Grant-Taylor v Babcock & Brown Limited

1. The application be dismissed with costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 2070 of 2012

AND: BABCOCK & BROWN LIMITED (IN LIQUIDATION) ACN 108 614 955

JUDGE: PERRAM J DATE: 4 MARCH 2015 PLACE: SYDNEY

I Introduction 1 Prior to the global financial crisis which began in 2008, the first defendant ('BBL') was a highly successful firm providing a range of complex financial services. It succumbed to the buffeting head winds of the financial crisis on 13 March 2009 when its directors concluded that it was no longer solvent and resolved to place it in administration. No deed of company arrangement was agreed upon by its creditors and, on 24 August 2009, it was placed in liquidation. 2 The shares in BBL were listed on the Australian Stock Exchange ('ASX') and the company enjoyed a reputation as a sophisticated and astute outfit in the world of finance. 3 The tightening of the credit markets which began in March 2008 exposed parts of its business model which were capital intensive to increasing pressures and, ultimately, it is these pressures which brought it undone. 4 The plaintiffs are persons or entities who purchased shares in BBL in the period between 21 February 2008 and 13 March 2009. Those shares had first been quoted on the ASX in October 2004. Between 2004 and the middle of 2007 the shares consistently escalated in value to a peak on 19 June 2007 of $34.63 per share. On 21 February 2008, when the first of the plaintiffs acquired their shares in BBL, they were trading at $16.76. They were last traded on 7 January 2009 at $0.33 when trading was suspended. 5 Oceans of money were lost in the 18 month descent in the share price from $34.63 to $0.33. Amongst these losses are those of the plaintiffs although, by reason of their relatively late arrival in the history of the stock at $16.76, they have avoided the Greek tragedy visited upon some of those who joined the party at $34.63. 6 The shareholders now sue the company alleging that it failed to disclose important information to the market in breach of its obligations of continuous disclosure. 7 Those obligations arose as a result of the Corporations Act 2001 (Cth) ('the Act') and the listing rules of the ASX. The detail of the obligations is dealt with below in Section III but for present purposes it suffices to say that BBL was required to disclose to the market any information which was not generally available which a reasonable person might expect to have a material effect on the price of the shares. 8 What was the information which it is alleged should have been disclosed by BBL to the market? It was submitted by the plaintiffs to fall into four categories: (i) a failure to disclose that the final dividends for the financial years 2005, 2006 and 2007 had been unlawfully paid out of capital contrary to s 254T of the Act as it then stood ('A dividend may only be paid out profits of the company'); (ii) a failure to disclose to the market that BBL's financial reports for 2005, 2006 and 2007 did not give a true and fair view of its financial position because they failed to show that the final dividends had been paid out of capital in the 2005, 2006 and 2007 financial years. This was related to the argument in (i) although it invited a further debate about the meaning of a true and fair view of a company's financial position; (iii) a failure to disclose to the market on 29 November 2008 that BBL was insolvent. This is the date on or about which the parties now agree that BBL became insolvent; and (iv) a failure to disclose to the market that the final dividend for the 2007 year had been paid out of funds borrowed on the back of an asset revaluation. 9 None of the plaintiffs suggest that any of this information in (i)-(iv) was material to their individual decisions to acquire shares in BBL. They claim instead that the failure to disclose the information caused them to acquire the shares at an overvalue and they were therefore entitled, in accordance with the principle in Potts v Miller (1940) 64 CLR 282, to recover the difference between what they paid for the shares and what the shares were worth when acquired. Passing reference was made by the plaintiffs' counsel, Mr White, to the doctrine of fraud on the market which exists in the United States but it was not suggested that it was to be applied in this case. As I understood the submission, its only relevance was to show the plausibility of the outcome for which the plaintiffs contended. 10 BBL resisted these claims. Whilst it accepted that it had paid the final dividends for the financial years 2005, 2006 and 2007 out of capital and that this was unlawful at the time, it disputed several aspects of the plaintiffs' argument. It was said that the breach was entirely technical and had arisen as an incident of an accounting error which came about when the subsidiary operating company had declared a dividend in favour of the holding company BBL. There had been no reduction in capital on a consolidated group basis and the value of the listed shares was a function of that value. All that had occurred was an internal accounting issue within the group which was of no significance to anyone concerned with the group's performance. The detail of this issue is dealt with in Section IV. BBL also argued that this information would have had no impact on the price of the shares because it was economically irrelevant. Indeed, it submitted that anyone who had taken the trouble to read its financial reports would have seen that the dividends had been paid out of capital and, at the same time, that this information was without financial impact. Consequently, it was said that no obligation of disclosure arose both because the information was irrelevant to price and because it had been disclosed. 11 Insofar as the allegation that dividends had been paid out of capital was put forward in a varied form as an argument that the financial reports for each year failed to give a true and fair view of the financial position of the company (because they did not disclose the unauthorised reduction of capital) it was submitted by BBL that this was not so. Why? Because the breach was technical and had no material effect on the financial position of BBL. Even if this were not the case, the information - once again - was neither price sensitive nor other than publicly available to those who read the financial reports. 12 On the issue of whether BBL should have disclosed to the market that it was insolvent on 29 November 2008, BBL did admit that it was insolvent on that day. However, it submitted that at that time none of its directors believed that this was the case. In fact, it says that its directors were acutely aware of the solvency issues with which BBL was confronted as the credit crisis worsened and as at 29 November 2008, whilst the directors were giving the issue close attention, no-one within BBL thought it was insolvent. This mattered, according to the submission, because BBL could not be required to disclose information which it did not have or opinions which it did not hold. 13 On the fourth argument that BBL should have disclosed that the 2007 final dividend had been funded out of an asset revaluation, BBL submitted that this had not been proved, that even if it had been proved there was nothing exceptional about paying a dividend out of profits emerging from asset revaluations and that the information was, in any event, generally available to the market. 14 As a general answer to the plaintiffs' claims, lest any of the plaintiffs' four non-disclosure arguments should find their mark, BBL submitted that the plaintiffs could not succeed without some demonstration that their respective decisions to buy BBL shares were causally connected to the alleged non-disclosures. Such a demonstration required each plaintiff to prove something about their decision to purchase the shares and it was not permissible simply to rely on the proposition that the price at which the shares were purchased had been inflated as a result of the non-disclosures. For the plaintiffs, on the other hand, it was said that they were entitled to pursue a case based on a theory of indirect causation and that they did not each need to prove individual reliance. 15 The trial was conducted over five days on 14-16, 18 and 23 July 2014. The case was largely documentary although three experts were called. The plaintiffs called Dr Jeffrey Coulton who is a senior lecturer at the Australian School of Business at the University of New South Wales. His evidence was directed, in part, to the issue of what was required in order to give a true and fair view of BBL's position in its financial reports. Here the basic issue was whether, as BBL contended, an economically irrelevant but nevertheless illegal reduction in capital needed to be disclosed and, if so, how. 16 The plaintiffs also called Professor Alex Frino, a professor of finance at Macquarie University who is the author of numerous articles on market behaviour and several well-known textbooks. He gave evidence about the effect the disclosure of the information would have had on the price of BBL shares. 17 BBL called Mr Wayne Lonergan who gave evidence about both matters. Mr Lonergan is an expert in corporate finance and valuations. For many years he was a partner in a prominent firm of accountants in the area of corporate finance. He has given evidence on corporate finance issues in a large number of court cases. 18 All three were cross-examined. I deal with their evidence at various parts throughout these reasons. 19 These reasons are set out as follows: Section I - Introduction Section II - The background to BBL Section III - The obligations of continuous disclosure Section IV - The unauthorised reductions in capital Section V - Whether BBL's financial statements gave a true and fair view of its financial position Section VI - Whether BBL was required to disclose that it was insolvent on 29 November 2008 Section VII - Whether BBL should have disclosed that the 2007 final dividend had been funded out of an asset revaluation Section VIII - Loss and damage Section IX - Disposition. 20 For the reasons which follow the application should be dismissed with costs.

II The background to BBL 21 A firm known as Babcock & Brown was first formed in San Francisco in 1977. The group's initial focus was as an advisor but it also arranged structured asset-backed finance transactions usually leveraged leases. Over the following 25 years it expanded into a global investment and advisory firm with offices in 19 countries and 440 staff. By 2004 it was forecasting net total revenue of $424 million. By then its activities fell into four categories: (i) arrangement/syndication: the firm would identify an investment, negotiate as a principal, arrange finance but syndicate equity to third party investors prior to the transaction closing; (ii) underwriting: the firm would commit capital to underwrite a transaction and thereafter sell down its position. This included the provision of short term loans with a view to finding longer term finance; (iii) investment/asset management: the firm would manage an asset. Often enough this service would be provided as part of a syndication under (i); and (iv) principal investment: the firm would invest its own money in particular assets sometimes in conjunction with a co-investor or with an equity syndication under (i). 22 It will be seen that although the firm had begun life as an advisor and arranger it began, in due course, to derive revenue from the deployment of its own capital. This created within the firm an expanding appetite for capital which, when the credit and capital markets tightened during the global financial crisis, caused many of the difficulties which the firm, as then structured, encountered. 23 The various raisings of both debt and equity capital which the original firm and, after its float in 2004, BBL undertook have some relevance to the issues of solvency with which BBL was confronted in November 2008. They also provide the context for some aspects of the capital structure of the group which explain the accounting events which gave rise to the 2005, 2006 and 2007 final dividends being paid out of capital. 24 The first significant external injection of capital for the Babcock and Brown group, as it then was, occurred in 2000 when a German bank, Bayerische Hypo-und Vereinsbank AG ('HVB') acquired a 20% interest in the firm for US$120 million. The second occurred in 2004 when a decision was made to raise $550 million of equity capital by way of an initial public offering ('IPO') of shares on the ASX. Prior to the offering Babcock and Brown had been owned as to 80% by its executive shareholders and as to 20% by HVB. The proposal under the IPO was that these current proprietors of the business would hold 30% of the business and that 70% would be held by the public. This outcome would be achieved by floating 100% of BBL on the ASX. BBL would then own 70% of Babcock & Brown International Pty Ltd ('BBIPL') with the other 30% held by HVB and the executive stakeholders. BBIPL was to be, and ultimately did become, the operating company for the group resulting in a group structure which was only 70% owned by its listed holding entity ('the Babcock and Brown group'). It would have been possible, of course, to set BBL up with its former owners holding 30% of the freshly issued shares in BBL but this course was not taken for reasons which were related to perceived adverse tax consequences in the United States for the executive stakeholders. 25 It was proposed that the shares in BBL and those in BBIPL should be economically equivalent: that is to say, although the investing public would hold shares in BBL and the original proprietors would hold shares in BBIPL, the dividends on both would be the same. It was anticipated, therefore, that the group's operating profits would flow into the operating company, BBIPL, and it would pay dividends to BBL, on the one hand, and to the executive stakeholders and HVB, on the other. BBL would then pay an identical dividend to the one it had received to its shareholders who held the ASX traded shares. 26 Provision was made to reduce over time the anomalous share register of BBIPL by encouraging the original proprietors to exchange their shares in BBIPL for shares in BBL. This was done by reducing the available rate of exchange of BBIPL shares for BBL shares over time. By the end of 2007, the original proprietors had reduced their holding in BBIPL from 30% to 16.8%. 27 These various arrangements were anticipated from the terms of a prospectus issued for BBL on 20 September 2004 (which replaced an earlier one of 9 September 2004). They were given effect by a large number of transactional documents. In the events which occurred, the capital raising was a success and $550 million of stock was subscribed for. After the float the shares in BBL were listed on the ASX and began to be traded in October 2004. 28 In addition to this equity capital, the Babcock and Brown group also raised approximately $600 million by way of subordinated notes. There were two series of such subordinated notes known as BBSN and BBSN2. The borrower on each occasion was BBL. There were semi-annual payments of interest due but these did not have to be paid if BBL did not have the cash to do so. The principal was required to be repaid in 2015 and 2016. BBL's obligations to the noteholders were guaranteed by BBIPL, but it was not obliged to pay any money under the guarantee whilstsoever it remained indebted to the banking syndicate referred to in the next paragraph. BBL lent the proceeds of the notes to BBIPL on the same highly subordinated basis which meant that BBIPL did not need to pay BBL any money whilst it remained indebted to its banking syndicate. These notes were, therefore, deeply subordinated. As will be seen in due course, that deep subordination became highly relevant to the solvency issues when they eventually arose. 29 Another source of capital available was bank debt provided by a syndicate of 25 banks. The borrower was BBIPL. By November 2008, the syndicated bank debt of BBIPL was approximately $3 billion. The relationship between the bank debt and the noteholders was as indicated in the preceding paragraph. The noteholders had no entitlement to interest from BBL whilst it could not pay and BBIPL had no obligation arising from the notes as long as any part of the $3 billion of bank debt remained owing. 30 Turning then briefly to the events of 2008, in March rumours had begun to circulate that BBL faced vulnerability to margin loans. The sense that there were problems was not abated when, on 10 March 2008, BBL revealed that it had retired $250 million of short-term loans owed by its listed vehicles. Ironically perhaps, Lehmann Brothers circulated a note to its clients indicating that it thought that BBL was vulnerable. As conditions in the credit markets worsened throughout the period April to June, BBL's share price continued to fall. An aggressive run of short-selling in June triggered a review under its banking facilities which was widely reported in the press. A drop in projected profits in August prompted yet a further sell-off. On 19 August BBL flagged internal management changes to propitiate the forces of capitalism but the stock relentlessly continued to decline in value. By this time, there were press reports that its total debt far outstripped its shareholders' funds. Then, on 17 September 2008, Lehman Brothers filed for Chapter 11 protection in New York which caused the global credit markets to seize up. In the week of 17 September 2008 BBL shares dropped a precipitous 57%. By mid-October it was actively seeking to sell-off assets and was in discussions with private equity firms who were by then circling it. 31 In November fears that BBL was in breach of its loan covenants with the banking syndicate were reported in the press. By late November, as is more precisely examined in Section VI, the Boards of BBL and BBIPL were intensely concerned about the solvency of BBL and BBIPL and their own position in relation to insolvent trading. They met on an almost daily basis with a significant entourage of lawyers and insolvency practitioners in their efforts to restructure the group's equity and debt arrangements so as to avoid the destruction of the business. The first hurdle to these attempts was reaching a deal with the banking syndicate. 32 Section IV of these reasons deals with the issues arising from the payment of final dividends out of capital which occurred in 2005, 2006 and 2007. It may be immediately observed in light of the above potted history of the decline of BBL that these events occurred before BBL found itself laid low by the credit crisis of 2008. This is important to emphasise, for although the plaintiffs occasionally hinted that the payment of the dividends out of capital in 2005-2007 was in some way connected to the events which brought the group to its knees this was not a submission which was ever actually put with any gusto when the pressing moment arose. On this issue, the plaintiffs were willing to wound but not to strike. They did not strike because, as will be seen, the unlawful reductions of capital which occurred were without economic consequence for the shareholders of BBL. 33 I turn then to the source and nature of BBL's obligations of continuous disclosure.

