Geoffrey William VINES v AUSTRALIAN SECURITIES AND INVESTMENT COMMISSION [2007] NSWCA 126 | Case summary

Geoffrey William VINES v AUSTRALIAN SECURITIES AND INVESTMENT COMMISSION [2007] NSWCA 126 | Case summary | Zoe

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Friday 22 June 2007 Geoffrey William VINES v AUSTRALIAN SECURITIES AND INVESTMENT COMMISSION Judgment 1 SPIGELMAN CJ: The Appellant/Cross-Respondent was found by Austin J to have committed seven contraventions of s232(4) of the Corporations Law with respect to his failure to exercise the degree of care and diligence that a reasonable person in a like position would have exercised ("the Contraventions Judgment"). Austin J also rejected the Appellant's application for relief from liability under s1317JA and s1318 of the Corporations Law seeking to be excused by the Court from the contravention ("the Honesty Judgment"). On 4 April 2007 this Court allowed the appeal with respect to four of the seven contraventions but, by majority, dismissed the appeal with respect to three of the contraventions. It also, by majority, dismissed the appeal from the Honesty Judgment. (Vines v Australian Securities and Investments Commission [2007] NSWCA 75). 2 In a third judgment ("the Penalty Judgment") his Honour determined the question of penalty. His Honour made 11 declarations of contravention. This Court allowed the appeal and set aside five of those declarations and, by majority, dismissed the appeal with respect to six of those declarations. In the Penalty Judgment Austin J also made orders pursuant to each of s1317EA(3)(a) and (b) of the Corporations Law. His Honour imposed a fine of $100,000 and disqualified Mr Vines from managing a corporation for three years (Australian Securities and Investments Commission v Vines [2006] NSWSC 760; 58 ACSR 298). The Appellant appeals from the Penalty Judgment. 3 The Respondent cross-appeals with respect to the period of disqualification, which it asserts was inadequate. 4 Following this Court's decision on issues of liability, the Court sought and received further submissions from both parties on the appeal and cross-appeal from the Penalty Judgment. That is the matter now before the Court. 5 It is convenient again to set out s1317EA of the Corporations Law, which continues to apply to the conduct here in issue pursuant to transitional provisions, which it is unnecessary to set out: "1317EA(1) This section applies if the Court is satisfied that a person has contravened a civil penalty provision, whether or not the contravention also constitutes an offence because of section 1317FA. (2) The Court is to declare that the person has, by a specified act or omission, contravened that provision in relation to a specified corporation, but need not so declare if such a declaration is already in force under Division 4. (3) The Court may also make against the person either or both of the following orders in relation to the contravention: (a) an order prohibiting the person, for such period as is specified in the order, from managing a corporation; (b) an order that the person pay to the Commonwealth a pecuniary penalty of an amount so specified that does not exceed 2,000 penalty units. (4) The Court is not to make an order under paragraph (3)(a) if it is satisfied that, despite the contravention, the person is a fit and proper person to manage a corporation. (5) The Court is not to make an order under paragraph (3)(b) unless it is satisfied that the contravention is a serious one. (6) The Court is not to make an order under paragraph (3)(b) if it is satisfied that an Australian court has ordered the person to pay damages in the nature of punitive damages because of the act or omission constituting the contravention. (7) Section 91A defines what, for the purposes of this section, constitutes managing a corporation." 6 His Honour's decisions, first to make an order pursuant to s1317EA(3)(a) for disqualification, and secondly, to make an order pursuant to s1317EA(3)(b) for a pecuniary penalty, are orders to which well-known restrictions upon appellate intervention apply. Each of the Appellant and the Cross-Appellant must satisfy the Court that his Honour committed a relevant error. The position with respect to the threshold decision under s1317EA(4) is not so clear. I note that this two stage approach was repealed with effect after 13 March 2000 by the repeal, relevantly, of s1317EA(4) of the Law and its replacement by, relevantly, s206C of the Law (and later of the Corporations Act 2001 (Cth)), but this regime does not apply to this case. 7 It is necessary to distinguish between the appeal directed to his Honour's failure to be satisfied as to the fitness of Mr Vines, under s1317EA(4), and the separate exercise of a discretion to make an order of disqualification, and if so for what period, pursuant to s1317EA(3)(a). The first decision involves the formulation of a judgment rather than the exercise of discretion. This can be an important distinction affecting the degree of restraint that an appellate court must exercise with respect to the decision on which an appeal is brought. See my analysis of the authorities in Perpetual Trustee Company Limited v Khoshaba [2006] NSWCA 41 [31]-[40]. 8 Where, as here, the relevant statutory test turns on whether or not the Court is "satisfied" of a matter involving a broad evaluative judgment, then the case law indicates that the degree of restraint which an appellate court should manifest is of the same order as that applicable to a discretion, in the strict sense of that word. (See Norbis v Norbis (1986) 161 CLR 513 esp at 517-518, 540; Singer v Berghouse (1994) 181 CLR 201 esp at 210-212; Coal and Allied Operations Pty Limited v Australian Industrial Relations Commission (2000) 203 CLR 194 esp at [19], [27], [32]; Russo v Aiello (2003) 215 CLR 643 at [27]; Director of Public Prosecutions v El Mawas (2006) 66 NSWLR 93; (2006) NSWCA 154; at [3]-[4] and [64]-[70].) A statutory provision expressed in terms of whether a decision maker is "satisfied" of a particular matter is accurately characterised as conferring "a very wide discretion". (See Buck v Bavone (1976) 135 CLR 110 at 119.) 9 In Australian legal discourse, when a matter of this character arises, it is customary to refer to the principles for restraint identified by the High Court in House v The King (1936) 55 CLR 499 at 505. 10 Subsequent authority, including in the High Court, has elaborated the principle in House v The King, particularly with respect to the final category in the relevant passage, namely, when the order is "unreasonable or plainly unjust" and the court "may infer that in some way there has been a failure properly to exercise the discretion", without being able to identify specific error. 11 Kitto J observed in Lovell v Lovell (1950) 81 CLR 513 at 532; "It may be, as Jordan CJ In re Will of Gilbert (1946) 46 SR (NSW) 318 at p179) that the restraint to which a court of appeal should submit itself is less stringent where the exercise of discretion is determinative of legal rights than it is where the discretion relates to points of practice and procedure. But even in the former case the court of appeal must guard against reversing a discretionary decision merely because it would itself have decided the matter differently; it is not justified in substituting its own judgment for that of the primary judge unless it is clearly satisfied that his judgment was erroneous". 12 His Honour referred to a number of cases in which the formulation of the relevant test was expressed in such terms as whether the judge at first instance was "plainly wrong". His Honour went on to refer to an appellate court intervening if it comes to the conclusion that "no weight or no sufficient weight has been given to relevant considerations" and said at 533: "The proposition that the appeal court will consider whether 'no sufficient weight' has been given to relevant considerations is not inconsistent with the principle that the appeal court does not deal with the appeal as if it were exercising the original jurisdiction; even if it considers that insufficient weight has been given to some relevant consideration, it will still not substitute its judgment for that of the primary judge unless it comes clearly to the conclusion for that reason that the discretion has been exercised wrongfully." 13 Kitto J returned to this issue in his judgment in Australian Coal and Shale Employees' Federation v The Commonwealth (1953) 94 CLR 621, where his Honour referred to his earlier analysis in Lovell v Lovell and added at 627: "…the true principle limiting the manner in which appellate jurisdiction is exercised in respect of decisions involving discretionary judgment is that there is strong presumption in favour of the correctness of the decision appealed from, and that that decision should therefore be affirmed unless the court of appeal is satisfied that it is clearly wrong. A degree of satisfaction sufficient to overcome the strength of the presumption may exist where there has been an error which consists in acting upon a wrong principle, or giving weight to extraneous or irrelevant matters, or failing to give weight or sufficient weight to relevant considerations, or making a mistake as to the facts. Again, the nature of the error may not be discoverable, but even so it is sufficient that the result is so unreasonable or plainly unjust that the appellate court may infer that there has been a failure properly to exercise the discretion which the law reposes in the court of first instance: House v The King ."

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The Orders of Austin J 14 In order to understand the reasons of Austin J it is relevant to note that his Honour made 11 declarations of contravention with respect to various aspects of Mr Vines' conduct. Some of these declarations overlapped, in the sense that they were referable to the same action or inaction, involving ancillary conduct. In this sense his Honour's analysis involved 11 contraventions. For reasons set out in this Court's earlier judgment, it was convenient to analyse the contraventions as seven in number. 15 In his reasons with respect to the pecuniary penalty, Austin J clearly attended to the need to consider each of the 11 contraventions, leading to the 11 declarations, separately. His Honour imposed a penalty of $10,000 referable to each such contravention, discounting the total penalty to $100,000. This appears from the following passage of the Penalty Judgment: "[130] In my view each contravention, if considered in isolation, would warrant a pecuniary penalty in the order of $10,000, given the seriousness of each of them. I see no justification for treating some contraventions as justifying a greater penalty than others, in the case of Mr Vines. When they are considered together, and one takes into account the mitigating factors to which I have referred, it is appropriate to apply a small discount, which in my view leads to the result advocated by ASIC, an overall penalty of $100,000. I regard a penalty of $100,000 as an appropriate one when the contraventions are considered as a whole." 16 In this passage his Honour correctly approached the matter on the basis of imposing a separate penalty for each contravention and then taking into account the effect of the total imposition, on the basis, it appears, of considerations analogous to the principle of totality as applied in sentencing for criminal offences. 17 The importance of making clear how any penalty relates to different contraventions of the Corporations Law, when a case involves multiple contraventions, is based on a range of matters including, perhaps most relevantly for present purposes, the need to distinguish the respective penalties in case, as has happened, an appeal is allowed with respect to some but not all matters. 18 The relevant principle is that stated, in a criminal justice context, by the High Court in Pearce v The Queen (1998) 194 CLR 610 where, McHugh, Hayne and Callinan JJ said: "[45] To an offender, the only relevant question may be 'how long', and that may suggest that a sentencing judge or appellate court should have regard only to the total effective sentence that is to be or has been imposed on the offender. Such an approach is likely to mask error. A judge sentencing an offender for more than one offence must fix an appropriate sentence for each offence and then consider questions of cumulation or concurrence, as well, of course, as questions of totality. [46] Sentencing is not a process that leads to a single correct answer arrived at by some process admitting of mathematical precision. It is, then, all the more important that proper principle be applied throughout the process." 19 Directly analogous considerations apply in the context of the imposition of civil penalties in a case where there have been multiple contraventions. 20 The clarity with which his Honour distinguished the need to impose a separate pecuniary penalty for each offence and then, to take into account matters of cumulation, concurrence and totality, is not reflected in his Honour's analysis of his decision to impose an order for disqualification of three years. No passage of the character that I have quoted above with respect to pecuniary penalty appears with respect to the order of disqualification. Nevertheless, the Appellant did not contend that his Honour committed an error, which would allow this Court to intervene, on the basis that his Honour failed to impose a separate period of disqualification for each offence. 21 It is not necessary for this Court to make any finding in this regard, and it should proceed on the basis, upon which the Appellant has apparently proceeded, that his Honour's order for disqualification was made with respect to each of the contraventions which his Honour determined had occurred. In any event, I am of the view, on reading his Honour's judgment as a whole that that is what is Honour intended to do. His Honour, as the extracts set out below will show, placed particular weight on the significance of general deterrence and the seriousness of the contraventions. His Honour's analysis did not suggest that he regarded some contraventions as significantly different in either respect than others. Indeed, he said the contrary at [130] quoted above at [15], albeit in the context of pecuniary penalty. 22 On the basis of the above analysis, the fact that this Court has allowed the appeal with respect to four of the seven contraventions on its analysis, and six of the eleven declarations of contravention on his Honour's analysis, does not of itself lead to the conclusion that an error of the character identified in House v The King must have occurred with respect to the disqualification order made in relation to each of the contraventions this Court has upheld. The Appellant does make submissions with respect to references in his Honour's judgment to the fact that there were a number of contraventions when considering the appropriate penalty, but not of the character I have identified. I will deal further with these submissions below. 23 For present purposes, it is appropriate to approach the appeal against penalty on the basis that his Honour determined that a period of disqualification of three years was appropriate for each of the contraventions that remain, and which remain the subject of six of the 11 declarations of contravention that his Honour made. Furthermore, it is appropriate to proceed on the basis that his Honour's determination of a penalty of $100,000 was referable to the 11 declarations made of which six survive, i.e. about half.

