate and they had made reasonable inquiries in relation to the client's personal circumstances. 224 Relevantly, s 945A(2) gave an authorised representative a defence where the licensee had provided the representative with information or instructions about the requirements he or she had to, and the representative did, use in providing the advice and it was reasonable for the representative to have relied on the information or instructions. If a corporation contravened s 945A(1), a director or officer could be found liable as an accessory to the contravention by force of s 1311(1) of the Act and s 11.2(1) of the Criminal Code. 225 Moreover, directors and some officers have powers and are subject to duties imposed by a corporation's constitution as well as, in the case of an executive officer of the corporation, his or her contract of employment on which s 180(1) will operate. And, by reason of the definition of "officer" in s 9 of the Act, s 180(1) is not confined in its operation to a person who holds an office formally recognised in the corporation: Australian Securities and Investments Commission v King [2020] HCA 4 at [34] per Kiefel CJ, Gageler and Keane JJ and [185]-[186] per Nettle and Gordon JJ.

What is the content of a duty of care and diligence? 226 In Sullivan v Moody (2001) 207 CLR 562 at 581-583 [52]-[64], Gleeson CJ, Gaudron, Gummow, McHugh, Hayne and Callinan JJ discussed circumstances in which the general law might recognise a particular relationship as involving a duty of one person to exercise reasonable care where other legal rights and remedies, such as those for defamation, already exist. They discussed the position "where to find a duty of care would so cut across other legal principles so as to impair their proper application and thus lead to the conclusion that there is no duty of care of the kind asserted" (at 580 [53]). In order to resolve such an issue, they looked to the coherence of the law and said that: "A duty of the kind alleged should not be found if that duty would not be compatible with other duties which the respondents owed" (at 581 [55]). They said (at 582 [60]-[61]): The circumstance that a defendant owes a duty of care to a third party, or is subject to statutory obligations which constrain the manner in which powers or discretions may be exercised, does not of itself rule out the possibility that a duty of care is owed to a plaintiff. People may be subject to a number of duties, at least provided they are not irreconcilable. A medical practitioner who examines, and reports upon the condition of, an individual, might owe a duty of care to more than one person. But if a suggested duty of care would give rise to inconsistent obligations, that would ordinarily be a reason for denying that the duty exists. Similarly, when public authorities, or their officers, are charged with the responsibility of conducting investigations, or exercising powers, in the public interest, or in the interests of a specified class of persons, the law would not ordinarily subject them to a duty to have regard to the interests of another class of persons where that would impose upon them conflicting claims or obligations. There is also a question as to the extent, and potential indeterminacy, of liability. In the case of a medical practitioner, the range of people who might foreseeably (in the sense earlier mentioned) suffer some kind of harm, as a consequence of careless diagnosis or treatment of a patient, is extensive. (emphasis added) 227 In Forrest v Australian Securities and Investments Commission (2012) 247 CLR 486 at 494, senior counsel for ASIC argued that "conduct by a director that exposes a company to prejudice or jeopardy, actual or potential, may breach the director's duties and the relevant jeopardy may consist of the jeopardy arising from breaches of other provisions of the Corporations Act". He cited in support Australian Securities and Investments Commission v Maxwell (2006) 59 ACSR 373 and Australian Securities and Investments Commission v Citrofresh International Ltd [No 2] (2010) 77 ACSR 69. However, as French CJ, Gummow, Hayne and Kiefel JJ said (247 CLR at 514 [67], and similarly, Heydon J at 529 [115]): ASIC's allegations that Mr Forrest breached the duties imposed by s 180(1) of the Corporations Act on directors and officers depended upon it demonstrating that Fortescue had contravened s 1041H or s 674. Having failed to do that, ASIC's claim of contravention of s 180(1) also fails. (emphasis added) 228 In Shafron v Australian Securities and Investments Commission (2012) 247 CLR 465 at 476 [18]-[19], French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ said: The degree of care and diligence that is required by s 180(1) is fixed as an objective standard identified by reference to two relevant elements - the element identified in para (a): "the corporation's circumstances", and the element identified in para (b): the office and the responsibilities within the corporation that the officer in question occupied and had. No doubt, those responsibilities include any responsibility that is imposed on the officer by the applicable corporations legislation. But the responsibilities referred to in s 180(1) are not confined to statutory responsibilities; they include whatever responsibilities the officer concerned had within the corporation, regardless of how or why those responsibilities came to be imposed on that officer. … The effect of para (b) of s 180(1) is to require analysis of what a "reasonable person" in the same position as the officer in question would do. His or her position is not adequately described unless regard is had both to the office held and to the responsibilities that the person has. (emphasis in bold added) 229 The interlinking of an actual (as opposed to potential) corporate contravention of a statutory provision with a breach of the duty of a director under s 180(1) may be coherent and just. The Act, other statutes and the general law impose liability on a director for his or her acts or omissions that render the director an accessory to (or "involved in") a contravention by the corporation. However, there is a lack of coherence and justice in a construction of s 180(1) that would render a director liable simply because his or her act or omission created the potential for a possible or probable contravention that, as things turned out, did not happen. 230 Corporate activity is about risk taking and the making of judgments as to whether or not to undertake a particular activity. If a director takes a wrong turn or misjudges a situation causing the corporation actually to contravene a statutory norm or provision, there is a coherent reason on which a court may be able to make a finding that he or she failed to exercise the degree of care and diligence that a reasonable person in that position would exercise. As Beach J observed in Australian Securities and Investments Commission v Mariner Corporation Limited (2015) 241 FCR 502 at 584 [452]: After all, one expects management including the directors to take calculated risks. The very nature of commercial activity necessarily involves uncertainty and risk taking. The pursuit of an activity that might entail a foreseeable risk of harm does not of itself establish a contravention of s 180. Moreover, a failed activity pursued by the directors which causes loss to the company does not of itself establish a contravention of s 180. (original emphasis) 231 It may be that the exercise by a director of a degree of care and diligence that causes a corporation to contravene a provision of a statute will fall short of the care and diligence that a reasonable person in the director's position would have exercised, in the event that the corporation's contravention caused damage to it or its members, customers or creditors. But this analysis directly connects the actual breach of the duty with some identifiable act or omission that relevantly caused damage. Likewise, the accessorial liability provisions of the Act connect, directly, the acts or omissions of a director to the relevant contravention of the corporation. 232 In Woods v Multi-Sport Holdings Pty Ltd (2002) 208 CLR 460 at 473 [41], Gleeson CJ said that where "it is claimed that reasonableness requires one person to provide protection, or warning, to another, the relationship between the parties, and the context in which they entered into that relationship, may be significant". And in Abalos v Australian Postal Commission (1990) 171 CLR 167 at 180, McHugh J (with whom Mason CJ, Deane, Dawson and Gaudron JJ agreed) said: As Mason J. said in Wyong Shire Council v Shirt [(1980) 146 CLR 40 at 47-48]: "In deciding whether there has been a breach of the duty of care the tribunal of fact must first ask itself whether a reasonable man in the defendant's position would have foreseen that his conduct involved a risk of injury to the plaintiff or to a class of persons including the plaintiff. If the answer be in the affirmative, it is then for the tribunal of fact to determine what a reasonable man would do by way of response to the risk. The perception of the reasonable man's response calls for a consideration of the magnitude of the risk and the degree of the probability of its occurrence, along with the expense, difficulty and inconvenience of taking alleviating action and any other conflicting responsibilities which the defendant may have. It is only when these matters are balanced out that the tribunal of fact can confidently assert what is the standard of response to be ascribed to the reasonable man placed in the defendant's position." The question on the foreseeability issue was not whether the omission to provide proper supervision gave rise to a foreseeable risk of injury. It was whether the conduct of the defendant in requiring the plaintiff to work in this system gave rise to a reasonably foreseeable risk of injury. If it did, the plaintiff was exposed to an unnecessary risk of injury if the injury was reasonably avoidable and in all the circumstances the failure of the defendant to eliminate the risk was unreasonable. (emphasis added) 233 It is important to distinguish between a common law duty to exercise reasonable care and a putative obligation to prevent harm occurring to others, as Gummow J explained in Roads and Traffic Authority of New South Wales v Dederer (2007) 234 CLR 330 at 348 [51], where he said (Heydon J agreed with him on this point at 415 [295]; and see too at 406-407 [272]-[274] per Callinan J): The former, not the latter, is the requirement of the law. In Modbury Triangle Shopping Centre Pty Ltd v Anzil [(2000) 205 CLR 254 at 266 [28]], Gleeson CJ pointed to the remarks of Brennan J in Sutherland Shire Council v Heyman [(1985) 157 CLR 424] and observed that "the common law distinguishes between an act affecting another person, and an omission to prevent harm to another. If people were under a legal duty to prevent foreseeable harm to others, the burden imposed would be intolerable." In Heyman [(1985) 157 CLR 424 at 478], Brennan J had emphasised that the common law recognises "a duty to take reasonable care to avoid doing what might cause injury to another, not a duty to act to prevent injury being done to another by that other, by a third person, or by circumstances for which nobody is responsible". (emphasis added) 234 It is unlikely that the Parliament intended that s 180(1), as a general provision, would displace, modify or affect a specific statutory duty or power conferred on a director or officer, including a duty to obey, or not to contravene or be involved (within the meaning of s 79) in a contravention of, a specific provision of the Act: cf: Anthony Hordern & Sons Ltd v Amalgamated Clothing and Allied Trades Union of Australia (1932) 47 CLR 1 at 7 per Gavan Duffy CJ and Dixon J; David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 at 276 per Gummow J (with whom Brennan CJ, Dawson, Gaudron and McHugh JJ agreed). 235 As Beach J held in Mariner 241 FCR at 582 [444] (applying the caution expressed in Maxwell 59 ACSR at 399 [104] and 402 [110] per Brereton J; Australian Securities and Investments Commission v Warrenburg Pty Ltd (2007) 63 ACSR 623 at 628-629 [22]-[23] per Gordon J; and Australian Securities and Investments Commission v Rich (2009) 236 FLR 1 at 140 [7238] per Austin J): The duty owed under s 180 does not impose a wide-ranging obligation on directors to ensure that the affairs of a company are conducted in accordance with law. It is not to be used as a back-door means for visiting accessorial liability on directors. Further, it is not to be used in a contrived way in an attempt to empower the Court to make a disqualification order under s 206C by the artificial invocation of s 180 (a civil penalty provision), when such a route is not otherwise available directly. (emphasis added) 236 Moreover, ordinarily s 180(1) should be construed so that it does not operate upon express statutory duties imposed directly on a director or officer in other parts of the Act or other statutes such as s 48 of the Life Insurance Act 1995 (Cth) because of the principle in Anthony Hordern 47 CLR at 7. 237 And, because s 180(1) is a civil penalty provision by force of s 1317E, any alleged contravention must be identified with some precision. The objective standard of the duty of care and diligence of a director or officer of a corporation that an individual must exercise in their office, is a legislative norm of conduct. The objective standard seeks to avoid the anomalous results of the pre-existing common or general law duty that focused on the individual's subjective or idiosyncratic characteristics, including his or her intelligence and experience in discharging such an office: cf: In re City Equitable Fire Insurance Co Ltd [1925] Ch 407 at 426-429 per Romer J; Vrisakis v Australian Securities Commission (1993) 9 WAR 395 at 448-449 per Ipp J with whom Malcolm CJ agreed at 419. Ipp J drew attention to the circumstance that, like s 180(1), its statutory predecessor made no reference to loss or damage being suffered by the corporation. He observed that "an offence may notionally be committed under that section without any damages having been sustained" (9 WAR at 449). He said (9 WAR at 449-450): 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. (emphasis added) 238 In contrast, the primary judge here expressed "serious doubt whether an actual breach by a corporation is a necessary requirement for breach of s 180(1) by an officer" (Cassimatis 336 ALR at 218 [5]), although his Honour proceeded on the basis that, as ASIC had propounded, it would seek to establish that Storm committed a contravention of the Act. However, the primary judge was also mindful that the officer's duty was not strict or one requiring him or her to ensure that the corporation did not contravene or breach its duties under the Act (336 ALR at 218 [7]). 239 In Angas Law Services Pty Ltd (in Liq) v Carabelas (2005) 226 CLR 507 at 523 [32], Gleeson CJ and Heydon J, with whom Gummow and Hayne JJ at 525 [43] and Kirby J at 533 [70] agreed, said that the shareholders of a company could not release directors from their statutory duty in the section that was the predecessor of s 180(1) (namely, s 229(2) of the Companies (South Australia) Code). 240 It follows that the duty under s 180(1) was a norm of conduct of a public character to which ss 1317E(1) and 1317G(1) attached public sanctions (a declaration and a pecuniary penalty) and s 1317H(1) a private remedy (compensation). The availability of both public and private law remedies for a contravention of s 180(1) suggests that the duty that the section created was owed to the class of persons to whom ss 1317G(1) and 1317H afforded remedies, namely the public, through the Commonwealth, and persons (including the corporation) who suffered damage from a contravention of s 180(1). However, that does not elucidate the precise content of the statutory duty in s 180(1), which is necessarily related to the particular powers and duties of the director or officer and the circumstances of that individual and the corporation itself. 241 That raises the question of how a director has some superadded obligation or duty, by force of s 180(1), that is different from any personal or accessorial obligation or duty under s 945A to take reasonable care to ensure that he, she, or the corporation or an authorised representative had a reasonable basis for advice that the corporation gave. 242 The difficulty with using s 180(1) to impose a superadded duty can be seen in the following example. Suppose a surgeon performs an operation negligently while and because she is drunk, causing an injury to her patient who is a child. She would have a concurrent common law liability for the injury because she owed a duty to take reasonable care in both contract (with the child's parent) and tort (to the parent and, also, directly to the child): Astley v Austrust Ltd (1999) 197 CLR 1 at 22-23 [47]-[48] per Gleeson CJ, McHugh, Gummow and Hayne JJ. As they recognised, the contractual relationship could regulate and limit the rights of the contracting parties in both contract and tort. However, because the injured child was not a party to the contract, the surgeon's common law duty of care owed to the child in tort would not be affected by her contract with the child's parent. Their Honours explained (197 CLR at 22-23 [47]): The implied term of reasonable care in a contract of professional services arises by operation of law. It is one of those terms that the law attaches as an incident of contracts of that class [In Lanphier v Phipos (1838) 8 Car & P 475 at 479 [173 ER 581 at 583], Tindal CJ said: "Every person who enters into a learned profession undertakes to bring to the exercise of it a reasonable degree of care and skill."]. It is part of the consideration that the promisor pays in return for the express or implied agreement of the promisee to pay for the services of the person giving the promise. Unlike the duty of care arising under the law of tort, the promisee in contract always gives consideration for the implied term. And it is a term that the parties can, and often do, bargain away or limit as they choose. Rather than ask why the law should imply such a term in a contract for professional services, it might be more appropriate to ask why should the law of negligence have any say at all in regulating the relationship of the parties to the contract? The contract defines the relationship of the parties. Statute, criminal law and public policy apart, there is no reason why the contract should not declare completely and exclusively what are the legal rights and obligations of the parties in relation to their contractual dealings. The proposition that, in the absence of express agreement, tort and not contract regulates the duty of care owed by a professional person to a person hiring the professional services is inconsistent with the historical evolution of professional duties of care which, until recently, could be the subject of action only in contract. Moreover, the conceptual and practical differences between the two causes of action remain of "considerable importance" [Aluminium Products (Qld) Pty Ltd v Hill [1981] Qd R 33 at 52]. The two causes of action have different elements, different limitation periods, different tests for remoteness of damage and, as will appear, different apportionment rules. (emphasis added) 243 Now suppose the surgeon operates her practice through a company, and so the parties to the contract were the patient (or his or her parent) and the company. The above analysis then invites consideration of how a statutory duty of care under s 180(1) would apply between the surgeon (as director) and her company. If the patient were not a child but an adult of full capacity, the corporation's duty of care and liability could be affected by the terms of its contract with the patient for the provision of the services of the surgeon. If the contract contained an exclusion clause that prevented the company being found liable in damages for any negligence of the surgeon, that raises the question whether 180(1) could be called in aid of either the patient or the company. 244 If s 180(1) availed the patient, the content of the surgeon's statutory duty of care and diligence, as a director in the corporation's circumstances, would be different depending on who the other contracting party was. If the other party was the patient (in which case the contract would exclude any liability for the surgeon's negligence and thus protect the corporation from any consequence flowing from the breach of the statutory duty) the director would not be in breach of her duty under s 180(1) by operating while inebriated, because the corporation would be protected from liability by its contract. If that contractual party was the patient's parent (in which case the corporation, as the supplier of the surgeon's services, would be liable to the child in tort because the surgeon was not in a condition, when inebriated, to exercise reasonable skill and care: cf: Astley 197 CLR at 37 [48], [80]-[81], [86]-[87]), the director would be in breach of her common law duty and statutory duty under s 180(1). 245 Alternatively, if the primary judge's inward analysis were to apply (ie. by looking to her duty to the corporation as opposed to a third party), the surgeon may owe her company a duty of care that she would exercise her powers and duties as its sole director to prevent herself operating while inebriated. That would be so if each of the following conditions existed: first, there was a likelihood or real risk that she could cause injury to the patient (which would have the same consequences as set out above) and, secondly, if that occurred, she might cause the corporation to suffer reputational damage and the risk that professional disciplinary proceedings might be taken that could result in her being suspended or struck off as a medical practitioner or specialist, which would deprive the corporation of its future ability to conduct its business of offering her professional services as a surgeon. 246 This analysis suggests that the surgeon would be in breach of her duty to the company under s 180(1) by rendering her services while inebriated, regardless of whether she knew that its contract had a valid exclusion clause protecting it from the possibility of liability in contract or tort if the patient were the contracting party. That is because the duty would be to prevent the company suffering harm or a loss of her future ability to generate income for it, even though she was under no duty to the company that prevented her deciding to retire or trade in a different way that would have the same result. This suggests that such a duty is indeterminate. 247 If s 180(1) were to work in the way that the stepping stone approach suggests, a director would contravene s 180(1) and be exposed to liability for a civil penalty where the director's company had taken the commercially usual precaution of including in a contract for its services a clause limiting or excluding its liability, and sometimes too using a Himalaya clause to exclude the liability of its servants or agents, including its directors and officers (cf: New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd [1975] AC 154). On this hypothesis, the patient or ASIC would nonetheless have a cause of action under s 180(1) against a director or officer if that person acted negligently and caused the company to need the protection of the clause. Such a cause of action based on s 180(1) would arise on the basis that, although the company would be protected from the claim under the contract itself, it was reasonably foreseeable that its reputation or future income might be damaged if, through the act or omission of the director or officer, it performed the contract for services badly. Again, if s 180(1) can operate in this way, the duty it imposes is indeterminate and would operate even though the contract had excluded all liability for negligence. 248 In Re D'Jan of London Ltd [1993] BCC 646, Hoffmann LJ (sitting at first instance) found that a director, who was also the holder of 99% of the company's issued capital was negligent in failing to read, before signing, a proposal form completed by an insurance broker that contained an answer that the director knew, and should have detected, was incorrect. As a result the insurer later declined liability when an insured risk occurred causing the company to lose the benefit of the insurance. His Lordship held that this was a breach of the director's statutory duty of care owed to company, which he categorised as the same as at common law ([1993] BCC at 648D-E). Hoffmann LJ then considered the position under the imperfect English analogue of s 1318(1) (and cf: s 1317S which the primary judge also considered). Section 1318(1) provides: (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. (emphasis added) 249 The principal difference is that the English provision required, as a condition for obtaining relief, the person to have acted "honestly and reasonably", whereas s 1318(1) required the person only to have acted honestly. 250 Hoffmann LJ said that because the director and his wife, who was the only other director and shareholder, did not understand that there was an error, they did not give any thought to mandating or ratifying the director's action in signing the form and therefore could not rely on a defence to the liquidator's claim for damages based on the principles of company law that "an act authorised by all the shareholders is in law an act of the company", as affirmed in Multinational Gas and Petrochemical Co v Multinational Gas and Petrochemical Services Ltd [1983] Ch 258 at 269B-E per Lawton LJ, 288D-H per Dillon LJ. In that scenario, Hoffmann LJ found that the negligent director was liable in principle to compensate the company for his breach of duty. However, his Lordship considered that, while the director's 99% shareholding did not give a complete defence, that factor was relevant to the exercise of the Court's discretion under the analogue of s 1318(1). He said that (D'Jan [1993] BCC at 649A-B): It may seem odd that a person found to have been guilty of negligence, which involves failing to take reasonable care, can ever satisfy a court that he acted reasonably. Nevertheless, the section clearly contemplates that he may do so and it follows that conduct may be reasonable for the purposes of [the imperfect English analogue of s 1318] despite amounting to lack of reasonable care at common law. (emphasis added) 251 Hoffmann LJ then reasoned as follows (649B-D): It may be reasonable to take a risk in relation to your own money which would be unreasonable in relation to someone else's. And although for the purposes of the law of negligence the company is a separate entity to which Mr D'Jan owes a duty of care which cannot vary according to the number of shares he owns, I think that the economic realities of the case can be taken into account in exercising the discretion under sec. 727. His breach of duty in failing to read the form before signing was not gross. It was the kind of thing which could happen to any busy man, although. as I have said, this is not enough to excuse it. But I think it is also relevant that in 1986, with the company solvent and indeed prosperous, the only persons whose interests he was foreseeably putting at risk by not reading the form were himself and his wife. Mr D'Jan certainly acted honestly. For the purposes of sec. 727 I think he acted reasonably and I think he ought fairly to be excused for some, though not all. of the liability which he would otherwise have incurred. (emphasis added) 252 No doubt his Lordship had in mind what Dillon LJ had said in Multinational [1983] Ch at 288E-H, namely: An individual trader who is solvent is free to make stupid, but honest commercial decisions in the conduct of his own business. He owes no duty of care to future creditors. The same applies to a partnership of individuals. A company, as it seems to me, likewise owes no duty of care to future creditors….The duties owed by a director include a duty of care,… The shareholders, however, owe no such duty to the company. Indeed, so long as the company is solvent the shareholders are in substance the company. (emphasis added) 253 In Brumder v Motornet Service and Repairs Ltd [2013] 1 WLR 2783, the sole director of a company had not given any attention to the company's statutory health and safety obligations and the director came to be injured by defective equipment that the company had not maintained in accordance with its statutory obligation to do so. Beatson LJ and Longmore LJ, with both of whom Sir Alan Ward agreed, found that the director was in breach of his duty to the company (under an analogue of s 180(1)) to cause it to comply with its absolute health and safety obligations and, as a result, had caused it to incur liability for his own injury: see at 2796-2797 [48]-[49], 2799-2800 [58], [61]-[62]. 254 Thus, it is important to emphasise that the formulation and identification of the duty of care and diligence in the particular circumstances of each case will vary. That is because s 180(1) requires the individual circumstances of the director or officer to be articulated before discerning and applying an objective standard of care and diligence in the performance of that office to the facts of the case involving the alleged acts or omissions of that individual. 255 Where the relevant act or omission involves a collective decision, like a company's board, such as in Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345 and Shafron 247 CLR 465, it makes sense to apply s 180(1) to the individual role and performance of each director, secretary or officer in the making of that decision: cf: Agar v Hyde (2000) 201 CLR 552 at 579-582 [74]-[83] where Gaudron, McHugh, Gummow and Hayne JJ discussed such a scenario. A public company's board, for example, will have directors with a variety of responsibilities and experience, some of a non-executive, and others, possibly with an executive, role in the company. 256 In Hellicar 247 CLR 345 and Shafron 247 CLR 465, the board, assisted by Mr Shafron who was the general counsel and company secretary, issued a release to the Australian Stock Exchange that caused the company to contravene s 674(2) of the Act. No one individual made the decision to issue the release in the form approved by the board. Rather, the decision was a collective one and Mr Shafron gave, or failed to give, the board or the chief executive officer appropriate advice about the draft. There may have been real questions as to whether and how each individual board member and the general counsel and secretary could have been proved to have been an accessory to the company's contravention. However, ASIC sought civil penalties against each of those individuals for breaching his or her individual duty of care and diligence prescribed by s 180(1). 257 If a director dissented from the board decision, he or she may have had a good defence to any allegation of, first, accessorial liability for the company's contravention of s 674 and, secondly, a contravention by him or her of s 180(1). Other directors may have been able to establish, individually, that he or she either discharged his or her own duty under s 180(1) or should be relieved of liability for contravening that provision under ss 1317S or 1318(1), on a similar basis to what Hoffmann LJ suggested in D'Jan [1993] BCC 643. 258 The ambit of s 180(1) is constrained by its specification of the subjective and objective criteria for the operation of the duty it imposes. Its ambit is also informed by the purposes of the Act itself. As the authorities to which I have referred show, the creation and regulation of an artificial person, being a corporation, is intended to promote a field of activity that an individual might not undertake at all, or undertake in the same way. Since Salomon v A Salomon & Co Ltd [1897] AC 22, the law has recognised the distinction between a director, shareholder or corporator and the company with which he or she is associated. The law also recognises that companies are formed and operated to take risks that individuals may not be willing to assume themselves because of the spectre of personal liability. 259 And, the circumstances of each corporation and its relationship with the particular director or officer will shape the nature of the duty imposed under s 180(1). Where the corporation is effectively the creature of the director, who has formed and controls it, he or she may have a willingness to take risks with what, in substance (but not necessarily in legal form) is his or her own money or property invested in or risked by the corporate venture, which would or might not be appropriate for a corporation formed to invest or hold other persons' money or property. 260 There will be a range of risks that an individual, who is a director and sole shareholder of a corporation, will be prepared to take with his or her own investment in the corporation. What risks, objectively, would a reasonable person, in that individual's position, be able to choose to assume with one's own investment, can have no unique answer. But, there will be a point where the duty under s 180(1) will constrain the reasonable director from causing the corporation to assume a particular risk. 261 If, rather than a risk of, an actual contravention of the law would occur if the company acted, or omitted to act, in a particular way, s 180(1) could operate, in the ordinary course, to impose a duty that a reasonable director, in the individual's position, not cause or permit the corporation to engage in the conduct. But this would depend on the nature of the contravention of the law. That is because, if s 180(1) imposed an unlimited duty to ensure a corporation's compliance with the law, no one would be prepared to be a director. No doubt that is why ASIC did not contend that the relevant duty here was simply to prevent Storm contravening s 945A(1)(b) or (c). 262 The duty under s 180(1) must be to prevent the corporation from suffering a real form of harm that no reasonable director or officer in the individual's position could allow to occur. Where reasonable minds could differ on whether, or it is uncertain that, a director would have had to take steps to avert such a harm, a court should be very slow to hold that the particular individual contravened s 180(1). 263 I am of opinion that the nature of any risk of harm from a contravention of the legislative provision that, itself, does not expose a director or officer directly to a criminal or civil penalty (eg by force of ss 1311(1) of the Act and s 11.2(1) of the Criminal Code or ss 1317E(1) and 1317H(1) of the Act), must be established by cogent evidence sufficient to enliven the existence of a duty under s 180(1) to cause the corporation to avert it in all of the relevant circumstances. The position is more nuanced when the relevant risk involves the possibility that, depending on future events, there may or may not be detriment to the corporation. 264 There is a substantive difference between a situation in which s 180(1) operates on the degree of care and diligence that a reasonable person would exercise in the corporation's circumstances as a director or officer exercising his or her powers and discharging his or her duties in respect of an act or omission of the corporation that amounts to a contravention of a statute directly by the person (such as a failure of the corporation to comply with s 674(2) arising from a decision by the board in which the person participated) as opposed to indirectly by the person because another agent of the corporation might, or would be likely to, cause the contravention to occur (such as a failure of the corporation, acting directly through another officer being an authorised representative, to comply with s 945A(1) with which the statute required any authorised representative personally to comply).