III The obligations of continuous disclosure 34 Section 674(1)-(2) of the Act provided at the relevant time: '(1) Subsection (2) applies to a listed disclosing entity if provisions of the listing rules of a listing market in relation to that entity require the entity to notify the market operator of information about specified events or matters as they arise for the purpose of the operator making that information available to participants in the market. (2) If: (a) this subsection applies to a listed disclosing entity; and (b) the entity has information that those provisions require the entity to notify to the market operator; and (c) that information: (i) is not generally available; and (ii) is information that a reasonable person would expect, if it were generally available, to have a material effect on the price or value of ED securities of the entity; the entity must notify the market operator of that information in accordance with those provisions.' 35 BBL was a 'listed disclosing entity' within subs (1). The relevant listing rules were contained in Chapter 3 of the ASX Listing Rules. Two rules are relevant: Rules 3.1 and 19.12. 36 Rule 3.1 is the basic rule and provides: 'General rule 3.1 Once an entity is or becomes aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of the entity's securities, the entity must immediately tell ASX that information.' 37 Section 674(1) is satisfied in this case by ASX Listing Rule 3.1 ('Listing Rule 3.1') because it is a provision requiring BBL to notify the ASX of 'specified events or matters'. 38 Section 674(2)(a) therefore applied to BBL if the preconditions in (a)-(c) were met. Plainly, subs (2)(a) was met. Subsection (2)(b) would be satisfied in this case only if Listing Rule 3.1 required disclosure of the information which the plaintiffs say should have been disclosed. But satisfaction of Listing Rule 3.1 would not, by itself, be enough. There must also be satisfaction of subs (2)(c), that is to say, the information must not be generally available (subpara (i)) and the information must be, putting it shortly, price sensitive (subpara (ii)). 39 In the instant case, s 674(2)(c)(ii) is redundant. In order for s 674(2)(b) to be met, Listing Rule 3.1 would need to be in play, which itself necessitates that the information be price sensitive. As such, it follows that if s 674(2)(b) is satisfied, so too is s 674(2)(c)(ii). The redundancy highlights that the statutory obligation of continuous disclosure is not necessarily the same as the obligation generated by listing rules. As the learned authors of Ford, Austin and Ramsay's Principles of Corporations Law (16th ed, LexisNexis Butterworths, 2015) ('Ford, Austin & Ramsay's Principles of Corporations Law') observe at p 829, for example, the ASX Listing Rules require disclosure of information even if it is already publicly available which is a much broader obligation than that created by s 674. 40 Listing Rule 3.1 only requires disclosure of information of which the entity is 'aware', an expression, in turn, defined in the second relevant rule, ASX Listing Rule 19.12 ('Listing Rule 19.12'): 'an entity becomes aware of information if a director or executive officer (in the case of a trust, a director or executive officer of the responsible entity) has, or ought reasonably to have, come into possession of the information in the course of the performance of their duties as a director or executive officer of that entity.' 41 In this case the concept of awareness is only relevant to the claim that BBL should have disclosed its own insolvency on 29 November 2008. The debate between the parties substantively lies in that part of the definition which will make BBL aware of information which ought reasonably to have come into possession of one of its directors or executive officers. This topic is dealt with more fully in Section VI. The basic issue is whether the directors of BBL did know that BBL was insolvent on 29 November 2008 and, if they did not know, whether they ought reasonably to have come into possession of information to that effect by 29 November 2008. 42 Insofar as the various alleged non-disclosures are concerned, s 674(2) gives rise to two further issues. First, was any of the information which the plaintiffs suggest should have been disclosed information, in the language of s 674(2)(c)(ii), which a reasonable person would expect, if it were generally available, to have a material effect on the price of the shares. Secondly, was the information 'generally available'. The Act elucidates both concepts. As to the former s 677 provides: '677 Sections 674 and 675 - material effect on price or value For the purposes of sections 674 and 675, a reasonable person would be taken to expect information to have a material effect on the price or value of ED securities of a disclosing entity if the information would, or would be likely to, influence persons who commonly invest in securities in deciding whether to acquire or dispose of the ED securities.' 43 As to the latter s 676 provides: '676 Sections 674 and 675 - when information is generally available (1) This section has effect for the purposes of sections 674 and 675. (2) Information is generally available if: (a) it consists of readily observable matter; or (b) without limiting the generality of paragraph (a), both of the following subparagraphs apply: (i) it has been made known in a manner that would, or would be likely to, bring it to the attention of persons who commonly invest in securities of a kind whose price or value might be affected by the information; and (ii) since it was so made known, a reasonable period for it to be disseminated among such persons has elapsed. (3) Information is also generally available if it consists of deductions, conclusions or inferences made or drawn from either or both of the following: (a) information referred to in paragraph (2)(a); (b) information made known as mentioned in subparagraph (2)(b)(i).' 44 The application of these provisions to the various alleged non-disclosures in this case is dealt with below in Sections IV-VII. 45 I turn then to the issues thrown up by the fact that for the financial years 2005-2007 BBL paid its final dividends out of capital.

IV The unauthorised reductions in capital 46 Since the events of this case occurred there has been a substantial alteration in the law concerning the payment of dividends. As a result of those changes (which were made in 2010) it is now lawful to pay dividends out of capital so long as the payment does not effect the solvency of the company paying the dividend. Under the current laws the illegality upon which the plaintiffs rely would not exist and what took place in this case would be quite lawful. However, at all times relevant to this litigation the affairs of BBL were governed by the former s 254T of the Act which at that time provided: 'A dividend may only be paid out of profits of the company.' 47 There is a lot of history to this provision which was changed to this form in 1998 by the Company Law Review Act 1998 (Cth) in ways whose full implications have not yet been fully ascertained. I touch on the conundrums thrown up by the 1998 amendments below. The history of the provision is sketched in Bluebottle UK Ltd v Deputy Commissioner of Taxation (2007) 232 CLR 598 at 609-611 [18]-[21], [26], 613-615 [37]-[39] ('Bluebottle') and in the reasons of Mason J in Industrial Equity Ltd v Blackburn (1977) 137 CLR 567 at 576-579 ('IEL'). For present purposes it is enough to say that: (i) the word 'profits' in s 254T refers, as the ordinary language suggests, to the profits of the company paying the dividend and not the profits of a group of which it may happen to be the holding company: IEL at 576; (ii) a final dividend (as opposed to an interim dividend) reflects the results of a completed year of trading: Bluebottle at 609 [19]; (iii) if the constitution of a corporation permits its directors to declare a dividend then, by s 254V(2), the company will incur a debt to its shareholder in the amount of the dividend at the time of the declaration; (iv) the constitution of BBL contained just such a provision in article 29.1 ('The power to determine that a dividend is payable and to declare dividends (including interim dividends) is vested in the Directors who may fix the amount and the timing for payment and the method of payment of any dividend in accordance with this Constitution.'); (v) because the declaration of a dividend by BBL would, by s 254V(2), immediately create a debt the requirement of s 254T (only to pay a dividend out of profits) arguably had to be met at the date of the declaration: IEL at 578-579. The equivalent prohibition under consideration in IEL provided that no dividend was payable other than out of profits. The language of s 254T, by contrast, is 'paid' not 'payable'. The origins of that change lie in the outcome in Re Marra Developments Ltd v B W Rofe Pty Ltd (1977) 2 NSWLR 616 ('Re Marra') where it was held that a company was not relieved of the obligation to pay a dividend which had been declared at an earlier time just because there were no longer any profits from which it could now be paid. It was not argued in this case that the change of the word 'payable' to 'paid' by means of the Company Law Review Act 1998 (Cth) had brought about an alteration in the orthodox position that a dividend could only be declared out of profits. There are some difficult issues about this but none arose for consideration in this case: e.g. does the reasoning in IEL and Re Marra depend upon the word 'payable'? (cf. IEL at 578; Re Marra at 619, 622 and 640) Does the legislation any longer express a coherent scheme by providing that a declared dividend creates an immediate debt (s 254V(2)) but that the capital reduction prohibition in s 254T is now directed at payments? If this is incoherent, was it intended by the legislature? If not, can the provisions be read in some way to make them coherent? It is not necessary for me to answer these questions. 48 The result of these principles is that BBL could declare or pay a final dividend only when its financial reports for each financial year had been prepared and then only out of the profits revealed in those financial reports. 49 The problem may now more clearly be seen. BBL was dependent upon BBIPL for its dividend income. Since both operated on the same financial year (which ended on 31 December), both could only declare a final dividend in respect of the financial year which had just finished and, in practical terms, only when the accounts for that year had been prepared and the 'profits' to which s 254T refers ascertained. This meant that BBIPL could not, for example, declare a final dividend for the year ending 31 December 2005 until sometime early in 2006. Consequently, although the declaration of that dividend would immediately create a debt due to BBL this could only occur early in 2006. This meant that BBIPL's 2005 dividend income could only come into BBL's books in 2006 when the dividend was a final one. The consequence was that the profits flowing up from BBIPL in one financial year could only be utilised for declaring a final dividend by BBL in the next. 50 To illustrate the problem it is useful to examine in detail what occurred within the Babcock and Brown group in relation to the final dividend for the year ending 31 December 2005. The power to declare a dividend was, as already noted, vested in the directors by article 29.1 of the constitution. On 21 February 2006 the board of directors resolved to delegate to a special purpose sub-committee of the board the final approval of the 2005 financial statements together with, inter alia, the declaration of the final dividend. That sub-committee met on 23 February 2006 and resolved to declare a final dividend of 14.25 cents per share to be paid on 17 March 2006. There were 230,931,342 ordinary shares on issue so this amounted to a declared dividend of $32,907,716. 51 BBIPL declared the corresponding dividend on the same day, 23 February 2006, and immediately discharged the debt due to BBL as a result of that declaration by the delivery of a promissory note in the amount of $32,907,716 which was payable no later than 23 March 2006. BBL was therefore in receipt of this dividend from BBIPL on the day it declared to BBL shareholders its final dividend. 52 The BBL dividend which was declared on that day was explicitly said to be 'the final dividend for the Year Ended 31 December 2005' so that, by s 254T, it had be to be paid out of BBL's profits for that year. The financial statements for the financial year ending 31 December 2005 revealed, however, profits for BBL of only $5,577,000 (constituted by retained earnings). Assuming the continued orthodoxy of IEL, this involved a payment of $27,330,716 of the dividend other than out of profits. This was, it is not disputed, a breach of article 29.1 of the constitution and s 254T of the Act. It was also agreed that it involved an unauthorised reduction of capital. 53 The decision to declare the dividend in that circumstance may seem, at first blush, difficult to understand. The sub-committee of the BBL board acted as it did, however, because by the time it had to pay the dividend to the BBL shareholders it had already received an identical payment from BBIPL. The board of BBIPL (which had the same directors) had before it a memorandum prepared by management recommending the payment of a dividend dated 16 February 2006. It used slightly different figures to the ones which were eventually adopted by the special purpose sub-committee but it revealed the accounting error which was made. It said: 'A recommendation for the payment of a dividend has been put forward to the Directors of BBIPL, a 71.06% owned subsidiary of BBL for the payment of a 13.85 cents unfranked dividend per share (consisting entirely of conduit foreign income - see below). BBL's share of this dividend is $31,983,991.15. The BBIPL dividend is due for payment on or around 5 March 2006. At 31 December 2005, the BBL entity had retained earnings of $5,576,439. The net retained earnings after the receipt of the BBIPL dividend above will be $37,560,430.15. The retained earnings at date of payment will be sufficient to pay the proposed dividend below.' (emphasis added) 54 Unfortunately, the final dividend for the financial year ended 31 December 2005 could only be 'paid' out of profits made that year. The emphasised last sentence in the quote above was notionally correct in the sense that the total of the retained earnings which would exist by the time that dividend was to be paid was indeed sufficient to meet the dividend but substantially it was incorrect because the issue was not whether the profits were sufficient at the time of the final dividend's payment but whether they were sufficient at the balance sheet date of 31 December 2005. To put it shortly: a correct answer was given to the wrong question. The receipt by BBL of the corresponding BBIPL dividend before BBL paid its dividend did not solve the shortfall in retained earnings because that receipt would occur in the 2006 financial year, the wrong year. Once the 2005 year was finished the profits for the year were set in stone and could not subsequently be altered by events occurring after the reporting date. 55 I have flagged above some difficulties which may attend the substitution of the word 'paid' for 'payable' in s 254T in 1998. In particular, because profit is a measurement of the extent to which earnings have exceeded expenses in a defined period, rather than an identifiable sum of money, it is difficult to understand how something might be 'paid' from it. The underlying concept appears to be that in any accounting year the final dividends should not exceed the profits made. This is not what the word 'paid' naturally connotes. 56 In whatever way those difficulties are resolved, however, BBL cannot avoid a contravention of s 254T in this case. If 'paid' is interpreted as including the incurring of a debt by the declaration of a final dividend then the orthodoxy of IEL will directly apply and s 254T will be breached by the declaration. If 'paid' means instead the discharge of a pre-existing debt by the tender of some act as satisfaction of the debt then whatever that act is (delivery of a cheque, transfer of funds by EFT and so on) that payment will contravene s 254T. Whether s 254T operated to prohibit the declaration of the dividend or its subsequent payment, BBL did both so that, whatever the provision means, it was breached. No doubt it was for those reasons that the parties did not seek to explore exactly what the 1998 amendments had really done. Accordingly, it is not necessary for me to express a view. 57 Essentially, the same events took place in the 2006 and 2007 years. Insofar as the financial year ending 31 December 2006 is concerned, management recommended to the BBIPL board on 8 February 2007 that it should declare a final dividend of $0.21 to be paid on 10 April 2007 and that the BBL board should declare an identical dividend to be paid on 11 April 2007. On 20 February 2007 the BBIPL board met, declared a dividend of $0.21 and authorised the issue of a promissory note with which to pay it. The declaration created a debt in favour of BBL of $56,384,518. A special purpose subcommittee of the BBL board (to which the function of declaring the final dividend had earlier been delegated) met on 22 February 2007. It noted that BBIPL had declared a dividend of $0.21 which had resulted in BBIPL owing it $56,384,518 and that the payment of this debt had been settled by a promissory note. The committee then declared an identical dividend of $0.21 to the shareholders of BBL of $56,384,518. BBL paid this dividend on 11 April 2007. For the 2006 financial year BBL's retained earnings were $10,665,000 so this dividend was paid out of capital to a significant proportion. 58 Insofar as the financial year ended 31 December 2007 is concerned, the financial statements for BBL for that year revealed that the retained earnings were $11,952,000. On 19 February 2008 BBIPL declared a dividend of $0.33 per share which was $96,995,110.74. On the same day the BBL board delegated the declaration of a final dividend to a special purpose committee. On 21 February 2008 BBIPL owed BBL $96,995,110.74 for the dividend and paid that dividend by the delivery of a promissory note. On 21 February 2008 (the same day), the special purpose committee of the board of BBL met, noted BBIPL's dividend and its payment by the delivery of the promissory note and then declared an identical dividend to BBL shareholders of $0.33, that is, $96,995,110.74. The terms of its resolution suggest that what was declared was an interim dividend. However, its only authority from the BBL board was to declare a final dividend. No party suggested that the effect of what had occurred was that an interim dividend had been paid and the issue may be put to one side. 59 The final dividends declared for the years 2005-2007 each had a significant component therefore which was not paid out of profits (whatever the content of 'paid' in that context means). This was a contravention of s 254T, a breach of article 29.1 of BBL's constitution and also had the effect of being an unauthorised reduction of capital contrary to s 256D of the Act. 60 Was this a matter which BBL was bound to disclose to the market under its obligation of continuous disclosure? On this branch of the case the five principal issues were: (a) the basic question; (b) the identity of those who commonly invest in securities referred to in s 677; (c) the identification of the relevant information; (d) whether persons who commonly invest in securities would be influenced in their investment decisions by such information; and (e) whether the information was generally available. 61 It is useful to deal with these separately.