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The Fit and Proper Person Threshold 24 As set out above, s1317EA(4) prohibits a court making an order of disqualification if the court is satisfied that "the person is a fit and proper person to manage a corporation". This is a well-known formulation. (See Hughes and Vale Pty Limited v New South Wales (No 2) (1955) 93 CLR 127 at 156; Members of the Albarran v Members of the Companies Auditors and Liquidators Disciplinary Board [2007] HCA 23 at [23].) The negative form in which this threshold is expressed is of significance. In order to make an order under s1317EA(3)(a) the court does not have to be satisfied that a person is not a "fit and proper person to manage a corporation". It cannot do so, however, if it is satisfied that he or she is. 25 Austin J set out, in his Penalty Judgment, a consideration of the interpretation of s1317EA(4) and the case law relating to disqualification of company directors and managers. His Honour also set out and discussed the evidence relating to the case of Mr Vines in this respect. 26 His Honour's approach to the interpretation of s1317EA(4) appears in the following passage: "[14] Subsection 1317EA(4) imposes an important qualification on the court's power to make a disqualification order. It requires the court to consider whether, despite the contravention, the defendant is a 'fit and proper person to manage a corporation', and the court is not to make a disqualification order if it is 'satisfied' that the defendant is fit and proper for that purpose. Once again, 'manage a corporation' has the meaning given by s91A. Importantly for present purposes, the concept is directed to the question whether the defendant is a fit and proper person to manage 'a corporation'. The application of the statutory language is difficult, because of the very wide range of activities conducted in corporate form. A corporation may be a private shelf company, a private investment company, a corner grocery business, a charitable body, a cashbox, a mining explorer without any present business revenue, an established middle-sized manufacturing business, the parent entity in a massive international group of businesses, and so on, through infinite possibilities. Which of these kinds of activities are encompassed by the expression 'manage a corporation'? [15] In my opinion, the words 'manage a corporation' refer to the management of corporations generally, not the particular corporation in respect of which the offence occurred, nor any particular subgroup of corporate business activities. It is directed to the overall suitability of the defendant to continue to engage in business management activities in the corporate sphere, encompassing both listed public corporations and unlisted corporate entities. Consequently, a defendant may be a fit and proper person to manage a corporation although the court has concluded that the defendant: • is not a fit and proper person to continue to manage the corporation in respect of which contraventions occurred, for reasons limited to that particular corporation and not applicable more widely (for example, reasons to do with a bad personal relationship between the defendant and the chief executive of the corporation); • is not a fit and proper person to manage any corporations pursuing a particular line or lines of business, for reasons to do with lack of expertise in those businesses. [16] However, in my view a conclusion that a defendant has demonstrated some deficiency or inadequacy with respect to a particular corporation or a particular subset of corporations may be a sufficient reason for the court to be satisfied that the defendant is not a fit and proper person to manage corporations generally. The question will be whether the deficiency or inadequacy relates to the defendant's overall suitability to engage in business management activities in the corporate sphere. For example, a finding that a defendant occupying an executive position persistently failed to inform the board of directors of information that the board needed in order to perform its duties might raise a question about that defendant's appreciation of the function of the board of directors of a corporation or willingness to play his or her part in effective corporate governance. Depending on the circumstances, that may be a sufficient basis for the court to conclude that the person was not a fit and proper person to 'manage a corporation', even though the deficiency or inadequacy would be relevant to management of certain kinds of corporations (for example, a private investment company of which the person concerned was both sole shareholder and sole director). [17] In my opinion, a finding of deficiency or inadequacy with respect to the operations of a listed public company, of a kind suggesting failure to appreciate or unwillingness to contribute to aspects of corporate governance that are peculiar to listed companies (for example, the continuous disclosure obligation under companies legislation and listing rules) may also mean that the defendant is not a fit and proper person to 'manage a corporation', even though the matter concerned has no relevance except for listed corporations. In such a case, a basis for the conclusion that the defendant is not fit and proper to manage any listed corporation is enough to prevent the court from being satisfied that the defendant is fit and proper to manage corporations generally." 27 His Honour's findings with respect to the fit and proper person threshold test in s1317EA(4) were as follows: "[114] As indicated in my discussion of the statutory provisions, the law applicable to the events of the second half of 1998 (in substance, s 1317EA(4) of the Corporations Law) requires the court to consider whether it is satisfied that, despite the contravention, the defendant is a fit and proper person to manage a corporation. If so, the court is prohibited from making a disqualification order. If the events had occurred after the commencement of the CLERP Act of 1999, the court's discretion would have been more open. [115] In the present case there are competing considerations. On the one hand, I have found that Mr Vines' contraventions disclose a continuity and pattern involving failure to discharge his duty of care and diligence as an executive officer by incomplete or misleading disclosure of material information known to him, in circumstances made particularly serious by his role in GIO's corporate governance and the Part B process. The contraventions go to the executive officer-director relationship in a publicly listed corporation, and in the corporate structure generally (excluding only corporations so small that there is no room for non-director executives). They raise a question as to whether, at the time, Mr Vines properly appreciated the need for senior executives in his position to ensure that the board and any board committee receive the information available to management which is material to their decision. They suggest that a person in the position of Mr Vines may not be suitable to engage in business management activities in the corporate sphere. The seriousness of the contraventions and the pattern that they reveal are considerations suggesting that the court should not be satisfied that Mr Vines is a fit and proper person to manage a corporation. I do not hold that any of these matters is the case, but only that the contraventions give rise to a basis for concern. [116] On the other hand, evidence given on behalf of Mr Vines tends to the conclusion that whatever unsuitability there may have been at the time of the contraventions has subsequently been addressed. In particular, there is very strong evidence of Mr Vines' careful and effective work at ReAC. Further, there is evidence of Mr Vines' contrition, his present understanding of the court's reasoning and his willingness to abide by that reasoning in future. Together these matters might be taken to suggest that the ground for concern as to whether he is a fit and proper person, though arguably present up to the hearing, has now been removed. [117] My view is that the contraventions by Mr Vines have created a basis for concern as to his suitability to manage a corporation, relating to his suitability to engage in business management activities in the corporate sphere. Important though the evidence of his good work at ReAC and his contrition is for the assessment of the length of the disqualification period, it does not suffice to satisfy me that Mr Vines has become a fit and proper person to manage a corporation. [118] The requirement of subsection s 1317EA(4) is rather odd because, if the court reaches a positive conclusion that the defendant is inherently and permanently not a fit and proper person to manage a corporation (not, of course, the present case), the only disqualification period that would be justifiable would be a period sufficiently long to prevent the defendant from ever managing corporations again. Yet the implication from subsection 1317EA(3)(a) is that some more limited period may be considered appropriate. It seems to me that the key to understanding subsection (4), in its context, lies in the words 'if it is satisfied'. The legislature permits the court, in the exercise of its discretion, to make a disqualification order if the court concludes that there is evidence of good work and contrition giving rise to a degree of probability that the contraventions will not be repeated, but that the evidence is not so strong as to remove from consideration the concern that arises from the nature and pattern of the contraventions. In the present case, balancing these considerations, I am not satisfied that Mr Vines is a fit and proper person to manage a corporation." 28 As noted in this Court's earlier judgment, the proceedings against Mr Vines were heard simultaneously with the proceedings against two other officers of GIO, Mr Robertson and Mr Fox. The Penalty Judgment deals separately with each of the defendants. His Honour's discussion at the outset of his judgment of the principles applicable to civil penalty proceedings was relevant to all three cases. His Honour then dealt with the evidence relating to each defendant separately. 29 In the case of Mr Vines, his Honour considered the case under a series of sub-headings as follows: · Mr Vines' circumstances and character evidence [69]-[87]. · The Court's finding against Mr Vines [88]-[93]. · ASIC's submissions in summary [94]-[96]. · Mr Vines' submissions, in summary [97]-[98]. · Assessing these considerations [99]-[113]. · Fit and proper person [114]-[118]. · Serious contraventions [119]. · Qualification of orders in the case of Mr Vines [120]-[131]. 30 Paragraph [113], which comes at the end of his Honour's assessment of the evidence and submissions, and immediately prior to the sections dealing with s1317EA(4), relevant to the fit and proper threshold, and s1317EA(5), relevant to a pecuniary penalty, was as follows: "[113] In summary, ASIC has made out its contention that the Court should exercise its discretion to make a disqualification order and a pecuniary penalty order against Mr Vines. For the reasons set out below, the Court is not precluded from making such orders by either s1317EA(4) or (5)." 31 I have characterised the fit and proper person test in s1317EA(4) as a threshold consideration. That does not mean that his Honour was obliged to address this question first when giving his reasons. There is considerable overlap between the facts and matters relevant to determining whether or not the Court should be satisfied of Mr Vines' fitness and those relevant to the determination of whether a disqualification order should be made. However, there are matters which are relevant to the s1317EA(3)(a) decision-making process which are not relevant to the s1317EA(4) decision-making process. The approach his Honour took when expressing his reasons did run the risk of blurring this distinction. 32 Parts of his Honour's reasons under the heading "Fit and Proper Person" in par [115], set out above, are clearly a reference back to his Honour's discussion of certain matters under the heading "Assessing these Considerations", in particular par [99] of the Penalty Judgment where his Honour said: "[99] Some of my findings point against the imposition of penalties, or at least large penalties: specifically my findings that Mr Vines did not act dishonestly or with impropriety, that he had no intention to deceive or consciousness of impropriety of others, and he did not receive any personal gain through his wrongful conduct. On the other hand, the contraventions include findings that he failed to discharge his duty of care and diligence by making incomplete or misleading disclosure in circumstances where the information to be disclosed was known to him. In respect of one contravention, I found that there had been a conscious decision not to disclose: see December judgment, at [98]. I found that the contraventions were not 11 separate, isolated incidents, but rather, they indicated a continuity and pattern of limited and incomplete disclosure which deprived the DDC and the board of the opportunity to make fully informed decisions on important matters. The contraventions were made the more serious because of the matters set out in [90]-[93] of my December judgment, relating to Mr Vines' role in GIO's system of corporate governance and in particular, his pivotal role in reporting to the DDC and the board with respect to the Pt B statement and profit forecast. Putting these considerations together, without more, I would tend to the conclusion that a disqualification order and a pecuniary penalty order were both warranted, but probably in the mid-range rather than at the high or low ends." 33 His Honour's reference in the third sentence of this paragraph to his Honour's earlier finding at par [98] of the Honesty Judgment (Australian Securities and Investments Commission v Vines 65 NSWLR 281; [2005] NSWSC 1349) was as follows: "[98] The findings amount to this: Mr Vines was aware, at the times of contravention, of certain matters; the specified matters were, in the circumstances that obtained at the times of contravention, material to the decisions that the board or its committee were to make; and those material matters were not disclosed. There were no findings that Mr Vines intended to deceive, and no express findings that he gave conscious consideration to whether particular material matters ought to be disclosed. However, as ASIC pointed out (written submissions at [91]-[92]), I accepted evidence given by Mr Vines which implied that there had been, on one occasion, a conscious decision not to disclose. His explanation of why his email dated 22 November 1998 made no mention of doubt about the efficacy of the American Re cover, and his evidence that his report to the DDC on 22 November 1998 would not have been different had he first read and considered Mr Schneider's fax, implied that he had made a decision at the time not to disclose doubts about the American Re agreement. More importantly and generally, in respect of all of the contraventions the findings imply that Mr Vines ought to have considered whether to disclose material information of which he was aware. And the findings show that in each case, he acted in a manner having the effect of excluding disclosure of material information although he was aware of it."

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The Fitness Submissions 34 The Appellant challenges his Honour's finding that he was not satisfied of Mr Vines' fitness, within s1317EA(4), on three grounds. 35 First, the Appellant submitted that his Honour's failure to be satisfied that the Appellant was a fit and proper person was said to be manifestly unreasonable in the light of the unchallenged evidence filed in support of Mr Vines' fitness and propriety. 36 Secondly, the Appellant submits that his Honour gave no reasons for his conclusion that the evidence was not sufficient to satisfy him that the Appellant had not become a fit and proper person to manage a corporation. 37 In substance, the first and second grounds on which the Appellant asserts a relevant error by Austin J, are closely related. The first submission was to the effect that the evidence of Mr Vines' fitness was such that it should have received determinative weight. The second proposition - that his Honour did not give sufficient reasons in this regard - is, in substance, a submission that his Honour did not explain, in terms, why this evidence was not entitled to determinative weight. 38 These submissions can also be characterised as a submission that his Honour failed to give sufficient weight to this body of evidence or, alternatively, that he gave excessive weight to the conduct reflected in the contraventions when determining the distinct question of whether, at the time of the hearing, Mr Vines was a fit and proper person to manage a corporation. 39 The third submission of the Appellant is that this Court should "revisit" the decision on fitness and propriety by reason of the fact that, in the Appellant's submission, the reasons of Austin J indicate that his Honour's decision in relevant respects was "influenced by the number and … the pattern of contraventions which he had found". As the appeal was upheld with respect to a number of contraventions, the Appellant submits that this Court should address the question of fitness and propriety and penalty afresh, whilst taking into account the findings of Austin J. This submission was directed both to the threshold issue under s1317EA(4) and to the distinct question as to whether or not the discretion to make an order of disqualification under s1317EA(3)(a) should be exercised. 40 The third ground can be characterised as a submission to the effect that his Honour took into account, when determining each remaining contravention, considerations which were irrelevant, namely the other contraventions which he had found to have been committed but which this Court has found not to have constituted contraventions. Taking into account an irrelevant consideration is a ground for intervention, both with respect to the process by which a court forms the judgment of 'satisfaction', within s1317EA(4), and the exercise of the discretion to make a disqualification order pursuant to s1317EA(3)(a). 41 If this Court determines to intervene on the basis of an error within House v The King, then the parties submitted that this Court should proceed to make the relevant determination and exercise the discretion afresh. 42 With respect to the challenge to his Honour's failure to find that he was satisfied about Mr Vines' fitness, within s1317EA(4), the Appellant gave particular emphasis to a number of his Honour's findings in favour of Mr Vines, especially his findings: "[99] … that Mr Vines did not act dishonestly or with impropriety, that he had no intention to deceive or consciousness of impropriety of others, and he did not receive any personal gain through his wrongful conduct." 43 In addition, reliance was placed on his Honour's findings at [102] that evidence of contrition on Mr Vines' part was "very strong" and that his Honour appeared to accept the assurance that Mr Vines "would have full regard to what the court has said in its judgments against him", if he were permitted to return to a management position. 44 Particular reliance was placed, in this regard, on the considerable body of evidence with respect to Mr Vines' employment as Chief Executive Officer of Reinsurance Australia Corporation Limited (ReAC), after he left GIO and the strong body of character evidence relating to this period and more generally, to which I will refer below. 45 In his submissions to this Court, the Appellant emphasised that this body of evidence established his skill and competence as a manager of ReAC as well as his honesty, integrity and moral and business leadership in that role. 46 As I have noted above, the third basis for the Appellant's submission that this Court should redetermine the issue of fitness and propriety under s1317EA(4), and re-exercise the discretion under s1317EA(3)(a), if necessary, was his Honour's reliance on his findings of contravention, including contraventions with respect to which this Court has allowed an appeal. Particular reliance was placed on the following passage in par [99] that: "I have found that the contraventions were not 11 separate, isolated incidents, but rather, they indicated a continuity and pattern of limited and incomplete disclosure which deprived the DDC and the Board of the opportunity to make fully informed decisions on important matters." 47 This sentence appears in the middle of a paragraph which is the first paragraph under the heading "Assessing these Considerations" in which his Honour listed a number of considerations pointing in each direction with respect to the making of a disqualification order and a pecuniary penalty order and where in the relevant range such orders should be. It did not appear in that part of his Honour's reasons concerned with s1317EA(4) but there is, as I will indicate, a reference back to this passage in the relevant part of his Honour's reasons. 48 As I noted above, the threshold test in s1317EA(4) of the Act no longer applies with respect to conduct after March 2000. It does, however, apply to the conduct in issue in the present case. In its submissions to this Court, ASIC referred to the judgment of Austin J, presumably by means of adopting his Honour's reasoning. It is, however, noteworthy that ASIC did not make any additional submissions with respect to s1317EA(4) as such, as distinct from the submissions directed to the making of, and period of, the disqualification order. 49 In this Court ASIC adopted its written submissions to Austin J. However, these submissions were also directed to the issues that arise under s1317EA(3)(a), i.e. whether a disqualification order should be made and, if so, for how long. The same was true of the written submissions on penalty originally made to this Court, where particular emphasis was given to the ASIC cross appeal seeking an increase in the period of disqualification. The same approach was adopted in the further submissions on penalty, filed after this Court's first decision. 50 ASIC has not made any substantive submissions, other than by means of adopting his Honour's reasons, on the distinct issue of whether Austin J erred in holding that he was not satisfied that Mr Vines was a fit and proper person, together with inferences implicit in its submissions on the disqualification order. 51 ASIC's submissions focused on the range of considerations relevant to determining whether a disqualification order should be made and, if so, for how long. It emphasised such matters as personal and general deterrence and retribution. These are not, in my opinion, relevant to the formulation of the judgment for which s1317EA(4) calls. Other matters which are pertinent to both stages of the decision-making process - such as the seriousness of the contraventions - were not separately addressed with the fit and proper threshold alone in mind. 52 Austin J did separately consider the legal elements of the distinct test in s1317EA(4) at [14]-[17], which do not need to be set out. However, the structure of the ASIC submissions, no doubt, explains why his Honour did not clearly distinguish between the matters pertinent to a finding under s1317EA(4) and the broader range of matters pertinent to determining whether the Court should make a disqualification order.