How should s 180(1) apply to Mr and Mrs Cassimatis? 265 Here, even though Storm contravened s 945A(1)(b) and (c), had the global financial crisis not occurred, or not been as severe in its financial impact as it was, the 11 investors whom ASIC proved to have been badly advised might have emerged without suffering any loss or indeed may have arrived at the predicted financial outcome despite what, with hindsight, was the flawed analysis in their statements of advice that Storm provided to them. 266 What s 180(1) required was for Mr and Mrs Cassimatis as directors of Storm to exercise the prescribed degree of care and diligence at the time of the alleged act or omission. At that time in late 2007, in the case of Mr and Mrs Dodson, had Storm's contravention of s 945A(1)(b) and (c) come to light, the question arises whether a reasonable director in Mr and Mrs Cassimatis' position would have to consider that ASIC might move to challenge Storm's Australian Financial Services Licence (AFSL) or impose a banning order? 267 The primary judge found that a reasonable director in the position of Mr and Mrs Cassimatis would have been aware of a strong likelihood that Storm would contravene the Act if he or she caused or permitted it to apply, or failed to prevent it from applying, the Storm model to clients in the class that ASIC had pleaded, namely clients who were retired or nearing retirement (T696). 268 Relevantly, his Honour made clear that he was not considering this issue from the perspective of the actual losses that members of the vulnerable class suffered, which were not germane to whether, in giving them personal advice, Storm contravened s 945A(1)(b) and (c). Instead, the primary judge examined whether at some point ASIC would come to learn of the contraventions themselves given the "not insignificant" size of the potentially affected class. He concluded that it was a real possibility, or (as he found), likely, that ASIC would learn of the contraventions. Next, his Honour held that once this occurred it was reasonably foreseeable that ASIC could respond by taking regulatory steps including the very real possibility that ASIC, itself, might impose or obtain from a court, a banning order or a suspension or cancellation of Storm's AFSL. That very real possibility, if it came to fruition, his Honour reasoned, was a threat to the very existence of Storm, since its business depended on its AFSL. 269 The way in which the primary judge reasoned that Mr and Mrs Cassimatis contravened s 180(1) focussed on the likely consequences for Storm of the discovery of the contraventions of s 945A(1)(b) and (c) that his Honour found. His Honour found that a reasonable person in the position of Mr and Mrs Cassimatis, as a director of Storm, would have known that it was likely that the corporation would contravene the Act if he or she did not take steps to prevent it from giving inappropriate advice to the relevant class of investors. Next, if the contraventions occurred, that would have the consequence that potentially on discovery of them, ASIC might take proceedings against Storm to put in peril its capacity to hold its AFSL, which was essential to Storm's continuing in its business, and to impose regulatory sanctions, such as a banning order under s 920A(1). 270 In the end, his Honour concluded that Mr and Mrs Cassimatis each contravened s 180(1) (Cassimatis 336 ALR at [833]): By exercising their powers in a way which caused or 'permitted' (by omission to prevent) inappropriate advice to be given to the relevant investors" … The consequences of that inappropriate advice would be catastrophic for Storm…It would have been simple to take precautionary measures to attempt to avoid the application of the Storm model to this class of persons. (emphasis added) 271 At the time of the contraventions in 2007, Mr and Mrs Cassimatis had a close connection to the management, best interests and commercial fortunes of Storm and they knew of its then solvency and profitability. In that scenario, ASIC did not allege, and his Honour did not find, that Mr and Mrs Cassimatis had a duty merely to prevent Storm from contravening s 945A(1)(b) and (c). The primary judge imposed a duty of care and diligence on Mr and Mrs Cassimatis to prevent those contraventions in order to avoid foreseeable harm to Storm that would occur from ASIC finding out about them and taking proceedings that could result in Storm losing its AFSL or being subject to a banning order. Thus, the duty found was not merely to prevent the contraventions of s 945A(1)(b) and (c) at all, but to guard Storm against the likely or possible regulatory consequences of the discovery of those contraventions. 272 With respect, the imposition of such a duty, owed to Storm, is a backdoor way of creating liability on Mr and Mrs Cassimatis as accessories to Storm's substantive contraventions of s 945A(1)(b) and (c): cf: Mariner 241 FCR at 582 [444]. 273 As events have unfolded, ASIC could only establish, after the full benefit of its own investigatory processes and an extensive trial following the use of the Court's powers to obtain relevant evidence, that on 6 occasions, 11 persons, being 5 couples and 1 other individual, had received statements of advice from Storm that it gave in contravention of s 945A(1)(b) and (c). While the potential class possibly may have been wider, there was no basis to conclude that a reasonable director in Mr and Mrs Cassimatis' position would have considered that it was likely to be, or there was a real possibility that it would be, significantly more extensive. After all, as his Honour found, they were in control, and familiar with the detailed features of, Storm's business. Thus, on those findings, they would have known only that the relevant class was relatively small in the overall context of Storm's clientele. 274 In Kizbeau Pty Ltd v W G & B Pty Ltd (1995) 184 CLR 281 at 291-295, Brennan, Deane, Dawson, Gaudron and McHugh JJ discussed the principles as to when a court can take into account subsequent events in the assessment of value or damages. Their Honours observed that in a case based on the tort of deceit, ordinarily, value is assessed at the date of the acquisition of the impaired property and the measure of damages is the difference between the price paid and that value. But, they held that in ascertaining value at the date of acquisition, the court can consider subsequent events that arise from the nature or use of the thing itself, as opposed to events that, like the global financial crisis, arise from external or supervening causes. In doing so, their Honours applied what Latham CJ said in Willis v Commonwealth (1946) 73 CLR 105 at 109: It is not disputed that that the chances of remarriage of a widow are relevant to the assessment of damages under the Fatal Accidents Act, but it is said that this matter should be looked at by way of estimate as at the time of the death of the person which is the foundation of the claim, and that the circumstance that the widow has in fact subsequently remarried should not be taken into account. But, where actual facts are known, speculation as to the probability of those facts occurring is surely an unnecessary second-best. Damages are awarded for injury actually suffered and for prospective injury. Prospective injury can only be estimated with more or less probability. But where the extent and character of what would at one time be described as prospective injury depends on the happening or non-happening of a particular event and that event has in fact happened, it is unnecessary to speculate as to whether or not this event might happen and, if so, when. (emphasis added) 275 Of course, this appeal does not concern damages or valuation. However, the conduct complained of affected only 11 investors comprising one individual and 5 couples in 6 statements of advice out of the many thousands that Storm provided. The subsequent events, thus, demonstrated that the nature of Storm's method of obtaining its clientele and then applying the Storm model to that clientele resulted only in it engaging in the small number of serious contraventions of s 945A(1)(b) and (c) and placed those in an overall context. 276 The assessment of the consequences of a breach of Mr and Mrs Cassimatis' director's duty under s 180(1) must be approached by considering whether, in all of the circumstances, they acted unreasonably in exercising their powers in a way that caused Storm to contravene, or failed to prevent it from contravening, s 945A(1)(b) and (c) on at least 6, and possibly some (but not many) more occasions in 2007 and early 2008. At that time, the Storm model had operated successfully for at least 6 years and had been subject to (what a reasonable director in Mr and Mrs Cassimatis' position would have been aware was) scrutiny by independent third parties, including ASIC, without attracting any relevant adverse consequence or comment. Storm was then solvent, if not thriving, and held professional indemnity insurance that reasonably could be thought to provide protection for any member of the affected class of 11 or so persons who in the future might suffer loss or damage (which was at the time by no means predictable, let alone probable). Moreover, the primary judge found that Mr and Mrs Cassimatis appeared to have acted honestly, albeit negligently, in causing or allowing Storm to contravene s 945A(1)(b) or (c). 277 As events turned out, the global financial crisis had catastrophic consequences for many of Storm's clients, including the 11 investors, and that eventuality caused great public concern about Storm's and Mr and Mrs Cassimatis actions. But, that financial misfortune for those persons is irrelevant to whether Mr and Mrs Cassimatis contravened s 180(1) in the way that ASIC alleged against them. 278 In my opinion, as at the time in 2007 and 2008 that the primary judge found that Storm contravened s 945A(1)(b) and (c) on 6 occasions, the evidence before him did not suggest that those 6 contraventions would have, or been likely to have, entailed the consequence that ASIC would impose, or obtain from the Court, a banning order or suspension or cancellation of the AFSL. Rather, the likelihood is that if, at that time, and not with hindsight, the deficiencies in the Storm model had been made known to ASIC and Mr and Mrs Cassimatis, prompt remedial action could and would have occurred. 279 The primary judge considered that there was a strong likelihood that ASIC would have chosen to impose or seek a regulatory sanction against Storm, such as the suspension or cancellation of its AFSL or a banning order. However, ASIC led no evidence of what it would have done. Its failure to lead such evidence should have led his Honour to conclude that any such evidence would not have assisted ASIC in proving this aspect of its case of what the risk of regulatory action was: Jones v Dunkel (1959) 101 CLR 298; Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361 at 384-385 [63]-[64]. In my opinion, since there was no evidence on the point from ASIC, as the person who could have led it and bore the onus of proof, ASIC's argument should have been rejected. 280 Importantly, the primary judge found that the extent of the adverse consequences that occurred "was undoubtedly the result of the GFC [Global Financial Crisis] which was an event with a magnitude which could not have been reasonably foreseen by a director in the position of Mr and Mrs Cassimatis". However, he found that a cause of those investors' losses was Storm's inappropriate advice. In addition, his Honour also found that had Mr and Mrs Cassimatis been warned, in strong terms, either by ASIC or persons with considerable experience and knowledge, then they would have acted to avoid the risk of further contraventions in relation to the class of investors of which the 11 investors formed part. He said: I am satisfied that although they were powerfully committed to the Storm model, they were also conscious of the need for compliance and sought confirmation from a number of others about their compliance. They would have heeded a warning if it were expressed in strong terms from a person with considerable experience and knowledge. 281 After all, given the apparent success of the Storm model at the time of the contravening conduct and the relevantly good record of Storm as the holder of an AFSL, the likelihood is that it would have taken prompt steps to rectify the consequences of its limited number of 6 contraventions, and would have modified the Storm model appropriately. It is unlikely that ASIC would have used or sought from the court a regulatory sledgehammer to crack what was then a successful business walnut which had acted negligently, but honestly. And, if ASIC had so acted (which it was not prepared to prove at the trial), it is unlikely that a court would have imposed the drastic consequences that ASIC's case at the trial asserted. That consequence would have been an overreaction in all the circumstances. 282 Thus, while Mr and Mrs Cassimatis were responsible by their (unintended) negligence for Storm's contraventions of s 945A(1)(b) and (c), I am not satisfied that a reasonable director in their position in all of the circumstances came under a duty under s 180(1) to prevent the contraventions for the reason that the primary judge found: namely, that "the consequences of that inappropriate advice would be catastrophic for Storm" (Cassimatis 336 ALR at 370 [833]). I am not satisfied that he or she should have perceived a risk, or likelihood, of ASIC taking action to suspend or cancel Storm's AFSL or the imposition of a banning order and then that he or she should have acted, for that reason, to prevent that action occurring. 283 The possibility of ASIC taking disciplinary proceedings against Storm to remove its licence would be different, if, for example, Mr and Mrs Cassimatis sold their shares in Storm to a third party which was a competent, highly regarded provider of financial services or they decided to stop Storm trading and give up its AFSL. In either of those situations, persons other than Mr and Mrs Cassimatis would control the licence yet Mr and Mrs Cassimatis (like the surgeon in my example above) would remain personally exposed to regulatory and professional proceedings in respect of any breaches of their duties of care. However, those breaches by Mr and Mrs Cassimatis would have no continuing realistic adverse consequences for Storm. Any "catastrophic consequence" to Storm, of the kind the primary judge found, would exist only were Mr and Mrs Cassimatis to choose to remain in control of the company while it held its AFSL. 284 The basis on which the primary judge found that Mr and Mrs Cassimatis were liable was necessarily connected to the assumption that they would continue to control Storm indefinitely so that, in the future, ASIC might act to imperil its holding of the AFSL. Yet they owed no responsibility or duty to Storm to continue to control it. They were free to sell their interest in it, to retire or to close it down. If they did any of these things, the risk that ASIC would take "catastrophic" action against Storm would be remote. 285 If Mr and Mrs Cassimatis decided to retire and caused Storm to no longer hold its AFSL, that would have caused the same supposed "damage" to Storm as the primary judge hypothesised in his conclusion, namely that their conduct in permitting it to breach s 945A, could have resulted in the loss of the AFSL through ASIC taking regulatory proceedings. But, Mr and Mrs Cassimatis owed no duty at all to Storm to continue its business or their management or control of it.

Conclusion 286 It is important to appreciate that the result at which I have arrived is the consequence of the artificial way in which ASIC sought to establish its case, by inference and not direct evidence, as to what it would have done. That case employed s 180(1) in an arcane and backdoor fashion. ASIC did not seek to prove directly that merely because of Mr and Mrs Cassimatis' roles, as principals or accessories, in Storm's actual contraventions of s 945A(1)(b) and (c), they had breached a duty under s 180(1). Instead, ASIC deliberately eschewed such a case and relied on the arcane argument that an indirect consequence of the contraventions was that it was likely that ASIC would have pursued a severe regulatory outcome, when it was unwilling to prove that it would have so acted. 287 In my opinion, the appeal should be allowed, the orders below should be vacated and ASIC's originating application should be dismissed. ASIC should pay Mr and Mrs Cassimatis' costs of the trial and the appeal. I certify that the preceding seventy-two (72) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares.

