In the matter of Regional Express Holdings Ltd [2026] NSWSC 756 | Case summary

In the matter of Regional Express Holdings Ltd [2026] NSWSC 756 | Case summary | Zoe

Catchwords

MISLEADING OR DECEPTIVE CONDUCT — where ASIC contends that the First Defendant engaged in misleading or deceptive conduct in contravention of s 1041H of the Corporations Act 2001 (Cth) (“Act”) and/or s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth), in representing that it “is optimistic that the Group will have positive operating profits for the full FY23 barring any further external shocks” – HELD – third pleaded representations was made – HELD – misleading or deceptive conduct claim not established as not established that the representation lacked reasonable grounds at the date it was made CONTINUOUS DISCLOSURE — where ASIC contends that the First Defendant failed to notify ASX that the Rex Group did not have, or no longer had, reasonable grounds to forecast positive operating profits for FY23 in breach of ASX Listing Rules and the Act – HELD – breach of continuous disclosure obligation established – declaration made DIRECTORS’ DUTIES – where ASIC contends that the Second Defendant failed to discharge his directors’ duties and contravened s 180 of the Act by failing to take reasonable steps to ensure the First Defendant complied with its obligations when making the relevant ASX announcement and for involvement in the continuous disclosure breaches – where Second Defendant admits liability DIRECTORS’ DUTIES – non-executive directors – where ASIC contends that the Third to Fifth Defendants failed to discharge their directors’ duties and contravened s 180 of the Act by failing to take reasonable steps to ensure the First Defendant complied with its continuous disclosure obligations – HELD – breach of directors’ duties claims not established, where actual knowledge of relevant matters on the part of the Third to Fifth Defendants not established

Judgment

Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.

Medium Neutral Citation: In the matter of Regional Express Holdings Ltd [2026] NSWSC 756

Hearing dates: 18–21 May, 28–29 May 2026, 2 June 2026

Date of orders: 30 June 2026

Decision date: 30 June 2026

Jurisdiction: Equity - Corporations List

Before: Black J

Decision: Claim against the First Defendant established; the Second Defendant did not contest claim against him and question of penalty remains to be heard; claims against the Third to Fifth Defendants not established to the requisite standard; parties to bring in short minutes of order to give effect to this judgment.

Catchwords: MISLEADING OR DECEPTIVE CONDUCT — where ASIC contends that the First Defendant engaged in misleading or deceptive conduct in contravention of s 1041H of the Corporations Act 2001 (Cth) (“Act”) and/or s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth), in representing that it “is optimistic that the Group will have positive operating profits for the full FY23 barring any further external shocks” – HELD – third pleaded representations was made – HELD – misleading or deceptive conduct claim not established as not established that the representation lacked reasonable grounds at the date it was made
CONTINUOUS DISCLOSURE — where ASIC contends that the First Defendant failed to notify ASX that the Rex Group did not have, or no longer had, reasonable grounds to forecast positive operating profits for FY23 in breach of ASX Listing Rules and the Act – HELD – breach of continuous disclosure obligation established – declaration made
DIRECTORS’ DUTIES – where ASIC contends that the Second Defendant failed to discharge his directors’ duties and contravened s 180 of the Act by failing to take reasonable steps to ensure the First Defendant complied with its obligations when making the relevant ASX announcement and for involvement in the continuous disclosure breaches – where Second Defendant admits liability
DIRECTORS’ DUTIES – non-executive directors – where ASIC contends that the Third to Fifth Defendants failed to discharge their directors’ duties and contravened s 180 of the Act by failing to take reasonable steps to ensure the First Defendant complied with its continuous disclosure obligations – HELD – breach of directors’ duties claims not established, where actual knowledge of relevant matters on the part of the Third to Fifth Defendants not established

Legislation Cited: - Australian Securities and Investments Commission Act 2001 (Cth), ss 12BAB, 12BB, 12DA
- Corporations Act 2001 (Cth), ss 180, 674A, 763A, 764A, 769C, 1041H, 1317E, 1317G, 1317QC, 1317S, 1318 - Evidence Act 1995 (NSW), ss 136, 140 - Supreme Court Act 1970 (NSW), s 75 - Treasury Laws Amendment (2021 Measures No. 1) Act 2021 (Cth)

Read the judgment on NSW Caselaw

Legislation Cited (5)

Corporations Act 2001(Cth)

Australian Securities and Investments Commission Act 2001(Cth)

Evidence Act 1995(NSW)

Supreme Court Act 1970(NSW)

Measures No. 1) Act 2021(Cth)

Cases Cited (84)

[2024] FCAFC 128

[2012] FCA 848

[2004] FCA 987

Cases Cited: - Australia and New Zealand Banking Group Ltd v Australian Securities and Investments Commission (2024) 305 FCR 383; [2024] FCAFC 128
- Australian Competition and Consumer Commission v Jewellery Group Pty Ltd (2012) 293 ALR 335; [2012] FCA 848
- Australian Competition and Consumer Commission v Telstra Corporation Ltd (2004) 208 ALR 459; [2004] FCA 987
- Australian Competition and Consumer Commission v Telstra Corporation Ltd (2007) 244 ALR 470; [2007] FCA 1904
- Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640; [2013] HCA 54
- Australian Competition and Consumer Commission v Woolworths Group Ltd (formerly called Woolworths Ltd) (2020) 281 FCR 108; [2020] FCAFC 162
- Australian Securities and Investments Commission v Activesuper Pty Ltd (in liq) (2015) 235 FCR 181; [2015] FCA 342
- Australian Securities and Investments Commission v Bekier (Liability Judgment) [2026] FCA 196
- Australian Securities and Investments Commission v Bettles (2023) 169 ACSR 244; [2023] FCA 975
- Australian Securities & Investments Commission v Big Star Energy Ltd (No 3) (2020) 389 ALR 17; [2020] FCA 1442
- Australian Securities and Investments Commission v Diversa Trustees Ltd [2023] FCA 1267
- Australian Securities and Investments Commission v Geary (2018) 332 FLR 201; [2018] VSCA 103
- Australian Securities and Investments Commission v Healey (2011) 196 FCR 291; [2011] FCA 717
- Australian Securities and Investments Commission v Healey (No 2) (2011) 196 FCR 430; [2011] FCA 1003
- Australian Securities and Investments Commission v Holista Colltech Ltd [2024] FCA 244
- Australian Securities and Investments Commission v Macdonald (No 11) (2009) 256 ALR 199; [2009] NSWSC 287
- Australian Securities and Investments Commission v Mitchell (No 2) (2020) 382 ALR 425; [2020] FCA 1098
- Australian Securities and Investments Commission v Nuix Ltd [2026] FCA 490
- Australian Securities and Investments Commission v Rich (2009) 236 FLR 1 [2009] NSWSC 1229
- Australian Securities and Investments Commission v Southcorp Ltd (No 2) (2003) 130 FCR 406; [2003] FCA 1369
- Australian Securities and Investments Commission v Vocation Ltd (in liq) (2019) 371 ALR 155; [2019] FCA 807
- Bonham (as trustee for the Aucham Super Fund) v Iluka Resources Ltd (2022) 404 ALR 15; [2022] FCA 71
- Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34
- Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; [2004] HCA 60
- Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25
- Carrier Air Conditioning Pty Ltd v Kurda (1993) 11 ACSR 247
- Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing & Allied Services Union of Australia v Australian Competition and Consumer Commission (2007) 162 FCR 466; [2007] FCAFC 132
- Crowley v Worley Ltd (2022) 293 FCR 438; [2022] FCAFC 33
- Cruickshank v Australian Securities and Investments Commission (2022) 403 ALR 67; [2022] FCAFC 128
- DIF III - Global Co-Investment Fund LP v DIF Capital Partners Ltd [2020] NSWCA 124
- Digi-Tech (Australia) Ltd v Brand [2004] NSWCA 58
- Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd [2014] NSWCA 158
- Forty Two International Pty Ltd v Barnes (2014) 97 ACSR 450; [2014] FCA 85
- Fysh v R [2013] NSWCCA 284
- Girchow Enterprises Pty Ltd v Ultimate Franchising Group Pty Ltd (Final Hearing) [2023] FCA 420
- Grant-Taylor v Babcock and Brown Ltd (in liq) (2015) 322 ALR 723; [2015] FCA 149
- Grant-Taylor v Babcock & Brown Ltd (in liq) (2016) 245 FCR 402; [2016] FCAFC 60
- Ireland v WG Riverview Pty Ltd (2019) 101 NSWLR 658; [2019] NSWCA 307
- James Hardie Industries NV v Australian Securities and Investments Commission (2010) 274 ALR 85; [2010] NSWCA 332
- Jubilee Mines NL v Riley (2009) 40 WAR 299; [2009] WASCA 62
- Lin v Zheng (2023) 379 FLR 164; [2023] NSWCA 174
- Masters v Lombe [2019] FCA 1720
- McFarlane (as trustee for the S McFarlane Superannuation Fund) v Insignia Financial Ltd [2023] FCA 1628
- Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191; [1982] HCA 44
- Parkin v Boral Ltd (Materiality Evidence Ruling) [2025] FCA 70
- R v Fysh [2012] NSWSC 1266
- R&B Investments Pty Ltd (Trustee) v Blue Sky Alternative Investments Limited (in liq) (Separation of Issues) [2025] FCA 1097
- Re Mayne Pharma Group Ltd [2025] NSWSC 1204
- Self Care IP Holdings Pty Ltd v Allergan Australia Pty Ltd (2023) 277 CLR 186; [2023] HCA 8
- TPT Patrol Pty Ltd (as trustee for the Amies Superannuation Fund) v Myer Holdings Ltd (2019) 293 FCR 29; [2019] FCA 1747
- Tourprint International Pty Ltd (in liq) v Bott (1999) 32 ACSR 201; [1999] NSWSC 581
- Zonia Holdings Pty Ltd v Commonwealth Bank of Australia Ltd (2025) 427 ALR 233; [2025] FCAFC 63

By Originating Process filed on 10 December 2024, the Australian Securities and Investments Commission (“ASIC”) sought a range of relief relating to alleged contraventions of the continuous disclosure obligation, the prohibition on misleading or deceptive conduct and directors’ duties in respect of Regional Express Holdings Limited (“Rex”) arising from an announcement made by Rex to Australian Securities Exchange (“ASX”) on 28 February 2023 (“28 February 2023 Announcement”) and the absence of any correction to that announcement until 20 June 2023 (“20 June 2023 Announcement”).
The First Defendant, Rex, was at relevant times a listed company which was subject to continuous disclosure obligations under s 674A of the Corporations Act 2001 (Cth) (“Act”). Rex was the holding company of a group of related companies (“Rex Group”), including several wholly owned subsidiaries. These included Regional Express Pty Ltd (“Rex Regional”), which operated Rex’s regional airline business; Rex Airlines Pty Ltd (“RAL”), which operated Rex’s domestic airline business; Australian Airline Pilot Academy Pty Ltd, which operated pilot training academies; AAPA Victoria Pty Ltd, which operated pilot training academies in Victoria; Australian Aero Propeller Maintenance Pty Ltd, which provided propeller maintenance services; and Pel-Air Aviation Pty Ltd, which operated charter flight services.
It appears that, at relevant times, the Rex Group’s revenue was primarily derived through ticket sales from domestic and regional passenger flight services; and, in the financial year ended 30 June 2023 (“FY23”), about 45% of the Rex Group’s passenger revenue was derived from its domestic airline business operated by RAL and about 55% was derived from its regional airline business operated by Rex Regional (Ex J1, 5708, tendered in electronic form; 5710, tendered in electronic form). In the relevant period, Rex’s board met every three months and comprised the individual Defendants in these proceedings and several other executive and non-executive directors who were not joined as party to the proceedings. I bear in mind that, at that time, there were nine directors of Rex and its executive directors were the Second Defendant, Mr Lim, and two other experienced executives, Messrs Howell and Hine. I also accept that Rex’s senior management included persons with significant experience and skills. A management committee of Rex met at regular intervals, generally immediately before Rex board meetings; and those meetings were generally attended by Mr Lim and the Third Defendant, Mr Sharp, and other executives of Rex. Mr Lodge, the General Manager of Network Strategy at Rex, had significant experience in similar roles with Rex since 2002.
The Second Defendant, Mr Lim, was at relevant times, the chief executive officer and executive chair of Rex. Mr Lim and his relatives also had significant shareholdings in Rex. It is common ground that Mr Lim had significant involvement in significant matters in Rex’s day-to-day business including, for example, conversations with travel agents and corporate sales, and he received a higher level of reporting as to Rex’s financial position than the other individual Defendants, Messrs Sharp, Khotkar and Pan, including, importantly, regular information as to Rex’s profit and loss.
The Third Defendant, the Honourable John Sharp AM, was at relevant times, the deputy chair and a non-executive director of Rex and had been a member of Rex’s Audit and Corporate Governance Committee since around 2011 and its chair since 2017. That committee had oversight, inter alia, of the implementation of Rex’s continuous disclosure policy
The Fourth and Fifth Defendants, Messrs Khotkar and Pan, were at relevant times, non-executive directors of Rex. Messrs Pan and Khotkar were both nominated as directors of Rex by PAGAC Regulus Holdings Pte Ltd (“PAG”), pursuant to a Subscription Agreement dated 18 November 2020 between Rex and PAG (Ex J1, 4681), by which PAG agreed to lend funds to Rex in exchange for convertible notes and obtained a right to nominate two non-executive directors to the Rex board and a right to receive the Rex Group’s unaudited monthly management accounts, and other information relating to Rex and its subsidiaries. Mr Pan was also a member of Rex’s Audit and Corporate Governance Committee.
Broadly, ASIC only sought declaratory relief against Rex, which had passed into voluntary administration by the time the proceedings were commenced. ASIC also sought orders that Messrs Lim, Sharp, Khotkar and Pan pay pecuniary penalties and that they be disqualified from managing corporations. Mr Lim has admitted liability in respect of the claims against him, although the question of penalties remains to be determined at a subsequent hearing. Messrs Sharp, Khotkar and Pan deny liability in respect of the claims against them.