[34]

Was There Error? 53 The first thing to note is that the matter to which his Honour referred as a "conscious decision not to disclose", in par [99] of the Penalty Judgment, was the evidence Mr Vines gave with respect to his email of 22 November 1998, which this Court called the Third Contravention, discussed at [319]-[367] of that judgment. This was a contravention with respect to which this Court allowed the appeal. Reliance by his Honour on the deliberate nature of the decision not to disclose, is not a relevant consideration for purposes of the s1317EA(4) exercise. 54 The second matter to which attention should be directed is his Honour's reference to "incomplete or misleading disclosure of material information known to him", found in par [115] of his Honour's judgment where he expressly addresses s1317EA(4), referring back to his assessment of s1317EA(3)(a) at par [99] as quoted above. 55 Although a number of the contraventions which his Honour found can be described in such terms, it is not true of all of the contraventions. With respect to the contraventions of 8 December which this Court upheld, namely the Fourth and Fifth Contraventions, this Court referred both to Mr Vines' failure to advise the Due Diligence Committee (DDC) of the basis of, and assumptions underlying, the profit forecast, but gave particular emphasis to his failure to take positive steps to check the estimate. However, with respect to the Seventh Contravention the relevant acts were only those of omission, rather than anything which could answer the description of "incomplete or misleading disclosure of material information known to him". 56 The third matter which appears in par [115] relates to what his Honour described in the second sentence of that paragraph as "a continuity and pattern involving failure to discharge his duty of care and diligence". This concept is repeated in the second last sentence in the reference "the pattern that they reveal". These references relate back to the sentence found in [99] where his Honour stated: "I found that the contraventions were not eleven separate, isolated incidents, but rather, they indicated a continuity and pattern of limited and incomplete disclosure…". 57 The contraventions of 8 December, namely the Fourth and Fifth Contraventions upheld by this Court, together with the Sixth Contravention in which the appeal was allowed, albeit on a technical pleading issue, cannot be categorised as indicating anything in the nature of "continuity" or a "pattern". They were three separate acts occurring virtually back-to-back and represented a single course of conduct. 58 The post 8 December contravention involving, as this Court found, a failure to take positive steps to check relevant developments, may represent, in part, a continuation of the failure on 8 December itself but, in any event, cannot be characterised as part of a "pattern". In this regard it does appear that his Honour's reliance upon all of the contraventions which he had found, but some of which this Court rejected, does constitute the taking into account of irrelevant considerations when determining whether or not the Court was satisfied of Mr Vines' fitness and propriety for purposes of s1317EA(4). 59 Section 1317EA(4) requires, by the words "despite the contravention", the Court to have regard to the contravention as a relevant consideration. (See Minister for Aboriginal Affairs v Peko-Wallsend Limited (1986) 162 CLR 24 at 39.) Accordingly, to treat something as a contravention which was not, is to have regard to an irrelevant consideration. 60 The fourth aspect of his Honour's reasons relevant in this regard is that the contraventions which his Honour determined to have occurred appear to have been treated as creating some kind of presumption of an absence of fitness and propriety, which it was somehow necessary for Mr Vines to overcome. In par [115], as quoted above, his Honour referred to "competing considerations" and identified them as being "on the one hand" the contraventions which his Honour said "suggest that … Mr Vines may not be suitable" and accordingly 'suggest' that "the court should not be satisfied Mr Vines is a fit and proper person". His Honour then referred to the evidence adduced in Mr Vines' case as being evidence "on the other hand". This evidence he characterised at [116] as: "That whatever unsuitability there may have been at the time of the contraventions has subsequently been addressed". 61 The evidence in Mr Vines' case was not, as I will show below, limited to conduct occurring after the contravention. More significantly, however, the suggestion that the contraventions themselves created some kind of presumptive case against Mr Vines is not, in my opinion, the correct approach. That his Honour did approach s1317EA(4) in this way is further suggested by the last sentence of [116] where Austin J said "these matters might be taken to suggest that the ground for concern as to whether he is a fit and proper person, though arguably present up to the hearing, has now been removed". It also appears in his Honour's conclusion at [117] that the evidence does not suffice to satisfy me that Mr Vines has become a fit and proper person to manage a corporation". 62 The evidence of the contraventions was, of course, particularly important evidence to weigh in the balance as to whether or not Mr Vines was a "fit and proper person to manage a corporation". The words in s1317EA(4) - "despite the contravention" - require them to be taken into account. However, the contraventions, even serious contraventions, cannot be determinative of that proposition, nor even presumptive in this respect. His Honour does appear to have approached the decision under s1317EA(4) as if the contraventions, and their seriousness, created some kind of presumption. This, in my opinion, was in error. 63 The final basis upon which the Appellant challenges the formulation of the judgment under s1317EA(4) by Austin J, is that, in effect, his Honour did not give sufficient weight to the evidence of Mr Vines' fitness or gave excessive weight to the contraventions. This general proposition is supported by my analysis of the previous issue, namely the fact that his Honour appears to have given presumptive weight to the contraventions. 64 For reasons which will become clear below I would uphold this basis of challenge. In my opinion, Austin J was plainly wrong when he failed, on the evidence, to be satisfied that Mr Vines was a fit and proper person to manage a company. The evidence will be considered below when I come to redetermine the issue of fitness and propriety. I do not set it out at this point. The overwhelming weight of the evidence is such, in my opinion, to render the failure to be satisfied of Mr Vines' fitness "plainly unjust" within House v The King. 65 For the above reasons, in my opinion, Austin J committed errors which I have identified and, accordingly, it falls to this Court to redetermine the question of fitness. 66 Technically this Court should determine the question as at the present date but, as there was no additional evidence before the Court of the character that is often given in the course of a sentence appeal before a court of criminal appeal, as to events between the original sentencing and the date of re-sentencing, the position falls to be assessed on the basis on the evidence as it was before Austin J.

[35]