(a) The basic question 62 The relevant tests arise from the text of s 674(2) (above at [34]) but the real issue is driven by the deeming provision in s 677. It provides: '677 Sections 674 and 675 - material effect on price or value For the purposes of sections 674 and 675, a reasonable person would be taken to expect information to have a material effect on the price or value of ED securities of a disclosing entity if the information would, or would be likely to, influence persons who commonly invest in securities in deciding whether to acquire or dispose of the ED securities.' 63 It was not submitted that I should find a breach of s 674(2) which does not result from the enlivenment of s 677. I do not need to consider the issue, therefore, of whether there is additional work for s 674(2) to do, disconnected from the operation of s 677. The better view seems to admit of the theoretical possibility that there is: cf. Jubilee Mines NL v Riley (2009) 40 WAR 299 at 316 [58]-[59] (FC) ('Jubilee') per Martin CJ (in relation to the former and equivalent s 1001A(2)(b) of the Corporations Law); National Australia Bank Ltd v Pathway Investments Pty Ltd (2012) 265 FLR 247 at 262 [68] (CA). 64 What s 677 poses is an objective test to be applied at the time it is alleged the disclosure should have occurred. This involves a survey of all of the available material including, because they are part of the factual matrix, the views of the company and individual investors whilst accepting, of course, that those views cannot by themselves be determinative: James Hardie Industries NV v Australian Securities and Investments Commission (2010) 274 ALR 85 at 195 [527] (CA) ('James Hardie') (reversed on other grounds in Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345). Despite this ex ante approach, it is nevertheless permissible to examine how the market subsequently behaved when the information was disclosed as a device for confirming the correctness of a conclusion already reached: James Hardie (2010) 274 ALR 85 at 197 [534]-[537]; Australian Securities and Investments Commission v Fortescue Metals Group Ltd (No 5) (2009) 264 ALR 201 at 301 [477]. Authority plainly establishes this to be the case but there does appear to be a lack of logic about it. Presumably the subsequent material is excluded from the analysis because it is not logically probative. But if it is not logically probative how can it be useful as a checking mechanism? It can only be useful as a check if it has some probative force for, generally, one does not cross-check the correctness of work against non-probative criteria. I do not, for example, consult the horoscope at the end of a judgment to see if I have reached the right conclusion. This might suggest, authority aside, that either one should permit subsequent events to be utilised as part of the primary tools of analysis (if they are thought to have some value) or they should be excluded altogether even as tools of secondary confirmation (if they are thought to have none). The current position seems to be internally inconsistent. 65 Leaving those observations to one side, there may be further practical difficulties in some cases in applying such an approach where the information is disclosed simultaneously with other market sensitive information. In such cases, it can be difficult, perhaps impossible, to ascertain how much of the price change which occurred was caused by which piece of information.

(b) The identity of those who commonly invest in securities referred to in s 677 66 Despite those doubts, I did not really understand the above tests to be in dispute. Where there was a debate, however, was on the question of who were the 'persons who commonly invest in securities' referred to in s 677. It was for an assessment of the reaction of this class of person to the posited information that s 677 called. 67 Mr White of counsel submitted that the class was broad and that many people 'commonly invest' in securities. It was said, in effect, that the acquisition of shares by the public had become so widespread that this class should not be thought necessarily sophisticated enough to understand the significance of a set of financial reports which disclosed the payment of a final dividend which was larger than retained profits. Particular mention was made of the position of self-funded retirees. 68 I do not accept this submission. Whether the reference in s 677 to 'persons who commonly invest in securities' requires a contemplation of a hypothetical investor of the kind who is buying securities in the company in question or securities in general has not, apparently, been definitively decided in this country. In Jubilee the company involved was described as a 'junior' mining company. At trial the Master had proceeded on the basis that the investors referred to in the then equivalent to s 677 (s 1001D) were those who commonly invested in small speculative miners: Riley v Jubilee Mines NL (2006) 59 ACSR 252 at 268 [63]. On appeal this conclusion was not challenged. Martin CJ referred to the application of that approach without either approving or disapproving it: Jubilee (2009) 40 WAR 299 at 328 [121]-[122]. The learned authors of Ford, Austin and Ramsay's Principles of Corporations Law at pp 827-828, on the other hand, express the view that the approach of the parties in Jubilee is the correct one. 69 There are some difficulties with that view of s 677, however. First, it is not what the section says. It does not say 'persons who commonly invest in securities of a kind or class to which the disclosing entity belongs' (my emphasis). Secondly, there would be considerable difficulties in identifying the relevant genus of entities. In Jubilee it was said that the company was a junior miner so that the investors to be examined were those investing in junior miners. But, one might ask rhetorically, was the company not also more generally a mining company or a company with a certain capitalisation or a company which had not recently paid a dividend? There are many ways any particular company might be characterised for the purpose of identifying the relevant genus of potential investors but nothing in s 677 indicates how the choice between these competing characterisations might be made. Thirdly, it is quite unclear what the securities would actually be. Securities include shares but also futures and options and there may be persons who commonly invest in one type of security without investing in the others. Fourthly, the foregoing observation shows that a construction of s 677 that introduces a particular kind of investor into the analysis causes the provision to apply a fluctuating standard. For example, people who commonly invest in warrants on Commonwealth Bank shares might be much more sophisticated than those investors who simply invest in the bank's ordinary shares. If s 677 is applied to that situation on the assumption that one is to have regard to the position of those who commonly invest in securities 'of a kind or class to which the disclosing entity belongs' one is left in something of a quandary as to which set of security holders in a given listed entity is to be examined. Fifthly, s 676 by contrast does use language which suggests a narrower class than 'persons who commonly invest in securities'; it uses the language of 'persons who commonly invest in securities of a kind whose price or value might be effected by the information'. The fact that s 676 uses that language but s 677 does not rather suggests that a narrowing was intended in one provision but not the other. 70 These considerations persuade me that the approach to s 677 adopted by the parties in Jubilee (but not endorsed by the Court of Appeal) is incorrect. Section 677 should be interpreted in light of its ordinary language. The subject matter of Chapter 6CA is continuous disclosure by 'listed disclosing entit[ies]': s 674(1). I would therefore read the word 'securities' in s 677 somewhat more narrowly than the extensive definition of securities contained in s 92(3) and would confine it to listed securities because the context appears unavoidably to require this. The section therefore refers to persons who ordinarily or usually invest in listed securities. The plural is significant - what is posited is not a single investor but a class and the attributes which are to be identified are class attributes and not individual ones. I do not think 'commonly' means that the investors must be professionals in the sense that a livelihood must be derived from investing activities but it does denote a degree of sophistication which might be expected from those who have more than a passing or occasional interest in the activities of securities exchanges. Dictionaries have their limitations, as courts have often enough observed (see, e.g., Polo/Lauren Company LP v Ziliani Holdings Pty Ltd (2008) 173 FCR 266 at 273 [24]-[25] (FC)), but both the Macquarie and Oxford English Dictionaries agree that 'commonly' means, in this context, usually or ordinarily. 71 The word in the statute nevertheless remains 'commonly' and it is that word - and not some paraphrase of it - which is to be applied. Reflections on synonyms are to be understood not as the search for the precise content of a word - no words have precise permanent contents (cf. 'epic' which now means 'big' and 'too easy' which now means 'yes') - but instead as the search for informing concepts. 72 I do not think, in that circumstance, that I should accept Mr White's submission that the kinds of investors to whom s 677 is directed include self-funded retirees who, from time to time, (perhaps between games of bingo) play the stockmarket. Instead, I propose to ask myself whether persons who commonly invest in securities would be influenced by the posited information in their decisions to buy or sell shares in BBL.