I now turn to the affidavit evidence and cross-examination and other evidence, although I will deal with the evidence as to events of particular significance in setting out the chronology of events below.
ASIC relied on the evidence of Ms Ann Elliott, largely set out in her witness statement dated 15 October 2025 (Ex P1). Ms Elliott has extensive experience in the travel industry and had worked at Qantas and Virgin Australia for long periods, before joining Rex in December 2020 as General Manager of Sales for Rex Airlines. After a period of non-competition had expired, her responsibilities related to Rex’s domestic and regional airline operations and, in January 2023, she was promoted to General Manager of Sales for the whole of the Rex Group including National Jet Express (“NJE”). Ms Elliott was plainly a knowledgeable witness, and I am comfortably satisfied that she gave her evidence honestly and in a genuine attempt to assist the Court. She was cross-examined at some length and readily accepted propositions put to her in cross-examination, although the cross-examination largely did not challenge her evidence.
Ms Elliott’s evidence was that, under her employment contract, she reported to both Messrs Lim and Sharp, but she dealt more closely with Mr Lim as he exercised ultimate sign-off on everything on which she was involved including arrangements between Rex and travel agencies. Her evidence was that she also worked with Mr Lodge, who was General Manager Network Strategy at Rex and was responsible for determining the prices at which Rex sold seats on its aircraft and was a member of Rex’s management committee. Ms Elliott addressed the structure of travel agency agreements and corporate agreements affecting Rex, although her comprehensive evidence as to these matters was largely peripheral to the issues which I need to determine, which are directed to Rex’s and its directors’ response to ongoing developments in respect of its revenue and operating profit, rather than reasons why that revenue and operating profit declined in the relevant period. I have addressed specific aspects of Ms Elliott’s evidence in the chronology of events below.
Ms Elliott outlined the financial reporting and revenue accounting systems used at Rex. She also referred to her attendance at management committee meetings, which were held in the week of a board meeting, in order to make presentations on sales. Her evidence was that Mr Lim then identified information from those presentations which should be presented at the board meetings. She also referred to occasions on which she attended board meetings in order to make presentations with Mr Lodge. Her evidence was that Mr Lim usually wanted only slides which related to domestic routes to be included in presentations to the board, and that other slides from her management committee presentations were not shown on screen at the board presentations. I bear in mind that less prominence was given to the information contained in those other slides in the presentations to non-executive directors at those meetings.
Ms Elliott’s evidence (Elliott 15.10.25 [64]) was that, by February 2023, she had formed the view that the market was returning to traditional booking trends exhibited before the COVID-19 pandemic, with domestic markets generally exhibiting higher sales in the first six months of a financial year than in the second six months (Elliott 15.10.25 [64], [68]). Ms Elliott also addressed the sales performance in respect of Rex, observing (Elliott 15.10.25 [67]) that the Australian airline industry is “very seasonal”, and describing aspects of that seasonality. She also expressed the view, which I have accepted above (Elliott 15.10.25 [68]), that the first half of the financial year is stronger for revenue than the second half, because of the larger number of “strong months” in the first half than the second half of the financial year. She also pointed to a broadly similar trend between Rex’s regional and domestic airline services, although recognised that Rex’s regional business was more consistent than its domestic business, because regional airline sales were largely driven by business and government (Elliott 15.10.25 [69]). I accept Ms Elliott’s evidence in this regard, which points to a risk that Rex’s performance in the second half of FY23 would reflect a more difficult sales environment in that period than in the prior six months.
Ms Elliott also outlined trends in Rex’s and industry wide sales in the second half of the FY23, observing that there was an industry wide downturn at the beginning of the year, and referring to her review of subsequent information over that period. I address aspects of her correspondence dealing with these matters in the chronology below, and I recognise that Messrs Sharp, Khotkar and Pan were generally not party to that correspondence. Ms Elliott also referred (Elliott 15.10.25 [100]ff) to competition from Virgin and Qantas which was affecting Rex’s performance relevant times.
Ms Elliott was cross-examined and accepted in cross-examination, as she had indicated in her witness statement, that Mr Lim was a “relatively hands on” director from her perspective and that he had been involved in major discussions between Ms Elliott and travel agencies (T64). She acknowledged that she had less to do with Mr Sharp in respect of sales than as to matters such as sponsorships, and that she also less to do with Mr Sharp in respect of agreements with travel agents and that she dealt more closely with Mr Lim and Rex’s management in that regard (T65). Ms Elliott was cross-examined as to Rex’s strategy to develop its domestic business, including entering agreements with travel agencies in respect of that business, and as to Rex’s provision of flights in the “golden triangle” routes between Brisbane and Melbourne, Brisbane and Sydney, Sydney and Melbourne and Sydney and Brisbane (T66). Ms Elliott accepted that there were difficulties in comparing Rex’s business as it existed before COVID-19 with its business in FY23, given changes in the business between those dates (T70). Ms Elliott also acknowledged that Rex was experiencing difficulties in April 2023 arising from shortages of airline professionals and engineers which impacted upon flight cancellations by Rex (T73). Ms Elliott was also cross-examined, in some detail, as to the content of her presentations to management meetings. She confirmed, in cross-examination (T85), that slides that were presented to the management committee but not the board, at Mr Lim’s direction, remained in the board pack but were not put on screen in her presentations at the board meetings.
ASIC also tendered the expert report dated 10 September 2025 of Mr Tony Dillon (Ex P2). Mr Dillon has substantial expertise in financial aspects of the aviation industry. Mr Dillon was asked to address complex questions in his report, possibly because ASIC did not then know the basis on which the individual Defendants would defend the proceedings, where they had asserted claims for privilege against incrimination to a penalty and not filed substantive defences or lay evidence before that expert evidence was filed.
In substance, Mr Dillon was asked to address the likelihood that the Rex Group would achieve positive operating profits for FY23, barring further external shocks; and whether there were reasonable grounds to expect that the Rex Group would have such positive operating profits for FY23, as at eight different dates and on the basis of two alternative assumptions as to the meaning of “operating profits” (and operating losses). The first of those bases was that operating profits were to be calculated in accordance with the calculation of group operational profit/loss before tax in Rex’s FY23 full year results presentation on 30 August 2023, although that was released after the events in issue in the proceedings, and the alternative was the different concept of operating profit apparently adopted by Rex in the 28 February 2023 Announcement. I do not consider the first approach should be given significant weight, where it had not been adopted by Rex at the time of the events in issue. I address the significance of the second approach below.
Mr Dillon first addressed the several non-statutory profit definitions used by Rex, broadly from the completion of its subscription agreement with PAG in March 2021 until 30 August 2023. Broadly, Mr Dillon noted that Rex did not apply a consistent set of adjustments to its statutory profits to determine “operating profit” and that, on 28 February 2023, it reported a non-statutory “operating loss after tax” for the six months to 31 December 2022 that included adjustments to statutory profit for fair value changes on the convertible notes and warrants issued to PAG, for amortisation of the PAG facility fee and for fair value changes on the investment in NJE.
Mr Dillon also noted that, on 30 August 2023, Rex reported a non-statutory “operational loss before tax” for the 12 months to 30 June 2023 that included fair value changes to the investment in NJE but made no adjustment for fair value changes on the PAG convertible notes and warrants or for amortisation of the PAG facility fee. I do not understand the concept of “operating profit” (or “operating loss”) in the 28 February 2023 Announcement to reflect that calculation, where that approach had not been adopted by Rex at the time the 28 February 2023 Announcement was made, and it will largely not be necessary for me to address the second aspect of Mr Dillon’s evidence in that respect.
Mr Dillon then addressed aspects of the Rex Group’s profitability and distinguished between the components of its profit that are relatively large and volatile, and others that are smaller and more stable and predictable. Broadly, Mr Dillon observed that the monthly operating profit for Rex’s passenger transport flying business subsidiaries was relatively large and volatile; the combined operating profit of other subsidiaries of Rex was relatively small, stable and predictable; and that the relatively volatile monthly operating profit of the passenger transport flying business subsidiaries was a function of volatile weekly passenger revenue rather than net operating costs, which were relatively stable and predictable. I accept his evidence in that respect, which is consistent with the volatility in passenger revenue in the evidence led in the proceeding.
Mr Dillon also pointed to evidence of revenue seasonality in the domestic airline industry, prior to COVID-19, and expressed the view that Rex’s passenger revenue was likely to have returned to a pattern of seasonality by February 2023. I have accepted Ms Elliott’s evidence that, as a matter of fact, Rex’s earnings were affected by seasonality from about that time and Mr Dillon’s evidence is consistent with her evidence in that respect.
Mr Dillon noted that he was not provided with profitability forecasts for Rex for FY23 and its internal reporting of year to date profitability, and that he had viewed no documented calculations indicating that the Rex Group either forecast positive operating profits for FY23 or reported year to date operating profits at relevant dates. It has not been proved by evidence, and it is not common ground, that Rex produced no such forecasts in response to a statutory notice requiring production of them, although the one document to which the Defendants refer in submissions was not prepared for any relevant purpose and the Defendants tendered no such forecasts in their defence of the proceedings. While I do not draw any adverse inference from the non-production of such forecasts, that has the consequence that no such forecasts were available to support the statement as to operating profits made in the 28 February 2023 Announcement.
Mr Dillon then turned to the questions whether, at each relevant date, (1) it was likely that the Rex Group would have positive operating profits for FY23, barring further external shocks; and (2) whether the Rex Group had reasonable grounds to expect that it would have positive operating profits for FY23. The second of those questions is of greater relevance, where I have held that the relevant representation was that there were reasonable grounds to expect that the Rex Group would have positive operating profits for FY23, arising from the statement in the 28 February 2023 Announcement (Ex J1, 4261) that Rex “is optimistic that the Group will have positive operating profits for the full FY23 barring any further external shocks”. In answering these questions, Mr Dillon first assumed that the Rex Group’s operating profits (and operating losses) were calculated in accordance with the calculation of operational profit before tax set out by Rex in a spreadsheet dated 27 February 2023 entitled “1H FY23 Operational PAT calculation” (Ex J1, 4152). While that was a reasonable assumption for Mr Dillon to have been asked to make, it is not apparent to me that a reader of the 28 February 2023 Announcement, who would not have had access to that document or any indication of its significance, would have understood that concept in those terms.
Mr Dillon’s evidence is that, absent evidence of profitability forecasts prepared by Rex for FY23 or internal reporting of operating profit by Rex, he assessed the likelihood that the Rex Group would have positive operating profits for FY23 at relevant dates by reference to a relatively complex methodology, involving calculations of average weekly passenger revenue, by comparison with revenue over the preceding eight weeks, and then a calculation of revenue required for the Rex Group to break even over the full financial year, which is then tested against seasonality. It is not necessary to address the detail of Mr Dillon’s calculation in this regard. Mr Dillon concluded (Ex P2, section 7) that it was unlikely at all relevant dates from 23 February 2023 to 16 May 2023 that the Rex Group would have positive operating profits (as calculated with the adjustments reflected in the 28 February 2023 Announcement) for FY23, barring any further external stocks. Mr Dillon also observed, unsurprisingly, that the primary driver of that opinion was increasing monthly operating losses of the Rex Group into the second half of FY23. I accept Mr Dillon’s evidence as to these matters, other than as to the position disclosed by Rex’s January 2023 results and known to Rex as at 23 February 2023, to which I refer below.
Mr Dillon then addressed the question whether Rex had reasonable grounds to expect positive operating profits for FY23 by reference to documents provided to him and other matters that would have been known or reasonably expected to have been known at relevant dates. Mr Dillon expressed the view (Ex P2, section 8) that Rex did not have reasonable grounds to expect that the Rex Group would have positive operating profits for FY23 at any of the relevant dates. He again noted that the primary driver of that opinion was the increasing year to date operating losses for the Rex Group over the relevant period and observed that the size and urgency of the challenge arising from the gap between the Rex Group’s year to date operating loss and a positive operating profit for FY23 increased over the relevant period. It is again not necessary to address the detail of Mr Dillon’s analysis of those matters, which was largely not challenged in cross-examination, although I address documents which are relevant to that matter in the chronology below.
Mr Dillon then turned to address the questions whether, at each relevant date, it was likely that the Rex Group would have positive operating profits for FY23, barring further external shocks and whether the Rex Group had reasonable grounds to expect that it would have positive operating profits for FY23, on the basis of the different approach to calculating operating profit that was adopted in Rex’s August 2023 results presentation. Mr Dillon here adopted a broadly similar approach to that adopted in respect of the first approach to operating profit, although he noted that the changed calculation of “operating profit” impacts on the size and urgency of the challenge arising from a gap between year to date operating losses and positive operating profits for FY23. Adopting this second approach to calculating operating profit, Mr Dillon also concluded (Ex P2, section 9), for much the same reasons, that it was unlikely that the Rex Group would have a positive operating profit for FY23 in the relevant sense at any of the relevant dates, and that it did not have reasonable grounds to expect it would have such operating profits in that year at those dates.
Mr Dillon was taken, in cross-examination, to letters of instruction which had been provided to him before he prepared his report and to a preliminary report in which he had expressed a view that was somewhat more favourable to Rex and the individual Defendants as to the first question he was asked than the view expressed in his final report. Mr Dillon fairly acknowledged that that report reflected a “preliminary but considered” opinion at that time. I recognise the fact that Mr Dillon’s final opinion has changed from that expressed in his preliminary report. However, he identified, in re-examination, that further information provided to him after he prepared his preliminary report had impacted on his analysis; his final report is based on the extended analysis set out in his final report, to which I have referred above; and the development of his view, as additional documents were briefed to him and he developed his analysis, does not undermine the conclusions that he reached in his final report. I largely accept the analysis in the final report in preference to the preliminary view expressed in Mr Dillon’s earlier report, other than as to the position disclosed by Rex’s January 2023 results and known to Rex as at 23 February 2023.
Mr Dillon was also cross-examined as to the time that he had taken to prepare his final report, over several months from March 2025 to September 2025. I understand that cross-examination to have been directed to a proposition that a director of Rex, receiving information on an ongoing basis, could not have appreciated that it undermined the optimism as to Rex’s operating profits for FY23 expressed in the 28 February 2023 Announcement, without undertaking an exercise of the complexity taken by Mr Dillon over several months. I do not accept that proposition. The complexity of Mr Dillon’s approach reflects the fact that he was asked to address the position at multiple dates, by reference to two alternative concepts of “operating profit”, and to set out his reasoning in a manner that would allow his report to be admitted as expert evidence. Rex, or a director of Rex, dealing with information circulated in the ordinary course of its business, did not need to proceed in so complex a manner.
Mr Dillon was also cross-examined as to the complexities arising from Rex’s different approaches to calculating “operating profit” at different times, and I will address those complexities below. Mr Dillon fairly accepted in cross-examination that his analysis involved “hindsight”, so far as it involved a comparison of actual developments against Rex’s previous operating performance in 2018 and 2019. I accept that proposition, but that leaves open the question whether Rex or its directors were able to identify that adverse information, particularly in the second half of FY23, as circulated within Rex’s business and to the directors, undermined any reasonable basis for the optimism as to positive operating profits for FY23 expressed in the 28 February 2023 Announcement. Mr Dillon also fairly accepted that his analysis was based upon a calculation of break-even weekly passenger revenue and upon information as to Rex’s month-to-month internal profitability. Again, it does not follow that, because a complex report prepared by Mr Dillon adopted that methodology, Rex or its directors could not have recognised the extent to which the information that was available to them, in the second half of FY23, deprived the statement as to operating profit in the 28 February 2023 Announcement of reasonable grounds.
ASIC also tendered a report dated 15 October 2025 of Mr Andrew Sisson (Ex P3), who has substantial experience in the securities industry, principally as a share analyst and share portfolio manager. Mr Sisson was asked to prepare his report on an assumption which reflected the three elements of the “2023 Profit/Loss Information” for which ASIC contended, namely that, by specified dates between 28 February 2023 and 16 May 2023, the Rex Group would not, or was not likely to, have positive operating profits for FY23; the Rex Group would have, or was likely to have, an operating loss for FY23; and/or the Rex Group did not have reasonable grounds to forecast an operating profit for FY23. On that basis, Mr Sisson was asked to express his view as to whether a reasonable person would have expected the 2023 Profit/Loss Information (or, if applicable, elements of it), if that information was generally available, to have a material effect on the price or value of Rex’s shares as at the specified dates.
Consistent with the manner in which ASIC puts its case as to continuous disclosure, as I will note below, Mr Sisson addressed that question on the basis that Rex had made the 28 February 2023 Announcement, and he drew specific attention to the statement in that announcement that “Rex is optimistic that the Group will have positive operating profits for the full FY23 barring any further external shocks”. Mr Sisson also referred to the investor briefing released by Rex to ASX on the same day, which included several statements under the heading “Profit Forecast”, including the somewhat more qualified statement (Ex J1, 4363) that:

Mr Sisson nonetheless also accepted (T146) that the magnitude and reasons for a lack of positive operating profits would be relevant in determining whether and the extent to which an investor’s confidence in Rex’s prospects would be diminished. He also accepted that, obviously enough, the 2023 Profit/and Loss Information did not contain numeric information as to the reason for such a change. The absence of reference to that matter plainly does not exclude the possibility that a statement that Rex no longer had reasonable grounds to forecast positive operating profits for FY23 would be material to investors in Rex.
In cross-examination by Mr Thomas (with whom Mr Speirs appeared for Messrs Khotkar and Pan), Mr Sisson was again taken to Guidance Note 8 and he accepted that several matters noted in that Guidance Note were not addressed by the instructions which he had provided or by his analysis. Mr Sisson acknowledged that he had not been given or satisfied himself that his instructions contained all external information that was publicly available concerning Rex at the relevant time (T150). I note, however, that the parties have not drawn attention to any relevant information of that character, beyond the announcements made by Rex prior to the 28 February 2023 Announcement, which I have noted in the chronology below. Mr Sisson also accepted that his instructions did not allow him to determine whether Rex’s earnings for FY23 would differ materially, downwards or upwards, from market expectations, before the 20 June 2023 Announcement (T151). I again recognise that that proposition would not exclude the potential materiality of a statement that Rex had, at some time prior to 20 June 2023, ceased to have reasonable grounds to forecast positive operating profits for FY23. Mr Sisson also accepted that his instructions did not allow him to assess whether there had been a variation of more than 10% in Rex’s earnings, adopting a figure referred to in Guidance Note 8. It is also not apparent to me that that matter is particularly significant for a determination as to the materiality of a loss of reasonable grounds to forecast positive operating profits for FY23. Mr Sisson was cross-examined as to ASX’s expectation, noted in Guidance Note 8, that an announcement that an entity’s earnings will differ materially from market expectations is to ordinarily include new guidance as to the amount of the entity’s earnings. I do not understand that proposition to prevent a listed company correcting an announcement as to its expectations that has become misleading or deceptive, or perverse to say the least, to require that false information be left uncorrected in the market.
ASIC also read the affidavit dated 20 April 2026 of Mr Bosnic, a senior specialist employed by ASIC which exhibited a report showing the change in Rex’s trading price after the 20 June 2023 Announcement was made (Ex P4). Mr Bosic was not required for cross-examination. I give little weight to this evidence, in determining the materiality of the 2023 Profit/Loss Information, or its component elements, where the 20 June 2023 Announcement plainly included additional information of a significant character, namely the amount of the substantial operating loss that was by that time forecast for Rex.

The matters in issue and the extent of the factual dispute emerge from the Statement of Claim (“SOC”) filed by ASIC on 19 December 2024, the Defences filed by Messrs Sharp, Khotkar and Pan and the parties’ respective chronologies. I have drawn on those chronologies in setting out the chronology below, which records my findings as to contested facts. I should note that the chronology that I set out below describes the information disclosed by numerous documents, many of which were tendered in electronic form, and I have largely drawn on ASIC’s chronology for that description. Consistent with their obligations under s 56 of the Civil Procedure Act 2005 (NSW), the parties agreed the accuracy of these descriptions, other than as to particular items where the Defendants took issue with those descriptions. My descriptions of the documents below record my resolution of those disputes. I largely do not address matters which are only relevant to establishing Mr Lim’s liability which he now admits.
I first refer, by way of background, to events prior to the period in issue in the proceedings. Obviously, Rex and other airlines were affected by the COVID-19 pandemic in 2020, and there were also changes in the structure of Rex’s business from that year. On 20 March 2020, Rex issued an ASX release stating that it had finalised the first stage of network capacity reductions, with effect from 6 April 2020, in response to the COVID-19 pandemic. On 29 June 2020, Rex’s board approved an initiative to raise a minimum of $30 million for the commencement of domestic regular passenger transport (“RPT”) operations through sale-and-leaseback arrangements, equity injection and/or convertible notes, as noted in Rex’s Half-Year Financial Report for the first half of FY21 (Ex J1, 2929). Rex’s Preliminary Final Report for FY20 (Ex J1, 2863), issued on 31 August 2020, noted that Rex’s network had been reduced by over 80% in April 2020 due to the effects of COVID-19.
Under the Subscription Agreement referred to above, PAG provided funding of up to $150 million for Rex’s proposed new domestic jet operations and obtained the right to nominate two directors to Rex’s board (Ex J1, 4681).
Rex’s Half-Year Financial Report for the period ending 31 December 2020 (Ex J1, 2928) recorded, inter alia, that “available seat kilometres” reduced in that period by 65.7% against the same period in FY20; Rex had received Federal and State government assistance grants; and Rex had revised its regional route network in response to aggressive moves by Qantas into regional routes serviced by Rex.
In March 2021, RAL commenced commercial flights between capital cities using Boeing 737-800NG aircraft (Ex J1, 3053, 3131). On 15 March 2021, Messrs Khotkar and Pan were appointed by PAG as directors of Rex in accordance with the Subscription Agreement (Ex J1, 2950; D1 718).
On 24 July 2021, Rex and a large travel agent, Flight Centre entered into an agency agreement (Ex J1, 2960). Also in late July 2021, Rex suspended or reduced its services due to the effects of COVID-19 (Ex J1, 3131). Rex was again fully operational for all planned domestic routes by the end of FY22, apart from flights between Melbourne and Hobart, which commenced in August 2023.
On 31 August 2021, Rex released its preliminary final report (Ex J1, 3034) which announced a loss after tax of $4.9 million and an “Underlying Loss After Tax” of $12.7 million after excluding mark-to-market adjustments relating to the funding agreement with PAG, and noted a significant decrease of revenue from the previous year. As Mr Borsky (with whom Mr Kruse and Ms Garcia appeared for ASIC) pointed out in closing submissions, that announcement involved an alternative calculation of loss to the statutory loss that was also there announced by Rex. That does not assist in establishing that Rex’s directors knew (although they plainly should have known) the basis of Rex’s later calculation of “operating loss” in the 28 February 2023 Announcement. The adjustments made in 2021 to calculate the “Underlying Loss after Tax” do not seem to be the same as those that were made in February 2023, or the different adjustments that were made in August 2023, to calculate “operating loss”, although both excluded mark-to-market adjustments in respect of the convertible note to PAG. Rex’s annual report for FY21 (Ex D1, 694) indicated that, in FY21, Rex had earned RPT revenue of approximately $125 million (including approximately 4 months of domestic operations) and had also received government grants.
On 2 May 2022, Rex announced (Ex D1, 802) that it had signed a letter of intent with Delta Air Lines to enter into an agreement for reciprocal interline ticketing and baggage services, to commence during the third quarter in 2022.
On 15 June 2022, Rex announced (Ex D2, 312) an increase in services to major regional centres on its network and the abandonment of several “marginal regional routes”.
On 24 June 2022, Rex issued an ASX release (Ex J1, 3172) to the effect that, inter alia:

Only one full copy of the weekly worm report was tendered in paper form, which had been circulated on 17 May 2023 to a Rex internal mailing group, with a copy to Mr Khotkar (Ex J1, 5382), although many such reports were tendered in electronic form. At least in its printed form, that report was a sprawling document, which included historical and current data for domestic and regional router (excluding Queensland regulated routes, “Queensland RR”), including average fare data, revenue data, regional information, seven day data in alternative forms, comparisons of intakes, forecast and availed information, monthly revenue in alternative forms and monthly costs, which was presented in the form of complex spreadsheets and relatively complex graphs, without commentary identifying the different bases on how alternative versions of the documents were prepared and without highlighting significant developments in the multiple spreadsheets and graphs included in that report.
I accept that, as Mr Borsky contended, recipients of the weekly worm reports likely used the electronic version of those reports, rather than a printout of them, and the graphs that were immediately accessible in that version were more comprehensible than the substantial tables of data that supported them. I also recognise that reviewing the weekly worm report in printed form may overstate its apparent volume and its difficulties in the case of an electronic user. That still seems to me to be only a partial answer to the complexity of the documents and the difficulty of isolating significant developments or trends in them, in a week to week review, where they were not highlighted by commentary or otherwise. It seems to me that a reader of the weekly worm reports, at least if he or she already had a detailed understanding of Rex’s business, could likely obtain a general impression of developments in the business from that report, but even a reader with that knowledge would find it difficult to identify particular matters that were significant in any particular report, given its length and complexity, where they were not highlighted or the subject of commentary.
Messrs Sharp, Khotkar and Pan also fairly draw attention to a letter dated 24 April 2025 from the solicitors acting for ASIC in these proceedings to the solicitors acting for the then voluntary administrators of Rex (Ex J1, 5924) which observed that “[t]here are certain elements of Rex’s ‘Weekly Worm’ reports [that] are not readily explicable on the face of those documents … ” and asked several questions concerning the source of the information included in those reports, how the revenue data shown in those reports was generated and as to the methodology used by Rex to produce its adjusted forecast revenue in those reports. The solicitors acting for the voluntary administrators then responded (Ex J1, 5927) that:

That letter also explained how information which was the subject of ASIC’s queries was derived. I also readily infer that Rex knew that information, at least through the member of its staff who was preparing the weekly worm reports, and possibly through those who regularly received them. It is, of course, not self-evident and it has not been established that Mr Sharp, still less Messrs Khotkar and Pan, knew that information at the time they had access to the weekly worm reports. However, it is also not self-evident that the information sought by ASIC was not necessarily required for at least some understanding of the weekly worm reports.
I refer to the circulation of the weekly worm reports in the chronology below and to ASIC’s summaries of the key information that ASIC contends emerged from each of those reports. The Defendants accept the correctness of those summaries, although they contested the transparency of those reports. Mr Sharp accepts that he received these reports, and Messrs Khotkar and Pan accept they received them between 28 February 2023 and 14 April 2023. In opening submissions, ASIC also summarised and graphed the information, in a submission that was also not directly contested by the Defendants, although that information would likely not have been apparent from a reading of those reports on a weekly basis.
At least in the first quarter of 2023, Rex also circulated domestic booking daily summary reports, including to Messrs Lim and Sharp and, from 18 April 2023, to Messrs Pan and Khotkar, which indicated daily and 7-day average domestic revenue. ASIC has tendered such reports from 20 January 2023 to 20 June 2023. These documents are also significant, again to proving the facts that they record and to establishing the knowledge of those individual Defendants who received them. In opening submissions, ASIC also summarised and graphed that information, in a submission that was also not contested by the Defendants.
In the relevant period, Rex also circulated monthly passenger revenue reports which provided monthly information for domestic, regional and Queensland RR actual revenue; and domestic, regional and Queensland RR load factors. ASIC has tendered such reports from December 2022 to May 2023. In closing submissions, ASIC did not press a submission that Mr Pan had received these before 14 April 2023. Rex also circulated weekly passenger revenue reports, which were circulated weekly and were received by each of Mr Lim on at least 14 February 2023, 18 April 2023 and 30 May 2023, Mr Sharp on 18 April 2023, and Messrs Pan and Khotkar on and from 18 April 2023, and ASIC has tendered these reports from 18 April 2023 to 28 June 2023. These reports provided, inter alia, weekly data for domestic, regional and Queensland RR actual revenue; and domestic, regional and Queensland RR load factors. In opening submissions, ASIC summarised and graphed the information contained in both reports, in a submission that was also not contested by the Defendants.
Turning now to the first half of January 2023, on 6 January 2023, Mr Ho of Rex sent monthly passenger revenue reports (Ex J1, 3783) for regional, domestic and Queensland RR for December 2022 to internal email groups in Rex. The domestic report identified revenue of $22,958,620 and a load factor of 77.98%; the regional report identified revenue of $16,598,053 and a load factor of 67.39%; and the Queensland RR report identified revenue of $1,805,006 and a load factor of 52.04%.
On 11 January 2023, Rex issued an ASX release (Ex J1, 3792), again authorised by Mr Lim, that it had increased profitability in November 2022, reporting unaudited monthly profit before tax figures for its domestic operations at $2.8 million and for the Rex Group as a whole at just over $3 million. The announcement stated that:

On 18 January 2023, Mr Davies of Rex emailed a weekly worm report to a Rex internal email group with a blind copy to Mr Khotkar (Ex J1, 3793, attachment tendered in electronic form).
On 20 January 2023, Mr Fahey of Rex emailed a domestic booking daily summary (Ex J1, 3798) to Mr Lim, with a copy to Mr Sharp and to internal email groups in Rex, attaching a spreadsheet (Ex J1, 3813, tendered in electronic form) entitled “Intakes Summary Sectors & Revenue (with links)” which included the daily sales and passenger intake data for the Rex Group. That document noted a 7-day average revenue total for domestic routes of $525,297 as at 19 January 2023.
Also on 23 January 2023, Mr Kankanige of Rex emailed Mr Lim and others a profit and loss and year to date Rex Group profit before tax results for December 2022 (Ex J1, 3814) which attached a spreadsheet titled “Rex PL Dec22(Cir)” (tendered in electronic form). The email referred to the Rex Group’s profit before tax of $3,667,395 for December 2022 and the Rex Group’s FY23 year to date loss before tax of ($30,478,640); and the spreadsheet identified, for Rex Regional, monthly EBITDA of $1,346,867; current year, year to date EBITDA of $2,550,160; monthly loss before tax of ($23,967,180); current year, year to date loss before tax of ($37,822,485); monthly loss after tax of ($23,774,304); and current year, year to date loss after tax of ($15,369,619).
On 23 January 2023, a Rex employee emailed Mr Lim, with a copy to Mr Sharp, another domestic booking daily summary (Ex J1, 3817; attachment tendered in electronic form) which included daily sales and passenger intake data for the Rex Group, showing a 7-day average revenue total for domestic routes of $514,909 as at 22 January 2023.
On 31 January 2023, Rex made an ASX release (Ex J1, 3835), authorised by Mr Lim, titled “Rex Announces Increasing Profitability in December” which referred to its unaudited monthly profit before tax for its domestic operations increasing to about $4 million, and an operational profit for the Rex Group of $3.7 million.
On 6 February 2023, Mr Ho of Rex emailed internal email groups in Rex, attaching monthly passenger revenue reports (Ex J1, 3843) for domestic routes, regional routes, and Queensland RR for January 2023. The domestic report identified revenue of $18,600,600 and a load factor of 74.27%; the regional report identified revenue of $12,444,275 and a load factor of 63.55%; and the Queensland RR report identified revenue of $1,746,544 and a load factor of 50.20%.
On 14 February 2023, Mr Ho of Rex emailed internal email groups in Rex (but not, it appears, Messrs Sharp, Khotkar or Pan), attaching a weekly passenger revenue report (Ex J1, 3903) for domestic routes, regional routes and Queensland RR for the period 29 January to 4 February 2023. The domestic report identified revenue of $2,650,029 and a load factor of 56.58%; the regional report identified revenue of $3,416,474 and a load factor of 56.24%; and the Queensland RR report identified revenue of $497,836 and a load factor of 58.6%. On 15 February 2023, in response to that weekly passenger revenue report, Mr Lodge emailed Mr Lim (Ex J1, 3906) in relation “to the domestic numbers (reduction of 32% revenue from prior week)” and identified several issues that had affected the results. Also on 15 February 2023, Mr Hill of Rex emailed Mr Lodge and Ms Elliott (Ex J1, 3902) forwarding Mr Ho’s 14 February 2023 email and observing that the domestic numbers were “disappointing” and that they “look particularly poor vs prior week”.
Also on 14 February 2023, Rex announced (Ex J1, 3899) its entry into a Letter of Intent for two additional Boeing 737-800NG jets, and Mr Sharp was quoted as saying that “Rex’s domestic jet services have been performing very strongly and have been profitable in the past four months”.
On 21 February 2023, Mr Kankanige emailed Mr Lim and others (but not, it appears, Messrs Sharp, Khotkar or Pan) RAL monthly management accounts (Ex J1, 3926), attaching a spreadsheet which identified the profit and loss for RAL for January 2023, showing a monthly EBITDA of $1,384,616; current year, year to date EBITDA of $13,860,787; a monthly profit before tax of $635,762; current year, year to date profit before tax of $916,932; a monthly profit after tax of $445,033 and current year, year to date profit after tax of $641,852.
On 22 February 2023, a weekly worm report (Ex J1, 3928; attachment tendered in electronic form) was circulated to a Rex internal email group, including Messrs Sharp, Khotkar and Pan.
On 23 February 2023, Mr Kankanige emailed Mr Lim and others (but not, it appears, Messrs Sharp, Khotkar or Pan) year to date and monthly profit before tax figures for the Rex Group for January 2023 (Ex J1, 4055) and attached a spreadsheet entitled “Rex PL Jan23(Cir)” (tendered in electronic form). The email indicated that the Rex Group had incurred a loss for January 2023 of ($5,336,351) and an FY23 year to date before tax loss of ($23,580,634) which, after adjustments of $14,731,901 for the NJE gain on acquisition and a share of loss on NJE of ($2,506,544), reflects a year to date loss of ($35,805,991). The spreadsheet showed, for Rex Regional, January 2023 EBITDA was ($3,758,365); current year, year to date EBITDA was ($1,199,204); monthly loss before tax was ($6,594,239); current year, year to date loss before tax was ($44,407,724); January 2023 loss after tax was ($4,814,177); and current year, year to date loss after tax was ($38,672,873).
By email dated 24 February 2023, Mr Tan, who was the General Manager of Corporate Services and Company Secretary of Rex, emailed Rex’s directors (Ex D1, 807), with a further blind copy to Mr Khotkar, providing a copy of the Rex Group’s financial report for the half year ended 31 December 2022, stating that “[t]he auditors are just doing their final review” and that “[w]e do not expect changes (if any) to be material”. The attached half-year financial report for the period ended 31 December 2022 referred to Rex’s “post-COVID-19 recovery”, to increased revenue (including government grants) and to the completion of Rex’s share acquisition of NJE in the period. It noted that the Rex Group’s total revenue (excluding government grants) for the period had improved by 282.2% against the same period last year to $337.9 million; available seat kilometres had increased by 269.4% with passenger numbers increasing by 319.2% to 1,450,421 against the same period in FY22; and that Rex’s load factor had improved by 23.9% to 77.3% for the period, presumably by comparison to its performance during and immediately after the COVID-19 pandemic. The review of operations in that report also referred to Rex’s previous exit from marginal routes. That version of that report also stated that:

On the same day, 19 April 2023, a weekly worm report (Ex J1, 4838; attachment tendered in electronic form) was circulated to a Rex internal email group including Messrs Khotkar and Pan.
Also on 19 April 2023, Messrs Lim, Sharp, Pan and Khotkar received a domestic booking daily summary with data up to 19 April 2023 (Ex J1, 4840) which identified that the 7-day average revenue was $510,694.
On 20 April 2023, Mr Lim (but also not, so far as the evidence goes, Messrs Sharp, Khotkar or Pan) received the profit and loss data for RAL for March 2023 (Ex J1, 4849; attachment tendered in electronic form) which showed March 2023 EBITDA was ($1,865,185); current year, year to date EBITDA was $6,194,872; March 2023 loss before tax was ($3,093,139); current year, year to date loss before tax was ($9,459,018); March 2023 loss after tax was ($2,164,608); and current year, year to date loss after tax was ($6,621,313).
On 21 April 2023, Mr Ho of Rex sent weekly passenger revenue reports (Ex J1, 4851) for 9 to 15 April 2023 which showed domestic actual revenue was $4,406,796; domestic load factor was 80.28%; regional actual revenue was $3,673,871; regional load factor was 63.72%; Queensland RR actual revenue was $501,311; and Queensland RR load factor was 62.3%.
On 24 April 2023, Mr Lim (but also not, so far as the evidence goes, Messrs Sharp, Khotkar or Pan) received year to date and monthly profit and loss figures for the Rex Group for March 2023 (Ex J1, 4857), which indicated that the Rex Group had incurred a loss of approximately $3.5 million in March 2023 and a year to date loss of approximately $49.7 million, calculated as the Rex Group’s before tax loss, now increased to approximately $38.3 million, less the gain of approximately $14.7 million and share of loss of approximately -$3.3 million on the NJE joint venture. The attached spreadsheet to that email, “Rex PL Mar23(Cir)” (Ex J1, 4858, tendered in electronic form) showed, for Rex Regional, March 2023 EBITDA was $2,203,676; current year, year to date EBITDA was ($15,727); March 2023 loss before tax was ($890,904); current year, year to date loss before tax was ($49,120,625); March 2023 profit after tax was ($821,842); and current year, year to date loss after tax was ($42,368,322).
By 26 April 2023, at least Mr Lim had recognised a possible question of making a further announcement to ASX and he emailed Rex management (but not, so far as the evidence goes, Messrs Sharp, Khotkar or Pan) (Ex J1, 5044; Ex D1, 844) as follows:

This email prompted a series of management accounts prepared on different bases by Rex's finance staff, as I will note below, which prevent a finding as to which version of Rex's management accounts was provided to Rex's management committee on 15 May 2023 and Rex’s board meeting on 16 May 2026. There was discussion, in later emails, of the possibility of moving aircraft back into Rex from Rex Investment Holdings Pty Ltd (“RIH”) (for example, Ex D1, 916) and subsequent management accounts circulated by Rex's financial staff excluded other expenses, such as operating lease payments, in calculating Rex's earnings or profit (for example, Ex D1, 1184.1, which disclosed a loss before tax in excess of $49.1 million before adjustments, but an adjusted cash profit before tax in excess of nearly $8.3; and Ex D1, 1188.1, which disclosed a lesser loss before tax in excess of $9.4 million before adjustments in respect of RAL's domestic operations, but an adjusted cash profit in excess of $3.56 million). These other management accounts are not significant in demonstrating a proper calculation of Rex's operating profit, where they show only that, unsurprisingly, excluding other non-cash items from a profit and loss calculation would lead to a different result from that which would arise by calculating Rex's operating profit on a basis consistent with that which Rex adopted in the 28 February 2023 Announcement. However, they are significant in showing the existence of various management accounts that were prepared on alternative bases and circulated at this time, which created real uncertainty as the content of the management accounts (or other financial information) that were put before Rex's management committee at a meeting on 15 May 2023, and before Rex's board on 16 May 2023, which it is now impossible to resolve.
By email dated 26 April 2023, Mr Tan emailed Mr Lim and several Rex staff (Ex D1, 916) stating that “[w]e can certainly move aircraft back into Rex from RIH so that expense falls below the EBITDAR line” and that “[w]e will prepare a cash P&L for Rex which just reflects cash movements i.e. essentially EBITDAR but we have to include the interest payments to PAG as that is cash”. Several subsequent emails among Rex staff (Ex D1, 1016, 1019, 1022) addressed that possibility, although it is not apparent that it was implemented.
Also on 26 April 2023, Mr Tan emailed Mr Lim and several Rex staff (Ex D1, 1028) attaching a spreadsheet titled “Cashflow PL Mar23_V2.xlsx” and which stated that “[w]e have prepared the cashflow version of the Rex P&L (by adding/subtracting items that are cash/non-cash. Here I [sic] what Regional looks like till March”, with the attached spreadsheet setting out Rex Regional’s profit and loss for the period between 1 July 2022 and 31 May 2023 with further adjustment for non-cash items. Mr Lim then emailed Mr Tan and several Rex staff (Ex D1, 1185) stating that “this will need to be presented to the board meeting with April added” and “let’s have a similar one for RAL although I suspect RAL follows quite closely to PBT”.
On 27 April 2023, Mr Kankanige emailed Mr Lim and several Rex staff (Ex D1, 1185) attaching a further spreadsheet titled “RAL Mar23 PL_V2.xlsx” and which provided the “cash flow version of the RAL P&L”. The attached spreadsheet, apparently with adjustments to exclude further non-cash items, indicated that RAL’s “Adjusted Cash PBT” for the financial year as at 31 March 2023 was $3,568,880.
On 2 May 2023, Messrs Lim, Sharp, Khotkar and Pan received a domestic booking daily summary with data up to 2 May 2023 (Ex J1, 5164) which identified that the 7-day average revenue was $418,651.
On 3 May 2023, a weekly worm report (Ex J1, 5178; attachment tendered in electronic form) was sent to a Rex internal email group including Messrs Khotkar and Pan. Also on 3 May 2023, Messrs Khotkar and Pan were provided a weekly passenger revenue report for 23 to 29 April 2023 (Ex J1, 5173) which showed domestic actual revenue was $2,418,838; domestic load factor was 60.56%; regional actual revenue was $3,656,608; regional load factor was 63.86%; Queensland RR actual revenue was $536,678.87; and Queensland RR load factor was 64.5%. Also on that date, Mr Ho of Rex sent monthly passenger revenue reports for April 2023 to Rex internal email groups (Ex J1, 5180), which showed domestic actual revenue was $16,578,570; domestic load factor was 72.98%; regional actual revenue was $16,118,981; regional load factor was 64.92%; Queensland RR actual revenue was $2,259,219.65; and Queensland RR load factor was 64.48%.
ASIC alternatively contends that Messrs Khotkar and Pan knew of, relevantly, the lack of continuing reasonable grounds for the statement as to future operating profit in the 28 February 2023 Announcement from 4 May 2023. On that date, Mr Khotkar sent an email to Mr Pan (Ex J1, 5185) providing an analysis of the “route performance” of Rex and observed that:

An associated graph also shows a decline in market load factor between July 2022 and February 2023, and a steeper decline in Rex’s load factor to reach about 64% in February 2023. At this point, at least Mr Khotkar had plainly recognised a question as to the effect of these developments, including a disproportionate decline in Rex’s “load factor” or occupancy rate in January and February 2023, on Rex’s cashflow. This email also attached a document headed “Rex KPI [Key Performance Indicator] Tracking” (Ex J1, 5186) which summarised Rex’s domestic and regional operating KPIs, including revenue, passenger numbers, yield and load factor, across the January to April 2023 period.
On 9 May 2023, Messrs Lim, Sharp, Khotkar and Pan received a domestic booking daily summary (Ex J1, 5237) with data up to 9 May 2023, which identified that the 7-day average revenue was $439,279.
On 10 May 2023, a weekly worm report (Ex J1, 5235; 5252, attachment tendered in electronic form) was sent to a Rex internal mailing group including Messrs Khotkar and Pan. Also on 10 May 2023, Mr Lim (but not, so far as the evidence goes, Messrs Sharp, Khotkar and Pan) received Rex’s profit and loss data for the domestic business in RAL for April 2023 (Ex J1, 5248) which indicated that the April 2023 loss before tax was $2,021,395 and year to date loss before tax was $11,745,508, but then made further adjustments consistent with Mr Lim’s request to indicate an “adjusted cash” loss of about $7.1 million. An attached spreadsheet titled “RAL Apr23 PL_(Cir)” (tendered in electronic form) identified April 2023 EBITDA for RAL of ($173,049); current year, year to date EBITDA of $6,225,132; monthly loss before tax of ($2,021,395); current year, year to date loss before tax of ($11,745,508); monthly loss after tax of ($1,414,976) and current year, year to date loss after tax of ($8,221,856).
On the same day, 10 May 2023, Mr Pan emailed Mr Lim, copying Messrs Sharp and Khotkar and others (Ex J1, 5231) requesting “a follow-up chat on how you are seeing cash right now” and observing that:

Mr Kankanige and Ms Lo then provided updated spreadsheets to Mr Tan (Ex J1, 5264, attachments tendered in electronic form), identifying “Network KPI” as losses before tax in February, March and April 2023 of ($7,228,617), ($3,313,972) and ($2,021,395) respectively; an estimated loss before tax for 1–7 May of ($1,276,369); projected estimates for May 2023 of $12,363,840 in total revenue (reduced from $18,903,556 in April 2023) and $20,000,001 in total costs; and forward load factors from 11 May 2023 at 31% and lower, by comparison with Virgin Australia’s load factors of 66.9% and lower.
On the same date, 11 May 2023, Mr Kankanige emailed Mr Lim (but not, so far as the evidence goes Messrs Sharp, Khotkar and Pan) the year to date and monthly profit and loss figures for the Rex Group for April 2023 (Ex J1, 5268), which indicated a further loss of ($3,584,264) in April 2023 and an FY23 year to date before tax loss of ($40,655,091) which, after adjustments of $14,731,091 for the NJE gain on acquisition and a share of loss on NJE of ($1,954,544) reflects a year to date loss of ($53,432,448). An attached “‘Rex PL Apr23(Cir)”’ spreadsheet identified financial results for Rex Regional as April 2023 EBITDA of $277,494; current year, year to date EBITDA of $370,284; April 2023 loss before tax of ($2,399,120); current year, year to date loss before tax of ($50,453,991); April 2023 loss after tax of ($3,083,927) and current year, year to date loss after tax of ($44,710,815)
Also on 11 May 2023, Mr Ho emailed a weekly passenger revenue report for 30 April to 6 May 2023 (Ex J1, 5258) to Rex internal email groups, including Messrs Khotkar and Pan, which showed domestic actual revenue was $2,749,272; domestic load factor was 67.85%; regional actual revenue was $4,132,002; regional load factor was 66.34%; Queensland RR actual revenue was $565,662.28; and Queensland RR load factor was 65.8%.
Mr Lim plainly regarded these figures as very concerning, since he then emailed Ms Elliott and Mr Lodge (and others) (Ex J1, 5275) on 12 May 2023 observing that “the domestic sales are simply catastrophic for the first week of [M]ay … what is happening?”. Mr Lodge provided a detailed response (Ex J1, 5274) to Mr Lim (which, so far as the evidence goes, was not provided to Messrs Sharp, Khotkar and Pan), as follows:

In oral submissions, Mr Borsky submitted that I should infer that the management accounts reviewed at that management committee meeting were in the form provided to Mr Lim on 11 May 2023 (Ex J1, 5268), although he indicated in reply that he did contend that that particular document was put before the board. I recognise that Mr Lim had requested (Ex J1, 5044) that management accounts be prepared by 10 May 2023 so as to be available at the board meeting on 16 May 2023. As I noted above, the profit and loss information which was provided to Mr Lim on 11 May 2023 indicated a further loss of $3,584,264 in April 2023 and a year to date loss of $53,432,448. As I also noted above, the attached “‘Rex PL Apr23(Cir)”’ spreadsheet identified the financial results for Rex Regional, which included a current year, year to date loss after tax of ($44,710,815).
There are two difficulties with Mr Borsky’s submission here. The first is that the submission that the document put before the management committee was in this “form” does not address its content and, in particular, whether it disclosed the then operating loss which had by then been drawn to Mr Lim’s attention. The second is that I am unable to infer that the document that was put before the management committee meeting on 15 May 2023 disclosed a loss after tax of that magnitude, at least to the standard required by Briginshaw. As I noted above, in the period immediately before that management committee meeting and the board meeting on the next day, several different documents were prepared by Rex which would meet the description of “management accounts”, including separate accounts relating to parts of Rex’s business (one of which, relating to the regional business, was attached to the email dated 11 May 2023 to Mr Lim); and other documents prepared at Mr Lim’s request, as I also noted above, excluded additional non-cash expenses and, on that basis, suggested that parts of Rex’s business would be profitable (excluding those expenses) for FY23. In those circumstances, it is not possible to be satisfied, to the requisite standard, that any one of the several documents that would meet that description was put before the management committee on 15 May 2023, or the Rex board on 16 May 2023, or that the document that was put before the board disclosed a loss after tax of the magnitude then known to Mr Lim, which might provide the starting point for a director to recognise that there were no longer reasonable grounds to forecast positive operating profits for FY23. Obviously, ASIC was unable to ask Mr Sharp which document he had seen at the management committee meeting on 15 May 2023 or the board meeting on 16 May 2023, or ask Messrs Khotkar and Pan which document they had seen at the board meeting on 16 May 2023, where they did not give evidence in the proceedings.
Ms Elliott gave evidence of a presentation that she made at the management committee meeting on 15 May 2023. Her evidence (Elliott 15.10.25 [65]), which I accept, was that:

The minutes also referred to several apparently positive matters, including that “[s]ales campaigns have been launched with Flight Centre and Webjet in May”; “66 new corporate agreements worth AUD54 per annum were concluded since January 2023”; a Delta partnership was due to launch on 6 June 2023 and was “expected to contribute 20-30 passengers a day” to the domestic business; and AAPA is expecting 70 cadets from China in the next quarter bringing total cadet numbers to 150. Ms Elliott identified (Elliott 15.10.25 [66]) the need for one correction to the minutes of the board meeting on 16 May 2023, which should have recorded not that 66 new corporate agreements had been concluded since January 2023, but that 66 such agreements had been made since March 2021, with only 8 of those agreements having been made since January 2023. Despite the positive matters noted in these minutes, it seems to me that the matters noted by the Rex board plainly raised a question as to any continuing reasonable grounds for the optimism as to a return to operating profit expressed in the 28 February 2023 Announcement.
A further network and sales update dated May 2023 (Ex J1, 5200) recorded revenue contribution for industry sales and sales for all agency partners (domestic); showed a substantial increase in sales from the end of November 2022 on domestic routes, with similar trends shown for particular travel agents; again referred to new corporate business that had been won by Rex, or was in negotiation and in pipeline; and also included graphs in respect of particular domestic routes which also showed declines, at least in part, in the first half of 2023. It appears that a different version of the update also existed (Ex D2, 387). One of these documents was likely presented to Rex’s board at this meeting but, unsurprisingly, Ms Elliott was not able to identify which of them was the version put before the Rex board.
Also on 16 May 2023, Mr Khotkar sent Mr Pipic (Ex D1, 1196) a copy of the domestic booking daily sales summaries updated with 15 May 2023 data provided by Rex and asked Mr Pipic:

Also on that date, by an email dated 13 June 2023 to Mr Lim (Ex J1, 5530), Mr Kwan noted Rex’s obligation to provide an updated profit forecast if its previous forecast had become inaccurate and attached a draft ASX release.
From 15 June 2023, further emails were exchanged within PAG (Ex D1, 1337ff) concerning its ongoing inquiries and analysis of Rex’s business and financial performance. It appears that PAG had then developed its own analysis (Ex D1, 1339ff) of Rex’s revenue and EBITDA up to 23 April 2023 at a group level, and quantified load factors and available seat kilometres for particular routes, although it had not then received load factor information for some routes, including the domestic routes. I also recognise that the fact that PAG, a plainly sophisticated party, appears to have had taken until that date to develop that analysis, after apparently devoting significant efforts to doing so, suggests that the outcome of that analysis was by no means obvious.
On 16 June 2023, Mr Lim emailed Messrs Pan and Khotkar (copying Mr Sharp) (Ex J1, 5547) requesting a further $25 million drawdown of funding from PAG, observing that “the sales in May and June for domestic have been disastrous as you would have seen” and asking “if you could provide the funds before the end of the FY (end June) that would be much appreciated. it will be good to show some cash balance at year end closing”. I will return to the significance of this email below. Mr Pan responded (Ex J1, 5549) that “this comes as a surprise” and “we want to be supportive but this will require a discussion on our side” and “[40m] in Capex seems like a lot at a time when we are not producing so much cash.” I do not accept Mr Thomas’ submission that this email necessarily indicates “surprise” as to Rex’s then adverse performance or any then loss or operating loss, as distinct from surprise that a further cash call was contemplated shortly after PAG had made a substantial cash contribution.
Also on 16 June 2023, Mr Pipic of PAG emailed Mr Khotkar an updated tracking document “with group summary” (Ex D1, 1368) and stated that “[u]nfortunately we don’t have cashflow data to reflect on a group basis” and “[w]e spoke with Richard [Kwan of Rex] earlier this morning and ran through the data and got his thoughts on the key drivers of the business.” Messrs Khotkar and Lim also had a telephone discussion (Ex J1, 5550) about Rex’s $25 million drawdown request on that date.
On 16 June 2023, Mr Kwan followed up Mr Lim as to his earlier advice as to the need to provide an updated forecast to ASX, resending a copy of his earlier email dated 13 June 2023 (Ex J1, 5541). Mr Lim then sent a revised draft ASX announcement to Messrs Kwan and Tan (Ex J1, 5543, 5545), which stated that “Rex is now forecasting a full year operational loss”, and advised them that “if ok, we can issue when market closes.” Mr Kwan subsequently emailed an officer of ASX (Ex J1, 5546) stating that:

Mr Sulan and Mr Thomas both made extended submissions as to the nature of civil penalty proceedings, which were uncontroversial and common ground between the parties. It is not necessary to address the case law to which they referred to at length where there is no real controversy as to those principles. I recognise the importance of a defendant knowing the case it has to meet, particularly in a civil penalty proceeding, as a matter of procedural fairness; and the importance of the regulator articulating a clear and tolerably stable body of allegations of contraventions of law in such a case: Australian Securities and Investments Commission v Diversa Trustees Ltd [2023] FCA 1267. I also have had regard to Austin J’s discussion of the role of pleadings in Australian Securities and Investment Commission v Rich (2009) 236 FLR 1; [2009] NSWSC 1229 at [148] (“ASIC v Rich”), which seems to me to reflect uncontroversial and well-established principles. Notwithstanding submissions made by Mr Sulan and Mr Thomas as to changes in ASIC’s case, and the suggested expansion of the evidence on which it relied, it seems to me that ASIC here articulated a clear case, which properly adopted alternatives for the calculation of “operating loss”, where Rex had itself calculated operating loss on an inconsistent basis in February and August 2023, and the evidence on which it relied plainly did not catch the Defendants by surprise. I return to that question below.
I accept that the allegations made by ASIC in these proceedings are such that the Court ought to apply the standards set out in Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34 (“Briginshaw”) and its equivalent under s 140 of the Evidence Act 1995 (NSW) (“Evidence Act”). Mr Sulan also submits, and I accept, that inferences drawn in the case against Rex’s directors must be “reasonable and definite” inferences, which do not conflict with other, equally probable inferences: Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing & Allied Services Union of Australia v Australian Competition and Consumer Commission (2007) 162 FCR 466; [2007] FCAFC 132 at [38]; Australian Securities and Investments Commission v Bekier (Liability Judgment) [2026] FCA 196 (“Bekier”) at [205]ff.

Conversely, I do not accept Mr Sulan’s and Mr Thomas’ submission that Rex’s “optimism” as to that matter falls short of an expectation as to that matter, held on reasonable grounds. It seems to me that a reader of that announcement, made in a formal manner to ASX, would not understand Rex to be communicating (in the manner of a corporate Pollyanna) that it was hoping for that possible result without any reasonable grounds for expecting that it would be achieved. It seems to me that such a reading of the announcement does not reflect the serious character of that announcement; would convey no useful information to a reader of that announcement; and would make the qualification by reference to “external shocks” superfluous, if the observation was directed to no more than a result that an optimist might hope for.
I am not persuaded that the 28 February 2023 Announcement made the first alternative representation pleaded here, where the language that “Rex is optimistic that the Group will have positive operating profits for the full FY23 barring any further external shocks” conveys a positive expectation, but falls short of an unqualified statement that the result would be achieved, apart from any external shocks. I am also not persuaded that the 28 February 2023 Announcement made the second alternative representation pleaded here, where it seems to me that “optimism” as to a matter does not convey an expectation as to that matter that rises to the level of a likelihood. I accept that the 28 February 2023 Announcement made the third alternative representation pleaded here, which it seems to me, in substance, corresponds to a representation that Rex had reasonable grounds for optimism as to the relevant matter.
I do not accept Mr Borsky’s further submissions that the words “barring any external shocks” in the 28 February 2023 Announcement do not affect this analysis, where it seems to me that they contain a limited qualification to that statement, if subsequent unforeseen events in the nature of “external shocks” were to falsify its basis. That qualification was not surprising, when the COVID-19 pandemic was then a matter of recent memory. I do accept Mr Borsky’s further submission that matters such as the suggested global shortage of engineers and pilots, and supply chain difficulties after COVID-19, to which Rex referred in later announcements, were not within that qualification. They were neither “shocks”, nor “external shocks”, where they were then an ordinary, continuing and known challenge in the operation of Australian domestic airlines, to which Rex had referred in a previous ASX announcement on 2 August 2022 and in Rex’s annual report on 30 September 2022; and which had been noted at meetings of Rex’s management committee on 24 November 2022 and again on 28 February 2023, to which I referred in the chronology above. It seems me that Rex, its directors, and the reasonable reader of the 28 February 2023 Announcement, would not understand the qualification as to “external shocks” in the 28 February 2023 Announcement to refer to industry conditions and matters adversely affecting Rex’s operations which had been known to Rex for at least the previous six months.
It is broadly common ground (SOC [8]; SFAD [8] does not put this in issue; KAD [8]; PAD [8]) that the 2023 Profit Representation (to the extent that it was made) was made in relation to a “financial product” within the meaning of ss 763A and 764A of the Act and in relation to “financial services” within the meaning of s 12BAB of the ASIC Act.
ASIC relies on s 12BB(2) of the ASIC Act, which provides that Rex is taken not to have had reasonable grounds for making the 2023 Profit Representation, unless Rex adduces evidence to the contrary. That provision would have (but for the position that ASIC fairly adopts) the consequence that ASIC could succeed, without a determination on the merits, in its claim against Rex under s 12BB of the ASIC Act, since Rex has not participated in the proceedings and necessarily not led evidence to the contrary. ASIC also relies on ss 769C and 1041H of the Act, and the former section has the effect that a representation with respect to a future matter is taken to be misleading unless Rex had reasonable grounds for making it but does not shift an evidentiary onus to Rex in respect of that matter. ASIC does not contend that it should succeed against Rex only by reason of the reversal of onus under s 12BB of the ASIC Act, if it does not also establish the absence of reasonable grounds for the representation for the purposes of ss 769C and 1041H of the Act, where no reversal of onus applies.
I recognise that, at least so far as Rex is concerned, there may have been some complexity in determining whether a statement of Rex’s optimism as to its positive operating profits for FY23, which is arguably a statement as to Rex’s state of mind, would also be a representation as to a future matter for the purposes of s 12BB of the ASIC Act. Mr Thomas drew attention to the High Court’s observation in Backoffice at [33] that a statement of opinion, including those that take the form of a prediction of future financial performance:

Other case law has recognised that a representation as to the representator’s state of mind, where that state of mind relates to a future matter, may be a representation as to a future matter and that the fact that the representation is expressed as one of opinion is not determinative in that respect; a representation in the nature of a forecast or prediction would be with respect to a future matter if it is directed to something that will only transpire in the future, and is not capable of being proven to be true or false when it was made; and a representation in the nature of a forecast or as to the potential of a product or the prospects of future business performance, although it involves a statement as to the representator’s state of mind, may also be a representation as to a future matter: Digi-Tech (Australia) Ltd v Brand [2004] NSWCA 58 at [48]. [99]–[102]; Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd [2014] NSWCA 158 at [171]; Australian Competition and Consumer Commission v Woolworths Group Ltd (formerly called Woolworths Ltd) (2020) 281 FCR 108; [2020] FCAFC 162 at [132]; Lin v Zheng (2023) 379 FLR 164; [2023] NSWCA 174 at [34], [39].
Here, it seems to me that Rex’s statement of optimism as to its positive operating profits for FY23 was both a statement of its opinion and a representation as to a future matter. Under s 769C of the Act, that representation is therefore taken to be misleading unless Rex had reasonable grounds for making it. However, as I noted above, ASIC does not contend that it should succeed against Rex only by reason of the reversal of onus under s 12BB of the ASIC Act, if it does not establish the absence of reasonable grounds for the representation for the purposes of ss 769C and 1041H of the Act, where no reversal of onus applies.
Mr Thomas also submitted that no implied representation as to reasonable grounds was conveyed by Rex’s statement of its optimism as to positive operating profits in the 28 February 2023 Announcement because:

Mr Sulan helpfully referred to a dictionary definition of “operating profit” as a “company’s profit from its normal business activities, not including any earned from investments or sales of assets, calculated by taking operating expenses away from gross income.” Mr Sulan also referred to AASB 18 – Presentation and Disclosure in Financial Statements, which refers to the concept of “operating profit”, but that standard was not introduced until nearly four years after the relevant events, and provides little assistance in giving any fixed content to the concept of “operating profit” used in the 28 February 2023 Announcement, quite apart from the fact that the ordinary reader of that announcement would likely not have had access to its detail, even if it had existed at the relevant time. Mr Thomas also referred to the concept of “operating profits”, as calculated by adjustments made to a company’s statutory profits, for example, by removing non-cash gains, impairments or other non-recurring expenses. He also submitted, and it is common ground, that a listed company was not required to report “operating profits” at any relevant time and that there was no standardised approach at any relevant time to the calculation of “operating profits”, or to the adjustments that a company would make to its statutory profits in such a calculation. Mr Thomas also pointed to the difference between the approach adopted by Rex in calculating its operating profits in the 28 February 2023 Announcement and in its financial reports in August 2023.
Mr Sulan rightly pointed out that the figure of $30.4 million to which this particular refers does not appear in Rex’s 1H FY23 financial results presentation and that that presentation does not contain a calculation of “operating loss”. Mr Borsky responded that ASIC did not contend to the contrary, but instead pointed to the way in which that figure would be derived, consistent with the approach taken by Rex in August 2023, from information contained in that presentation. Mr Sulan also contended that Rex had incorrectly referred to the $35 million figure adopted in August 2023 as an “operational loss” and that it did not have that character. It is not necessary to address that submission given the conclusion that I reach on other grounds.
Mr Sulan also contended that the operating loss of $30.4 million at 31 December 2022 to which ASIC referred is a necessary predicate to ASIC’s case and contended that ASIC cannot establish that predicate because it cannot establish that Rex incurred an operating loss of that size. Mr Sulan contended that ASIC had “reverse engineered” that figure using the methodology used by Rex in August 2023 when it announced its final result for FY23. Mr Sulan pointed, by contrast, to the calculation of Rex’s operating loss at 31 December 2022 as $1.9 million, as recorded in the 28 February 2023 Announcement. I do not accept that the operating loss of $30.4 million was a necessary predicate of ASIC’s case, where it was put in the alternative to a loss calculated in the manner adopted by Rex in the 28 February 2023 Announcement. I should add that ASIC cannot be fairly criticised for adopting, as one basis of its case, a calculation that was consistent with that adopted by Rex in August 2023, although that was inconsistent with the calculation adopted by Rex in February 2023. The inconsistency in Rex’s two different calculations of figures that were disclosed under the description of “operating loss”, within a relatively short period, was not a problem of ASIC’s making. In the event, I have preferred the methodology adopted in the 28 February 2023 Announcement, for the reasons noted below, and that left open ASIC’s case put on that basis.
Mr Thomas also submitted that ASIC’s case was “predicated” on a claim that Rex had incurred losses of $30.4 million by the end of 1HFY23 but, as I have noted above, that was only one aspect of ASIC’s case.
Mr Borsky again addressed the calculation of this figure in closing submissions, as follows:

I have referred to Rex’s year to date financial results for December 2022 that were circulated to Mr Lim and others on 23 January 2023 in the chronology above. That document (Ex J1, 3814) refers to the Rex Group’s FY23 year to date loss before tax of approximately $30.4 million. That amount appears to have been adjusted by Rex, in making the 28 February 2023 Announcement, for the revaluation on the converting notes and warrants issued to PAG of ($22,652,610) and for the PAG fee amortisation of ($4,029,892), reducing the Rex Group FY23 year to date loss before tax of ($30,478,640) to reach a before tax operating loss of about $3.796 million, which corresponded to the after tax operating loss of $1.9 million to which the 28 February 2023 Announcement referred. ASIC here contends that, disregarding those adjustments, Rex would have needed a second half (January to June 2023) operating profit of more than $30.4 million to achieve a full year operating profit. Mr Borsky also points to an alternative basis of the calculation of $30.4 million, as reflecting the loss after tax of $16.5 million as disclosed in Rex’s first half FY23 financial results presentation (Ex J1, 4278), with a further deduction of the value gained on the NJE joint venture of $14.7 million on a basis which would be consistent with the approach adopted by Rex in its financial results for August 2023, although those figures do not appear to total the sum of $30.4 million.
I do not accept ASIC’s claim as to an operating loss of more than $30.4 million, or that the August 2023 methodology should be preferred; and that claim was given less weight as the hearing proceeded, although it was still put in ASIC’s closing submissions. First, the figure of $30.4 million in the Rex Group’s year to date financial results for December 2022, as circulated to Mr Lim on 23 January 2023, was a figure for profit before tax and not for “operating profit” on either of the two different bases on which Rex calculated “operating profit”, in the 28 February 2023 Announcement and in its August 2023 financial results. The figure does not provide a basis to determine the amount that needed to be earned to achieve an “operating profit”, as Rex used that term, as distinct from a profit before tax for FY23. The difference is one of substance where Rex’s statutory profit included large non-cash amounts referable, for example, to the revaluation of PAG’s converting notes, which had been adjusted in calculating its “operating profit” in the 28 February 2023 Announcement.
Second, it has not been shown that Rex’s operating loss should not have been calculated on the February 2023 basis, under the accounting standards that were in effect at the relevant time or any accepted accounting practice, although it was plainly unfortunate (to say the least) and likely misleading for Rex to have calculated its “operating profit” differently as between February and August 2023, without disclosure that it was doing so. There is no reason that, in determining the amount required to achieve an operating profit rather than an operating loss, that calculation should not be done on a consistent basis, by reference to the amount of $3.8 million (before tax) or $1.9 million (after tax) reflected in the 28 February 2023 Announcement.
The claim particularised on this basis therefore fails. I recognise that that has the result, as Mr Sulan and Mr Thomas emphasised often and in strong terms, that the amount that Rex needed to recover, as at December 2022, to return to an operating profit was $3.8 million on a before tax basis, and much less than $30.4 million. However, the significance of that proposition is reduced by the substantial increase in Rex’s year to date operating loss, calculated on a consistent basis with the 28 February 2023 Announcement, from January 2023 onwards.
The third and fourth particulars to this claim are that:

The third and fourth particulars of this claim are connected and treat the loss figures of $5.3 million in January 2023 and year to date figure of $35.8 million, drawn from the documents to which I referred above, after adjusting the specified before tax loss of $23.6 million for specified gains and shares of loss on the NJE joint venture acquisition, as “operating loss”. The figure of $35.8 million that is here particularised again adopts only the adjustments made to calculate operating loss in Rex’s results in August 2023, rather than the additional adjustments for the revaluation of PAG’s converting notes and warrants and amortisation of the PAG fee made in determining the operating loss in the 28 February 2023 Announcement. Again, I do not accept that Rex’s operating loss should have been calculated in February 2023 on the August 2023 basis, for the reasons noted above.
However, it seems to me to be open to ASIC to rely on an alternative calculation, being the methodology that Rex had adopted in the 28 February 2023 Announcement, which Mr Borsky identified in opening and by reference to MFI 2 (which reflected Mr Dillon’s evidence); and Messrs Sharp, Khotkar and Pan have had procedural fairness as to that matter. That calculation starts with the FY23 YTD PBT disclosed in the January 2023 profit and loss figures, being a loss of ($23,580,634), and makes adjustments for the revaluation of PAG’s converting notes and warrants of ($22,652,610), amortisation of the PAG fee of $4,690,590, as now increased by a further monthly accrual, the NJE share of loss of ($2,506,544) and for the NJE gain on acquisition of $14,731,901, consistent with the methodology for operating loss adopted by Rex in February 2023. The information necessary for that calculation of operating profit was recorded in the January 2023 management accounts that were available on 23 February 2023 (Ex J1, 4055), other than as to amortisation which was readily calculated from the known base of the fee, and its methodology was straightforward and known to Rex’s management which applied it in determining the operating loss after tax stated in the 28 February 2023 Announcement. ASIC rightly pointed out, in MFI 2, that that calculation showed an increased operating loss before tax of $8,462,791 which would have to be recovered by 30 June 2023 for Rex to derive positive operating profits for FY23.
I also recognise Mr Dillon’s evidence that, on either of the two different approaches to operating profit taken by Rex in the 28 February 2023 Announcement and its results announcement in August 2023, he considers that, as at 23 or 28 February 2023, it was not likely that the Rex Group would have positive operating profits for FY23, barring further external shocks and the Rex Group did not have reasonable grounds to expect that it would have positive operating profits for FY23. I have accepted Mr Dillon’s evidence, other than at these dates, where I am not persuaded of that matter for the reasons noted below.
The fifth particular to this claim is that:

Mr Sulan responded to ASIC’s reliance on seasonality by pointing to substantial differences between Rex’s pre-COVID business and its business in 2023. I accept those differences existed, including in Rex’s reduction of services in the regional market, the expansion of its domestic business and its associated entry into agreements with travel agencies and corporates in the latter period, and its entry into the NJE joint venture. However, I have referred above to the evidence that shows both the fact of seasonality in Rex’s business in 2023 and the recognition of that seasonality by Rex employees and later by PAG in that period.
I accept that the alleged seasonality is established and was known to Rex as at the date of the 28 February 2023 Announcement. I have accepted Ms Elliott’s evidence, which I noted above, that, by February 2023, she had formed the view that the market was returning to traditional booking trends exhibited before the COVID-19 pandemic, with domestic markets generally exhibiting higher sales in the first six months of a financial year than in the second six months. I also have regard to Mr Dillon’s evidence to similar effect, although I have given greater weight to Mr Elliott’s evidence as to that matter. Trends in revenue and passenger numbers consistent with seasonality returning in FY23 are also apparent in the weekly worm reports to which I have referred above, which were circulated to Rex management and, later in the period, to Messrs Sharp, Khotkar and Pan. I also recognise that, in May 2023, Mr Lodge, a senior and experienced executive of Rex, had noted (Ex J1, 5274) at least the possible return of seasonality, which had existed prior to COVID-19 but been less apparent in the period immediately following COVID-19.
I also accept that, once seasonality had returned, it would make it more difficult for Rex to recover the operating loss that it had made in the first half of FY23, where that matter would make it more difficult for Rex to increase its earnings in the second half of FY23 over the first half of FY23. However, I am not persuaded that the return of seasonality, without more, deprived Rex of any reasonable grounds that it otherwise had for the 28 February 2023 Announcement when it was made, where it was plainly only one of several significant factors that would be relevant to Rex’s ability to improve its operating profit in the second half of FY23 to the extent necessary to reach a positive operating profit.
I have accepted some of the matters on which ASIC relies to establish its claim that Rex did not have reasonable grounds for making the 2023 Profit Representation, to the extent that I have held it was made, as at 28 February 2023. However, an essential step in this claim, as at this date, is that Rex’s then operating loss was too large to be reversed in the four months to 30 June 2023, so as to achieve a positive operating profit for FY23, or at least that Rex did not have reasonable grounds to forecast that that would be achieved. Mr Borsky fairly, and rightly, acknowledged that ASIC’s case as to that matter is more difficult to establish in February 2023 than in later months. As at 23 February 2023, the amount of Rex’s operating loss that would have been known to Rex, assuming that its management undertook the straightforward calculation that was open to it using the February 2023 methodology, was $8,462,791, by reference to the January 2023 accounts. I have not accepted that the larger operating loss that would have been calculated under the August 2023 methodology was applicable, for the reasons noted above.
I also recognise that there had been positive developments in Rex’s business in the immediately preceding period, and the succession of monthly losses and adverse developments that later arose had largely not yet occurred, as the chronology set out above demonstrates. I recognise that Rex did not, so far as the evidence goes, expressly consider the amount of $8,462,791 that would (by reference to a calculation of operating losses by reference to its January 2023 results) need to be recovered to achieve positive operating profits for FY23. I also recognise that that amount is large in absolute terms, although less so in the context of the scale of Rex’s business and the revenue achieved by Rex at relevant times. Having regard to the Briginshaw standard, I am not persuaded that that amount and the seasonality in Rex’s business are such as to establish that Rex did not have reasonable grounds for its optimism as to positive operating profits for FY23, before or when the 28 February 2023 Announcement was made.
ASIC pleads (SOC [10]–[11]; Mr Sharp does not plead to these allegations in SFAD [10]–[11]; denied KAD [10]–[11] and PAD [10]–[11]) that, by reason of the fact that Rex did not have reasonable grounds for making the 2023 Profit Representation, the 2023 Profit Representation (again, to the extent that it was made) was misleading or deceptive or likely to mislead or deceive, in contravention of s 1041H of the Act and/or s 12DA of the ASIC Act, and that that contravention continued until 20 June 2023, when Rex issued the 20 June 2023 Announcement. That matter has not been established as at 28 February 2023, where this allegation depends upon a lack of reasonable grounds for the representation as at the date it was made, which has not been established. I also cannot find that a contravention that is not established as at the date of the 28 February 2023 Announcement “continued” beyond that date. This reflects the logical structure of ASIC’s case, where ASIC addressed events that later arose that allegedly deprived that representation of reasonable grounds in its continuous disclosure case. Mr Borsky fairly accepted that position, for ASIC, in closing submissions.
ASIC seeks a consequential declaration that, by representing on 28 February 2023 that:

I recognise that the test for the materiality of information in ASX Listing Rule 3.1 is whether a reasonable person would expect the information to have a material effect on the price or value of the entity’s securities. That rule is to be interpreted in the context that s 677 of the Act provides, namely, that information is deemed to be material 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 securities: Jubilee Mines NL v Riley (2009) 40 WAR 299; [2009] WASCA 62 at [62] (“Jubilee Mines”); Grant-Taylor v Babcock & Brown Ltd (in liq) (2016) 245 FCR 402; [2016] FCAFC 60 at [95] (“Grant-Taylor FC”). In determining the question of materiality, the pleaded information must be looked at “in context, rather than in isolation, against the backdrop of: (a) the circumstances affecting the entity at the time; (b) any external information that is publicly available at the time; and (c) any previous information the entity has provided to the market”: Australia and New Zealand Banking Group Ltd v Australian Securities and Investments Commission (2024) 305 FCR 383; [2024] FCAFC 128 at [46]–[47], [56], [60] (“ANZ v ASIC”); Zonia Holdings Pty Ltd v Commonwealth Bank of Australia Ltd (2025) 427 ALR 233; [2025] FCAFC 63 at [445] (“Zonia”).
The test for materiality is objective, hypothetical and forward-looking and is to be determined ex ante: Grant-Taylor FC at [95], [116]. However, evidence of the market’s actual reaction to the subsequent disclosure of information can be used as a “cross-check” of the ex ante materiality of the information, but only as a means “for confirming the correctness of a conclusion already reached”: Grant-Taylor v Babcock and Brown Ltd (in liq) (2015) 322 ALR 723; [2015] FCA 149 at [64]; R*&B Investments Pty Ltd (Trustee) v Blue Sky Alternative Investments Limited (in liq) (Separation of Issues)* [2025] FCA 1097 at [47]. The class of hypothetical investors to which such a determination is directed includes both the sophisticated and the unsophisticated, but does not include the irrational or “speculators and day traders who seek to profit on the back of rumour or momentum”: Grant-Taylor FC at [115]; Australian Securities and Investments Commission v Vocation Ltd (in liq) (2019) 371 ALR 155; [2019] FCA 807 at [552]–[553] (“ASIC v Vocation”); McFarlane *(*as trustee for the S McFarlane Superannuation Fund) v Insignia Financial Ltd [2023] FCA 1628 at [147](13); ASIC v ANZ at [95], [216].
To satisfy the “materiality” requirement, information must be “non-trivial” and rise beyond information which “may” or “might” influence a decision by investors, and it must be shown that the information “would” or “would be likely” to influence a decision: Grant-Taylor FC at [96]; ASIC v ANZ at [50]. Information need not affect the fundamental value of a company’s shares, as opposed to its share price, to be material, but “inconsequential information, irrelevant to a company’s financial position, is unlikely to change investors’ collective valuation and is not information that a reasonable person would expect to have a material effect”: Parkin v Boral L**td (Materiality Evidence Ruling) [2025] FCA 70 at [8]–[9]; ANZ v ASIC at [94]–[95], [215]–[216]. The test of materiality involves both a value judgment as to what is reasonable and an embedded question of fact as to what would be likely to influence investors, which may depend on what they would understand or already be aware of: R v Fysh [2012] NSWSC 1266 at [25]–[31]; Fysh v R [2013] NSWCCA 284 at [208]–[210], [213].
In ANZ v ASIC at [78]–[81] and [86], Lee J observed that:

I also recognise the observations in Zonia that information is not disclosable, merely because it could be extracted from a database. ASIC’s case here does not depend on inferences that Rex might have drawn, had it interrogated information known to it, but on facts that were known to Rex at the relevant time, and that were disclosed in correspondence between Rex’s executives, including Mr Lim, and in communications with Messrs Sharp, Khotkar and Pan.
Before turning to ASIC’s pleaded continuous disclosure claim, I should note a significant feature of its logical structure. Like several other cases that I have noted above, ASIC’s claim for a breach of the continuous disclosure obligation is here premised on the making of earlier representations by Rex in the 28 February 2023 Announcement that were, or became, misleading and deceptive. On a very wide view of ASIC’s pleading, it could perhaps be read as asserting a freestanding obligation to disclose each of the elements of the 2023 Profit/Loss Information (as defined above) irrespective of the making of the 28 February 2023 Announcement. Mr Borsky did not abandon, but also did not seriously press, a case put on that wider basis. It seems to me that ASIC could not succeed on that wider basis. In order to establish a contravention of the continuous disclosure obligation, ASIC must at least establish the materiality of the 2023 Profit/Loss Information, and the way in which it seeks to do so, in principle and by reference to Mr Sisson’s evidence, is by reference to the need to correct investor expectations arising from the 28 February 2023 Announcement. Conversely, ASIC does not lead evidence that sought to establish that the 2023 Profit/Loss Information would have been material, unless Rex had previously created an expectation, by that announcement, as to its operating profit for FY23. The structure of this claim has the important consequence that, in respect of this claim, no question arises as to whether Rex breached its continuous disclosure obligations by not correcting the first and second representations comprising the alleged 2023 Profit/Loss Information, where I have held those representations were not established. It is again necessary to determine that question in the context of the third representation comprising the alleged 2023 Profit/Loss Information, where I have held that representation was made by the 28 February 2023 Announcement.
Turning to ASIC’s pleaded case, ASIC pleads (SOC [16]; denied SFAD [16], KAD [16], PAD [16]) that, for the purposes of ASX Listing Rule 3.1, by 28 February 2023 or by several later dates (21 March 2023, 14 April 2023, 24 April 2023, 4 May 2023, 11 May 2023 or 16 May 2023), Rex knew that the Rex Group would not, or was not likely to, have positive operating profits for FY23; further or alternatively, that the Rex Group would have, or was likely to have, an operating loss for FY23; and, further or alternatively, the Rex Group did not have reasonable grounds to forecast an operating profit for FY23.
I should pause to note that the third of these matters, which is directed to the third element of the 2023 Profit Representation which I have held was made, treats the alleged representation that Rex had reasonable grounds to expect positive operating profits for FY23 as a “forecast” of an operating profit for FY23. It seems to me that approach is justified, both because of its forward-looking character and because Rex itself recognised that statement was in the nature of a “forecast”, by making substantially the same statement (using the phrase “cautiously optimistic”) under the heading “Outlook & Profit Forecast” in its Investor Briefing Slides released on the same date as the 28 February 2023 Announcement and again when Mr Kwan belatedly identified the need to correct that “previous profit forecast” on 13 June 2023, as I have noted in the chronology above. I will generally adopt the language of this pleading below, in referring to the question whether Rex had, or continued to have, reasonable grounds for the pleaded “forecast”. However, that is the same question, in substance, as whether Rex had, or continued to have, reasonable grounds for its stated optimism as to positive operating profits for FY23 in the 28 February 2023 Announcement.
Returning now to ASIC’s pleaded case against Rex, Mr Borsky submitted in closing submissions that:

ASIC in turn relies, in closing submissions, on Rex’s monthly YTD PBT reports, as circulated to Mr Lim, although I recognise that these did not calculate operating profit, by making the adjustments made in the 28 February 2023 Announcement or the different adjustments later made in Rex’s August 2023 financial reports.
ASIC’s allegation as to the position at 28 February 2023 is particularised by reference to the matters on which it relies to contend that Rex did not have reasonable grounds for the representations alleged to have been made by the 28 February 2023 Announcement, which I have addressed above. That claim must fail for the reasons that the misleading or deceptive conduct claim at that date, which it duplicates, failed.
ASIC’s allegation as to the position on 21 March 2023 is particularised by reference to the matters relied on as at 28 February 2023 and Mr Lim’s receipt of the year to date and monthly profit and loss figures for the Rex Group for February 2023 on 21 March 2023. As I noted in the chronology above, on 21 March 2023, Mr Lim received the year to date and monthly profit and loss figures for the Rex Group for February 2023, which indicated that the Rex Group had incurred a loss of approximately $10.8 million in February 2023 and a year to date loss of approximately $46.2 million, calculated as the Rex Group’s before tax loss of ($34,835,106), less the gain of approximately $14.7 million and share of loss of approximately -$3.3 million on the NJE joint venture. I recognise that these figures were not expressed as calculations of operating loss, although they involved similar adjustments to those adopted in Rex’s differing approaches to calculating operating loss.
As Mr Borsky pointed out in opening and by reference to MFI 2 (which reflected Mr Dillon’s evidence), it was readily possible for Rex’s management to calculate its operating loss as at this date, using the methodology that Rex had adopted in the 28 February 2023 Announcement. That calculation starts with the FY23 YTD PBT disclosed in the February 2023 profit and loss figures as I have noted in the paragraph above, being a loss of ($34,835,106), and makes adjustments for the revaluation of PAG’s converting notes and warrants of ($22,652,610), amortisation of the PAG fee of $5,351,288, as now increased by a further monthly accrual, the NJE share of loss of ($3,308,264), and for the NJE gain on acquisition of $14,731,901, consistent with the methodology for operating loss adopted by Rex in February 2023. The information necessary for that calculation of operating profit was recorded in the February 2023 monthly profit and loss figures that were available on 21 March 2023 (Ex J1, 4503), other than as to amortisation which was readily calculated from the known base of the fee. The methodology for that calculation was straightforward and known to Rex’s management which had applied it in determining Rex’s operating loss after tax stated in the 28 February 2023 Announcement. ASIC rightly points out, in MFI 2, that that calculation shows a further increased operating loss before tax of $18,254,843, which would have to be recovered by 30 June 2023 for Rex to derive positive operating profits for FY23.
I also recognise that Mr Dillon’s evidence was that, on either of the two different approaches to operating profit taken by Rex in the 28 February 2023 Announcement and its results announcement in August 2023, he considers that, as at 21 March 2023, it was not likely that the Rex Group would have positive operating profits for FY23, barring further external shocks, and the Rex Group did not have reasonable grounds to expect that it would have positive operating profits for FY23
I have found the question whether this information deprived Rex of reasonable grounds for the representation made by the 28 February 2023 Announcement, to be difficult and finely balanced. The amount of Rex’s FY23 YTD PBT had significantly increased by this date, from $23,580,634 as known at 23 February 2023 to $34,835,106. The amount of Rex’s operating loss, calculated by the method adopted in its 28 February 2023 Announcement was readily calculable by Rex’s management, by the methodology which it had previously adopted, and had also significantly increased from $8,462,791 as known or knowable at 23 February 2023 to $18,254,843. This was a substantial amount to be recovered by an improvement in Rex’s performance to achieve an operating profit for FY23, with a little more than three months to 30 June 2023. However, with considerable hesitation, and having regard to the Briginshaw standard, I do not conclude that the amount to be recovered in that period was by then so large so as to deprive Rex of reasonable grounds for the optimism as to its FY23 operating profit expressed in the 28 February 2023 Announcement.
ASIC’s allegation as to the position on 14 April 2023 is particularised by reference to the previous matters and Mr Lim’s email to Messrs Pan and Khotkar (copying Mr Sharp) on that date. As I have set out in the chronology above, the comments made by Mr Lim in his 14 April 2023 email disclosed a deterioration in Rex’s domestic sales in February and March 2023, including the period after the 28 February 2023 Announcement; that Rex had not been able to identify an explanation for that deterioration (which was “bewilderingly bad”); that Rex’s results in February 2023 had significantly declined (“crashed”) rather than recovered as Rex had previously expected; that the position had “improved” but not fully recovered in March 2023; and that these matters were having a significant impact on Rex’s revenue and cash position so as to require substantial further funding from PAG. Mr Borsky also submitted that:

The matters disclosed by Mr Lim’s email had plainly concerned Mr Lim and it is not apparent that further information was then known to Rex that would displace that concern. Importantly, the decline in Rex’s operating profit by this date was significant, and readily calculable by Rex’s executives who knew the applicable methodology that had been adopted in the 28 February 2023 Announcement. That conclusion is reinforced by Mr Dillons’s evidence that, on the approach to operating profit taken by Rex in the 28 February 2023 Announcement (as well as the August 2023 approach), he considers that, as at 14 April 2023, it was not likely that the Rex Group would have positive operating profits for FY23, barring further external shocks, and the Rex Group did not have reasonable grounds to expect that it would have positive operating profits for FY23. For all these reasons, I am satisfied to the Briginshaw standard that these matters deprived Rex of reasonable grounds to forecast positive operating profits for FY23 as at 14 April 2023.
ASIC’s allegation as to 24 April 2023 is particularised by reference to the previous matters and Mr Lim’s receipt, on 24 April 2023, of year to date and monthly profit and loss figures for the Rex Group for March 2023, to which I referred above. As I noted above, on that date, Mr Lim received year to date and monthly profit and loss figures for the Rex Group for March 2023 (Ex J1, 4857) which indicated that the Rex Group had incurred a loss of approximately $3.5 million in March 2023 and a year to date loss of approximately $49.7 million, calculated as the Rex Group’s before tax loss, now increased to ($38,333,495), less the gain of approximately $14.7 million and share of loss of approximately -$3.3 million on the NJE joint venture.
As Mr Borsky pointed out in opening and by reference to MFI 2 (which reflected Mr Dillon’s evidence), it was readily possible for Rex’s management to calculate its operating loss as at this date, using the methodology that Rex had adopted in the 28 February 2023 Announcement. That calculation starts with the FY23 YTD PBT disclosed in the March 2023 profit and loss figures, now increased (as I noted above) to a loss of ($38,333,495), and makes the adjustments for the revaluation of PAG’s converting notes and warrants of ($22,652,610), amortisation of the PAG fee of $6,011,985, as now increased by a further monthly accrual, the NJE share of loss of ($3,308,264) and for the NJE gain on acquisition of $14,731,901, consistent with the methodology for operating loss adopted by Rex in February 2023. The information necessary for that calculation of operating profit was recorded in the March 2023 management accounts that were available on 24 April 2023 (Ex J1, 4857), other than as to amortisation which was readily calculated from the known base of the fee. The methodology for that calculation was straightforward and known to Rex’s management which had applied it in determining Rex’s operating loss after tax stated in the 28 February 2023 Announcement. ASIC rightly points out, in MFI 2, that that calculation shows a further increased operating loss before tax of $21,092,353, which would have to be recovered by 30 June 2023 for Rex to derive positive operating profits for FY23.
Again, Mr Dillon’s evidence was that, on the approach to operating profit taken by Rex in the 28 February 2023 Announcement (as well as the August 2023 approach), he considers that, as at 24 April 2023, it was not likely that the Rex Group would have positive operating profits for FY23, barring further external shocks, and the Rex Group did not have reasonable grounds to expect that it would have positive operating profits for FY23. I accept Mr Dillon’s evidence as to these matters.
If I am wrong in my view that Rex already knew of the lack of reasonable grounds for the relevant representation by 14 April 2023, I would find that Rex knew, from the year to date and monthly profit and loss figures for the Rex Group for March 2023, circulated on 24 April 2023, that a year to date loss of approximately $49.7 million, calculated as noted above, and the Rex Group’s before tax loss, now increased to $38,333,495, excluded any reasonable grounds to forecast positive operating profit for FY23. It seems to me that that was apparent even if Rex’s management had not undertaken the straightforward calculation of operating loss to which ASIC referred to derive the then figure for that loss. The trend indicated by a further monthly loss in March was negative, the amount of Rex’s loss to date was large and the period remaining to the end of FY23 was relatively short. It was apparent from all of these matters that there were now no longer reasonable grounds to forecast that matter.
ASIC’s allegation as to 4 May 2023 is also particularised by reference to the previous matters and Mr Khotkar’s email to Mr Pan on that date, to which I referred above. By this time, more than two weeks had passed since Mr Lim’s 14 April 2023 email. Mr Khotkar’s email also points to the absence of any significant improvement in Rex’s operations and the fact that its performance had significantly declined as against industry averages. While there may be a question whether that communication, sent and received in Messrs Khotkar’s and Pan’s roles in PAG, may be attributed to Rex, that email indicates matters that would already be known to Rex’s management from the information that Rex held as at this date. Mr Dillon’s evidence, which I accept, is also that, on the approach to operating profit taken by Rex in the 28 February 2023 Announcement (as well as the August 2023 approach), he considers that, as at 4 May 2023, it was not likely that the Rex Group would have positive operating profits for FY23, barring further external shocks, and the Rex Group did not have reasonable grounds to expect that it would have positive operating profits for FY23. If I am wrong in my view that Rex already knew of the lack of reasonable grounds for the relevant representation by 14 and 24 April 2023, I would have held that, by 4 May 2023, Rex knew that matter, at least by Mr Lim and the persons who provided the information that was analysed by Mr Khotkar.
ASIC’s allegation as to 11 May 2023 is particularised by reference to the previous matters and Mr Lim’s receipt of the year to date and monthly profit and loss figures for the Rex Group for April 2023 on that date. As I noted above in the chronology, those management accounts indicated a further loss of ($3,584,264) in April 2023 and a year to date loss of ($53,432,448), again calculated as the Rex Group’s before tax loss of ($40,655,091) less the gain of $14,731,901 and share of loss of ($1,954,544) on the NJE joint venture.
As Mr Borsky pointed out in opening and by reference to MFI 2 (which reflected Mr Dillon’s evidence), it was readily possible for Rex’s management to calculate its operating loss as at this date, using the methodology that Rex had adopted in the 28 February 2023 Announcement. That calculation starts with the FY23 YTD PBT disclosed in the April 2023 profit and loss figures, now increased (as I noted above) to a loss of ($40,655,091), and makes adjustments for the revaluation of PAG’s converting notes and warrants of again ($22,652,610), amortisation of the PAG fee of $6,672,683, as now increased by a further monthly accrual, the NJE share of loss of now ($1,194,544) and for the NJE gain on acquisition of again $14,731,901, consistent with the methodology for operating loss adopted by Rex in February 2023. The information necessary for this calculation of operating profit was recorded in the April 2023 management accounts that were available on 11 May 2023 (Ex J1, 5268), other than as to amortisation which was readily calculated from the known base of the fee. The methodology for that calculation was again straightforward and known to Rex’s management which had applied it in determining Rex’s operating loss after tax stated in the 28 February 2023 Announcement. ASIC rightly points out, in MFI 2, that that calculation shows a further increased operating loss before tax of $24,107,155, which would have to be recovered by 30 June 2023 for Rex to derive positive operating profits for FY23. I would again also have accepted Mr Dillon’s evidence referable to this date.
It seems to me that Rex must have known, from the year to date and monthly profit and loss figures for the Rex Group for April 2023 circulated on 11 May 2023, that a year to date loss of $53,432,448 noted above and a before tax loss of $40,655,091, excluded any reasonable grounds to forecast positive operating profits for FY23. It seems to me that that would be apparent even if Rex’s management had not undertaken the straightforward calculation of operating loss to which ASIC referred to derive the then figure for that loss. The trend indicated by a further monthly loss in April was again negative, the amount of Rex’s loss to date was again large and the period remaining to the end of FY23 was now short, and it was apparent from these matters that there were now no longer reasonable grounds to forecast that matter. If I am wrong in my view that Rex already knew of the lack of reasonable grounds for the relevant representation by 14 and 24 April 2023 and 4 May 2023, I would have held that, by 11 May 2023, Rex knew that matter.
ASIC’s allegation as to 16 May 2023 is particularised by reference to the previous matters and discussions at Rex’s board meeting on that date, to which I referred above. By this time, more than a month had passed since Mr Lim’s 14 April 2023 email; nearly two weeks had passed since Mr Khotkar’s email of 4 May 2023 to Mr Pan; and the reasons for concern that Rex no longer had reasonable grounds to forecast an operating profit for FY23, which had arisen from Mr Lim’s email had still not been displaced by any further inquiry made by Rex or by any apparent improvement in Rex’s operations. I find, to the Briginshaw standard, that these matters, which were not displaced by the further discussion at the board meeting on 16 May 2023 which I noted above, were sufficient to deprive Rex of continuing reasonable grounds for the statement of optimism as to its return to operating profits made in the 28 February 2023 Announcement. I would also have accepted Mr Dillon’s evidence referable to this date. If I am wrong in my view that Rex already knew of the lack of reasonable grounds for the relevant representation by 14 and 24 April 2023, 4 May and 11 May 2023, I would have held that, by 16 May 2023, Rex knew that matter.
ASIC also here relies on Messrs Lim’s, Sharp’s, Khotkar’s and Pan’s receipt, in March, April and May 2023, of Rex’s weekly worm reports to which I referred above. Plainly, the matters recorded in those reports were already known to Rex, which issued them, irrespective of their being provided to Messrs Lim, Sharp, Khotkar and Pan. I have accepted above that these reports disclosed the return of seasonality in Rex’s passenger numbers and revenue by the first half of FY23. ASIC does not otherwise identify the significance of the particular information contained in any particular weekly worm report over this period, or what trends Rex or those who received those reports should have drawn from the receipt of any particular report or a series of those reports. It is not necessary to determine whether these reports provided a further basis on which Rex did not have reasonable grounds for the statement of optimism as to its return to operating profits made in the 28 February 2023 Announcement, given the findings that I have reached above on other grounds.
For these reasons, and taking these matters as a whole, I find that, from 14 April 2023, Rex knew that it did not have reasonable grounds to forecast an operating profit for FY23.
ASIC pleads (SOC [17]; denied SFAD [17], KAD [17], PAD [17]) that the 2023 Profit/Loss Information was not generally available within the meaning of ss 674(2)(c), 674A(2)(c) and 676 of the Act. That matter is established where no announcement had been made to ASX indicating that there was no reasonable basis for the view expressed by Rex in the 28 February 2023 Announcement, and there is no suggestion that that matter could have been or otherwise was known to investors.
ASIC also pleads (SOC [18]) that the 2023 Profit/Loss Information was information that a reasonable person would have expected, if it had been generally available, to have had a material effect on Rex’s share price within the meaning of ss 674(2)(d) and 677(1) of the Act. It particularises that allegation as follows:

This is a convenient point to address the extensive submissions made by Messrs Sharp, Khotkar and Pan as to Guidance Note 8 and the exceptions in Listing Rule 3.1A, and ASIC’s response to them. I recognise, as Mr Borsky also fairly recognised in closing submissions, that Guidance Note 8 has been treated as a “reliable description of the meaning and effect in law” of Listing Rule 3.1 and s 674 of the Act, and that ASX’s opinion about the application of the listing rules can be instructive: TPT Patrol Pty Ltd (as trustee for the Amies Superannuation Fund) v Myer Holdings Ltd (2019) 293 FCR 29; [2019] FCA 1747 at [1262]. I also recognise, as Mr Borsky also submits, that ASX’s view is not determinative and cannot surpass the statutory text: Masters v Lombe [2019] FCA 1720 at [313]. However, little turns on these matters here where, unsurprisingly, Guidance Note 8 does not seek to limit the circumstances in which a corrective disclosure, of the kind that is in issue here, is made.
Guidance Note 8 recognises that, generally speaking, a listed entity is not required by Listing Rule 3.1 to release earnings projections or guidance to the market ([7.1]) and observes that, where a listed entity chooses to give such guidance, it is generally a forward-looking statement and must be based on reasonable grounds, by reason of the prohibition on misleading or deceptive conduct. Guidance Note 8 also recognises that “de facto” earnings guidance may have been given where a listed entity publicly states an expectation as to its comparative future earnings. That Guidance Note 8 recognises circumstances in which a listed entity would likely be required to notify the market, if it becomes aware that its earnings will differ materially from market expectations, and expresses the view, derived from Listing Rule 3.1 and the statutory continuous disclosure regime, that a difference will be material if it is of such magnitude that a reasonable person would expect it to have a material effect on the price or value of the entity’s securities, and that question will be informed by other information that the listed entity has given to the market, including earlier earnings guidance.
Guidance Note 8 also provides guidance as to when an entity should treat an earnings change as material and as to the information that ASX would expect an entity to include in an updated earnings guidance announcement. That Guidance Note also recognises the possibility that non-quantitative disclosure may be required, observing that:

I accept that, as Mr Borsky submits, the question whether Rex had lost reasonable grounds for its stated optimism as to its positive operating profits for FY23 is a binary question, since it either still had or it did not still have that reasonable basis, and that did not depend on the extent of change in its operating earnings where the 28 February 2023 Announcement was not put in quantitative terms. I do not accept Mr Sisson’s attempt to treat this issue in mathematical terms, which seems to me wrongly to assume that approach is applicable, and which seems possibly to adopt an idiosyncratic approach to percentages. I should add that this question is, on the particular facts, a somewhat arid one, where the deterioration in Rex’s operating earnings in early 2023 was substantial and not marginal.
I recognise that Guidance Note 8 also states ([7.3]) that, before an entity discloses an update to its expected earnings for a period, there needs to be a reasonable degree of certainty that there will be such a difference and that, where the entity has disclosed an expected amount or range, it may not immediately have sufficient information as to the new amount or range. It seems to me that proposition also does not assist Messrs Sharp, Khotkar or Pan, again because the question whether Rex continued to have reasonable grounds to forecast positive operating profits for FY23 was a binary question, and the findings I have reached above do not indicate any lack of sufficient information to answer it from 14 April 2023.
Turning now to Listing Rule 3.1A, that rule provides that Listing Rule 3.1 does not apply to particular information when each of three matters are satisfied: first, that one or more of the five specified situations applies, including, relevantly, that the information comprises matters of supposition or is insufficiently definite to warrant disclosure or that it is generated for the internal management purposes of the entity; second, the information is confidential and ASX has not formed the view that the information has ceased to be confidential; and, third, a reasonable person would not expect the information to be disclosed.
In closing submissions, Mr Borsky submits that none of the matters necessary to establish an exception under Listing Rule 3.1A, to which I referred above, are established here. First, he submits that the 2023 Profit/Loss Information was not insufficiently definite and was in direct contradiction to the 28 February 2023 profit guidance. He advances a further submission as to the scope of Guidance Note 8 which I need not address here. As I have noted above, the question whether Rex continued to have reasonable grounds to forecast positive operating profits for FY23 was a binary question, and the findings I have reached indicate its answer was neither a matter of supposition nor insufficiently definite to warrant disclosure as at 14 April 2023.
Second, Mr Borsky submits that:

Broadly, ASIC contends that Mr Lim contravened his duty as a director under s 180 of the Act by failing to take reasonable steps to ensure that Rex complied with its obligations when making the 28 February 2023 Announcement. ASIC also contends that Mr Lim was involved in Rex’s contravention of the continuous disclosure obligations after that date. As I noted above, Mr Lim now admits liability in that regard. ASIC also pleads (SOC [27]; admitted by Mr Lim’s Amended Defence [27]) that the relevant contravention was “serious” within the meaning of s 1317G(1)(b)(iii) of the Act. I accept that the contravention that Mr Lim has admitted was serious in the relevant sense, by reason of Mr Lim’s admission, and also by reason of the importance of the continuous disclosure regime, the role of directors in overseeing a company’s compliance with that regime and the consequence of the contravention, that investors in Rex (other than PAG) were left to proceed on a misleading basis that Rex continued to have reasonable grounds for optimism as to its ability to achieve positive operating profits for FY23.
As against Mr Lim, ASIC seeks declarations under s 1317E of the Act that he contravened s 180 of the Act in respect of the 28 February 2023 Announcement; that he was involved in Rex’s contravention of the continuous disclosure obligations in the period from 28 February 2023 until 20 June 2023; and that he contravened s 180 of the Act in respect of those contraventions. I accept that those declarations are properly made, both by reference to the admissions made by Mr Lim in his Defence and by reference to the evidence that emerged at the hearing. ASIC also seeks a declaration that Mr Lim’s contraventions were serious within the meaning of s 1317G of the Act and orders that Mr Lim be disqualified from managing corporations and pay a pecuniary penalty to the Commonwealth. The questions of disqualification and payment of a penalty to the Commonwealth will be addressed at a subsequent penalty stage of the proceedings.

ASIC’s claim against Mr Sharp is narrower than its claim against Mr Lim. Broadly, ASIC contends that Mr Sharp contravened his duties as a director of Rex, under s 180 of the Act, by not taking reasonable steps to ensure that Rex complied with its continuous disclosure obligations from 14 April 2023, or alternatively 16 May 2023.
Section 180 of the Act requires a director or other officer of a corporation to exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they were a director or officer of a corporation in the corporation’s circumstances and occupied the office held by, and had the same responsibilities within the corporation as, the director or officer. In opening, Mr Borsky summarised the applicable principles, albeit with reference to the case against Mr Lim, and that summary of these principles drew on well-known case law which has considered the role of non-executive directors. I did not understand that summary to be disputed by Messrs Sharp, Khotkar and Pan, in substance, although they provided their own summaries of those principles, and Mr Sulan and Mr Thomas rightly emphasised the fact that that section was to be applied in the context that Messrs Sharp, Khotkar and Pan were non-executive directors of Rex.
Without seeking to be exhaustive, where there is no real controversy as to the applicable principles, I have regard to ASIC v Rich, where Austin J followed earlier decisions in observing that the reference to a “corporation's circumstances" in s 180 of the Act required that consideration be given to the type of company involved, the size and nature of its business, the provisions of its constitution, the composition of the board and the distribution of the work between the board and other officers (at [7201]). His Honour observed that it was necessary to have regard to whether the company was listed or unlisted and, in the case of a parent company, to have regard to the size and nature of the businesses of its subsidiaries if they are under the parent's general supervision. His Honour observed that the statutory duty incorporates a minimum standard of diligence, which at least requires every director or officer, including a non-executive director, to become familiar with the fundamentals of the business or businesses of the company; to keep informed about the company's activities; to monitor, generally, the company's affairs; to maintain familiarity with the company's financial status by appropriate means, including (in the case of a director) review of the company's financial statements and board papers, and the making of further inquiries into matters revealed by those documents where it is appropriate to do so; and in the case of a director, and at least some officers, to have a reasonably informed opinion of the company's financial capacity (at [7203]). His Honour also noted that, in the case of non-executive directors, the objective duty of minimum skill and competence may not extend much beyond financial matters (at [7206]). His Honour also emphasised that the question in respect of a contravention of s 180(1) was not whether company officers made mistakes or held different opinions from those of the Court, but whether they failed to meet the standard of care and diligence, and this is to be assessed with regard to the circumstances existing at the relevant time, without hindsight and with the distinction between negligence and mistakes or errors of judgment firmly in mind (at [7242]).
In Australian Securities and Investments Commission v Healey (2011) 196 FCR 291; [2011] FCA 717 (“Healey”), Middleton J emphasised the need for directors personally, including non-executive directors to engage with the content of a company's financial reports. His Honour noted at [20] that:

His Honour also noted that "[t]he scrutiny by the directors of the financial statements involves understanding their content" and directors should "bring the information known or available to him or her in the normal discharge of the director's responsibilities to the task of focusing upon the financial statements" (at [22]). His Honour held that non-executive directors had there breached the statutory duty of care and diligence under s 180 by not properly considering the content of the financial statements for themselves and relying on the company's processes and external advisers to the exclusion of such consideration (at [569]). In dealing with penalties in Australian Securities and Investments Commission v Healey (No 2) (2011) 196 FCR 430; [2011] FCA 1003, Middleton J did not grant relief from liability under ss 1317S or 1318 of the Act and made declarations of contraventions in respect of each director.
In Australian Securities and Investments Commission v Mitchell (No 2) (2020) 382 ALR 425; [2020] FCA 1098, Beach J observed (at [1397]) that the standard of reasonableness required by s 180 is an objective standard and requires directors to act with the skill and diligence which ordinary prudence would require under similar circumstances, and that it is necessary to consider the corporation’s circumstances and position and the director’s responsibility within the corporation. Beach J also observed (at [1431]) that, in order for conduct to contravene s 180 of the Act, it must have created at least a foreseeable risk of harm to the company’s interests, and that an assessment of such a risk and any potential benefit of the action will take place with reference to the corporation’s circumstances and the director’s responsibilities and office. His Honour observed (at [1434]) that a plaintiff has the onus of establishing the elements of a breach of s 180 of the Act, although a defendant director may have an evidentiary onus in some respects.
In Bekier at [368]ff, Lee J also summarised these well-established principles as follows, again largely omitting citations:

I bear in mind the observations there made, by reference to authority, to the limits of the role of a non-executive director. It seems to me that those limits are of lesser significance here where ASIC’s case does not allege any steps that the non-executive directors could have taken to involve themselves in the affairs of Rex at an operational level, and is instead directed to whether they complied with their statutory duty in respect of information that had been in fact drawn to their attention by Rex’s management, in bringing about any necessary corrective disclosure by Rex in respect of its previous announcement of optimism as to positive operating profits in FY23. Mr Thomas also submitted, and I accept, that s 180 of the Act does not impose a standard of perfection and that mistakes and errors of judgment may occur without triggering a contravention of the provision: ASIC v Rich at [7239], [7241]–[7242]; Healey at [180]; Bekier at [360].
There is also a potential interaction between a company’s continuous disclosure obligations and directors’ duty of care and diligence. In ASIC v Vocation, the Federal Court of Australia considered the scope of a director’s liability for breach of duty, in the context of, inter alia, continuous disclosure. In Australian Securities & Investments Commission v Big Star Energy Ltd (No 3) (2020) 389 ALR 17; [2020] FCA 1442, ASIC alleged that Big Star Energy Ltd (“Big Star”) had breached its continuous disclosure obligations under s 674 of the Act by announcing that it had entered into two sale agreements in respect of significant assets, without disclosing the identity of the purchaser, the fact that it had not assessed the prospect of the purchaser completing the sale agreement and the fact that the purchaser had advised that it had funding in place in respect of only one of those agreements. Banks-Smith J found that Big Star had there contravened s 674(2) of the Act by failing to notify ASX of the three matters. Her Honour also found that, although it was not established that Mr Cruickshank had actual knowledge that the information was of a nature that it had to be disclosed, he had contravened s 180 of the Act by failing to exercise reasonable care and diligence in respect of the disclosure, that failure had caused Big Star to contravene the continuous disclosure requirements under s 674 of the Act and it was foreseeable that that contravention might harm Big Star’s interests. An appeal from that decision was dismissed in Cruickshank v Australian Securities and Investments Commission (2022) 403 ALR 67; [2022] FCAFC 128 (“Cruickshank”) and the High Court declined to grant special leave to appeal from that decision. In Holista, Derrington J similarly found that a company’s managing director and chief executive officer had (as he there admitted) breached his duty of care and diligence under s 180 of the Act in, relevantly, failing to qualify, withdraw, or correct announcements that he had previously approved for publication to ASX.
Turning to ASIC’s pleaded case against Mr Sharp, that case is to be determined where I have found that the third, but not the first and second representations comprising the alleged 2023 Profit Representation was made. I have accepted Mr Dillon’s evidence which established the factual basis of the third element of the 2023 Profit/Loss Information, although that evidence did not, without more, establish Rex’s knowledge of that matter. I have also held that, by reference to the additional matters that I addressed above, at least from 14 April 2023, Rex no longer had reasonable grounds to expect that, or be optimistic that, Rex would have positive operating profits for FY23, being the third element of the 2023 Profit/Loss Information. On that basis, I have held that Rex contravened its continuous disclosure obligations from that date by not disclosing that it no longer had reasonable grounds for its optimism as to positive operating profits in FY23.
ASIC in turn pleads as against Mr Sharp (SOC [41]; denied SFAD [41]) that, by 14 April 2023, or alternatively 16 May 2023, he was aware of the 2023 Profit/Loss Information. Mr Borsky rightly accepted that this was an allegation of actual knowledge and submitted, in closing submissions, that:

Mr Sulan did not here address what, in fact, Mr Sharp did in respect of that email, although he then pointed to Messrs Khotkar’s and Pan’s correspondence in response to that emails, which reflected the fact that Mr Sharp gave no evidence as to his response to that email. Mr Sulan’s further submission also does not adequately address questions which a reasonable director, in Mr Sharp’s position, would have asked had he been told that “it was likely that the profit forecast would be achieved”, including to identify the assumptions on which that statement was based and whether those assumptions were reasonably founded.
I have identified the matters disclosed by Mr Lim’s email of 14 April 2023 in reviewing the chronology of events above. I there concluded that that email conveyed matters which at least raised a concern that Rex no longer had reasonable grounds for the statement of optimism as to its positive operating profits made in the 28 February 2023 Announcement, absent identification at that point of other matters that would displace the issues raised by that email. I also there noted that there is no evidence that Mr Sharp made any inquiry following that email or that any other matters that came to his attention displaced the issues that it raised. In addressing the matters disclosed to Mr Sharp by that email, I have also had regard to the other information then available to Mr Sharp, albeit in the absence of any explanation by him of the views he formed in response to that information. Prior to that email, Mr Sharp had already been informed of matters which put in question whether Rex had lost any reasonable basis for its optimism as to positive operating profits in FY23, by the intake summary graph that he was provided on 31 March 2023, which Rex’s executives had recognised indicated at least a downward trend in Rex’s performance. I have also referred above to Ms Elliott’s email, which Mr Lim copied, inter alia, to Mr Sharp on 15 April 2023 (Ex J1, 4621), and observed that there is no evidence that Mr Sharp made any inquiry following that email or that any other matters that came to his attention displaced the issues that it raised. As I noted above, I also infer that his evidence as to these matters would not have assisted him in that regard.
I also recognise that Mr Dillon referred to Mr Lim’s 14 April 2023 email in his expert report and his discussion of that email identified several matters said to emerge from that email, namely that market demand was not strong; that jet operations were not profitable in March 2023; that regional operations were not profitable in March 2023; and he also made the evaluative observation that Mr Lim’s comments regarding jet operations in April 2023 pointed to improving sales “but not enough to result in a significant positive operating profit for the month”; and that Mr Lim’s comments about regional operations in April 2023 pointed to improving sales “but not enough to be certain of positive operating profits for the month”. He also observed that Mr Lim’s comments about the profitability of jet and regional operations in April 2023 were consistent with a return to around break-even in April 2023. However, whether or not he would have been qualified to do so, Mr Dillon did not there seek to identify the significance that these observations would have had for a director of Rex who was exercising the degree of care and diligence that a reasonable person would exercise at that time; and, specifically, he did not seek to identify any conclusions that such a director would have drawn from that email in respect of a future loss or operating loss of Rex, or what steps such a director would have taken in consequence.
I should here also address the wider question as to the significance of the lack of expert evidence as to this matter, before returning to the position in this case. I recognise that, as Mr Borsky points out, there are cases in which a contravention of s 180 has been proved without the need for expert evidence: ASIC v Vocation; Cruickshank at [138]. However, I also recognise that the absence of expert evidence may make it more difficult to establish a complex proposition, particularly where that proposition is affected by a range of factors dependent on an understanding of a particular industry or market, and that the Court may be unable to draw a conclusion of competing inferences of equal degrees of probability and cannot choose between guesses on the ground that one guess seems more likely than another: DIF III – Global Co-Investment Fund LP v DIF Capital Partners Ltd [2020] NSWCA 124 at [144]–[145].
With some hesitation, I am not persuaded that Mr Sharp knew, as early as 14 April 2023, that Rex no longer had reasonable grounds to forecast positive operating profits for FY23. It seems to me that Mr Sharp at least had reason to be concerned that might be the case, arising from the matters disclosed by Mr Lim’s email of 14 April 2023 and absent further information known to Mr Sharp that would displace that concern. I recognise that Mr Sharp gives no evidence that he had regard to such additional information, made any further inquiries or did not recognise the risk that Rex no longer had reasonable grounds to forecast its positive operating profits for FY23, and I again draw the inference that his evidence in that regard would not have assisted him. Nonetheless, it seems to me that reason for concern as to that matter did not rise to the level of actual knowledge of that matter at that point.
In opening submissions, Mr Borsky did not address a management committee meeting attended by Messrs Lim, Sharp and members of Rex’s management that commenced on 15 May 2023. Mr Borsky then referred to that management meeting in closing submissions, prompting a degree of controversy which I now address. Mr Sulan characterised ASIC’s reliance on the minutes of the 15 May 2023 management committee meeting as a change in ASIC’s case that was not open to it, because ASIC had not specifically referred to that document in opening. I do not accept that submission. ASIC had always contended that Mr Sharp knew relevant matters, at least by specified dates and still does so, and its reliance on these minutes is simply pointing to further evidence that supports its existing case. As Mr Borsky pointed out in closing submissions, ASIC had referred to Mr Sharp’s attendance at parts of the management committee meeting on 15 May 2023 in its opening submissions and in its chronology, although it did not then identify any particular significance of that attendance. Ms Elliott had given evidence, without objection, of aspects of that meeting. Mr Sulan did not, and could not, suggest that Mr Sharp was caught by surprise by the fact that he attended management committee meetings, including that management committee meeting; or that Mr Sulan or his instructing solicitors were caught by surprise by reference to a document which had always been included in the Court Book (now Ex J1) or had not had the opportunity to address it.
Returning now to what occurred at the management committee meeting on 15 May 2023. I have referred to the minutes of the meeting in the chronology set out above. I also need to address the question of the review of “management accounts” at that meeting, recorded in the minutes of that meeting. Mr Sulan submitted that, unlike Rex’s executive directors, Mr Sharp was not receiving management accounts “ahead of the 16 May 2023 board meeting.” That submission requires qualification for the management accounts that were reviewed by Mr Sharp and other members of the management committee meeting at the 15 May 2023 management committee meeting. However, I have noted above that I cannot draw any inference as to which of the several documents that are in the nature of “management accounts” that were prepared by Rex’s finance team at this time, on different bases, were put before the management committee on 15 May 2023 (or the Rex board on 16 May 2023), or as to the content of the documents put before the management committee. This is an important matter, where some of the documents prepared by Rex at this time disclosed a substantial operating loss before tax (in excess of $49.1 million before adjustments), but also calculated adjusted cash profits on alternative bases.
It seems to me possible, and perhaps the most likely of the alternatives, that management accounts in the form of the profit and loss sent to Mr Lim on 11 May 2023 (Ex J1, 5268) were reviewed by Rex’s management committee on 15 May 2023. However, I cannot reach that conclusion on the balance of probabilities and to the Briginshaw standard, and that is significant where the other documents prepared at that time, likely also in the nature of management accounts on alternate bases, excluded non-cash expenses in addition to those that were adjusted to reach the after tax operating figure loss in the 28 February 2023 Announcement and recorded a positive profit position for Rex or its component businesses on that basis. In these circumstances, I cannot find that the matters disclosed at the management committee meeting on 15 May 2023 disclosed to Mr Sharp that the optimism as to Rex’s positive operating profits in FY23 expressed in the 28 February 2023 Announcement lacked reasonable grounds.
I should address the position if, contrary to the view I have formed, it had been established that the profit and loss sent to Mr Lim on 11 May 2023 (Ex J1, 5268) were the management accounts that were reviewed by Rex’s management committee on 15 May 2023. That document indicated that Rex had incurred a further loss of ($3,584,264) in April 2023 and a year to date loss of ($53,432,448), calculated as the Rex Group’s before tax loss of ($40,655,091) less the gain of $14,731,901 and share of loss of ($1,954,544) on the NJE joint venture. The attached “‘Rex PL Apr23(Cir)”’ spreadsheet identified financial results for Rex Regional as monthly EBITDA of $277,494; current year, year to date EBITDA of $370,284; April 2023 loss before tax of ($2,399,120); current year, year to date loss before tax of ($50,453,991); April 2023 loss after tax of ($3,083,927) and current year, year to date loss after tax of ($44,710,815).
Had I found that that that profit and loss had been reviewed by the management committee, I would have concluded that Mr Sharp must have known, from the review of that profit and loss, that Rex’s further loss in excess of $3.5 million in April, combined with a year to date loss in excess of $53.4 million (calculated as noted above), and the year to date loss before tax in excess of $40.6 million, excluded any reasonable basis to forecast positive operating profits for FY23. If Mr Sharp understood the manner in which operating profit was calculated in the 28 February 2023 Announcement, which he had joined in authorising, that result was plain. Even if he did not, the trend indicated by a further loss in April was negative, the amount of Rex’s loss to date was so large and the period remaining to the end of FY23 was so short that it would still have been apparent that, absent further inquiry which Mr Sharp did not make, there were now no longer reasonable grounds to forecast positive operating profits for FY23 or for optimism as to that matter. Mr Sharp did not give evidence that he had not attended the part of the management committee meeting at which the management accounts were reviewed, or that he did not read or understand those accounts or did not participate in reviewing them. However, I do not reach that finding where I cannot find that the profit and loss sent to Mr Lim on 11 May 2023 was the management accounts reviewed by the management committee on that date. For completeness, I also referred above to Ms Elliott’s evidence that she had pointed to a downward trend in ticket sales at that management committee meeting. It seems to me that that matter also raised a question whether that trend undermined the optimism as to Rex’s positive operating profits for FY23 that was identified in the 28 February 2023 Announcement.
Second, ASIC particularises (SOC [16], particular (7)) the review of Rex’s financial information at the 16 May board meeting, as follows:

Mr Sulan in turn pointed to correspondence between Mr Lim and Rex’s financial team as to the possibility of calculating Rex’s profit and loss on alternative bases, excluding non-cash items. I have referred to that correspondence and its significance above. It is notable, again, that Mr Sharp gives no evidence that he received or considered any of that correspondence.
I have referred to the minutes of that board meeting and the several positive and negative matters that were disclosed at it in the chronology above. I recognise that, by 16 May 2023, more than a month had passed since Mr Lim’s email of 14 April 2023, and the reasons for concern that Rex no longer had reasonable grounds to forecast positive operating profits for FY23, which had arisen from that email, had not been displaced by any further inquiry made by Rex or Mr Sharp, or any significant improvement in Rex’s operations that had come to Mr Sharp’s attention. I also recognise that the further discussion at the board meeting on 16 May 2023 disclosed several adverse matters, including Rex’s before tax losses in its regional and domestic businesses to April 2023, its poor passenger numbers in April 2023 in its regional business and “traditional network”, and its expectation of low passenger numbers in May 2023 (although I recognise that an expected improvement in June 2023 was noted). I also recognise that Mr Dillon, in his expert report, expressed his opinion as at 16 May 2023 by reference to the position that existed prior to and as at 11 May 2023. He again expressed no view, even if he had been qualified to do so, as to what inferences a director acting with the degree of care and diligence that a reasonable person would exercise would have drawn from the documents that were available at the 16 May 2023 board meeting if they could be identified, or what steps such a director would have taken in consequence.
It seems to me that Mr Sharp had reason to be concerned at this point that these matters might deprive Rex of reasonable grounds to forecast positive operating profits for FY23, absent further information known to him that would displace that concern. I again recognise that Mr Sharp gives no evidence that he had regard to such additional information, made any further inquiries or did not recognise the risk that Rex no longer had reasonable grounds to forecast positive operating profits for FY23, and I again draw the inference that his evidence in that regard would not have assisted him.
However, I also recognise that, as Mr Thomas emphasised in submissions, Mr Dillon did not address and ASIC leads no other lay or expert evidence to establish the conclusions that a director of Rex, exercising the degree of care and diligence that a reasonable person would exercise, should have drawn from the matters discussed at the 16 May 2023 board meeting in respect of Rex’s profit or loss, or its operating profit or loss calculated in the manner adopted in the 28 February 2023 Announcement. I also recognise that that is not a matter that can be determined by any application of a judge’s general commercial experience, where it plainly depends upon specialist knowledge as to the aviation industry and relatively large airline businesses in the Australian market. For these reasons, it seems to me that I cannot find, to the Briginshaw standard, that these matters rose to the level of actual knowledge on Mr Sharp’s part that Rex no longer had reasonable grounds to forecast positive operating profits for FY23.
Third, ASIC particularises Mr Sharp’s receipt of Rex’s weekly worm reports as follows:

There is no contest between the parties that, at least in March, April and May 2023, Mr Sharp (among others) received Rex’s weekly worm reports which set out, amongst other things, the Rex Group’s daily, weekly and monthly passenger revenue. As I noted above, this report is a complex document and I am not able to find, to the Briginshaw standard, that a review of that document, when received at weekly intervals, without more, would have allowed a non-executive director of Rex to identify adverse trends in Rex’s business, so as to recognise that Rex no longer had reasonable grounds for the statement of optimism as to positive operating profits for FY23 made in the 28 February 2023 Announcement.
I should, for completeness, note other documents that were also provided to Mr Sharp, which ASIC does not particularise in support of its claim, but which are relevant to the context in which Mr Sharp received the documents to which ASIC refers. Mr Sharp also received domestic booking daily summaries, including at least on 20 January (Ex J1, 3798), 27 February (Ex J1, 4127), 20 March (Ex J1, 4483), 19 April (Ex J1, 4840), 2 May (Ex J1, 5164) and 9 May 2023 (Ex J1, 5237). On 18 April 2023, Mr Sharp received a weekly passenger revenue report (Ex J1, 4644) which provided weekly information as to domestic, regional and Queensland RR actual revenue; and domestic, regional and Queensland RR load factors. Mr Sulan submitted that the domestic daily booking summaries were not pleaded or particularised as against Mr Sharp. He also submitted that those summaries did not include data for Rex’s regional business and only recorded revenue from ticket sales and not from Rex’s business activities in other parts of the business, and that they also did not record costs to allow an assessment of the profit of Rex’s regional business. I broadly accept that submission, with the qualification that significant declines in revenue would, absent a director’s knowledge of steps taken to reduce costs, indicate the likelihood that both profit and operating profit would potentially be significantly reduced. I have referred to the content of the domestic booking daily summary and weekly passenger revenue report documents above. These are also relatively complex documents and I also could not have concluded, to the Briginshaw standard, that a review of them, alone or with the other documents provided to Mr Sharp, would have allowed a non-executive director of Rex to identify adverse trends in Rex’s business, so as to recognise that Rex no longer had reasonable grounds for the statement of optimism as to positive operating profits for FY23 made in the 28 February 2023 Announcement.
The findings that I have reached above, as to whether Mr Sharp knew at relevant dates that Rex no longer had reasonable grounds to forecast positive operating profits for FY23, have the consequence that ASIC’s case against Mr Sharp is not established. I recognise that that result may reflect the incomplete evidence that is before the Court, where Mr Sharp chose not to give evidence, as was he entitled to do.
I now turn, for completeness, to the other aspects of ASIC’s case against Mr Sharp, although my findings as to these matters have no practical significance where the case against him has not been established at this point. ASIC pleads (SOC [42]; denied SFAD [42]) that Mr Sharp knew, or ought to have known, that the 2023 Profit/Loss Information was not generally available (referring to the particulars to SOC [19]) and that the 2023 Profit/Loss Information was information that a reasonable person would have expected, if it had been generally available, to have had a material effect on Rex’s share price (again, referring to the particulars to SOC [19]). In opening, Mr Borsky submitted that:

I do not accept that submission. I recognise that Mr Sisson accepted in cross-examination that the extent of a variation and the reasons for it would be relevant to investors’ loss of confidence (T146), but he did not accept, and it does not follow, that the loss of a reasonable basis for Rex’s earlier optimism as to its positive operating profits would not, in itself, have been significant. I also recognise that the amount of any decline might be relevant, at least in the sense that a large decline would be particularly significant. However, it seems to me that, where Rex had repeatedly emphasised its optimism as to a return to positive operating profits in announcements prior to and again in the 28 February 2023 Announcement, its failure to achieve that result would be material to investors in the relevant sense.
If I had found that Mr Sharp knew that Rex no longer had reasonable grounds for optimism as to positive operating profits for FY23, I would also have been comfortably satisfied that, given the matters noted above and the significance of reasonably based optimism as to positive operating profits for FY23 for the value of Rex’s shares, the information that Rex had ceased to have reasonable grounds to forecast that matter would, if it had been generally available, have had a material (and adverse) effect on Rex’s share price. I would also have been comfortably satisfied that Mr Sharp knew, or at least ought to have known, these matters, where they were a straightforward conclusion from the matters that would (had I reached that finding) have been known to him and he led no evidence that he had did not draw that conclusion. I would again have drawn the inference that his evidence in that regard would not have assisted him.
ASIC then pleads (SOC [43]; denied SFAD [43]) that a reasonable person acting as, and with the responsibilities of, the deputy chair and/or a director and member of the Rex board, in the relevant circumstances and with the pleaded knowledge of Mr Sharp:

I do not accept this submission. At least one form of corrective disclosure which would have displaced the misleading conduct on which ASIC relies was a straightforward corrective statement, which simply disclosed that Rex had lost a reasonable basis for the optimism as to positive operating profits for FY23 expressed in its 28 February 2023 Announcement. It has not been established that ASX would not have accepted such an announcement for publication, so as to permit a continuing false market in Rex’s shares. There were steps which Mr Sharp could have taken to bring about such an announcement, to which I refer below, short of any attempt to make a unilateral announcement of that matter. I have addressed the question of Mr Sharp’s expertise above.
If I had found that Mr Sharp knew an aspect of the 2023 Profit/Loss Information, namely that Rex no longer had reasonable grounds to forecast positive operating profits for FY23, and where I would then have found that he knew or ought to have known that that matter had not been disclosed by Rex and was material to investors in Rex, I would have held that a reasonable director in Mr Sharp’s position would have reached the view that, first, Rex was required to take one or other of the steps for which ASIC contends and that, second, if Rex was not in position to issue revised profit guidance as at 16 May 2023, then it should at least have disclosed to the market that it no longer had reasonable grounds for its (or its directors’) previously announced optimism as to its positive operating profits for FY23. I would also have found that a reasonable director in Mr Sharp’s position would have taken reasonable steps to ensure that Rex took that course, which would have included at least drawing the issue to the attention of Rex’s other directors; convening a meeting of Rex’s directors to address that issue which could have been done, for example, by making an ASX announcement while any necessary inquiries were made to allow Rex to form an updated view; and, if the other directors declined to address the issue, potentially resigning as a director of Rex and advising ASX and/or ASIC of the reason for that resignation.
ASIC pleads (SOC [44]; denied SFAD [44]) that, by reason of these matters, Mr Sharp failed to discharge his duties with the degree of care and diligence that a reasonable person would exercise if they were a director and member of the board of a company in Rex’s circumstances and contravened s 180 of the Act*.* This allegation is not established given the findings that I have reached above, and without the need to address the affirmative defences raised by Mr Sharp.
ASIC also pleads (SOC [45]; denied SFAD [45]) that the relevant contravention was “serious” within the meaning of s 1317G(1)(b)(iii) of the Act. That allegation is particularised as follows:

Mr Sulan addressed the scope of s 189 of the Act in written submissions, but not the factual basis of any claim for reasonable reliance by Mr Sharp on other directors or executives of Rex, beyond referring again to the scope of Mr Sharp’s duties as a non-executive director and, by contrast, the wider scope of Mr Lim’s role. That was not surprising, as Mr Sharp led no evidence that might allow those matters to be determined. Mr Sulan then made the conclusory submission, without identifying any evidentiary basis for it, that Mr Sharp acted reasonably by relying on Messrs Lim, Kwan and Tan; but once again there was no evidence that he had done so. As Mr Borsky rightly pointed out in closing submissions, in Australian Securities and Investments Commission v Macdonald (No 11) (2009) 256 ALR 199; [2009] NSWSC 287 at [545]–[547], [1009] (affirmed in James Hardie Industries NV v Australian Securities and Investments Commission (2010) 274 ALR 85; [2010] NSWCA 332), Gzell J rejected a defendant’s reliance upon s 189 on the basis that there was no evidence that the defendant in fact relied on advice from others or independently assessed that advice.
It is now not necessary for Mr Sharp to rely on this defence, when the contravention alleged against him has not been established. Had it been necessary to determine this matter, I would have held that Mr Sharp did not establish the essential premise of this defence, that he relied on information given or prepared by Messrs Lim, Tan or Kwan, individually or collectively, where he led no evidence to identify the information to which he refers, whether he read it, or what reasoning process he adopted in respect of it. Mr Sharp also did not establish that he believed, whether on reasonable grounds or at all, that those persons were reliable and competent in relation to matters concerning the monitoring of Rex’s financial performance and operating position where he led no evidence to that effect. He also did not establish that any such reliance was made in good faith, after having made an independent assessment of the information, or whether he assessed that information or brought an independent mind to bear in doing so, or what knowledge he had of Rex or how he applied it in any such an assessment. I would also have inferred that the evidence that Mr Sharp might have led in that regard would not have assisted him. Mr Sharp’s defence under s 189 of the Act would not have been not established, where he did not give evidence that might establish it.
Mr Sharp’s second pleaded defence appears to be a claim for mistake of fact under s 1317QC of the Act and sought relief from liability under ss 1317S and 1318 of the Act. Mr Sharp sought to have his claims under ss 1317QC, 1317S and 1318 of the Act deferred for determination in any penalty stage of the proceedings, and ASIC has accepted that position in this case, while reserving its position as to other cases. It will now not be necessary to determine these claims, where the contravention alleged against Mr Sharp has not been established.

Mr Thomas in turn undertook a detailed review of the positive and negative information contained in Mr Lim’s 14 April 2023 email and emphasised that that email only addressed Rex’s domestic and regional business, and not other parts of Rex’s business; and also reflected significant one-off expenses incurred by Rex.
I have identified the matters disclosed by Mr Lim’s 14 April 2023 email in reviewing the chronology of events above. I there concluded that that email conveyed matters which at least raised a concern that Rex no longer had reasonable grounds for the statement of optimism as to positive operating profits for FY23 made in the 28 February 2023 Announcement, absent the identification at that point of other matters that would displace the issues raised by that email. I have also had regard to the other information available to Messrs Khotkar and Pan around the time of Mr Lim’s email, although in the absence of any explanation by them of any views that they formed in response to that information. I have referred above to Ms Elliott’s email, which Mr Lim sent to Messrs Khotkar and Pan, with a copy to Mr Sharp, on 15 April 2023 (Ex J1, 4621). On 18 April 2023, Mr Pan advised Mr Khotkar (Ex J1, 4820), possibly on a preliminary review of information provided by Rex (reflected in his reference to “eyeballing” the data), that “it doesn’t feel like things are obviously improving.” Although Mr Khotkar, Mr Pan and PAG took extensive further steps to investigate Rex’s position, which are reflected in the chronology which I set out above, there is no evidence that other matters then came to Messrs Khotkar’s and Pan’s attention that displaced the issues raised by Mr Lim’s email of 14 April 2023. I also infer that their evidence as to this matter would not have assisted them in that regard. I have also referred to Mr Dillon’s comment as to Mr Lim’s 14 April 2023 email in his expert report, in dealing with the claim against Mr Sharp above.
However, also with some hesitation, I reach the same conclusion as to the position of Messrs Khotkar and Pan at this point as I reached in respect of Mr Sharp. As was the case with Mr Sharp, it seems to me that Messrs Khotkar and Pan had reason to be concerned that Rex might no longer have reasonable grounds to forecast Rex’s positive operating profits for FY23 as at 14 April 2023, arising from the matters disclosed by Mr Lim’s 14 April 2023 email and absent further information then known to them that would displace that concern. However, it also seems to me that that does not rise to the level of actual knowledge of that matter at that point. I am therefore not persuaded that Messrs Khotkar or Pan knew, as early as 14 April 2023, that Rex no longer had reasonable grounds for optimism as to positive operating profits for FY23.
Second, ASIC particularises an email dated 4 May 2023 from Mr Khotkar to Mr Pan, as follows:

In respect of Mr Pan, Mr Borsky also referred to Rex’s monthly passenger analysis report which Mr Pan had received on 3 May 2026, to which I referred above, and contended that it did not show an improvement in Rex’s performance, and to Mr Pan’s receipt of Mr Khotkar’s 4 May 2023 email.
I also recognise that Mr Dillon in his expert report, referred to two documents dated between 25 April and 4 May 2023 (Ex J1, 5044; 5180, attachment tendered in electronic form) that he considered were relevant to the position at 4 May 2023, and also referred to Mr Khotkar’s email dated 4 May 2023. He also there addressed the question whether Rex had reasonable grounds to expect positive operating profits for FY23 as at that date, having regard to those documents; but again did not express a view, even if he was qualified to do so, as to what inferences a director of Rex, exercising the degree of care and diligence that a reasonable person would exercise, would have drawn from those documents or what steps such a director would have taken in consequence.
As I noted above in respect of the claim against Rex, by the time of Mr Khotkar’s email of 4 May 2023, more than two weeks had passed since Mr Lim’s 14 April 2023 email and the reasons for concern that Rex no longer had reasonable grounds to forecast Rex’s positive operating profits for FY23, which had arisen from that email had not been displaced in that period. Mr Khotkar’s email points to the absence of any significant improvement in Rex’s operations in April 2023 and the fact that its performance had significantly declined as against industry averages. It seems to me that the matters identified by Mr Lim’s 14 April 2023 email, and the absence of any significant improvement in April 2023 and the poor performance of Rex as against industry averages noted in Mr Khotkar’s 4 May 2023 email, plainly gave rise to reason for Messrs Khotkar and Pan to be concerned, as at 4 May 2023, that Rex no longer had reasonable grounds for the statement of optimism as to positive operating profits for FY23 made in the 28 February 2023 Announcement. I also infer, absent evidence from Messrs Khotkar and Pan, that their evidence as to these matters would not have assisted them in that regard.
However, I again recognise that, as Mr Thomas emphasised in submissions for Messrs Khotkar and Pan, Mr Dillon did not address and ASIC led no other lay or expert evidence to establish the conclusions that a director of Rex, exercising the degree of care and diligence that a reasonable person would exercise, should have drawn from the matters noted in Mr Khotkar’s 4 May 2023 email, in respect of Rex’s profit or loss, or its operating profit or loss calculated in the manner adopted in the 28 February 2023 Announcement. I again recognise that that is not a matter that can be determined by any application of a judge’s general commercial experience, where it again plainly depends upon specialist knowledge as to the aviation industry and relatively large airline businesses in the Australian market. For these reasons, it again seems to me that I cannot find, to the Briginshaw standard, that these matters rose to the level of actual knowledge on Messrs Khotkar’s and Pan’s part that Rex no longer had reasonable grounds to forecast positive operating profits for FY23 as at 4 May 2023.
Third, ASIC particularises the review of Rex’s financial information at the 16 May 2023 board meeting. I have referred to that meeting above. In opening, Mr Borsky referred to a weekly worm report provided to Mr Khotkar on 10 May 2023 and a weekly passenger report provided on 11 May 2023, then made the submission as to the matters discussed at the meeting which I noted in paragraph 374 above, and submitted that:

Mr Borsky also submitted that, by 16 May 2023, Mr Pan, who also attended the meeting of the board of directors on this date, also knew the information available to Mr Khotkar.
As I noted above in respect of the claim against Rex, by 16 May 2023, more than a month had passed since Mr Lim’s 14 April 2023 email; nearly two weeks had passed since Mr Khotkar’s email of 4 May 2023 to Mr Pan; and the reasons for concern that Rex no longer had reasonable grounds to forecast positive operating profits for FY23, which had arisen from Mr Lim’s email and been reinforced by Mr Khotkar’s email, had still not been displaced by further information obtained by Messrs Khotkar or Pan or by any significant improvement in Rex’s operations that had come to their attention. It seems to me that these matters, combined with the further discussion at the board meeting on 16 May 2023, including the identification of Rex’s before tax losses in its regional and domestic businesses to April 2023, its poor passenger numbers in April 2023 in its regional business and “traditional network”, and its expectation of low passenger numbers in May 2023 (although I recognise that an expected improvement in June 2023 was noted) plainly gave rise to reason for Messrs Khotkar and Pan to be concerned, as at 16 May 2023, that Rex may no longer have reasonable grounds for the statement of optimism as to positive operating profits in FY23 made in the 28 February 2023 Announcement.
I also recognise that, although Mr Khotkar, Mr Pan and PAG sought extensive further information from PAG and undertook their own analysis of that information, they give no evidence that the additional information they derived answered that concern, or that they did not recognise the risk that Rex no longer had reasonable grounds to forecast positive operating profits for FY23; and I again draw the inference that their evidence in that regard would not have assisted them. However, I again recognise that, as Mr Thomas emphasised in submissions, Mr Dillon did not address and ASIC leads no other lay or expert evidence to establish the conclusions that a director of Rex, exercising the degree of care and diligence that a reasonable person would exercise, should have drawn from the matters discussed at the 16 May 2023 board meeting, in respect of Rex’s profit or loss, or its operating profit or loss calculated in the manner adopted in the 28 February 2023 Announcement. I also again recognise that that is not a matter that can be determined by any application of a judge’s general commercial experience, for the reasons noted above. For these reasons, it also seems to me that I cannot find, to the Briginshaw standard, that these matters rose to the level of actual knowledge on Messrs Khotkar’s and Pan’s part that Rex no longer had reasonable grounds to forecast, or for optimism as to, positive operating profits for FY23 as at 16 May 2023.
Fourth, ASIC particularises Messrs Khotkar’s and Pan’s receipt of Rex’s weekly worm reports. In opening, Mr Borsky submitted that:

I recognise that, at least in March, April and May 2023, Messrs Khotkar and Pan received Rex’s weekly worm reports which comprised spreadsheets and graphs which set out, amongst other things, the Rex Group’s daily, weekly and monthly passenger revenue, including on 15 March (Ex J1, 4429), 13 April (Ex J1, 4596), 19 April (Ex J1, 4838) and 3 May 2023 (Ex J1, 5178). As I have noted above, that is a complex document and I am not persuaded that a review of that document, when received at weekly intervals, without more, would have allowed Messrs Khotkar and Pan to identify adverse trends in Rex’s business, so as to recognise that Rex no longer had reasonable grounds for the statement of optimism as to its positive operating profits for FY23 made in the 28 February 2023 Announcement.
Messrs Khotkar and Pan also contend (KAD [31], PAD [36]), by way of defence, that the 2023 Profit/Loss Information as pleaded against Messrs Khotkar and Pan respectively is limited only to the pieces of information as particularised at paragraphs 31 and 36 of the SOC respectively. I do not accept that contention, which fails to distinguish between the pleaded allegation and the references to particular evidence in the particulars which ASIC provided. The Court is not limited by those particulars, where the evidence must be assessed in its factual context, and Messrs Khotkar and Pan have had full notice of ASIC’s wider case and the evidence on which it relied. Having said that, the matters which ASIC has particularised are plainly the most significant matters in determining the claims against Messrs Khotkar and Pan.
I should, for completeness, also note other documents that were provided to Messrs Khotkar and Sharp, which ASIC did not particularise in support of its claim, but which are relevant to the context in which Messrs Khotkar and Pan received the documents to which ASIC refers. From 18 April 2023, both Messrs Khotkar and Pan also received weekly passenger revenue reports which provided weekly information as to domestic, regional and Queensland RR actual revenue; and domestic, regional and Queensland RR load factors, including at least on 18 April and 3 May 2023 (Ex J1, 4644, 5173). At least on 19 April (Ex J1, 4840), 2 May (Ex J1, 5164) and 9 May 2023 (Ex J1, 5237), Messrs Khotkar and Pan also received the domestic booking daily summaries to which I referred above. On 11 May 2023, a weekly passenger revenue report was again circulated to Messrs Khotkar and Pan (Ex J1, 5258). On 30 and 31 May 2023, Messrs Khotkar and Pan received the weekly passenger revenue report and then the weekly worm report to which I referred above (Ex J1, 5466, 5499) and, on 5 June 2023, they also received a monthly passenger analysis report (Ex J1, 5503). I am also not persuaded that a review of these documents, alone or with the other documents provided to Messrs Khotkar and Pan, would have allowed them to identify adverse trends in Rex’s business, so as to recognise that Rex no longer had reasonable grounds for the statement of optimism as to positive operating profits for FY23 made in the 28 February 2023 Announcement.
For completeness, I also recognise Mr Thomas’ submission that Rex did not recalculate the change in fair value on convertible notes and warrants issued to PAG and the fair value adjustment on the NJE joint venture until at least June 2023, and that the fair value adjustment on the NJE joint venture was only communicated to the board in August 2023. I accept that the directors could not have assumed that those figures would remain constant and, in the event, there were significant changes in both figures between 1H FY23 and 2H FY23. However, that does not seem to me to assist the Defendants where, absent such a recalculation, they could not assume that those adjustments would have compensated for other adverse developments in Rex’s revenue, statutory loss or operating loss that had come to their attention.
The findings that I have reached above, as to whether Messrs Khotkar and Pan knew at relevant dates that Rex no longer had reasonable grounds to forecast positive operating profits for FY23, have the consequence that ASIC’s case against them is not established. I again recognise that that result may reflect the incomplete evidence that is before the Court, where Messrs Khotkar and Pan did not give evidence, as they were entitled to do.
I now turn, for completeness, to the other aspects of ASIC’s case against Messrs Khotkar and Pan, although my findings as to these matters have no practical significance where the case against them has not been established at this point. ASIC in turn pleads that Mr Khotkar (SOC [32]; denied KAD [32]) and Mr Pan (SOC [37]; denied PAD [37]) knew, or ought to have known, that the 2023 Profit/Loss Information was not generally available (referring to the particulars to SOC [19]) and that the 2023 Profit/Loss Information was information that a reasonable person would have expected, if it had been generally available, to have had a material effect on Rex’s share price. If I had found that Messrs Khotkar and Pan knew that Rex no longer had reasonable grounds to forecast positive operating profits for FY23, I would have held that that information was not generally available where Rex took no step to announce that matter to ASX or otherwise publicise it. I would also have been comfortably satisfied that, given the obvious significance of reasonably based optimism that Rex would achieve positive operating profits in FY23 for the value of its shares, the information that Rex had ceased to have reasonable grounds to forecast that matter would, if it had been generally available, have had a material (and adverse) effect on Rex’s share price. I would have been comfortably satisfied that Messrs Khotkar and Pan knew, or at least ought to have known, these matters, where they would be a straightforward conclusion from the matters that would (had I reached that finding) have been known to them, and they led no evidence that they did not draw that conclusion. I again draw the inference that their evidence in that regard would not have assisted them.
ASIC then pleads (SOC [33], [38]; denied KAD [33], PAD [38]) that a reasonable person acting as, and with the responsibilities of, a director and member of the Rex board, in the relevant circumstances and with the pleaded knowledge of each of Messrs Khotkar and Pan:

In the matter of Regional Express Holdings Ltd

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment

Legislation Cited (5)

Cases Cited (84)

JUDGMENT

Nature of the proceedings

Affidavit and other evidence

The matters in issue and chronology

The nature of civil penalty proceedings and the conduct of ASIC’s case

The misleading or deceptive conduct claim against Rex

The continuous disclosure claim against Rex

The claim against Mr Lim

The claim against Mr Sharp

Affirmative defences raised by Mr Sharp

Relief sought by ASIC against Mr Sharp

The claims against Messrs Khotkar and Pan

Affirmative defences raised by Messrs Khotkar and Pan

Relief sought by ASIC against Messrs Khotkar and Pan

Orders