OVERVIEW [288] BACKGROUND [300] SECTION 945A [312] The grounds of appeal [312] Summary of the appellants' argument [313] Relevant provisions of the Corporations Act [314] The breach of s 945A(1)(b) [324] Breach of s 945A(1)(b) - first reason [325] The primary judge's conclusions and reasoning [325] The appellants' complaints [329] Consideration [331] Conclusion [336] Breach of s 945A(1)(b) - second reason [338] The primary judge's conclusion [338] The primary judge's reasoning [340] The appellants' complaints [341] Further factual background [347] Consideration [351] Conclusion [362] Breach of s 945A(1)(b) - third reason [364] The primary judge's conclusion and reasoning [364] The appellants' complaints [367] Further factual background [370] Consideration [383] Conclusion [393] Breach of s 945A(1)(b) - fourth reason [394] The primary judge's conclusion and reasoning [394] The appellants' complaints [397] Consideration [399] Conclusion [402] The breach of s 945A(1)(c) [403] The primary judge's conclusions and reasoning [403] The appellants' complaint [407] Consideration [410] Conclusion in relation to s 945A [422] SECTION 180 [423] The primary judge's reasons [423] The notice of appeal [443] Summary of the appellants' principal submissions regarding s 180(1) [444] Consideration [447] SECTION 180 [447] Mr and Mrs Cassimatis' powers and duties [467] Storm's interests [470] The primary judge's assessment of breach of s 180(1) [473] Principles on appeal [476] Application of s 180 [477] Conclusion in relation to s 180(1) [501] Conclusion [502]

OVERVIEW 288 The appellants, Mr and Mrs Cassimatis, were directors of Storm Financial Ltd. Storm held an Australian Financial Services Licence (AFSL). Its main activity included advising clients to invest in accordance with the "Storm model" which relevantly involved borrowing on the family home and entering into margin loans to invest in index funds. 289 The appellants appeal from orders made consequent upon a decision that they contravened s 180(1) of the Corporations Act 2001 (Cth): Australian Securities and Investments Commission v Cassimatis (No 8) [2016] FCA 1023. 290 The Australian Securities and Investments Commission's (ASIC) case was pleaded, conducted and determined on the basis that: (1) first, ASIC had to prove that Storm in fact contravened s 945A(1)(b) and (c) and s 1041E(1) of the Corporations Act and, consequently, s 912A(1)(a) and (c): J[4] to [6], [27], [28], [834]; and (2) secondly, the appellants breached s 180(1) of the Corporations Act by not exercising their powers as directors of Storm with the degree of care and diligence that a reasonable director would have exercised in the circumstances and this caused or permitted Storm to contravene the Corporations Act, exposing Storm to a foreseeable risk of harm of: (i) being found guilty of an offence under s 1311 of the Corporations Act; (ii) cancellation or suspension of Storm's AFSL by action under s 915C(1)(a) of the Corporations Act; (iii) a banning order by action under s 920A of the Corporations Act; (iv) court orders under s 1101B(1)(a)(i) of the Corporations Act; and (v) civil proceedings by the investors: J[29] to [33]. 291 As to the first matter, the primary judge concluded that Storm did not breach s 1041E, but did breach s 945A(1)(b) and (c) of the Corporations Act: J[668], [835]. In summary, Storm provided advice to certain investors: (1) without investigating and considering the subject matter of the advice sufficiently, having regard to the information obtained from the investors, breaching s 945A(1)(b); (2) which was not appropriate having regard to the consideration and investigation of the subject matter of the advice, breaching s 945A(1)(c). 292 As to the second matter, the appellants were found to have contravened s 180(1) of the Corporations Act by exercising their powers in a way which caused or permitted (in the sense of failing to prevent) inappropriate advice to be given by Storm to the relevant investors: J[833]. His Honour summarised his conclusions at J[22] and [23] in this way: [22] For the reasons explained in detail later, a reasonable director with Mr and Mrs Cassimatis' responsibilities, and in Storm's circumstances, would have realised that the application of the model to people in the pleaded circumstances was likely to involve inappropriate advice. The reasonable director would have taken some alleviating precautions to prevent the giving of that advice. I reach this conclusion for the detailed reasons given later, but with a strong awareness that it is made in the context that a director's powers to act are, of the very nature of corporations, ones which often require risks to be taken. [23] Mr and Mrs Cassimatis should have been reasonably aware that the application of the Storm model would be likely to (and did) cause contraventions of s 945A(1)(b) and s 945A(1)(c). The contraventions of s 945A(1)(b) occurred because Storm did not give such consideration to the subject matter of the advice and did not conduct such investigation of the subject matter of the advice as was reasonable in the circumstances. The contraventions of s 945A(1)(c) occurred because Storm provided financial advice which was not appropriate to the investors having regard to the consideration and investigation of the subject matter of the advice that ought to have been undertaken. Those contraventions were not merely likely to occur. They were contraventions which could have (and did have) devastating consequences for many investors in that class and the discovery of those breaches would have threatened the continuation of Storm's Australian Financial Services Licence (AFSL) licence and Storm's very existence. 293 The relevant investors in respect of whom the primary judge concluded that Storm had breached its duties were: Mr and Mrs Dodson (Part E investors); Mr and Mrs Herd (Part E investors); Mr and Mrs Higgs (Part E investors); Ms Knight (Schedule investor); Mr and Mrs Madden (Schedule investors); and Mr and Mrs Walker (Schedule investors). 294 The "Part E investors" were investors who gave evidence in the proceedings by way of affidavit. None of the Part E investors was required for cross-examination. The "Schedule investors" were investors who did not give evidence; their position was summarised in the pleadings and admitted in certain respects. 295 The relevant investors had five matters in common: (i) they were over 50 years old; (ii) they were retired or approaching and planning for retirement; (iii) they had little or limited income; (iv) they had few assets, generally comprised of their home, limited superannuation, and limited savings; and (v) they had little or no prospect of rebuilding their financial position in the event of suffering significant loss: J[18]. 296 For present purposes, it is sufficient to use the situation of Mr and Mrs Dodson as an example of the relevant investors: [11] … Like other investors, Mr and Mrs Dodson attended an education workshop run by Storm. The education workshop generally emphasised the reliability and low risk involved in the Storm model and the need for people to take on debt. One of the typical slides shown at that presentation said that volatility or "manageable risk" is "investing in an asset whose value can rise and fall but in such a way that over a longer time frame there is certainty that the value will rise". A hypothetical question was asked of the attendees about which person of several persons they would want to be. The "correct answer" was that the prospective client should "want to be" the person who owes $2 billion. [12] In November 2007, Mr and Mrs Dodson obtained financial advice from a representative of Storm. Storm understood that the Dodsons were "preparing for retirement in a few years". At the time that Mr and Mrs Dodson approached Storm, Mr Dodson was 60 years old. His wife was 55 years old. They had a combined total income before tax of $58,996 per annum. They were the guardians of a girl whose parents had died. They owned their own home. They had superannuation savings and around $10,000 surplus income each year. Mr Dodson was working night shifts. He had a heart condition. [13] Storm provided Mr and Mrs Dodson with a 138-page SOA [the executed copy was 106 pages]. The SOA followed the Storm model of advice. Mr and Mrs Dodson took Storm's advice. They borrowed funds against the security of a mortgage over the unencumbered home in which they had lived for 27 years. They used the borrowed money to invest in index funds. They borrowed again for a margin loan from Colonial Margin Lending. Some of the remaining borrowings were used to create a "cash dam" to pay for expenses including interest. Mr and Mrs Dodson also had to use the borrowed money to pay $26,960 to Storm for its fees. [14] After the GFC in 2008, Mr and Mrs Dodson liquidated their investments. They now have a home loan on their house of $287,000 (with an offset of $197,000) and [a] line of credit drawn to $32,000. A $65,000 investment that they had prior to investing with Storm has been lost. Neither has been able to retire. 297 The trial only decided liability. All issues concerning remedies were deferred to a separate hearing: J[37], J[837]. These remaining issues were decided by the Court on 22 March 2018: Australian Securities and Investments Commission v Cassimatis (No 9) [2018] FCA 385. Mr and Mrs Cassimatis seek to have the orders in Cassimatis (No 9) set aside on the basis that those orders are predicated on the correctness of Cassimatis (No 8), which they challenge in this appeal. 298 There were two aspects to the appeal: (1) First, it was contended that the primary judge erred in concluding that there had been contraventions by Storm of s 945A(1)(b) and (c) of the Corporations Act. (2) Secondly, it was contended that the primary judge erred in concluding that the appellants had breached s 180(1) of the Corporations Act. 299 For the reasons which follow the primary judge has not been shown to have erred.

BACKGROUND 300 It is not necessary to set out the factual background in excruciating detail. Rather, it is better to focus on those matters necessary to understand the relevant context and the primary judge's detailed reasons. This background provides an overview of the factual background. Further detail as to the facts is provided where relevant to particular arguments made during the appeal. 301 Mr and Mrs Cassimatis were the founders, sole shareholders in, and executive directors of Storm. Storm provided advice in accordance with the "Storm model". The model involved clients being initiated into Storm through a "primer meeting" followed by an "education workshop". During the education workshop, the presenter would explain (J[51]): (1) the types of assets that could be invested in; (2) that Storm recommended clients build wealth by using home loans and margin loans to borrow funds to invest in index funds; (3) that Storm was not a traditional financial planner and specialised in one area of client advice, that being advice about investing in indexed share funds; and (4) that volatility in the share market was used to trigger further investments. Mr McCulloch said that attendees were told that Storm's philosophy was that if the share market fell in value by 10% or more from the date of the initial investment, a further investment should be made using cash reserves to fund the further investment and lower the average cost of the investment; and if the share market rose in value by 10% or more from the date of the initial investment, a further investment should be made by increasing the margin loan and returning the LVR to its level at the time of the initial investment. 302 There would then be an information gathering appointment during which clients would provide to an adviser - either an Employee Representative or an Authorised Representative - financial documentation and complete a "Confidential Financial Profile". Storm would then centrally produce a cash flow based on the information provided by the client to the adviser. Storm would also centrally produce a Statement of Advice (SOA). The cash flow (often referred to as a "viability cash flow") was one attachment to the SOA and was an important aspect of it. Much of the SOA was in template form, although particular amounts and ratios were tailored to the specific client investor, and some other sentences and paragraphs would be included for each particular investor. Almost 90% of Storm's clients were advised to adopt a strategy described in evidence as "double gearing". In summary, this involved: (i) taking out a loan on the family home; (ii) entering into a margin loan; and (iii) using the funds from these two sources to invest in index funds, establishing a cash reserve or "cash dam" and paying Storm's fees. 303 Although the SOAs were presented to investors by advisers, those advisers could not make changes to the SOAs, which had been produced centrally by Storm. Mr Benson, an Authorised Representative, stated: 63. I did not create any SOA. Each Storm SOA which I presented to clients was sent electronically to me (or my staff), by Storm HQ. I would arrange for the document to be printed in colour and bound in preparation for presentation to the client. The format of the SOA was such that I could not change it in any way. 64. My usual process for presenting a SOA was for the client to come to my office and I would take them through the document. This process would usually take two to three hours. I would ask the client to take the SOA away with them so that they could read it, discuss its contents and come back with any questions if they wished. I would usually call the client two or three weeks later to see if they had any questions. 65. If the client wished to change any aspect of SOA, I could not make that change. Rather, I was required to request that Storm HQ make the change. If the change was agreed to, I would receive a revised SOA from Storm HQ for presentation to the client. There were times when Storm HQ was reluctant to make a requested change and would organise a senior member of the Storm HQ staff to talk to the client involved. 66. Once the client decided that they wished to proceed with the recommendations in the SOA, he or she would sign the appendix at the back of the SOA entitled "Authority to Proceed with Recommendations". I would then arrange for the signed SOA to be sent to Storm HQ where the recommendations would be implemented. It was not part of my role to make the arrangements required for implementation of the recommendations. 304 The primary judge concluded: [121] … Mr and Mrs Cassimatis had considerable control over the financial advisers and the process for giving advice concerning the Storm model. I have already explained how the SOAs and cash flows were prepared centrally by Storm in a process over which Mr and Mrs Cassimatis had control. As Mr Cassimatis told Mr Benson, the role of an Authorised Representative of Storm was to collect data from clients and to present to them the advice that had been prepared by Storm. Indeed, during Mr Benson's period of due diligence, Mr and Mrs Cassimatis each said to him that Storm advisers made no decisions but that "our specialists" or "our financial engineers" formulated the content of and prepared all advice to clients, obtained quotes from lenders, and executed recommendations … [122] Mr Benson gave evidence, which I accept, of one occasion in early 2007 when he thought some of the clients should not take a step. Because of this, he did not send to the clients the SOAAs [Statements of Additional Advice] that had been sent to him from Storm. A few weeks after he had received the SOAAs by email, he was told by someone at Storm Headquarters that not all of the clients who he advised had signed the SOAA. He explained that he did not think some clients should receive the SOAA. Mr Cassimatis subsequently said to him that he should not "assume the advice is not appropriate for the clients, we are the specialists and you should present it as it is sent to you". 305 The primary judge concluded that Mr and Mrs Cassimatis had a high degree of control over Storm and its business at every level of operation and that they were aware that the Storm model was recommended to financially vulnerable clients including the relevant investors. At J[21] he stated: Mr and Mrs Cassimatis had an extraordinary degree of control over Storm. They used their powers as directors to create an environment in which (as they were aware) it was almost inevitable that the Storm model would be applied to people with a high degree of financial vulnerability within this class … Mr and Mrs Cassimatis would reasonably have been aware that the Storm model was applied to financially vulnerable clients including those in the class pleaded by ASIC. 306 Expert evidence was given in the proceedings by Mr McMaster and Professor Valentine. They produced a Joint Expert Report (JER). The primary judge was impressed by Mr McMaster: J[231]. He was not impressed by Professor Valentine for the comprehensive reasons set out at J[232] to [243], none of which are challenged. His Honour was not prepared to accept without extreme caution Professor Valentine's evidence on matters where he and Mr McMaster were in dispute: J[244]. It is not necessary to recount in detail why his Honour reached that point, although it assists an understanding of these reasons to note that Professor Valentine had previously been involved with the issues about which the proceedings were concerned and had actively promoted the Storm model as long ago as 1999. His Honour found him to be committed to the Storm model in a way which impaired his ability to assess it independently as was evidenced by the "defensive and sometimes remarkable positions that he took in giving oral evidence": J[235], [236]. 307 The experts agreed that a "financial planner should generally not advise a retired person or a person nearing retirement to invest in high risk investments" and that they "generally regard negative gearing as high risk within a period of approximately 5 years to retirement": JER at [21], [23]. The use of the word "generally" was to permit exclusion of sufficiently wealthy individuals. 308 The experts also agreed at JER [36] to [40]: Question 16 [36] We agreed that since there was a probability of a negative return every 4 years that a financial adviser should look at how the client would be affected if a negative return occurred and advise the client with regard to that risk. Question 17 [37] We agreed that in the relevant period a financial adviser should have appreciated the need, when formulating advice for each Part E Investor, to account for a negative return from the share market. Question 18 [38] We agreed that in giving advice that accounts for a negative return from the share market, a financial adviser should ensure that the investors had access to sufficient cash to fund the strategy during negative periods. Question 19 [39] We agreed that generally a financial adviser should have been aware of the risk of share market falls from the second half of 2007 as the world moved to a period of tighter credit. We also agreed that nobody could have been aware of the magnitude of the falls that were likely. Question 20 [40] With regard to our answer to Question 19, we agreed that a financial adviser should have accounted for the possibility of a negative return in formulating their advice and advised the clients of this possibility. 309 The primary judge found that Storm breached s 945A(1)(b) for four reasons and Storm breached s 945A(1)(c) for three reasons. Themes in the reasons why those provisions were breached include that: (1) Storm did not adequately assess what would occur if there was a period of "negative growth" or a "negative return"; (2) Storm did not sufficiently take into account in the cash flows it prepared (and which it used to advise the relevant investors) how those investors could fund the strategy during negative periods; (3) Storm advised the relevant investors, who were vulnerable in the ways identified earlier - including that they were retired or approaching and planning for retirement - to adopt the "Storm model" to invest, notwithstanding that this advice was inappropriate; and (4) the advice to adopt the "Storm model" was inappropriate even if - contrary to the primary judge's conclusion - the relevant investors were "balanced investors" rather than "conservative investors". 310 The primary judge concluded that the appellants contravened s 180(1) by exercising their powers in a way which caused or "permitted" (by omission to prevent) inappropriate advice being given to the relevant investors: J[833]. 311 It is convenient to deal first with the breaches by Storm of s 945A(1).

The grounds of appeal 312 Grounds 7 and 8 in the notice of appeal were in the following terms: 7. The learned primary judge erred in construing s 945A of the Act effectively on the basis that advice to a person with the characteristics pleaded [in sub-paragraphs 784(a) to (e) of the statement of claim], to borrow money to purchase units in the relevant Index Funds, secured in part on his or her residence would always be inappropriate, in contravention of s 945A(1). 8. The learned primary judge: (a) ought to have found that the Respondent had not proved, to the requisite standard, what were the relevant personal circumstances of each Relevant Investor, as the Respondent had not proved their subjective willingness to accept a risk of capital loss; (b) consequently, should not have concluded that Storm had contravened: - (i) subs 945A(1)(b) of the Act; or (ii) subs 945A(1)(c) of the Act in respect of the Relevant Investors.

Summary of the appellants' argument 313 The appellants' argument on appeal was that ASIC failed to discharge its onus of proof, advancing two principal submissions: (1) ASIC did not sufficiently establish what "consideration" or "investigation" was given by Storm and therefore failed to establish a breach of s 945A(1)(b). ASIC did not adduce evidence from the six financial advisers (who were employees of Storm) who dealt with, interviewed, and presented the SOAs to, the relevant investors. Rather, ASIC called three other client advisors, none of whom had investigated or considered the subject matter of the advice given to the relevant investors and had not dealt with them. (2) ASIC failed to prove the "relevant personal circumstances" of each of the investors, in particular their subjective willingness to take on the risks associated with the investments recommended by Storm, and therefore failed to establish a breach of s 945A(1)(c). The appropriateness of the advice depended upon an investor's appetite for risk.

Relevant provisions of the Corporations Act 314 Section 945A of the Corporations Act was contained in Subdiv B of Div 3 of Pt 7.7 in Ch 7. Chapter 7 was entitled "Financial services and markets". The objects of the Chapter were set out in s 760A: The main object of this Chapter is to promote: (a) confident and informed decision making by consumers of financial products and services while facilitating efficiency, flexibility and innovation in the provision of those products and services; and (b) fairness, honesty and professionalism by those who provide financial services; and (c) fair, orderly and transparent markets for financial products; and (d) the reduction of systemic risk and the provision of fair and effective services by clearing and settlement facilities. 315 The general definition of "financial product" included "a facility through which, or through the acquisition of which, a person: … makes a financial investment": s 763A(1)(a). The term "makes a financial investment" was defined in s 763B. 316 The circumstances in which a person provides a "financial service" were set out in s 766A. One such circumstance was where a person provides financial product advice: s 766A(1)(a). The term "financial product advice" was defined in s 766B(1): 766B Meaning of financial product advice (1) For the purposes of this Chapter, financial product advice means a recommendation or a statement of opinion, or a report of either of those things, that: (a) is intended to influence a person or persons in making a decision in relation to a particular financial product or class of financial products, or an interest in a particular financial product or class of financial products; or (b) could reasonably be regarded as being intended to have such an influence. 317 Financial product advice included "personal advice" and "general advice". The former was defined in s 766B(3) as follows: (3) For the purposes of this Chapter, personal advice is financial product advice that is given or directed to a person (including by electronic means) in circumstances where: (a) the provider of the advice has considered one or more of the person's objectives, financial situation and needs (otherwise than for the purposes of compliance with the Anti‑Money Laundering and Counter‑Terrorism Financing Act 2006 or with regulations, or AML/CTF Rules, under that Act); or (b) a reasonable person might expect the provider to have considered one or more of those matters. 318 Section 766B(4) provided that "general advice" was "financial product advice that is not personal advice". 319 Part 7.7 was entitled "Financial services disclosure", Division 3 was entitled "Additional requirements for personal advice provided to a retail client" and Subdivision A was entitled "When this Division applies". In that subdivision, s 944A of the Corporations Act provided that Div 3 applied to personal advice in the following circumstances: 944A Situation in which Division applies This Division applies in relation to the provision of personal advice (the advice) in the following circumstances: (a) the advice is provided: (i) by a financial services licensee (the providing entity); or (ii) by a person (the providing entity) in their capacity as authorised representative of a financial services licensee (the authorising licensee), or of 2 or more financial services licensees (the authorising licensees); and (b) the advice is provided to a person (the client) as a retail client. 320 Subdivision B was entitled "Requirements relating to basis of advice". In that subdivision, s 945A provided: 945A Requirement to have a reasonable basis for the advice (1) The providing entity must only provide the advice to the client if: (a) the providing entity: (i) determines the relevant personal circumstances in relation to giving the advice; and (ii) makes reasonable inquiries in relation to those personal circumstances; and (b) having regard to information obtained from the client in relation to those personal circumstances, the providing entity has given such consideration to, and conducted such investigation of, the subject matter of the advice as is reasonable in all of the circumstances; and (c) the advice is appropriate to the client, having regard to that consideration and investigation. (2) In any proceedings against an authorised representative of a financial services licensee for an offence based on subsection (1), it is a defence if: (a) the licensee had provided the authorised representative with information or instructions about the requirements to be complied with in relation to the giving of personal advice; and (b) the representative's failure to comply with subsection (1) occurred because the representative was acting in reliance on that information or those instructions; and (c) the representative's reliance on that information or those instructions was reasonable. 321 The term "relevant personal circumstances" was defined in s 761A: relevant personal circumstances, in relation to advice provided or to be provided to a person in relation to a matter, are such of the person's objectives, financial situation and needs as would reasonably be considered to be relevant to the advice. 322 The following may be observed about the paragraphs of s 945A(1): (1) Paragraph (a) was directed to the client's "relevant personal circumstances". Advice was only to be provided if the providing entity had (i) determined the client's circumstances; and (ii) made reasonable inquiries into those circumstances. (2) Paragraph (b) was directed to the point in time after the "relevant personal circumstances" have been ascertained and was focussed on the consideration given to, and the investigation of the subject matter of the advice, having regard to the information obtained from the client. Advice was only to be provided if the providing entity had considered and investigated to an extent that was reasonable in the circumstances. (3) Paragraph (c) was directed to the appropriateness of the advice to the client having regard to the consideration and investigations which occurred under paragraph (b). Advice was not to be given unless the advice was "appropriate to the client". 323 The primary judge concluded that there had been breaches of paragraphs (b) and (c) of s 945A(1). Paragraph (a) was not in issue: J[600].

The breach of s 945A(1)(b) 324 The primary judge concluded that s 945A(1)(b) was breached for four reasons: (1) Storm did not give reasonable consideration to, or conduct reasonable investigation of, alternative investment strategies for those Part E and relevant Schedule investors who were retired or were approaching retirement: J[251] to [260]. (2) Storm did not adequately determine the objective of its advice, which required measurement and, where possible, quantification: J[261] to [273]. (3) Storm did not conduct an adequate sensitivity analysis before advising the Part E investors: J[274] to [284]. (4) Storm did not give reasonable consideration to the income of the Part E and Schedule investors in all their circumstances: J[285] to [290].

The primary judge's conclusions and reasoning 325 The primary judge found at J[251] that Storm was required to give reasonable consideration to, and conduct reasonable investigation of, alternative investment strategies for those investors who had limited income. Focussing on the position of Mr and Mrs Dodson, as an example of investors who were retired or approaching retirement, his Honour held that "[t]heir circumstances required additional consideration of options beyond the generalised Storm model": at J[251]. His Honour referred to the evidence of Mr McMaster as follows at J[251]: Mr & Mrs Dodson were relying on a relatively small amount of capital to provide them with income for the rest of their lives. They could not afford to take high risk but the strategy of borrowing to invest and concentrating their leveraged investments in the share market was a high risk strategy. 326 The primary judge identified alternative possibilities at J[252]. These included taking a small loan for any travel, investing excess income in superannuation and taking out a reverse mortgage over their residence: As Mr McMaster explained, the high risk arose because the inherent volatility of the share market created a risk of negative returns in early years which was magnified by the use of debt. In contrast, there were a number of alternative strategies that should reasonably have been considered and investigated by Storm. One of those was taking a small loan for any travel (ts 339). Another possibility was investing their excess income into superannuation. A third possibility was taking out a reverse mortgage over their residence (ts 397). Indeed, on a number of occasions Professor Valentine referred to this third strategy of releasing the equity in a home by a home equity loan or a reverse mortgage. 327 The primary judge drew the inference that none of these options were reasonably considered or investigated: J[253]. His Honour did so for two principal reasons: (1) First, there was the absence of any mention of any of these alternatives in the SOA. His Honour concluded that, from either 2005 or 2007, the SOAs should have contained any alternative strategies considered (including the "pros and cons" of each alternative) and that Mr and Mrs Cassimatis had been informed of this: J[253], [750], [751]. In this respect, the primary judge accepted the evidence of Mr Cashel, a financial services compliance consultant. He accepted his view, as representing the industry view, to the effect that there had always been an obligation on an adviser to advise on alternative strategies. (2) Secondly, there was what his Honour referred to as "the powerful emphasis upon, and ubiquity of, the Storm model for clients": J[254]. The primary judge accepted Mr McCulloch's evidence that Mr and Mrs Cassimatis frequently said that they would not countenance the giving of any advice to Storm clients that was inconsistent with the Storm system of advice. Mr McCulloch, who had "vast exposure to Storm and its clients", was unaware of any investment client who was not advised to purchase units in index share funds: J[254]. Mr McCulloch was Storm's group accountant, which was a senior management position, and a senior advisor at Storm: J[41] to [44]. 328 The primary judge rejected the arguments raised by Mr and Mrs Cassimatis to support their submission that the giving of consideration to other alternatives was not rare: J[256] to [260]. His Honour concluded at J[255]: The only limited consideration that was occasionally given to other alternatives for the relevant investors concerned superannuation products. But although Storm also gave advice on occasion on insurance and gave generic tax advice, that consideration and recommendation was not usual. And it was not sufficient for the discharge of Storm's s 945A obligations in relation to the relevant investors.

The appellants' complaints 329 First, the appellants submitted that Storm specialised in giving advice about geared investments in index funds and that Storm did not need to consider other strategies or models of investment. Storm was limited by its licence as to what it could recommend. 330 Secondly, the appellants referred to Regulatory Guide 175 (RG 175) which had been issued on 28 May 2007 and submitted that RG 175.153 did not require alternative strategies to be included in the SOA. This submission was directed to asserting error on the part of the primary judge in inferring an absence of consideration of alternative strategies from the absence of any mention of alternative strategies in the SOA.

Consideration 331 As to the appellants' first complaint: whilst the appellants contended that Storm was limited in what it could recommend, they did not contend that Storm's licence only permitted it to recommend geared investments in index funds. Even if Storm were so limited, that would not defuse the operation of s 945A(1)(b). If a proper consideration and investigation of alternative strategies revealed that the investment Storm was licenced to recommend was not appropriate, it would not matter that Storm could not have recommended investment in the better alternatives considered. Section 945A(1)(b) is not to be read as only requiring the "providing entity" to consider alternative strategies that they are in fact licensed to recommend. Such a reading is at odds with the evident purpose of the provision. Section 945A(1)(b) has a protective function: to ensure that proper consideration is given to what strategies might be appropriate in light of a particular client's circumstances. 332 As to the appellants' second complaint: RG 175.153 states that a "SOA must comply with the Corporations Act and regulations" and then sets out what it must include. It is correct that RG 175.153 does not expressly refer to alternative strategies. That is because, as is abundantly clear from its terms, RG 175.153 is addressing the requirements of ss 947A, 947B and 947C in Subdivision D of Div 3 of Part 7.7 of the Corporations Act. It does not purport to address s 945A(1) directly nor what the SOA should disclose in that respect. 333 This is important because, as is explained next, another part of RG 175 did precisely that. Before turning to that other part of RG 175, it is relevant to note that RG 175.153 did provide: What must you include in an SOA? RG 175.153 An SOA must comply with the Corporations Act and regulations, and must include all of the following: … (d) a statement setting out the advice (s947B(2)(a) and 947C(2)(a)); (e) information about the basis on which the advice is or was given (s947B(2)(b) and 947C(2)(b)); … 334 RG 175.126 did expressly refer to s 945A(1)(a) and (b), and it implicitly referred to s 945A(1)(c). As the primary judge recorded at J[752], it provided (emphasis added, notes omitted): What must the SOA disclose about the advice and the basis of the advice? RG 175.126 In administering the law, we will take the view that an SOA should: (a) clearly and unambiguously set out the providing entity's personal advice; and (b) set out in easy-to-understand language, in one place, the reasoning which led to the advice, including: (i) subject to RG 175.127, a concise summary of the client's relevant personal circumstances as ascertained after making the reasonable inquiries required by s945A(1)(a); (ii) a generic description of the range of financial products, classes of financial product or strategies considered and investigated within the meaning of s945A(1)(b); and (iii) a concise statement of the reasons why the advice was considered appropriate, including the advantages and disadvantages for the client if the advice is acted on. 335 As can be seen, RG 175.126 expressly required the SOA to set out the reasoning which led to the advice, including a description of the "strategies considered and investigated within the meaning of s 945A(1)(b)".

Conclusion 336 It was not, accordingly, erroneous or illogical to have used the absence of a reference in the SOAs to the alternatives identified by the primary judge at J[252] (see [326] above) as one of the matters supporting an inference that those alternatives, or alternatives more generally, were not considered or investigated. In any event, this was not the only matter the primary judge relied upon. As noted earlier, the primary judge also accepted Mr Cashel's evidence that there had always been an obligation on an adviser to advise on alternative strategies, and that Storm did not countenance advice being given inconsistently with the Storm system of advice. 337 The primary judge's first reason for concluding there was a breach of s 945A(1)(b) was not shown to be wrong. The inference his Honour drew - that the alternatives he identified at J[252] were not considered - was an appropriate one to draw from the evidence as a whole, including the absence of any positive evidence that those alternatives were considered and the absence of substantial evidence that any real alternatives were considered.

The primary judge's conclusion 338 The primary judge concluded that Storm did not adequately determine the objective of the advice it provided to the relevant investors, noting that an objective can have different levels of precision: J[261], [262]. His Honour found at J[264] that the objectives of Mr and Mrs Dodson included for them to live self-sufficiently and travel in retirement: To take Mr and Mrs Dodson as an example, Storm ascertained that their relevant personal circumstances included desires to live self-sufficiently and travel in retirement. The desire to live self-sufficiently required consideration of the detail of their usual living expenses including how those expenses might change over time. Would there be likely increased costs for health expenses? Would there be decreased costs when their dependent ward became independent? As for travel, to which places did Mr and Mrs Dodson wish to travel? How often did they wish to travel? In what manner would they travel? And, underlying all of these points, what would be the cost of their travel? Were there years when they might not wish to travel (and could save that expenditure)? Were there likely to be years when they could not travel, such as for health reasons (including Mr Dodson's heart condition)? 339 The primary judge drew the inference that "Storm generally did not give reasonable consideration or investigation to these matters to determine or quantify the objective of its advice in relation to the other relevant investors": J[265].

The primary judge's reasoning 340 The primary judge gave three reasons for drawing this inference: (1) A "primary reason" was the rarity in the SOAs of any detail of these expenses or changes in circumstances: J[266]. (2) A second, but independently sufficient, reason was the lack of any detail in the cash flows dealing with these details: J[267]. (3) A third reason was that foreseeable incidents occurred, about which Storm had not given reasonable consideration: J[271] to [272].

The appellants' complaints 341 The appellants made two complaints about the primary judge's reasoning at J[264]. 342 First, it was contended that it amounted to a conclusion that paragraph (a) of s 945A(1) was breached rather than paragraph (b). There had been a pleading that paragraph (a) was breached, but this was withdrawn. Section 945A(1)(a) was not in issue: J[600]. The appellants submitted that it was not pleaded that there were objectives or "relevant personal circumstances" which should have been, but were not, uncovered by Storm. 343 The statement of claim at [1992(h)], which was clearly directed at a breach of s 945A(1)(b), pleaded: Storm did not give such consideration to, and conduct such investigation of, the subject matter of the advices to each of the Investors as was reasonable in all of the circumstances, having regard to the information obtained from the Investors in relation to their personal circumstances, in that: … (h) Storm did not determine or quantify the objective of the advice and, accordingly, there were no parameters for the extent of gearing and the amount of risk that the Investors should take. 344 In support of their first complaint, the appellants submitted, correctly, that the questions identified by the primary judge at J[264] are ones which would naturally arise in either determining the personal circumstances under s 945A(1)(a)(i) or making "reasonable inquiries" in relation to those personal circumstances under s 945A(1)(a)(ii). 345 The appellants also pointed out, correctly, that s 945A(1)(b) is directed to consideration and investigation of "the subject matter of the advice" having regard to the information obtained in accordance with s 945(1)(a) in relation to the investors' personal circumstances. 346 Secondly, the appellants contended that there was no factual evidence from which one could infer that Mr and Mrs Dodson had other quantifiable objectives to give if further inquiry had been made of them.

Further factual background 347 It is necessary to look a little further into the facts, remaining with Mr and Mrs Dodson as an example. With the assistance of an adviser, Mr and Mrs Dodson completed and signed a "Confidential Financial Profile". It was dated 1 November 2007. This document was executed after a "primer meeting" and an "education workshop" and occurred at an information gathering appointment. The "Confidential Financial Profile" contained a section where "purpose and needs" could be inserted. It commenced with these words: PURPOSE AND NEEDS Examples of such a need are for a car; funding for a child's education; house improvements; holidays or a child's wedding, whether now or in retirement. 348 Mr and Mrs Dodson's needs for the period from retirement until death as expressed in the Confidential Financial Profile were, as the primary judge noted, "to live self-sufficiently and be happy until the day you die" and to "travel in retirement". The former "need" was likely part of the pro-forma "Confidential Financial Profile" document, as it also appears - typed - in the Financial Profiles of Mr and Mrs Herd and Mr and Mrs Higgs. That inference also stems from the language of the expressed need, in particular the word "you". Accordingly, the only "need" apparently inserted by Mr and Mrs Dodson was (in handwriting) "travel in retirement". In any event, Mr and Mrs Dodson adopted these two needs as accurately reflecting their states of mind at the time. 349 The Confidential Financial Profile also included details of current income and current expenditure. Living expenses were divided into "fixed spending" and "variable spending". Included in "other variable expenses" was a reference to travel in the amount of $10,000. There was also a reference to a savings / holiday account with a balance of $9,900. 350 Much of Storm's SOAs was in standard or template form: J[9]. The SOA for Mr and Mrs Dodson was dated 27 November 2007. The signed version was 106 pages long. It stated that it had been prepared "[f]ollowing investigations into your needs". The SOA contained a short section on Mr and Mrs Dodson's "present position" which included: Personal Profile and Goals … From the information you have supplied to us, we know that Paul you are 60 years of age working casually as a Traffic Controller for Acquired Awareness. We also know that Valerie you are 55 years of age and you are currently working part time as an Aged Care Worker for SSS Australia. You are a married couple and you have no financial dependants. You have asked our advice on the best ways to continue your wealth building over the next 10 years and beyond. Important financial goals for the future include building a solid financial base that will aid your wealth creation, allowing you to maintain a comfortable lifestyle into your retirement. It is therefore a major aim to produce a portfolio of assets that will result in an income stream independent of your personal exertion work. This will facilitate the transition to relying on income from your capital, that is, you embark on your Journey to Capitalism.

Consideration 351 As to the first two reasons (see [340] above) given by the primary judge for drawing the inference that "Storm generally did not give reasonable consideration or investigation to these matters to determine or quantify the objective of its advice in relation to the other relevant investors": (1) The SOA did not address the considerations identified by the primary judge at J[264] (see [338] above) as ones which would naturally arise for consideration given the statement in the Confidential Financial Profile of Mr and Mrs Dodson's needs. (2) The cash flow, which was expressly a critical part of the SOA, contained an amount of $0 for extraordinary expenses and yearly living expenditure and did not include the extent of expenditure for future years such as when Mr Dodson was well into his 70s, a conclusion which Professor Valentine thought was certainly not reasonable: J[268]. 352 As mentioned, s 945A(1)(b) was focussed on consideration and investigation of the "subject matter of the advice". ASIC pleaded at [192] of the statement of claim that the "subject matter of the advice" was: (a) the matters set out in the statement in the second paragraph on page 13 of that Statement of Advice that: "You have asked our advice on the best ways to continue your wealth building over the next 10 years and beyond. Important financial goals for the future include building a solid financial base that will aid your wealth creation, allowing you to maintain a comfortable lifestyle into your retirement. It is therefore a major aim to produce a portfolio of assets that will result in an income stream independent of your personal exertion work. This will facilitate the transition to relying on income from your capital, that is, you embark on your Journey to Capitalism." (b) the investment recommendations set out on page 50 of that Statement of Advice as pleaded in paragraph 191 above [relating to Mr and Mrs Dodson]. 353 The investment recommendations set out at [191] of the statement of claim were that Mr and Mrs Dodson: (1) take out a loan of $276,000.00 from the Bank of Queensland; (2) take out a margin loan of $90,000.00 from Colonial Margin Lending; (3) use their existing managed funds worth approximately $65,000.00 as security for the margin loan; (4) using those borrowings to invest: (a) $16,000.00 in the Storm Australian Technology Indexed Trust; (b) $202,000.00 in the Storm Australian Industrials Indexed Trust; (c) $97,000.00 in the Storm Australian Resources Indexed Trust; (d) pay Storm's fees of $26,960.00 for the advice; and (e) the residue of approximately $21,000.00 in a Macquarie Cash Management Trust Account. 354 The appellants submitted that the "subject matter of the advice" was the investment in index funds and cash management trust referred to in the SOA. Paragraph [41] of the defence pleaded: 41. The Respondents deny paragraph 192 of the Statement of Claim and say that: (a) the subject matter of the advice that Storm gave to Mr and Mrs Dodson in the Statement of Advice was investment in the Index Funds and cash management trust referred to on page 50 of the Statement of Advice; (b) the particular investment recommendations set out on page 50 of the Statement of Advice comprised advice rather than the subject matter of the advice; (c) the matters pleaded in subparagraph (a) of paragraph 192 are objectives or needs rather than the subject matter of the advice; (d) section 766B(3) of the Act draws a distinction between the 'advice' and the 'objectives, financial situation and needs' considered in the course of providing advice; (e) sections 944A and 945A draw a distinction between "advice" and the "subject matter of the advice". 355 The primary judge accepted ASIC's position, concluding that "the subject matter of the advice" in s 945A(1) was the subject matter of "a recommendation or a statement of opinion, or a report … that … is intended to influence a person … in making a decision in relation to a particular financial product"; the subject matter is not limited to "a particular financial product": J[607]; J[544] to [548]; s 766B(1)(a). His Honour considered that the statutory context and extrinsic material also supported this broader interpretation: J[609] to [612]. The primary judge was correct for the reasons he gave. 356 It follows from this conclusion that the subject matter of the advice for the purposes of s 945A(1)(b) included the SOA (being a report) and the recommendations and the statements of opinion made in it. Section 945A(1)(b) required sufficient investigation and consideration of these various matters, having regard to the information which had been obtained in relation to Mr and Mrs Dodson's personal circumstances under s 945A(1)(a). 357 If reasonable investigation and consideration of the subject matter of the advice showed that the information which had been obtained was insufficient, then s 945A(1)(a)(ii) would operate to require (further) reasonable inquiries to be made. Section 945A(1)(a) does not cease to operate once investigation and consideration under s 945A(1)(b) has commenced. 358 If reasonable investigation and consideration in accordance with s 945A(1)(b) had occurred, then it would have been evident that further information was required, including the information identified by the primary judge at J[264]. However, the obvious questions identified by the primary judge at J[264] were not asked and therefore it was to be inferred that Storm did not give reasonable consideration to and investigation of the subject matter of the advice: J[265]. His Honour's reasoning was open. 359 As to the third reason - that foreseeable incidents occurred about which Storm had not given reasonable consideration (see [340] above) - the primary judge gave the example that Mr and Mrs Dodson required a new car only four months after the SOA. His Honour stated at J[271], [272]: … One example was that only four months after the SOA for Mr and Mrs Dodson, the following entry was made in Phormula: Paul and Val have phoned the office and are in need of $20K to purchase a new car as Pauls car has died. can we withdraw the funds and Margin up the $20K as their LVR on their margin loan is very low. Cashflow required as soon as possible as clients need funds ASAP. Ultimately, Mr and Mrs Dodson decided to use "holiday money" to pay for the purchase of their new car. 360 There are two difficulties with this example. First, Mr and Mrs Dodson's attention was expressly drawn to the question whether they might "need" a new car at the time they executed the Confidential Financial Profile. The need for a car was an express example of a potential future need - see [347] above. They did not state that they did need a car. Secondly, the terms of the entry in Phormula (set out immediately above) suggest that the need to purchase a car came about unexpectedly. Even if appropriate consideration and investigation had occurred, that would not have resulted in the obtaining of further information to the effect that it was anticipated a car would be needed in the short term. 361 However, the difficulties with the particular example selected by the primary judge may be put to one side. The primary judge drew the inference he did for each of the first two reasons which he considered, of themselves, sufficient.

Conclusion 362 The primary judge is not shown to have erred in drawing the inference he did, nor is the inference sufficiently improbable to warrant appellate intervention. Accordingly, the primary judge's second reason for concluding Storm breached s 945A(1)(b) is not shown to be erroneous. 363 Returning to the appellants' two complaints recorded at [342] and [346] above: (1) The primary judge's conclusion was not that s 945A(1)(a) was breached, but that the absence of inquiry in relation to the matters at J[264] was one matter supporting the inference that there was inadequate consideration and investigation of the subject matter of the advice such that there was a breach of s 945A(1)(b). In this regard, the "subject matter of the advice" was broader than the appellants contended. (2) It was not necessary in order to establish a breach of s 945A(1)(b) to show that Mr and Mrs Dodson would have given other quantifiable objectives. Section 945A(1)(b) is directed at ensuring that consideration and investigation occurs. In any event, the probabilities favour that, if asked, Mr and Mrs Dodson would have given answers to the questions identified at J[264] which would have been relevant to the consideration and investigation which ought to have, but did not, occur.

The primary judge's conclusion and reasoning 364 The primary judge concluded that Storm did not conduct an adequate sensitivity analysis before advising the Part E investors: J[274]. His Honour identified two inadequacies. The first was described at J[276]: The first, although less significant defect, was that the graphs and cash flows prepared for the investors did not clearly show their net equity position. The net equity position was not clearly shown because the graph marked "cash reserves" was actually a graph of the movement in combined cash and index fund values but not the value of the family home. Not only was this inaccurately labelled as a "cash" reserve but it also did not show the net asset position (ts 306). This was because on Storm's model the family home should have been included to obtain a net asset position (although I explain later that the family home ought not to have been treated as an investment asset in the first place). 365 The second was more important, described in the following terms at J[277]: The second and more fundamental defect was that the cash flows prepared by Storm did not properly reveal to the client the effect of different scenarios, particularly movements in the market. Storm's typical cash flows for each client, which followed a template model, were of three varieties, although sometimes there were multiple cash flows within one of these varieties. None of the cash flows provided for any negative growth from the index funds. As I have explained, the first type of cash flow was the "viability cash flow". The second was the "reality check cash flow" which was prepared using higher interest rates for the loans and lower growth rates. The third was the "maximum capacity cash flow" which used a higher interest rate again for the margin loan. However, even the maximum capacity cash flow was not, as Mr McMaster said in re-examination, an appropriate sensitivity analysis in relation to the circumstances where the investments performed badly. This was because negative investment returns were never tested (ts 335). 366 Central to the primary judge's conclusion in that paragraph, expressed in the third sentence and in the last, was that none of the cash flow modelling tested what was referred to as "negative growth".

The appellants' complaints 367 First, the appellants submitted that the primary judge ignored evidence from those who had worked at Storm to the effect that sufficient sensitivity analyses were in fact conducted, and based his conclusion solely on the expert evidence of Mr McMaster. 368 Secondly, the appellants observed that, whilst the primary judge referred to what the cash flows revealed to the client, the statutory question so far as concerns s 945A(1)(b) is what consideration and investigation was in fact undertaken by Storm, not what the client was told, nor whether the advice given was appropriate (a matter in the province of s 945A(1)(c)). This revealed, so the appellants submitted, that the primary judge focussed attention on the wrong question, namely what was contained in the SOAs rather than what consideration and investigation was in fact undertaken. 369 Thirdly, it was submitted that, in any event, ASIC had not established what the investors were told when the cash flows and SOAs were presented because ASIC had not called any of the advisers who in fact dealt with the relevant investors. It was suggested those advisers may have given some consideration or made some investigation in the respects in which the primary judge found Storm had failed.

Further factual background 370 In order to understand the complaints, it is necessary to know a little more of the process undertaken by Storm. The Confidential Financial Profile meeting involved obtaining significant amounts of financial information: J[58]. After the Confidential Financial Profile was completed, the Storm data entry team would enter information into the cash flow spreadsheet or, from about late 2007, into the Phormula database: J[66]. 371 The cash flow was prepared in an excel spreadsheet and included an input of all of the client's income and expenditure upon which Storm's recommendations were based: J[68]. Every plan was done over a 17 year period irrespective of the age of the client: J[68]. The cash flow showed how much the client could borrow secured by a home loan and a margin loan, and the amount the client would need to contribute in order to fund the investment: J[68]. 372 The primary judge explained: [69] The cash flows involved many standardised formulas but they did not merely involve inserting a client's figures into a spreadsheet. Sometimes more information about the client was requested (such as more precise tax calculations: ts 207-208). Different clients also had different provisions made for contributions and cash reserves (ts 198). Different approaches were also taken for different classes of client. As Ms Bock and Mr Turvey said, if a client was not retired an overall debt ratio of 60% or less (with a home loan of 80%) would be used and capital growth was not generally the sole source of funding for the recommended borrowings. However, for a client who was retired or nearing retirement age, the overall debt ratio was 50% or less (assuming a home loan of 60%). [70] A critical component of the cash flow was a client's "cash reserves", sometimes referred to as a "cash dam". These cash reserves were held in a Cash Management Trust. The cash flow showed these reserves of cash over a 17 year period having regard to: (i) the client's revenue and expenses flowing from the recommendations; (ii) the client's contributions and distributions; and (iii) an assumed rate of return. Ms Bock explained that Storm's practice was to leave a minimum of 12 months of interest servicing in the cash reserves (ts 132). [71] As Mr McCulloch explained, cash flows would not be approved if the clients' cash reserves were not predicted by the cash flow to increase over time. If the cash reserves were not shown as increasing with the assumption of no growth then the parameters were changed to allow growth in the investment, such as after a period of between two and five years for retirees. However, these "cash flows" did not factor in any period of negative growth (ie any decline in the value of the index funds). In the extreme case, where "cash reserves", even after adjusting the parameters, still did not show an increase over time (potentially because the client did not have sufficient capacity to borrow), then the prospective client would not receive a recommendation to invest in accordance with the Storm model. [72] It will be apparent from this discussion that, as Mr McMaster explained, the "cash flow" was not really a cash flow and that "cash reserves" were not actually cash reserves. The formulas calculated "cash reserves" as a combination of cash and growth in the index funds (ts 306). The index funds were relatively liquid so that clients could generally sell them when they wanted to (at least prior to the GFC) (ts 186) but they were not actually cash. Not only did the spreadsheet treat the growth in index funds together with cash, but it also assumed that the growth would not be liquidated because it was assumed that there would be dividends and further growth; the cash rate would only be applied to the actual cash balance of the cash reserves unless cash reserves became "negative" (because the cash had all been used and the growth had been liquidated) (ts 156). 373 The cash flow team would prepare three cash flows, at least for many clients: J[73]. These were described by the primary judge at J[74] to [76]: (1) A "viability cash flow" or "recommended cash flow": It generally formed the basis for the SOA to the client and was the cash flow which was annexed to the SOA for Mr and Mrs Dodson. This cash flow showed the lowest investment returns of the three cash flows prepared. (2) A "reality check cash flow": This was based on the viability cash flow but (i) used the current interest rates rather than the higher interest rates of the viability cash flow, and (ii) used historical average share market growth rather than no growth or a low rate of growth after two to five years. (3) A "maximum capacity cash flow": This increased the amount of the margin loan to the maximum allowable under the margin lender's Loan to Value ratio (LVR) requirement. 374 The cash flows were discussed with the client in meetings with Employee Representatives. The primary judge recorded at J[78]: Mr McCulloch said that at these meetings he was trained to (i) repeat topics from the education workshop; (ii) show clients a projected cash reserve levels graph to "prove" the "viability" of the plan [an example graph is shown at [381] below]; and (iii) conduct the meeting in a way which would not shock the client by the level of debt. 375 If the client wished to modify information previously provided, or was dissatisfied with part of the cash flow, it could be sent back to the cash flow team which retained control over the cash flow. The primary judge recorded at J[80]: Once the prospective client was satisfied with the viability cash flow, the following process would take place: (1) the client would sign various bank application and privacy consent forms which enabled Storm to approach home lenders on the prospective client's behalf; (2) the SOA cell commenced preparation of the SOA; (3) the banking cell issued requests for quotes to various home lenders and, if the client had requested a specific bank, to that bank; (4) the SOA cell would select a bank and a margin lender; (5) the cash flow cell would confirm the accuracy of the final viability cash flow, taking into account the amount of funding offered by the bank; and (6) once the SOA was complete, the cash flow cell checked and approved it. A hard copy was then delivered to the adviser for the adviser to present to the client. 376 Authorised Representatives and Employee Representatives could suggest changes to the cash flow team, but were not permitted to make changes: J[144]. The formulas in the excel spreadsheets provided to Authorised Representatives were removed, although most advisers had access to an illicit copy of a cash flow with formulas: J[140]. Employee Representatives were however provided with cash flows with formulas: J[141] (but see J[77] and [138]). The primary judge found at J[143]: It is possible, but unlikely, that in some cases an Employee Representative might have shown a client how a cash flow might be different based on an additional input which had not been included by the cash flow team in the spreadsheet (such as including expenditure for travel). But an Employee Representative would have avoided this scenario because (i) such an additional input, if confirmed by the client, would have to be sent back for alteration to the cash flow team; (ii) the detail of the cash flows and the control exerted over them by the cash flow team made it clear that Employee Representatives should not experiment in front of the client with scenarios other than those provided in the worksheet (including the viability cash flow which was described in Phormula notes for Mr and Mrs Dodson as the "worst case" scenario); and (iii) the Employee Representatives would likely have been aware that the Strom model encouraged uniformity as much as possible and that the Authorised Representatives were not entitled to have access to spreadsheets with formulae included. 377 His Honour described the presentation of the SOA, which typically included (and in the case of Mr and Mrs Dodson did include) the viability cash flow, in the following way: 86 Once an SOA had been prepared, an adviser would meet with the prospective client for two to three hours to explain the recommendations contained within it. A hard copy of the SOA would be given to the client together with all relevant Product Disclosure Statements. 87 Mr McCulloch described how he was trained to reassure prospective clients at this meeting that Storm's plan implemented measures designed to ensure that the client had no risk of getting a margin call. He would also ask whether the clients' personal circumstances had changed (ts 196). The typical process also involved insisting that the client take the SOA home to read it, to flag pages that he or she did not understand, and to raise any questions. 378 The SOA in respect of Mr and Mrs Dodson included: Cashflow We have prepared a Cashflow that tracks the estimated revenues and expenses associated with this Financial Plan for the remainder of this financial year, and for the next 17 years. This allows us to detail all of the income and expenditure flows that would occur should you implement these Recommendations. This analysis assures us that the plan is viable and that the associated borrowings are manageable. This Cashflow is attached as Appendix B, and forms an integral part of this document. Capacity to Invest … The Cashflow is a Viability Test - it is not intended for use as a forecast or projection of returns. We have included many conservative estimates of incomings, and have overstated many of the outgoings. The result is that the material that follows will in most cases be more pessimistic than any actual results achieved by the investment plan. We emphasise again that the purpose of this Cashflow is to test in rigorous conditions that the Plan is viable. … Assumptions Used in the Cashflows The Cashflow is used as a test of the viability of the Investment under unfavourable conditions. An Investment that is viable under these conditions means that you can survive and prosper even if the conditions outlined do occur. It is unlikely that considerations as unfavourable as these will eventuate, however it is prudent to consider exaggerated circumstances to ensure comfort with the plan even under such conditions. The specific assumptions used in the building of the Cashflow are detailed in the following pages. Investment Growth The viability test assumes NO GROWTH in the share investment for the remainder of this financial year, and for the next 3 years. This shows that even without sharemarket growth, the Cashflow remains viable and does not initially depend on growth in the share Investment. Following this period of time, modest growth of 2.55% per annum in the Sharemarket is required to keep your Cash Reserves growing. 379 The viability cash flow itself was contained at Appendix B. It included the statement: We stress that this cash flow is a viability test and in it we attempt to overstate outgoings and costs and understate income and benefits. The essence of the plan is to position you for when growth occurs and NOT to rely on growth in any individual year. 380 Although called a "cash flow" and referring to "cash reserves", it is important to understand that: (1) the "cash reserves" included the anticipated growth in the underlying assets and did not contemplate "negative growth"; (4) it contemplated that there were no yearly living expenses, no extraordinary expenses and no life insurance costs (which is not consistent with the Confidential Financial Profile for Mr and Mrs Dodson). 381 The cash flow contained a graph entitled "cash reserve levels" which, for Mr and Mrs Dodson, was in the following form: 382 It will be observed that this graph rather attractively indicates that the cash reserve levels will always be positive. It was this graph to which Mr McCulloch referred when he stated that he had been trained to "show clients a projected cash reserve levels graph to 'prove' the 'viability' of the plan": J[78]. However, a more careful reading of the cash flow presents a different picture as his Honour recognised at J[72]. The graph above shows the "cash reserve level" as at July 2014 to sit at approximately $25,000. The correct position was that "cash reserves" as at July 2014 were forecast to be -$4,201. The "cash reserve level" graph included accumulated investment growth of $29,869 as a "cash reserve", meaning that "total reserves" were $25,668. These "total reserves" were only positive because of the assumption of growth in the underlying investment. It was "total reserves" which was shown in the graph above, not "cash reserves". There were no forecast positive "cash reserves" as at July 2014 in the viability cash flow.

Consideration 383 First complaint: As mentioned, the appellants submitted that the primary judge ignored evidence to the effect that sensitivity analyses were conducted and based his conclusion solely on the evidence of Mr McMaster. Neither proposition is made out. 384 The appellants submitted that Mr McCulloch had given evidence of the sensitivity testing, referring to his cross-examination at T185. The substance of Mr McCulloch's evidence was that the cash flow team would not have been able to explain "the sensitivity testing of the volatility within various index funds" to the advisers: T184. At T185, he explained that his reference to sensitivity was to how far the market needed to fall to trigger a margin call. This was not evidence that Storm carried out the kind of sensitivity testing his Honour concluded ought to have occurred. In particular, it did not answer the primary judge's central concern which was that Storm did not test cash flows in a situation of negative growth. 385 The appellants next referred to the cross-examination of Ms Bock. This was said to demonstrate that Storm undertook three sensitivity analyses, being the three cash flows described by the primary judge at J[74] to J[76] and also always performed a margin call test. In fact, her evidence was to the effect that usually a viability cash flow would be prepared (T114) and "on occasion" there would be a number of different types of cash flows prepared: T115. Again, this evidence did not suggest that a sensitivity analysis was conducted which tested negative growth. 386 Appendix 1 to the JER was Mr McMaster's report concerning Mr and Mrs Dodson. In that report, Mr McMaster demonstrated a simple sensitivity analysis over a one year period based on the recommendations in the SOA dated 27 November 2007. He modelled a fall in capital growth of -10.24% representing a moderate fall in markets and a fall of -25.95% representing a significant market fall. He noted at [165] and [169]: It is normal for share markets to have negative returns from time to time. In the 25 calendar years prior to 2007 there were 6 years when the share market had a negative return. There was a statistical probability of a negative return every 4 years. The last negative year was December 2002. A reasonably competent financial adviser would be aware of these statistics and would understand that formulating advice for Mr & Mrs Dodson should account for a negative return. … It is my opinion that Storm did not exercise due care and skill in their analysis leading to the advice that Mr & Mrs Dodson should borrow to invest. 387 It was submitted that the primary judge only relied upon the evidence of Mr McMaster in concluding that Storm did not conduct a sensitivity analysis which tested what would occur in a situation of negative growth. It was not necessary to rely on more. The primary judge accepted Mr McCulloch who, as mentioned, was Storm's group accountant, as a witness of truth: J[41] to [44]. Mr McCulloch had said: The cashflow did not factor in a period of negative growth on the investment (i.e. a decline in the value of the indexed share funds). The key differences between a cashflow for a retired and a non-retired client were that retired clients' plans: (a) would involve higher starting levels of cash reserves than a typical working client; (b) would require the use of growth to support the plan; and (c) had a lower overall starting LVR. 388 His Honour accepted at J[71] that a period of negative growth was not factored into the cash flows. 389 Also at J[71], the primary judge accepted that the assumed period of "no growth" was shortened by the cash flow team if that was necessary for the model to show "cash reserves" increasing over time. Making such an assumption of growth was, obviously enough, something more likely to be necessary for retirees without independent sources of income to service necessary repayments. This conduct does not suggest adequate sensitivity analyses were conducted and certainly does not test "negative growth". 390 Second complaint: The second complaint was that the primary judge focused on what the relevant investors were told, rather than on whether the relevant sensitivity analysis was conducted. It is true that his Honour's language at J[277] is framed in terms of what the cash flows revealed to the clients. However, it is tolerably clear from his reasons as a whole, including in particular the passages set out above and at J[278], that his Honour was addressing whether Storm had in fact sufficiently considered and investigated the subject matter of the advice within the meaning of s 945A(1)(b). The better understanding of J[277] is that the primary judge considered the fact that the investors were not told about a scenario of "negative growth" was probative of whether such a situation was in fact considered by Storm. The appellants' second complaint focusses attention solely on the language of J[277]. That language should be read in the context of the whole judgment. 391 Third complaint: The appellants submitted that, whilst ASIC called two advisers (Mr Benson and Mr Turvey), neither of them dealt with the Part E and Schedule investors. However, whilst the specific adviser who dealt with Mr and Mrs Dodson was not called, a note was recorded in "Phormula" of what the adviser had said (errors in original): Andrew and Wally have presented the cashflow together with [Val] and Paul explaining to them that they need to build their capitol; [sic] base for their retirement and deliver the appropriate income and we can do this by using their asset. Wally explained that they would be investing in the Australian economy the top 300 companies and that we invest long term in this quality asset. Andrew went throught [sic] the cashflow and delivered the figures explaining they are the worst case scenario and thaqt [sic] the plan will survive. Went over the imortance [sic] of doing steps depending on the market movement and growth of the investment. Please do SOA appointment booked for 30th NOV. 392 This suggests that the adviser was not aware of, and did not separately perform, a sensitivity test which looked at what would occur, so far as Mr and Mrs Dodson were concerned, in a situation of "negative growth". It is also relevant to note in this regard that the primary judge had concluded that the advisers were unlikely to have shown a client a cash flow which had been altered by them rather than prepared by the cash flow team - see [376] above.

Conclusion 393 The primary judge concluded that Storm had not sufficiently considered and investigated the subject matter of the advice, in particular because it did not consider or investigate the consequences of "negative growth". His Honour's conclusions were open on the evidence and were not shown to be affected by error. If Storm had made such an investigation, it might be expected to have told the investors about that investigation rather than - taking Mr and Mrs Dodson as an example - stating that the "viability cash flow" (which did not countenance "negative growth") was the "worst case scenario". The primary judge did not err in concluding that s 945A(1)(b) was breached by reason of Storm failing to carry out an adequate sensitivity analysis in the ways he did.

The primary judge's conclusion and reasoning 394 The primary judge's fourth reason for concluding that Storm breached s 945A(1)(b) was that Storm did not give reasonable consideration to the income of the Part E and Schedule investors in all their circumstances: J[285] to [290]. This reason was "closely related" to the third reason, but independently sufficient to support a conclusion of breach of s 945A(1)(b): J[285], J[250]. 395 The primary judge was not prepared to accept that Storm did not consider the clients' income and expenditure at all, even though it was not considered as part of the (viability) cash flow: J[285]. However, his Honour did conclude that it was unreasonable to fail to conduct an analysis of the clients' actual cash flow independently of the proposed investment. If this had been done, it would have enabled an analysis of whether the client had capacity to fund the costs associated with the borrowing and margin calls to the extent not covered by income received from the investments: J[286]. Whilst Storm considered the probability of a margin call, it did not consider the extent to which the relevant investor could fund costs from their own income or resources if such were needed because, for example, there was a margin call. 396 His Honour considered the likely conclusion, if Storm had investigated that issue, would have been that they could not fund such costs. He agreed with Mr McMaster that this omission was unreasonable. His Honour concluded at J[290]: Ultimately, I am satisfied that the analysis performed by Mr McMaster [of the consequences to Mr and Mrs Dodson of market falls or -10.24% and -25.95%] was a reasonable one. But the basic point is that Storm gave no reasonable consideration to the extent to which any of the relevant Part E or Schedule investors could fund interest payments from their own resources in a scenario where their cash reserves were exhausted. A reasonable consideration and investigation into a client's capacity to fund the borrowing costs required Storm to consider scenarios in which the client would have been required to pay those costs without access to investment income. The analysis that Storm did of the probability of margin calls being made demonstrated that this scenario was not a likely possibility. But in the circumstances of the Part E and Schedule investors, and the extreme consequences for them of default, this exercise should reasonably have been performed. It was not performed.

The appellants' complaints 397 First, the appellants submitted that this case was not pleaded. 398 Secondly, the appellants submitted that, in light of the finding that a margin call was not a likely possibility, it was difficult to see why it was unreasonable not to investigate the relevant investor's ability to fund the costs which would be required. The appellants submitted there was no suggestion that Storm or the clients were labouring under a misapprehension that, if margin calls were made, the clients would have been able to meet the calls. The investments were said to have to stand or fall on the basis of the assets and income that Storm anticipated would be available. If the plan did not stack up without resort to income required for domestic and personal expenses, it was not recommended.

Consideration 399 As to the first complaint, the statement of claim included at [1992(m)]: Storm did not give such consideration to, and conduct such investigation of, the subject matter of the advices to each of the Investors as was reasonable in all the circumstances, having regard to the information obtained from the Investors in relation to their personal circumstances, in that: … (m) Storm did not prepare an analysis of the actual cash flow of the Investors to consider whether they would be able to fund their consumption, cost of borrowing and any potential margin calls from their income. 400 That pleading adequately engaged the issue. In any event, the case was conducted on the basis that this was an issue. 401 As to the second complaint, the primary judge's conclusions were open. The relevant investors were either retired or approaching retirement. They had provided in their Confidential Financial Profiles details of their income and expenditure. It was plainly appropriate to consider whether and how investors could fund a margin call if one was made; if they could not, the consequences were severe. One reason for performing that task would be to consider what might occur, for example, in a situation of "negative growth". Another would be to inform the investor so that the investor could make an informed decision about whether to take on the risks associated with the investment. It was open to conclude that failing to consider this matter was unreasonable, in circumstances where the investors could potentially lose all of their assets at a time when their capacity to produce income was substantially over.