(c) The identification of the relevant information 73 So much for the identity of those whose views are to be assessed. Next one must consider what the information to be disclosed actually is. The Court of Appeal's decision in Jubilee shows that in a non-disclosure case it is necessary to identify what it was that should have been disclosed before approaching the market reaction issues posed by s 677: e.g. Jubilee (2009) 40 WAR 299 at 317 [63]. In particular, it does not follow simply that the information which a plaintiff alleges should have been disclosed is, in fact, the correct expression of the relevant information. In Jubilee the plaintiff had relied upon an alleged failure by a mining company to disclose, inter alia, the results of certain drilling tests conducted on a tenement. It was decided by the Master at the trial that the contents of the tests should have been disclosed to the market. However, the evidence also showed that the company presently had no intention of conducting mining operations on the tenement. The Court of Appeal, in reversing the Master, concluded that the information which was to be considered was not, as the plaintiff alleged, the results of the tests. Rather, it was the results of the tests together with the fact that the company had no present intention of exploiting the tenement. When this information was assessed for the effect its disclosure would have had on the market, the answer, the Court concluded (at 329 [125], 341 [186] and 343 [199]), was that it would have had no effect. 74 In this case, an application of Jubilee therefore requires an assessment of the correctness of BBL's defensive submission that the payment of the final dividends out of capital rather than retained earnings had no economic consequences. This is because, if it be correct, what is to be considered for its disclosability is both the fact of the unauthorised reduction of capital and the proposition that that reduction had no economic consequences. It will be obvious that if this is the correct form of the information then it has significant implications for the market impact questions which arise from s 677. 75 The evidence on this topic was given by Professor Frino (for the plaintiffs) and Mr Lonergan (for BBL). 76 Professor Frino produced two reports in chief (dated 25 May 2014 and 18 June 2014 respectively) and a third in reply (dated 8 July 2014). 77 In his first report he answered, inter alia, two questions which had been posed for his consideration by the plaintiffs' solicitors. These were: '(i) Was the above information, separately or cumulatively, information that a reasonable person would expect, if it had been generally available, to have had a material effect on the price or value of the shares of BBL? … (iii) If the information had been disclosed to the ASX by BBL in accordance with its obligations under s 674 of the Act and Rule 3.1 of the Listing Rules, what would have been the effect, separately or cumulatively, on the price or value of the shares in BBL?' 78 The first step in Professor Frino's reasoning, which step I accept, was that the market for the shares in BBL was an efficient market to which the efficient market hypothesis could be applied. What this meant, so far as the present case was concerned, was that new information would be rapidly reflected in price changes in the stock. Professor Frino thought the market in BBL's shares to be efficient, in that sense, because of the amount of trading in it, BBL's market capitalisation and the number of analysts - nine - who were following the stock. Mr Lonergan agreed with Professor Frino about this and I accept it too. It is no more than the proposition that freshly disclosed information would have affected the share price. 79 Professor Frino thought that the information that the final dividends for the 2005-2007 years had been paid out of capital was unlikely to be known to the market because: i. the payment of dividends out of capital was forbidden by s 254T and this would create an expectation in the market that a final dividend would not have been paid out of capital; ii. whilst it was true that the dividends were disclosed in the notes to the financial statements for BBL and that a comparison between those notes and the reported retained earnings would have signalled that there had been an unauthorised reduction of capital, the presence of this information in a note rather than in the accounts themselves meant it was less likely to become known; and iii. the accounts did not disclose that the retained profits in each year had been reduced to zero by the dividend. 80 Professor Frino supported the reasoning for proposition (ii) by reference to some empirical studies which suggested that information disclosed in notes to financial reports had less impact on stock prices than information recorded in the balance sheet itself. 81 The final step in his process of reasoning was then to observe that the effect of the payment of the final dividends was twofold: it was a reduction in capital but it was also a reduction of retained earnings to nil. As to the former, Professor Frino thought that any reduction in capital could encumber a company's ability to maintain its productive capacity and therefore reduce its ability to generate future cashflow which could, in turn, reduce its value and therefore negatively impact on its share price. As to the latter, he drew on empirical research that suggested a correlation between falling reported retained earnings and subsequent corporate failure. 82 I think there are a number of problems with these various contentions, largely of the kind outlined by Mr Lonergan. 83 One begins with two facts which are not in dispute. The first is that the financial accounts for the year ending 31 December 2005 disclosed not only the retained earnings but also the fact that a final dividend was to be declared for that year which, on its face, exceeded those retained earnings. The second is that BBL was part of a group which delivered consolidated accounts. On 30 March 2006 BBL provided the ASX with its financial report for the 2005 year. On page one of that report, under the heading 'Dividends', it said: 'A final unfranked dividend for the 2005 Financial Year of 14.25 cents per share amounting to $32.9 million, was paid on 17 March 2006.' 84 The financial statements for BBL itself and for the group on a consolidated basis were included in the report. In the balance sheet which formed part of those financial statements there was a heading 'Equity' under which the following appeared: Consolidated Babcock & Brown Limited Note 31 December 31 December 31 December 31 December 2005 2004 2005 2004 $'000 $'000 $'000 $'000 ….. Equity Contributed Equity 31 457,608 458,392 547,760 548,716 Reserves 32 47,126 3,209 44,372 5,988 Retained earnings 32 161,106 230 5,577 1,846 Parent entity interest in equity 665,840 461,831 597,709 556,550 Minority interest 448,971 300,071 Total Equity 1,114,811 761,902 597,709 556,550

85 Looking at BBL's position as at 31 December 2005 it was plain that the dividend disclosed at p 1 of $32.9 million significantly exceeded BBL's retained earnings of $5,577,000 disclosed in the financial statements by more than $26 million. On the other hand, it is equally clear that the group's retained earnings of $161,106,000 were abundantly sufficient to meet the dividend of $32.9 million. 86 It is that fact which shows, in this case, that what occurred had no economic significance. Professor Frino's argument holds plausibly as long as one steadfastly ignores both that BBL had received a corresponding dividend from BBIPL when it declared its own final dividend and that the group profits were more than sufficient to warrant the BBL dividend. 87 The cross-examination of Professor Frino revealed that his opinion that the information would have an impact on the price of BBL shares had been formed: (i) with an understanding on his part that BBL was 'ring-fenced' from BBIPL and potentially did not have access to BBIPL's assets; and (ii) without being aware that BBIPL had declared an equivalent dividend to BBL at the same time that BBL declared its final dividend. 88 These are critical misconceptions which substantially undermine Professor Frino's conclusions. Professor Frino obtained the view that BBL could be separated or ring-fenced from BBIPL from the administrators' report of 12 August 2009. In that report the administrators gave attention to the question, as might naturally be expected, of when it was that BBL first became insolvent. This involved an analysis of the events of November and December 2008. At that time, the Babcock and Brown group was in close negotiations with the banking syndicate to restructure the bank debt. There were two proposals on the table called Plan A and Plan B. These proposals were complex but there is no present need to set out their minutiae to understand the error into which Professor Frino has fallen. In the main, Plan A involved trying to preserve the infrastructure assets of the group since these were thought to be valuable in the long term. It involved a complete restructuring of the business and also of the bank debt. One feature of it was the establishment of a new entity holding all the assets and then the 'ring-fencing' or 'firewalling' of that new business, free from what are sometimes called legacy obligations. 89 Pausing there, it will be obvious that this was a proposal only and that BBL and BBIPL had no legal right to bring about such a state of affairs. It depended entirely on a restructuring which had not occurred and could not occur without the consent of the banking syndicate. There is nothing to suggest that BBL or BBIPL ever had an ability to separate themselves from the assets of the underlying businesses. Put another way, to read the proposals is to see at once that there was neither a 'ring-fence' nor a 'firewall' in place at any time nor any ability by BBL to effect one. 90 When the administrators produced their report to creditors on 12 August 2009 they dealt with the issue of solvency in these terms: '● In November 2008 the BBIPL Board considered the solvency of BBIPL and its subsidiaries at length. The BBIPL Board eventually concluded that BBIPL and its subsidiaries were not insolvent as they believed that there were sufficient grounds to satisfy themselves that the BBIPL Corporate Facility was likely to be restructured in way [sic] that would maintain technical solvency. It was in this context that the "pay as you can" concept was first discussed. ● At the same time there is evidence to suggest that BBIPL implemented a "firewall" strategy, through which BBL was effectively "divorced" from the rest of the Group. Furthermore, we did not see any evidence in the minutes of the meetings of the BBL Board and BBIPL Board for November 2008 that addressed how BBL was to be accommodated in terms of the restructure of the BBIPL Corporate Facility. ● We are aware that in December 2008 Management submitted two proposals to the BBIPL Banking Syndicate, known as 'Plan A' and 'Plan B'. Under Plan A the Group would have been recapitalised and have continued as a going concern. Management advised us that BBL would have been accommodated under this scenario, however the minutes of the BBL Board and BBIPL Board do not reflect that the position of BBL was ever separately considered. The introduction of the "firewall strategy" in November 2008 suggests that BBL may not have had the Group's continued financial support from that time onward. Plan B was for an orderly realisation of the Group's assets, which became the preferred option of the BBIPL Banking Syndicate. ● We believe that as a consequence of the above BBL became insolvent at the latest on or about 29 November 2008. Accordingly, the BBL Board should have acted at this stage to: o suspend trading in BBL listed securities; o make an announcement to the market regarding BBL's solvency and the implications of the proposed restructure of the BBIPL Corporate Facility; o place BBL into voluntary administration.' [emphasis added] 91 The italicised portion is wrong; there was no such strategy. Although the liquidator expressly submitted to this Court that there was no such strategy he did not suggest that its non-existence had any implications for the correctness of the view he had earlier formed as administrator that BBL was insolvent by 29 November 2008. The conclusion that BBL was insolvent on that date now appears to be premised on a state of affairs which the liquidator denies. I will return to the issues concerning solvency in Section VI but the non-existence of the ring-fence/firewall has potential implications for the correctness of the view that BBL was insolvent on 29 November 2008. 92 Its relevance for present purposes, however, is that Professor Frino is quite wrong in thinking that BBL could simply be disconnected from BBIPL 'at the whim of the board'. Yet it was precisely that assumption which formed a significant basis for his opinion. This was clear from his cross-examination at T102 where this exchange between Professor Frino and counsel for the defendants, Mr Lockhart SC, took place: 'I think you have agreed with me that what such an investor is really interested in is the earnings of the group and retained earnings of the group, as opposed to the stand-alone position of BBL Limited, subject to what you describe is the firewall strategy. Do you agree with that?---So - no. What the investor should be interested in is the future cash flows that will cashflows that will flow from the entity that - flow to - will be generated by the entity that they own. That entity is the parent, BBL. Insofar as the entity is connected to an underlying, then you could safely assume that the cashflows generated by the underlying will flow through to the parent. However, if it's very straightforward to simply disconnect the two entities at a future date at the whim of the Board, then that's very important information that should be taken into account by the investor - by a well-informed investor. On what basis have you formed the view that it was very straightforward to disengage the entities by the Board - at the whim of a Board?---Purely on the basis of the administrator's report, who actually fails to understand how they were able to do it, as far as I can tell. So it's based upon what's referred to in the administrator's report?---Correct. That's the extent of your understanding of the firewall strategy?---That is the extent of the information that I had. And I judge that to be fairly important information. Well, by the time that the dividends were declared by BBL to its shareholders, it did, in fact, have the benefit of a declaration of dividend by BBIPL, didn't it? If you assume that as a fact?---Yes. And that would make some difference to your assessment of the way shareholders would receive the dividends in 2005, 2006 and 2007. Would you agree?---It would mean that if that information, that you have just told me, was released on the declaration date - which is common by some companies - it would correct the initial negative price adjustment that you see on the proposal date, which occurs before the declaration date.' 93 In light of this evidence, I cannot accept Professor Frino's evidence about the significance of the capital reduction for the value of the shares. Once the ring-fence/firewall is put to one side it is obvious that BBL's shareholders were interested in the performance of the group as whole and not in the stand alone position of BBL. 94 Another reason for rejecting Professor Frino's evidence that the capital reduction by BBL would have had an impact on the BBL share price is that he did not properly account for the fact that BBIPL did declare and pay to BBL an identical dividend on the day BBL declared its dividend. The last answer given by Professor Frino above, I think, in substance accepts the correctness of the proposition that the declaration of a corresponding dividend by BBIPL would primarily reverse any negative impact on the BBL share price. 95 For that reason, I conclude that the fact that BBL paid a dividend out of profits was of no economic significance to the shareholders of BBL. The financial realities of the Babcock and Brown group were concerned with its consolidated position and not the stand alone position of BBL. Insofar as the consolidated position was concerned, there were more than enough profits within the group to meet the dividend and the group did not, on a consolidated basis, undergo any reduction in its capital. 96 This suggests, and I conclude, that the unauthorised capital reduction which occurred was an internal accounting issue within the group and was of no financial significance to those interested in the group's performance as a whole, such as those who commonly invest in securities. The correctness of this observation is underscored by the fact that the problem - had it been realised - was entirely soluble and could have been resolved without any change to the quantum of the dividends. The most obvious solution would have been to pay an interim dividend for the 2006 year in lieu of the final dividend. This would have been lawful and economically identical. 97 It is not necessary for me to express a concluded view on the other aspects of Professor Frino's evidence which Mr Lockhart also criticised. These included his use of studies apparently showing that companies whose retained earnings were going down often ended up in dire straits. Had it been necessary, I would have regarded this material as unhelpful because none of it dealt with the situation of a company in the somewhat particular circumstances of BBL where the decline in retained profits had occurred only in a holding company but did not exist on a consolidated group basis. 98 I was also inclined to regard Professor Frino's evidence that information imparted by way of notes had less impact on price than information imparted in the accounts themselves as ultimately unhelpful. This is not because the effect might not have some basis in reality, but because the information in this case could not be disclosed in the main body of the accounts since it was a post-balance sheet date event; it therefore had to be disclosed in the notes. Professor Frino thought that it could have been the subject of a separate disclosure which I took to mean as a separate statement in addition to the accounts. The difficulty with that, however, is that the study he relied upon was not directed to disclosures other than in financial statements. There was also not inconsiderable force in BBL's point that, in any event, the particular paper in question (PY Davis-Friday, L Buky Folami, Chao-Shin Liu, H Fred Mittelstaedt, "The Value Relevance of Financial Statement Recognition vs. Disclosure: Evidence from SFAS No. 106" (1999) 74(4) The Accounting Review 403) contains only tentative support for Professor Frino's argument. The authors' ultimate conclusion was: 'Some of the results are consistent with the FASB's contention that footnote disclosures are not adequate substitutes for recognized accounting information. These results also suggest that researchers may not be able to assume that recognized and disclosed amounts are priced by the market in the same manner. To further validate our results, future research should identify other contexts where the empirical problems mentioned in Bernard and Schipper (1994) can be addressed. Given that certain results depend on whether pension assets and liabilities are netted, future research should also address ways to evaluate appropriate model selection.' 99 The tentative nature of that conclusion together with the fact that the entities the subject of the study were US pension funds rather than finance firms would have persuaded me that the general proposition for which Professor Frino contended was not made good. And, of course, the same problem of the study not dealing with the position of holding companies where the consolidated group position is satisfactory arises again. This is not to say that I am necessarily satisfied that he is wrong about the existence of the effect at least as a matter of general principle but rather, keeping a weather eye on who bears the onus of proof, that I am not satisfied on the balance of probabilities that he is right in the case of an entity such as BBL. 100 In any event, for the reason I have already given, the fact that the final dividend for the 2005 financial year was partially paid out of capital was economically irrelevant to the value of the traded BBL shares. I reach the same conclusion for the 2006 and 2007 final dividends, whose circumstances of payment are not materially different. 101 In light of that conclusion, I do not accept that the capital reduction information consisted simply of the mere fact that for each year part of each final dividend had been paid out of capital. The whole situation had to be disclosed. It would have been quite misleading to have disclosed that the dividend payment had resulted in an unauthorised reduction of capital (with the alarming connotation such words naturally engender) without also disclosing that this was without any economic consequence. If disclosure was to be made what was to be disclosed (using the 2005 year as an example) was that: (i) the declaration of the dividend by BBL contravened s 254T because the retained profits for the 2005 financial year for BBL on a stand-alone basis were less than the proposed dividend; but (ii) the Babcock and Brown group had sufficient retained earnings on a consolidated basis to pay the dividend and the issue only arose because any dividend declared by BBIPL for the 2005 year would only be received as income in the 2006 year; such that (iii) it was purely an accounting issue; and (iv) it had no impact on the value of shares in BBL.