Redetermining Mr Vines' Fitness 67 As s1317EA(7) expressly states, the decision under s1317EA(4) with respect to a person's fitness "to manage a corporation", picks up the broad definition of management set out is s91A of the Corporations Law. This provides, relevantly, that the test to be applied when deciding whether a person "is a fit and proper person to manage a corporation" incorporates the whole definition of "management" which extends to being "in any way (whether directly or indirectly) concerned in or taking part in the management of a corporation". 68 This is a provision of extraordinary breadth. No doubt it is intended to have that full breadth so as to exclude a person from any direct or indirect influence on a company, whenever a court makes a disqualification order. The very breadth of the definition, however, makes the threshold in s1317EA(4), in the form that it existed before the amendments that came into force in 2000, a particularly high threshold. Fitness and propriety of a person for purposes of s1317EA(4) is to be assessed, not simply from the point of view of a person who continued to exercise the level of responsibility that that person had prior to the contraventions, but to any involvement of whatever character direct or indirect in 'management'. To establish that a person is fit and proper to play some role in management, does not appear to me to be a high hurdle. 69 In the submissions to this Court it was not suggested that his Honour erred in failing to apply the test at the appropriate high level for purposes of the threshold issue under s1317EA(4). Nevertheless, this Court must bear that consideration in mind when it comes to redetermine the issue. 70 In determining Mr Vines' fitness it is relevant to take into account the whole of his experience and his full range of qualifications. They are conveniently summarised in his Honour's Contraventions Judgment (Australian Securities Investments Commission v Vines (2005) 55 ACSR 617; [2005] NSWSC 738) as follows: "[26] Mr Vines was by profession and training a chartered accountant and auditor (T 2496-2498). He worked with Price Waterhouse from 1968 to 1995, beginning in the London office and becoming an audit partner in 1981. He specialised in banking and had a number of prominent banking clients, and was also auditor of GIO Australia Holdings. Importantly for present purposes, he was not a specialist auditor of general insurance businesses. In his capacity as auditor of GIO Australia Holdings he had frequent contact with Mr Robertson, whom he knew to be an actuary of longstanding experience, extensively involved in GIO's privatisation and listing in 1992. Mr Vines said he participated in discussions about technical issues with the actuaries but left it to the specialists to descend into the details (T 2516). He regarded Mr Robertson as an actuary with a very good understanding of the business and situation within GIO, who was highly regarded by GIO's board of directors (T 2517). He formed the view that reports received from Mr Robertson would be very well considered and soundly based (T 2517). [27] During his last five years at Price Waterhouse, Mr Vines was the managing partner for New South Wales, spending about three quarters of his time dealing with questions of management, and the remainder doing audit work. He had frequent contact with the chief financial officers of his audit clients, whose qualifications and training were generally in accounting. After his employment with GIO ended in 1999, Mr Vines became a senior executive officer with ReAC and became chief executive officer of that company in about May 2000, at a time when the company was not writing new business and had gone into run-off (T 2499). [28] Mr Vines commenced his employment at GIO in July 1995 (T 2499), under a written service agreement with a subsidiary in the GIO Group. The employment agreement described his position as chief financial officer (PTB 0001). At that time Bill Jocelyn was the group managing director (T 2500), and GIO Australia Holdings had been a listed public company for about three years. [29] Mr Vines said that, as chief financial officer, he had responsibility for the financial reporting of the Group. This entailed the consolidation of financial reports produced by the subsidiaries, and forming his own view about the financial soundness and integrity of the business, but not the production of the subsidiaries' reports (T 2501). He had responsibility for tax matters, and for capital management within the Group, including the allocation of capital to existing businesses and to prospective businesses. He was responsible for financial matters at the Group level in the context of reporting to the stock market and to the public. For various purposes (for example, in the course of the due diligence process described below) the Group's activities and subsidiaries were classified into four categories, namely GIO General (which included home and vehicle insurance and compulsory third-party insurance), GIO Insurance (corporate and reinsurance), financial services (including GIO Finance and GIO Building Society) and other activities (including the investment function, asset management, central costs and income tax). Mr Vines' financial responsibilities at the Group level extended to all of these categories ." 71 His Honour proceeded to refer to details of the development of Mr Vines' role at GIO, to which it is unnecessary to refer. In the Penalty Judgment at [36] his Honour referred to his finding in the Honesty Judgment at [103] that Mr Vines had "set about performing his additional responsibilities … with respect to the Part B Statement and profit forecast conscientiously and with some diligence". 72 In the affidavit filed for the purposes of the proceedings on penalty, Mr Vines provided additional detail to the effect that he was, as Managing Partner for New South Wales of Price Waterhouse (PWC), responsible for ensuring compliance with the firm's quality control standards with respect to 120 partners and 1200 staff. He had also served, for a period of four years on the Membership Committee of the Institute of Chartered Accountants which assessed the quality and suitability of applicants for membership. 73 Mr David Craig, who worked with Mr Vines at Price Waterhouse for a period of some 15 years, described him as: · "one of the 'stars' of PWC"; · "a very good strategic lateral thinker"; · "always asked the appropriate questions, analysed the situation in hand and made the appropriate commercial judgments. He is incredibly honest and would not hide things from senior management or lie to protect himself"; · "possesses academic intelligence as well as emotional intelligence and sensitivity. He also possesses the highest possible integrity in both his professional and personal life"; · he "would make an extraordinary company director as he possesses a rare combination of skills in that, he has technical financial skills, commercial acumen and a strategic outlook." 74 Like all of the deponents to whose evidence I will refer, Mr Craig's evidence was not challenged. 75 With respect to the weight to be given to the contraventions which this Court upheld in its earlier judgment, the reasons given by Austin J as to the significance of the contraventions was accepted by the majority of this Court, indeed, it was re-emphasised. (See Vines v ASIC [2007] NSWCA 75 esp at [412]-[413], [436]-[437], [440], [443]-[449], [451]-[458], [536]-[537], [539], [561], [563], [570], [572], [811]-[821], [837], [864]-[866], [874].) The contraventions are accordingly entitled to significant weight in formulating the judgment for which s1317EA(4) calls. 76 There are, however, a significant number of findings with respect to the contravening conduct that qualify the weight that the contraventions themselves should be given. These included findings in both the Honesty Judgment and the Penalty Judgment by Austin J as follows: · Mr Vines did not act dishonestly (Honesty Judgment [83]; Penalty Judgment [90] and [99]). · Mr Vines did not act with any intention to deceive (Honesty Judgment [83]; Penalty Judgment [90] and [99]). · He did not act with impropriety (Penalty Judgment [90] and [99]). · He was not aware of impropriety on the part of others (Penalty Judgment [90] and [99]). · Mr Vines' "previously unblemished record and contribution to ethical and professional standards in the accounting profession" (which Austin J took into account in terms of reducing the period of disqualification that would otherwise be appropriate in the Penalty Judgment at [123]). 77 As I have noted above, after his departure from the GIO and prior to the institution of proceedings against him, Mr Vines assumed the position of Chief Executive Officer of ReAC, a company involved in reinsurance. Eventually, as these proceedings continued, he felt obliged to resign from that position. Nevertheless, his conduct in that role was such as to allow him to display, in a directly relevant context, his fitness and propriety to manage a corporation, including a corporation engaged in the very activity in which GIO was engaged, namely reinsurance, to which the contraventions directly relate. 78 Evidence of such skill and propriety in the conduct of management of ReAC is relevant in formulating the judgment under s1317EA(4). The experience in ReAC, as Austin J clearly accepted, was particularly pertinent, perhaps unusually so, to the very conduct found to have contravened the duty of care and diligence in s232(4) of the Law. 79 His Honour summarised the evidence with respect to Mr Vines' employment at ReAC. (See esp at [71]-[75] and [80]-[84] of the Penalty Judgment, which it is not necessary to set out in full.) 80 ReAC was a company involved in reinsurance and required a significant turnaround in its financial position, which was achieved during the course of Mr Vines' occupation of the Chief Executive role after he left GIO. His Honour specifically referred to the evidence of the Senior Partner in KPMG's audit practice, and ReAC's auditor, that Mr Vines played a "pivotal role" in the company's turnaround (see at [72]). His Honour also indicated that this body of evidence was of significance because of the similarity between ReAC's reinsurance contracts and the contracts which were the subject of the present proceedings. 81 His Honour outlined the nature of Mr Vines' work after ReAC started to runoff its liabilities. His Honour found: "[73] … Mr Vines was frequently required to seek professional advice in Australia and overseas from actuaries, solvency experts, loss adjusters and lawyers, including advice in relation to commutation of claims and complex reinsurance litigation. This work appears to have been successful. During Mr Vines' tenure as chief executive, ReAC's capital base rose from a low of $35 million to $84 million and its insurance liabilities fell from $1.3 billion to approximately $40 million." 82 His Honour also made reference to the evidence, which included character evidence, in support of Mr Vines. That evidence was given by a number of persons who had dealings with Mr Vines at ReAC. His Honour referred to a number of deponents including Mr Richard Wilkinson, Director of KPMG Actuaries which was ReAC's approved actuary; Mr Richard Hill, the Chairman of ReAC; Mr Timothy Price, the partner of Phillips Fox who advised ReAC; Mr David White, a senior partner with McKenzie & Co, which undertook a review of ReAC; and Mr Lesley Phelps, a senior executive of the Australian Prudential Regulation Authority (APRA). 83 His Honour made the following findings in this regard: "[83] A strongly positive impression emerges from this evidence as to Mr Vines' sound character, honesty and integrity, and his high ethical and professional standards. All of the deponents adhered to their favourable views of his character notwithstanding the court's findings of contravention, and some gave evidence to the effect that they regard those findings as out of character for him. On the contrary, they stressed such things as his open and professional approach, his very good understanding of the business of reinsurance and his particular strength on the accounting aspects, his careful attention to detail, his consistency in dealing with people, his ability to ask the appropriate questions, his willingness to seek and accept legal advice, and the transparency of his management and work style. Some of them said Mr Vines is the type of person that would treat the court's findings against him very seriously and ensure that in future, in similar circumstances, all relevant information was conveyed to the board of directors. [84] Those who were involved with him at ReAC, when Mr Vines had responsibilities for keeping directors informed about complex insurance matters, mentioned the quality of the briefings and advice that he gave to the ReAC board. Mr Wilkinson said Mr Vines was 'at the top end of people in his position'. Mr Hill said the continuing question whether ReAC should continue to trade or be put into liquidation placed an enormous strain on Mr Vines as its chief executive, and he always handled that "with great countenance, and with very clear and considered advice to the Board". Mr Price said that many of the issues confronting ReAC were 'life-threatening' and often required decisions on complex issues to be made on an urgent basis, and yet in his assessment Mr Vines was no less cautious or diligent in his approach under those pressures. Mr White said that in 1999 ReAC was facing high risk exposures that were not well understood by the management team and the board; when he was appointed Mr Vines ensured that Mr White was given all the information he needed for the purposes of his diagnostic review, to which Mr Vines contributed with particular diligence. I was particularly impressed by the observations by Mr Phelps, from the perspective of ReAC's regulator. He found Mr Vines open and forthright, he had no reason to doubt Mr Vines' honesty or integrity or to believe that relevant information was being concealed, and he was impressed by Mr Vines' diligence and hard work which were reflected, he said, in ReAC's subsequent success as a profitable company." 84 When determining whether or not to make a disqualification order under s1317EA(3)(a) his Honour said: "[104] Another mitigating factor to which I have decided to give some weight is the impressive evidence of Mr Vines' achievements at ReAC. The delay in bringing this case to trial has meant, perhaps unusually, that evidence has become available concerning Mr Vines' activities in later executive employment. The evidence is strongly in his favour, both as to his honesty and his probity and his professional competence in a re insurance context." 85 Furthermore, when dealing with s1317EA(4) his Honour held: "[116] There is very strong evidence of Mr Vines' careful and effective work at ReAC …" 86 The evidence concerning Mr Vines' work at ReAC was given by a fellow executive, board members, accountants, solicitors and a regulator who came into contact with him during that period. The evidence is unanimous in praise for the skill, competence and integrity which he displayed during this period. None of the evidence was subject to any challenge. The evidence is summarised below. 87 Mr Phelps, the senior APRA officer dealing with ReAC, said: "Mr Vines was always open and forthright in his dealings with me and with APRA. He provided APRA with all relevant information regarding the financial position of ReAC. At no stage did I come to the view that any relevant information was being concealed from APRA by Mr Vines. Further, I had no reason to doubt Mr Vines' honesty or integrity. Overall I was impressed by Mr Vines' diligence and hard work. I observed that Mr Vines was in charge of managing a close knit team that was facing adversity. I believe that the fact that ReAC (now called Calliden Group Limited) is a profitable company is reflective of Mr Vines' diligence and management skills." 88 Mr Lowenstein, a director of ReAC and Chairman of its Audit Committee said: "In 2000, I was not an experienced person in the insurance industry. Mr Vines at all times took time and great care to explain to me all relevant facts and background to particular issues that had either arisen in the past, were currently arising, or potential issues, so that I could properly understand the issue at hand and make informed judgments. To the maximum extent that was required he also ensured that I had direct access to technical staff within the company at all levels, and also that they presented the affairs of the company in a detailed, but clear manner. Whenever I made requests for information Mr Vines promptly provided that information, such as draft legal opinions, draft actuarial reports, and other internal risk settlements. In fact, I found that often Mr Vines would provide me and other directors with detailed information before I even asked for it so that I could make properly informed decisions, with a special reference to matters relating to the company's exposure to film insurance liabilities, the key area of new claims that emerged following my appointment. From early on, Mr Vines developed a framework to assess the solvency position of ReAC based on a 5 point standard from super pessimistic to the super optimistic. The framework together with Mr Vines' clear analysis of the financial status enabled the board to make properly informed decisions on the available information as to the solvency of the company and the likely range of outcomes of the run-off. Mr Vines and I maintained an extremely close and harmonious working relationship for the entire period Mr Vines was at ReAC until his resignation in about July 2004. At all times I considered Mr Vines to be an esteemed colleague of mine whose technical financial skills and management expertise I highly respected. At all times I felt he approached his responsibilities with a highly ethical regard to the interests of policy holders and shareholders as well as the board and management staff. I must stress in particular the efforts he made to ensure that members of the board with initially limited understanding of the finer workings of the reinsurance industry, such as myself, understood the details and the context of the issues they were facing. I received excellent advice from Mr Vines on financial and general business issues, as well as both the tactics and strategy involved in the run-off. At all times I found it remarkable how he managed to remain calm and considered, despite the frequently stressful circumstances of the company. This had particular importance at the time I joined ReAC and subsequently, it would not have been surprising if morale had been low, as the staff had shrank from over one hundred employees to about fifteen at the completion of the run-off. I observed that Mr Vines, and his calm but supportive demeanour played a key role in maintaining the morale of the staff and that the staff had enormous respect for him." 89 Mr Lowenstein referred to the findings of Austin J and added: "Notwithstanding the findings, given my experience with Mr Vines, my positive view of his competence and integrity, and my confidence that he would take on board the criticisms of his conduct contained in the judgment, I remain of the view that he has all the ability to be a senior executive officer or a non-executive director and has valuable skills and experience to offer." 90 Mr Hill, the Chairman of ReAC, gave evidence to the same effect. He also said: "I have found Mr Vines to be honest and complete in bringing to my attention those matters which have required my attention. I have not had any occasion in the past three and a half years to reprimand or even caution him about any lack of care or diligence, notwithstanding that ReAC has experienced a large number of very difficult commercial situations over that period." 91 Mr Price said: "I consider Mr Vines to be highly intelligent, honest and a person of high professional integrity. I found him to be a very impressive senior manager and leader. Mr Vines displayed a very good understanding of the business of reinsurance generally and a particular strength on accounting aspects of the business (given his background in that profession). From my observations and my discussions with employees and directors of ReAC during the period I have referred to above, Mr Vines was very well respected by his management team and the directors. He displayed excellent personal skills in his dealings with his management team, the directors and with people outside the company. Mr Vines worked closely with his management team and external advisors to the company (including myself) on the issues confronting ReAC. He proactively analysed information, often challenged advice or recommendations made to him and formed his own views. In many of the meetings I attended with Mr Vines (including meetings of the board of ReAC) he took steps to ensure that all relevant information was considered and that different views were raised and debated. I do not recall any occasion where Mr Vines imposed his view in the absence of a process of the nature I have described above. I do not recall any occasion where I considered Mr Vines made a presentation or recommendation to the board of ReAC which did not involve disclosure to the board of all of the relevant factors relating to that recommendation. In my observation, he was proactive in ensuring that more rather than less information was provided and that alternative views and options were considered." 92 Mr Tobias, a solicitor at Phillips Fox said: "I regard Mr Vines with a great deal of respect. He is a professional Chief Executive Officer." 93 Mr Findlater, ReAC's auditor stated: "I have always found Mr Vines to be very open. I have no reason to doubt Mr Vines' openness, nor his integrity. Mr Vines has always been co-operative, accessible and available when issues have arisen. Mr Vines approaches matters in a balanced way and seeks out the views of others before coming to a decision. Mr Vines has been able to retain staff at ReAC and achieve objectives at ReAC in very difficult circumstances. Mr Vines has been shown to be very astute and commercially successful in retaining key staff at ReAC who would otherwise have considered leaving a company in run-off. Mr Vines identified that he had to create a good workplace with incentives for staff to stay at ReAC because otherwise many members of staff would have seen their career options as being shortened. Mr Vines has been instrumental in holding ReAC together by helping to focus on commuting critical cedant relationships, which if unsuccessful, could have led to ReAC's insolvency. Mr Vines prioritised, directed and supported his team well. Mr Vines' people management skills and delegation skills have been crucial in securing the successful outcome for ReAC. Whilst the final outcome of ReAC's run-off is still somewhat unknown, in my view it is likely to become a case study of how to manage an insurance company run-off. It would have been very easy to let the company go into liquidation. However Mr Vines has stuck at it in a very methodical way. I have a high regard for the way Mr Vines approached a very difficult situation at ReAC. In my experience many others would not have shown the same perseverance in a similar role. I have seen nothing in my extensive involvement with Mr Vines whilst at ReAC to suggest that Mr Vines is otherwise than careful and diligent in the discharge of his functions. Mr Vines always explains why he has a particular view, 'puts it on the table', and says what evidence he has to support that view. My discussions with Mr Vines have always been full and frank. My experience with Mr Vines would be totally contrary to any allegation that Mr Vines would not take due care and diligence in his work. Mr Vines goes out of his way to look at matters in a considered way and gets outside advice when necessary. His reporting of issues to ReAC's Audit Committee and Board has been of consistently high quality." 94 Mr Richard Wilkinson, Chairman of KPMG's worldwide Insurance Actuarial Practice said: "In my experience Mr Vines is very professional. He is very open, co-operative and willing to be challenged. Mr Vines understands the issues very well and thinks very clearly. I have also observed Mr Vines in his dealings with other employees of ReAC. Mr Vines is prepared to challenge his underwriters and claims people in a constructive way to achieve what I would regard was a sensible outcome. Mr Vines has always been willing to get further information including seeking legal advice to held clarify the issues concerning the most appropriate level of reserves to be carried. Mr Vines is a very good businessman trying, to my observation, to do the best for his shareholders, I have observed this particularly at Board and Audit committee meetings. Mr Vines would be at the top end of people in his position. Mr Vines and ReAC are one of the most professional reinsurance operations in Australia with regard to managing the run off of their claims liabilities. They have done the best job I have seen in this market in running off a reinsurance company by far. To describe Mr Vines as someone who would not exercise due care and diligence does not reflect the person I know. Mr Vines is always very careful and when challenged comes back to me with a proper professional response. I have always found Mr Vines to be very efficient. Mr Vines is always very prompt and ensures I get an answer to my questions either through his staff or his own knowledge of the market or by getting legal advice. Mr Vines works to benefit the business generally." 95 Mr White said: "As Chief Executive Officer of ReAC, Mr Vines was at pains to ensure, by way of a detailed review into the insurance industry, that the Board was fully aware about the options available to ReAC, in order that the Board could exercise an informed judgment about ReAC's future. Mr Vines was intimately involved in the work and my review was presented to the Board in 14 November 2002 by way of a workshop, which went for half a day. Generally, these presentations are done as high-level summaries of the analysis, options and recommendation. In this case, however, I recall that Mr Vines requested that the Board members were provided with all relevant supporting documents and analysis referred to in the review. The supporting documents alone, comprised about two folders of detailed information. Mr Vines was adamant that future strategy was a Board decision and that it was imperative that they be fully informed." 96 Mr Vines' two senior colleagues at ReAC, Messrs Williams and Moyes, gave evidence based upon their close observation of Mr Vines. 97 Mr Williams concluded: "One of Mr Vines' great attributes is his absolute consistency. I observed that he was consistent with everyone and every situation with whom he had contact. Mr Vines was open, direct, and honest with staff, legal advisers, external auditors, external actuaries, regulators and the members of the Board. Mr Vines has enormous integrity. I would stake my own reputation on his. Mr Vines is one of the best managers for whom I have worked and I expect, will ever for again. I hold these views notwithstanding the findings of the Court in the present case. They are based on my daily contact with him in a difficult and complex commercial environment over almost four years subsequent to the events the subject of the findings of contravention." 98 Mr Moyes concluded: "My opinion of Mr Vines is that he is a totally professional businessman. Mr Vines' background in accounting and auditing are clearly evident, he has an almost intuitive grasp of the financial data. He is both a good leader and strategic thinker. Mr Vines manages people very well due to the fact that he commands their respect and admiration. In a personal sense I like and admire Mr Vines very much. He has always treated me with respect and is one of the kindest persons I have ever worked for. I trust Mr Vines totally. I consider my time working with Mr Vines as being the most productive and fulfilling of my career, and I consider it a privilege to have had the experience of working with him." 99 This is a singularly impressive body of positive evidence about Mr Vines' skill and integrity. It was not challenged. It is entitled to substantial weight. Indeed, the only evidence to the contrary is the contraventions which this Court has upheld. 100 Taking all of these matters into account, and giving due weight to the seriousness of the contraventions, I am satisfied that Mr Vines was, and is, a fit and proper person to manage a corporation. 101 I come to that conclusion having in mind the kind of senior management roles that he has previously undertaken. The conclusion is even clearer if I were to apply the full breadth of the definition of "managing" a corporation found in s91A, referred to above. 102 It cannot be said that Mr Vines was unfit to play any role, whether direct or indirect, in the "management" of a corporation. He clearly has a wide range of skills that could be deployed. In the absence of a finding of a high order of negligence or some kind of finding of impropriety, it is difficult to see how a person of such qualifications would not be fit to perform some role in management. However, I repeat, my actual finding of fitness and propriety goes well beyond this narrow basis for decision.

[36]

The Seriousness of the Contravention 103 Section 1317EA(5) establishes a threshold before a court may make an order for a pecuniary penalty arising from contravention of a civil penalty provision. The Court must be satisfied that "the contravention is a serious one". In my opinion, no relevant error on the part of Austin J has been established in this respect. Indeed, in my opinion, his Honour was clearly correct. 104 In the Penalty Judgment, as in his Liability Judgment and Honesty Judgment, Austin J made a number of references to the seriousness of the contraventions. With respect to s1317EA(5) his Honour's findings in the Penalty Judgment were: "[119] As previously indicated, the court is not to make an order imposing a pecuniary penalty unless it is satisfied that the contravention is a serious one (s 1317EA(5)). In the present case it seems to me that Mr Vines' contraventions, individually and taken together, are serious. The contraventions other than item (7) in my summary are serious for the reasons I first gave in my December judgment at [89] and [90]-[93], which are set out above. Item (7) is serious because it also relates to the need for senior management to take care to provide the board of directors with material information necessary for them to discharge their duties. In respect of item (7), Mr Vines' duty was to take care to ensure that monitoring arrangements were operating at the divisional level so that information was identified, as it arose, that might need to be disclosed to the market, so that the parent company and its directors could discharge their obligations under the continuous disclosure requirements of the stock exchange listing rules and the Corporations Law." 105 I agree generally with the analysis by Ipp JA of the principles applicable when determining the seriousness of each contravention for purposes of s1317EA(5). For purposes of the present case it is unnecessary to state definitively that conduct which constitutes a contravention of the statutory standard of care and diligence and which may be characterised as involving an element of deliberation, intention or impropriety is never relevant to the determination of whether a contravention of s232(4) was "serious" for purposes of s1317EA(5). There will be circumstances in which matters of this character overlap. However, no such issue arises in the present case. 106 As indicated by my reference to the High Court judgment in Pearce above, the law of sentencing for criminal offences is an appropriate source of principles applicable by analogy to the determination of the matters which arise in civil penalty proceedings. 107 As Ipp JA notes, s232 of the Corporations Law contains a number of duties, also generally derived from the common law, including a duty to act honestly and not to make improper use of information or of position. Furthermore, s1317FA of the Law establishes that a person who contravenes a civil penalty provision is guilty of an offence, if the contravention is done knowingly, intentionally or recklessly and either dishonestly or with intent to deceive or defraud. 108 In such a context the principle of sentencing law identified by the High Court in The Queen v De Simoni (1981) 147 CLR 383 appears to me to be applicable by analogy. As Gibbs CJ said at 387: " … The general principle that the sentence imposed on an offender should take account of all the circumstances of the offence is subject to a more fundamental and important principle, that no-one should be punished for an offence for which he has not been convicted." 109 Nevertheless, by reason of the factual findings made by Austin J no such issue arises in the present context. 110 I add one further observation to the analysis of Ipp JA distinguishing the concept of compensation from punishment and concluding that the degree of negligence must be higher when determining to impose a pecuniary penalty than that which could justify the award of compensation. The distinction between punishment and compensation is emphasised by the express exclusion in s1317EA(6) of the power to make an order by way of a pecuniary penalty if a court has already awarded exemplary damages with respect to the conduct constituting the contravention. 111 I agree with the analysis of the seriousness of the contraventions for purposes of s1317EA(5) in the judgment of Austin J to which I have referred. Furthermore, at par [75] above, I have listed the paragraphs from the judgments of myself and Ipp JA which identify facts and matters relevant to an assessment of the seriousness of the offence. It is unnecessary to repeat those paragraphs in full. 112 In the context of determining whether the defences under s1317JA(2) and s1318(1) were made out, the seriousness of the contravention was clearly one of the "circumstances of the case" necessary to be taken into account when determining whether a person "ought fairly to be excused" for the conduct. The express reference to "serious" in s1317EA(5) is conceptually distinct. However, the facts and matters which have to be considered, and the judgments which have to be made, in the two respects do not materially differ. 113 Santow JA sets out the evidence with respect to what it was that other members of the DDC knew. I do not believe that this consideration is, in the circumstances, entitled to significant, let alone determinative, weight. 114 At pars [456]-[459] of my earlier judgment I outlined why it was that the scope and nature of Mr Vines' responsibilities were such that the directors of the company were entitled to a properly formed judgment by Mr Vines with respect to the matters for which he had to take personal responsibility, particularly in the context of the Management Sign Off upon which the auditors and directors would rely for purposes of performing their responsibilities. See also the analysis of Ipp JA at [837], with which I agreed at [539]. 115 Similarly, I reiterate my conclusion at [563] that it was not sufficient for Mr Vines to act on the assumption that he had been given the most up-to-date information, relevantly with respect to the exposure to Hurricane Georges, because he had not put in place reporting arrangements that ensured that he had. See also the analysis of Ipp JA at [864]-[866], with which I agreed at [539]. 116 In the present case, the consequences of the contraventions set out by Ipp JA in the first judgment at [811]-[821], with which I agreed at [539], were of a high order. As I concluded at [561], the contraventions were of "a high level of significance". 117 Like Ipp JA, I respectfully disagree with Santow JA's view that the Appellant's conduct involved merely an error of judgment or inadvertence. If I had been satisfied that that was the case then I would have concluded that the defences under s1317JA and/or s1318 had been made out. 118 Finally, as I indicated at [571]-[573], this Court should not accept conduct by senior executives designed, as Mr Vines admitted, to "protect" a profit forecast previously determined. 119 The appeal from Austin J's conclusion that the s1317EA(5) threshold was made out should be dismissed. 120 Austin J referred to the range of considerations pertinent to the decision to impose a pecuniary penalty set out by Santow J in Re HIH Insurance; ASIC v Adler (2002) 42 ACSR 80 at [126]. His Honour correctly applied those principles and no reason has been advanced for intervening with his exercise of the discretion in this respect. His Honour was entitled to give, as he did, significant weight to general deterrence. 121 As noted above, His Honour imposed a pecuniary penalty of $100,000 for, on his analysis, eleven contraventions, being the number of declarations of contravention. This Court has rejected the appeal with respect to six of those contraventions i.e. about half. Consistently with his Honour's analysis, this Court should reduce the penalty to $50,000, being just under $10,000 for each contravention (computed, as his Honour did, in terms of the number of declarations). 122 Unlike the position with respect to the period of disqualification, there was no cross appeal with respect to the size of the pecuniary penalty. Indeed, Austin J imposed a total penalty in the amount for which ASIC contended before him. 123 Neither in its submissions in this Court, nor before Austin J, did the Respondent explicitly address the necessity to impose a penalty with respect to each contravention. Nevertheless, it submitted that this Court should retain the total penalty of $100,000, despite the fact that this Court allowed the appeal in a number of respects. No reasons were advanced for this course. To do so would be, in the absence of a cross appeal, to overturn the basis of his Honour's reasons in so far as he, correctly, approached the task by treating each contravention separately. This submission should be rejected. 124 For the reasons set out above, it is appropriate to approach the matter on the basis that his Honour awarded $10,000 with respect to each of six declarations but, by application of a principle analogous of that of totality, slightly reduced each amount. In the event his Honour made two declarations with respect to what I have called the Fourth Contravention, three declarations with respect to the Fifth Contravention and one declaration with respect to the Sixth Contravention. Setting aside the need to adjust the figures downwards below $10,000, for ease of expression in the current judgment, his Honour's judgment, in effect, imposes a pecuniary penalty of $20,000 for the Fourth Contravention, $30,000 for the Fifth Contravention and $10,000 for the Seventh Contravention. 125 In my opinion, these amounts are not excessive. Indeed, after taking into account mitigating considerations, especially those summarised at par [76] above, I regard them as low. However, in the absence of any cross-appeal with respect to the pecuniary penalties imposed by his Honour, it is not appropriate to increase the amount his Honour imposed in each respect.

[39]

5 The Respondent/Cross-Appellant pay the Appellant's/Cross-Respondent's costs of the Appeal from the Penalty Judgment and of the Cross Appeal. 128 SANTOW JA: INTRODUCTION Section 232(4) of the Corporations Law lays down the statutory standard of care and diligence and implicitly, skill, in the following terms: "(4) In the exercise of his or her powers and the discharge of his or her duties, an officer of a corporation must exercise the degree of care and diligence that a reasonable person in a like position in a corporation would exercise in the corporation's circumstances." 129 In Vines v Australian Securities and Investments Commission [2007] NSWCA 75 (the "appeal judgment"), the result was: (a) to dismiss the appeals (by majority, myself dissenting) with respect to contraventions of s232(4) of the Corporations Law referred to collectively as the Fourth, Fifth and Seventh Contraventions and as specified in the six declarations of contravention associated therewith; and (b) to uphold the appeals (unanimously) as to the balance (namely the First, Second, Third and Sixth Contraventions) and as specified in the declarations of contravention associated therewith. 130 The declarations were in each case made pursuant to s1317EA(2) of the Corporations Law which provides as follows: "(2) The Court is to declare that the person has, by a specified act or omission, contravened that provision in relation to a specified corporation, but need not so declare if such a declaration is already in force under Division 4." 131 Out of the six declarations upheld (being the declarations numbered 1 to 5 and 7) the first two declarations correspond to the Fourth Contravention upheld. The next three declarations correspond to the Fifth Contravention upheld. The seventh declaration corresponds to the Seventh Contravention upheld. 132 In result, three out of the seven contraventions so described survive appeal (the Fourth, Fifth and Seventh Contraventions), as did six out of the 11 associated declarations. 133 This Court has now to deal with penalty, in what I shall refer to as the penalty judgment. The Chief Justice observes in his judgment, which I have had the advantage of reading in draft, as also that of Ipp JA, that: (a) of the 11 declarations made a number overlap in relation to the act or inaction specified in those declarations, or in ancillary conduct (at [14]); (b) the contraventions in relation to the events of 8 December 1998 (Fourth, Fifth and Sixth Contraventions and associated declarations) (i) " were three separate acts occurring virtually back to back and represented a single course of conduct ", and (ii) did not indicate anything in the nature of "continuity" or a "pattern" of incomplete or misleading disclosure (see penalty judgment at [54] to [57]); (c) the Seventh Contravention and the associated declaration may represent, in part, a continuation of the failure on 8 December 1998 itself but, in any event, cannot be characterised as part of a " pattern " (at [58]). 134 I respectfully agree with these observations. I consider that they have an important bearing on whether the contraventions were serious for the purposes of the threshold requirement under s1317EA(5) for imposing a pecuniary penalty and, if that threshold was satisfied, for the quantum of any such penalty. Section 1317EA(5) provides: "(5) The Court is not to make an order under paragraph 3(b) unless it is satisfied that the contravention is a serious one." 135 In the appeal judgment I determined that if I were wrong in concluding that no contraventions occurred, Mr Vines ought fairly to be excused from those held to occur, namely the Fourth, Fifth and Seventh Contraventions with their associated declarations of contravention. The majority concluded that Mr Vines ought not to be so excused. Though not resiling from my earlier views, my remarks on pecuniary penalty necessarily proceed on the basis of that majority conclusion, and also accept that the contraventions found represent now the judgment of the Court. 136 It is not uncommon in judgments of this kind for a minority judge to deal with the consequences, here penalty, which that judge considers should follow from what has become the judgment of the Court. This I have set out to do, accepting the essential basis of the majority judgments for this purpose only. 137 In considering penalty, it accords with both the trial judge's conclusions and with the unanimous view expressed in the appeal judgment, repeated by the Chief Justice in his penalty judgment (at [76]), that breaches by Mr Vines of s232(4) of the Corporations Law: (a) involved no dishonesty or impropriety on the part of Mr Vines nor gave rise to any personal gain on his part; and (b) did not involve Mr Vines acting with any intention to deceive (relevantly here the due diligence committee or DDC) or with awareness of the impropriety of others. 138 The Chief Justice in his penalty judgment also accepted Mr Vines' previously unblemished record, his subsequent commercial contribution and his contrition. 139 Those factors and the highly favourable view of Mr Vines' managerial competence attested to by those who knew Mr Vines in that capacity, formed an essential basis for the Chief Justice's conclusion in his penalty judgment that Mr Vines should not be disqualified from management of corporations, itself widely defined by statute. These factors bear both on the seriousness under s1317EA(5) of each contravention and the quantum of any penalty. 140 The majority judgments conclude that the contraventions found occurred in a context where they possessed a high level of significance and were rendered serious by reason of their detrimental consequences, actual and potential for shareholders of GIO, for GIO itself, and for an informed market. However whether, accepting that context, those consequences sufficed to render each contravention the subject of individual declaration "a serious one" for the distinct purpose of s1317EA(5) is a separate question. It is not foreclosed by judging that significance and consequential seriousness for purposes of determining whether the relevant acts or omissions constituted breaches of s232(4) of the Corporations Law. There matters of degree bear upon the statutory standard of care and diligence but that degree is not affected by being subject to the sanction of a civil penalty regime; see Spigelman CJ in the appeal judgment at [142] to [152] (agreed unanimously by Ipp JA and myself). I also agree with the observations of the Chief Justice in his penalty judgment at [110], where his Honour draws on s1317EA(6) as emphasising the distinction between compensation and the concept of punishment by civil penalty. 141 I respectfully agree with Spigelman CJ in his penalty judgment that, for the reasons his Honour states, the discretion exercised by Austin J in his Penalty Judgment must be re-exercised and the underlying evaluative judgment reconsidered. This is in relation both to Mr Vines' disqualification and the pecuniary penalty imposed. I agree with the Chief Justice's conclusion that, in conformity with s1317EA(4) of the Corporations Law and taking proper account of the fact that none of the contraventions ultimately upheld indicate any intention to deceive or any pattern of behaviour of non-disclosure, the Court should not have made an order prohibiting Mr Vines from managing a corporation. Like the Chief Justice, I would be of that view, whether the wide statutory definition of "management" of a corporation were to be read so as to preclude a disqualification order if Mr Vines were fit to play merely some role in management, or if the preclusion required that he be fit to play all roles in management. 142 The Chief Justice would substitute a pecuniary penalty of $50,000. His Honour concludes as to the threshold requirement that the contraventions were serious ones satisfying s1317EA(5) thus permitting a pecuniary penalty to be imposed. Accepting the premises of the majority judgments for this purpose, I state my own views later on both the question of whether the threshold "seriousness" requirement of s1317EA(5) was satisfied and on the quantum of any pecuniary penalty.

[55]

Question 1: Seriousness of Contravention 148 I turn first to question 1, concerning seriousness of the contravention, beginning with the anterior question whether seriousness must be assessed solely by reference to each contravention individually declared under s1317EA(2). 149 It is clear from s1317EA(2) that the declaration it mandates presupposes that the Court must be satisfied under s1317EA(1) that a person has contravened a civil penalty provision. The Court must then declare that the person has "by a specified act or omission" contravened the relevant civil penalty provision (s232(4) in the present case). The focus remains on the individual contravention with its specified act or omission. The act or omission the subject of a particular declaration may, as here, encompass a series of related acts or omissions comprising a course of conduct which in its totality brings about the relevant contravention. 150 The trial judge made two declarations of a substantially overlapping character concerning what is collectively called the Fourth Contravention. The trial judge did the same with the Fifth Contravention where the trial judge made three further declarations. Declarations 1 to 5 overlap with each other and Declaration 7. For purpose of assessing seriousness under s1317EA(5), I consider that each contravention declared must be considered individually and without reference to any other contravention declared. So much follows from the language of s1317EA(5). This requirement for individual consideration should not be affected by the fact that each declaration save the last relates directly to Mr Vines' acts or omissions in relation to the events of 8 December 1998. Nor should it be affected by the fact that the contravention the subject of each declaration is of the same statutory provision, namely s232(4) of the Corporations Law. 151 Nor do I consider that this conclusion is in any way altered by the fact that, if the threshold requirement of seriousness is passed, any pecuniary penalty is determined by reference first to each contravention on an individual basis, and then by reference to matters of cumulation, concurrence and totality under what I call "the totality principle". That approach operates at the later penalty-setting stage once the threshold requirement is passed. It derives by analogy from the criminal justice context; Pearce v the Queen (1998) 194 CLR 610 at [45]-[46] and see the penalty judgment of the Chief Justice at [19]. 152 ASIC in its written submissions of 26 April 2007 conveniently summarises the basis for the Chief Justice and Ipp JA (with whom Spigelman CJ agreed) concluding in the appeal judgment that the contraventions were serious and of a high level of significance, each doing so in the context of determining whether there was any breach at all: "19. In the context of dismissing the appeal brought from Austin J's rejection of the appellant's claim for relief from liability under section 1317JA and section 1318 of the Corporations Law , Spigelman CJ upheld Austin J's finding that the contraventions were serious, and also held that the contraventions were of a high level of significance [appeal judgment [561]]. They were serious and of a high level of significance because the context in which the contraventions occurred was the defence of a hostile takeover bid. According to his Honour, the obligation upon directors with respect to the making of profit forecasts, particularly in that context, are of considerable significance for a fully informed market, and the Board in the present case depended to a substantial degree upon the performance by the appellant of the responsibilities it conferred upon him for the preparation of the forecast [appeal judgment [562]].

[57]

In his judgment Ipp JA (with whom Spigelman CJ agreed) concluded that the foreseeable risks of harm to the company, should its profit forecasts be wrong and misleading, were grave; [appeal judgment [817]] that the appellant had the central executive role in the due diligence process relating to the Part B statement in general and the profit forecast in particular; [appeal judgment [837]] that the fundamental importance of the profit forecast in the context of the Part B statement was fully understood by the appellant, yet the profit forecast, at least on 8 December 1998, was based to a significant degree on material that was not substantiated or verified as at that date; and that the appellant should have ensured that no decision as to the publication of the profit forecast would be taken without regard to the most recent information available [appeal judgment [864]]." 153 In the penalty judgment, the Chief Justice adopts this analysis, and that of Ipp JA, for purposes also of s1317EA(5). The Chief Justice concludes that each breach was serious for that distinct purpose of s1317EA(5), whether viewed individually or collectively. I consider the question of seriousness in the context of s1317EA(5) to be a distinct question from the question whether the relevant acts and omissions give rise to breach by reason of the significant context in which they occur. The answer may, though not necessarily, be the same in both questions. I am thus able to adopt what is said in the appeal judgment by the majority and yet, as I do, reach a different conclusion as to the application of s1317EA(5). 154 What these holdings in the two judgments confirm is that the contraventions found were of a high level of significance, by reason of their detrimental consequences both actual and potential. Those consequences primarily affected shareholders of GIO in deciding whether or not to sell in a contested takeover of GIO. They applied particularly to the 43% of GIO's shareholders who did not accept GIO's takeover and who might otherwise have done so, assuming the takeover was not withdrawn or reduced. Clearly the 57% who accepted were not adversely affected. But potentially they might have been adversely affected if they had retained their shares based on the overstated profit forecast instead of selling into the takeover offer. 155 Moreover the market was not properly informed by reason of the profit forecast being overstated, given the true position of loss from Hurricane Georges. AMP too could plausibly say that it was adversely affected, in that it could reasonably submit that it overpaid for 57% of GIO based on an inflated profit forecast. There is however no direct evidence of that. But as a participant in the stock market for GIO's shares, AMP had an interest in that market being properly informed as to GIO's prospects. 156 GIO itself was at potential risk, though it appears never prosecuted, of breaching statutory requirements; for example s670A(2) of the Corporations Law requiring reasonable grounds for making a forward-looking statement and s1001A imposing upon listed entities continuous disclosure requirements (trial judge's reasons at [1182]). 157 In determining breach, the central role exercised by Mr Vines was recognised in relation to the Part B Statement, and in particular his responsibility in relation to the verification process for the profit forecast, where he co-ordinated the work of the due diligence committee or "DDC". 158 So much can be accepted. But the question in relation to s1317EA(5) of whether a contravention is serious is not to be determined simply by reference to its consequences. The breaches here are not analogous to the kind of breaches defined in terms of consequence, such as "dangerous driving causing death" or the civil equivalent. The statutory standard of care and diligence gives rise rather to a "non-result" offence. Detriment is not an essential ingredient for breach of s232(4), though commonly found. 159 Further guidance is to be found in the fact that the contravention does not here give rise to a criminal sanction; rather it imposes a civil penalty. The range of penalties includes disqualification and recovery of civil loss. The statute contemplates that any further sanction beyond disqualification and recovery of loss is to be reserved for the contravention which "is a serious one". The statutory focus is not on whether there was a contravention, but whether it rose to the level of being a serious one, so as to be amenable to a pecuniary penalty, over and above the other sanctions already provided, being principally disqualification, though also encompassing a compensation order under s1317H. 160 None of the contraventions as found carry the opprobrium of dishonesty, or of deliberate non-disclosure intended to mislead. Rather they were inadvertent and made in course of an intensive due diligence process. That much is common ground in all the judgments on penalty. Whatever else may be said of the significance of Mr Vines' errors of judgment, it could not be said that he was lacking in application, or was insufficiently concerned at the onerous responsibilities placed on him, when working under intense pressure and with very tight deadlines. 161 Failure to take personally what the majority judgments conclude was a necessary step in verification of the loss from Hurricane Georges and inadvertent failure to bring matters specifically to the attention of the DDC, though they were aware of those matters, may at one level be viewed as a lack of diligence. But given that both stemmed from errors of judgment committed by an exceptionally overworked chief financial officer, it is more appropriate to view these shortcomings as indicating a shortfall in skill, rather than a conventional lack of diligence. A minimum degree of skill is an implicit requirement of the statutory standard. However, its absence does not ordinarily carry such moral opprobrium as to connote a serious breach for civil penalty purposes, unless the lack of skill be gross. 162 Some limited guidance can be found in authorities on the expression "serious misconduct" or "serious and wilful misconduct". Johnson v Marshall Sons & Co Limited [1906] AC 409 was a case concerning whether the deceased was owed compensation by his employer under the Workers Compensation Act or was disqualified by reason of his own "serious misconduct". Lord James observed (at 414) "that serious misconduct cannot be construed by the consequences of any act. A man may be told not to walk on the grass. He does so, slips up and breaks his leg. The consequences are serious, but the misconduct is not so". There however, the consequences were essentially for the person who slipped. 163 More relevant is the observation of Lord Loreburn LC at 411-12L "Further, the Act says it [the misconduct] must be 'serious' meaning not that the actual consequences were serious, but that the misconduct itself was so". 164 Likewise relevant is the observation of Lord James at 412-3 who emphasised that serious misconduct would be made out if one acted with absolute disregard of the lives and safety of many: "Now it is impossible to give any general definition of the words 'serious and wilful misconduct'; application of them must be made to each case as it arises. But the use of the word 'serious' shews that misconduct alone will not suffice to deprive the workman of compensation. The class of misconduct that would do so might well be represented by such instances as if a workman, whilst working in a mine on certain seams of coal, struck a match and lit his pipe, or if he walked into a gunpowder factory with nailed boots, refusing to use the list slippers provided for him. Of course, these are but instances illustrating conditions of absolute disregard of the lives and safety of many." 165 In Boral Resources (Queensland) Pty Ltd v Pyke (1989) 93 ALR 89, the Court was dealing with recovery by an employee who had been injured while drink-driving. Recovery was sought against his employer, under a contract of insurance. That invoked s66 of the Insurance Contracts Act 1984 (Cth) where sub-para (b) qualifies the right of recovery in these terms: "the conduct of the employee that gave rise to the loss occurred in the course of or arose out of the employment as was not serious or wilful misconduct. " [emphasis added] 166 Thomas J declined (at 97) to purport to paraphrase or explain the term "serious misconduct" considering it a classical jury question. However, consistent with that he invoked what he called "a wider community viewpoint" whereby the conduct (the drink-driving) was conduct which he said was "seriously regarded". 167 Derrington J observed (at 105) that "serious misconduct" is judged on an objective level, not a subjective one. 168 Ambrose J (at 115) observed that whether misconduct is serious needed to be judged by reference, in an employee context, to whether it was expressly prohibited so as to warrant instant dismissal. 169 Here too the breaches arise in an employee context but with a range of potential sanctions much wider than instant dismissal. 170 That brings me to consider individually each specific contravention in each declaration.

[58]

The Declarations 171 The first declaration starts with the management sign-off described by the trial judge in these terms: "[925] Mr Vines completed a 'Management Sign-Off', dated 8 December 1998. His document certified to a review of the due diligence questionnaires completed by all senior management, as well as the statement of issues identified in responses to those questionnaires. He said that to the best of his knowledge, information and belief the answers given to those questionnaires were true and correct 'in respect of that part of the GIO Group business and affairs for which [he had] responsibility'. There was no definition of the part of the business for which Mr Vines had responsibility. I take it, however, that his area of responsibility was a large one, because his certification related to the answers to the questionnaires given by all senior management, and he was, under the planning memorandum, in a position of central responsibility, as I have explained. As in the case of the documents signed by Mr Robertson and Mr Fox, Mr Vines' document certified that he had drawn the attention of the DDC to any other material matters occurring since 1 July 1998, and said he was not aware of anything which he had not drawn to the attention of the DDC." 172 The key elements of that declared contravention in the context of the management sign-off were: (a) Mr Vines' failure to ensure the DDC was properly informed of all material aspects of the maintenance of the reinsurance profit forecast in the course of giving his management sign-off; and (b) Mr Vines' failure to inform the DDC that achievement of the $80 million forecast was improbable. 173 In terms of the majority judgments, on appeal, I must accept for present purposes that Mr Vines was not exonerated from breach were it established that, to Mr Vines' knowledge the DDC were aware of: (a) the effective unavailability of the Am Re retrocession agreement to maintain the profit forecast by reason of it being unacceptable to the auditors; and (b) the consequence that the profit forecast essentially depended on the unders and overs analysis and the loss from Hurricane Georges estimated at $60 million to $65 million in a context where the forecast position was now tight. I shall refer to these as "the three matters". 174 The primary evidence in the form of DDC's own minutes and other material makes clear that: (i) the DDC must have been aware of the three matters encapsulated in (a) and (b) above; and (ii) that Mr Vines, who was present at the two critical DDC meetings (6 and 8 December 1998) knew the DDC were so aware. 175 Thus: (a) Mr McClintock's evidence from PwC, accepted by the trial judge, at [833] was that one of the PwC representatives said at the DDC meeting of 6 December 1998 " in words of one syllable " that " we wouldn't accept it [the Am Re Agreement] from the point of view of being reinsurance "; see T, 1628 evidence of Mr McClintock accepted by the trial judge; (b) The minutes of the DDC of 6 December 1998, held on a Sunday as was symptomatic of the hours and pressure under which Mr Vines was working, and dealing with a number of issues, clearly raises the three matters:

[74]

458 These findings constitute a clear, and in my opinion justified, finding of contravention of the duty of care and diligence that does not turn on an assumption that the persons to whom such a statement was required to be made, were unaware of the facts and matters upon which Mr Vines should have acted in order to discharge his own responsibility in this regard." 177 Accepting that conclusion for the specific purpose of determining penalty, the fact that the DDC, a sophisticated audience, were aware of these matters, must nonetheless reduce the degree of dereliction involved in the declared breach, and strongly support the view that each was not "a serious one" for s1317EA(5). 178 There was moreover no dishonesty or impropriety or hope of gain on his part. There was no intention to mislead in such circumstances; the breach was essentially inadvertent. Nor was there any pattern of failure to disclose. 179 Self-evidently Mr Vines' failure to disclose what (it is accepted) he did not know and of which he was not aware (the true loss from Hurricane Georges) could not be deliberate or intended to mislead. Moreover, it is by no means clear what he might have learned and thus been able to disclose with regard to the loss from Hurricane Georges had he taken the proactive steps required of him beyond relying on Mr Fox. 180 What would proactive steps have revealed? We simply cannot be sure. What we know of available sources of further information is this. 181 The Status of Registered Events Report as at 30 November 1998 would have shown a rise of 39.4% in claims, representing what appears to be an extra $17 million, giving rise to an aggregate of $60 million. The position as at 4 December 1998 disclosed by the separate Hurricane Georges' Claims Register showed claims of $89.6 million, being $72 million net, and as at 7 December 1998 that same register showed total claims of $92.9 million or $74 million net. There was also the raw data of claims, but what Mr Vines could have made of this, not himself being an expert, we simply do not know. 182 It is not certain therefore what the further enquiry by way of proactive steps on Mr Vines' part would have revealed as to the true position of loss. For him to have informed the DDC "that the achievement of the $60 million profit forecast was improbable" (declaration 1) he would have had to have been taken to that true position by his proactive steps. 183 These uncertainties, and the fact that Mr Vines' failure to make further enquiry was no more than an error of judgment, albeit with potentially significant consequences, point to the fact that even in terms of consequence, it does not follow that had Mr Vines taken the proactive steps a different consequence would have followed. 184 Nor do I consider the management sign-off rendered the contravention serious for the purpose of s1317EA(5). That sign-off required Mr Vines to draw to the attention of the DDC any other individual matters occurring since 1 July 1998. To this he responded, truthfully, that he was not aware of anything which he had not drawn to the attention of the DDC. Of the ineffectiveness of the Am Re agreement, and of the total dependence of the profit now on the unders and overs analysis and size of loss from Hurricane Georges, he did know; but he must have known that the DDC were aware of these matters also. That reduces the dereliction involved in his failure to add the weight of his authority to that proposition (that is the improbability of achieving the forecast profit by reason of those factors). This was quite apart from his not accepting that improbability. Accepting that Mr Vines' failure to add the weight of his authority in specifically informing the DDC was, in the context of a now "tight" profit forecast, a significant element of any contravention, its seriousness was mitigated by the fact that the DDC and the board, to the knowledge of Mr Vines, were aware that shareholders would have the benefit of a Part B Statement that revealed the three matters, though he was in ignorance of the true loss from Hurricane Georges. 185 At the time Mr Vines had very onerous and time-consuming responsibilities. The very times of the DDC meetings of 6 and 8 December 1998 illustrate that. It is a common-place that under excessive pressure, mistakes are made, and not everything is done as meticulously as one might in less pressed circumstances. Mr Vines thought he had no reason to doubt Mr Fox's assurance, given as recently as 7 December 1998, and indeed nothing had happened to alert him that Mr Fox was misinforming him. Mr Vines himself was not an expert on reinsurance able as expert to interpret the true level of loss, based on which claims were precautionary and which genuine. Mr Fox, however, did have that expertise, with his senior operational responsibility in that area. These are all matters that mitigate the seriousness of each contravention. 186 In terms of how the community would regard the contravention itself, in any objective sense it is to my mind not such as to be regarded as serious, though the consequences of the wrong profit forecast were undoubtedly significant and indeed adverse for the 43% of shareholders who did not accept AMP's offer. 187 I acknowledge that seriousness of consequence can bear on the seriousness of the contravention itself, since it bears on the degree of attention required to the task at hand. Here Mr Vines was indubitably applying himself to an enormous workload in regard to the Part B Statement and forecast; none of his defaults were deliberate, advertent or the product of casualness. They did involve an error of judgment in continuing to rely on Mr Fox; indeed I consider that error to be the major contributing factor to the breaches found. That he fell short in carrying out his onerous responsibilities when they carried with them serious consequences for failure does not itself suffice to make the breach serious for s1317EA(5) purposes, when the mitigating factors are taken into account.

[76]

The Remaining Declarations 189 This analysis in regard to seriousness is the same when applied to the ancillary declaration 2. It really adds little of substance to declaration 1, beyond a failure to invite the DDC "to consider some redrafting in light of the matters of disclosure that he was obliged to bring to [DDC's] attention". 190 Declarations 3, 4 and 5 are repetitive and likewise add very little. The gravamen of each was the same failure to make "accurate and complete disclosure" of all material circumstances to the DDC. Their elements were as follows: (a) Mr McClintock's figures were taken from Mr Fox's, and represented management's best estimate of liability for Hurricane Georges; (b) the accuracy and reliability of this estimate had become crucial because of the unavailability of the Am Re agreement and reliance on an unders and overs analysis; (c) Mr Vines was giving an unqualified assurance without making accurate and complete disclosure of "all material circumstances that led him to believe that on balance the group forecast could still be achieved, without the DDC being given by him the information necessary for it to make the appropriate judgment" (declarations 3 and 4); and (d) Mr Vines was not stating to the DDC PwC's negative attitude to the Am Re agreement, making it improbable that the profit forecast would be achieved, and failed to disclose "other balancing matters" that "might" have assisted the company "to reach the profit forecast" (declaration 5). (e) There is some shift between the declarations, showing their alternative and overlapping character, between describing Mr Vines' breach in terms of failing to inform the DDC that the profit forecast was improbable of achievement (see declarations 1 and 5) and failing to ensure that the DDC was informed of all matters material to the estimate of loss so the Committee could exercise its own judgment (see declarations 3 and 4). (f) That they did have this overlapping and to a degree alternative character is clearly relevant, whether or not specifically raised in submissions: (i) in considering the quantum of any civil penalty when applying the totality principle; and (ii) in a contextual sense in assessing seriousness for s1317EA(5) purposes though this still must be done on an individual basis. 191 Again the same analysis in regard to seriousness would apply as to the first and second declarations. All these matters were well known to the DDC save the true position with regard to Hurricane Georges, a matter of which Mr Vines was likewise unaware. 192 Turning finally to declaration 7, this contravention arises out of the same failure, post 8 December 1998, of Mr Vines to do other than rely on Mr Fox, and to assume the sufficiency of Mr Fox's monitoring arrangements (via Mr Fricke) at the divisional level. Thus Mr Vines did not give "directions to ensure monitoring arrangements were continuing at the divisional level and that the results were brought forward to the appropriate senior corporate officer [presumably Mr Vines himself though this is not stated] so that an assessment could be made about further disclosure to the market". 193 The consequence here was potential non-compliance with the statutory continuous disclosure requirements. But that non-compliance, if such it was, stemmed from persisting in relying on Mr Fox. Similar analysis for rejecting this as a serious contravention applies here.

[77]

SUMMING UP 194 Construing s1317EA(5), as to what is meant by the description "a serious one" applied to a declared contravention for civil penalty purposes, the following matters are relevant: (i) It is a matter of statutory interpretation; the principal guidance comes from the statutory context where any pecuniary penalty is cumulative on the other potential sanctions, including both disqualification and potential liability to compensate, so reserving pecuniary penalty for conduct warranting this further sanction; (ii) When seriousness of consequences enters into whether there was any breach at all, it does so for a different purpose, distinct from that of s1317EA(5). It does so to set a context for determining the degree of care and diligence called for in the corporation's circumstances for a person placed as the relevant officer was; (iii) Thus the assumption in the statutory requirement in s1317EA(5), and the statutory context, is that the level of seriousness must be such as to justify a superadded pecuniary penalty over other sanctions. These include the very real prior sanction, recognised by the Chief Justice, by way of reputational damage for a professional person of actually declaring a contravention to have occurred. True it is that to find a contravention at all, the significance of context including seriousness of consequence, may enter into the analysis, as it did here. That said, detrimental consequence is not an essential requirement to make out breach of s232(4); (iv) Moreover, the structure of the current penalty regime is not to call for a heightened gravity of offence by reason of that fact, for reasons the Chief Justice explains in the appeal judgment, adopted unanimously; [142] to [151] especially at [148]. This is in significant part because the intrinsic seriousness of the contravention necessarily enters into the later penalty threshold stage of s1317EA(5), there being an analogous threshold provision when it comes to disqualification. And that intrinsic seriousness is only tangentially concerned with consequences. However, when the threshold of s1317EA(5) is passed, I accept that seriousness of consequence may enter into the quantum of any monetary penalty, bearing as it does on deterrence for those finding themselves in like situations. So too it may enter into the length of any disqualification. (v) I emphasise this was not a contravention defined in result terms or in terms of consequence; detriment was not even an essential element in s232(4); (vi) Seriousness in the context of s1317EA(5) as I have said is directed primarily to the intrinsic gravity of the breach rather than to its consequence as such. To the extent adverse consequence enters into consideration for that purpose, it is primarily to ask whether the relevant breach reflects lack of proper concern by the offender for those adverse consequences of risk. That feature was essentially absent here because the breach was inadvertent and stemmed from error of judgment, not from lack of concern for consequences nor lack of application generally; (vi) Where there was no dishonesty or impropriety and each breach was essentially the product of honest error of judgment not lack of application, then judging seriousness objectively and according to community standards, one would not characterise the contraventions here, singly or collectively, as "serious" for the purposes of s1317EA(5). The distinct purpose of the enquiry under s1317EA(5) is whether a breach should be visited with an additional statutory sanction, namely pecuniary penalty, having earlier considered disqualification and, if applicable, compensation; (vii) This conclusion finds support from the fact that the very same breaches do not warrant disqualification for the reasons stated by the Chief Justice. Concededly they are judged under a different test but there are clearly overlapping considerations. That is so, even if the lenient version of s1317EA(4) were adopted as favoured by the Chief Justice, though whether it should be adopted I do not need to decide. 195 I therefore consider that none of Mr Vines' contraventions should be judged serious for s1317EA(5) purposes whether taken individually or collectively, when they consisted in no more than: (a) relying on Mr Fox rather than taking proactive steps to ascertain the Hurricane Georges loss; (b) failing to add the weight of his authority by informing the DDC of what it already knew, namely that the profit forecast was now solely dependent on both the unders and overs analysis, Am Re not being available, and the size of the loss from Hurricane Georges given the profit forecast was now tight, and (c) persisting in relying on Mr Fox after 8 December 1998 as to the loss from Hurricane Georges and not directing different monitoring arrangements.

[79]

Question 2: Quantum of any Penalty were the Contraventions serious for purposes of s1317EA(5). 197 I turn now to the quantum of pecuniary penalty, on the assumption that I am wrong in concluding that the contraventions did not meet the s1317EA(5) threshold. Here I readily acknowledge that seriousness of consequence can be a relevant factor. 198 Subject to that, I consider that the factors set out under "Summing Up" above, militate against any substantial penalty including absence of any dishonesty or impropriety, and his overall diligence. As the Chief Justice recognised, personal deterrence is not here an issue nor is contrition. General deterrence to anyone in Mr Vines' position is achieved from knowledge in the commercial community of the disastrous consequences for Mr Vines personally from these events, especially given their wide publicity as elaborated in the appellant's written submissions. Breaches involving no dishonesty or lack of application, and which stem from inadvertent errors of judgment are by their nature not such as to warrant stringent sanctions for the purpose of general deterrence. Those breaches being inadvertent, such sanctions are hardly likely to have such a general deterrent effect. 199 To those factors should be added this. In a substantive sense, there were found only two contraventions in reality, out of the seven. The multiple declarations pursuant to the Fourth and Fifth Contraventions, as the Chief Justice acknowledges, reflect a single course of conduct, stemming from the same error of judgment and centred in each case around the events of 8 December 1998. The second declaration also is essentially a corollary. To the extent the Seventh Contravention gave rise to a further contravention as encapsulated in the sixth surviving declaration (declaration number 7), it also stems from the same error of judgment. Its principal distinction is that it bears on the statutory obligation of continuous disclosure rather than requiring reasonable grounds in a forward looking statement. 200 $100,000, discounted slightly, was the aggregate pecuniary penalty imposed for the original eleven contraventions by the trial judge. It was derived by the trial judge at $10,000 per declared contravention with a slight discount when finally appraised under the totality principle. The result of the appeal judgment was to leave the first five declarations upheld as well as the sixth (declaration 7) but with the other five eliminated. The first five declarations as I have said pertain to a single course of conduct related to events of 8 December 1998 and shortcomings in what Mr Vines failed to disclose to the DDC. 201 To assess these for pecuniary penalty purposes as five contraventions is in my judgment to elevate form over substance. As I have shown, the first five declarations overlap and repeat essentially the same substantive conduct by way of acts and omissions, related to essentially the same breach. By the deconstructive effect of s1317EA(2) they are, technically, to be treated as five distinct contraventions. In reality they should be assessed for pecuniary penalty as one. So much is implied by grouping two declarations (one ancillary) under the Fourth Contravention and three under the Fifth Contravention. Even the Fourth and Fifth Contraventions cover overlapping ground. Thus, whilst taking each of the six declarations separately would, following Austin J and the Chief Justice, yield a penalty of $10,000 each (later to be discounted slightly) I would, under the totality principle, impose a total penalty of $20,000. This reflects the substantial overlap between the six declarations and that they essentially form two groups as described above, covering essentially the same acts or omissions.

[80]

A Warning on Excessive Penalty 202 Should a pecuniary penalty exceed what is appropriate in the circumstances having regard to the nature and seriousness of the contravention, deterrence, and the purpose of protection of the public, it can have itself deleterious consequences both for the individual and for commercial undertaking and the probity that should attend it. While the supposed dichotomy between the protective and punitive character of a civil penalty is apt to mislead (Rich v ASIC (2004) 220 CLR 129 at [35] to [38]), imposing a sanction that exceeds what is necessary to achieve its proper object can have deterrent effects of a very different kind to those intended. Those too bear on general deterrence as a factor. In a climate where courts come to impose excessive penalties, company officers may well be deterred from undertaking personal responsibility simply because of the risk of personal liability. Management "sign-offs" of the kind here may become very difficult to extract in the future, with adverse consequence for boards and non-executive directors needing to rely on them. 203 In such a climate, honest and conscientious executive officers, whether directors or not, who take their responsibilities seriously, are at risk of adopting self-protective defensive postures whether in management sign-offs or otherwise. This will be for fear of suffering penalties for honest infractions, quite apart from the huge personal and reputational cost that goes with prosecution. They may be expected to take such defensive measures in heavily qualified reporting, itself against the interests of their boards and in particular its non-executive members who properly seek assurance from the executive. It must not be forgotten that measured commercial risk is at the heart of corporate endeavour. The purpose of corporate law is to encourage a proper balance between risk and reward. The level of penalties for breach of the standard of care and diligence should reflect this where the breaches are not dishonest nor the result of indolence or gross foolishness. 204 What I have said above and earlier is not inconsistent with the decision of the Full Federal Court in Australian Securities and Investments Commission v Beekink [2007] FCAFC 7. The Court adjusted penalty upwards by reason of the degree of shortcoming involved and by reference to deterrence. Penalties were increased because directors of a responsible entity under the Corporations Act 2001, had admitted that they failed to take reasonable steps to ensure that the responsible entity read a prospectus issued in relation to a borrowing and then failed to ensure that the responsible entity undertook due diligence with respect to material statements in the prospectus. The facts are very different here.

[82]

The differing contraventions and declarations of contravention 209 A peculiarity of the orders made by Austin J is that his Honour found the appellant to have committed seven contraventions of s 232(4) of the Corporations Law but made 11 declarations of contravention. 210 The concept of "declarations of contravention" is derived from s 1317EA of the Corporations Law. By s 1317EA(1), the section applies if the court is satisfied that a person has contravened a civil penalty provision. Section 1317EA(2) requires the court to declare that such a person has, by a specified act or omission, contravened a civil penalty provision in relation to a specified corporation. Section 1317EA(3)(b) empowers the court to order the person concerned to pay a pecuniary penalty "in relation to the contravention", that is to say, in relation to contraventions declared by the court under s 1317EA(2). 211 By the decision of the majority in Vines v Australian Securities and Investments Commission [2007] NSWCA 75 ("the Contraventions Appeal Reasons"), the fourth, fifth and seventh contraventions were upheld and the appeals in respect thereof were dismissed. Further, six declarations of contravention were upheld. Two of the declarations were in respect of the fourth contravention, three in respect of the fifth contravention and one in respect of the seventh contravention. 212 Following the approach adopted by Austin J (which was not challenged by the appellant), the issue on appeal concerns not the penalties for the fourth, fifth and seventh contraventions, as such, but the penalties for the six declarations of contravention made in respect thereof. 213 Underlying the difference between the number of contraventions found and the number of declarations of contravention is, as explained by Spigelman CJ in the Contraventions Appeal Reasons at [466], the notion that "it is appropriate for a court, having found and declared there to have been a contravention in accordance with the pleaded case … to also make associated declarations which identify the conduct which, if it had occurred, would have ensured that there was no contravention".

[84]

The duplication, arguably, may arise from the overlapping. 216 The appellant, however, did not take this point. In this connection, three observations may be made. 217 Firstly, the appellant did not challenge the making of the declarations or the formulation of any declaration. 218 Secondly, the appellant's notice of appeal relied only on the following grounds in relation to penalty: "The trial judge erred in imposing a fine upon the Appellant in the sum of $100,000 in circumstances where the Court found that: (i) the Appellant acted honestly; (ii) the non-disclosures found to have been made were found not to have been made with the intention to deceive; (iii) they were not flagrant; (iv) the Appellant did not obtain any personal gain from the contraventions; (v) the Appellant was not conscious of any impropriety on the part of others; (vi) at the time of the contraventions, the Appellant was labouring under a very heavy workload; (vii) the appellant otherwise discharged his responsibility in relation to the Part B Statement 'conscientiously and with some diligence'; and (viii) where no case was sought to be made by the Respondent that the Appellant's actions caused any loss to GIO or GIO Re." 219 Thirdly, the appellant's oral and written submissions did not raise any issue involving duplication of conduct. The appellant has not argued that, in any respect, he has been punished more than once for the same conduct. 220 At [15] of his Penalty Appeal Reasons, Spigelman CJ explains that Austin J attended to the need to consider each of the seven contraventions (leading to the 11 declarations) separately. Austin J imposed a penalty of $10,000 referable to each such contravention, and discounted the total penalty to $100,000. In doing so, as Spigelman CJ observes at [16] to [19], his Honour correctly applied the principle in Pearce v The Queen (1998) 104 CLR 610 at [45], 623 to 624. The appellant did not argue to the contrary. 221 The appellant, also, did not contend that Austin J erred in applying appropriate principles in regard to questions of cumulation, concurrence or totality. 222 It is not for the Court, of its own motion, in civil penalty proceedings, to consider these issues.

[85]

The principles applicable when determining the seriousness of the contraventions 223 Spigelman CJ explains in his Penalty Appeal Reasons why this Court is required to exercise its discretion afresh in regard to the penalties to be imposed. 224 The first question that arises in exercising this discretion concerns the threshold established by s 1317EA(5), namely, the court's satisfaction that "the contravention is a serious one". 225 In determining the seriousness of the contraventions, each has to be considered by reference to its own facts alone. It would not be appropriate to determine the seriousness of the contraventions as declared by reference to the cumulative consequences of all. Each contravention has to be considered separately. 226 In my opinion, no assistance as to the meaning of "serious" (in the phrase "the contravention is a serious one" in s 1317EA(5)) can be found from other statutes dealing with different subject matter. In particular, in my opinion, no assistance can be obtained from statutes dealing with employees. The relevant declarations of contravention concern the conduct of the appellant as "an officer of the corporation" in the discharge of his or her duties as such, and not the duties of an employee. In my view, the term "serious" in s 1317EA(5) bears its ordinary meaning in the English language and it would be inappropriate to elaborate on that. The idea of a "serious" offence is well known, and a "serious" contravention, as far as the epithet is concerned, is no different. 227 In my opinion, the fact that the appellant's conduct did not involve defaults that were deliberate or intended, and did not involve any impropriety, is irrelevant to the question whether the contravention was serious. The contraventions involve only failure to exercise the appropriate degree of care and diligence. Were the conduct of the person concerned to involve dishonesty or intention to mislead, or improper conduct of any kind, there would be other provisions of the Corporations Law that, potentially, would be applicable. The seriousness of what the appellant did or did not do in contravening s 232(4) cannot be reduced by reference to elements irrelevant to the section. To proceed otherwise would be tantamount to holding that a person found guilty of manslaughter is entitled to mitigation of sentence because he or she did not commit murder instead. 228 Section 232(4) provided: "In the exercise of his or her powers in the discharge of his or her duties, an officer of the corporation must exercise the degree of care and diligence that a reasonable person in a like position in a corporation would exercise in the corporation's circumstances." 229 In my opinion, in this context, the seriousness of the contravention is to be determined by reference to:

[87]

(b) the consequences, potential or actual, of the contraventions. 230 Section 1317HA(1) provides that a court may (whether or not it makes an order under s 1317EA) order the person concerned to pay compensation to the corporation. Sections 1317HA(3), 1317HB and 232(11) contemplate that the person may be ordered to pay a penalty and compensation. Ordinarily, the obligation to pay compensation by reason of some civil liability arising out of the negligent conduct of the officer concerned would not materially affect the penalty imposed. The concepts of compensation and punishment are entirely different. 231 In imposing a penalty the court must take into account all relevant circumstances, including any order for disqualification under s 1317EA(3)(a) that the court intends to make. That is because an order for disqualification has penal consequences: Rich v Australian Securities and Investments Commission (2004) 220 CLR 129 at [37], 147. 232 In Vrisakis v Australian Securities Commission (1993) 9 WAR 395, I expressed the view (at 449) that the legislature did not intend, by the predecessor to s 232(4), "to dampen business enterprise and penalise legitimate but unsuccessful entrepreneurial activity". I remain of that view as regards s 232(4), and regard must be had to this consideration when addressing the threshold question of seriousness. 233 In the Contraventions Appeals Reasons, I agreed with Spigelman CJ's analysis of the standard of care applicable when determining whether there has been a contravention of s 232(4). In particular, I agreed that that standard of care is the same as that required to establish civil liability for negligence. But, to establish that the contravention is a serious one within the meaning of s 1317EA(5) a higher degree of negligence is required. The negligence must go "beyond a mere matter of compensation between subjects" (per Lord Hewart CJ in R v Bateman (1925) 19 Crim App R 8 at 11). It must be such as to be deserving of punishment.

[93]

The seriousness of the contraventions 241 I shall not repeat the seven declarations of contravention upheld by this Court. These have been set out in the reasons of Spigelman CJ and Santow JA. Declarations one to six are based on the appellant's knowledge and failure to disclose to the DDC the unavailability of the American Re agreement, the details of Mr McClintock's unders and overs analysis and the enhanced significance of the extent of the liability for Hurricane Georges. The seventh declaration speaks for itself. The facts and circumstances of these declarations have been fully discussed in the Contraventions Appeal Reasons of Spigelman CJ and myself and no purpose is served by rehearsing what is there said. 242 Each of the six declared contraventions materially contributed to the fact that the $80 million profit forecast was made at a time when it was improbable that GIO would achieve that forecast. The seriousness of each such contravention is directly related to that fact. 243 Austin J, in his penalty judgment ([2006] NSWSC 760), said (at [130]): "I am not persuaded that there is any significant difference between each contravention and every other, of a kind that would justify differential penalties. In my view each contravention, if considered in isolation, would warrant a pecuniary penalty in the order of $10,000, given the seriousness of each of them. I see no justification for treating some contraventions as justifying a greater penalty than others, in the case of Mr Vines. When they are considered together, and one takes into account the mitigating factors to which I have referred, it is appropriate to apply a small discount, which in my view leads to the result advocated by ASIC, an overall penalty of $100,000. I regard a penalty of $100,000 as an appropriate one when the contraventions are considered as a whole." 244 Spigelman CJ, at [107] of his Penalty Appeal Reasons, has said "[c]onsistently with his Honour's analysis, this Court should reduce the penalty to $50,000, being just under $10,000 for each contravention (computed, as his Honour did, in terms of the number of declarations)." 245 Spigelman CJ thereby implicitly agreed with Austin J that there was no significant difference between each contravention of a kind that would justify a differential penalty. It was appropriate that each should carry the same penalty. I, too, agree with that view. 246 As Spigelman CJ points out at [75] of his Penalty Appeal Reasons, the significance of the appellant's contraventions as found by Austin J was accepted by the majority of this Court and, indeed, "re-emphasised". The Chief Justice, at [75], refers to the paragraphs in the Contraventions Appeal Reasons that set out the reasons of the majority for holding that each contravention was serious. I shall not repeat what is there said. 247 I respectfully disagree with Santow JA's view that the appellant's conduct involved no more than an error of judgment and mere inadvertence. The effect of the decision of the majority in the Contraventions Appeal Reasons is that, in regard to each declared contravention, his conduct amounted to a significant lack of care and diligence. 248 I would add that, in considering the degree to which the appellant failed to exercise care and diligence, regard must be had to the crucial leadership position he held in the due diligence process, the Part B statement and the profit forecast. 249 The potential harm to GIO in consequence of the declared contraventions (as found by the majority in the Contraventions Appeal Reasons) is summarised in the respondent's written submissions quoted in [25] of Santow JA's Penalty Appeal Reasons. It is not necessary to say more than what is there set out. 250 For the above reasons and those stated by Spigelman CJ, I agree that the s 1317EA(5) threshold was made out.

[94]

The need for deterrence and punishment 251 I differ, with respect, from what Santow JA has said under the heading "A Warning on Excessive Penalty". Plainly, a pecuniary penalty should not exceed what is appropriate in the circumstances. But an appropriate penalty should not be determined by a consideration that a high penalty might induce officers of corporations to adopt "self-protective defensive postures": see [72] of Santow JA's Penalty Appeal Reasons. 252 I have expressed the opinion that, when determining the seriousness of the contravention, the court must take account of the fact that the legislature did not intend, by the predecessor to s 232(4), to dampen business enterprise and penalise legitimate, but unsuccessful, entrepreneurial activity. But, having determined that a contravention is serious, the court must proceed to impose a penalty which takes full account of the considerations listed by Santow J (as his Honour then was) in Re HIH Insurance Ltd (in prov liq); ASIC v Adler (2002) 42 ACSR 80 at [126]. 253 The first such consideration recognises the punitive character of the penalty and emphasises its purpose as a personal and general deterrent. Concerns about inducing the taking of unnecessarily defensive measures in the management of corporations, and thereby reducing entrepreneurial enthusiasm, are not relevant considerations when determining the appropriate penalty. 254 Serious managerial negligence can give rise to serious consequences and cause great harm to individuals, the community and the economy. It is common knowledge that, in recent times (not very different from the past), there has been a spate of corporate scandals involving not only dishonest but careless directors that have had such consequences. Sections 232(4) and 1317EA(3)(b) are designed to deter, and punish, serious departures from the appropriate standard of care and diligence. Penalties imposed in accordance with this legislation should reflect its purpose. 255 While persons occupying high managerial positions in large public companies undertake heavy responsibilities, they are usually well compensated by way of substantial emoluments. If they fail in their duties by contravening s 232(4) to the extent that their conduct attracts a penalty under s 1317EA(3)(b), that penalty should not be mitigated by the fear that others might, in the future, be overly cautious. 256 I would add that the contraventions committed by the appellant had nothing to do with "measured commercial risk" in the course of entrepr eneurial endeavour. At issue in this case is not entrepreneurial activity by an officer of a corporation but conduct concerning the accuracy of a Part B statement. The requirement that such statements be accurate and not misleading goes to the essence of our financial and commercial system. Courts should ensure that it is properly enforced. 257 The appellant was the officer with prime responsibility for the drafting of a Part B statement. The Part B statement was a document that was of the greatest importance in the hostile takeover struggle that was occurring. The appellant was attempting to "'protect' a profit previously arrived at" (see Spigelman CJ in the Contraventions Appeal Reasons at [572]). It is difficult to conceive of circumstances where an officer of a corporation, in this kind of situation, could be "overly cautious" in ensuring that the Part B statement is accurate. At the heart of the appellant's conduct in this case are his efforts to protect the profit forecast, and his neglect has to be seen in that context.

[95]

The appropriate penalty 258 Spigelman CJ observes at [109] of his Penalty Appeal Reasons that the respondent did not explicitly address the necessity to impose a penalty with respect to each contravention and submitted merely that this Court should retain the total penalty of $100,000. As the Chief Justice points out, there was no cross-appeal and this Court is required to treat each declaration of contravention separately. 259 In my opinion, each contravention (without taking into account mitigating circumstances) was deserving of a significant penalty, substantially more than the penalties imposed by Austin J. In the context of what was involved, and the potential harm to the company, and having regard to the degree of negligence displayed, a penalty of about $10,000 for each contravention was at the low end of the scale. 260 The appellant submitted that there were, indeed, many mitigating circumstances. These included the fact that he did not receive any personal gain as a result of the contraventions, he was subjected to various commercial pressures and had performed his other responsibilities conscientiously and with diligence, there was very strong evidence of contrition, he had a previously unblemished record, he had previously contributed to the development of ethical and professional standards in the accounting profession, he was a person of honesty and probity and professional competence, and he has been seriously penalised already by the stigma of the declarations and the financial consequences of the Court's orders. It was also pointed out that, even if the Court held that he should not have been disqualified (as it has done), he would have served an effective three-year disqualification period as of 3 June 2007. 261 I accept that all these matters are powerful mitigatory circumstances that must be taken into account. Nevertheless, in my view, the penalties proposed by Spigelman CJ (in the context of there being no cross-appeal) appropriately take into account the seriousness of the contraventions and the mitigatory circumstances. **********

Geoffrey William VINES v AUSTRALIAN SECURITIES AND INVESTMENT COMMISSION

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Judgment (96 paragraphs)

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Legislation Cited (3)

Cases Cited (24)

Cited By (16)