Conclusion 402 The primary judge has not been shown to have erred in concluding that s 945A(1)(b) was breached because Storm did not give reasonable consideration to the income of the Part E and Schedule investors in all their circumstances.

The primary judge's conclusions and reasoning 403 The primary judge concluded that s 945A(1)(c) was breached for three reasons. 404 First, Storm classified the relevant Part E investors and Schedule investors as balanced investors and advised them as such when in fact they were likely to be conservative investors: J[292] to [315]. This was significant because the typical ratio of growth assets (shares and property) to defensive assets (fixed interest and cash) for a balanced investor was in the region of 60% growth and 40% defensive, but 20% growth and 80% defensive for a conservative investor. The primary judge held that an adviser could not reasonably have reached the conclusion that the Part E investors were balanced investors for four reasons (J[300]): (1) The potential loss of their homes would be catastrophic. They had few other assets and no real prospect of rebuilding their financial position in the event of significant loss: J[301]. Although they were told in the SOAs that they might lose their home, there was other material in those SOAs which operated to alleviate concern about risk: J[302] to [304]. (2) The oral presentations by Storm in the "education workshops" encouraged investors to adopt the view that any risk was minimal and that debt should not to be feared. This was more powerful than the isolated statement in the SOA: J[305] to [312]. The primary judge set out a number of examples which included statements that "volatility" was "manageable risk" involving investment in an asset whose value is certain to rise over time and that there was no risk of getting a margin call: J[307], J[312]. (3) The Part E investors each chose a profile consistent with a conservative profile rather than a balanced profile in their Confidential Financial Profiles: J[313]. (4) Even if the Part E investors had an unusual appetite for risk, it was appropriate that they be treated and advised as conservative investors: J[314] to [315]. They might choose to reject the advice given on that basis, but it was appropriate for it to be given. 405 Secondly, Storm included the Part E and Schedule investors' family homes in their asset portfolio for investment purposes: J[292]; J[316] to [327]. It was inappropriate to treat the family home as an asset which formed part of their investment portfolio. If the value of the residence was removed from the investment portfolio of assets then the investors were advised to adopt a higher LVR than even Storm considered to be prudent for them, even if they were viewed as balanced investors. The effect of the advice was to concentrate investments in shares and take a higher risk than Storm considered was appropriate for either a balanced investor or a conservative investor: J[316]. The primary judge noted that Professor Valentine "who was utterly devoted to the Storm model, conceded in cross-examination that if retirement is imminent then advice to borrow significantly against the home to invest is unreasonable": J[291]. 406 Thirdly, and independently of the first two matters, in all the circumstances the advice to the relevant investors to utilise the Storm model was generally inappropriate: J[292]; J[328] to [335]. Even if the appellants were correct that (i) the relevant investors were balanced investors and (ii) the home should be included as part of their investment portfolio, the advice was still inappropriate because the circumstances of the relevant investors meant that a double geared investment which was concentrated in the share market was not appropriate for them because it involved high risk: J[328]. The experts agreed that a fall of 10% could have been predicted at the time of the SOAs: J[330]. A significant downturn, such as 22%, was a possibility: J[330]. The experts agreed that a financial planner should not advise a retired person or a person nearing retirement to invest in high risk investments. Negative gearing within a period of approximately 5 years to retirement was high risk: J[331].

The appellants' complaint 407 The appellants' challenge in relation to the primary judge's findings regarding s 945A(1)(c) was that ASIC failed to prove the "relevant personal circumstances" of each of the relevant investors; in particular their subjective willingness to take on risks associated with the investments recommended to them by Storm. The appellants submitted that the evidence of the relevant investors supported the conclusion that they were aware of, and voluntarily accepted, the risk that their assets might be lost. 408 The appellants referred, in particular, to the primary judge's observation at J[302]: It is true that each of the investors was told in the SOAs that there was a possibility of losing their home: Apply the same caution if you are thinking of using your home as security - borrow conservatively as a default on the loan could mean loss of the security for the loan. If you have used your home as security, this means you could lose your house. 409 The appellants observed that none of the relevant investors stated in their affidavits that they were not prepared to accept a real risk that some of their assets might be irrecoverably lost.

Consideration 410 Section 945A(1)(c) directs attention to whether "the advice is appropriate to the client, having regard to" the consideration and investigation carried out in accordance with s 945A(1)(b). The advice must be appropriate "to the client", which necessarily requires a consideration of the client's particular circumstances. The case at trial and on appeal was argued on the basis that the investors' subjective willingness to take on risk was a relevant circumstance for the purposes of application of s 945A(1)(c). 411 The statement of claim at [1993] pleaded that the advice given by Storm breached s 945A(1)(c). It included: The advice given by Storm to each of the Investors was not appropriate to them, having regard to a consideration and investigation of the subject matter of the advice that was reasonable in all of the circumstances, in that: … (e) The Investors were not prepared to accept a real risk that some of their assets might be irrecoverably lost. Particulars The fact that the Investors were not prepared to accept a real risk that some of their assets might be irrecoverably lost and the fact that they communicated this information to Storm is to be inferred from the following facts: (i) When completing the confidential financial profile, each of the Investors responded to a question as to their views on investments by ticking the box next to the statement: "I am prepared to accept volatility if in the medium to long term the investment growth is higher and the risks over that term are minimal or eliminated." (ii) Each of the Investors did not respond to that question as to their views on investments by ticking the box next to the statement: "I am prepared to entertain speculative ventures of a risky nature and am prepared to lose my asset totally if necessary in an attempt to make high profits." (iii) Each of the Investors did not respond to that question as to their views on investments by ticking the box next to the statement: "I am prepared to accept short to medium term volatility and am also prepared to accept a level of real risk where some of my asset may be irrecoverably lost." 412 The primary judge rejected the submission that ASIC failed to prove the subjective risk tolerance of the investors and accepted that "there was evidence from which the subjective tolerance of the relevant investors could be inferred including their preparedness to take risks": J[617]. 413 The relevant investors in their affidavits each adopted, as an accurate statement of their then states of mind, the statement contained in their Confidential Financial Profiles: I am prepared to accept volatility if in the medium to long term the investment growth is higher and the risks over that term are minimal or eliminated. 414 An important factual matter relied upon to infer the risk tolerance of the relevant investors was that statement in the Confidential Financial Profiles of each relevant investor. 415 The context in which this statement was made is important. The primary judge observed: [60] Prospective clients were asked to read and put their initials on the "volatility and risk statements" in the Confidential Financial Profile. That statement repeated the information provided to the client during the education workshop by drawing a distinction between two types of risk: (1) "real risk" was described as the possibility of irrecoverably losing some or all of the client's capital; and (2) "manageable risk" was described as investing in an asset that has value which can rise and fall (volatility) but in such a way that there is certainty that over a longer time frame the value will rise. [61] Prospective clients were then asked to sign the box that applied to them. There were four boxes: (1) "I am prepared to entertain speculative ventures of a risky nature and am prepared to lose my asset totally if necessary in an attempt to make high profits"; (2) "I am prepared to accept short to medium term volatility and am also prepared to accept a level of real risk where some of my asset may be irrecoverably lost"; (3) "I am prepared to accept volatility if in the medium to long term the investment growth is higher and the risks over that term are minimal or eliminated"; and (4) "I am not prepared to accept any level of volatility and realise that this selection will result in low growth and substantial exposure to inflation risk". [62] Mr McCulloch said that before prospective clients ticked a box, he was trained to say words to the following effect: [Storm is] going to recommend that you invest in a volatile asset, but a safe volatile asset, and that's why we invest in 'supershares'. And that's what this third statement is all about. We're asking you to take on the risk of a volatile asset but a safe volatile asset. And that's the risk we're asking you to accept. The first box isn't a Storm client. That's a person who is prepared to take on extreme risk and put all their money in one stock. And we all know what happened to HIH, OneTel and Alan Bond. The last box means that you're part of the herd. You are going to be one of those 88 people reliant upon the pension in retirement. If you tick either the first box or the last box you won't be a Storm client. You are either too risky or too conservative. Both will result in poor financial outcomes. So take your time, read the statements and then initial the box that applies to you. [63] Mr McCulloch said that he was told by Mr and Mrs Cassimatis that if the prospective client did not sign the risk level in the Confidential Financial Profile described as "I am prepared to accept volatility if in the medium to long term the investment growth is higher and the risks over that term are minimal or eliminated", Storm would not provide financial advice to the person. Similar evidence was given by Mr Benson. Mr McCulloch also said that he recalled Mrs Cassimatis saying that there was no point giving the Confidential Financial Profile to her cash flow team unless that box was ticked because she would not process it. However, despite the apparent rigidity in Storm's expressed position, Mr McCulloch said that Storm would sometimes provide advice to a client who ticked the second box. 416 It is necessary to refer to the whole of the relevant page in the Confidential Financial Profile. This forms Annexure A to these reasons. 417 As can be seen from Annexure A, it was the third box that the relevant investors ticked. Each of them, in their affidavit, adopted that statements as an accurate statement of their situation at the time so far as risk was concerned. The third box must be read in the context of the whole document, in particular with the descriptions of "real risk" and "manageable risk" given immediately above the heading "Personal Profile". When read in context, it is tolerably clear that the investors were indicating that they were not prepared to risk losing some or all of their capital. The third box refers to "volatility" which is described on the same page as "manageable risk". The first two boxes dealt with "real risk", the second expressly, the first by reference to the description of "real risk" earlier on the same page. The fourth box describes a person who, in substance, wishes to make investments such as a term deposit. It was open to infer that, if investors were subjectively prepared to risk losing their assets, they would have ticked one of the first two boxes and not the third box. 418 This document, and the circumstances in which it came to be signed, furnished the best contemporaneous evidence of subjective risk tolerance of the investors at the time. It provided a stronger basis for the drawing of an inference as to subjective risk tolerance than what might have been stated in an affidavit without reference to the contemporaneous Confidential Financial Profile of the investors. Such a statement would have been made years after the investors had sustained severe losses as a consequence of the global financial crisis affecting the investments they had made on Storm's advice. 419 There is no substance to the submission that ASIC failed to prove the risk appetite of the relevant investors. If Mr and Mrs Cassimatis wished to challenge the risk appetite identified by the relevant investors in their affidavits by reference to their contemporaneous Confidential Financial Profiles, they ought to have cross-examined on the issue. They made a forensic decision not to do so. They cannot now complain that the primary judge drew the unremarkable inference he did. 420 The inference was also supported by other matters, including the investors' circumstances at the time as disclosed in their affidavit evidence and their Confidential Financial Profiles. Further, Professor Valentine described the relevant investors as "loss averse" (even though he later switched to describing them as "balanced investors"): J[234]. He described them as "loss averse" in the JER, evidence which the primary judge accepted: J[298]. 421 The inference drawn by the primary judge had the advantage of being consistent with the surrounding circumstances. It had the significant advantage of according with common sense. The investors were all retired or approaching retirement, they had few assets apart from the family home, and they had little or no prospect of rebuilding their financial position in the event of significant loss: J[166] to [229]; J[301], [314]. In the case of Mr and Mrs Dodson, they had left school at a young age, worked hard for many years and borrowed to buy their home. They had no significant history of investing in growth assets. On the findings made by the primary judge, the Storm model was structured and presented so as not to scare off such people from investing, despite the fact that they were loss averse. The inference drawn by the primary judge was compelling.

Conclusion in relation to s 945A 422 It follows that grounds 7 and 8 which relate to s 945A(1) are not made out.

The primary judge's reasons 423 Mr and Mrs Cassimatis had submitted that s 180(1) was concerned with a "private" duty owed by Mr and Mrs Cassimatis only to Storm: J[446]. ASIC submitted that s 180(1) was also concerned with a "public" duty owed not only to the corporation: J[447]. The primary judge considered these competing submissions, noting that the answer did not affect the outcome of the case: J[448]. His Honour emphasised that point at J[478] stating: … The reason why it is not necessary to resolve this issue is because, as senior counsel for Mr and Mrs Cassimatis submitted, this case is concerned only with the due care and diligence obligation in relation to the discharge of Mr and Mrs Cassimatis' duty to manage Storm. As I explain below, Mr and Mrs Cassimatis' duty to consider Storm's interests when managing the corporation does not require a narrow construction of Storm's interests which is limited only to the interests of its shareholders. Hence, I am content to proceed on the basis that Mr and Mrs Cassimatis' public duties as directors in managing Storm could only be contravened if they acted contrary to Storm's interests rather than contrary to any general norm of conduct. Nevertheless, Storm's interests should not be construed narrowly … 424 Mr and Mrs Cassimatis had submitted that, in solvent companies, the only interest of the company is the interest of its shareholders: J[446]. The primary judge recorded their submissions in the following terms at J[496]: Mr and Mrs Cassimatis submitted that the degree of risk that a solvent company should adopt in pursuit of profit is a matter for the directors and shareholders to determine. They asserted that "there is nothing per se illegal in a director of a solvent company causing or permitting a company to pursue a venture, no matter how risky or even foolhardy, if this is what the shareholders want" ([472]). They asserted that there is no breach of s 180(1) by a director who, with the consent of the shareholders, embarks on a course of conduct which is highly likely to contravene provisions of the Corporations Act. This was because "the pursuit of the risky venture is the raison d'être for the limited liability company in the first place" ([472]). Indeed, they went so far as to submit that a director would be acting with care and diligence, and not in breach of s 180(1), if he or she intentionally acted in contravention of the Corporations Act. Mr and Mrs Cassimatis submitted that "where the directors and the shareholders are one and the same, ratification is implicit" (Maxwell, 399 [103]). Hence, they argued, they could not be liable for any breach of s 180(1). 425 The primary judge rejected the submissions for four reasons: (1) First, his Honour concluded it was inconsistent with the text of s 180(1): J[499] to [502]. The words of the provision could not be read as having the effect that they do not apply in circumstances where the shareholders consent to the conduct. (2) Secondly, his Honour considered the submission was inconsistent with the history and context of the provision: J[503]. Since at least 1958, there has been a public interest in the enforcement of directors' duties. (3) Thirdly, the submission was unprincipled: J[504] to [506]. If the submission were accepted, it would mean that directors could act in a manner which was intended, and known, to be in serious breach of the Corporations Act yet not be in breach of their duty of care and diligence so long as they were the sole shareholders and the company was solvent. A person can fail to exercise due care whether or not their acts are intended. (4) Fourthly, the submission was not supported by authority: J[507] to [525]. The interests of the shareholders and the company might be identical in particular circumstances, or for particular questions, but they are not necessarily always so for all issues. 426 The primary judge proceeded on the basis that: (1) s 180(1) concerned a duty owed only to the company (even when enforced by ASIC or when public sanctions are sought) and that, for there to be a breach of duty, the interests of the corporation must be threatened or the subject of potential prejudice; "[a]n act which does not foreseeably harm any of the interests of the corporation cannot be a breach of a duty of care and diligence to the corporation": J[469], [537]; (2) Mr and Mrs Cassimatis' duties as directors could be breached if they acted contrary to Storm's interests rather than any general norm of conduct: J[478]; and (3) foreseeable risk of harm was not confined to financial harm and included harm to all of the interests of the corporation, including its reputation and its interests in complying with the law: J[482], [483]. 427 As to a corporation's interest in complying with the law, his Honour was careful to record that s 180(1) did not impose a general obligation on directors to conduct the corporation in accordance with law generally or the Corporations Act specifically. At J[539] and [540], his Honour stated: … The reference by Brereton J [in Australian Securities and Investments Commission v Maxwell (2006) 59 ACSR 373] at 399-400 [105] to "jeopardy to the interests of the corporation" was a reference back to his Honour's use of this expression at 399 [104] where he explained that although s 180(1) does not impose a general obligation upon directors to conduct the corporation in accordance with law generally or the Corporations Act, [t]here are cases in which it will be a contravention of their duties, owed to the company, for directors to authorise or permit the company to commit contraventions of provisions of the Corporations Act. 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. As I have explained, and as Brereton J recognises in this passage, the interests of the corporation include its compliance with the law. The "relevant" jeopardy is the threat of damage to the interests of the corporation which include the risks of exposure to sanctions from breach of the law. The qualification at the end of the paragraph is important. The reference to "at least" includes the obvious cases of contravention. At the other extreme, there are cases which can be easily excluded. For example, conduct by a director which subsequently causes a corporation to breach the law will not be a breach of a duty of care and diligence merely because it causes the corporation to breach the law if, at the time, no reasonable person holding the director's office with the director's responsibilities, acting reasonably, could ever have foreseen that the conduct would cause the corporation to breach the law. 428 Although his Honour proceeded on the basis that relevant harm need not necessarily be financial, and included an interest in complying with the law, he found that there had been a contravention of s 180(1) on the basis of both financial and non-financial threats to Storm's interests. His Honour stated that "the potential consequences of the alleged failures to comply with the law were also serious financial threats to Storm including a potential threat to its very existence by the loss of its AFSL": J[484]. 429 The primary judge examined whether there had been a contravention of s 180(1) by Mr and Mrs Cassimatis from J[675] to [784]. His Honour recorded that the test for contravention of s 180(1) involved "consideration of all circumstances including the foreseeable risk of harm to any of the interests of Storm [financial or non-financial] and the magnitude of that harm, together with the potential benefits that could reasonably have been expected to accrue to the company from the conduct in question, and any burdens of further alleviating action": J[675]. At J[465], the primary judge had set out the following passage from Vrisakis v Australian Securities Commission (1993) 9 WAR 395 at 449-450: … 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. 430 His Honour stated that the consideration of these matters "is from the perspective of the conduct of a reasonable person who is a director of Storm, in Storm's circumstances, having the responsibilities of Mr or Mrs Cassimatis": J[676]. This correctly summarised what s 180(1) required. 431 His Honour concluded that the civil contraventions by Storm of s 945A(1)(b) and s 945A(1)(c) were not only reasonably foreseeable but that "a reasonable director with the responsibilities of Mr and Mrs Cassimatis should have regarded them as likely": J[680]. In fact, his Honour concluded that the breaches were foreseeable as there was a strong likelihood of the breaches occurring, albeit stating that "the assessment of reasonable foreseeability and likelihood of contravention at the time of contraventions for the purposes of s 180(1) should take place at a higher level of generality" such that it was sufficient to conclude that the reasonable director "would have considered that it was likely that persons in the position of the relevant investors would be given inappropriate advice in breach of s 945A": J[681], [696], [698]. 432 His Honour took the view that the reasonable director would have reached this conclusion without needing expert advice, such as might have been provided by a person like Mr McMaster: J[681]. At J[682], his Honour stated: Even more clearly, expert advice would not reasonably have been needed for Mr or Mrs Cassimatis reasonably to conclude that it was likely that advice to invest in the Storm model was not appropriate (within the terms of s 945A) for investors in the class pleaded by ASIC (retired or approaching retirement, few assets other than their home and limited superannuation, little prospect of rebuilding their financial position etc). The most obvious reason for this was the inappropriate inclusion of the family home as an investment asset for these investors. But, in any event, a reasonable director with Mr or Mrs Cassimatis' responsibilities would have realised that there was a strong likelihood that retired or near-retired investors in this class would be inappropriately advised to use their homes as security for their investment. 433 The primary judge's conclusion about foreseeability of contravention by a reasonable director with Mr and Mrs Cassimatis' responsibilities was reached after detailed consideration of a number of factors: (1) Mr and Mrs Cassimatis were "integrally involved in almost every aspect of Storm's business": J[684]. A reasonable director of a company in Storm's circumstances and with Mr or Mrs Cassimatis' responsibilities would have known Storm's clientele and demographic very well: J[684]. Mr and Mrs Cassimatis understood the detail and application of the model far better than anyone: J[685]. They were better informed about the client demographic than anyone outside Storm: J[687]. "A reasonable director of a company in Storm's circumstances and with Mr and Mrs Cassimatis' responsibilities would have been well aware that this demographic included clients who were retired or who were approaching retirement and who had little income and few assets apart from their family home and limited superannuation": J[688]. Further, there were examples of actual awareness: J[688], [689]. (2) Mr and Mrs Cassimatis exercised their powers as directors and used their considerable assumed responsibilities to exercise control over Storm's affairs and the advisers: J[691]. (3) Mr and Mrs Cassimatis exercised their powers as directors to create education workshops which involved strong suggestions to potential investors to use greater debt for investing than the investors otherwise would have, which was not appropriate in the case of retired or near-retired investors with few assets and limited income: J[692], [693]. (4) Mr and Mrs Cassimatis used their powers to create an environment in which there were few circumstances in which clients of Storm (including those who were retired or near-retired) were not advised to invest using the Storm model: J[695]. The few cases where clients were not advised to invest were almost all cases where the client had no or too limited capacity to borrow. 434 His Honour stated at J[696]: In summary, my ultimate conclusion without relying upon hindsight is that a reasonable director of a company in Storm's circumstances and with Mr or Mrs Cassimatis' responsibilities would have been aware of a strong likelihood of contravention of the Corporations Act if he or she exercised his or her powers to cause or permit the Storm model to be applied to clients who were in the class pleaded by ASIC, particularly investors who were retired or near retirement with few assets and limited income. Or, to put this conclusion in negative terms, a reasonable director of a company in Storm's circumstances and with Mr or Mrs Cassimatis' responsibilities would have been aware of a strong likelihood of contravention of the Corporations Act if he or she did not exercise his or her powers to prevent or prohibit the Storm model from being applied in such indiscriminate circumstances which included application to clients who were retired or near retirement with few assets and limited income. 435 The primary judge recorded the submission made by Mr and Mrs Cassimatis that a breach could not reasonably have been foreseen, or foreseen as likely: J[683]. His Honour addressed the submission that Mr and Mrs Cassimatis would have derived comfort from the lack of complaint or warning: from Storm's insurers, law firms and the Financial Planning Association: J[701] to [710]; despite compliance reviews by Paragem: J[711] to [718]; in circumstances where the facts of the Storm model were known to clients, lenders and advisers, each of whom might be expected to have complained or provided a warning if the advice was inappropriate for the relevant investors: J[719] to [735]; through ASIC reviews and correspondence: J[736] to [758]; by non-executive directors: J[759] to [763]; from IPO advisers: J[764] to [768]; and in circumstances where borrowing to invest was a popular strategy: J[769] to [771]. 436 His Honour rejected these submissions and provided detailed reasoning. Overarching the specific reasons was the fact that "a reasonable director with the responsibilities of Mr and Mrs Cassimatis would have been aware that the extent of his or her responsibilities within Storm gave each of them a degree of knowledge and understanding of Storm which no other person came close to approximating": J[700]. His Honour stated at J[700]: … The reasonable director in their position might have drawn some comfort for a conclusion that the basic Storm model was not defective in its fundamentals or its application. But, there would have been little comfort that they could have drawn from these matters to conclude that the advice given by advisers to vulnerable clients in the position of the relevant investors was appropriate. In other words, any approval or absence of warning came from others who had far more limited knowledge of, and far more limited access to, the Storm model, Storm's clients, and the application of the Storm model to its clients than Mr or Mrs Cassimatis. 437 Having dealt with the question of reasonable foreseeability, the primary judge focussed on the consequences of contravention. His Honour noted that the likelihood of the contravention was only one of the relevant matters to take into account; "[o]ther crucial matters include the consequences of breach and the burden of alleviating action": J[772] His Honour stated at J[772]: … Even if I had concluded that contraventions of the Corporations Act were reasonably foreseeable but unlikely (rather than my conclusion that they were likely) the consequences of breach were so significant, and the burden of alleviating action so minimal that it is still possible that a contravention by Mr or Mrs Cassimatis might have occurred. The alleviating action could have taken many forms such as for Mr or Mrs Cassimatis to take any steps to put in place any procedures for SOAs not to advise the application of the Storm model to persons in the pleaded class, broadly persons near or at retirement with few assets and limited income. 438 His Honour made it clear that he was not considering the issue from the perspective of the actual losses which occurred to the vulnerable class and that the extent of the losses was caused by the global financial crisis: J[773]. The losses in fact sustained by investors were neither necessary nor sufficient for Storm's breaches of s 945A: J[774]. It was not necessary to speculate as to how the breaches might have come to the attention of ASIC; it was likely to come to their attention at some point given the "not insignificant size of the class of potentially vulnerable investors" and the strong likelihood of breaches occurring; alternatively, the breaches coming to ASIC's attention was a real possibility: J[774]. 439 The primary judge then addressed the consequences which might flow if the breaches came to ASIC's attention in the following way (emphasis added): [775] One consequence of the likely contraventions by Storm was that, by s 915C, ASIC could suspend or cancel Storm's AFSL because it had not complied with its obligations under s 912A. Storm was authorised by its AFSL to provide financial product advice for various classes of financial products including interests in managed investment schemes (which include index funds). The nature and seriousness of the contraventions by Storm were such that an action under s 915C to suspend or cancel Storm's AFSL licence was a real possibility. This consequence was not merely one which put Storm's interests in jeopardy. It was a threat to the very existence of Storm because s 911A of the Corporations Act requires a person who carries on a financial services business in Australia to have an AFSL. Any reasonable director would have taken this possibility extremely seriously. [776] Another consequence of the likely contraventions by Storm was the possibility of a banning order under the Corporations Act. Section 920A(1) of the Corporations Act permits ASIC to make a banning order in circumstances including contravention of s 912A by Storm or if Storm had not complied with a financial services law. Section 920C(1) provides that a person against whom a banning order is made cannot be granted an Australian financial services licence contrary to the banning order. In the circumstances of this case, a very real possibility arising from the likely contraventions of s 945A was a banning order. As Bromwich J said in Panganiban v Australian Securities and Investments Commission [2016] FCA 510 [15]: Banning orders under s 920A of the Corporations Act are one of the mechanisms used by ASIC to address concerns about shortcomings of such persons as financial advisors in respect of fairness, honesty and professionalism. Such a sanction, appropriately applied, has the necessary effect of deterring others from failing to adhere to those standards. That in turn facilitates ASIC's statutory obligation, in performing its functions and exercising its powers, set out in s 1(2) of the Australian Securities and Investments Commission Act 2001 (Cth) ... In particular, ASIC is required, in performing its functions and exercising its powers, to "promote the confident and informed participation of investors and consumers in the financial system": see s 1(2)(b) of the ASIC Act. 440 His Honour noted that, although some steps were taken to reduce some of the consequences of potential breaches of the Corporations Act, including maintaining professional indemnity insurance, adopting an alternative dispute resolution policy, and maintaining open lines of communication with ASIC, given "the likelihood of risk of contravention in relation to the class of investors pleaded by ASIC and the seriousness of the consequences of breach, these steps were nowhere near enough to minimise the reasonably foreseeable risk presented to Storm": J[777], [778]. His Honour stated at J[779]: … [T]o the investors in the pleaded class who were amongst the most vulnerable, there was no, or no substantial, steps taken by Mr or Mrs Cassimatis to prevent (ie not permit) inappropriate advice to them to invest using the Storm model. Instead, Mr and Mrs Cassimatis exercised their powers in a way that had the effect of encouraging the application of the Storm model to persons such as those in this class. The simple point is that they omitted to take any action at all to redress the likely breaches of the Corporations Act which they had caused or permitted by the creation and manner of operation of the Storm model. 441 His Honour expressed his conclusion at J[833] in the following way: My conclusion is that Mr and Mrs Cassimatis each contravened s 180(1) of the Corporations Act by exercising their powers in a way which caused or "permitted" (by omission to prevent) inappropriate advice to be given to the relevant investors. Those relevant investors were members of a class of investor, as pleaded by ASIC, who (in summary terms) were retired or close to retirement, had few assets, little income, and little or no prospect of rebuilding their financial position in the event of suffering significant loss. A reasonable director with the responsibilities of Mr or Mrs Cassimatis would have known that the Storm model was being applied to clients such as those who fell within this class and that its application was likely to lead to inappropriate advice. The consequences of that inappropriate advice would be catastrophic for Storm (the entity to whom the directors owed their duties). It would have been simple to take precautionary measures to attempt to avoid the application of the Storm model to this class of persons. 442 His Honour did not consider whether section 180(2) of the Corporations Act applied, that section being concerned with the business judgment rule, because the appellants abandoned that aspect of their defence in closing submissions: J[414].

The notice of appeal 443 Paragraphs 2 to 6 of the notice of appeal addressed s 180(1): 2. The learned primary judge erred in failing to hold that: (a) the interests of Storm were co-incidental with, or alternatively predominantly informed by, the wishes of its shareholders (the Appellants); and (b) the following considerations were of sufficient weight to negative the conclusion that s 180 was contravened: (i) Storm was solvent; (ii) the Appellants acted honestly; and (iii) the Appellants conducted the affairs of Storm in accordance with the unanimous wishes of its shareholders (the Appellants). 3. Further or alternatively, the learned primary judge erred in holding (in effect) that s 180 of the Act ought to be construed as applying to the interests of a corporation in complying with the law, including the Act. 4. Further or alternatively, the learned primary judge failed to carry out any or any adequate balancing exercise between the risks and benefits of the course of conduct by Storm that was found to have breached s 945A of the Act. 5. As to risks: (a) the finding at [774] that "the consequences of discovery [of the likely breaches - being six contraventions of s 945A of the Act] were catastrophic for Storm" was unsupported by the evidence; (b) the finding at [833] that "the consequences of that inappropriate advice would be catastrophic for Storm" was unsupported by the evidence; (c) the learned primary judge gave excessive weight to Storm's reputational and non-financial interests in complying with the law, which were not pleaded by ASIC as interests of Storm for the purposes of s 180 of the Act; (d) in determining the extent to which the risks would have been apparent to a reasonable director in the position of the Appellants, the learned primary judge failed to give sufficient weight to: (i) the fact that each of the impugned SOA and SOAA were provided to clients by financial advisers other than the Appellants; (ii) the preponderance of the evidence that the financial advisers employed by Storm took account of its clients' relevant personal circumstances; (iii) the fact that many organisations (including the Respondent) and individuals had reviewed Storm's practices and its proposed public prospectus without raising concerns; (iv) the fact that Storm had thousands of clients yet only received 10 complaints in the period from 2001 (the first complaint recorded in Storm's register of complaints) to September 2008 (the date of the most recent impugned SOAA); (v) the lack of evidence as to the extent or magnitude of the risks pleaded; and (vi) the steps taken by the Appellants to avoid or limit the harm to the interests of Storm pleaded by the Respondent. 6. As to benefits: (a) the learned primary judge failed to give any or any sufficient weight to the desirability of Storm being operated in the manner desired by its owners (the Appellants); and (b) the learned primary judge failed to give any or any sufficient weight to the financial benefits that accrued to Storm over many years from its approach to providing financial advice.

Summary of the appellants' principal submissions regarding s 180(1) 444 The appellants submitted that the primary judge identified the interests of Storm in an abstract manner, divorced from the wishes of its shareholders. The appellants submitted that, as a solvent company, Storm's interests were effectively those of its shareholders. They were entitled to risk their capital as they saw fit, even if this exposed their company to a risk of financial loss (or other detriment) that was objectively excessive. It was said that Storm had no innate interest in being profitable or being a good corporate citizen or even being in existence (because the appellants were entitled to wind up Storm if they so chose). So far as s 180(1) was concerned, the appellants submitted that they were entitled to prioritise their (and Storm's) interest in operating the Storm model over their (and Storm's) interest in minimising the risk of adverse action being taken by ASIC or disgruntled investors. 445 It was also submitted that, even if Storm had interests separate to those of the appellants, the primary judge gave insufficient weight to the desire of the appellants to operate the Storm model and excessive weight to the risks posed by the Storm model and the foreseeability of harm posed by those risks. It was clear, it was submitted, that the appellants as sole shareholders were committed to the Storm model. Rather than focus on what the shareholders wanted, the appellants submitted that the primary judge "reasoned a priori as to what any corporation would (or should) want". 446 The appellants also submitted that the primary judge's conclusion that a reasonable person in the position of appellants would have foreseen "catastrophe" as a real possibility was unsupported by the evidence. In particular, the appellants pointed out that ASIC did not adduce any evidence as to what it would have done if it had discovered the breaches or if they had been drawn to its attention.

Section 180 447 Section 180 provides: 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. Note: This subsection is a civil penalty provision (see section 1317E). 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. Note: This subsection only operates in relation to duties under this section and their equivalent duties at common law or in equity (including the duty of care that arises under the common law principles governing liability for negligence) - it does not operate in relation to duties under any other provision of this Act or under any other laws. (3) In this section: business judgment means any decision to take or not to take action in respect of a matter relevant to the business operations of the corporation. 448 A number of matters should be observed about the express terms of s 180(1): (1) First, the section prescribes a standard of care and diligence that a director or other officer "must" meet in exercising their powers and discharging their duties. (2) Secondly, the section does not expressly identify what the powers or duties are which must be exercised or discharged with the requisite degree of care and diligence. Rather, it is expressed in terms which apply to the exercise of all powers and the discharge of all duties no matter what the source of the power or duty. (3) Thirdly, the section does not expressly state to whom the obligation is owed. 449 As to the first mater, the obligation or duty which s 180(1) imposes is a statutory one to exercise powers and discharge duties with the degree of care and diligence identified. As the appellants submitted, the section is "normative" and cast in mandatory terms. The obligation mandated by s 180(1) is the same whether enforced as a private wrong to the corporation or as a public wrong in failing to meet the standard. The statutory obligation in s 180(1) derives in part from equity, which imposes a standard of conduct and provides remedies which are not necessarily dependent on whether the conduct caused loss to the person to whom the obligation is owed - see, for example: Reading v Attorney-General [1951] AC 507 at 516; Boardman v Phipps [1967] 2 AC 46; Chan v Zacharia (1984) 154 CLR 178 at 198-199; Attorney General for Hong Kong v Reid [1994] 1 AC 324. Section 180(1) likewise prescribes a standard of conduct. Section 180(1) does not contain any requirement for the conduct to have caused loss in order for the section to have been contravened. 450 As to the second matter, s 180(1) does not itself identify the powers and duties to which it applies. The section imposes an obligation to meet a statutory standard of care and diligence applicable to the exercise of all of the powers and the discharge of all of the duties of a director or officer, whatever the source. If the required degree of care and diligence is not met, then the section will have been contravened. 451 Equity and the common law both impose on directors a duty of care and skill: In re City Equitable Fire Insurance Co Ltd [1925] Ch 407; Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187; Daniels (formerly practising as Deloitte Haskins & Sells) v Anderson (1995) 37 NSWLR 438. What that requires is not static, but evolves with the complexity of the times: Daniels at 499, referring to Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115 at 126 (Tadgell J). These duties are not excluded by s 180 to the extent that they require something different from that section - see: s 185. The Corporations Act and other legislation is also a source of powers and duties which, subject to any contrary indication, a director must exercise and discharge in accordance with the care and diligence required by s 180(1). So is the company's constitution. 452 It follows that, in determining whether the standard in s 180(1) has been met in any given case, it is desirable to identify the power or duty with precision. 453 As to the third matter, s 180(1) does not expressly state that the obligation to exercise powers and discharge duties to the requisite standard is a duty owed to the company. Some earlier provisions, such as s 116(2) of the Companies Act 1896 (Vic), expressly stated that the duty was owed "to the company" - see the discussion by the primary judge at J[429] and following. Nevertheless, the cases have mostly proceeded on the basis that the statutory obligation imposed by s 180(1) to exercise powers and discharge duties to the requisite standard is a duty owed to the company - see, for example: Australian Securities and Investments Commission v Maxwell (2006) 59 ACSR 373 at [104]. The cases recognise that the interests of the company to which the duty is owed include the interests of the corporate entity itself, the shareholders and, at least where the financial position of the company is precarious, the creditors of the company: Walker v Wimborne (1976) 137 CLR 1; Vrisakis v Australian Securities Commission (1993) 9 WAR 395 at 450; Maxwell at [102]. 454 As to the operation of s 180(1), a number of further observations should be made. 455 First, as was stated in Shafron v Australian Securities and Investments Commission (2012) 247 CLR 465 at [18], the degree of care and diligence that is required by s 180(1) is fixed as an objective standard identified by reference to two relevant elements: the element identified in paragraph (a): "the corporation's circumstances", and the element identified in paragraph (b): the office and the responsibilities within the corporation that the officer in question occupied and had. 456 The "corporation's circumstances" referred to in s 180(1)(a) necessarily include, if it be relevant to the particular case, any breach or potential breach of law by the corporation. It also includes all of the relevant commercial and other circumstances, and the conduct, of the corporation. 457 Section 180(1)(b) calls for a consideration of the office occupied by the director or other officer and the actual responsibilities of that person. The actual responsibilities are all of the responsibilities that the relevant person in fact had, regardless of how or why the person came to have those responsibilities: Shafron at [18]; Australian Securities and Investments Commission v King [2020] HCA 4 at [33] (Kiefel CJ, Gageler and Keane JJ); [89] (Nettle and Gordon JJ). 458 Secondly, as Beach J observed in Australian Securities and Investments Commission v Mariner (2015) 24 FCR 502 at [450], in determining whether the standard mandated by s 180(1) has been met by a director in a case which involves a contravention by the company, it is relevant to balance the foreseeable risk of harm to the company flowing from the contravention with the potential benefits that could reasonably be expected to have accrued to the company from that conduct. In Mariner at [451] to [452], Beach J stated: [451] Not only must the Court consider the nature and magnitude of the foreseeable risk of harm and degree of probability of its occurrence, along with the expense, difficulty and inconvenience of taking alleviating action, but the Court must balance the foreseeable risk of harm against the potential benefits that could reasonably be expected to accrue from the conduct in question. [452] After all, one expects management including the directors to take calculated risks. The very nature of commercial activity necessarily involves uncertainty and risk taking. The pursuit of an activity that might entail a foreseeable risk of harm does not of itself establish a contravention of s 180. Moreover, a failed activity pursued by the directors which causes loss to the company does not of itself establish a contravention of s 180. 459 The balancing exercise is not necessarily confined to commercial considerations or to a comparison of monetary consequences, but extends to considering all of the interests of the corporation, including its continued existence and its interest in pursuing lawful activity. It is to be accepted that companies are often formed and operated to permit the taking of risks that individuals may not be willing to assume themselves and that it is of the essence of commercial activity to take risks. However, it must also be recognised that the company fiction did not evolve to facilitate unlawful risky activity without personal responsibility. 460 Thirdly, as the primary judge stated at J[539], s 180(1) does not impose an obligation on directors to conduct the affairs of the company in accordance with law generally or the Corporation Act specifically: Maxwell at [104], [110] (Brereton J); Australian Securities and Investments Commission v Warrenmang Ltd (2007) 63 ACSR 623 at [22] (Gordon J); Australian Securities and Investments Commission v Citrofresh International Ltd (No 2) (2010) 77 ACSR 69 at [50] (Goldberg J); Mariner at [444] (Beach J). 461 As noted at [426] to [428] above, the primary judge did not proceed on the basis that s 180(1) placed an obligation on a director or officer of the corporation to ensure that their corporation complied with the law. 462 Fourthly, as the primary judge observed at J[526], s 180(1) does not provide a backdoor method of visiting accessorial liability on directors for breaches by the company of provisions of the Corporation Act: Maxwell at [104], [110]; Mariner at [446]. However, the mere fact that it might have been open to bring a case against a director for accessorial liability for the company's contravention of the Corporations Act does not have the result that s 180(1) cannot apply. Indeed, it would not prevent a conclusion of breach of s 180(1) that it might be established that a case of accessorial liability for a corporation's contravention would have failed. The obligation in s 180(1) has a different field of operation to accessorial liability. 463 The focus of the inquiry under s 180(1) is on the conduct of the director and whether the director has met the standard imposed on him or her. The fact of a contravention by the company, if there be one, may be relevant as a part of the factual matrix to be considered in answering the question whether the director met the standard prescribed by s 180(1), but the liability of a director under s 180(1) is direct and not derivative from a company's contravention. Accessorial liability is necessarily derivative. 464 Section 180(1) applies according to its terms. It imposes a duty to meet the specified standard of care in exercising powers and discharging duties. In this particular case, the question of whether the standard was met arose in the context of the corporation having contravened the Corporations Act. ASIC conducted its case on the basis that it had to establish such a contravention - see: [290] above; J[834]. ASIC's case was that the conduct of Mr and Mrs Cassimatis as directors of Storm failed to meet the standard of care and diligence required by s 180(1). Their conduct exposed Storm to a foreseeable risk of harm, in circumstances where reasonable directors, with the same responsibilities as Mr and Mrs Cassimatis, in Storm's circumstances, would not have done so or would have taken some preventative action. The material facts which gave rise to the foreseeable harm included that their conduct caused Storm to contravene the Corporations Act. The issues which arise under s 180 require attention to the circumstances as they existed at the time of the exercise of powers and discharge of duties. A breach of s 180(1), in situations broadly analogous to the present, might potentially be demonstrated by showing that conduct exposed the company to relevant jeopardy because it was likely to result in future contravention by the company or that the direct and immediate consequence of the conduct was that the company contravened the Corporations Act or some other law. It might potentially be demonstrated by showing that a failure to act was likely to result in contravention by the company or failed to bring a continuing contravention to an end. Whether or not there was a failure to meet the standard prescribed by s 180(1) depends on the particular facts. 465 A breach of s 180(1) lies in the director's conduct in not meeting the relevant standard in light of such matters. A company's contravention might be a material fact relevant to the question whether a director failed to meet the standard mandated by s 180(1) by exposing a company to risk; but it is not an essential ingredient of liability in the way it is in a case of accessorial liability. The primary judge approached the matter as a question of direct liability of the directors for failing to meet the standard of care and diligence set by s 180(1) and not as a "backdoor method" for visiting accessorial liability upon Mr and Mrs Cassimatis for a proved contravention by Storm. 466 The primary judge's approach was consistent with what Brereton J said in Maxwell at [104] and [110]: [104] There are cases in which it will be a contravention of their duties, owed to the company, for directors to authorise or permit the company to commit contraventions of provisions of the Corporations Act. 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. But it is a mistake to think that ss 180, 181 and 182 are concerned with any general obligation owed by directors at large to conduct the affairs of the company in accordance with the law generally or the Corporations Act in particular; they are not. They are concerned with duties owed to the company … [110] Generally speaking, therefore, ss 180, 181 and 182 do not provide a backdoor method for visiting, on company directors, accessorial civil liability for contraventions of the Corporations Act in respect of which provision is not otherwise made. This is all the moreso since the Corporations Act makes provision for the circumstances in which there is to be accessorial civil liability. Whether there were in this case breaches of directors' duties - and, in particular, of their duty of care and diligence - depends upon an analysis of whether and to what extent the corporation's interests were jeopardised, and if they were, whether the risks obviously outweighed any potential countervailing benefits, and whether there were reasonable steps which could have been taken to avoid them.

Mr and Mrs Cassimatis' powers and duties 467 There was no dispute that Mr and Mrs Cassimatis were responsible for and in fact managed Storm and its business and did so with a high degree of control. 468 Their power and duty to manage was sourced in the common law and presumably in Storm's constitution. Further, s 198A of the Corporations Act provides: Powers of directors (replaceable rule - see section 135) (1) The business of a company is to be managed by or under the direction of the directors. Note: See section 198E for special rules about the powers of directors who are the single director/shareholder of proprietary companies. (2) The directors may exercise all the powers of the company except any powers that this Act or the company's constitution (if any) requires the company to exercise in general meeting. Note: For example, the directors may issue shares, borrow money and issue debentures. 469 Under s 180(1), Mr and Mrs Cassimatis had to "exercise their powers and discharge their duties [of management of Storm and its business] with the degree of care and diligence that a reasonable person would exercise" on the hypothesis that the reasonable person: (a) was a director of Storm in Storm's circumstances; and (b) had the same responsibilities as Mr and Mrs Cassimatis - see: Shafron at [18]. This included a duty to exercise the powers of management of the company and its business in a manner which did not jeopardise the company's interests - see [453] above.

Storm's interests 470 The submission that Storm's interests were those of its shareholders and those shareholders alone must be rejected. A company's interests are not exclusively those of its shareholders - see: [453] above. 471 Even in circumstances such as the present, where there is a complete identity of interest between the directors and the shareholders, the interests of the shareholders and the company are not necessarily identical. Take the example of shareholders who want a company to engage in an illegal activity which would result in massive profit should the venture not be discovered, but which is objectively very likely to be detected, with consequences which include criminal sanction, almost certain complete loss, an inability to repay creditors and the ultimate winding up of the company. The various interests of the shareholders and the company and the creditors diverge. What s 180(1) requires in practical terms in is an assessment of what the reasonable person would do in terms of the exercise of powers and duties with respect to the proposed illegal activity, assuming that person was the director in the company's circumstances with the same responsibilities as the director. 472 It is of course relevant to the degree of care and diligence which s 180(1) requires to have regard to the fact that the corporation's interests include the interests of the shareholders and that acquiescence on the part of the shareholders might affect the practical content of what s 180(1) requires - cf: Angas Law Services Pty Ltd (in liq) v Carabelas (2005) 226 CLR 507 at [29] to [32] (Gleeson CJ and Heydon J); Maxwell at [103]. But it is step too far to say that 100% shareholders can approve their own contravention of s 180(1) as directors. Shareholders cannot release directors from the statutory duties imposed by ss 180, 181 and 182: Maxwell at [103]. The primary judge clearly approached the matter on that basis: J[523], [525], [676]. It might also be observed that, in a situation where a company nears insolvency, 100% shareholders could not ratify their decisions as directors where those decisions prejudice the interests of creditors - cf: Kinsela v Russell Kinsela Pty Ltd (in liq) (1986) 4 NSWLR 722.

The primary judge's assessment of breach of s 180(1) 473 As has been noted above, the primary judge concluded that Storm breached s 945A(1)(b) and 945A(1)(c). His conclusions were not shown to be affected by error for the reasons identified earlier. The case was run and determined on the basis that it was necessary for ASIC to prove this step in order to prove a breach of s 180(1): see [290], [464] and [465] above. 474 The primary judge correctly proceeded on the basis that: (1) the test for contravention of s 180(1) involved "consideration of all circumstances including the foreseeable risk of harm to any of the interests of Storm [financial or non-financial] and the magnitude of that harm, together with the potential benefits that could reasonably have been expected to accrue to the company from the conduct in question, and any burdens of further alleviating action" - J[675]; see: [429] above; and (2) the consideration of these matters "is from the perspective of the conduct of a reasonable person who is a director of Storm, in Storm's circumstances, having the responsibilities of Mr or Mrs Cassimatis" - J[676]; see: [430] above. 475 The primary judge correctly proceeded on the basis that it was the conduct of Mr and Mrs Cassimatis vis-à-vis the interests of the company which was the focus of inquiry. His Honour concluded that Mr and Mrs Cassimatis breached s 180(1) by failing to meet the degree of care and diligence that provision required in circumstances where a reasonable person in the position of director, with the extensive responsibilities of the appellants, and in the company's circumstances, would have: (1) known that there was a strong likelihood that Storm would contravene the Corporations Act if that person exercised his or her powers to cause or permit the Storm model to be applied to the class of vulnerable investors or did not take steps to prevent or prohibit Storm giving inappropriate advice to the relevant class of investors: J[680], [681], [696], [698]; (2) known that the breaches were "likely to be discovered" by or come to the attention of ASIC: J[774]; (3) considered that there was a "real possibility" that ASIC would take regulatory action, which included the possibility of suspension or cancellation of Storm's AFSL or a banning order: J[775], [776]; (4) taken the "real possibility" of suspension or cancellation of the AFSL "extremely seriously": J[775]; (5) accepted that it was in Storm's interests not to give inappropriate advice to the particular class of investors to invest in accordance with the Storm model and taken steps to prevent inappropriate advice being given, rather than encouraging such advice to be given: J[778], [779].

Principles on appeal 476 This Court must conduct a "'real review' of the evidence given at first instance and of the judge's reasons for judgment to determine whether the judge has erred in fact or law": Aldi Foods Pty Ltd v Moroccanoil Israel Ltd (2018) 261 FCR 301 at [2], quoting Robinson Helicopter Company Inc v McDermott (2016) 331 ALR 550 at [43]. The following principles are relevant: (1) Where the Court detects material legal error it will always intervene - cf: Aldi at [45] (Perram J). (2) The Court may come to a different conclusion with respect to the primary judge's findings of fact. However: (a) it is not generally open to an appellate Court to interfere with the primary judge's findings of fact which turn upon an assessment of credibility "unless they are demonstrated to be wrong by 'incontrovertible facts or uncontested testimony', or they are 'glaringly improbable' or 'contrary to compelling inferences'": Aldi at [2] (Allsop CJ) quoting Robinson Helicopter at [43]; see also Aldi at [3] (Allsop CJ); [46], [54] (Perram J); (b) while an appellate Court has a duty to make up its own mind as to the facts, it does not deal with the case as if trying it at first instance. Its examination of the material must accord proper weight to the trial judge's views. If a choice arises between conclusions equally open and finely balanced and where there is, or can be no preponderance of view, the conclusion of error is not necessarily arrived at merely because of a preference of view of the appellate Court for some fact or facts contrary to the view reached by the trial judge: Aldi at [7] (Allsop CJ, with whom Markovic J agreed at [169]), referring to Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424 at [28]-[29] (Allsop J) and Optical 88 Ltd v Optical 88 Pty Ltd (2011) 197 FCR 67 at [33]. (3) The Court may draw inferences from facts already found, and is generally regarded as being in as good a position as the trial judge to do so: Warren v Coombes (1979) 142 CLR 531 at 551; Aldi at [47] (Perram J), with whom Allsop CJ relevantly agreed at [2] and Markovic J relevantly agreed at [169]. The High Court explained in Warren v Coombes at 551: [I]n general an appellate court is in as good a position as the trial judge to decide on the proper inference to be drawn from facts which are undisputed or which, having been disputed, are established by the findings of the trial judge. In deciding what is the proper inference to be drawn, the appellate court will give respect and weight to the conclusion of the trial judge, but, once having reached its own conclusion, will not shrink from giving effect to it. (4) The Court may also reach different conclusions to those reached by the primary judge with respect to matters which involve evaluative judgments. In this situation, the Court is guided by whether it detects sufficient error in the primary judge's findings, for example, perhaps because: (a) it identifies a materially false or illogical step in the primary judge's reasoning; (b) some extraneous consideration has infected the reasoning; or (c) the result bespeaks error: Aldi at [49] (Perram J), with whom Allsop CJ relevantly agreed at [2] and Markovic J relevantly agreed at [169]; see also [5] to [10] (Allsop CJ).

Application of s 180 477 The appellants criticised the primary judge for concluding that the consequences to Storm of discovery of the breaches would be "catastrophic", relying in particular on comments made by his Honour at J[824] and [833]. 478 The passage at J[824] is found in the section of the primary judge's reasons in which his Honour considered whether Mr and Mr Cassimatis ought be relieved from liability under s 1317S of the Corporations Act. At J[824], the primary judge stated that one reason for denying relief from liability was that Mr and Mrs Cassimatis: exercised an extraordinary level of control and power over the Storm business and should reasonably have known that the consequences of inappropriate advice to any class of client could reasonably be expected to be catastrophic for Storm (to whom their duties were owed). 479 The passage at J[833] is located in the section of the primary judge's reasons which summarise his ultimate conclusions. The primary judge stated (emphasis added): A reasonable director with the responsibilities of Mr or Mrs Cassimatis would have known that the Storm model was being applied to clients such as those who fell within this class and that its application was likely to lead to inappropriate advice. The consequences of that inappropriate advice would be catastrophic for Storm (the entity to whom the directors owed their duties). It would have been simple to take precautionary measures to attempt to avoid the application of the Storm model to this class of persons. 480 The appellant made an associated submission that the primary judge concluded that, as a matter of fact, the discovery of the breaches was in fact catastrophic, that submission relying on the last sentence of J[774]. The final two sentences of J[774] were: At the very least, a reasonable director with Mr and Mrs Cassimatis' responsibilities, and in Storm's circumstances, should have realised that discovery of the likely breaches was a real possibility. And the consequences of discovery were catastrophic for Storm. 481 It was correctly submitted, in respect of J[774], that it was the global financial crisis or its effects which were catastrophic for Storm, not the discovery of any breach. 482 The better reading of the primary judge's reasons is that his Honour considered that the "real possibility" of "catastrophic" consequences arising from the discovery of the breaches was sufficient, in the circumstances, for the conclusion that there was a breach of s 180(1). His Honour used the language of "real possibility" at J[775] and "very real possibility" at J[776], being the two paragraphs in which he specifically addressed the possible consequences of the breaches under ss 915C and 920A(1) of the Corporations Act. These passages have been set out at [439] above. Whilst the primary judge's reasons must be read as a whole, it is significant that his Honour spoke in terms of "real possibility" rather than "likelihood" when directly addressing whether or not the likely discovery of a breach would result in cancellation of Storm's AFSL (s 915C) or a banning order (s 920A(1)). 483 This is also the effect of what was said at J[23] where the primary judge, in providing a brief introductory summary, stated that Storm's AFSL would have been "threatened" (emphasis added): [23] Mr and Mrs Cassimatis should have been reasonably aware that the application of the Storm model would be likely to (and did) cause contraventions of s 945A(1)(b) and s 945A(1)(c). The contraventions of s 945A(1)(b) occurred because Storm did not give such consideration to the subject matter of the advice and did not conduct such investigation of the subject matter of the advice as was reasonable in the circumstances. The contraventions of s 945A(1)(c) occurred because Storm provided financial advice which was not appropriate to the investors having regard to the consideration and investigation of the subject matter of the advice that ought to have been undertaken. Those contraventions were not merely likely to occur. They were contraventions which could have (and did have) devastating consequences for many investors in that class and the discovery of those breaches would have threatened the continuation of Storm's Australian Financial Services Licence (AFSL) licence and Storm's very existence. 484 That the primary judge concluded that the "catastrophic" consequences of discovery of the breaches were a "real possibility" rather than a likelihood is also supported by what his Honour stated at J[483] and [484], when discussing the content of the duty to the company under s 180(1) (emphasis added): [483] For these reasons, I conclude that the foreseeable risk of harm to the corporation which falls to be considered in s 180(1) is not confined to financial harm. It includes harm to all the interests of the corporation. The interests of the corporation, including its reputation, include its interests which relate to compliance with the law. [484] Although these non-financial concerns about legality of conduct are relevant considerations, in this case the potential consequences of the alleged failures to comply with the law were also serious financial threats to Storm including a potential threat to its very existence by the loss of its AFSL. 485 The appellants' first contended error was that there was no evidence to support the conclusion that a reasonable director would have foreseen a likelihood or real possibility of catastrophe arising from the discovery of the breaches. This centred on the submission that ASIC led no evidence as to what it would have done, had it learned of the circumstances giving rise to the contraventions. 486 As noted earlier, the primary judge did not conclude that the consequences of discovery of the breaches would necessarily be catastrophic, nor even that there was a strong likelihood that ASIC would seek to enforce a banning or cancellation order: J[775] and [776]. His Honour held that there was a "real possibility" that ASIC would seek a cancellation of Storm's AFSL and that a reasonable director, in the company's circumstances, would have taken that possibility "extremely seriously": J[775]. The consequences to the company if this possibility were to eventuate were described by his Honour as "catastrophic", but that identification of the consequences, if the threat materialised, should not distract attention from the conclusion that there was a real possibility of cancellation of Storm's AFSL or a banning order. 487 The appellants' submission that there was no evidence to support the conclusion that a reasonable director would have foreseen a possibility of catastrophe must be assessed having regard to the fact that there was substantial evidence as to what Storm in fact did in terms of advising vulnerable investors to invest using the Storm model. The findings in respect of what Storm did naturally informed the primary judge's assessment that, if the breaches came to ASIC's attention, there was a "real possibility" of suspension or cancellation of the AFSL. That is because ASIC would determine what action to take having regard to the nature and quality of the breaches and what the law provided for in terms of the possible regulatory action. 488 The primary judge approached the matter by reference to what a reasonable director would have done knowing that breaches were likely to occur and knowing that the breaches were likely to come to the attention of ASIC in circumstances where that would expose Storm to a "real possibility" of loss of Storm's AFSL. In circumstances where the statutory regime expressly contemplated a sanction of cancellation of the AFSL or a banning order, it is difficult to conclude that the primary judge erred in concluding that cancellation of the AFSL was a "real possibility", even in the absence of evidence on the point from ASIC. 489 It was open to ASIC to have called evidence as to what it might have done had it learned of the facts and circumstances giving rise to the breaches. The weight to be given to evidence provided by an officer of ASIC after the event would potentially have been difficult to assess. Account would have needed to be taken of the effect of hindsight, speculation and self-interest. The weight would have depended on the nature of the evidence, including whether it contained material which objectively supported what action would have been taken. 490 The task of the primary judge was to assess whether the case ASIC advanced was proven on the evidence it did adduce, not to speculate on what other evidence it might have adduced; on the other hand, it is to be recognised that it is legitimate and appropriate to weigh evidence in accordance with a party's ability to adduce evidence on a topic and to draw certain inferences from a failure to call evidence - cf: Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345 at [164] to [170]. 491 The fact that ASIC did not call a witness to state what action would have been taken if it had learned of the breaches did not diminish the cogency of its case that the breaches gave rise to the "real possibility" of serious consequences, which included the possibility of a suspension or cancellation of Storm's AFSL. Having regard to the detailed evidence as to the circumstances in which the breaches occurred, and the nature and quality of the acts which gave rise to them, it was open to the primary judge to infer that, in the face of serious breaches of the Corporations Act, ASIC would consider whether to seek to enforce the possible consequences specifically contemplated by the terms of the statute, which included cancellation of Storm's AFSL or a banning order. 492 If the primary judge had approached the matter on the basis that there was a strong likelihood of ASIC seeking to impose a regulatory sanction of the kind indicated, or a strong likelihood of loss of Storm's AFSL, then that would have involved error because there was an inadequate evidentiary foundation for that conclusion when considered in accordance with the processes of reasoning indicated by Jones v Dunkel (1959) 101 CLR 298 and Blatch v Archer (1774) 1 Cowp 63. If the primary judge had concluded that there was a likelihood of cancellation of Storm's AFSL error would have been established, because it would have meant that the primary judge assessed the question of what a reasonable director would have done by reference to a likely consequence of the company's contravention which was unproven and objectively unlikely. 493 But, for the reasons given above, that was not the primary judge's approach. The primary judge undertook the analysis by reference to ASIC's likely discovery of the breaches causing a "threat", not by reference to that discovery resulting in likely cancellation of Storm's AFSL. 494 Accordingly, the first contended error is not made out. 495 The second contended error was that the primary judge failed to carry out any, or any adequate, balancing exercise between the risks and benefits of the course of conduct Mr and Mrs Cassimatis set for Storm in exercising their powers and discharging their duties. The primary judge did weigh the risks and benefits. As the primary judge expressly recognised at J[495], the assessment of whether Mr and Mrs Cassimatis exercised their powers and discharged their duties to the standard mandated by s 180(1) had to be carried out by reference to Storm's circumstances: s 180(1)(a). This included that Storm was giving inappropriate advice to vulnerable investors in breach of s 945A. The assessment also had to be carried out having regard to the actual responsibilities of Mr and Mrs Cassimatis which were extensive and amounted to control over all aspects of Storm's business and the advice which was being given to the vulnerable investors: s 180(1)(b). The primary judge expressly approached the question on that basis, noting that this "has significance in this case because of the vast responsibilities assumed by Mr and Mrs Cassimatis, and the strength of control that they asserted over Storm": J[495]; see also: J[21], [67], [113] to [116], [691], [697], [730] to [731], [818], [824]. 496 The risk was that ASIC would consider what action to take when it discovered the breaches, as was likely, and this entailed the possibility of cancellation of Storm's AFSL or a banning order. The minimal benefits of giving inappropriate advice to a small class of vulnerable investors did not outweigh the risks posed by the "real possibility" of cancellation of Storm's AFSL. Mr and Mrs Cassimatis were in a position of control and took no steps to prevent inappropriate advice being given. The primary judge concluded that a reasonable director with the same responsibilities, in Storm's circumstances, would have taken alleviating action. That was an evaluative judgment taken after careful analysis of all of the evidence. The appellate procedure is not one which permits successive replacement of evaluative judgments absent sufficient error. Sufficient error has not been established - see: [476(4)] above. 497 The appellants also submitted that each of the impugned SOAs and SOAAs was provided to clients by financial advisers other than the appellants. However, as was noted earlier, these financial advisers were practically limited in what they could do by the fact that they were not permitted to alter the SOAs or the cash flows. Further, on the primary judge's findings, Mr and Mrs Cassimatis would not countenance those advisers giving advice otherwise than in accordance with the Storm model. The advice in fact given to Mr and Mrs Dodson by their adviser was that the "viability cash flow" represented the worst possible scenario. That cash flow did not address a scenario of negative growth. In those circumstances, it was not surprising that the primary judge did not conclude that the fact that the SOAs were provided to clients by financial advisers other than the appellants weighed strongly in their favour on the question of breach of s 180(1). 498 The appellants submitted that the primary judge gave insufficient weight to the fact that many individuals and organisations (including ASIC) had reviewed Storm's practices and its proposed public prospectus without raising concerns. The primary judge dealt extensively with this evidence and his findings were not challenged. The fact was that Mr and Mrs Cassimatis had an intimate knowledge of every level of the business operations, an unsurpassed knowledge of the detail of the Storm model, and the best overall understanding of the general financial profiles of Storm's clients. They were the ones in the best position to see that advising the relevant investors to adopt the Storm model was likely to result in breaches of the Corporations Act. No-one else was shown to be in this position. No-one else was shown to have looked at whether the Storm model was appropriate to the class of vulnerable investors the subject of the case. 499 The appellants submitted that the primary judge gave insufficient weight to the fact that Storm had thousands of clients yet only received 10 complaints in the period from 2001 (the first complaint recorded in Storm's register of complaints) to September 2008. The primary judge took into account the low number of complaints. There was no error in not giving the low number of complaints more weight. It was not contended that the advice was inappropriate for the majority of Storm's clients and it was not in dispute that the Storm model had operated successfully for a number of years. Nor was it in dispute that the Storm model might have worked for vulnerable investors over the period before the global financial crisis began. In those circumstances, it might not be surprising that there were few complaints. The complaints might only be expected once the inappropriateness of the advice became evident to those affected. For the vulnerable class, that appears to have been when the global financial crisis began. The critical point was that the relevant advice ought not to have been given to a particular class of vulnerable investor. 500 No legal error has been demonstrated in relation to the primary judge's findings and conclusions set out at [475] above, nor has it been shown that the findings of fact made by the primary judge, or the evaluative judgments made, or the inferences drawn, were such as to warrant appellate interference.

Conclusion in relation to s 180(1) 501 It follows that grounds 1 to 6, which relate to s 180(1), are not made out.

CONCLUSION 502 The appeal should be dismissed. 503 I certify that the preceding 215 (two hundred and fifteen) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Thawley