(d) Whether persons who commonly invest in securities would be influenced in their investment decisions by such information 102 Couched in the above terms, it is clear that persons who commonly invest in securities would neither be influenced nor likely to be influenced in deciding whether to acquire or dispose of securities in BBL by such information which was likely to be of interest only to those who study accounting standards. Neither s 677 nor, in consequence, s 674(2)(c)(ii) are satisfied (noting again that no use of s 674(2)(c)(ii) independent of s 677 was pursued). This means that the case under s 674(2) in relation to the declaration of the final dividends fails.

(e) Whether the information was generally available 103 It is unnecessary, therefore, to determine whether the requirement of s 674(2)(c)(i) that the information not be generally available was also satisfied. Lest the matter go further it is appropriate, however, to record my finding that the information was generally available. Relevant to this inquiry is s 676 which provides: '676 Sections 674 and 675 - when information is generally available (1) This section has effect for the purposes of sections 674 and 675. (2) Information is generally available if: (a) it consists of readily observable matter; or (b) without limiting the generality of paragraph (a), both of the following subparagraphs apply: (i) it has been made known in a manner that would, or would be likely to, bring it to the attention of persons who commonly invest in securities of a kind whose price or value might be affected by the information; and (ii) since it was so made known, a reasonable period for it to be disseminated among such persons has elapsed. (3) Information is also generally available if it consists of deductions, conclusions or inferences made or drawn from either or both of the following: (a) information referred to in paragraph (2)(a); (b) information made known as mentioned in subparagraph (2)(b)(i).' 104 Whilst the High Court has held in other contexts that 'information' does not include reasoning processes (SZBYR v Minister for Immigration and Citizenship (2007) 235 ALR 609 at 616 [18]) this has no application in the face of an express provision such as s 676(3) which makes it plain that it does. The 2005 financial reports disclosed: (i) the amount of the dividend; and (ii) the amount of retained earnings. 105 That information fell within s 676(2)(b)(i) because those who commonly invested in BBL shares would be likely to have become acquainted with the information by reason of its formal provision to the market. The fact that the dividend was larger than the retained earnings was a fact which was able to be deduced from that material; further, the fact that this necessarily involved an unauthorised reduction of capital was similarly able to be deduced from the same information. Consequently the information the plaintiffs rely upon was 'generally available' under s 676. Therefore the requirement of s 674(2)(c)(i) was not satisfied. 106 These conclusions apply to the 2005 financial year. Identical reasoning applies to the 2006 and 2007 financial years. 107 The plaintiffs' case based on a failure to disclose that the dividends in the 2005-2007 financial years had been partially paid out of capital therefore fails. The information which would have been disclosed was more nuanced than the plaintiffs contended, was of a kind that could have no impact on the share price and was, in any event, generally available.

V Whether BBL's financial statements gave a true and fair view of its financial position 108 The plaintiffs then drew upon the payment of the final dividends out of capital for the financial years 2005-2007 to argue that the financial reports which had been prepared and released to the ASX did not give a true and fair view of the financial position of BBL because they did not expressly disclose the unauthorised reduction of capital. 109 This is the most difficult part of the case and it is, I think, a question about which minds may legitimately differ. It is useful to begin with the way the accounts were prepared. 110 On 30 March 2006 BBL released its financial report for the year ended 31 December 2005. The directors resolved that the report gave a true and fair view of BBL's and the consolidated entity's financial position as at 31 December 2005 and one of the directors, a Mr Green, signed the report on behalf of the board and stated that that resolution had been made by the directors. 111 The balance sheet appeared at p 3. I have already set out the relevant extract from it at [84] above. The retained earnings of BBL were shown as $5,577,000 and a reference was made to note 32. 112 Note 32 dealt with reserves and retained earnings. The relevant portion was as follows: 32. RESERVES AND RETAINED EARNINGS Consolidated Babcock & Brown Limited 2005 2004 2005 2004 $'000 $'000 $'000 $'000 Retained earnings 161,106 230 5,577 1,846 Foreign currency translation reserve 42 1,250 - - Share based payments reserve 44,372 5,988 44,372 5,988 Cash flow hedge reserve (3,259) (7,172) - - Available-for-sale financial assets reserve 5,971 3,143 - - 47,126 3,209 44,372 5,988 Movements: (a) Retained earnings Balance at beginning of the financial period 230 88,134 1,846 - Opening retained earnings attributable to the members of Babcock & Brown Holdings, Inc - (88,134) - - Net profit attributable to members of Babcock & Brown Limited 179,988 230 23,938 1,846 Dividends paid (19,112) - (20,207) - Balance at end of the financial period 161,106 230 5,577 1,846

113 This suggested that the retained earnings on 31 December 2004 were $1,846,000, that $23,938,000 was 'attributable' to BBL by way of a profit and that, in the 2005 financial year, a dividend of $20,207,000 had been paid. These two figures were explained in other parts of the report. As to the figure of $23,938,000 by way of 'attributable' profit, this came from the income statement at p 2. 114 Note 6 revealed more about the dividend situation. It said this: 6. DIVIDENDS PAID AND PROPOSED Babcock & Brown Limited 2005 2004 $'000 $'000 Declared and paid during the year Dividends on ordinary shares: Interim franked dividend for 2005: 8.75 cents fully franked (2004: nil cents)

20,207 - Proposed (not recognised as a liability at year end) Dividends on ordinary shares: Final unfranked dividend for 2005: 14.25 cents unfranked (2004: nil cents) 32,908 -

