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.