115 Thus the dividend which was used for the calculation of the retained earnings in note 32 was the interim dividend of $20,207,000 and did not include the final dividend of $32,908,000. This was in accordance with Accounting Standard AASB 110 - Events after the Balance Sheet Date ('AASB 110') which provided: '12. If an entity declares [emphasis added] dividends to holders of equity instruments (as defined in AASB 132 Financial Instruments: Disclosure and Presentation) after the reporting date, the entity shall not recognise those dividends as a liability at the reporting date. 13. If dividends are declared [emphasis added] (i.e. the dividends are appropriately authorised and no longer at the discretion of the entity) after the reporting date but before the financial report is authorised for issue, the dividends are not recognised as a liability at the reporting date because they do not meet the criteria of a present obligation in AASB 137. Such dividends are disclosed in the notes in the financial report in accordance with AASB 101 Presentation of Financial Statements.' 116 In this case the reporting date was 31 December 2005. The final dividend was declared on 23 February 2006 and the financial report was issued on 30 March 2006. Thus cl 12 of AASB 110 required that the final dividend not be reported as a liability and cl 13 required that it be disclosed by way of a note. The report complies with both requirements. 117 The Report did not, however, point out that the final dividend disclosed in note 6 of $32,908,000 exceeded the retained profit reported in the balance sheet (and disclosed again at note 32 to the balance sheet) of $5,577,000. No accounting standard expressly required an unauthorised reduction to be disclosed in the accounts and the Act, whilst prohibiting the transaction, did not expressly require disclosure of that breach in the accounts either. 118 Section 297 of the Act provided: '297 True and fair view The financial statements and notes for a financial year must give a true and fair view of: (a) the financial position and performance of the company, registered scheme or disclosing entity; and (b) if consolidated financial statements are required - the financial position and performance of the consolidated entity. This section does not affect the obligation under section 296 for a financial report to comply with accounting standards. Note: If the financial statements and notes prepared in compliance with the accounting standards would not give a true and fair view, additional information must be included in the notes to the financial statements under paragraph 295(3)(c).' 119 Not only must a report give a true and fair view, it must be drawn in accordance with the accounting standards. This follows from s 296(1) which relevantly provided: '296 Compliance with accounting standards and regulations (1) The financial report for a financial year must comply with the accounting standards…' 120 If the preparation of a report in accordance with the accounting standards (as required by s 296) would not give a true and fair view (as required by s 297) then the report must include a note containing whatever information is necessary to ensure that it does give a true and fair view: s 295(3) ('The notes to the Financial statements are: …(c) any other information necessary to give a true and fair view'). 121 Dr Coulton observed in his report that the financial report for the 2005 year (he made the same point for the other years) did not disclose that: (i) the final dividend declared exceeded the retained profits; or (ii) that this was a breach of both BBL's constitution (art 29.1) and the Act (s 254T) 122 He noted that, by contrast, much prominence had been given to the actual amount of the final dividend, appearing, as it did, in the actual text of the announcement to the ASX as well as in the report itself. 123 In those circumstances he was of the view that the accounts could not be 'true and fair'. They did not reveal that the final dividend was to be paid in contravention of BBL's constitution and s 254T of the Act. Further, the report was deficient in relation to capital maintenance 'which has long been a critical aspect of investor protection'. 124 Mr Lonergan did not agree with Dr Coulton for four reasons. First, in his view in all but exceptional circumstances what was true and fair followed from applying the accounting standards and the objectives of financial statements as set out in AASB - Framework for the Preparation and Presentation of Financial Statements ('the Framework'). 125 Secondly, BBL's financial report complied with all the relevant accounting standards and, prima facie, this meant that it gave a true and fair view of the company's position. 126 Thirdly, whilst the Framework did permit, on rare occasions, additional disclosures outside the Standards themselves this was not necessary in this case because: financial statements are designed to reflect a financial rather than legal focus; the proposed disclosures would have had no material impact on the financial statements; the capital maintenance concepts that are relevant to users of financial statements made it unnecessary; the AASB criteria for additional disclosure were not met; and the market was already informed from a financial perspective. 127 Fourthly, users of the accounts would have expected that at the time each final dividend was to be paid BBL would have had sufficient retained earnings to meet the payment of the dividend. 128 Dr Coulton, in reply, thought the present case was one of those exceptional cases where compliance with the accounting standards did not lead to a true and fair view of the accounts. The exceptional circumstances justifying that view were the breach of BBL's constitution and the unauthorised reduction in capital brought about in breach of the Act. In those circumstances, Dr Coulton thought that the fact that the accounting standards had been complied with was beside the point. On the issue of whether additional disclosures were required, Dr Coulton took issue with Mr Lonergan's view that the focus of financial statements was financial rather than legal because he did not accept that the capital reduction was purely legal, as opposed to financial, in nature. He also disagreed in particular respects with Mr Lonergan's materiality analysis. On the issue of whether it was appropriate, as Mr Lonergan hinted, to assess retained profits at the date of the payment of a dividend, as opposed instead to its date of declaration, Dr Coulton did not feel that retained profits could be approached in that fashion. 129 Both Dr Coulton and Mr Lonergan expressed some views about the meaning of 'true and fair'. Some of this was rejected on objection but some of it was received into evidence when no objection was taken. Since the requirement that the financial reports be true and fair emerges expressly from the language of s 297 the meaning to be given it appears to be a question of law although, as will be seen, this proposition is itself controversial. At least in the first instance it is useful, therefore, to put aside their views on its meaning and approach it in an orthodox fashion as a question which, on its face, starts life as a legal issue about statutory construction. 130 What then is required to give a 'true and fair' picture? That question has engendered a long history of debate which has focused not so much on the content of the words themselves but instead on the identity of the institution whose opinions on the matter are to be definitive. One school of thought has been that the issue is one for the accountancy profession; another that it is purely a legal question thrown up by the text of the statutory provisions; a third view concedes that at its base it is a statutory matter but insists that it is heavily influenced by the practice of accountancy because the subject matter of the statute is accounts. 131 The debate is not new. Similar or equivalent wording has required sometimes directors and sometimes auditors to state that accounts, financial statements (and sometimes balance sheets) are 'full and fair', 'true', 'just', 'true and complete' or 'true and correct' beginning in England in 1844 with the passage of the Joint Stock Companies Registration and Regulation Act 1844, 7 & 8 Vic, c 110. The words 'true and fair' themselves first appeared in Australia in s 11 of the Companies Act 1955 (Vic). The gradual development of the obligation to present accurate accounts is usefully traced in R Baxt, "True and Fair Accounts - A legal Anachronism" (1970) 44 ALJ 541 at 542-543. The same article observes that there has been little judicial consideration of the expression but that the views more latterly adopted 'have tended to rely on the meaning given by the accounting profession'. 132 On the other hand, commentators such as Professor Gower have thought that the requirement that accounts give a true and fair picture makes it impossible to think that mere compliance with accountancy practice can have been intended: Gower, Modern Company Law (3rd ed) at 120, footnote 2 (referred to by Baxt at 550). Another way of expressing that view may be to observe that if Parliament had said it desired accounts to be true and fair it cannot have thereby intended to mean that it wanted them prepared the way accountants customarily do. I do not need to spend too much time resolving this debate which is set out in Chapter 5 of Professor Walker's report for the National Companies and Securities Commission, 'A True and Fair View' and the Reporting obligations of Directors and Auditors (Australian Government Publishing Service, Canberra, 1984) at pp 12-21; see also A Slater's contrary view in 'The Accounts Provisions and Accounting Standards' in Austin and Vann (eds), The Law of Public Company Finance (Law Book Co, 1986) at pp 108-109. 133 I am able to avoid this issue because, in large part, the current form of ss 296 and 297 resolves the debate. The accounts are to comply with the relevant accounting standards (s 296) but this is not a conclusive answer to the requirements of what is 'true and fair' in s 297. The Act itself contemplates that it is possible for accounts otherwise drawn in accordance with accounting standards not to be true or fair in which case an additional note is to be added. 134 That view of s 297 means that the issue is ultimately a legal one. On the other hand, the concept of a company's accounts is inevitably a concept tied up with the accountancy profession. The Courts have had no difficulty in accepting the views of the accountancy profession in ascertaining the true nature and incidence of an item along the way to determining whether it is 'income' within s 8-1 of the Income Tax Assessment Act 1997 (Cth): Federal Commissioner of Taxation v James Flood Pty Ltd (1953) 88 CLR 492 at 506-507 (speaking of s 51 of the 1936 Act). The question remains, of course, one for the Court but accountancy practice has been accepted by the High Court as throwing light, for example, on whether income should be accounted for on a cash or accruals basis: Commissioner of Taxes (SA) v Executor Trustee and Agency Co of South Australia Ltd (1938) 63 CLR 108 at 152-154; Arthur Murray (NSW) Pty Ltd v Commissioner of Taxation (1965) 114 CLR 314 at 320. 135 The current form of the provision was introduced in 1998 into the former Corporations Law by the Company Law Review Act 1998 (Cth). It did two things which it is useful to emphasise. First, earlier versions of the provision had required the directors to 'cause to be made a profit and loss account for that accounting period that gives a true and fair view of the company's profit and loss for that accounting period'. The current form, by contrast, requires that the financial statements give a true and fair view of 'the financial position and performance of the company'. Second, in introducing that wording it was the evident intent of the framers of the legislation to move away from a historical balance sheet analysis and to a focus instead on a company's whole operations. Paragraph 13.31 of the Explanatory Memorandum accompanying the introduction of the Company Law Review Bill 1997 (Cth) said: '13.31 The Bill requires that the financial statements and notes for a financial year give a true and fair view of the financial position and performance of the company, registered scheme or disclosing entity (Bill s 297). This ensures that the financial statements and notes give a true and fair view of the company's whole operations including profit and loss and cash flows, and not just matters relating to the balance sheet. This approach is consistent with the AASB's Statement of Accounting Concepts SAC2: Objectives of General Purpose Financial Reporting, which requires that information that is relevant to the assessment of performance, financial position and financing and investing be included in general purpose financial reports. 13.32 The obligation for the financial statements and notes to present a true and fair view will not affect the primary obligation to comply with the accounting standards. If compliance with the accounting standards would not produce financial statements which give a, 'true and fair view', additional information necessary to give the true and fair view must be included in the notes to the financial statements. An equivalent rule will apply to the financial statements and notes for half-year financial reporting (Bill s 305).' 136 I therefore consider it is possible for accounts to fail to give a true and fair view of the financial position of a company notwithstanding that those accounts have been prepared in accordance with relevant accounting standards. The circumstances in which this may occur may be relatively rare but they can exist. They will occur when the accounts do not give a 'true' and 'fair' view of the financial position or performance of the company. I do not think 'true and fair' is a composite expression. Rather it reflects the reality that financial accounts not only deal with ascertainable facts but also with matters of opinion and impression. A financial statement will not be 'true' when it contains facts which are incorrect or where material facts are omitted. It will not be 'fair' where the opinions it contains are not reasonable in the context in which they appear. What is material to the former inquiry or contextual in the latter will usually include issues of accountancy but they are not determinative. It will follow that the obligation created by s 297 is substantive. 137 So far as accountancy standards are concerned, Mr Lonergan drew attention to AASB 101: Presentation of Financial Statements ('AASB 101') cl 13, which provides: '"13. A financial report shall present fairly the financial positon, financial performance and cash flows of an entity. Fair presentation requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the Framework. The application of Australian Accounting Standards, with additional disclosure when necessary, is presumed to result in a financial report that achieves a fair presentation."' (Mr Lonergan's emphasis) 138 I do not think that the presumption referred to in the last sentence exists. On the other hand, the standards themselves contemplate the requirement of further disclosures in two circumstances which are set out in AASB 101 at cll 15 and 21. Clause 15 provides, relevantly: '15. A fair presentation requires an entity: … (c) to provide additional disclosures when compliance with the specific requirements in Australian Accounting Standards is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance.' Clause 21 provides: '21. In the extremely rare circumstances in which management concludes that compliance with a requirement in an Australian Accounting Standard would be so misleading that it would conflict with the objective of financial reports set out in the Framework, the entity shall, to the maximum extent possible, reduce the perceived misleading aspects of compliance by disclosing: (a) the title of the Australian Accounting Standard in question, the nature of the requirement, and the reason why management has concluded that complying with that requirement is so misleading in the circumstances that it conflicts with the objective of financial reports set out in the Framework; and (b) for each period presented, the adjustments to each item in the financial reports that management has concluded would be necessary to achieve a fair presentation.' 139 I do not consider, on balance, that cl 21 has much to do with this case. The accounting standards are silent on whether the fact that a final dividend was paid out of capital is to be disclosed in financial statements for the year in respect of which the dividend was declared. AASB 110 certainly prohibits the final dividend being disclosed as a liability but this says nothing about what should or should not be disclosed when that dividend is paid out of capital. If BBL's financial report for 2005 is misleading it is not because of a requirement of an Australian Accounting Standard. 140 One can reach that conclusion about cl 21 simply on the basis of its text. However, cl 22 supports the same conclusion. It provides: '22. For the purpose of paragraph 21, an item of information would conflict with the objective of financial reports when it does not represent faithfully the transactions, other events and conditions that it either purports to represent or could reasonably be expected to represent and, consequently, it would be likely to influence economic decisions made by users of financial reports. When assessing whether complying with a specific requirement in an Australian Accounting Standard would be so misleading that it would conflict with the objective of financial reports set out in the Framework, management considers: (a) why the objective of financial reports is not achieved in the particular circumstances; and (b) how the entity's circumstances differ from those of other entities that comply with the requirement. If other entities in similar circumstances comply with the requirement, there is a rebuttable presumption that the entity's compliance with the requirement would not be so misleading that it would conflict with the objective of financial reports set out in the Framework.' (emphasis added) 141 In this case, I do not think that the fact of the unauthorised reduction would have influenced the users of financial reports for the reason that it was economically irrelevant to the overall group performance. Thus, no conflict would have been taken by cl 22 to exist for the purposes of cl 21 which may therefore be put to one side. 142 It follows that it is cl 15 which is relevant for present purposes. 143 Dr Coulton and Mr Lonergan were at loggerheads about this clause too. Dr Coulton thought that the financial report was deficient because it 'did not allow an accurate assessment of the financial position and performance of BBL'. Mr Lonergan, on the other hand, was of the view that the unauthorised capital reduction in the holding company was without financial significance and hence did not satisfy the requirements of cl 15, which were expressly concerned with financial matters. 144 On this issue I prefer the opinion of Dr Coulton. Whilst I accept that the information did not have a dollars and cents effect on the value of the shares the concept of an 'entity's financial position' is sufficiently broad to encompass unlawful alterations to its capital structure. Accordingly, cl 15(c) of AASB 101 was breached. 145 There was, therefore, a breach of an accounting standard. Regardless of that breach, I do not think that the financial report gave a 'true' picture of the financial position of BBL. The financial position of BBL as at 31 December 2005 was that its capital had been reduced by an unlawful capital reduction brought about by a dividend paid contrary to its constitution and s 254T of the Act. That the impact of that capital reduction was completely ameliorated in economic terms by the group position does not render the BBL report true. It is implicit in that conclusion that information may be about the financial position of a company within the meaning of s 297 without necessarily having a dollar and cents impact. Such circumstances may be rare but this is one of them. Largely, this disposes of Mr Lonergan's objections which are, in the main, premised on the view that information which has no financial impact must be irrelevant to the issue of whether a financial report gives a true and fair view. Although in most situations that assumption will be correct, it is not inevitably so. 146 For completeness, I do not think Mr Lonergan's point that the dividend was paid out of retained earnings goes very far. Whilst it is true that the dividend was paid out of profits under the promissory note they were still profits in the wrong year. 147 The conclusion that the accounts did not give a true and fair view is, however, only half the race for the plaintiffs. There are still the other hurdles identified in Section IV above. In particular, one must ask and identify, with precision, what the relevant information is, in its full form, and one must then ask whether persons commonly investing in securities would have been affected in their purchasing decisions by that information. Finally, one must ask whether the information was generally available. 148 The first two of these questions should be answered adversely to the plaintiffs. As to the first, it would have been profoundly misleading to disclose to the market the proposition that BBL's accounts did not give a true and fair view of its financial position and performance, without also disclosing at the same time that this was because of an unauthorised reduction of capital of a technical kind caused by accounting principles which had no impact on the value of either the Babcock and Brown group or BBL shares. 149 As to the second, had that information been announced to the market then I do not think that there would have been any impact on the share price. To use the language of s 677, persons who commonly invested in securities would not have been influenced in their purchasing decisions by this information. 150 I do not think that if the third question had arisen that I would have concluded that the information was 'generally available'. The legal and accounting complexities attending the expression 'true and fair' were not 'readily observable matter' with the meaning of s 676(2)(a). 151 I conclude therefore that whilst the 2005 financial report did not give a true and fair view of the position of BBL this information did not need to be disclosed to the market because it had no financial consequence for the value of BBL shares. Thus the plaintiffs' case fails in relation to 2005. It also fails in relation to 2006 and 2007, for the same reasons.

VI Whether BBL was required to disclose it was insolvent on 29 November 2008 152 The plaintiffs allege that BBL was insolvent on 29 November 2008 and that it should have disclosed that matter to the market on that day. 153 It was agreed between the parties that BBL became insolvent on 29 November 2008. The issue arising for determination is whether it was 'aware' of that fact at that time. Listing Rule 3.1 is set out above. It bound BBL to disclose to the market any information concerning it that a reasonable person would expect to have a material effect on the price or value of BBL's shares but only if it was 'aware' of the information. That word was defined in Listing Rule 19.12 which is set out above and, at the risk of repetition, is as follows: 'an entity becomes aware of information if a director or executive officer (in the case of a trust, a director or executive officer of the responsible entity) has, or ought reasonably to have, come into possession of the information in the course of the performance of their duties as a director or executive officer of that entity.' 154 The plaintiffs submit that the fact of BBL's insolvency was 'information' and that BBL's directors ought to have come into possession of that information on 29 November 2008. BBL submitted, on the other hand, that insolvency was a matter of opinion and that Listing Rule 3.1 did not operate to require the directors to form opinions that they did not hold citing Jubilee (2009) 40 WAR 299 at 322 [89]-[90]. 155 I do not think either of these propositions is correct, at least not in the unqualified way for which BBL contends. No doubt, the insolvency of a company is a matter about which some people, such as directors, are required to form an opinion in the course of their duties but it remains nevertheless a question of fact which can be determined. Sometimes, the factual inquiry will be simple such as when a financier suddenly refuses to renew a facility whose existence is necessary to a company's on-going ability to trade day to day. At other times, it will be complex such as in the case of a bank or insurance company. But in both cases it remains a question of fact. 156 The word 'information' appears in both Listing Rule 3.1 and also in the definition of 'aware' in Listing Rule 19.12. I should be surprised if 'information' in Listing Rule 3.1 did not include opinions. For example, if the directors did in fact form the opinion that the company was insolvent it is difficult to see that Listing Rule 3.1 could be ignored on the basis that it did not apply to opinions. It is more likely that Listing Rule 3.1 should be construed as requiring the disclosure, all other requirements being satisfied, of opinions actually held or possessed. And, if 'information' includes opinions in Listing Rule 3.1, it is difficult to see that it does not bear the same meaning in the definition of 'aware' in clause 19.12. If directors hold opinions about market sensitive matters which are not generally available then, subject to the other requirements and exceptions in the ASX Listing Rules, these are to be disclosed to the market. However that observation needs to be understood in the context of Jubilee. The opinion of a single director would rarely be the correct information to assess from a disclosure perspective. Ordinarily, the relevant views are those of a board majority. This case does not raise any issue about the position of minority opinions and it is not necessary to express any concluded view on that matter, however. 157 What then of opinions not actually held? The plaintiffs submitted that BBL should have become aware of the fact of its insolvency on 29 November 2008 for a number of reasons to which I shall return. However, leaving that to one side, I do not think that the plaintiffs' argument can be reconciled with the actual language of the definition of 'aware'. What is required is that the information - on the present hypothesis, an opinion - ought reasonably to have come into the directors' possession in the course of their duties. These words are not apt to describe the formation of an opinion. One does not come into possession of an opinion when one forms one because the phrase 'come into possession' conveys the concept of receipt and the concept of 'receipt' suggests an antecedent act of possession by another. Where the constructive knowledge limb of the definition of 'aware' is applied to information which is an 'opinion' what enlivens it is an opinion - not of the directors but of some other person - which reasonable diligence on the directors' part would have brought to their attention. What it does not require is for the directors to form an opinion. 158 To give an example, if an opinion of senior counsel that a company was insolvent were included in its board papers then the company would be aware of that opinion within the meaning of the definition. Reasonable diligence on the part of the directors - i.e. reading the board papers - would have brought it to their attention. Leaving aside issues such as privilege, confidentiality and the need for its full context to be considered (i.e. Jubilee) it would be subject to Listing Rule 3.1. On the other hand, Listing Rule 3.1 is not engaged where the directors of a company should have, but did not, realise the implications of information of which they were aware. 159 This conclusion is consistent with, although it is not identical to, the Court of Appeal's conclusions in Jubilee (2009) 40 WAR 299 at 322 [89]-[90] where it was said: '…the obligations imposed by the Listing Rules and the relevant statutory provisions are limited to the disclosure of information. The obligations do not extend to include, for example, making business decisions which might or even should be made as a result of the receipt of the information. At points in the argument advanced on behalf of Mr Riley, and in the master's reasons, it seems to be supposed that if Jubilee should have attached greater significance to the drill hole data it received and should have immediately undertaken exploratory drilling (perhaps by raising funds to enable that to occur), it was somehow a breach of the continuous disclosure provisions for Jubilee not to announce and take that course. Plainly, the obligations of continuous disclosure do not go that far. Jubilee can only have been obliged to disclose information which it had or ought to have had. The latter expression cannot be construed as extending to information arising from business decisions which Jubilee had not made…' 160 In Jubilee the conclusion reached was that information which would have existed if certain business decisions had been made was not information within the definition of 'aware'. This is not the same question as whether an opinion which should have been formed is information within that definition but the structure of the reasoning in Jubilee supports the conclusion I have reached that the same approach is involved. 161 In this case, therefore, the plaintiffs must either proceed under the first limb of the definition of 'aware' and show that the fact of BBL's insolvency was actually known to the directors or management on 29 November 2008 or they must proceed under the second limb and show that: (i) the fact of BBL's insolvency should have become known to the directors or management; or (ii) an opinion that BBL was insolvent existed and should have become known to the directors or management. 162 It is useful to deal with these separately. 163 As to (i): the fact of BBL's insolvency should have become known to the directors or management. A company is insolvent if it is unable to meet its debts as and when they fall due: s 95A of the Act. The parties agree that on 29 November 2008 BBL was insolvent. The issue is whether the directors ought reasonably to have become aware that BBL could not meet its debts as and when they fell due. 164 The plaintiffs contended that the directors ought to have been aware of BBL's insolvency because of the following matters: (a) it was insolvent on 29 November 2008; (b) the directors were experienced; (c) the administrators of BBL, having had access to the records of the company as well as the advantage of examining BBL's directors, were of the view that BBL was insolvent on 29 November 2008; (d) the liquidator in this case (who had previously been BBL's administrator) had not given evidence to explain why his earlier conclusions were not correct; (e) the findings of the administrator in his report that BBL was insolvent on 29 November 2008 was a statutory report and was to be given additional weight for that reason; (f) further, these reports were contemporaneous and hence preferable to the position now adopted by the liquidator that the board had good reason to think BBL was solvent on 29 November 2008; (g) no debts appear to have been incurred by BBL after 29 November 2008 and this was consistent with the directors acting as if they knew the company was insolvent (i.e., as a protection for themselves against allegations of insolvent trading); (h) there was a firewall between BBL and BBIPL no later than November 2008, a proposition I reject above at [89]-[93]; (i) the proposed restructuring of the debt with the banking syndicate inevitably meant that BBL would not be given any money to meet its interest obligations to the holders of the subordinated notes; (j) from mid-November 2008 there was a change in the management structure in that the focus of decision-making moved from the BBL board to the BBIPL board; and (k) it was irrelevant, even if it were the case, that the BBIPL board had received advice that it was solvent. 165 I do not accept these submissions. The materials which were available to the BBL board did not indicate on 29 November 2008, and they do not indicate now, that BBL was insolvent on that day. The reasons for this are as follows: 166 The two critical structural features of the Babcock & Brown group heading into the second half of 2008 were its indebtedness to the banking syndicate of approximately $3 billion and its indebtedness to the holders of two series of subordinated notes of about $600 million. 167 The debtor to the banking syndicate was BBIPL but the debtor to the note holders was BBL. The notes had been raised in two series known as BBSN and BBSN2. The interest on BBSN was a floating rate of 2.20% over the bank bill swap rate and BBSN2 was fixed at 2.20% over the five year swap rate. Both required semi-annual interest payments: BBSN of 15 May and 15 November; BBSN2 of 15 March and 15 September. The BBSN notes matured on 15 November 2015 when BBL would be required to pay out their face value of around $416.2 million. The BBSN2 notes matured on 15 September 2016 when their face value of NZ$225 million would be due. 168 The four dates for interest payments are of some significance. From where BBL was at the beginning of November 2008 it had to meet interest payments on the notes on 15 November 2008, 15 March 2009 and 15 May 2009. Looking somewhat further into the future, BBL needed to be able to pay $416.2 million on 15 November 2015 (then 7 years away) and a further NZ$225 million nearly eight years later on 15 September 2016. 169 Of critical significance to the disposition of these proceedings is the subordinated nature of the notes. As will be seen, many of the plaintiffs' arguments on this part of the case proceeded without an appreciation of just how subordinated the notes were. So far as BBIPL was concerned, whilst it was liable to the noteholders under the guarantee of BBL's obligations under the notes, BBIPL's obligation was, as the concept of subordination might ordinarily connote, ranked behind the bank debt. The terms of the subordination arrangement went somewhat further than this, however, and had the further effect that whilst BBIPL owed any money to the banking syndicate any debt to the noteholders under the guarantee would not exist. In practical terms this meant that the noteholders were irrelevant to BBIPL's financial position and would not have any claim on it because, for the foreseeable future, no matter how the restructuring proceeded, BBIPL was not going to be relieved of all of its bank debt. 170 The position with BBL was not the same. Its obligation to pay the noteholders was not made contingent on the non-existence of BBIPL's bank debt. It was, however, relieved of the obligation to pay the semi-annual interest payments if it did not have the means to do so. This did not apply to the obligation to repay the principal but, as already noted, that would not occur until 2015 in the case of BBSN and 2016 for BBSN2. 171 It is true that BBL lent the note proceeds to BBIPL, but the terms of the loan agreement between them involved the same subordination arrangements that underpinned BBIPL's guarantee of the obligations of BBL to the noteholders, i.e., there was no obligation for BBIPL to repay BBL while BBIPL still owed any money to the banking syndicate. 172 The structural consequences of these subordination arrangements were that once the group found itself in a distressed situation in late 2008: (i) BBIPL could ignore the noteholders for the purposes of any analysis of its own solvency; (ii) BBL did not have to meet its semi-annual interest payments to the noteholders; and (iii) BBL was not required to repay the principal until 2015/2016. 173 In that circumstance, the only relevance of the subordinated notes to the issue of BBL's solvency lay in the question of whether the distant obligation to repay the principal under them in 2015/2016 was relevant to the issue of whether it could meet its debts as and when they fell due in 2008/2009. 174 Having then clarified the position of the subordinated notes it is now useful to say something about the apparent state of the cashflows. 175 Commencing in June 2008, the BBL and BBIPL boards had been receiving cash flow forecasts from KPMG. The reports for June through to October all indicate significant liquidity in the following six months, although towards November the amount was declining. BBL met the interest payment due on 15 November 2008 under the BBSN. Further, no default in the bank debt was contemplated, at least at the start of November. As to future interest payments under the notes, the effect of their terms was that if BBL could not pay the interest it was not obliged to do so. 176 Although it is not altogether clear that this was necessarily the precipitating event in what followed, it does appear that on or around 21 November 2008 HVB withheld a €72 million deposit held in the name of an entity within the group. The minutes of a directors meeting of BBL for 21 November 2008 record: 'Group Developments - Group Liquidity, legal advice to directors and Group funding It was noted that the directors had just participated, as directors of Babcock & Brown International Pty Ltd (BBIPL), in a meeting of the BBIPL Board relating to, amongst other things, proposed arrangements for additional short term funding by the Group required as a result of the withholding of Group deposit by Bayerische Hypo-und Vereinsbank AG (HVB), ASX disclosure obligations and associated matters. It was further noted that at the meeting of the BBIPL Board, advice had been given by the Group's external legal counsel in relation to the duties of directors in situations of temporary illiquidity and associated matters. Closure There being no further business, the meeting closed.' 177 The boards of both BBIPL and BBL met again over that weekend on both days to discuss the unfolding crisis. The minutes, at this stage, record little more than that there was a problem. By then, however, BBIPL had already commenced negotiations with the banking syndicate for a restructuring of the facilities. It is known from a presentation dated 23 December 2008 that the Babcock and Brown group had made a pitch to the syndicate as early as 18 November 2008. It is possible the negotiations began even earlier. 178 In any event, by 26 November 2008 BBIPL was seeking $200 million in short term funding from the banking syndicate to cover its funding requirements through to Christmas. The BBIPL board minutes for 26 November 2008 record: 'Group Funding The Board noted the need to reappraise the cashflows constantly, including assessment of the certainty or likelihood of expected inflows, to ensure all debts could be met as and when they fell due. Mr Larking confirmed, in response to a question from Ms Nosworthy, that the figure of $200 million in additional short term funding requested of the Group's lending syndicate had been formulated so that together with other expected inflows, there would be sufficient cash to cover all of the Group's funding requirements until Christmas, including employee salaries and statutory entitlements falling due in the period to be covered by that funding, but not employee redundancies in the event that the Group made people redundant in that period. Mr Fanning noted that some of the smaller cash inflows, such as the Mango Hill proceeds, were being received as expected. Ms Nosworthy noted that before the Board drew down on any additional funding provided by the syndicate, it would need to be satisfied, based on rigorous analysis by management, that the company would continue to be able to pay its debts as and when they fell due.' 179 By this time BBIPL's negotiations with the banking syndicate were operating at two distinct levels. The first was on a short term basis and involved a further facility of $150-200 million to cover impending cash needs in December. The second involved a renegotiation of the whole of the bank debt. From BBIPL's perspective it needed to be satisfied that the short term solution was in place by Sunday 30 November when the group's payroll obligations for December would fall due and at which time the directors needed to know they could responsibly incur a debt. On the other hand, this was not enough either. Given the size of the bank debt, if there were no real prospect of restructuring the total bank debt in the longer term the whole exercise was pointless and BBIPL would inevitably default. 180 The minutes for the period 27-29 November reveal these anxieties. There was also the additional difficulty of dealing with a worldwide syndicate of 25 banks each with its own credit committee. Despite those difficulties, the position of the banking syndicate was that it was keeping an open mind. It recognised the need for time to put together a proposal to restructure the debt and that such restructuring might be mutually beneficial. 181 As already mentioned, from 18 November there had been two restructuring proposals under active consideration (Plan A and Plan B). Plan B was an orderly asset realisation outside of an insolvency administration and was not the Babcock and Brown group's preferred course of action. Plan A, on the other hand, involved sequestering the infrastructure assets in a new vehicle to be owned by BBIPL. BBIPL's bank debt was to be restructured with the syndicate giving some leniency in the form of a 'pay as you can' facility and the conversion over time of some of the debt into a perpetual note. In this restructuring plan the noteholders did not feature and they did not need to. Although BBIPL had guaranteed BBL's obligations to the noteholders, the debt arising could not be enforced at all whilst the bank syndicate's debt existed. Since that debt was not going entirely to disappear at any time soon, BBIPL had no foreseeable exposure to the noteholders. It was similarly protected by the subordination arrangement in the inter-group loan agreement from the claims of BBL in relation to the notes. 182 From BBIPL's perspective, its solvency requirements could be met by satisfying the banking syndicate and general creditors but with an essentially full liberty to ignore the noteholders. 183 Insofar as BBL was concerned, the principal issues were its ability to meet the semi-annual interest payments under the notes and its eventual obligation to repay the principal under the notes in several years time. Plan A seems to have assumed that the noteholders would be given the option to swap their notes for shares in BBL. 184 On Friday 28 November 2008 the terms sheet for a new $150 million facility from the banking syndicate was presented to the board. The idea was that this would give the Babcock and Brown group breathing space to formulate a longer term proposal along the lines of Plan A or B in that period. Such a longer term solution was to be implemented by sometime in January 2009. 185 Without dwelling on the detail, this facility was put in place in time for BBIPL to continue trading in December. So far as BBIPL was concerned, the position on 29 November 2008 was therefore as follows: (a) it was able to meet all its debts as and when they fell due in November except its payroll for December 2008; (b) it was in negotiations with the banking syndicate to borrow (as events transpired, successfully) $150 million to cover its December obligations and the banking syndicate was plainly quite open to this; (c) the breathing space in December was intended to enable the negotiation of a larger restructuring with the syndicate and, again, the syndicate was open to considering that restructuring; and (d) the claims of the noteholders did not arise. 186 In those circumstances, as at 29 November 2008 the information available to the board of BBIPL can only have indicated to its directors that it was solvent. It had a reasonable basis to conclude that it would be able solvently to trade in the short term and a similar basis for thinking that a successful restructure might take place in that time. 187 The position of BBL is not necessarily the same. BBL would be obliged to repay the principal under the notes in 2015 and 2016 but it did not have to meet the semi-annual interest payments if it did not have the means to do so. The only solvency issue then was whether the obligation to pay the principal at maturity in 2015 and 2016 meant that it was insolvent in November 2008. 188 I do not think that it did. There were seven years before that time came. If the restructuring of BBIPL took place it was not beyond the realms of the possible that BBL's fortunes might turn around over such a long period. As Owen J observed in The Bell Group Ltd (In liq) v Westpac Banking Corporation (No 9) (2008) 39 WAR 1 at 153 [1128]: '… a court must be mindful of the fact that a company's circumstances may change for the better, and to conclude hastily that a company is insolvent can have dire consequences. The financial difficulties may, for example, be temporary and might be amenable to cure by a successful restructuring. A court will, however, be reluctant to look too far in to the future because there are so many unknowns and contingencies. As a consequence, a court may be inclined to limit the analysis to a future which is on any view "immediate".' And later at 154-155 [1137]: 'I accept that the greater the period of the assessment, the greater the uncertainties and contingencies that can intrude. As the uncertainties and chance of contingencies increases, so too does the possibility that the entire picture will change. …the longer the period, the more unreliable the prognostications are likely to become. It seems to me, therefore, that to take the assessment beyond the 12-month period would involve unacceptable speculation.' 189 As things stood on 29 November 2008, the information presented at this trial would not justify the conclusion either that BBL was insolvent on 29 November 2008 or that its directors should have been aware that it was insolvent. It had no short term problems and if BBIPL succeeded in restructuring the bank debt then it would have been impossible to say that the notes would not have been able to be repaid at maturity close to a decade later. Further there were, as at 29 November 2008, good reasons to think that a restructuring of BBIPL's bank facility might proceed. The material before the Board did not justify the conclusion that BBL could not meet its debts as and when they fell due on 29 November 2008. 190 The parties agreed, nevertheless, that BBL was insolvent on that day. I do not need to decide whether this agreed fact can be correct although I am bound to say it looks dubious. This conundrum can, however, be avoided because the question for me is whether BBL ought reasonably to have known it was insolvent on 29 November 2008 which is not quite the same issue. 191 The evidence shows that the directors did not have material before them on 29 November 2008 indicating that BBL was insolvent. They were not required to disclose what did not appear to be the case. 192 What then is one to make of the plaintiffs' submissions, adumbrated above at [164], to the contrary? I find none of them persuasive. Whether BBL was or was not insolvent on 29 November 2008, nothing before the board indicated that it was insolvent on that day. Nor do I find persuasive the fact that the directors were experienced for this does not alter the analysis. In my view, experienced directors would not have concluded that BBL was insolvent on that day. 193 On the other hand, it is true as the plaintiffs submit, that the present liquidator in his capacity as administrator concluded that BBL was insolvent on that day and that in reaching that conclusion he had numerous advantages, including his public examination of the directors. Although a party to this case (as second defendant) and although able to give evidence he did not. I do not think this matters. His report to creditors shows that his belief about BBL's insolvency was premised on the existence of the ring-fence or firewall strategy which, as I have endeavoured to show above in Section IV at [87] and following, simply did not exist. All of the undoubted advantages that the administrator had seem to me to be irrelevant once that misconception is brought to account. 194 Nor can I give credence to the submission that BBL made no provision for interest payments to the holders of the subordinated notes because, as I have explained above, the terms of the subordination arrangements meant that it did not have to pay whilst it could not. 195 As for (j), it is true that the centre of gravity of decision-making swung away from the BBL board to the BBIPL board. But the reasons for this were obvious. It was BBIPL which was indebted to the banking syndicate and BBL's only hope, going forward, was that BBIPL would succeed in restructuring the syndicated bank debt. The relationship between BBL and its shareholders and noteholders was already set in stone and, in a sense, BBL became an observer in the larger drama unfolding inside BBIPL. When one also considers that it was not an operating company, I do not feel that too much can be drawn from the fact that it appeared to incur no fresh debts from November 2008 onwards. 196 Lastly, there is the question of the advice that the BBL board received on the issue of solvency. Some, but not all, of that advice was before this Court. Whilst BBL was content to waive its privilege some of the non-executive directors were not so accommodating. The full range of advices available to the board were not, therefore, available to me. Contrary to the submissions of the plaintiffs, however, I do not think that this means I should approach the advice which was available with some care. It is what it is. 197 What it shows is this: on 28 November 2008 Freehills advised the BBIPL board that on the basis of the proposed $150 million facility from the banking syndicate the directors 'could properly form the view that the company remains presently solvent and is likely to remain solvent in the future although focus on the longer term solution would need to be monitored…'. During the trial I declined to exclude this evidence on a fairness basis pursuant to s 136 of the Evidence Act 1995 (Cth). Here the argument was that the only advice which the Court was being shown was the advice obtained by the BBIPL board; that some of the directors had also obtained advice in their own capacity in relation to which privilege was not being waived; and, that it was unfair to the plaintiffs that the Court only saw part of the whole picture. It is only unfair to the plaintiffs, however, if the advice suggests that BBIPL was insolvent but this the plaintiffs cannot demonstrate for obvious reasons. I am not prepared to exclude relevant evidence on the basis that other material - which this Court will never see - might put a different complexion on events. The law surrounding legal professional privilege has the usual consequence of denying trial courts relevant and probative material. This is one of those situations. 198 The BBIPL minutes for another meeting on 29 November 2008 record: 'Mr Hoser advised that he had consulted with Mr Sheahan SC. Mr Sheahan confirmed that in circumstances where a company is able to pay debts as they fall due (including by raising funds) but can see a large balloon payment falling due at some point in the future as regards which it is not certain whether or exactly how the company will be able to deal with the payment, the company is not presently insolvent unless it is practically certain that it will not be able to do so. He noted that in current circumstances the directors appeared to have grounds to believe with confidence that the syndicate debts could be dealt with in any of several different ways, each of which would ensure [the] company's continued solvency; but they needed time for them to be explored. Such a situation is properly distinguished from a case where it is clear there is no way a company could deal with the debts in question (with a borrower repayment or some other way) in such a case the company would be presently insolvent.' 199 In a sense, Mr Sheahan's advice appears more apposite to the position of BBL which was confronting just such a balloon payment in 2015/2016. In any event, his advice seems to have been tendered formally to the BBL board on 2 December 2008. 200 There were some subsequent advices received by BBIPL on 23 December 2008 on its solvency and by BBL on 9 January 2009 on its status under the subordinated notes. In my view none of these adds much to the picture. The information available on 29 November 2008 indicated that BBL was solvent. Advice at that time correctly, with respect, drew the same conclusion. 201 It follows that BBL was not actually aware that it was insolvent on 29 November 2008 even if, as the parties now dubiously agree, it was in fact so on that day. 202 As to (ii): an opinion that BBL was insolvent existed and should have become known to the directors or management. As a matter of fact, BBL had no such opinion in its possession as at 29 November 2008. The opinions which were available to it were to the contrary. 203 In those circumstances, BBL was not aware of its insolvency on 29 November 2008 within the definition of 'aware' in Listing Rule 19.12. Its directors did not know that it was insolvent on that day and there was no opinion to that effect within it of which its directors ought reasonably to have come into possession and of which they should have thereby become aware. 204 The case based on a failure to disclose BBL's insolvency on 29 November 2008 therefore fails.

VII Whether BBL should have disclosed that the 2007 final dividend had been funded out of an asset revaluation 205 The plaintiffs' case on this point was expressed with great brevity. The pleaded allegation was that the 2007 final dividend of $96,995,000 was 50% higher than any previous dividend and had been funded by a dividend paid to BBL by BBIPL out of funds it had borrowed based upon the directors internal revaluation of BBIPL's assets. It is said that disclosure of this information was required by Listing Rule 3.1. 206 The first part of the allegation may be disposed of shortly: the fact that the dividend was 50% higher than any previous dividend was publicly available information and not in the leastwise something warranting disclosure. 207 As to the second part, the particulars provided for this allegation indicated that reliance would be placed on pp 35, 36 and 66-67 of the Liquidator's report of 12 August 2009 (which was actually the administrator's report to creditors under s 439A of the Act). None of the cited passages include any reference to asset revaluations. Even if the report did contain such a statement I would not regard it as adequate evidence of such a matter, given the obvious availability of primary documents. 208 In addition, in their submissions the plaintiffs relied upon paragraphs 42 and 43 of Professor Frino's report of 25 May 2014 which, however, merely repeats the above quote from the administrator's report. It does not provide any evidence that the dividend was funded by loans arising from asset revaluations by BBIPL. There is, therefore, no evidence to which I was taken that proves that the dividend was funded out of borrowings by BBIPL on the back of an asset revaluation. 209 In that circumstance, I consider this allegation unproved except as to the fact that the dividend was paid and was 50% higher than any previous dividend. As I have said, however, that fact was known to the market and did not require disclosure. 210 The case based on the alleged failure to disclose that the 2007 final dividend was paid out of borrowings on the back of an asset revaluation fails.

VIII Loss and damage 211 On the view I have reached on the case the plaintiffs have failed on all issues. Questions of causation and quantum do not arise. I will therefore deal with them relatively briefly. 212 In relation to the alleged failure to disclose that: (i) the final dividends were paid out of capital; (ii) the accounts were not true and fair; and (iii) the 2007 final dividend was paid out of funds arising from an asset revaluation it is not obvious that any loss was suffered by the plaintiffs at all. As to (i) and (ii) it will be clear for the reasons I have already given that the alleged non-disclosed information was without economic significance. The necessary corollary of that proposition is that the plaintiffs did not purchase their shares at an overvalue. 213 Professor Frino gave evidence as to the extent to which the plaintiffs' shares had been purchased at an overvalue. His view was that the failure to disclose that the final dividends had been paid out of capital led to the following inflation in the price of BBL shares: 2005 34% 2006 31% 2007 47% 214 In relation to the failure to reveal that the accounts did not give a true and fair view, his view is that this led to a 5% price inflation. Since the information involved in both cases is exactly the same it is difficult to see that these should be different. This suggests that something is awry in Professor Frino's assessment of quantum. 215 Professor Frino arrived at his views on the effect of the non-disclosure that the final dividends were paid out of capital without knowing that BBIPL had declared a dividend to BBL and believing that BBIPL's assets were ringfenced from BBL. He was consequently unaware that the alleged non-disclosures were economically irrelevant. Consequently, I do not accept his evidence on quantum. 216 In relation to the failure to disclose that the accounts did not give a true and fair view of the financial position of BBL, Professor Frino deployed other studies to show that qualified accounts typically caused a 5% share price drop. I do not accept this evidence. In the somewhat particular facts of this case, the fact that the accounts were not true and fair was economically irrelevant. 217 On the issue of the 2007 dividend having been paid out of an asset revaluation, Professor Frino did not express a view on quantum. For this I would have awarded nil, no loss being proved. 218 The consequence of this conclusion is that the plaintiffs have suffered no loss in relation to these non-disclosures. Whilst it is, no doubt, distracting that the plaintiffs lost money because of the collapse of BBL, they did not lose a single cent as a result of the events surrounding the payment of the 2005-2007 final dividends. They lost money because of the global financial crisis in 2008. There was no credible evidence that BBL's performance in 2008 had anything to do with the payment of the 2005-2007 dividends. 219 Consequently, no issue about causation arises. It is unnecessary to decide, therefore, whether the plaintiffs could recover when it is alleged they bought shares at an inflated price caused by a listed company's failure to disclose information to the market. Had it been necessary to reach a view, it is likely I would have agreed with the plaintiffs' submissions. Shortly, the reasons for this are: (i) the relevant statutory questions appear in s 1317HA ('the damage resulted from the contravention') and s 1325 ('loss or damage because of conduct') of the Act; (ii) provisions of this kind import a notion of causation; (iii) whilst reliance is a sufficient condition for establishing causation it is not a necessary one. Cases involving diversion of customers from one trader to another caused by misleading conduct are one obvious example of this: Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526 per Lockhart J; (iv) it is relevant to take into account the underlying context of the alleged infringement. Here s 674 requires disclosure of market sensitive information where it would be expected to affect price (and where the listing rules also require disclosure). The provision assumes the existence of a price effect on the market in general; (v) a plaintiff may not recover where it knows of the misleading nature of the alleged conduct: Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (2008) 73 NSWLR 653 at 661-662 [19]-[22] and 731-732 [612]-[619] (CA); Digi-Tech (Australia) Pty Ltd v Brand (2005) 62 IPR 184 at 212 [159] (CA). But those observations by the Court of Appeal do not preclude a case brought by a council against a ratings agency where the agency had communicated information to the financial services arm of a Council association about particular financial instruments and the council had then relied on what the financial services arm had said. The Full Court held that such a case could be maintained: ABN AMRO Bank AV v Bathurst Regional Council (2014) 309 ALR 445 at 727 [1376] (FC) ('ABN AMRO'). See also Cahill v Kenna [2014] NSWSC 1763 at [264]-[265] per McDougall J; McBride v Christie's Australia Pty Ltd [2014] NSWSC 1729 at [258]-[266] per Bergin CJ in Eq; Caason Investments Pty Ltd v Cao [2014] FCA 1410 at [87]-[92] per Farrell J. (vi) ABN AMRO establishes that, at least in principle, where A misleads B and B in consequence misleads C, C is not necessarily precluded from recovering from A; (vii) the facts on this case are different to those in ABN AMRO to this extent: here it is alleged A misled the market (i.e. many B's) which then bid up the price which then caused loss to C. This is not the same factual situation as arose in ABN AMRO but I do not think it relevantly differs; (viii) whilst I accept that generally a plaintiff must show in a misleading conduct case that they would have acted in a particular way but for the conduct (see, e.g., Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546 at 559 (FC); Metalcorp Recyclers Pty Ltd v Metal Manufactures Ltd [2004] ATPR (Digest) 46-243 at [50] (CA)) it is artificial to speak of reliance in non-disclosure cases such as the present: Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at 351-352 [143]. 220 For those reasons I would accept that a party who acquires shares on a stock exchange can recover compensation for price inflation arising from a failure to disclose material required by s 674 to be disclosed, so long as they are not themselves aware of the non-disclosed material. 221 There remains the issue of the alleged failure to disclose that BBL was insolvent on 29 November 2008. If I had found this case was made good then BBL did not dispute that any loss suffered by the plaintiffs had been caused by the non-disclosure. 222 The only issue to be resolved, in the event that my primary conclusions are reversed, is therefore quantum. The relevant plaintiffs did not contend that had BBL disclosed it was insolvent on 29 November 2008 that trading in its shares would have been immediately suspended so that the plaintiffs would never have been able to buy their shares at all. On that view they would have been entitled to recover the full purchase price. Instead they relied upon Professor Frino's evidence that the shares were overvalued by at least 74.7% because of the failure to disclose the information. BBL did not resist this. Accordingly, had this issue arisen I would have awarded the plaintiffs who purchased their shares on or after 29 November 2008 damages equal to 74.7% of the purchase price paid.

IX Disposition of Proceedings 223 The application should be dismissed with costs. I certify that the preceding two hundred and twenty-three (223) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram.