Ingot Capital Investments & Ors v Macquarie Equity Capital Markets & Ors

Conclusions on issue 63 959 Issue 64: obligation to inform of change of circumstances relating to the representations alleged to have been made by NCRH 966 Issue 65: breach of any obligation to inform 980 Issue 66: withdrawal of prospectus or issue of supplementary prospectus 982 The pleaded case 982 Of what did NCRH become aware during the relevant period? 986 Consequences 998 Issue 67: the applicable legislative regime 1001 Outline of the plaintiffs' case 1001 The legislative regime 1007 Corporations Law and Act 1007 ASIC Acts 1015 Fair Trading Act 1022 The Prospectus Balance Sheet Representations 1032 The Prospectus NTA Representations 1034 Vesta 1034 Additional stop loss cover 1035 Hurricane Georges: Trowbridge's updating of its assessment of reserves 1039 The proposed special prudential margin 1043 The alleged liquidity crisis 1044 The Converting Note Security Representations 1045 The Prospectus Purposes of the Capital Raising Representations 1046 The Prospectus Claims Reserve Adequacy Representations 1047 Conclusion 1049 Consequences for the directors and Messrs Williams and Aroney 1050 Issue 69: other contravening conduct 1053 Issue 70: accessory liability 1058 Issue 71: causation 1061 Issues 73 to 78: Miscellaneous issues; Mr Aroney's knowledge 1065 Issue 79: duty of care 1066 The legal context 1075 Assumption of responsibility/reliance 1081 Conclusion on duty of care 1094 Issues 80 and 81: breach, causation 1095 Issues 82 to 89: various matters 1096 Issues 90 to 92: damages 1097 Onmarket purchases 1099 The test of causation 1106 Analysis 1119 Did the plaintiffs prove any loss? 1126 Issues 93 and 94: miscellaneous 1142 Issues 95 and 96: limitation issues 1143 Background 1144 The parties' submissions 1147 Analysis 1149 Conclusion on the case against the directors and Messrs Williams and Aroney 1155 THE CASE AGAINST PHILLIPS FOX 1156 Introduction 1156 Issues 97 to 99: the section 10 case 1159 Issue 100: knowledge 1163 Issue 101: misleading or deceptive conduct? 1168 Issue 102: causation; is reliance by Mr Saville essential? 1169 Reliance by the directors 1173 The Supplementary Prospectus Representation 1183 Issues 103 to 107: the applicable legislative regime; miscellaneous matters 1195 Issue 108: damages 1196 Issues 109 and 110: limitation issues 1198 Conclusion on the case against Phillips Fox 1214 ISSUES 111-131: THE CASE AGAINST TROWBRIDGE 1215 THE CASE AGAINST PwCA 1217 Introduction 1217 The plaintiffs' summary of their case 1218 PwCA's summary of their defence 1221 The plaintiffs' response 1223 The plaintiffs' propositions 1224 Proposition (a) : leg 1 1225 Proposition (b) : DAC 1230 Proposition (c) : the Dresdner net worth covenant 1232 Proposition (d) : prudential margin 1239 Proposition (e) : compliance with accounting standards 1241 Proposition (f) : purpose of the capital raising 1243 Proposition (g) : NTA calculation 1244 Proposition (h) : the position as at 12 January 1999 1247 Proposition (i) : the requirement to obtain Trowbridge's opinion prior to 12 January 1999 1249 Issue 132: the PwC Representations 1250 What representations can be spelled out of the draft prospectus or the prospectus? 1250 Did PwCA make any of the representations? 1253 The plaintiffs' case 1254 PwCA's submissions 1256 Analysis 1264 Conclusion 1274 Issue 133: were the PwC Representations misleading or deceptive? 1276 The indirect causation case 1278 The pleaded case is bad in law 1279 Issues 134-137, 140, 141: the "PwC DDC Representations", reliance 1291 Issues 138, 139 and 142: the applicable legislative regime 1296 Issue 143: duty of care 1297 The pleaded case 1297 How the plaintiffs put their case 1303 Negligent misrepresentation 1307 No duty of care to avoid economic loss 1310 PwCA's retainer 1312 Authorities upon which the parties relied 1317 Analysis 1326 Conclusion 1335 Issues 144 to 155: breach, other defences 1336 Issues 156 to 160: damages 1337 Issues 161 and 162: limitation issues 1338 Conclusion on the case against PwCA 1344 NCRA's CROSS-CLAIMS 1345 NCRA's case on causation 1357 Dresdner's attitude the key 1359 The relationship with Dresdner 1360 The position of PwC 1388 The position of Trowbridge 1396 The position of the Macquarie parties 1403 Conclusion on NCRA's causation case 1411 Guy Carpenter's additional submissions on causation: Mr Saville's attitude 1412 Case based on the failure to go into runoff 1419 The relevant principles 1426 Analysis 1438 "Cross-road" - the available choices 1439 Hindsight analysis 1444 GCR transaction the key 1447 The position as at 2 September 1998 1452 Conclusion 1463 Conclusion on the 33rd and 36th cross-claims 1464 ORDERS 1465

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

50169/01 INGOT CAPITAL INVESTMENTS PTY LIMITED & ORS v MACQUARIE EQUITY CAPITAL MARKETS LIMITED & ORS [NO. 6]

JUDGMENT 1 HIS HONOUR: NewCap Reinsurance Holdings Ltd (NCRH) was in 1998 a listed public company with an issued capital of about USD150 million. It carried on the business of reinsurance through subsidiaries in Australia and Bermuda. Accumulated losses up to 30 June 1998 had taken their toll of NCRH's capital. Accordingly, in the second half of 1998, NCRH decided to raise approximately USD50 million (before fees and expenses) in further capital through a converting notes issue. The plaintiffs, by a variety of means, invested approximately AUD40 million in rights, notes and shares. However, it soon became apparent that NCRH's financial position was far worse than expected, and the capital raised proved to be inadequate to make good the haemorrhage of losses. Provisional liquidators were appointed to NCRH and its subsidiaries on 19 May 1999. The plaintiffs claim to have lost the entirety of their investments. In these proceedings, they sue those connected with the capital raising to recover their alleged loss. INTRODUCTION; THE ISSUES; SUMMARY OF CONCLUSIONS NCRH and its subsidiaries 2 NCRH was incorporated in Bermuda on 30 August 1996. Its incorporation was procured by the fifth defendant, Mr Jonathan Beach (an insurance and reinsurance broker); the tenth defendant, Mr Paul Williams (who had substantial experience in insurance and reinsurance broking); and Mr Volker de Chelard. Mr de Chelard had been the chief underwriter for GIO Re. He enjoyed a high reputation, and had substantial connections, in the world of reinsurance. It was thought that his departure from GIO Re provided an opportunity to set up a reinsurance business in Australia that would, in effect, trade on Mr de Chelard's experience and reputation, and take advantage of his perceived expertise and connections. 3 NCRH was initially capitalised by a private equity placement. After an initial public offering of securities, NCRH was listed on the Australian Stock Exchange (ASX) on 13 December 1996. It then had the capital to which I have referred. In addition, it had the benefit of a credit facility with a limit of USD50 million (see para [30] below), of which some USD47 million was drawn down before the end of December 1996. 4 NCRH's operating subsidiary in Australia was NewCap Reinsurance Corporation Limited (NCRA). Its operating subsidiary in Bermuda was NewCap Reinsurance Corporation (Bermuda) Limited (NCRB). At all material times, NCRB was required under Bermudan law to have shareholders' funds of not less than USD100 million. 5 The group structure was reorganised in the first half of 1998, in part to facilitate compliance with the requirement for NCRB to hold minimum shareholders' funds of USD100 million. The group structure thereafter was that NCRH held the issued shares in NCRB; NCRB held the issued shares in a company known as NC Re Capital Limited (NC Capital); and NC Capital held the issued shares in NCRA. 6 In substance, the business model involved each of NCRA and NCRB reinsuring risks, and reinsuring part of those risks with each other. In general, the identity of the precise company with which reinsurance was placed is not relevant in these proceedings. Accordingly, and I hope without causing confusion, I will in general refer to the reinsuring entity or entities generically as "NewCap". Nonetheless, it is important to bear in mind that at all times NCRA and NCRB had separate underwriting and administrative personnel. 7 When NCRA commenced to carry on business, Mr de Chelard was its chief underwriter. The managing director was Mr Iain Thompson. Mr Thompson was replaced as managing director of NCRA by the sixth defendant, Mr Azmin Daya (whom Mr Ghose described at T3675.19 as a "turnaround artist"), on about 7 May 1997. Mr de Chelard was stripped of his underwriting role with effect from 1 August 1998. He became, for a time, responsible for marketing and other matters. He was replaced by an expanded underwriting team including Mr Tim Sparkes, Mr Rob Johnson and others. NCRA terminated Mr de Chelard's employment in September or October 1998. 8 Neither Mr Thompson nor Mr de Chelard took any part in these proceedings. 9 It will be necessary to deal in more detail with the vicissitudes experienced by NCRH during its short life. It is sufficient, for present purposes, to note that an inspector was appointed to NCRB on 26 February 1999 and that, as I have indicated, provisional liquidators were appointed to the group on 19 May 1999.

Parties and personnel 10 This section is intended only as a guide to the parties and their relevant personnel. It should not be taken to contain findings of fact. It will be necessary to return in detail to the roles and responsibilities of the parties; and to questions of credit. The plaintiffs 11 The plaintiffs are a group of companies associated in one way or another with Mr Duncan Saville. They invested, or managed investments, in (among other things) securities in companies listed on the ASX. Their case is that at all relevant times in 1998 and 1999 their investment decisions were made (directly or indirectly) by or in reliance upon Mr Saville. Not surprisingly, Mr Saville was the principal witness of fact for the plaintiffs. Other witnesses of fact, who were all connected in one way or another with the business operations of the plaintiffs, included Mr Peter Burrows; Mr Anthony Bushell; Mr Brad Goddard; Mr Jonathon Chi; Mr Maurice Bass; and Mr Warren McLeland. Another witness, Mr Steven Bloch, was a business associate of Mr Saville. 12 The first plaintiff (ICM) was and is a company controlled by Mr Saville. It was at all material times the holder of a Dealer's Licence, originally granted in 1995 by the then Australian Securities Commission. The business of ICM includes acting as trustee for, and managing and administering the funds of, two trusts known as the Pacific Rim Arbitrage Fund and the Pacific Rim No. 2 Fund. 13 ICM was one of the two plaintiffs who agreed to sub-underwrite part of the converting note issue. 14 The second plaintiff, Stocks Convertible Limited, was formerly known as AOIT Limited, and was referred to in these proceedings as AOITL. For convenience, I shall continue that usage in these reasons. AOITL was a wholly owned subsidiary of the fourth plaintiff, Stocks Convertible Trust plc. That company was formerly known as Australian Opportunities Investment Trust plc, and was referred to in these proceedings as AOIT. Again, I shall continue that usage in these reasons. 15 Mr Saville said, and I have no reason to doubt, that the only assets that AOITL has ever held are its investments in NCRH. 16 AOIT was and is a listed public company in the United Kingdom. Its business included investing in Australian securities. AOIT was the other of the plaintiffs who agreed to sub-underwrite part of the converting note issue. 17 ICM was during 1998 and 1999 an investment manager of AOIT. Mr Saville's evidence was that in substance he made the relevant investment decisions on behalf of ICM; and that AOIT was informed prospectively (in the case of large investments and if it were convenient to do so) or retrospectively (in other circumstances) of those decisions. 18 The third plaintiff, ASC Pty Limited (ASC), was formerly known as ASC Limited and was, during 1998 and at least part of 1999, a listed public company in Australia. It invested principally in Australian securities. The plaintiffs' case is that ICM provided investment advice to it and that it made investments after discussions between its directors, Messrs Saville, Burrows, McLeland and Chi. 19 The fifth plaintiff, Eastern States Securities (ESS), is a company incorporated in Guernsey. Mr Saville and Mr Goddard are its directors. The plaintiffs' case is that ICM made investment decisions on behalf of ESS, although there was no written agreement to that effect. Mr Saville said that investments were usually made following discussions between him and Mr Goddard. The Macquarie parties 20 The first three defendants were referred to in the proceedings as "the Macquarie parties" or "Macquarie". They will be so called in these reasons unless it is necessary to differentiate between them. 21 In September 1998, NCRH retained the first defendant, Macquarie Equity Capital Markets Limited (MECM), as a corporate adviser for a proposed capital raising. Once NCRH decided to proceed, MECM became the lead manager and underwriter for the converting note issue. The second defendant, Macquarie Equities Limited (MEL), was the broker to the issue. 22 MECM and MEL were both subsidiaries of the third defendant, Macquarie Bank Limited (MBL). MBL played no direct role in the converting note issue, although it was the employer of those referred to in the following paragraph. The plaintiffs say that MBL "directed and controlled each of MECM and MEL in the conduct of the business, activities and affairs of each" (sixth further amended summons (6FAS), contentions para 31(c)). 23 Macquarie personnel involved in the transaction included Mr Wayne Kent; Mr Paul Donnelly; Dr Ian McKenzie; Mr Stuart Moran; Mr Anthony Jackson; and Mr Jonathan Coultas. All of these, with the exception of Mr Kent, gave evidence. 24 Messrs Kent, Donnelly, Moran and Dr McKenzie worked for MECM. At the relevant time, Mr Kent was an executive director and joint head of MECM. Mr Donnelly and Dr McKenzie were associate directors. Mr Moran was a manager. 25 Messrs Jackson and Coultas worked for MEL. Mr Jackson was an analyst, specialising in insurance and reinsurance stocks. He covered, and on behalf of MEL and for its staff and clients produced publications on, a number of companies including, during 1998, NCRH. Mr Coultas was head of hybrid equity sales (the converting notes, possessing both debt and equity characteristics, were classified as hybrid securities). 26 Mr Kent was named as MECM's representative on the Due Diligence Committee (DDC) that was brought into existence once NCRH decided to proceed with the capital raising. Mr Donnelly and Dr McKenzie were his alternates. In practice, it was almost always Dr McKenzie who represented MECM on the DDC. Further, to the extent that MECM was required to perform tasks or functions in relation to the DDC and its activities, or the due diligence process, it was in substance Dr McKenzie who performed those tasks and functions for MECM. Mr Ghose 27 The fourth defendant, Mr Udayan Ghose, describes himself as "a self employed consultant, specialising in private equity investments" (affidavit sworn 8 September 2005, par 6(a)). He is the president of a company now known as Aries Partners, Inc. but formerly known, and referred to throughout the documents and in these reasons, as Eldon Capital, Inc. (Eldon). Eldon advises (and at the relevant time advised) investment partnerships that invested in insurance, reinsurance and financial institutions. 28 Eldon, or some of the investment partnerships that it advised, invested in NCRH when, or shortly after, it was incorporated in Bermuda on 30 August 1996. Mr Ghose thereupon joined the board of NCRH. At all material times, he was chairman and chief executive officer of NCRH. 29 Through Eldon, Mr Ghose had built up contacts with a number of financial institutions, including Dresdner Kleinwort Benson (DKB) and Chase Manhattan Bank (Chase). DKB, an investment bank carrying on business in the United States of America, is a subsidiary or affiliate of Dresdner Bank AG, a bank incorporated in Germany and carrying on business in Europe and elsewhere. Unless it is necessary to distinguish between the two entities, I will refer to them without differentiation as "Dresdner". Mr Anthony Valencourt was a senior vice president of Dresdner (strictly speaking, I think, of DKB) in New York. 30 Dresdner provided the loan facility to NCRH, to which I have referred in para [3] above, originally as leader of a syndicate and, later, in its own right. It will be necessary to return to the detail of that facility. 31 Chase is a bank carrying on business in the United States of America and elsewhere. It provided a letter of credit facility for the benefit of NCRA and NCRB. From time to time, those companies could only do business if they gave letters of credit (LOCs) to the reinsured entity, either on inception of the cover or when a claim was made. Chase provided those LOCs. The facility required that the companies, or NCRH, give security over assets to a multiple of the value of the LOCs outstanding, with the precise multiple depending upon the nature of the assets. The fifth, seventh and eighth defendants 32 The fifth defendant, Mr Beach, is an insurance and reinsurance broker carrying on business from Toronto, Canada. He was one of those involved in the foundation of NCRH. He was, at all material times, a non-executive member of its board. 33 Mr Beach was a member of the underwriting committee of the board of NCRH from late in 1997 until his resignation in March 1999. This involved, as he recognised, at the least a potential conflict with his role as a reinsurance broker: his company, Beach and Associates, placed reinsurance in the market, and was responsible for placing with NewCap what was known in these proceedings as the Vesta Contract. Mr Beach was also a member of the audit committee of the board of NCRH. 34 The seventh defendant, Mr Craig Deery, was at all relevant times an employee of BancBoston Capital. That is a subsidiary of Bank Boston, a bank carrying on business in the United States of America and elsewhere. As with Dresdner, I shall refer to both these companies as BancBoston unless it is necessary to distinguish between them. 35 Mr Ghose had a business relationship with BancBoston. He proposed to BancBoston that it invest in NCRH. The investment proposal was referred to Mr Deery, who, with another officer of BancBoston, decided on behalf of BancBoston to invest. That investment was made partially directly and partially through a joint venture with Eldon. When the investment was made, Mr Deery became a director of NCRH. He then became a member of the audit committee. 36 The eighth defendant, Mr Michael Morrissey, is the chairman and chief executive officer of a company known as Firemark Group Inc (Firemark). Firemark manages funds that invest in insurance-related businesses. 37 In 1996, Mr Ghose approached Mr Morrissey and suggested that Firemark invest in NCRH. It decided to do so, through one of its managed funds. Thereupon, or shortly after, Mr Morrissey was appointed to the board of NCRH. He was a member of the audit and underwriting committees. 38 From time to time, Messrs Beach, Deery and Morrissey were referred to collectively as "the non-executive directors". That expression is somewhat imprecise, because they were not the only non-executive directors. Nonetheless, it is a convenient collective term. Mr Daya 39 The sixth defendant, Mr Azmin Daya, was the managing director and chief executive officer of NCRA from 7 May 1997 until 25 March 1999. He was a qualified accountant who had had substantial experience in insurance and, particularly, reinsurance operations. He was at all material times a member of the board of NCRH. 40 Before the hearing of these proceedings commenced, the solicitors acting for Mr Daya sought and obtained leave to file Notice of Ceasing to Act. This occurred, as I understand it, because the insurance company by whom in reality they were instructed denied liability under the relevant policy. Although Mr Daya had prepared, and there has been filed, a detailed statement of evidence, he was not represented and took no part in the proceedings. He was contacted by the Court to ascertain whether he wished to give evidence, and replied that he would not do so. He said, relevantly, that his solicitors had ceased to act "given that my personal financial situation has prevented me from defending the claims made against me in these proceedings." Thus, he said, "[a]lthough I would like to be in a position to respond to the allegations made against me by the plaintiffs, my impecunious financial position does not allow me to participate and as such I am unable to give evidence." Mr Peck 41 The ninth defendant, Mr William (Bill) Peck, was appointed to the board of NCRH at a board meeting on 13 February 1998. At the time, he was a partner in the law firm Phillips Fox. It was part of the plaintiffs' case against Phillips Fox that Mr Peck accepted appointment to the board of NCRH in the course of that firm's business, or with the authority of his then partners, so that the partnership as it then existed is liable for what the plaintiffs say were the defaults and omissions of Mr Peck in the performance of his duties as director of NCRH. 42 Mr Peck became a member of the audit committee. In due course, he became a member and the chairman of the DDC. 43 Mr Peck ceased to be a partner in Phillips Fox in June 2000. He is now the general manager, risk and compliance, of AON Risk Services Australia Limited. Mr Williams 44 The tenth defendant, Mr Williams, was one of the founders of NCRH, together with Mr Beach and Mr de Chelard. He had a background in insurance and reinsurance broking. He was the deputy managing director of NCRA, but was not at any relevant time a director of NCRH. 45 Mr Williams became a member of the DDC. Mr Aroney 46 The eleventh defendant, Mr Peter Aroney, is a chartered accountant. He became the chief financial officer of NCRA in October 1997, having had six or seven years' experience in the world of reinsurance. 47 Mr Aroney was not a director of NCRH or its subsidiaries. However, he became a member of the DDC. Trowbridge 48 The twelfth defendant, John Trowbridge Consulting Pty Limited (Trowbridge), is a company carrying on business as a consulting actuary. It provided actuarial services to NCRH from about mid 1996. The work performed by Trowbridge included reporting on the outstanding claims reserves of NCRH (through its operating subsidiaries) at its annual and semi-annual reporting dates. (I interpose to mention that NCRH prepared its accounts on a calendar year basis. Its first financial statements were prepared for the period from incorporation until 31 December 1997, and thereafter its annual financial statements were due on 31 December from year to year.) 49 The principals of Trowbridge who were involved in the events with which these proceedings are concerned were Mr David Minty and Mr Geoffrey Atkins. Each has since ceased to work for Trowbridge. Ms Katherine Robertson, a junior actuary, was also involved. She has since died. 50 Neither Trowbridge nor Mr Minty nor Mr Atkins (nor, for that matter, any other employee of Trowbridge) was a member of the DDC. Trowbridge was, however, commissioned to provide an independent actuarial expert's report for the purposes of the capital raising. Messrs Minty and Atkins consulted with the DDC from time to time; and long and short forms of their report were given to the DDC. The short form of the report made its way into the prospectus. (It was not suggested during the proceedings that there was any material discrepancy between the two forms of the report; the difference is, rather, one of detail.) 51 After the evidence was complete, and whilst the parties were preparing written submissions, the plaintiffs came to a compromise with Trowbridge. I made orders to give effect to that compromise. However, Trowbridge remained involved in the proceedings as a cross-defendant to a number of cross-claims, and as a cross-claimant for contribution or indemnity in the event that it was found liable as a cross-defendant. PricewaterhouseCoopers 52 The Australian accounting firm PricewaterhouseCoopers came into existence on 1 July 1998. It was formed by the merger of Price Waterhouse and Coopers & Lybrand. I shall refer to the Australian firms of Price Waterhouse (up until 30 June 1998) and PricewaterhouseCoopers (from 1 July 1998) as "PwCA". 53 There was a similar situation in Bermuda, where the Bermudan firms of Price Waterhouse and Coopers & Lybrand merged to form a Bermudan partnership known as PricewaterhouseCoopers. I shall refer to that firm, and its Price Waterhouse antecedent firm, as "PwCB". 54 All work relevant to these proceedings was undertaken by PwCA or PwCB as the case may be. It was not suggested that anything turned on the circumstance that, prior to 1 July 1998, there had been different firms in both Australia and Bermuda. 55 Mr Tom Conyers of PwCB was the audit partner for NCRH (which, of course, was a company incorporated in Bermuda). He was also the audit partner for NCRB (likewise, a company incorporated in Bermuda). Mr Patrick Murray of PwCA was the audit partner for NCRA. To the extent that the audit of NCRH required work to be done in relation to NCRA, it was Mr Murray who was responsible for that work. 56 Throughout the proceedings, the term "PwC" was frequently used generically (as, without prejudgment, it will be used in these reasons) to refer to either PwCA or PwCB. It was, nonetheless, PwCA's case that at no time did there exist an international "Price Waterhouse" or "PricewaterhouseCoopers" partnership; in other words, that at no time did the relationship of partner exist between (for example) Mr Conyers and Mr Murray. 57 Mr Murray and Ms Elsa Payne (another partner in PwCA) became members of the DDC. In essence, Mr Murray provided advice or input in relation to accounting issues and Ms Payne provided advice or input in relation to taxation issues. There is no issue in these proceedings as to the latter. Phillips Fox 58 I have already referred briefly to the case against the fourteenth defendant, Phillips Fox, pursuant to s 10 of the Partnership Act 1892. However, there was a further case brought against Phillips Fox, through the firm's involvement in the capital raising. 59 Phillips Fox was retained to advise in connection with the capital raising. The partner responsible was Mr Andrew Mutton. He was assisted by a number of employed solicitors, including Ms Julie Athanasoff, Ms Fiona Morris and Ms Kirstine Russell.

60 Mr Mutton became a member of the DDC. Usually, one or more employed solicitors of Phillips Fox attended DDC meetings with him, their task being to prepare notes from which they, under the supervision of Mr Mutton, would prepare and circulate draft minutes of those meetings. 61 I should mention that three partners in the firm of Phillips Fox retired or resigned after the prospectus was issued, but before the capital raising was complete. Those retired partners (as I shall call them for convenience) raised a separate issue based on the dates of their retirements. 62 I should also mention that the firm as it existed at times material to these proceedings has since been dissolved, and a new firm, carrying on business under the same firm name, has been formed. Nothing of present significance turns on this fact. Cross-claims 63 Numerous cross-claims have been brought by defendants against other defendants. In the main, those cross-claims seek contribution or indemnity, if and to the extent that the plaintiffs make out their case against the cross-claimant and the cross-defendant, based only on the allegations made by the plaintiffs against the cross-defendant. In some cases, however, independent causes of action are alleged. 64 As part of that process, NCRA became a cross-defendant. It has cross-claimed against (among others) Guy Carpenter and Company Pty Limited (Guy Carpenter Australia) and Guy Carpenter and Company Limited (Guy Carpenter UK). Those companies have brought reciprocal claims against NCRA. 65 Guy Carpenter UK is a large international insurance and reinsurance broker, having its headquarters in London. Its Australian affiliate, through whom it carries and carried on business, is Guy Carpenter Australia. It is convenient to refer to the two companies as "Guy Carpenter" unless there is a need to differentiate between them. 66 Guy Carpenter became involved because it brokered what became known as the "smoothing cover" entered into by NCRA in September 1998. One "leg" of that transaction, under which NCRA retroceded certain liabilities to a company in the Cologne Reinsurance (Cologne Re) Group, purported to have effect from 1 January 1998; and the net benefit purporting to flow from that contract was taken up by NCRA in its half-yearly accounts as at 30 June 1998. 67 The second "leg" of that transaction was a contract under which another company in the Cologne Re group retroceded certain liabilities to NCRA. That contract purported to have effect from 1 January 1999. It was not reflected in the half yearly accounts as at 30 June 1998, although it was the plaintiffs' (and NCRA's) case that the attachment point under that contract would inevitably be "hit". 68 The transactions to which I have referred were given a variety of names and descriptions. I shall refer to them in composite as the GCR transaction or the smoothing cover, and individually as the first leg and the second leg, or as leg one and leg two. Those descriptions should be understood to refer to the smoothing cover as it was finally put in place in September 1998. However, it is necessary to bear in mind that what was originally discussed was another transaction, structured in a very similar way, but with much larger limits on each proposed leg. 69 The Cologne Re entities involved in the transactions were said to be one or other of General Cologne Re Australia Limited (GCRA), Cologne Reinsurance (Dublin) Limited (CRD) or General Cologne Re Services UK Limited (GCRUK). The generic term "GCR" was often used to denote the relevant company; and that usage will be continued in these reasons. None of the Cologne Re group of companies participated in any way in the proceedings. Brief outline of relevant circumstances 70 NCRH commenced operations (through NCRA and NCRB) in December 1996. It commenced to write business in a major way in January 1997, the commencement of the 1997 underwriting season. At least for NCRA, that underwriting was effected by Mr de Chelard and his team. 71 Because NCRH was a new business, many brokers and insurers that did business with it required the obligations undertaken by NCRH (or, more accurately, by its operating subsidiaries NCRA and NCRB) to be secured by LOCs. I have referred above to the arrangements whereby Chase issued those LOCs and took security for its obligations under them. The extent to which the assets of NCRH were "collateralised" to provide security to Chase increased steadily during the 1997 operating year, and very substantially during the 1998 operating year. By late 1998, the extent of the collateralisation was such that NCRH was obliged to manage its cash flow very carefully, including by the deferral where possible of payment obligations and by the restructuring of the investments pledged to Chase as security. 72 After the first full year of operations, it became plain that NCRH, in a time of general profitability for the reinsurance industry, had succeeded in making a substantial loss. 73 NCRH issued announcements in February and March 1998, the effect of which was that it had experienced a combined operating ratio of 108%, and an operating loss before foreign currency effects, abnormals and income tax of USD1.2 million. 74 NCRH published its full year financial statements on 10 March 1998. Those financial statements revealed, among other things, an underwriting loss of USD12.75 million, and a reduction in shareholders' equity from USD150.9 million (31 March 1997) to USD143.3 million. 75 Mr de Chelard headed the underwriting team for the relevant part of the 1998 underwriting year. He and his team effected the renewal of business already written and the underwriting of new business. 76 By May 1998 - when employees of NCRH and others were focussed on the preparation of half yearly accounts - it became plain that the results for the six months to 30 June 1998 would not be good. The company considered what might be done. One of the topics considered was a continuation of the restructuring of management (including of NCRA) and the raising of further capital to enable NCRH to continue to compete in the international reinsurance market. Another (investigation of which had commenced already, in about March 1998) was whole account excess of loss, or "stop loss", reinsurance. 77 Mr de Chelard's underwriting authority was first curtailed and then removed; but by the time the first of those steps occurred, the 1998 book of business had been written. The new underwriting team included Messrs Sparkes and Johnson. 78 As preparation of the half yearly accounts continued, conflicts arose between management and the internal actuary, Mr Baker. Mr Baker proposed a central estimate as at 30 June 1998 of USD154.7 million (being a central estimate, there was no prudential margin). Management considered that the figure was too high. PwC suggested that there should be in addition a prudential margin of at least USD10 million. Mr Johnson suggested a prudential margin of at least 15%. Ultimately, Trowbridge concluded that a central estimate of USD150 million was appropriate. 79 By mid May 1998, Mr Daya had come to appreciate, and had informed Mr Ghose, that substantial losses were emerging. Mr Daya communicated current figures to Mr Daya and stated that "[t]he picture is not pretty - it is getting uglier." 80 Mr Daya reported to the board of NCRH on 2 June 1998. He identified the need for "additional contingent capital support" and the importance of "solidifying 1998 profits". For the latter purpose, he said, consideration should be given to obtaining a whole of account stop loss protection "to "ring fence" any latent deterioration beyond current provisioning on the 1997 accounting year." Any such contract "would act as a stop-loss on 1998 and future years and a smoothing cover for the impact in 1998 of 1997 deterioration." 81 In fact, Mr Daya had opened negotiations with Guy Carpenter UK in about March 1998. That company understood its task to be to "[d]esign a cover which allows [NCRH] to borrow someone else's money in the event of a result in excess of 100% and allow them to pay this back over a period of years." That required a multi year policy to enable the payback to be achieved. 82 Ultimately, after extensive and detailed negotiations, Guy Carpenter proposed a structure whereby NCRH would receive an aggregate of AUD40 million cover for a total premium of AUD19 million, and would reciprocate (so as to give the assurance of payback) by writing cover of USD22.5 million for a premium of USD1 million. It seems that GCR was prepared to participate in this structure. 83 Further investigation and negotiation proceeded, to the point where, by 14 July 1998, the essential terms of the reciprocal covers were settled and all that was needed was approval from the board of NCRH. Mr Peck had concerns at the proposal, and the proposed accounting for the two legs. Other members of the board shared his views. The proposal did not proceed. 84 What then emerged was the smaller (in terms of limits) structure that was put in place through what I have called leg 1 and leg 2, or the GCR transaction. That was negotiated and documented over the period from about 5 August 1998 to 2 September 1998. On this latter date, the board of NCRH approved NCRA's entering into legs 1 and 2. 85 Also during the meeting of 2 September 1998, NCRH's board considered the draft financial statements for the six months to 30 June 1998. Those draft statements showed an operating loss of USD14.8 million for the period, and accumulated losses and equivalent reductions in shareholders' equity of USD22.6 million. Those figures took into account a receivable of USD5.675 million attributable to the benefit of leg 1 of the GCR transaction, and did not take into account any impact of leg 2. The board approved the accounts on 4 September 1998. 86 At the same board meeting, the directors resolved to pursue a capital raising. That topic had been under discussion for some months previously. The structure of the capital raising comprised an issue of converting notes. The offer was targeted at existing shareholders and institutional investors. 87 NCRH set up the due diligence committee to which I have referred earlier. The draft prospectus was prepared and, ultimately, made available to potential investors on 18 November 1998. 88 MECM, as lead underwriter, sought sub-underwriting and placement commitments prior to 18 November 1998. Among those approached was Mr Saville. He was given a copy of the draft prospectus shortly prior to 18 November 1998; and the draft prospectus was likewise provided to other potential subunderwriters and investors. 89 One of the declared purposes of the capital raising, referred to frequently in the prospectus, was to enable NCRH to repay its existing debt, owed to the syndicate originally headed by Dresdner and, ultimately, to Dresdner alone. There was a concern that NCRH was, or might be, in breach of those facilities. The negotiations with Dresdner, to obtain an appropriate indication of waiver of any breach (so as to avoid the need for disclosure in the prospectus), are central to both the plaintiffs' case and the 33rd and 36th cross-claims brought by NCRA. 90 The information required for the prospectus included a pro forma balance sheet, the declared intention of which (see section 6.2 of the prospectus) was to show the effect of the issue and placement of converting notes, and the subsequent repayment of existing borrowings, as though all those transactions had occurred on 30 June 1998. 91 Trowbridge prepared a report for inclusion in the prospectus. The functions of the report were to assess the outstanding claims liability of NCRH as at 30 June 1998, and to examine claims experience from that date to the date of the report (which became 26 October 1998) "in order to comment on the implications of this experience for 1998 financial results and the adequacy of the outstanding claims provision." The short form of report that was included in the prospectus (the Trowbridge prospectus report) concluded that NCRH's claims provision as at 30 June 1998 was "reasonable although … it does not include a prudential margin of any significance." The report also discussed subsequent claims experience and gave an indication of the financial impact of certain major claims. 92 NCRH became exposed to some very substantial losses in the second half of 1998. They included:

(1) The failure of the Galaxy 10 satellite launch in late August;

(2) The crash of Swissair flight 111 in early September;

(3) Hurricanes Georges and Mitch in late September/late October respectively;

(4) A Thai Airlines' plane crash in early December. 93 The Swissair crash and Hurricane Georges were discussed in the Trowbridge prospectus report, and the satellite launch failure (and another claim involving a Globalstar satellite) were mentioned and their impacts analysed. 94 Further development of the claims that were mentioned in the Trowbridge prospectus report, and the impact of the other claims to which I have referred, indicated that NCRH was heavily exposed. On 23 December 1998, NCRH announced to the ASX that it was expecting to report a loss of USD12.1 million for the six months from 1 July to 31 December 1998. 95 Meanwhile, in early November 1998, work began on the preparation of NCRH's financial statements for the twelve month period to 31 December 1998. Trowbridge began to assess the outstanding claims liability. It prepared a number of draft estimates, or "model summaries", between mid December 1998 and mid January 1999. A draft model summary given to Mr Daya on 23 December 1990 projected a provision of USD204 million. A draft model summary provided to Mr Daya on 29 December 1998 projected a provision of USD214 million. Both figures represented the net discounted claims provision plus a prudential margin of USD10 million. Those figures were based on claims data up to the end of November 1998. Trowbridge required the claims data for December 1998 before it could continue with its work. 96 The December claims data were provided to Trowbridge on 5 January 1999. On 11 January 1999, Trowbridge provided a draft model summary to Mr Daya, taking into account the December claims data, which projected a net discounted claims provision, including some prudential margin, of USD244 million. 97 Mr Daya did not communicate any of these matters to the boards of NCRH or NCRA, or to members of the DDC. 98 In the result, the issue closed on 31 December 1998, and the notes were allotted on 12 January 1999, without any information of the kind to which I have just referred being given to investors. 99 Trowbridge continued work on its assessment of the outstanding claims liability. Although that work was not finalised, it became clear that NCRH had suffered, and would be obliged to report, enormous losses for the 1998 financial year. This became clear by at least 24 February 1999. On that day, NCRH delivered what an analyst called its "tombstone" announcement, which stated that it then expected to report a loss for the 1998 year of USD90 million. Outline of the plaintiffs' case 100 What follows is a very broad summary, intended to make these reasons as comprehensible as their subject matter will allow. 101 The plaintiffs assert that the various defendants were guilty of misleading or deceptive conduct under whichever is found to be applicable of various legislative regimes: the Trade Practices Act 1974; the Corporations Act 2001; the Fair Trading Act 1987; or the Australian Securities and Investments Commission Act 2001 (the ASIC Act). 102 The plaintiffs' formulations of their cases against the various defendants include also allegations of negligence; and, in the case of the Macquarie parties, a claim under the sub-underwriting agreements based on an implied obligation of good faith, and non-disclosure of certain matters said to constitute a breach of that obligation. 103 In substance, the plaintiffs' case focuses on four periods of time. 104 The first period of time is that up until but not including the issue of the prospectus on 18 November 1998. The plaintiffs say that a number of representations were made to Mr Saville by the Macquarie parties. Those representations are said to have been made in a number of ways including:

(1) In meetings or conversation between Mr Saville and representatives of Macquarie;

(2) In documents, including "Macquarie Equities Essentials" and a dealer's note given either directly or (on the plaintiffs' case) indirectly to Mr Saville by Macquarie; and

(3) When Macquarie gave Mr Saville the draft prospectus and draft underwriting agreement, shortly prior to 18 November 1998. 105 The plaintiffs' representation case against the Macquarie parties based on events up until but not including 18 November 1998 alleges the making of a number of representations by the draft prospectus, as well as other, specific, representations. It is convenient now to refer to the nature of the representations said to have been made by the provision of the draft prospectus. They include:

(1) A group of representations relating to the statement of the NTA: that statement is said to have been false and misleading or deceptive for a number of reasons.

(2) A group of representations relating to statements concerning the future prospects of NCRH: in substance, the draft prospectus could be taken to suggest that, with recapitalisation, NCRH had good prospects of continuing to operate and, ultimately, making profits. Those representations are said to have been false and misleading or deceptive, including because of the increasing extent to which the assets of NCRH were collateralised to provide security to Chase for LOCs issued by it.

(3) A group of representations relating to statements as to the "security", or "secure" position, of noteholders: those representations are said to have been false and misleading or deceptive because, among other things, of the privileged security position of Chase.

(4) A group of representations relating to the Prospectus Balance Sheet, which is said to have been false and misleading or deceptive for a number of reasons: including that it included the benefit of leg 1; took into account deferred acquisition costs (DAC) when they should not have been treated as recoverable; and failed to provide for a prudential margin of any significance.

(5) A group of representations relating to statements as to the purposes of the capital raising: those statements are said to have been false and misleading or deceptive because they concealed the true state of affairs between NCRH and Dresdner.

(6) A representation relating to the disclosure of attempts to obtain whole account stop loss cover: that disclosure is said to have been false and misleading or deceptive because it was unlikely that cover could be obtained, or obtained except at a cost that was prohibitive. 106 The second period of time is 18 November 1998: the date of the issue of the prospectus. The substantial representations said to have been made then include those to which I have referred. They are said to have been made by all members of the DDC whose names appear in the prospectus. 107 The third period of time is that from 18 November to 31 December 1998 (the application period for the converting notes), with particular focus on the end of that period. The plaintiffs say that, even if the representations on which they rely were not false and misleading or deceptive at the time they were made, they were falsified by events that occurred over that time period. In other words, the plaintiffs assert that a number of the representations alleged to have been made in the prospectus were representations of a continuing nature, or otherwise such that there was a duty to correct or restate them as adverse events occurred; and that adverse or falsifying events did occur. Those events include further adverse claims development over and above what was disclosed in the prospectus. This aspect also of the plaintiffs' case is maintained against all the members of the DDC. 108 The last period of time is that from 1 to 12 January 1999. That is the period from the close of the issue to the issue of the notes. Again, the plaintiffs say that the representations on which they rely were continuing and were falsified, or further falsified, over that time period. Again, this aspect of the plaintiffs' case is maintained against all members of the DDC. 109 The plaintiffs say that they, through Mr Saville, were misled or deceived at the various times and in the various ways to which I have referred, so that in some cases they agreed to underwrite the note issue, in other cases they agreed to accept a firm placement of notes, and in many cases they bought rights and notes on market. They say that they have suffered the loss of the whole of their investment made in those various ways. 110 Further, the plaintiffs say that the various members of the DDC owed them duties of care. They rely in substance on the matters pleaded in relation to the representational cases to assert that those duties of care were breached. 111 In addition, the plaintiffs bring an alternative "indirect representation" case against the various members of the DDC. In substance, they say that the members of the DDC made false and misleading or deceptive representations to the board of NCRH in the reports that led to the issue of the prospectus on 18 November 1998 and the resolution to issue the notes on 12 January 1999. They say that, but for that misleading or deceptive conduct, the board of NCRH would not have resolved to issue the prospectus or to issue the notes (as the case may be), and that the plaintiffs would not have suffered the losses that they did through their participation, in the ways that I have described, in the issue. The nature of the defences 112 It is sufficient for present purposes to give only a very broad outline of the various defences raised. In substance, the defendants take issue with every aspect of the plaintiffs' case. They deny the misleading or deceptive conduct, or negligence, attributed to them. In addition, they raise the following matters:

(1) They submit that the plaintiffs have not proved that they relied in any relevant way on any misleading or deceptive conduct that may be found to have occurred. Included within this general argument is the proposition that Mr Saville lacked, or has not been shown to have had, authority to bind the plaintiffs to the various transactions whereby they say they suffered loss.

(2) The defendants submit that the plaintiffs have not proved the extent of their loss.

(3) The defendants raise the question of contributory negligence (including, in relation to the representational case, as a defence based on considerations of causation).

(4) The defendants rely on the "due diligence" defences available under the Corporations Act.

(5) The defendants submit that the indirect representation case is bad in law.

The real issues 113 The issues in this case were articulated through the 6FAS, defences thereto, and a large number of cross-claims (thirty seven in all). The parties referred to these as "pleadings", although they were governed not by the rules relating to pleadings but by the requirements of the former Practice Note (PN) 100. Nonetheless, it is convenient, and not in substance inaccurate, to use the term "pleadings", having regard to the manner in which the 6FAS, the defences, the cross-claims and the defences thereto are structured. 114 The pleadings are complex, repetitive and lengthy (they occupied, in total, some nine lever arch folders). I directed the parties to file a statement of agreed issues. This they did, although there were disputes between them as to the formulation of some issues and as to whether other issues arose on the pleadings or otherwise. 115 I propose to structure these reasons by reference to the issues so formulated. However, it will be necessary from time to time to refer to the pleadings: both to resolve disputes as to whether something is properly in issue, and to understand what underlies other issues. 116 The statement of agreed issues was reformulated from time to time. For convenience, although at the expense of brevity (unfortunately, not a significant consideration in these proceedings), I set out below the issues as they were last formulated, together with references to the paragraphs below where my conclusions on each issue may be found.

Agreed Statement of Issues on the Plaintiffs' case and Cross Claims against Ingot Capital Management Limited and Saville

1.       Plaintiffs' claims against the Macquarie Parties
   

a) Misleading and deceptive conduct Conclusion at para 1 Was the conduct of Macquarie up to and including 17 November 1998 and in particular the representations made by Macquarie to Mr Saville as pleaded in paragraphs 46, 48, 50 and 55 of the 6FAS and the omission pleaded in paragraph 58 of the 6FAS misleading and deceptive conduct in all the circumstances of the case. The Macquarie Parties say that this issue does not arise on the pleading in these terms. The only pleaded misleading or deceptive conduct case in relation to the Macquarie Parties' dealings with the Plaintiffs is that the representations pleaded in paragraphs 46, 48, 50 and 55 were false by reason of the matters pleaded in and particularised to paragraphs 70-75 and 77-79 and only those matters; and that the omission pleaded in paragraph 58 amounted to conduct that was misleading or deceptive. [392] 2 Did Macquarie become aware of the circumstances alleged in paragraphs 77 and 79 of the 6FAS in the period up to and including 12 January 1999. Agreed. [400] 3 If so, did Macquarie have any obligation to the plaintiffs to act as pleaded in paragraph 81 of the 6FAS. Agreed. [400] 4 Was the failure, if any, of Macquarie to act as pleaded in paragraph 81 of the 6FAS misleading or deceptive conduct in all the circumstances of the case. The Macquarie Parties say that this issue does not arise on the pleading. The issue that arises on the pleading is whether or not, by reason of, inter alia, the alleged failure to act as pleaded in paragraph 81, the representations pleaded in paragraphs 46, 48, 50 and 55 and the omission pleaded in paragraph 58 were or became misleading or deceptive - see paragraph 83 of the 6FAS [400] The Macquarie Parties say that this issue does not arise on the pleading in these terms. The only pleaded misleading or deceptive conduct case in relation to conduct of Macquarie's representatives on the DDC is that: 5 Was the conduct of Macquarie by its representatives on the DDC, and, in particular, the making of the Macquarie 5 November 1998 DDC Representations, the Macquarie 18 November 1998 DDC Representations, the Macquarie 12 January 1999 DDC Representations, the DDC Representation and the DDC Supplementary Representations, misleading or deceptive conduct in all the circumstances of the case. - the Macquarie 5 November 1998 DDC Representations, the Macquarie 18 November 1998 DDC Representations and the DDC Representation were misleading or deceptive by reason of those of the matters pleaded in paragraphs 70-75 known and considered by Macquarie and only those matters; and [415] - the Macquarie 12 January 1999 DDC Representations and the DDC Supplementary Representations were misleading or deceptive by reason of those of the matters pleaded in paragraphs 70-75 and 77-79 known and considered by Macquarie and only those matters. See paragraphs 75A-75C and 81H-81J of 6FAS. 6 Whether the Corporations Law, Fair Trading Act and/or Trade Practices Act is applicable. Agreed. [416] 7 Was all or any of the plaintiffs' loss caused by a breach or breaches by Macquarie of sections 995 and 1005 of the Corporations Law and/or other statutory provisions pleaded. Agreed. [417] 8 Whether reliance by Mr Saville directly on Macquarie is an essential element of causation in each of the causes of action. Agreed. [417] 9 Whether Mr Saville relied on the representations made Macquarie. Agreed. [417] 10 Whether the so-called "October" meeting occurred in October as Mr Saville alleged in his first statement, on 3 or 4 November 1998 as Mr Saville alleged in his second statement or on 16 November 1998. The Plaintiffs say that this is a submission relating to some of the evidence and not an issue. The date(s) and/or place(s) of Macquarie's representations are not elements of the cause of action. [418] 11 Whether there was one meeting at Mr Saville's home or two meetings (as Mr Saville alleges in his second statement). As per 11 above. [418] 12 Whether a copy of the roadshow presentation document (referred to as the "Slides" in Mr Saville's statements) was provided to him at the meeting. The Plaintiffs say that this is a submission relating to part of the evidence and not an issue. The means by which Macquarie's representations were conveyed to Mr Saville is not an element of the cause of action. For example, the evidence of Macquarie's witness was that whether or not they handed over the Slides and or Dealer's notes, they would have told him orally what was in those documents. [418] The Macquarie Parties say that the above summary is not an accurate reflection of the evidence. 13 Whether a number of extracted pages from the document used during the management presentation to the DDC on 18 September 1998 (which Mr Saville refers to as the "Further Slides" in his statements) were provided to him at the meeting. As per 13 above. [418] 14 Whether the representations alleged in paragraph 46 of the 6FAS were made in those terms at the meeting. The Plaintiffs say that the issue is correctly formulated in paragraph 1 above. How and when the representations were conveyed are not elements of the action. [418] 15 Whether any representations pleaded in paragraphs 46, 48, 50 and 55 that may be found to have been made by the Macquarie Parties were representations as to future matters or representations of opinion and, if so, whether the Macquarie Parties had reasonable grounds for those representations. Agreed. [418] 16 Whether any representation found to be made by the Macquarie Parties was a "continuing" representation or instead was one which spoke as at the date it was made. It is agreed that there is an issue as to whether any of Macquarie's representations were continuing representations. The Plaintiffs do not agree that "continuing" and "spoke as at the date" are true alternatives. [422] 17 Whether the Macquarie Parties made any representation to Saville by faxing the Dealer's Note to Bloch. As per 13 above. [423] 18 Whether the representation alleged in paragraph 50(d) was a representation that the converting notes were an attractive investment or whether, as the Plaintiffs contend, it was a representation that the security of the notes (in the sense of a secured instrument) was attractive. The Plaintiffs say that the issue is whether the representation was misleading or likely to mislead in all the circumstances and whether the Plaintiffs suffered loss in consequence. More specifically, an issue arises as to what Mr Saville in fact understood the representation to be. [423] 19 Whether the Macquarie Parties made any material representation to Mr Saville in the Draft Prospectus or by providing him with a copy of the Draft Prospectus, having regard to the terms of the draft sub-underwriting letter under which the Draft Prospectus was provided and Mr Saville's understanding. The Plaintiffs agree that there is an issue as to what representations were made by Macquarie in promoting the draft prospectus in all the circumstances. [423] 20 Whether Mr Saville or the Plaintiffs relied on any representations by the Macquarie Parties. The Plaintiffs contend that Macquarie's DDC representations (paragraphs 39D, 39E, 49A, 67A, 81A) caused loss to the Plaintiffs in causing the note issue to proceed and thus the notes to be available under the prospectus to be purchased by the Plaintiffs, regardless of direct reliance on these DDC representations by Mr Saville. [424] 21 Whether Mr Saville's evidence as to reliance can be accepted. The Plaintiffs say this is a submission on evidence and not an agreed issue. [473], [474] 22 Whether, to the extent Mr Saville relied on information in the prospectus in exercising the rights on 31 December 1998, he relied on the Final Prospectus (about which no representational claim is made against the Macquarie Parties) rather than the Draft Prospectus. The Plaintiffs say the issue is whether Macquarie's draft prospectus representations were "a" cause of his exercise of the rights on 31 December. [425] 23 If it is open to the Plaintiffs to run a case that Saville was the decision-maker in respect of all acquisitions, whether he had authority on behalf of the Plaintiffs to make those acquisitions. The Plaintiffs say the issues as formulated by Macquarie erroneously excludes the possibility of reliance on Macquarie's draft prospectus representations and the final prospectus as leading to liability for Macquarie. [426] The Macquarie Parties note, in relation to the comment above, that there is no direct representational case against them based on the final prospectus. 24 Whether the facts pleaded in paragraphs 70-75 and 77-79 as falsifying the representations allegedly made in fact falsify those representations. Adding the words "in all the circumstances evidenced", the issue is agreed. [475] The Macquarie Parties do not agree to the additional words referred to above - see response to issue 1 above. 25 Which of the matters pleaded in 6FAS paras 70-79, and the documents on which the Plaintiffs rely to support those matters, were known to the Macquarie Parties and whether knowledge of those matters or documents is inconsistent with a reasonable basis for any representations or opinions expressed by the Macquarie Parties. Agreed. [475] 26 The Macquarie Parties consider that a number of the falsifying facts pleaded in the 6FAS should no longer be in issue, having regard to Mr Saville's evidence that he was either aware of those matters or would have proceeded with the investment even if he was aware of them. Those matters include: Not agreed by the Plaintiffs. [475] (a) the US$5.7 million overstatement of retrocession recoveries as a result of the GCR profit smoothing contract (6FAS paras 70(a), 71(c)(i)(C)); (b) inclusion of a prudential margin in the 30 June 1998 reserves figure (6FAS paras 70(c), 75(a)-(b)); (c) the A$/US$ exchange rate used to calculate the NTA range of A$2.06 - A$2.20 per share in the prospectus (6FAS para 71); (d) the effect of the Chase arrangements on the security position of noteholders (6FAS para 72); (e) the future prospects of the group, including the quality of the business written in 1998 (6FAS paras 73(a)-(d)); (f) that New Cap Re was in breach of the Dresdner facility, which Dresdner waived to allow the capital raising to proceed (6FAS para 74); and (g) that New Cap Re had allowed no reserve for the Vesta claim (6FAS para 77(a), (b) and (i)). 27 Whether MECM intended to reserve for itself the possibility of not exercising an entitlement to terminate the Underwriting Agreement, should such an entitlement arise, in circumstances where it may be in MECM's interests but not in the interests of sub-underwriters to terminate the Underwriting Agreement. Agreed. [492] 28 Whether, if MECM had any such intention, the reservation of that right was disclosed to Saville by the terms of the sub-underwriting agreements. Agreed. [492] 29 Whether, if no such reservation was disclosed, it was misleading or deceptive conduct on the part of MECM not to disclose that reservation to Saville. Agreed. [492] 30 Whether, as a matter of law, the plaintiffs can succeed in a misleading or deceptive conduct case based on the "DDC Representations" in circumstances where neither Saville nor the Plaintiffs relied on those representations. Agreed by the Plaintiffs if "directly" is inserted after "relied". [511] If an indirect causation case is open to the Plaintiffs as a matter of law: 31 · what were the relevant representations; and Agreed save for the last 23 words ("and in circumstances…) which the Plaintiffs say presume findings of fact by the Court. [530] · whether the persons alleged to have relied on the various Macquarie DDC Representations - the other members of the DDC, the NCRH board and the NCRH board sub-committee of Daya and Peck - in fact relied on any representations by Macquarie in making the decisions and taking the actions pleaded and, if they did, whether they were misled in light of the qualifications attaching to the representations and in circumstances that it is alleged by the Plaintiffs that those persons were aware of the facts said to falsify the representations. 32 Was Mr Saville aware of any of the matters referred to in paragraphs 77 and 79 of the 6FAS? The Plaintiffs say this is but one factual question relevant to the question of causation. [531] 33 Whether there is any evidence as to how Mr Saville would have responded or reacted had he known of any of the matters referred to in paragraphs 77 and 79 of the 6FAS. The Plaintiffs do not accept that such evidence is an essential element of the cause of action. [531] (b) Negligence 34 Whether Macquarie owed the plaintiffs a duty of care as alleged in paragraph 86 of the 6FAS. Agreed. [590] 35 If so, whether Macquarie breached its duty of care in the respects alleged in paragraphs 87 and 87A of the 6FAS. Agreed. [591] 36 Whether the alleged breaches of a duty of care by Macquarie caused the plaintiffs' loss. Agreed. [591] 37 If any such duty was owed, whether the duty was limited to a duty to those Plaintiffs who sub-underwrote the issue and only in that capacity. Agreed. [591] 38 Whether any such duty of care is excluded by the terms of the sub-underwriting agreements. Agreed. [590] c) Contractual claims 39 Whether there was an implied term of good faith in the ICM and AOIT sub-underwriting agreements, obliging MECM to exercise its decision whether to terminate the underwriting agreement in good faith. Agreed. [600] 40 If there was such an implied term, did Macquarie breach that term? Agreed. [601] 41 If Macquarie did breach that term, whether that breach caused the plaintiffs' loss. Agreed. [601] 42 Whether MECM at any time held the opinion that an entitlement to terminate the Underwriting Agreement had arisen. Agreed. [601] 43 Whether, if a decision not to terminate the Underwriting Agreement was in fact made, there was any lack of good faith on the part of MECM in respect of that decision. Agreed. [601] d) Defences 44 Does Macquarie have a due diligence defence under Section 1011 of the Corporations Law, and if so, has that defence been established. Agreed. [602] 45 Ought Macquarie fairly be excused under Section 1318 of the Corporations Law. Agreed. [602] 46 Whether the plaintiffs failed to take reasonable care in making the relevant investments and if so, whether damages ought to be reduced by reason thereof. The Plaintiffs contend that this issue does not arise on the statutory and contractual counts. [602] 47 Whether the provisions of the contractual arrangements between the plaintiffs and MECM preclude or limit any of the claims brought against the Macquarie parties, and if so which. The Plaintiffs contend that this issue does not arise on the statutory counts. [602] 48 Whether the Plaintiffs were guilty of contributory negligence and whether any damages award should be reduced accordingly. As per 46 above. [602] 49 Whether Saville and/or Ingot breached a duty of care to the Plaintiffs by recommending or making purchases on the Plaintiffs' behalf in volumes vastly in excess of the sub-underwriting and firm placement offers made to them. The Cross Defendants do not agree that the relationship of the purchased volumes to the sub-underwriting and firm placement offers, is relevant to the alleged negligence. [602] 50 Whether Saville, Ingot and/or the Plaintiffs breached the terms of the sub-underwriting agreements by using the information contained in the Draft Prospectus for a purpose other than considering the sub-underwriting and firm placement offer, and are accordingly liable under the terms of the sub-underwriting agreements to indemnify the Macquarie Parties for any liability they might have to the Plaintiffs in these proceedings. It is agreed that this is an issue in all the circumstances evidenced and not merely those assumed in the issue as propounded by Macquarie. [602] e) Damages 51 Whether the plaintiffs have proved their alleged loss. Agreed. [603] 52 Whether on-market acquisitions by the plaintiffs may be recoverable as part of the damages claim. Agreed. [603] 53 Whether losses arising from the acquisition of shares in NCRH by the plaintiffs are recoverable as part of the damages claim. Agreed. [603] 54 Whether the Plaintiffs' loss recoverable against the Macquarie Parties is limited to the value of notes acquired under the sub-underwriting and institutional placement (A$4,661,221) and interest. The Plaintiffs contend that this issue does not arise. [603] 55 Whether, by reason of the terms on which MECM dealt with Saville and the Plaintiffs as set out in the sub-underwriting agreements, they have no claim against the Macquarie Parties in respect of any matter relating to the offer of the converting notes. The Plaintiffs say this issue as propounded by Macquarie presumes a finding in their favour of the terms on which they dealt and that such terms can exclude statutory rights. The Plaintiffs do not agree. The "issue" does not articulate the basis propounded for the Plaintiffs having "no claim". [603] 56 Whether the plaintiffs are entitled to any losses arising from transactions after (i) the 23 December 1998 ASX announcement and (ii) the 24 February 1999 announcement. Agreed. [603] 57 Whether the Court should mould any relief for the plaintiffs if they otherwise succeed against the defendants or any of them. The "issue" is obscure and the Plaintiffs cannot agree or disagree. [603] The Macquarie Parties agree the issue is obscure - it was included by the Plaintiffs. f) Limitations issues 58 Whether the claims introduced under the ASIC Act and the Fair Trading Act in the 5FAS, and whether the claims introduced in the 6FAS are time barred. Agreed. [608(1)] 59 Whether the court should "otherwise order" in relation to the amendments allowed pursuant to section 65(3) of the Civil Procedure Act 2005. Agreed. [609] 2. Plaintiffs' claims against the Directors, Williams & Aroney (a) Misleading and deceptive conduct 60 Whether the pleaded conduct of NCRH, up to and including 18 November 1998, namely the representations made by NCRH in the Draft Prospectus and the Prospectus as pleaded in paragraphs 104 to 109 of the 6FAS, was misleading or deceptive conduct in all the circumstances of the case. Agreed [829] 61 As against Daya and Williams, whether the information they gave to Mr Saville on behalf of the plaintiffs on or about 21 December 1998 was incomplete and/or gave a misleading impression, so as to render their conduct in providing that information misleading or deceptive conduct in all the circumstances of the case. [Neither Daya nor Williams has served a Statement of Issues.] [850] 62 Whether the Directors, Williams and Aroney were aware of the matters pleaded in paragraphs 111(a), 111(c), 115, 117, 120, 121, 127 on or prior to 18 November 1998. Agreed (save that Ghose and Beech say that the matters in paragraph 111(c) are not pleaded against them). [857] 63 Whether the circumstances alleged in paragraph 129 of the 6FAS were brought to the attention of NCRH, the Directors, Williams and Aroney in the period up to and including 12 January 1999. Agreed [959] to [965] 64 Whether NCRH, the Directors, Williams and Aroney were under an obligation to inform Mr Saville on behalf of the plaintiffs of any change in circumstances which was such as to render the representations made by NCRH in the Draft Prospectus or the Prospectus misleading or deceptive, during the period up to and including 12 January 1999. Agreed [979] 65 If so, whether NCRH, the Directors, Williams and Aroney were in breach of that obligation so as to render their conduct misleading or deceptive conduct in all the circumstances of the case. Agreed. [980] 66 Whether, in the circumstances NCRH was obliged to lodge a Supplementary Prospectus or to withdraw the Prospectus and give reasonable public notice of the withdrawal. Agreed. [1000] 67 Whether the Corporations Law, ASIC Acts, Fair Trading Act and/or Trade Practices Act is applicable. Agreed. [1026] 68 Whether the pleaded conduct of NCRH, the Directors, Williams and Aroney was misleading and deceptive conduct in all the circumstances of the case, in contravention of section 995 and 1005 of the Corporations Law, and other statutory provisions pleaded. Agreed [1049] to [1052] 69 Whether the conduct of the Directors, Williams and Aroney was conduct in contravention of Sections 996, 999 or 1022 and 1005 of the Corporations Law. Agreed, subject to the deletion of the words "1022 and". [1057] The conduct is limited to that pleaded in paragraph 154. 70 Whether the Directors, Williams and Aroney were knowingly concerned in, or involved in, any breaches of the Corporations Law by NCRH (Sections 995, 1023B, 1024 and 1005 of the Corporations Law) and equivalent statutory provisions. Agreed, subject to the following: The allegations against Aroney and Williams are of being "knowingly concerned" in the pleaded NCRH breaches. There is no allegation that they were otherwise "involved in" those breaches (pars 152, 153). [1060] 71 Whether the conduct of NCRH, the Directors, Williams and Aroney in breach of the statutory provisions pleaded caused the plaintiffs' loss. Agreed. [1063] 72 Did the Plaintiffs (through Mr Duncan Saville) rely upon any alleged false representations in such a way that the representations caused the Plaintiffs to invest or expend money and thereby to suffer loss. Agreed. [1064] 73 Whether each of the plaintiffs falls within section 1005(1) of the Corporations Law, section 12G of ASICA, section 82 of the Trade Practices Act and section 68 of the Fair Trading Act. This issue is propounded by Peck. The Plaintiffs do not agree that this is a real issue. [1065] 74 Whether ICM was an investment adviser to each of the first to fifth Plaintiffs and/or made investment recommendations or directions with which the first to fifth Plaintiffs complied. This issue is propounded by Peck. The Plaintiffs do not agree that this is a real issue. [1065] 75 What the Macquarie Parties, prior to 18 November 1998, provided to Saville and whether this was to be used by the Plaintiffs to decide whether to sub-underwrite or otherwise commit to the Placement. Agreed [1065] 76 Whether some of the representations, if made, were representations as to future matters. Agreed. [1065] 77 Whether the matters pleaded in 6FAS paragraphs 123-126 (which describe a usual practice in relation to a draft prospectus) are correct; This issue is propounded by Aroney. The Plaintiffs do not agree that it is a serious issue. [1065] 78 If so, whether Aroney was aware or ought reasonably to have been aware, of the practice, and of Macquarie's intentions to circulate the draft prospectus; Agreed. [1065] b) Negligence 79 Whether the Directors, Williams and Aroney owed the plaintiffs a duty of care as alleged in paragraph 159 of the 6FAS. Agreed [1093] 80 If so, whether the Directors, Williams and Aroney breached their duty of care in the respects alleged in paragraph 160 of the 6FAS. Agreed [1095] 81 Whether the alleged breaches of duty of care by the Directors, Williams and Aroney caused the plaintiffs' loss. Agreed [1095] c) Defences 82 Whether Ghose, Peck, Beach, Deery and Morrissey have a defence under Section 1007 of the Corporations Law. Agreed. [1096] 83 Whether Peck, Ghose, Aroney, Beach, Deery & Morrissey ought fairly be excused under Section 1318 of the Corporations Law. Agreed. [1096] 84 Whether the plaintiffs failed to take reasonable care and if so, whether damages ought to be reduced by reason thereof. The Plaintiffs contend that the issue does not arise on the statutory and contractual counts. [1096] 85 As regards the claim against Ghose, whether he has made out a defence under Section 996(2)(b) or (c) of the Corporations Law. Agreed. [1096] 86 Whether Ghose, Peck, Beach, Deery and Morrissey have a defence to the Plaintiffs' claims under section 1008A of the Corporations Law. Agreed. [1096] In terms of section 1011 of the Corporations Law, if the Prospectus did contain Representations that were false whether Ghose, Beach, Deery and Morrissey are not liable to the Plaintiffs because any misleading matter or material omission was due to:

87 i. reasonable mistake; Agreed. [1096] ii. reasonable reliance on information supplied by another person or persons; and/or iii. the act or default of another person or accident or some other cause beyond their control notwithstanding them having taken reasonable precautions and exercised due diligence. 88 Whether by virtue of their membership of NCRH and the terms of the Memorandum of Association, the First, Third, Fourth, Fifth and Sixth Plaintiffs have waived any claim or right of action against any Director or Officer of NCRH. This issue is propounded by Ghose, Beach, Deery and Morrissey. The Plaintiffs contend that it does not arise. [1096] 89 Whether Ghose avoids liability under clause 5(2) of the Memorandum of Association of NCRH (Defence paragraph 78). This issue is propounded by Ghose. The Plaintiffs contend that it does not arise. [1096] d) Damages 90 Whether the plaintiffs have proved their alleged loss. Agreed. [1141] 91 Whether on-market acquisitions by the plaintiffs may be recoverable as part of the damages claim. Agreed. [1141] 92 Whether losses arising from the acquisition of shares in NCRH by the plaintiffs are recoverable as part of the damages claim. Agreed. [1141] 93 Whether the plaintiffs are entitled to any losses arising from the transactions after (i) the 23 December 1998 ASX announcement and (ii) the 24 February 1999 announcement. Agreed. [1142] 94 Whether the Court should mould any relief for the plaintiffs if they otherwise success against the defendants or any of them. Not agreed [1142] e) Limitations issues 95 Whether the claims introduced under the ASIC Act and the Fair Trading Act in the 5FAS, and whether the claims introduced in the 6FAS and the claim under the Trade Practices Act are time barred. Agreed. [1153] 96 Whether the court should "otherwise order" in relation to the amendments allowed pursuant to section 65(3) of the Civil Procedure Act 2005. Agreed. [1153] Plaintiffs' claim against the 14th defendants (Phillips Fox) a) Misleading and deceptive conduct 97 Did Peck engage in, or was he involved in, misleading and deceptive conduct in all the circumstances of the case by virtue, in particular, of the representations pleaded in paragraphs 104 to 109 of the 6FAS. The fourteenth defendants do not agree with the words "in particular" if they are sought to extend the representations beyond those pleaded in the 6FAS. [1159] The fourteenth defendants also do not agree with the words "in all the circumstances of the case". The matters alleged to falsify the pleaded representations are limited to those pleaded in the 6FAS. 98 Was Peck negligent in all the circumstances in not taking steps to ensure that the advice of Trowbridge as to the adequacy of provisioning for claims was obtained prior to the allotment of the Notes. [1159] 99 Did Peck assume the office of Director of NCRH on behalf of, with the authority of, or otherwise in the ordinary course of the business of, Phillips Fox. The fourteenth defendants say that the words "on behalf of" are not pleaded in the 6FAS, and do not appear in s.10 of the Partnership Act 1892 (NSW). The plaintiffs plead "capacity" in paragraph 175 of the 6FAS. [1159] 100 Is the knowledge or conduct of Peck from February 1998 until 12 January 1999, and the knowledge of Mutton from September 1998 to 12 January 1999, to be attributed to Phillips Fox. Phillips F Phillips Fox say (but the plaintiffs disagree) that this involves the following sub-issues: ( (a) was the knowledge of Mutton (for whose conduct Phillips Fox accepts it will be responsible under section 10) limited to the matters as set out in his 2 witness statements (assuming they are led in evidence) with effect that the only matters known to Mutton or Phillips Fox beyond those expressly set out in the prospectus were: (i) the company being in apparent breach of the net worth covenant with Dresdner, but with a waiver likely to take effect and the facility to be repaid, and the company in any event having adequate resources to repay the facility without the note issue; (ii) the extent of collateralisation of the Chase facility, noting that this was a financial matter outside the expertise or responsibility of the firm which had adequately been considered by others; (iii) in relation to GCR, that the company had entered a smoothing cover providing a benefit of $5 million which had been investigated by Peck and Aroney and was to be reserved for, and was not considered by management to be material; (iv) that the company had not established a reserve for the disclosed $12.5 million Vesta claim, bearing in mind that the natural implication of the Vesta disclosure in the prospectus was already to this effect; (as the 14th defendants say) or have the plaintiffs established any additional relevant knowledge in Mutton? (b) did Peck sit on the DDC in dual capacities with effect that his knowledge acquired on the DDC was the knowledge of the firm (as the plaintiffs allege), or did he sit on the DDC solely in his capacity as director such that his knowledge was not firm knowledge (as the 14th defendants say)? (c) even if (which Phillips Fox denies) Peck sat on the DDC in the dual capacity of partner and director is there an irrebuttable presumption that Peck's knowledge acquired on the DDC constitutes the knowledge of the firm (as the plaintiffs allege) or can the Court make the contrary conclusion where there was no relevant disclosure by Peck to the partners (as Phillips Fox say)? (d) if yes to the plaintiffs' contentions in (b) and (c), was the additional knowledge which Peck, along with the other members of the DDC, acquired at the 12 January meeting, in particular of the possibility of establishing a $10 - $20 million special margin (in circumstances where management represented that the proposal did not reflect any deterioration) such that the opinion expressed by Peck in the supplementary DDC report that day could not reasonably have been formed? [1167] The fourteenth defendants do not agree with the words "and in particular" if they are sought to extend the representations beyond those pleaded in the 6FAS. 101 Was the conduct of Phillips Fox, by Peck and/or Mutton, and in particular, the making of the Phillips Fox 5 November 1998 DDC Representations, the Phillips Fox Verification Representations, the Legal Issues Representations, the Phillips Fox Opinion Representations, the Phillips Fox 18 November 1998 DDC Representations, the Phillips Fox 12 January 1999 Representations, the Phillips Fox Supplementary Prospectus Representations, the DDC Representation and the DDC Supplementary Representation, misleading and deceptive conduct in all the circumstances of the case. The fourteenth defendants also do not agree with the words "in all the circumstances of the case". The matters alleged to render the pleaded opinion representations made by Phillips Fox misleading or deceptive are limited to those pleaded in the 6FAS. [1168] Phillips Fox says (but the Plaintiffs disagree) that once findings are made as to the extent of knowledge of Phillips Fox, the dispute will be whether in the light of that additional knowledge a solicitor acting reasonably could have come to the opinion that no further disclosure was required in the prospectus (as the 14th defendants say) or whether the contrary is true (as the plaintiffs say). 102 Did the misleading and deceptive conduct Phillips Fox (by Peck and Mutton) in breach of Sections 995 and 1005 of the Corporations Law and the other statutory provisions pleaded, or the negligence of Peck, cause the plaintiffs' loss and whether reliance by Mr Saville on behalf of the plaintiffs directly on Peck or Mutton, is an element of causation in each of the causes of action pleaded. Phillips F Phillips Fox say (but the Plaintiffs disagree) that this raises the following sub-issues: (a) what is the minimum additional information or qualification which Mutton or Phillips Fox needed to provide in order to avoid the representations being misleading? (b) have the plaintiffs proved that, if Phillips Fox had provided that additional information or qualification, any different behaviour would have occurred at the level of the DDC or the board, bearing in mind the plaintiffs have closed their case (apart from the adduction of expert evidence not relevant to this issue) and have not led any evidence from members of the DDC or the board (the 14th defendants say the critical reliance which needs to be proved by the plaintiffs is that of the board)? (c) even if the plaintiffs satisfy (a) and (b), have the plaintiffs proved a sufficient causal connection between the representations of Phillips Fox and any primary representations which the plaintiffs allege were made to them by the company or other defendants and have the plaintiffs proved the primary representations were misleading? (d) have the plaintiffs established the allegation in para 178AJ, or read together with para 272, that their decision to enter the relevant transactions was done in reliance on the primary representations? (The 14th defendants say that, as a matter of law (Digitech in the Court of Appeal 62 IPR 184 at [156]) and on the form of the plaintiffs' pleading, the plaintiffs' reliance is an essential element to be proved in the so-called indirect causation case. This is because on the plaintiffs' case, they suffered loss because Mr Saville was allegedly induced by misleading representations to cause the securities in NCRH to be acquired. The alleged inducement of Saville and the plaintiffs and the act of acquiring the rights, notes and shares in the company form an essential link in the chain of causation.) (e) after the cross-examination of Saville, is his evidence and credibility sufficiently destroyed that the Court cannot place any reliance on it? (f) does the evidence of Saville (including his willingness to invest after the tombstone announcement and email) demonstrate that in any event the matters which he says in paragraph 120 of his statement would or might have made a difference to him had he known of them, were matters which he already knew of or were of the type that would not have troubled him given his attitude and behaviour in the transactions? [1172], [1194] 103 Whether the Corporations Law, Fair Trading Act and/or Trade Practices Act is applicable. Phillips Fo Phillips Fox say (and the Plaintiffs disagree) this raises the following sub-issues: (a) is the plaintiffs' claim under the TPA and the ASIC Act 1989 unavailable because Phillips Fox is not a corporation? (b) is the plaintiffs' claim under the TPA unavailable because the conduct relates to financial services (cf s 51AF TPA)? (c) is the plaintiffs' claim under the ASIC Act 2001 unavailable because this Act is not retrospective? (d) is the plaintiffs' claim under ss 995/996 Corporations Law / s 41 TPA unavailable because NCRH issued the prospectus and not Phillips Fox; (e) is the plaintiffs' claim under each of the ASIC Acts, FTA, Corporations Law or TPA time barred because the claim was not commenced within 3 years or alternatively 6 years after the alleged cause of action accrued? (f) is the liability of Phillips Fox limited to those statements in the prospectus for which Phillips Fox took responsibility (at p 51) which matters are not the subject of the plaintiffs' complaint, by operation of ss 1006(2)(e) and/or (g) and s 1009(2) or alternatively s 1010, Corporations Law? (g) if (which is denied) Phillips Fox is or may be liable to the plaintiffs, should Phillips Fox be relieved from liability under s 1318, Corporations Law? [1195] 104 Phillips Fox propound the following additional issues: The Plaintiffs do not agree with the formulation of these "issues", which they say are in the nature of submissions. [1195] What representations were made by or on behalf of the 14th defendants and what is their proper construction (Summons pass 1780 - 178X)? The 14th defendants accept that the firm is bound under section 10 of the Partnership Act with respect to the representations by Mutton of his personal opinion to the NCRH board but contend that this does not necessarily entail that Mutton's knowledge is imputed to his co-partners or vice versa (see Summons, para 178L and issues relating to knowledge, above). The sub-issues in relation to the opinion representations made by Mutton are: (a) was the representation contained in the DDC report of 5 November 1998 released to the board on 18 November 1998 a representation by Mutton to the members of the DDC and the board (as the plaintiffs allege) or rather a representation by Mutton of his personal opinion only to the board: see ss 1.4 and 5 of the 5 November Report (as the 14th defendants say)? (b) having regard to the matters in (a), is the relevant inquiry by the Court into the reasonableness of the opinion expressed by Mutton by reference to the matters known to him (as the 14th defendants say) or can regard be had to matters known only to Peck (as the plaintiffs contend)? (c) by reason of the matters in (a), is the asserted relevance by the plaintiffs of reliance by members of the DDC on the statements of opinion by other members of the DDC irrelevant (as the 14th defendants contend)? (d) did the preparation and submission of the verification notes by Phillips Fox on around 12 November to other DDC members for their review contain a representation to the members of the DDC and the board that records 13 and 16 required no further verification (as the plaintiffs allege) or amount to no representation of this kind (as the 14th defendants say)? (e) are the representations made by Phillips Fox in the 17 November 1998 letter to the members of the DDC and the board in relation to Dresdner, Chase and Vesta accurately stated in para 178S of the Summons (as the plaintiffs allege) or has the plaintiff inaccurately summarised the effect of those representations (as the 14th defendants say)? (f) the 14th defendants accept that para 178T accurately summarises the representations by the firm to the board in the 18 November Phillips Fox letter, save that the representations need to be read in the full context of the letter, including the definition of the Phillips Fox retainer (as again confirmed in the 18 November letter) which indicated the firm was taking responsibility only for legal matters and not for commercial, financial, taxation, actuarial or technical information or for reports of other experts; (g) did Mutton, on behalf of the firm, make a representation to the DDC on 17 December 1998 that his opinion was that a supplementary prospectus was not required (as the plaintiffs allege) or was it the case that on that occasion he stated the legal test and then there was discussion between all members of the DDC on how it might be applied to the facts as a result of which each member formed a provisional opinion on the Information then available not to recommend to the board that a supplementary prospectus be issued but subject to hearing whether further information would become available shortly from Trowbridge (as the 14th defendants say)? (h) on 12 January 1999 did Peck, on behalf of Phillips Fox, make a representation to the members of the DDC concerning the continuing accuracy of the prospectus (as the plaintiffs allege) or was no representation made by Phillips Fox on that day because Mutton was absent from the meeting and no step was taken to constitute Peck as an alternate for Mutton and he otherwise did not sit on the DDC in dual capacities (as the 14th defendants say)? 105 Phillips Fox contend that the following are additional issues: The Plaintiffs do not agree with the formulation of these "issues", which they say are in the nature of submissions. [1195] Was the pleaded conduct of Peck done within the ordinary course of the business of the firm or otherwise with the authority of the partners? This raises the following sub-issues: (a) the parties are agreed that the business of the firm is that defined in the Partnership Agreement. The 14th defendants say the assumption by Peck of the office of a director of a public listed company does not constitute the conduct of legal practice, nor is it incidental thereto; (b) the plaintiffs seek to prove that other partners of the firm at various times were directors of companies. That begs the question whether they were directors in their capacities as partners of the firm or in the course of the firm's business or whether, as with Peck, they were acting in their personal capacity or with permission to spend time away from the firm activity. The central point is that the plaintiffs' case is directed towards the wrong inquiry. The question is not whether some Phillips Fox partners may have held certain directorships in their capacity as partners or in the ordinary course of business of the firm. The question is whether Peck held his directorship of NCRH in his capacity as a partner of Phillips Fox or in the ordinary course of the firm's business. The former does not determine the latter (cf also s 10(2)(c) Partnership Act ); (c) the 14th defendants say that the fact that Peck was required under the partnership agreement to pay his fees in to the partnership does not make his directorship a partnership activity (cf s 10(2)(b) Partnership Act). The plaintiffs rely upon Phillips Fox fee records recording Peck's time as director. For most of 1998, these were internal recordings of time which were not converted into any bills to the company. Rather, Peck's fixed emoluments as director were paid to the firm, as required. In late 1998 Peck reached a special agreement with the company that the burden on his time of chairing the DDC should be rewarded by payment at his hourly rate, which again was paid to the firm, as required. For convenience only, his time was recorded in Phillips Fox's bills to the client; (d) the plaintiffs rely on the knowledge and alleged agreement by certain partners of Peck's directorship. The 14th defendants say this does not amount to authority within the meaning of the Partnership Agreement or section 10 (cf s 10(2)(a)); (e) is section 10 not available to impose accessorial liability on Phillips Fox for the alleged misconduct of Peck because each of the Corporations Law , ASIC Acts, TPA and FTA under which Peck is sued cover the field in relation to accessorial liability and Phillips Fox is not sued under these provisions (ss 79 and 1005 Corporations Law , ss 5(3) and 12GF ASIC Acts, s 75B TPA and s 61 FTA)? Phillips Fox contends that the following are additional issues arise only if the firm loses on the preceding issues: Did Peck engage in wrongful conduct? This raises the following sub-issues: 106 The Plaintiffs do not agree with the formulation of these "issues", which they say are in the nature of submissions. [1195] (1) did Peck have actual knowledge that the prospectus contained mis-statements so as to make him liable under s75B TPA? (2) did Peck authorise the issue of the prospectus (as the plaintiffs allege) or was this done solely by the company (as the 14th defendants allege)? (3) are the retired partners of Phillips Fox named in the Defence liable for any actionable misconduct of Peck in whole or in part? Phillips Fox contend that the following are additional issues: 107 Whether, if Phillips Fox are liable to the plaintiffs, the conduct of Saville and ICM or either of them is such as to extinguish or reduce any such liability of the firm, or to create a liability on the part of Saville/ICM to contribute to any sums payable by them. This raises the following sub-issues: The Plaintiffs do not agree with the formulation of these "issues", which they say are in the nature of submissions. [1195]

(1) does a finding that Saville was negligent as alleged in the eleventh cross-claim (or as alleged by other defendants) and in light inter alia of the evidence in cross-examination of Saville and Burrows, break any causal connection between the plaintiffs' loss and the fourteenth defendants (see also issues relating to causation above)? (2) were Saville and ICM or either of them persons who would if sued have been liable as tortfeasors and otherwise fall within the provision of s 5(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW)? (3) if the answer to (2) is "yes", what is the extent to which it is just and equitable for Saville and ICM or either of them to contribute to any sums payable by Phillips Fox, including whether the contribution should amount to a complete Indemnity of the firm? (4) can Phillips Fox obtain the benefit of any indemnity or contribution ordered to be paid by Saville or ICM on a proper construction of s 5 of the Law Reform (Miscellaneous Provisions) Act 1946 in reduction of any sums payable to the plaintiffs or payable by them to cross-claimants? (5) alternatively, is Saville liable to contribute to any sum paid or payable by the fourteenth defendants to the plaintiffs by application of the doctrine of equitable contribution? b) Damages 108 Whether the plaintiffs have proved their alleged loss. Phillips Phillips Fox say (but the Plaintiffs disagree) (a) are those plaintiffs which invested after the tombstone announcement and email of 25 February 1999 the cause of their own losses because the terms of that announcement superseded anything said in the prospectus? (b) have AOIT Limited and ASC failed to prove any defendants caused their losses because the investment decisions (including the renunciations of rights and underwriting commitment by AOIT Plc to AOIT Ltd) were made for each of them by Saville/ICM without any authority at the time he acted, and to the extent they were ratified (which is not proved by the plaintiffs) this occurred after the tombstone announcement and email when full information was known? (c) is ASC the author of its own losses in circumstances where Saville had received the clearest of warnings from not only Goddard/Reserve Bank of Scotland, but also the ASC director Burrows and Merrill Lynch, but nevertheless decided to risk a large part of the capital of the company without properly consulting the ASC board? (d) is ESS also the author of its own losses in the circumstances referred to in (c)? (e) does ESS fail to prove loss in circumstances where there is no evidence as to why it agreed to accept the rights renounced to it by ASC and ICI on 30 December? (f) are the losses by ICM on transactions 4 and 53 of Silvia not proven to be connected with the conduct of any defendants in circumstances where Saville admitted these were transactions for the PacRim Arbitrage Fund, he was not the decision maker and the relevant decision maker (Bloch) gave no evidence as to why the transactions occurred? (g) does ICI fail to prove loss in circumstances where there was no evidence as to why the commitment under the sub-underwriting agreement was renounced by ICM to it? (h) in respect of losses claimed by ASC, ESS, AOIT and AOIT Plc, should the Court decline to award any damages in circumstances where Mr Silvia admits that he has been unable to confirm any accounting entries relating to transactions involving these entities (see Silvia report, appendix 4)? (i) with respect to every acquisition of securities in NCRH relied on by a named plaintiff to recover damages where ICF (a non-plaintiff) has provided the funds ((eg) transactions 2, 6, 25, 34, 38, 40 and 49), have the losses not been proven because: (i) no evidence has been led as to the compilation or authenticity of the ICF general ledger or the alleged extracts of that ledger in the Silvia report; (ii) Silvia does not verify the accuracy of the ICF ledger; (iii) there is no evidence that any plaintiff has a legal liability to repay ICF (cf Blundell v Musgrave 96 CLR at 79 - 80; Wardley 175 CLR at 538 - 9)? (j) the issue in (i) also arises where the plaintiff claiming damages was funded by another plaintiff and there is no evidence of any liability to repay the funding plaintiff (see (eg) transactions 17, 27, 44, 46, 57 and 58); (k) is the proper measure of the alleged loss of the plaintiffs the difference between the price paid for the securities in the company and the real or market value of the securities at the time of acquisition or allotment (cf Potts v Miller)? (l) if yes to (k), do the plaintiffs fail to recover any losses because they have adduced no evidence that the real or market value of the securities in the company at the time of acquisition or allotment was different to the amounts paid for those securities? (m) are the losses claimed by ESS, AOIT Plc, AOIT Ltd, ICM and ICI relating to the acquisition of notes not recoverable by reason that they have never held legal title to the notes? (n) are the losses claimed by ESS to the extent of 5.5 million notes in the company not proven in circumstances where these notes were renounced by ESS on 15 February 1999 to the Royal Bank of Scotland? (o) more generally, were the critical matters upon which Saville relied not any primary representation, but rather: (i) a judgment he made that it would be safe to rely upon the Trowbridge assessment of claims at 30 June 1998 together with their post-balance date review in circumstances where Trowbridge would have to be a long way out before note holders could suffer loss? (ii) his assessment of Daya and the information provided by Daya; (iii) was the potential upside on the transaction, including if Saville's broader strategy for putting together a large financial services empire could be established, so significant that Saville was prepared to gamble with large amounts of the funds of the various plaintiffs, believing that even additional losses of US$50 million beyond the A$40 million losses for the second half year calculated would leave his investments untouched; (p) is it the case that the matters which on the plaintiffs' case should have been known to Phillips Fox, even after 12 January, both individually and cumulatively, did not reasonably threaten a loss of a magnitude greater than US$50 million? (q) is it the case that the true cause of the plaintiffs' loss was that by reason of matters not reasonably known to Phillips Fox, including a dramatic acceleration of claims at the end of the 1998 year and further adverse development into the early months of 1999, by March 1999 the company was facing a US$140 million loss which was now at a point which would to some extent imperil note holders funds? (r) by reason of the matters in (a) to (q) above, have the plaintiffs suffered no recoverable loss or alternatively should the quantum of any losses be substantially reduced to reflect some or all of those matters? [1196] c) Limitations issues 109 Whether the claims introduced under the ASIC Act and the Fair Trading Act in the 5FAS, and whether the claims introduced in the 6FAS are time barred. Agreed [1199], [1213] 110 Whether the court should "otherwise order" in relation to the amendments allowed pursuant to section 65(3) of the Civil Procedure Act 2005. Agreed 4. Plaintiffs' claims against Trowbridge a) Misleading and Deceptive Conduct Not agreed - Trowbridge contends that such a proposition was not put to Mr Minty that he gave such advice and this allegation cannot now be pressed. This contention is disputed by the Plaintiffs. In the alternative, Trowbridge propose the following wording, to which it would agree: "Alleged advice re prudential margin 111 Whether Trowbridge made the representations in the Prospectus as pleaded in paragraphs, 187 and 190 of the 6FAS and omitted the matter pleaded in paragraph 193 of the 6FAS. Whether Trowbridge Mr Minty advised the New Cap Group that it was imprudent of the group not to have a substantial prudential margin included in NCRH's claims provisioning, in addition to the central estimate [SoC para 193]. As to issues 111 to 131: [1215] If so, a) whether the omission of that information from Trowbridge's prospectus report constituted misleading and deceptive conduct by Trowbridge in breach of s995(2) of the Corporations Act [SoC para 204(a)]; b) whether the omission of that information from Trowbridge's prospectus report was a "material omission" within the meaning of s996(1) of the Corporations Act [SoC paras 194 and 204]; c) if so, whether Trowbridge authorised or caused the issue of the Prospectus within the meaning of s996(1) of the Corporations Act [Soc para 204]." Agreed by Trowbridge, if worded as "Alleged Prospectus representations 112 Whether the representations pleaded in paragraphs 187 and 190 were based on the Trowbridge Report in the Prospectus, within the meaning of Section 1006(2)(e) of the Corporations Law as alleged in Paragraphs 188 and 191 of the 6FAS. Whether the representations pleaded in paragraphs 187 and 190 were false for the reasons, or any of them, pleaded in paragraphs 189 and 192. If so, whether the representation(s) found to be false was/were based on the Trowbridge Report in the Prospectus [SoC paras 188 and 191]. If so, whether the fact that the representations were based upon the Trowbridge report gives rise to any liability on Trowbridge pursuant to ss 995(2) or 996(1) of the Corporations Act [SoC para 204]." Not agreed - Trowbridge contends that the allegations in para 196(a) and (b) were not put to Trowbridge witnesses (i.e. that the information was based on claims to 31 December and that moreover the documents show that it was not on that basis and that accordingly this allegation cannot now be pressed. This contention is disputed by the Plaintiffs. In the alternative, Trowbridge propose the following wording, to which it would agree: "Trowbridge's acts and knowledge Whether Trowbridge told the New Cap group in December 1998 the matters pleaded in para 196(a) to (b) relating to claims up to 31 December 1998. 113 Whether the circumstances alleged in paragraphs 189, 192,196, 197, 198 and 200 of the 6FAS were known to Trowbridge at any time up to and including 12 January 1999.. Whether Trowbridge was aware by 31 December 1998 of the matters pleaded in paragraph 196 (c) and (d). [SoC para 196] If so, whether on or before 31 December 1998 Trowbridge, by reason of the acts and awareness pleaded in paras 196(a) to (d), became aware of: (a) a significant change affecting a matter included in the Prospectus; and/or (b) a significant new matter which had arisen, the inclusion in the Prospectus of information about which would have been required if the matter had arisen when the Prospectus was prepared. [SoC para 200] Whether Trowbridge by 31 December 1998 was aware of any of the matters pleaded in paragraph 197 by reason of the matters referred to in paragraphs 195 and 196(a) to (d). [SoC para 197] Whether, by reason of the matters pleaded in paragraphs 195 and 196, Trowbridge by 12 January 1999 was aware of the matters pleaded in paragraph 197 and that the accuracy of what was said in the Trowbridge Report in the Prospectus was so affected, that if the Prospectus was to be issued on 12 January 1999, the whole report would have had to be rewritten. [SoC para 198]." 1023A Corporations Law 114 If Trowbridge had awareness of the matters pleaded in paragraphs 196, 197, 198 and 200, whether Trowbridge was required to give written notice to the company of any one or more of those matters pursuant to s1023A of the Corporations Law This issue is propounded by Trowbridge. The Plaintiffs contend that it does not arise. If so, whether Trowbridge gave such written notice. Agreed by Trowbridge if worded: 115 Whether the conduct of Trowbridge was misleading and deceptive conduct in all the circumstances of the case in contravention of Sections 995, 996, 999 and 1005 of the Corporations Law and the other statutory provisions pleaded. "s995(2) Corporations Law If the matters alleged in paras 179 to 207, or any of them are established, whether Trowbridge engaged in misleading and deceptive conduct in relation to a prospectus in contravention of section 995(2) of the Corporations Law [SoC para 204(a) and 208(a)] Agreed by Trowbridge if worded: 116 Whether Trowbridge failed to give written notice in contravention of sections 1022 and 1023A of the Corporations Law or whether Trowbridge's written notice by the documents in paragraph 196(a) and (b) 6FAS "S996(1) Corporations Law If the matters alleged in paras 179 to 203, or any of them are established, whether Trowbridge authorised or caused the issue of a Prospectus in relation to securities of a corporation which contains material statements which are false or misleading, and/or there is a material omission from the Prospectus, within the meaning of sec.996(1) of the Corporations Act. [Soc para 204(b)]." ASIC Acts, TPA, FTA 117 Whether the Corporations Law, Fair Trading Act and/or Trade Practices Act is applicable This issue is propounded by Trowbridge. The Plaintiffs contend that it does not arise. If the matters alleged in paras 179 to 207, or any of them are established, whether Trowbridge engaged in misleading or deceptive conduct in contravention of section 12DA of the ASIC Act 1989, s12DA ASIC Act 2001, s52 TPA or s42 FTA. [SoC para 208(b) and (c)] S1005 Corporations Law 118 Whether Trowbridge engaged in contravention of Part 7.11, and Part 7.12, of the Corporations Law, within the meaning of sec.1005 of the Corporations Law [SoC para 207] This issue is propounded by Trowbridge. The Plaintiffs contend that it does not arise. If so, whether , the plaintiffs have suffered loss or damage as a result. [SoC para 207] If so, whether such loss entitles the plaintiffs to recover from Trowbridge the amount of the loss or damage thereby suffered. [SoC para 207] Agreed by Trowbridge if worded: 119 Whether the conduct of Trowbridge in breach of the statutory provisions pleaded caused the plaintiffs' loss. "Causal nexus If Trowbridge breached the pleaded statutory provisions, whether any such breach caused the pleaded loss to any of the plaintiffs." 120 Whether the reliance of Mr Saville on behalf of the plaintiffs is an element of causation in each of the causes of action pleaded. Agreed b) Negligence 121 Whether Trowbridge owed the plaintiffs a duty of care as alleged in paragraph 215 of the 6FAS. Agreed by Trowbridge if worded: "Whether Trowbridge owed potential investors a duty of care as alleged in paragraph 215 of the 6FAS." 122 Whether Trowbridge breached its duty of care in the respects alleged in paragraph 216 of the 6FAS. Agreed by Trowbridge if worded: "If so, whether Trowbridge breached a duty of care in the respects alleged in paragraph 216 of the 6FAS." 123 Whether that breach caused the plaintiffs' loss. Agreed by Trowbridge if worded: "If so, whether any such breach caused the pleaded loss to any of the plaintiffs." c) Defences 124 Whether Trowbridge has established a defence under Sections 1007 or 1010 of the Corporations Law. Agreed 125 Whether section 1318 of the Corporations Law applies in the circumstances and, if no, whether Trowbridge ought fairly be excused under Section 1318 of the Corporations Law. Agreed d) Damages 126 Whether the plaintiffs have proved their alleged loss. Agreed 127 Whether on-market acquisitions by the plaintiffs may be recoverable as part of the damages claim. Agreed 128 Whether losses arising from the acquisition of shares in NCRH by the plaintiffs are recoverable as part of the damages claim. Agreed 129 Whether the plaintiffs are entitled to any losses arising from transactions after (i) the 23 December 1998 ASX announcement and (ii) the 24 February 1999 announcement. Agreed e) Limitations issues 130 Whether the claims introduced under the ASIC Act and the Fair Trading Act in the 5FAS, and whether the claims introduced in the 6FAS are time barred. Agreed 131 Whether the court should "otherwise order" in relation to the amendments allowed pursuant to section 65(3) of the Civil Procedure Act 2005. Agreed 5. Plaintiffs' claims against PwC a) Misleading and deceptive conduct 132 Did PwC make the alleged PwC Representations regarding the 30 June 1998 balance sheet pleaded in paragraph 264 of the 6FAS to the plaintiffs via either the Prospectus or the draft Prospectus. Agreed [1274] 133 If the PwC Representations were made by PwC in the Draft Prospectus and the Prospectus, were those representations misleading and deceptive conduct in all the circumstances of the case.Did PwC make the alleged PwC Representations regarding the 30 June 1998 balance sheet pleaded in paragraph 264 of the 6FAS to the plaintiffs via either the Prospectus or the draft Prospectus. Agreed by PwC - if the words "in all the circumstances of the case" are changed to "in such of the circumstances pleaded in paragraph 265 of the 6FAS as are established by evidence." [1276] 134 Was the conduct of PwC, in making the PwC DDC Representations misleading and deceptive conduct in terms of the statutory provisions pleaded, because PwC did not have a reasonable basis for the opinions it expressed in making those representations. [1292] 135 Was any of the plaintiffs' loss caused by a breach or breaches by PwC of sections 995 of the Corporations Law and the other the statutory provisions pleaded, and if so, which losses were so caused. Agreed [1292] 136 Whether the reliance of Mr Saville on behalf of the plaintiffs is an element of causation in each of the causes of action pleaded. Agreed [1293] 137 Whether Mr Saville relied on any pleaded representations by PwC which constituted misleading and deceptive conduct. Agreed [1294] 138 Whether the Corporations Law or Fair Trading Act is applicable. Agreed [1296] 139 Whether any contravention of the Trade Practices Act is pleaded against PwC, and, if so, whether that Act is applicable. Agreed [1296] 140 Whether PwC made the PwC DDC Representations as defined in paragraph 265A of the 6FAS. Agreed [1295] 141 The extent to which PwC had the actual knowledge alleged in paragraphs 255A to 255D of the 6FAS. Agreed [1295] 142 Whether the misleading and deceptive conduct prohibitions in the ASIC Act applied to PwC at all in the circumstances of this case. Agreed [1296] (b) Negligence 143 Whether PwC owed the plaintiffs a duty of care as alleged in paragraph 255 of the 6FAS. Agreed [1335] 144 If so, whether PwC breached its alleged duty of care in the respects alleged in paragraph 256 of the 6FAS. Agreed [1336] 145 Whether the alleged breaches of duty of care by PwC was legally causative of any of the plaintiffs' loss. Agreed [1336] c) Defences 146 Whether PwC has established a defence under Section 1007 or 1010 of the Corporations Law. Agreed [1336] 147 Whether PwC had reasonable grounds for making the representations it made. Agreed [1336] 148 Whether PwC ought fairly be excused under Section 1318 of the Corporations Law. Agreed [1336] 149 Whether PwC's liability is limited by the Accountants Scheme under the Professional Standards Act 1994 (NSW). Agreed [1336] Following the Plaintiffs' evidence, the material facts set out in PwC's cross claim against Ingot and Saville are uncontroversial. In particular: 150 (a) Saville, either personally or through Ingot, acted as investment manager for the First to Fifth Plaintiffs, made the decision to invest funds of the First to Fifth Plaintiffs in NCRH, and made the decision to take up their entitlement to the Notes (Cross Claim, paragraphs 4 and 10); This submission is proposed by PwC and is disputed. That this submission is an issue is not disputed. [1336] (b) Saville and Ingot were aware of the matters set out in the Prospectus, and the matters set out in NCRH's announcements to the ASX dated 23 December 1998 and 24 February 1999 (Cross Claim, paragraphs 7-9); and (c) Saville and Ingot did not advise the First to Fifth Plaintiffs of the matters identified in paragraph (b), and in particular did not inform the First to Fifth Plaintiffs of the contents of the announcement of 23 December 1998 prior to taking up their entitlement to the Notes (Cross Claim, paragraph 12). 151 PwC contends that Saville and Ingot owed a duty of care to the First to Fifth Plaintiffs, a number of which were publicly listed companies, in making investment decisions on their behalf, including a duty to advise them of any matter of which Saville and Ingot were aware which was material to the making of such investment (Cross Claim, paragraphs 5 and 6). It is submitted that there is no real issue in this regard. This submission is proposed by PwC and is disputed. That this submission is an issue is not disputed. [1336] 152 Similarly, it is uncontroversial that the matters in the announcements of 23 December 1998 and 24 February 1999 were material to the investment in NCRH (Cross Claim, paragraph 11(a)). This submission is proposed by PwC and is disputed. That this submission is an issue is not disputed. [1336] 153 Therefore, the failure of Saville and Ingot to communicate those matters to the First to Fifth Plaintiffs was a breach of their duty of care (Cross Claim, paragraph 13(a)). This submission is proposed by PwC and is disputed. That this submission is an issue is not disputed. [1336] 154 On the basis of the matters set out above, PwC also claims that Saville and Ingot engaged in misleading or deceptive conduct (Cross Claim, paragraphs 14-18). This submission is proposed by PwC and is disputed. That this submission is an issue is not disputed. [1336] 155 There is an issue regarding whether the First to Fifth Plaintiffs, if advised of the matters set out in paragraphs 7-9 of the Cross Claim, would have proceeded with the investments made by Saville and Ingot, either at all or in some more limited way (Cross Claim, paragraph 11(b)). PwC contends that, on the weight of the Plaintiffs' evidence and in particular the evidence of Mr Burrows, it is established that the Plaintiffs, if fully apprised of material matters of which Saville was aware, would have decided not to make the investment in NCRH to which Saville committed them. If this is so, the Cross Claim is also established, and if PwC is found liable to the First to Fifth Plaintiffs, PwC is entitled to a contribution to such liability by Saville and Ingot. The issue will then arise as to the extent of such contribution. Agreed [1336] d) Damages 156 How the plaintiffs' loss should be assessed and whether the plaintiffs have proved their alleged loss. Agreed [1337] 157 Whether on-market acquisitions by the plaintiffs may be recoverable as part of the damages claim. Agreed [1337] 158 Whether losses arising from the acquisition of shares in NCRH by the plaintiffs are recoverable as part of the damages claim. Agreed [1337] 159 Whether the plaintiffs are entitled to any losses arising from transactions after (i) the 23 December 1998 ASX announcement and (ii) the 24 February 1999 announcement. Agreed [1337] 160 Whether the Court should mould any relief for the plaintiffs if they otherwise succeed against the defendants or any of them. Agreed [1337] e) Limitations issues 161 Whether the claims introduced under the ASIC Act and the Fair Trading Act in the 5FAS, and whether the claims introduced in the 6FAS are time barred. Agreed [1339] 162 Whether the court should "otherwise order" in relation to the amendments allowed pursuant to section 65(3) of the Civil Procedure Act 2005. Agreed [1341]

Approach to submissions 117 When the evidence was complete, the hearing was adjourned to enable the parties to prepare written submissions. This they did, and with gusto. I was provided with many lever arch folders of extremely detailed and often repetitive written submissions. Although those submissions were required (at my direction) to address, and in some cases did address, the issues as set out above, they also addressed numerous other points. I have spent a great amount of time reading and considering those written submissions, as I have done reading the transcripts of the oral addresses that followed them. However, the sheer volume, detail and repetitive nature of those submissions are such that it is neither practicable nor desirable to refer to every submission on every point, and I shall not do so. Nor, having regard to the way in which I propose to decide this case, is it necessary that I should do so. I do however wish to make it clear that I should not be taken to have overlooked a submission simply because I do not refer to it in these reasons. 118 In many cases, the conclusions to which I have come (as recorded above) have meant that the plaintiffs' case against particular defendants or groups of defendants can be disposed of without considering all the issues posed between them. In those circumstances, I have decided as a general rule not to burden these reasons by a consideration of issues that do not arise. Had I dealt with those issues - and in many cases, their resolution would have required very detailed and lengthy analysis of disputed questions of fact - the already substantial bulk of these reasons would have increased very greatly - threefold or more. I do not think that either the obligation to give reasons or any other relevant consideration requires a different approach. As the Court of Appeal said in Digi-Tech (Australia) Ltd v Brand & Ors (2004) 62 IPR 184 at 228 [282], "[p]rolixity is an enemy of comprehensibility and, indeed, cogency." I acknowledge the possibility that some or all of the conclusions that I express in these reasons may be found to be erroneous. But that does not seem to me to provide any justification for increasing the number of findings: a step which, logically, can do no more than increase the possibility of error (cf Schiemann LJ in Customs and Excise Commissioners v A & another [2003] 2 All ER 736 at 754 [83]: his Lordship's remarks were endorsed by the Court in Digi-Tech at 229 [286]). 119 A separate reason supporting the approach that I have taken is to be found in the way that many parties have structured their submissions. As noted above, I directed the parties in their written submissions to address specifically the relevant issues in the statement of issues. I did this because, as I had made plain to the parties, I proposed to decide the proceedings by reference to the statement of issues. Some parties complied with my direction. Others, regrettably, did not. The difficulty of understanding precisely what it was that some parties said on some issues reinforced my decision that, as a general rule, I would not seek to deal with issues where the resolution of the proceedings did not require this to be done. 120 There are four exceptions to the general approach that I have indicated:

(1) The first relates to questions of credibility. I have decided to set out my views on credibility even though, in some cases, the conclusions to which I have come are not dictated by, or do not depend on, those views.

(2) The second relates to Mr Saville's evidence of reliance. Given the views that I have formed about Mr Saville's credibility (see the conclusion at para [146] below), and because reliance was a key issue in the proceedings as between the plaintiffs and every defendant, I have decided to set out my conclusions on the acceptability of that portion of Mr Saville's evidence.

(3) The third relates to the plaintiffs' "indirect causation" case against various defendants. I conclude, for the reasons given in para [494] to [511] below, that the case is bad in law. However, against the possibility of error, I have decided to deal with those cases on their factual merits, on the assumption that the pleaded case is good in law.

(4) The fourth relates to the limitation question that was reserved when the plaintiffs were given leave to amend and to file what became the 5FAS and the 6FAS. The reserved question was, in substance, whether the amendments should date back to the date of filing of the original summons or whether the Court should "otherwise order" pursuant to what is now s 65(3) of the Civil Procedure Act 2005. If I may say so without being immodest, I think that the experience of sitting through the trial and hearing the evidence has given me some advantage in the determination of that question, and that I should put that advantage to use. 121 The structure of the pleadings in this case is such that many issues of fact (and, indeed, of law) are raised by the plaintiffs successively against different defendants, or groups of defendants. In some cases, on findings that I have made, those issues do not require decision; but in others, they do. In general, it is safe to assume that the same issue would have been decided (were it necessary to do so) the same way whenever and wherever it arose. There may be a qualification if there are facts peculiar to one defendant or group of defendants which bear on the issue; but I think that in general this qualification is more theoretical than real. CREDIBILITY Witnesses of fact - general observations 122 The principal witnesses of fact called by each party gave their evidence-in-chief through the medium of detailed written statements or, in some cases, affidavits. It was apparent that a great amount of work had been put into the preparation of those documents; and they were, for the most part, cross referenced to a substantial number of documents that were contemporaneous with the events being described. However, in a number of cases, it was apparent that the memory of witnesses in the witness box did not match the breadth and depth of recall apparent on the face on their statements. That may have reflected the manner of preparation of the statements: no doubt involving many hours of perusing documents, and many hours of questioning on and by reference to those documents. Nonetheless, as a general observation, the disparity between the detail of the statements and the paucity of the oral evidence was in many cases striking; and in some of those cases disturbing. 123 In particular cases, the witness (or people under his supervision) had kept detailed notes. For example, Dr McKenzie and Mr Mutton maintained diaries, in which they recorded events relevant to the capital raising. In addition, the junior solicitors of Phillips Fox to whom I have referred in para [59] above took detailed notes of DDC meetings, and it was no doubt open to Mr Mutton, quite properly, to refresh his recollection of particular matters from those notes. 124 Speaking at a level of generality, I have come to the view that the majority of the witnesses had no real recollection of events apart from what might have been conveyed to them from the sources to which I have referred. In some cases, I have come to the clear view that the evidence was reconstructed according to the witness's view what ought to have happened rather than on any actual recollection of what did happen. (I am conscious of the proposition, or theory, that "all memory is reconstruction" - see for example The Hon. Justice D A Ipp, Problems with Fact Finding (2006) 80 ALJ 667 at 669 and the reference given therein at note 13. That is not the kind of reconstruction to which I am referring.) In some cases, this process of reconstruction may have involved consideration of contemporaneous documents other than documents produced by or under the direction of the witness, with the result that knowledge gained from the documents overlaid whatever actual recollection may have existed, and came unconsciously to be substituted for that recollection. In general, I conclude that I should treat with caution the uncorroborated "recollection" of a witness that is not based on or consistent with contemporaneous documents. 125 The parties devoted many pages of their extremely lengthy and detailed written submissions to praising the credibility of their own witnesses, and attacking the credibility of their opponents. I turn now to consider the credibility of individual witnesses. Before I do so, I wish to reiterate in this context the point made in para [117] above. It is not reasonably practicable, nor in my view necessary (let alone desirable), to refer to, comment upon or analyse each of the voluminous and detailed submissions on credit that have been made. However, it should not be thought that because I have not referred to a particular submission, I have not read it, considered it and taken it into account. Individual witnesses 126 I turn now to individual witnesses. Mr Saville 127 Mr Saville gave his evidence by reference to a number of lengthy and detailed statements which, with some corrections, he affirmed in the witness box. He was cross-examined over a period of some 10 days. I had a very strong impression whilst observing his cross-examination that his actual recollection of relevant events was extremely limited. That impression has been confirmed upon rereading relevant passages of his cross-examination. For that and other reasons, to which I shall turn in a moment, I have come to the conclusion that in general I should not accept his evidence on any disputed question of fact. 128 In key areas of his evidence, there were significant discrepancies between his recollection as it would appear from his statements and his recollection as exposed in cross-examination. One clear example of this is to be found in his account of the "October meeting" of himself, his associate Mr Bass, and Messrs Coultas and Jackson from Macquarie. I deal with that meeting at paras [345] to [377] below. For present purposes, I refer to the discrepancy between Mr Saville's account in his first statement and his account in the witness box (see paras [356] and [357] below). 129 A similar comment may be made about Mr Saville's evidence of reliance, with which I deal in paras [427] to [474] below. 130 These are not trivial or incidental aspects of the plaintiffs' case. The first goes to the heart of a substantial component of their case against Macquarie. The second goes to the heart of their case on reliance: a fundamental part of their case against each defendant. In each case, the contrast between Mr Saville's evidence as conveyed through his statements and his evidence in the witness box is stark. In each case, that stark contrast creates an extremely unfavourable impression of the accuracy of Mr Saville's powers of recollection. 131 On a similar note: a matter very much in issue was the extent (or lack) of Mr Saville's authority to make decisions on behalf of the various plaintiffs to invest in securities of NCRH. One of Mr Saville's statements (that of 2 November 2005, exhibit PX 11) dealt specifically with the related questions of reliance and authority for the purchases of "shares, rights and Notes in NCRH from 17 November 1990 onwards as set out in table 3 of appendix 6 to the report of Brian Silvia … ". (Mr Silvia was an expert retained by the plaintiffs to verify their acquisitions of securities and the amounts expended.) The effect of this aspect of Mr Saville's evidence was that he relied on his assessment of NCRH, which in turn he had said was based on all the matters allegedly represented to him by various parties and on the final version of the prospectus, in deciding to cause the relevant plaintiff to enter into each of the transactions described by Mr Silvia. 132 Mr Saville confirmed that by giving this evidence he was seeking to suggest that he was the person who had decided to make each of the transactions recorded in Mr Silvia's table (T1563.31-.40). However, he could not recall reviewing that table before he made the statement, and acknowledged that it was in fact "most likely" that he had not done so (T1563.42-1564.24). He was unable to explain why he had not done this, saying that he "believed it was accurate" (T1564.16), or believed it "was a true list of the purchases we made" (T1565.5). He gave no evidence of any basis for those beliefs. 133 My strong impression at the time Mr Saville gave this evidence was that he had signed the statement without troubling to check it. A perusal of the transcript has done nothing to dispel that impression. It may be noted that, as Mr Saville had conceded earlier in his cross-examination (see his acknowledgment at T1564.26-.30), at least two of the transactions listed in Mr Silvia's table were ones for which he was not the decision maker. 134 Mr Saville's evidence was replete with evasive and non responsive answers. See for example (and I do not mean to give a comprehensive list):

(1) His evidence at T958.20-960.42 as to whether anyone had assisted him in forming his belief that the "October presentation" given by Messrs Jackson and Coultas from Macquarie occurred on 16 October 1998;

(2) T997.1-998.32 as to paras 42 and 44 of the allegations made in the fourth further amended summons (4FAS) (which he claimed to have reviewed) and the factual matters on which those paragraphs were based;

(3) His evasion of a clear point as to inadequacies of his memory, when cross-examined about his signed and served, but unfiled, statement of 22 June 2003; this evidence clearly bore upon the veracity and accuracy of his account of what occurred at the "October presentation" (T1040.44-1043.1, 1043.35-.42);

(4) His evidence on the topic of reconstruction of his account of the "October presentation" from other documents at T1045.6-1046.19. 135 At the conclusion of Mr Saville's cross-examination, I was left with a very strong impression that he had no real recollection of the detail of many of the significant events covered in his evidence-in-chief, and that his evidence-in-chief should be regarded as reconstruction. In this context, I mean by "reconstruction" a deliberate process of reconstructing an account or narrative from known external facts or documents, or according to what is perceived by the person undertaking the reconstruction to have been what was likely to have happened. 136 A clear example of this occurs in the shifting nature of Mr Saville's evidence and instructions as to the date of the "October presentation". I deal with some aspects of this evidence in paras [356] to [365] below. 137 In all versions of the summons, from the original summons filed on 16 November 2001 up until the 4FAS filed on 11 February 2003, the "presentation" (or meeting) was placed as being "in or about mid-October 1998" (para 42), and the issue price of the notes was said to be $1.30 (para 44). Mr Saville accepted that he read carefully and approved each draft of the summons before it was filed. It may be inferred that the statements to which I have referred were approved by him. 138 Mr Saville said that Macquarie's representatives at the "October presentation" were Messrs Coultas and Jackson. However, Macquarie gave discovery of Mr Jackson's travel records, which showed that he was out of Australia from 9 to 17 October 1998, and that his first day back at work after returning to Australia was Monday 19 October 1998. Thereafter, Mr Saville placed the October presentation as having occurred "in or around October 1998", significantly dropping the word "mid". See:

(1) para 84 of his signed and served but unfiled statement dated 22 June 2003;

(2) para 84 of his statement dated 23 July 2003 (exhibit PX 3);

(4) note that in his statement dated 4 October 2005 (exhibit PX 5) Mr Saville said that he did not "recall the exact date or even week in which this presentation occurred but … it was at least one week before [he] received" a document from Mr Bloch on 10 November 1998. 139 The issue price was reduced from $1.50 to $1.30 on 12 November 1998. Thus, Mr Saville's accounts of an issue price of $1.30 must be incorrect if they relate to a meeting at any time in October 1998. 140 In exhibit PX 3, Mr Saville (in marked contrast to his served but unfiled statement of a month earlier, dated 22 June 2003) gave what purported to be a detailed verbatim account of the conversation at the meeting. (For the reasons I give in paras [356] to [365] below, I do not accept that account.) But that account did not make any reference to issue price. By contrast, in para 5 of exhibit PX 5, Mr Saville claimed that he "distinctly" recalled that the price of the notes at the time of the presentation was $1.50. A similar recollection was stated in para 10 of Mr Saville's statement dated 25 February 2005 (exhibit PX 4). Further, in that same paragraph, Mr Saville said that he could not "recall whether Jackson was present at the October Presentation or not." (Exhibit PX 3 had Messrs Coultas and Jackson present; exhibit PX 5 had "Coultas and another person from Macquarie" present.) 141 These shifts in Mr Saville's accounts of the detail of the "October presentation" suggest very strongly that Mr Saville has no actual recollection, and that he has sought from time to time to tailor his account of that meeting to accommodate incontestable "hard" facts (for example, as to when Mr Jackson was overseas, and as to the date when the issue price changed). What I see as Mr Saville's willingness to tailor his evidence in this way affects more than the acceptability of his account of the "October presentation"; in my view, it casts very serious doubt on the overall acceptability of his evidence on key contested questions of fact. 142 In Briginshaw v Briginshaw & Anor (1938) 60 CLR 336, Dixon J said at 361 that where a fact is to be proved, the tribunal of fact "must feel an actual persuasion of its occurrence or existence before it can be found." I have to say that Mr Saville's evidence, taken as a whole, does not engender in me any feeling of actual persuasion of the occurrence or existence of facts in issue. For the reasons that I give in paras [353] and [354] below, what Dixon J said in Briginshaw (including his Honour's oft cited statement at 362 that where a serious allegation is made, ""reasonable satisfaction" should not be produced by inexact proofs, indefinite testimony or indirect inferences") is applicable to allegations of misleading or deceptive conduct under the Trade Practices Act 1974 and cognate regimes. 143 There are other unsatisfactory aspects of Mr Saville's evidence, which support my view that it is unreliable. I refer, without being comprehensive, to the following:

(1) His evidence at T1174.24-1176.45 as to what was said in the Trowbridge Prospectus Report concerning the impact on NTA of Hurricane Georges and the Swissair crash;

(2) His evidence at T1182.35-1186.29 concerning his understanding of what was said in the prospectus as to the "collateralisation of the assets of NCRH to secure its obligations under the Chase LOC facility" (and compare his evidence at T1188.38-1189.33 as to knowledge on the same topic garnered from the published financial statements for the six months ended 30 June 1998);

(3) His often evasive and non responsive answers at T1209.44-1212.7 as to complaints made by the plaintiffs against ICM, in relation to the failure of their investments in NCRH;

(4) His evidence at T1217.18-1220.24 as to why it was that he was unable to place a precise date on a meeting that he held with Mr Daya shortly before Christmas 1998;

(5) His evidence at T1240.38-1248.33 as to the impact on NTA of the matters stated in the announcement made by NCRH to the ASX on 23 December 1998, and on communication by him or Mr Bass to Hong Kong Bank of Australia Ltd of the diluted NTA. 144 Each of the subject matters referred to in the preceding paragraphs is important. The last is particularly so. It shows that Mr Saville, despite his evasions, well understood the effect on NTA of the matters disclosed in the 23 December 1998 ASX announcement. The point to that is that neither he nor the plaintiffs made any complaint, or sought to withdraw from the commitments that they had then made; on the contrary, a number of the plaintiffs waded into the market and bought rights and, after 31 December 1998, notes (and shares). 145 I take into account also other matters referred to below in dealing with Mr Saville's evidence on various topics (by way of example only, see para [296] below). 146 In short, I do not accept Mr Saville's uncorroborated evidence as exact or definite, or as testimony that produces any feeling of actual persuasion, as to the existence or occurrence of any matter in issue. In this context, I should note (if it is not already plain) that basically every aspect of the plaintiffs' case was in issue - and, mostly, fiercely so. In general, I do not accept Mr Saville's evidence on disputed questions of fact unless it is against interest, or unless it is corroborated by other, acceptable evidence or accords with the probabilities objectively ascertained. Other witnesses of fact called by the plaintiffs 147 With one possible exception, I had no concerns as to the credibility of any other witness of fact called by the plaintiffs. The possible exception relates to Mr Anthony Frank Bushell, a non executive director (and currently - at least when he gave evidence - the chairman of AOITL). Although in general I thought that his evidence was given in a clear and straightforward way, I thought that his evidence at T1939 and following, dealing with intercompany loans and other transactions, certain English tax rules and the like, was defensive, and that many of the answers he gave were non responsive. In this context, it became plain from his evidence that some loan documents had been prepared and backdated in an attempt to circumvent perceived problems (see for example T1950.27-1951.44). Further, it became plain that he had been complicit in the preparation of board minutes that falsely recorded that a loan agreement had been executed when it had not (T1954.22-1959.43, T1960.34-1962.47). 148 In the result, I do not accept that Mr Bushell's evidence provides credible corroboration of any of Mr Saville's evidence (to the extent that, in fact, Mr Bushell's evidence was propounded on this basis). 149 I have no such concerns with the evidence of the other witnesses called by the plaintiffs, although it might be observed that their evidence, by its nature and subject matter, did not provide very much by way of corroboration for Mr Saville's evidence. Mr Moran 150 Mr Moran struck me as a witness of truth on whose evidence I could rely. Mr Coultas 151 Mr Coultas gave me the strong impression that much of his evidence was either derived from, or bolstered by, his usual practices. See, for example, his evidence, concerning documents handed out at "roadshows", at T2433.37-.45. 152 In other aspects of his evidence, Mr Coultas betrayed both hesitation and inconsistency. See for example T2436.32-2438.46, noting that in this passage of evidence Mr Coultas both agreed and disagreed that a document showed to him implied a profit forecast to 31 December 1998; and that he appeared to undermine the evidence in para 32 of his statement as to a "very strict policy" of Macquarie in relation to the provision of financial forecasts. 153 On the other hand, Mr Coultas gave what impressed me as honest and straightforward answers to difficult questions, where those answers could well be seen to have supported the plaintiffs' case (and in some cases were so relied upon by the plaintiffs in their final submissions). See, for example, his evidence at T2460.20-2461.43, as to the impact on the market of the proposition that NCRH in late 1998 was "technically insolvent". 154 In the result, I regard Mr Coultas' evidence with some hesitation. However, that relates more to what I perceive to be his lack of any real recollection of relevant events rather than to a perception that he was seeking to give anything other than evidence that was, as he believed, honest. Thus, where his evidence is based on matters such as his practice or on contemporaneous documents, I have no hesitation in accepting it. Mr Jackson 155 Mr Jackson appeared to me to be somewhat defensive in his demeanour. That may have reflected some unfamiliarity with the court environment, or some feeling of disquiet or unease at the nature of the allegations being made against his employer, and indeed himself. 156 There were aspects of Mr Jackson's evidence where it appeared that he was reluctant to concede matters that were obviously appropriate to be conceded: see for example his evidence at T2512.4-2514.11 as to the integrity of management. On the other hand, and by contrast, this evidence was followed by what appeared to me to be clear, straightforward and honest answers to potentially difficult questions on topics such as possible breach of banking covenants and cash flow or solvency problems (T2514.25-2516.6). 157 On balance, and notwithstanding the difficulties to which I have referred, I accept Mr Jackson as a witness who sought to tell the truth to the best of his ability. I should add that, in relation to questions of fact, he appeared to have a reasonable and clear recall of relevant events. Mr Donnelly 158 There were a number of aspects of Mr Donnelly's evidence that caused me concern as to its reliability. For example, his evidence in relation to the alleged breach of the Dresdner loan covenants and related matters was difficult to accept: see T2737.5-2740.32 and T2747.17-2753.33. That evidence involved the drawing of fine and unrealistic distinctions. It gave me the very strong impression of something of a "head in the sand" attitude to the state of affairs as between NCRH and Dresdner. 159 The same theme runs through his further evidence on this topic, and the related topic of liquidity problems if Dresdner required that it be paid out early, at T2780.16-2783.2. In my view, much of this last passage of evidence involved attempts to evade, or not to answer directly, or not to concede, obvious points where appropriate attention to obligations of honesty should have dictated a different course. 160 In the result, I hesitate to accept uncorroborated aspects of Mr Donnelly's evidence on matters that are in contest. Dr McKenzie 161 The plaintiffs subjected Dr McKenzie's credibility to close, detailed and lengthy scrutiny. However, in relation to the great bulk of his evidence, Dr McKenzie had available and utilised his extensive written notes of relevant events. Those notes were made contemporaneously with the events that they record. It was not suggested, or indeed put to Dr McKenzie, that they were concocted or falsified, or completed in a consciously partial way. I think that they provide a sound basis for accepting the substance of Dr McKenzie's evidence notwithstanding aspects of it that have given me cause for concern. Diversion - transcription of Dr McKenzie's notes 162 Dr McKenzie's notes - particularly in the photocopied and imaged forms that were available during the hearing - were very difficult to read and to follow. Indeed, Dr McKenzie himself appeared from time to time to have some difficulty in making sense of particular aspects of his notes. 163 The plaintiffs, through their solicitors, had requested the Macquarie parties, through their solicitors, to provide a transcript of the whole of Dr McKenzie's notes. The Macquarie parties' solicitors declined, stating among other things that:

"A transcription of Dr McKenzie's notes does not exist. We have not prepared, and would not be able to prepare, a transcript of his notes because they are not capable of being transcribed." 164 Dr McKenzie said in cross-examination that:

(1) He could, with the exception of "a few isolated areas that I have difficulty with bringing to light [sic - perhaps, "life"]", transcribe his notes (T3040.7-.20);

(2) The statement to which I have referred from the Macquarie parties' solicitors was not made on his instructions (T3040.22);

(3) He had "no recollection of expressly being asked" whether he could transcribe the notes (T3040.37);

(4) In answer to a question, whether the statement that the notes are not capable of being transcribed was not true, that "I believe I could transcribe most of the notes"; and

(5) "Early in 2000 … I did a line-by-line processing of my notebook with Mallesons" (T3464.46-.47). (Mallesons Stephen Jaques were the solicitors for the Macquarie parties, and Mr Ashley John Black, a partner in that firm, wrote the letter containing the statement to which I have referred in para [163] above.) 165 Dr McKenzie expanded on this last answer at T3553.21-.29: "Q. I just would like to clarify from you, you said that in early 2000 when you did a line-by-line processing of your notebook with Mallesons, that was a process, was it, that you went through giving instructions as to what your notebook said? A. I went through each page of the notebook, giving my interpretation of what was being said, and Mallesons sort of took notes of what they considered to be relevant from that process." 166 Senior counsel for the plaintiffs called for the notes. The Macquarie parties made a claim for privilege. The call, and the question of privilege, were not pursued. 167 In re-examination, Dr McKenzie expanded further on the concept of "line-by-line process" (T3554.27-.39): "Q. When you said that you went through each page of the notebook giving your interpretation of what was being said, Was that exercise simply reading aloud the literal words written in your notebook? A. No.

Q. What did the exercise involve? A. It involved a mixture of things. There will be some areas where I wasn't capable of giving a reliable reconstruction. There would be others where I would go through, reading out word by word, as I have in the court. I would also be adding in my additional recollections where I had them from time to time." 168 The plaintiffs submitted that I should draw a "Jones v Dunkel" inference from the Macquarie parties' failure to accede to their request to produce a complete transcript of Dr McKenzie's notes. I do not accept that submission. It is plain from the whole of Dr McKenzie's evidence that, to the extent that a transcript existed, it was covered by legal professional privilege. No adverse inference can be drawn from a party's failure to adduce privileged evidence, or to produce or put into evidence a privileged document. 169 The plaintiffs did not pursue the question of a transcript. For example, they did not seek a direction or other order that a transcript be prepared. 170 Further, it would appear that the plaintiffs were able to produce their own transcript. Mr Muddle of counsel (one of the plaintiffs' team of counsel) said at T2137.18-.26 that Dr McKenzie's notes were "comprehensible" although it takes "a little time" (presumably to read them). He said further that "we have, for our own purposes, undertaken transcription of part of" the notes; and that "[a]lthough it is a difficult task, it is not impossible." 171 The Court may have been assisted by a complete transcript of Dr McKenzie's notes; or it may not. But as Mr Muddle's observations make plain, the plaintiffs could have produced their own transcript. If necessary, the plaintiffs could have asked the Court to direct that the Macquarie parties co-operate with the plaintiffs to produce an agreed transcript. In circumstances where none of those steps were taken, I do not see why an adverse inference should be drawn against one party only. The whole of Dr McKenzie's notebooks were made available for inspection, and in due course tendered. It was open to the plaintiffs to cross-examine Dr McKenzie by reference to those notebooks, to the extent that anything in them was said to be inconsistent with his statements, or relevant to but omitted from his statements. The plaintiffs did not demonstrate that they were hindered in doing so because they could not read or understand particular parts of the notebooks. 172 Thus, as I have said, I do not think that I should draw against the Macquarie parties the inference which the plaintiffs contend. Nor, although with some hesitation, do I think that I should express a concluded view as to the statement that the notes were not capable of transcription. Mr Black was not questioned on that statement; he was not given any opportunity to explain it, or the basis upon which he made it. More importantly, in light of Mr Muddle's concession, further analysis of the statement and its accuracy will not assist in the resolution of the issues in these proceedings. 173 I should note that the plaintiffs submitted that Dr McKenzie "selectively referred to his notes to bolster his own evidence when it suited him, omitting other references … " (written submissions in chief, chapter 4, para 2.7.2.5). The only reference given in support of this submission was to a passage in Dr McKenzie's notebooks attributing to Mr Ghose the comment "Risk on old portfolio deterioration - reserves could be inadequate ($30m)". This referred to a meeting of 18 November 1998, referred to in paras 298 to 303 of Dr McKenzie's statement dated 23 August 2005 (exhibit 1-3DX 8). Dr McKenzie's statement makes no mention of the comment attributed to Mr Ghose. Dr McKenzie explained this as follows (T3292.17-.38): " Q. There's nothing about that in your statement or of the conversation that you recount with Mr Ghose. Could you tell us why? A. I don't think that the $30m is particularly newsworthy, if you like. I think it's just referring to the rough order of magnitude of the variance in the outstanding claims liability that's recorded in the - in fact, I think the variance in the outstanding claims liability in the Trowbridge report is in fact larger than $30m. So I think the reason was that I didn't see there being any news.

Q. Is that one of the bases upon which you've prepared your statement, that you've left out matters which you don't think are newsworthy? A. In preparing the statement, I've tried to confine it to matters that were relevant. Q. Do you agree with me that you've left out matters which you don't think are newsworthy? A. Not as a general - that hasn't been a guiding principle in preparing the notes, no."

174 I see nothing inherently improbable in Dr McKenzie's explanation. It does not in my view justify a submission that he "selectively referred to his notes to bolster his own evidence when it suited him". Given Mr Muddle's concession that the plaintiffs could, although with some difficulty, read Dr McKenzie's notes, and had transcribed parts of them, I am confident that, during the very lengthy cross-examination of Dr McKenzie (extending over more than six days), any real discrepancies between his statement and his notes, at least as to matters of relevance or significance, would have been brought to light. 175 Further, and more fundamentally, the submission does not attack the integrity of the notes; on the contrary it appears to proceed upon the basis that the notes should be accepted as credible. Dr McKenzie's credibility 176 Dr McKenzie is plainly an intelligent and astute man. (I interpose that the same could be said of every major witness in this case.) Dr McKenzie also appeared to my observation to resent the process of being questioned in detail about his actions in relation to the capital raising, and to resent the fact that those actions (and those of his employer) were being called into question in a very serious way. Perhaps as a result of those factors his demeanour as a witness was from time to time unfortunate; but I hesitate to resolve the question of his credibility simply by reference to considerations of demeanour. 177 One aspect of Dr McKenzie's evidence that did give me cause for concern related to his insistence, on a number of occasions, that he had not picked up errors in draft minutes: this being proffered more than once as an explanation for matters recorded in minutes with which, in the witness box, he sought to disagree. Dr McKenzie struck me as a man who was meticulous to the point of pedantry; and the draft minutes sent to him were replete with corrections of the most minor details (for example, noting on one occasion that "transitory" was not the adjective derived from "transition", or on another that "however" is an adverb not a conjunction). In that context the following matters (by way of example) did not ring true:

(1) T3219.34-.39 (referring to extension of Dresdner's waiver of its covenants); and

(2) T3240.41-3242.18 (relating to changes in the NTA because of events after 30 June 1998). 178 In their written submissions in chief (chapter 4, para 2.5.2), the plaintiffs referred to many other matters which, they submitted, were adverse to Dr McKenzie's credibility. I have reviewed those matters carefully. However, in view of the fact that Dr McKenzie's evidence was substantially based on his notes, and in light of the lack of any direct attack on the integrity of those notes, I see no point in burdening these reasons with an extensive discussion of the plaintiffs' submissions. It is sufficient to say that, accepting as I do the validity of many of the points made, they do not overcome the problem that Dr McKenzie's evidence is, in substance, based upon his notes, and that those notes are not said to be fabricated, concocted or partial in their accounts of relevant events. 179 Thus, notwithstanding the substantial reservations that I had as to Dr McKenzie's evidence, based on the matters to which I have referred (and on many of the matters to which the plaintiffs have referred) and on his demeanour, I have concluded that I should accept him as a witness of truth to the extent that his evidence is underpinned by his notes. In case I have not made it plain already, the great bulk of his evidence was so underpinned. Mr Ghose 180 Mr Ghose gave his evidence in a clear and straightforward manner. He appeared to have a reasonable recall of relevant events. He did not hesitate to answer questions openly and frankly, even though the answers could be seen to be adverse to his interests. In my view, he sought to tell the truth to the best of his ability. 181 The plaintiffs submitted that his "demeanour in the witness box was suggestive of giving evidence which he thought was helpful to his case rather than being candid" (written submissions in chief, chapter 5, para 2.7(1)). I do not agree, and therefore do not accept that submission. Mr Beach 182 Mr Beach gave his evidence in a clear and forthright manner, and appeared to have a good recall of relevant events. 183 The plaintiffs submitted that there were "two key matters in respect of which his credibility is called into question" (written submission in chief, chapter 5, para 2.8(1)). Those matters were:

(1) His insistence, contrary to what the plaintiffs say is "the weight of contemporaneous evidence", that the smoothing cover could be accounted for as it was because of the offsetting increase in the prudential margin, and because he would not acknowledge that he understood that the purpose of the smoothing cover was to enable the Dresdner net worth covenant to be met.

(2) His denial of knowledge of the commutation of a Renaissance Re reinsurance contract in December 1998, on terms that the claim would be paid out of the proceeds of the capital raising. Mr Beach or his company had been the broker for that contract, and the potential conflict had been recognised for some time. 184 As to the first: for the reasons that I give below, I conclude that the prudential margin was indeed increased to offset (under Australian GAAP) the recovery brought to account for leg 1. It follows that Mr Beach's "insistence" on that cannot go adversely to his credit. Nor, as to the connection with Dresdner, is there any compelling reason to disbelieve Mr Beach's evidence. I note that the plaintiffs did not put any detailed arguments to advance the bare proposition for which they contend. 185 As to the second: given that Mr Beach, and for that matter the board of NCRH, recognised the conflict in his position, it is quite possible - indeed, I would have thought likely - that he did seek to distance himself from the transaction in question, and that therefore he did not have the knowledge that the plaintiffs, by implication, suggest he should have had. Again, the plaintiffs advance no detailed argument in support of their bald proposition. 186 Further, on some key matters, Mr Beach gave candid and frank evidence that could have been seen to have been disadvantageous to his defence of these proceedings. I refer by way of example to his evidence:

(1) At T4155.36-.39 that, looking at the matter in hindsight, he felt he could have done more by way of enquiring into legs 1 and 2.

(2) His evidence at T4231.43-4233.14 as to his views, in early January 1999, of the likely unavailability of stop loss cover. 187 I accept Mr Beach as a witness of truth, who sought to the best of his ability to give truthful and accurate evidence. Mr Deery 188 The plaintiffs criticised Mr Deery's evidence because of a significant change, from one day to the next, on the question of connection between leg 1 and the additional prudential margin. On day 54, Mr Deery was questioned on the minutes of the audit committee's meeting held on 27 August 1998. He was referred also to a letter from PwC, setting out Mr Murray's views on some issues that needed resolution. Mr Deery gave the following evidence (T4397.16-.29): "Q. … At this meeting, there was no tie-up, was there, between the entry into of the aggregate stoploss, as you understood it, and a further prudential margin of $5m? A. I'm not sure what you mean by "tie-up". Q. Those were two separate and discrete matters? A. I think that's fair to say. Q. No-one said to you at that meeting, did they, that "It's okay to go ahead with this aggregate stoploss contract because we are having an extra $5m prudential margin", did they? A. I don't recall that." 189 On the next day of the hearing, towards the commencement of his cross-examination on that day, Mr Deery said at T4407.10 that he had spent some time overnight thinking about his evidence of the day before. After some questions about his view that GCR was seeking to develop a relationship with NCRH, and was for this reason prepared to enter either the large or the small stop loss transaction, he gave the following evidence (T4409.27-4411.11): "Q. I am going to put the question again to you and I ask you if you wouldn't mind attending to it. I'm suggesting to you that your understanding in August 1998 was that the purpose of this contract was to prop up the balance sheet of the company to enhance its 30 June 1998 results; do you agree or do you disagree? A. I'm not sure I totally agree with that. I think, as I said to you, on further reflection of this meeting and looking at my notes, which I didn't have the advantage of yesterday, it appears to me, although I don't recall it specifically, but it appears logical to me, as it stated earlier in my notes on this memo, that the prudential margin looked like it was going to be increased by $4m or more and I suspect that that was used to offset the benefits of this transaction.

Q. Look, you're making that up because you've heard that explanation sought to be given by others? A. No, I don't think I'm making that up. I think what I'm saying to you is that I've had trouble recollecting all the goings on of this transaction because it was so long ago, and as we've gotten into this discussion more and more it's become obvious to me certain things which perhaps weren't obvious to me before.

Q. You've spent days preparing for this case, haven't you? A. I have spent some time preparing for this case.

Q. You've been sitting outside or inside this courtroom for the last few days. You've heard the evidence of Mr Beach. A. I have.

Q. You've been attending attentively to what has been asked of him and what he answered? A. I'm sorry?

Q. You have been attending attentively to what he was asked and what he answered? A. For Mr Beach, you're talking about?

Q. Yes. A. Yes, I was here listening to Mr Beach's testimony.

Q. Yesterday, when I asked you whether there was any relationship between the prudential margin of $5m and the GCR contract, you agreed that there wasn't; do you recall that? A. I don't recall that, no. Perhaps you could read that back to me.

Q. You don't recall that. A. I'm not sure I do recall it. I'm just saying --

Q. Is it your evidence now, Mr Deery, that there was a connection between some prudential margin, as you understood it, and the entry into of this contract with GCR? A. What I'm saying to you is I now believe that is a possibility, yes.

Q. You're speculating on that because you think it's a way out of a hole? A. I don't believe that's the way I would phrase it, no.

Q. I know you wouldn't phrase it, but it's true nevertheless, isn't it? A. I don't believe so, no, sir.

Q. I will ask the question once more and I'll move on. I want to suggest to you that you knew at the end of August 1998 that the purpose, and only purpose, of the GCR contract was to prop up the balance sheet of the company as at 30 June 1998. What do you say? A. I think that I've clarified that. What I just said to you is I now believe, on further reflection and looking at my notes, that that transaction was offset by the increase in the prudential margin of $5m at 30 June." 190 He expanded on this at T4412.13-.21: "A. On reflecting on that last night after my testimony, I said to myself, well, $5m - that would be material, so he had to get comfortable with it some other way in order for it to become immaterial, and that's where I did that logical thinking, at least in my mind, that that's probably where we came up with the concept of increasing the prudential margin, because then the P&L impact would then become immaterial; it would be zero or something close to that." 191 The criticism that the plaintiffs make of Mr Deery's evidence in this respect is not answered by my finding, later in these reasons, that the prudential margin was increased to offset the benefit of leg 1 for Australian GAAP purposes. 192 On reflection, and having considered carefully the whole of Mr Deery's evidence on this topic, I do not accept the plaintiffs' submissions based on the change in his evidence. When the question was first raised at T4397, Mr Deery was shown the minutes of the audit committee meeting and a copy (not his) of PwC's letter. It appears both from his evidence and from the document itself that his own copy of that letter had been annotated. He said, and I accept, that the annotations were made by him in the course of the meeting. With some hesitation, I have come to the conclusion that the change in his testimony was prompted, as he said it was, by reflection overnight with the benefit of considering his own copy of the letter and his annotations on it. 193 I have come to the conclusion that I should accept as truthful the substance of Mr Deery's evidence. Mr Morrissey 194 My impression of Mr Morrissey at the time was that he gave his evidence in a straightforward fashion, and that I could accept him as a credible witness to the extent of his recollection. 195 The plaintiffs make a number of criticisms of his evidence. The first of those criticisms relates to his refusal to accept that the company's need of capital in October 1998 was "urgent": something that the plaintiffs submit was obvious. Mr Morrissey himself accepted that he might be "quibbling" (T4553.2). He then made, in the same answer, what seems to me to be the obvious point that, having regard to the quality of the business written by the company in the past, it might not be a bad thing if it wrote less business in the future (the unspoken but self evident assumption being that the company's ability to write business was to some extent a function of the amount of its capital). I do not regard this passage of evidence as reflecting adversely on his credibility. 196 Other answers given by Mr Morrissey are said to be "implausible", or otherwise such as should not be accepted; but the plaintiffs did not put detailed (or any) argument in support of the labels that they attached to the evidence. In those circumstances, I see little point in considering the submissions in detail; it is sufficient to say that, having read both them and the passages of transcript to which they relate, none of them, individually or together, dissuades me from the view that I have expressed as to Mr Morrissey's credibility. Mr Peck 197 I found Mr Peck's evidence to be unsatisfactory in many respects, to the point where, considering it overall, I have concluded that I cannot regard it as reliable. I refer, without intending to be exhaustive, to the following matters:

(1) There was a real issue between the plaintiffs and Phillips Fox as to whether Mr Peck accepted his offer, as a director of NCRH, in the ordinary course of Phillips Fox' business. This gave rise to a number of factual issues, including as to whether Phillips Fox billed NCRH for work done by Mr Peck that related to his duties as director or that could be classed as management work, as opposed to the provision of professional legal services. Mr Peck sought to maintain the distinction. In that context, he was questioned on the following statement in section 11.12 of the prospectus, which dealt with directors' interests, in the following words: "- Professional Fees of A$176, 400 were paid to Phillips Fox Lawyers, of which Mr Peck is a partner, in respect of management of New Cap Re." Mr Peck gave evidence in relation to that (T4658.41-4660.4; 4660.42-4661.20). He asserted, in between equivocations and prevarications, that this was an error in the prospectus, which he had not hitherto noticed.

I regard Mr Peck's assertion of error in the prospectus as evasive and untruthful; and likewise, having regard to his claim to have read the draft prospectus carefully, his assertion that he had not noticed the alleged error until it was drawn to his attention in cross-examination.

(2) On 11 January 1999, Mr Peck sent an e-mail to Mr Daya dealing with a number of issues relating to NCRH. In one of the points in that e-mail, Mr Peck stated that the company's "credit and reputation is [sic] so low that we are only being offered the bottom of the barrel business". He was questioned on that at T4689.30-4692.21. That evidence is marked by quibbles, evasions and prevarications. It is not evidence that inspires any feeling of veracity.

(3) Another key issue in the case related to the purportedly retrospective operation of leg 1 of the GCR transaction. Mr Peck's view, as expressed in a memorandum to Mr Ghose in August 1998, was that NCRH was required to report on the state of affairs as at the end of the financial period in question, 30 June 1998; and that there was no smoothing cover in force at that date. He gave the following evidence at T4702.20-4703.32: "Q. What was the significance, Mr Peck, of compliance or non-compliance with the Dresdner net worth covenant, as you understood it at that time? A. I recollect that my understanding was that if we didn't comply with a covenant in the loan, then that would be an event of default, or some other term under the documentation, which would probably give Dresdner an option to call up the loan. Q. You say that Mr Aroney put to you, as it were, a proposition that there should be entered into a stoploss contract for the purpose of producing accounts that wouldn't disclose a breach; is that the substance of it? A. Just a couple of points, if I may. I did the analysis with Aroney. Whether he was the first person to tell me, or Daya or Williams, as it says there, I'm not clear; I don't recollect. It was put to me that it was a method of complying with the covenant, I suppose, is how I'd put it.

Q. I'm sorry, it was a method of complying? A. Yes.

Q. When you say "method of complying", what do you mean, Mr Peck? A. Well, I understood that this was an arrangement that wasn't uncommon in the reinsurance world and that if we entered into it, the result would be that we therefore complied with the Dresdner net worth covenant.

Q. Was it your understanding that the compliance or non-compliance with the Dresdner covenant was an important matter with respect to the imminent publication of the company's half-yearly accounts? A. Yes.

Q. That meant that the company, for those half-yearly accounts, had to show net tangible assets of $125m? A. That was my understanding. Q. You knew as at 26 August 1998 that looked at as at 30 June 1998, the company had failed to achieve that threshold; correct? A. If it didn't enter into this transaction, yes.

Q. As at 27 August 1998, Mr Peck, you knew that looked at as at 30 June 1998, the company had failed to achieve that threshold; correct? A. I think - that wasn't quite how I saw it at the time, but I think that --

Q. Well, how else could one see it, Mr Peck? A. Just let me finish, please.

HIS HONOUR: Mr Hammerschlag, I think you interrupted there.

THE WITNESS: I think that that is - as I say, you'd have to say that as a result of that conversation, yes, that's what I knew."

He then gave the following evidence at T4706.1-4707.15: "Q. In 1998, Mr Peck, you were a solicitor of this court, weren't you? A. Yes.

Q. You were an officer of this court, weren't you? A. Yes.

Q. You were a director of a public company? A. Yes.

Q. And you understood that the company had to report on its position as it stood on 30 June 1998? A. Yes.

Q. And you understood that the period you were required to report on was the state of affairs as it existed on that date? A. Yes.

Q. You understood in August 1998 that it would be a breach of your duty to reflect in accounts the position as at 30 June 1998 which did not in fact pertain at that time, didn't you? A. No.

Q. In fact, you wrote a memorandum for a discussion with Mr Ghose in which you recorded that "30/6/98 is the end of the period and we are required to report on state of affairs as at that date"? A. I recall my concern.

Q. And you said there was no smoothing cover at that date, didn't you? A. Yes.

Q. The significance of that was, Mr Peck, that you, as an officer of this court, knew on 27 August 1998 that there was no smoothing cover at that date? A. At 30 June?

Q. Yet you signed approval of accounts which reflected the substance of a transaction as having occurred at that date, didn't you? A. Yes.

Q. That was dishonest, Mr Peck, wasn't it? A. No.

Q. And you knew that it was dishonest because, Mr Peck, you knew that the company had an obligation to report, as it were, on a snapshot as at 30 June 1998? A. Mr Hammerschlag, I know I said that and it was a concern I had. It was allayed by two things: it was allayed, first of all, by it being explained to me that reinsurance transactions can be entered into with retrospective effect; and it was allayed to me by the comments made confirming that we could enter into a contract at that date with retrospective effect and book it in our accounts, by Mr Murray." I regard that last answer as evasive and untruthful. I consider that it marks an attempt by Mr Peck to retreat from, or disavow, the state of affairs as he understood them and explained them to Mr Ghose in August 1998.

(4) On 27 August 1998, Mr Peck was attending a conference at a resort in Ayers Rock. PwC's letter of 27 August 1998, commenting on the draft financial statements, was sent to him by fax. He claimed to have read it and, among other things, to have realised that Messrs Deery and Morrissey (who were to participate by telephone in the audit committee meeting) would not understand the reference to the stop loss contract (see his statement dated 4 October 2005, exhibit 9DX 1, paras 255 and following). He said that he telephoned Messrs Deery and Morrissey shortly before the meeting and had a discussion with them in the course of which, among other things, he discussed leg 1. Messrs Deery and Morrissey denied this. The telephone records of the resort showed that no such call was made, although they did show that Mr Peck made two separate calls, each of some length, on that day: to Mr Aroney and to Mr Daya. There were other calls also shown; but none of those was to Messrs Deery or Morrissey. Although Mr Peck had his mobile phone with him, it became accepted that it did not function at Ayers Rock.

Mr Peck was cross-examined on this at some length from T4852.26-4858.20. The only conclusion that could be drawn from the matters put to him (none of which he denied) was that his evidence, of having called Messrs Deery and Morrissey, was wrong. He was prepared to go no further than this (T4858.15-.20): "A. Mr Gleeson, your Honour, I have to, in light of this evidence - I'm not sure about the mobile telephone, but I still - I recollect speaking to them in the way I've given my evidence, but I accept that there is no evidence to support it and it might be wrong, but it still remains my recollection that I spoke."

It was plain that Mr Peck's recollection of having called Messrs Deery and Morrissey was mistaken. His failure frankly to accept this reflects adversely on his credibility. 198 I have come to the conclusion that I should not accept as reliable Mr Peck's evidence, to the extent that it bears on any contested question of fact. Mr Aroney 199 Mr Aroney's evidence was marked by features which, in my view, render it unacceptable. I mention some (out of a substantial number) of those features:

(1) He was questioned about a late adjustment to the accounts for the period ended 31 December 1997. The amount for claims notified was reduced by $2 million, and a corresponding increase was made to the prudential margin. It was plain (including from documents shown to Mr Aroney) that this was done to enable the company to show compliance with the minimum net worth covenants in the Dresdner loan facility. Mr Aroney would not accept this plain truth (T5109.19-5110.26). When confronted with further documents demonstrating the same conclusion, he sought to resile from the explanation offered earlier, and to proffer another, no more acceptable, explanation (T5110.28-5111.26).

(2) Mr Aroney refused to acknowledge that by June 1998 he was aware of a likely deterioration, on the 1997 book of business, of about USD20 million (T5123.24-5126.18); and in the course of this evidence, sought to play down as "a bit of flippancy" comments made by him in an e-mail to Mr Rob Eastham of NCRB that indicated all too clearly that he was in fact aware of the deterioration. Ultimately, after being confronted with further documents (T5127.1-5136.27), Mr Aroney was forced to concede that he may have been aware of that deterioration; but even in making this concession, he did so in a grudging way (T5136.31-.35): "Q. Does that assist you to recall that in your memorandum of 2 June, which I took you to a short while ago, where it referred to $20m, it was referring to the $20m deterioration of reserves as at 31 December 1997? A. Yes, it could have been." When pressed with the matter, Mr Aroney took refuge in evasion (T5137.2-.28): "Q. In short, I'm putting to you that you knew there had been a $20m deterioration in the 1997 year of account, and yet when you assessed the net assets of NCRH for the purposes of submitting them to Dresdner and the ISC the net assets remained at $142m. Can you explain that? A. There may have been some notification of losses on the 1997 year, and I was aware of that. The process - and I will repeat it - for preparing 31 March was not to undertake a full actuarial review again. We had just come off the back of an actuarial review. There were a number of assumptions in preparing the 31 March quarter-end accounts, including in particular how the portfolio would roll forward.

As I said before, it was not uncommon for - the practice at the time was absent an actuarial review, which had just been completed, a break-even underwriting result could be assumed. That was my understanding of what the practice was in preparing March accounts.

I think, from recollection, in that March set of results, there was some assumed deterioration in the book, but there was not a level of precision in preparing those accounts that I think you're trying to infer, and it was certainly something that - nothing that I did to indeed limit the deterioration that I knew was there, if that's what you're implying." I regard this aspect of Mr Aroney's evidence as inconsistent with the existence of any real desire to tell the truth according to the best of his ability.

(3) Mr Aroney was cross-examined on an e-mail sent to him by Mr Daya on 16 June 1998, which forwarded an e-mail from Mr Eastham to Mr Daya. In the first e-mail Mr Eastham, speaking of the proposed stop loss contracts that were then under negotiation between NCRH and GCR (through the medium of Guy Carpenter), used a number of expressions: " … a little naughty and amoral … " " … the auditors would definitely not accept it … " "Commercially, however, it does achieve what you were looking for on the proviso that its [sic] kept from the auditors … " "Your final problem would be to get this through the Board."

It was plain that Mr Aroney understood the full import of what Mr Eastham was saying; one would not have needed to have been a qualified accountant, and the chief financial officer of a listed reinsurer, to understand that. Mr Aroney does not appear to have protested at the proposal (then current) to enter into the large stop loss contract. Nor does he appear thereafter to have protested at the proposal to enter into the small stop loss contract, notwithstanding that it was structured in exactly the same way as the large one, and that any reasonably intelligent person must have understood that Mr Eastham's comments would apply equally to the small stop loss contract.

I do not regard that as the conduct of an honest person.

(4) Mr Aroney's evidence was that he did not think that the benefit under leg 1 of the small stop loss contract could be brought to account without reflecting also the likely (indeed, almost certain) liability under leg 2 (see for example T5158.16-5160.15). Nonetheless, and despite his position as the chief financial officer of NCRH, he did not discuss with PwC, or even draw to their attention the existence of, leg 2. The only explanation that Mr Aroney could offer was that he believed Mr Daya had done so (see T5241.16). I do not accept that. Mr Aroney gave no evidence of any foundation for this belief.

I do not regard this conduct as bespeaking honesty.

(5) On 27 August 1998, Mr Aroney sent an e-mail to Mr Eastham showing the movements from the half yearly figures under Australian GAAP to the same under US GAAP (bearing in mind that US GAAP figures make no allowance for prudential margin, or for discounting). Mr Aroney warned Mr Eastham that the figures should not be shown to the auditors. When asked what he meant by this he said (T5461.5-.12): "A. I'm just not clear on what it exactly means - "they are required to audit". I'm not exactly sure what - I can't recall what exactly it was. On the basis that it - I suppose "on the basis that it is not to be shown to the auditors" is really just, in my mind, a reference to, you know, potentially a sensitive issue that Ghose and Daya were going to talk to Dresdner about."

I regard that evidence as evasive and untrue; and his warning to Mr Eastham as inconsistent with obligations of honesty.

(6) Mr Aroney was questioned further as to why he had not disclosed leg 2 to the auditors. He disagreed that he was prepared to deceive them, and then gave the following evidence (T5461.20-5462.46): "Q. Are you suggesting that the auditors shouldn't be told information that is sensitive? A. Well, it was sensitive in - I assume sensitive on the part of how Dresdner were going to - or at least Tony Valencourt and the discussion was going to proceed between Ghose and Tony Valencourt.

Q. That was sensitive, wasn't it, because if he was going to react badly, PricewaterhouseCoopers should be told about that? A. Well, no, not to do with Pricewaterhouse. I suppose to do with the way Daya wanted to handle that relationship.

Q. Look, why didn't you go to Pat Murray and say, "Pat, I have to tell you something else. We only achieved compliance with the net worth covenant by booking the GCR transaction without any offset and by making deductions to IBNR which are unusual"? A. I don't think it was something that he had raised with me and it was - I think it was just genuinely understood that that issue would be worked through between management and Tony Valencourt.

Q. Are you seriously suggesting that your only obligation is to raise matters with the auditor that he raised with you? A. No.

Q. Why did you say, "I don't think he raised it with me"? A. Well, that's part of it. It was just an understanding then. As I said, my - I think our state of mind that was that was just something that had to be resolved.

Q. Without disclosing the problem to the auditors? A. Not "disclosing the problem", I don't agree with that.

Q. The state of mind was this, wasn't it, Mr Aroney, that it should not be disclosed to the auditors because if it did there was a risk that the non-compliance with the net worth covenant would cause an audit problem, an audit issue? A. That was not my state of mind at all.

Q. That it might precipitate a bit more work on the going concern assumption? A. Not at all, no.

HIS HONOUR: Q. Mr Aroney, how was Mr Murray, as auditor, supposed to raise something with you if no-one from the company told him about it? A. All I was getting at, your Honour, is the Dresdner covenant was something that we sort of had dealt with before and knew there was a gap. When you say --

Q. So do you think he might have somehow divined that the accounts were being massaged to produce a US GAAP figure that showed compliance and question you as to how that was done? A. No, all I'm saying is that his state of mind, as was mine, was that that was something that was going to be discussed between the company and Dresdner and it had to be resolved.

Q. How do you know it was his state of mind, Mr Aroney? A. How do I? Q. Know that it was his state of mind? Is that another assumption? A. It is an assumption, but I know that Mr Murray did raise that issue, the Dresdner covenant, and he had raised it before, and waivers and other - waivers in particular had been put in place." That is not evidence that one would expect to be given by an honest witness seeking to tell the truth to the best of his ability. 200 In my view, Mr Aroney's evidence should not be accepted except where it is against interest or where it is corroborated by other, acceptable, evidence, or where it accords with the probabilities objectively ascertained. Mr Williams 201 I have reached a similar conclusion in respect of the evidence of Mr Williams. It, too, was marked by features that I regard as unacceptable. Again, what follows is not intended to be comprehensive:

(1) In para 7.3 of his statement dated 25 September 2005 (exhibit 10DX 1), Mr Williams dealt with NCRA's accounting systems. Having detailed the various systems that were put in place up until the latest system (known as the SICS system), he said in para 7.3.4: "I had a very poor understanding of the systems. If I thought there was a problem it was because I heard people who used a system complaining, rather than because I possessed any technical understanding of my own."

Mr Williams was cross-examined on that statement at T6451.24-.36: "Q. Turn to paragraph 7.3.4 of your statement. Do you see the first sentence? That's not true, is it? A. It's designed to --

Q. Mr Williams, that is not true, is it? A. No, it is true. It is true, yes.

Q. Which is true - the evidence that you just gave his Honour or the evidence you said in that statement? A. I had a poor understanding of the SICS system. I had a good understanding that there were systems, but the actual operation of the SICS system I had a poor understanding of. Sorry, I should have been more specific."

(2) Mr Williams agreed that in discussions with Mr John Holdsworth of Guy Carpenter UK, relating to the large stop loss contract, he said words to the effect that he "wanted documentation to create a good looking audit trail that gave the impression that they [Guy Carpenter] were trying to sell you [NCRH] some smoothing contract." (T6466.33-.40, noting that the acknowledgment was only given after some evasion).

Mr Williams then gave the following evidence in relation to that statement (T6466.42-6467.20): "Q. Was that an honest thing to do, Mr Williams? A. I can't comment on that. I was starting the negotiation process with him to see what we could get as a deal.

Q. Was this the deal that you had an objection to entering into, Mr Williams? A. It was indeed, yes.

Q. So is this the deal that you objected entering into that you wanted him to create some paper to give the impression that they were negotiating or that they were trying to sell you this contract? A. It is, yes.

Q. This is the deal that you had an objection to entering into, and you said, you say, to Mr Peck that you would resign if the company proceeded? A. It is. I agreed with Mr Peck at the time, given the state of my relationship with Mr Daya, that he would take on the voice of opposition to the contract. I had been asked to negotiate the contract, so I would do so, but at all times make the approval of the contract subject to full holding company board approval and that he would work with the holding company board to make sure that they understood myself and Mr Aroney's objections to the contract". He gave the following further evidence (T6468.43-6469.25): "Q. My question was: what was it that you were doing in trying to have there created an audit trail that looked like you were doing some serious negotiation? Why were you doing that, sir? A. I have no idea.

Q. Is that your serious answer? A. Yes.

Q. You have no idea why you asked for it? A. We were exchanging contracts back and forward all the time and we were trying to amend the contracts all the time to try and get some risk transfer into them.

Q. I want to know from you, and I would like you to tell his Honour, what it was that lay behind a request by you, Mr Williams, to create documents that looked like there was some serious negotiation going on? A. I may have been facetious when I made that comment.

Q. Mr Williams, that is a dishonest statement, isn't it? A. I don't know what made me make the statement, you know.

Q. You made the statement, Mr Williams, because you were seeking to create a transaction to the benefit of the company which, notwithstanding what you say was your protestations, you were keen for the company to enter into. What do you say about that? A. I disagree strongly with that."

I regard the whole of that evidence, and indeed his further evidence on the same topic, as evasive and untruthful. The absurdity of Mr Williams' position is exposed in the following passage (T6470.8-.16): "HIS HONOUR: Q. Can I just ask you this, Mr Williams: am I correct in thinking that you have said that your objective was to negotiate a contract that had an element of risk transfer? A. Correct.

Q. If that was what you were doing, why was it necessary to create a good-looking audit trail? A. I don't know why I made the comment about audit trail."

(3) In relation to the large stop loss contract, Mr Williams gave the following evidence (T6479.31-6480.6): "HIS HONOUR: Q. Mr Williams, before we adjourn, could you just look, please, at the document which is still on the screen. The first paragraph refers to a meeting between you and Mr Jim Ramage in which it is said that you indicated that subject to board approval you expected to give an order to GCR. A. Yes.

Q. Was that in relation to the $40m or the smaller policy; do you recall? A. I can't recall. The whole process was that we were trying to string out General & Cologne Re as long as possible. They were pushing for an order, and we were using the board as an excuse to say, "We are not ready to go yet."

Q. Did you have a discussion with Mr Ramage in which you said words to the effect of those there attributed to you? A. "Subject to board approval we expected to give an order," yes.

Q. And that was at some time prior to 22 July 1998? A. Yes."

A little later, he was confronted with inconsistent evidence that he had given on the same topic in a liquidator's examination (T6482.23-.43): "Q. Do you recall being asked about whether or not you had given Mr Smith a verbal order subject to board approval? A. I don't.

Q. Do you recall giving an answer to Mr Epstein to the following effect in relation to this email that I have shown you: A. ... I would say that this statement is absolutely incorrect in that we did not - I did not give him a verbal order subject to board approval. A. Okay, the whole issue is inaccurate in that an order subject to board approval is not an order.

Q. That is not the point, Mr Williams, that I'm asking you about. A. We definitely communicated to him that the negotiations had completed and that if the board wanted to approve the deal, then he had an order." The evidence that he gave in the examination during June 2000 cannot be reconciled with his evidence on oath before me.

(4) Mr Williams said that it was "incorrect … fallacious" to say that stop loss cover would give NCRH comfort as to the adequacy of its reserves, and expanded on this (T6535.38-6536.1). He was then confronted with the following statement in the prospectus: "However, in recognition of the uncertainty highlighted in the Trowbridge Consulting Independent Actuary's Report, and to provide additional comfort as to the adequacy of its reserves, the company is seeking to procure further retrocessional protection, on a stop loss basis, to insulate itself against claim deterioration. As a result, relative retrocessional expense is expected to increase." He gave the following evidence in relation to that statement (T6536.3-.46): "Q. Could you have a look at page 12 of the prospectus, please, PLA.506.001 at 014. Just read the paragraph immediately above 4.4. That is nonsense, is it? That is nonsense, is it, Mr Williams? A. Well, it is potentially badly written, I would say. The two are two different things. The question you asked me is in relation to comfort as to the adequacy of reserves.

Q. And you said that stoploss cover has nothing to do with the adequacy of reserves, and I think you described it as nonsense? A. I said the two are independent things, yes.

Q. Just tell us, is the statement in the prospectus that, "...in recognition of the uncertainty highlighted in [Trowbridge's] report and to provide additional comfort as to the adequacy of its reserves, the Company is seeking to procure further retrocessional protection, on a stoploss basis", nonsense, is it? A. No. Again, those are different things. What this is saying - what the stoploss does is that it addresses the uncertainty; it doesn't address the adequacy of the reserves. You either think the adequacy of the reserves is correct or not. If the reserves are adequate, the stoploss doesn't do anything for you. If there is uncertainty associated with the reserves, the stoploss does something to protect that uncertainty.

Q. Are you telling his Honour that the prospectus statement is nonsense? A. No. I think the prospectus statement is different from what you asked me. It says: "However, in recognition of the uncertainty highlighted in the Trowbridge ... which is uncertainty about it going beyond -- Q. Yes, read on, Mr Williams. A. The stoploss provides protection for that uncertainty. I think in this prospectus there was a range of - the Trowbridge reserve presentation was done as a range, as an uncertainty range."

Although he denied, in a passage immediately following the one I have just set out, that he would "just sit there in the witness box and say anything that comes into his [head]" (T6537.1-.3), I had the clear impression from his attempts to explain away the statement in the prospectus, and its inconsistency with his own evidence, that he was doing precisely that. 202 As I have indicated, I do not accept Mr Williams' evidence except to the extent that it is against interest or is corroborated by other, acceptable, evidence, or accords with the probabilities objectively ascertained. Messrs Minty and Atkins 203 No party put submissions on their credibility. In general, and subject to the obvious limits upon their memory (not surprising, with the passage of time), I formed the opinion that they were seeking to the best of their ability to give honest evidence, and that, within the limits of memory, their evidence should be accepted as reliable. Mr Murray 204 The plaintiffs accepted that Mr Murray "in general … presented as a candid witness" (written submissions in chief, chapter 7, para 1(4)). They then submitted however that "he did, on occasion, find it difficult to face up to what was his real level of knowledge at the time" (ibid). Nonetheless, no attack was made on his credibility. 205 My observation of Mr Murray was that he was somewhat defensive and uncomfortable in demeanour. It is quite understandable why he should have been so, and I do not regard those matters as reflecting adversely on his credibility. 206 Thus, whilst I think that Mr Murray's evidence needs to be scrutinised with care, I have concluded that he sought to tell the truth to the best of his ability. Mr Mutton 207 Speaking in general terms, Mr Mutton seemed hesitant, and unwilling in many cases, to answer questions directly. He gave me the impression, throughout his cross-examination, that he was looking ahead for pitfalls, and framing his answers accordingly. Further, and at a level of generality, many aspects of Mr Mutton's evidence - including on key features of the plaintiffs' case such as the question of bills rendered by Phillips Fox for Mr Peck's time spent as a director - involved the drawing of extremely fine distinctions. (I hesitate, even at a level of generality, to use the word "hairsplitting".) 208 A clear example of this lastmentioned tendency is to be found in Mr Mutton's cross-examination on one aspect of the DDC meeting of 17 December 1998. As he said in his statement dated 23 August 2005 (exhibit 14DX 1) at paras 341 and following, that meeting was called to discuss (at least among other things) a memorandum prepared by Mr Williams, dated 11 December 1998, dealing with adverse claims developments. 209 Mr Mutton accepted that, towards the end of that meeting, he said words to the effect, "My own opinion, based on the information currently available, is that a supplementary prospectus is not required." 210 Mr Mutton was cross-examined on this statement. He said, among other things (T6918.9-6919.30): "Q. It was in that context that you noted that depending on what further information was provided, there were two issues to consider, and you referred to them? A. Yes.

Q. In doing that, you were expressing a legal view as to what the company and, for that matter, the due diligence committee had to take into account? A. I would agree with that.

Q. Then you go on, that you noted: ... that the test for deciding whether or not it is necessary to issue a supplementary prospectus is: would the matter affect the decision making of an investor who commonly invests in securities In deciding whether or not to subscribe for the converting notes. You were there expressing a view as to the interpretation of those provisions of the Corporations Law which deal with supplementary prospectuses; correct? A. Yes.

Q. You then said that your opinion: ... based on the information currently available, was that a supplementary prospectus was not required as there had not been a sufficiently significant change to matters included in the prospectus to warrant it. In expressing that view, you were effectively applying the facts as you knew them to the law as you perceived it in coming to a conclusion; correct? A. Correct.

Q. That's something that lawyers commonly do in giving advice to clients as to whether they need to disclose matters to the Stock Exchange to comply with Listing Rule 3.9 or whether they need to issue a supplementary prospectus? A. Correct. Q. It's what I might describe, with all due respect, as common garden legal advice? A. In this context, no.

Q. What's the difference in this context from any other context when this sort of advice is given? A. I am clear in my own mind in terms of deliberations of the committee. I was expressing my own opinion as a due diligence committee member, yes, as you say, applying the facts to the law, which I had set out for all DDC members to apply their own commonsense and expertise and knowledge of the facts to. I was merely stating my own opinion in that context. It was not my intent or the effect of what I said to give legal advice.

Q. I want to suggest to you that it would be very difficult for anyone at the due diligence committee to have perceived it otherwise; do you agree with that? A. No.

Q. Because I want to suggest to you that that is what you were in fact doing? A. No." 211 Mr Mutton's distinction, between stating his own opinion and giving legal advice, appears to be illusory. On any view, it involves the drawing of a very fine distinction. On a less kind view, it involves hairsplitting. 212 This characteristic may be seen in other aspects of Mr Mutton's evidence. I refer to his extended evidence dealing with charges apparently made for Mr Peck's time at DDC meetings (T6736.34 and following). The core of this aspect of his evidence (which I do not intend to quote in detail) may be found in the following exchange (T6739.34-6740.36): " HIS HONOUR: Q. Mr Mutton, you were asked a little moment ago, "It's a Phillips Fox bill charging the client for time spent by Mr Peck?" You answered, "No, I don't agree with that." You then were asked, "You seriously dispute that, Mr Mutton?", and you answered, "Yes". Could you explain why you seriously dispute that? A. What I understood - what my answer was trying to convey, your Honour, was that my clear understanding was that Bill was charging his time as a director on the capital raising to the company. As a matter of administrative convenience, I had a discussion with Bill that involved Bill Peck's time being included on the capital raising file. In my view, that was a transparent process; the company had agreed it. There was never any question in my mind that Bill was rendering professional fees as a lawyer or as a representative of Phillips Fox by virtue of the fact of the inclusion of his time in this bill or otherwise.

Q. As a matter of practice - and I am very innocent in these matters - am I correct in understanding the total charge levied by Phillips Fox comprehended all the times or amounts of work done at the various charge-out rates for te various individuals nominated? A. Could you clarify that for me?

Q. The cover sheet was a charge for $20,000-something; is that correct? A. Yes.

Q. And then the schedule itemised all the professional work that went into the making up of that amount; is that correct? A. That's correct.

Q. And that professional work included some time spent by Mr Peck? A. Yes.

Q. So that the total charge included charges for Mr Peck's time as itemised in the schedule? A. Strictly speaking, that is correct.

Q. And the firm received payment of the total? A. That would be correct, yes.

Q. Did the firm account to Mr Peck for his share, as you understood it? A. No. My understanding was that Bill turned over all his directors fees to Phillips Fox." 213 He expanded on this at T6741.3-.38: "HIS HONOUR: Q. Mr Mutton, I will just run over what I understand to be the effect of the evidence that you gave before lunch and invite you either to agree or to correct me to the extent that I have it wrong: your understanding was that Mr Peck had agreed with the company that he could charge, in addition to his directors fees, for his time spent on the due diligence process? A. Correct.

Q. And that he could do so at the hourly rates that he would charge were he doing it as a partner of Phillips Fox? A. Correct.

Q. Under the partnership agreement, as you understood it, Mr Peck was nonetheless obliged to account to the firm for his earnings derived in that fashion? A. Yes, both those fees and his fixed directors fee.

Q. As a matter of administrative convenience, Phillips Fox included his hourly charges in its overall bill? A. Correct.

Q. And, as a matter of administrative convenience, received payment and banked it? A. Correct. Q. Was there, to your knowledge, any other journal or other entry made to show, as it were, a notional accounting to Mr Peck and a notional accounting back? A. Not - I don't know.

Q. Is that the complete explanation of what happened, so far as you understood it, in relation to the charges Mr Peck made for his DDC work? A. I believe that's complete."

214 In this area also, the distinction apparently drawn by Mr Mutton between Phillips Fox charging for time spent on legal work and Mr Peck personally, but through the agency of Phillips Fox, charging for time spent as a director (including on the DDC), is fine to the point of being illusory. 215 This last aspect of Mr Mutton's evidence appeared to me to reflect a very keen appreciation on his part of the consequences that might follow to the partnership should it be held that the partnership was charging NCRH for Mr Peck's time spent as a director (as, I have to say, the documents strongly - almost unanswerably - suggest was happening). 216 In connection with this last point, it may be noted that the bills rendered by Phillips Fox stated that they were for "professional services". Mr Mutton, however, would not accept that if his explanation of the "real" position were correct, that description could not be accurate (T6746.3-6747.21): "Q. If you look at the narrative at the top, in the middle of the bill, the first line, as with the other bills do you see the words "to our fees for professional services in this matter"? A. Yes, I do.

Q. Is it your evidence, Mr Mutton, that these bills did Not represent professional services provided by Phillips Fox? A. With respect to Mr Peck's role, that's correct. Q. So these bills, each and every one which refers to professional services - insofar as there is anything in the narrative done by Mr Peck, that, you say, wasn't the rendering by him of professional services; is that correct? A. Unless there is something in these bills that I'm not aware of which relates to some other services that Bill is performing, but I can't see that that's the case, correct; that is my evidence. These services - the time entries by Bill for the capital raising file - that's what this is - are solely in respect of his actions as a director.

Q. Across the top of the first line is "Memorandum of Professional Fees". A. Yes.

Q. Must his Honour take it from your evidence, Mr Mutton, that that, insofar as there is any time or charge for Mr Peck's services, is also wrong? A. Well, I think - I disagree with that proposition. It was clear with the client the basis on which Bill's time as a director was to be charged, and to describe that as being wrong is incorrect in those circumstances.

Q. Isn't it your evidence that the amounts charged in respect of Mr Peck are not professional fees being charged by Phillips Fox? A. That is my evidence, yes.

Q. Doesn't it follow, Mr Mutton, that so far as the description "Memorandum of Professional Fees" is concerned with respect to Mr Peck, with respect to Mr Peck that must be inaccurate? A. As I explained, in the context of rendering this bill to the client, it was clear and agreed with the managing director of the client exactly what the bill comprised.

Q. Just pardon me for asking the question again. I wish to afford you an opportunity to answer it. I am putting to you that it must follow from what you have said that the description in your bill as to professional fees with respect to Mr Peck must be inaccurate. Do you accept that? A. I accept that the fees that are shown against Mr Peck's name are not for professional services.

Q. And it must follow that the description of them as "professional services" in the bill is therefore inaccurate? A. As I have explained, I don't accept that they are inaccurate. The client knew and agreed to exactly what those charges were.

Q. Leaving aside what you say the client agreed, Mr Mutton, I am seeking from you whether you are prepared to accept that the description is inaccurate? A. In the circumstances, no, I don't agree with you". 217 There were other troubling aspects of Mr Mutton's evidence. For example, he sought to depart from what he had said in a liquidator's examination on 2 June 2000 (T6826.31-6827.36): "Q. Do you remember forming the view that as a consequence of certain of the matters that were the subject of Mr Williams' report, the Trowbridge report in the prospectus was no longer accurate? A. I remember there were issues in respect of the Trowbridge report caused by the additional matters, but I never formed the view that the Trowbridge report was inaccurate, and I don't recall anybody else on the DDC doing that.

Q. I would like you to have a look at the evidence that you gave to the registrar on 2 June 2000, which is at PLA.501.152 at page 189, which is page 510 of that transcript. That is where the passage that I would like you to look at starts. I would like to look at the passage at the foot of the page. Indeed, it would be helpful if you would just look at the start of the page, because that will tell you that what is being talked about is the due diligence committee on 17 December. Then I would like you, if you wouldn't mind, to direct yourself to the question and answer which appears on page 511 at lines 48 to 52. A. Yes.

Q. Mr Palmer put to you: Q. What was apparent, though, to the meeting was that by reason of what had been discovered very recently, a statement made in the Trowbridge report was now no longer accurate; correct? A. I believe my recollection is that that was correct. A. Yes.

Q. That was accurate at the time you gave your evidence; correct? A. Looking back, I can see - I'm not sure that that's correct, no. I can see our discussion on this retro gap, as it was called, and whether that would be filled by the Renaissance Re profit, which was taken out in respect of, if I recall rightly, a similar risk in respect of Hurricane Georges, which was where the retro gap was, point one, and I'm not sure, looking back now, whether the Trowbridge report wasn't broad enough, anyway, with respect to its statements concerning the Hurricane Georges losses to encompass the retro gap.

Q. Let me put to you, Mr Mutton, in the clearest terms that the evidence you gave on that day was an accurate representation of your state of mind on 17 December 1998. A. It was certainly my answer to the question. Whether it is a correct answer or not, I am disputing." 218 In my view, Mr Mutton was keenly aware of the potential danger to Phillips Fox of his evidence given before the liquidator, and sought on the basis of unmeritorious and unfounded distinctions to escape from it. I do not regard that as consistent with the obligation to give honest evidence. 219 I will give one last example. Dr McKenzie had held a view for some time that, notwithstanding claims deterioration, there was an argument that the value of the converting notes to be issued could be largely insulated from the impact of claims deterioration on the share price. Dr McKenzie ceased to hold that view, and by an e-mail of 21 December 1998 to Messrs Mutton and Murray stated that the argument could not reasonably be sustained in the context of considering whether to issue a supplementary prospectus. 220 In para 353(f) of his statement (exhibit 14DX 1), Mr Mutton said that his opinion expressed at the DDC meeting on 17 December 1998 (see para [209] above) was based, among other things, on the proposition that the value of the converting notes would not be "dependent on short term fluctuations in the ordinary share price". It is plain, from his reference in that sub paragraph to Dr McKenzie, that he was referring to Dr McKenzie's initial opinion. 221 Mr Mutton was cross-examined on Dr McKenzie's e-mail. He refused to concede that Dr McKenzie had in substance changed his mind, and withdrawn his opinion (T6834.8-.42, 6838.30-6839.4): "Q. Hadn't, however, you been informed by Dr McKenzie that one couldn't reasonably sustain the argument that the value of the note was largely insulated from the shares in considering whether to issue a supplementary prospectus? A. I think what you are referring to is an email that Ian sent to me, which had some analysis from one of the in-house analysts at Macquarie Bank.

Q. Yes. I am asking you whether or not you had been informed by Dr McKenzie that the argument that the value of the note was largely insulated from the shares couldn't be reasonably sustained in considering whether to issue a supplementary prospectus or not? A. No.

Q. Just look at the email, then, from Dr McKenzie to you at MCQ.505.514, page 7182. It is an email from Dr McKenzie to you and Mr Murray on 21 December. A. Yes. I have read that.

Q. Do you see paragraph 1? A. Yes.

Q. Didn't Dr McKenzie inform you that that argument could not reasonably be sustained in the context of whether to issue a supplementary prospectus? A. Ian and I spoke about his email in the 22 December meeting, the meeting where we assisted in the preparation of the company's announcement. Ian raised the email and we spoke about it. I was satisfied that he in fact did not think that it was an issue. So, on the basis of that conversation, I was satisfied that, if you like, this was some - the way I understood it, this was some boffin in Macquarie Bank raising this point and, as a matter of practice, Ian still stood by his initial view.

MR HAMMERSCHLAG: Q. My question to you before the luncheon adjournment was in relation to the document which is MCQ.505.514, that you understood that what Dr McKenzie was telling you was that the argument which had been raised by him in relation to the value of the note being insulated from the shares in the context of the issue of a supplementary prospectus could not be reasonably sustained, and that is how you understood his email, did you not? A. When you look at the words in the email, it uses two qualifiers - "reasonably sustain the argument", and then the value of the note is "largely insulated" so I wouldn't completely agree with your statement, no. Q. Let me suggest to you that the statement you have made in paragraph 353(f) of your statement that you placed significant or considerable weight on Dr McKenzie's opinion referred to in that paragraph is not a candid one. What do you say about that? A. No.

Q. You disagree, in other words? A. Yes." 222 I regard Mr Mutton's refusal to acknowledge the plain terms and import of Dr McKenzie's e-mail of 21 December 1998 as inconsistent with his obligation to tell the truth according to the best of his ability. 223 I have sought to make allowance for the fact that Mr Mutton's milieu is the commercial world, and that he may be unfamiliar with the courtroom environment (a comment that could be applied to many other witnesses in this case). I have sought to make allowance also for the fact that Mr Mutton no doubt felt considerable strain, as a result of the way in which his actions and decisions were being called into question, and because he was being asked to defend them many years after the relevant events. I am also conscious of the fact that much of Mr Mutton's evidence is underpinned by, or based on, contemporaneous documents and notes. In general terms, there has been no challenge to the authenticity of those materials; and it has not been suggested that, consciously or otherwise, they have some bias or predisposition. 224 Taking all those matters into account, and balancing them with my overall impression of Mr Mutton in the witness box, I have concluded that I should be careful before accepting his evidence except where it is against interest or where it is based on his or others' contemporaneous notes or other documents, or corroborated by other, acceptable, evidence, or is consistent with the probabilities objectively ascertained. Mr Bromley 225 There were aspects of Mr Bromley's evidence that troubled me. I formed the very strong opinion that he was seeking to rationalise, or explain away, some of the things that had been done by Guy Carpenter UK. This led to a number of answers that in my view were non responsive or equivocating. I refer, by way of example only, to:

(1) His evidence at T6951.28-6954.41, relating to an e-mail sent to him by Mr Sheridan. In my view, Mr Bromley sought wherever possible to avoid questions that he perceived to be difficult, and gave answers that sought to evade the perceived difficulty.

(2) His evidence at T6954.45-6956.38, dealing with a letter from Guy Carpenter UK to Mr Daya. Mr Bromley sought continually to avoid giving a direct answer to questions that he perceived to be difficult, and insisted on repeating his formula that there had to be risk transfer because there could be reinsurance.

(3) Mr Bromley's tendency to answer questions by reference to the prescription "there must be risk transfer otherwise there is no reinsurance" is found in the following passage (T6992.44-6994.13): "Q. Do you see that one of the features of that description is that the book to be written on the parallel cover is one that could be easily planned to provide losses? A. Yes.

Q. There is no suggestion of any uncertainty about that, is there? A. Not in that sentence in and of itself, but there must be the requisite uncertainty, for the reasons we described this morning, for the reasons we discussed this morning.

Q. Your reason is that there must be uncertainty, because otherwise it wouldn't be approved as reinsurance? A. That's right. It would not be accepted by the internal auditors, the external auditors, and I dare say the board.

Q. You reason backwards, don't you, that therefore you must construe any description of the document as one which conforms with that formulation?

MR PEMBROKE: I object to the question. MS McCALLUM: I press it. HIS HONOUR: I allow the question.

THE WITNESS: That's always the intention. We're dealing between sophisticated parties, who understand insurance and are meant to understand the accounting rules and regulations relating to reinsurance and the treatment of those transactions, and people know what they are trying to achieve here.

MS McCALLUM: Q. Mr Bromley, I am putting to you that you assume compliance with those obligations as a premise to any answer you give? A. I do.

Q. That is what I meant this morning when I suggested that your answer begged the question. You understood that, didn't you? A. Yes, I do.

Q. There is nothing in this formulation which suggests any uncertainty about the planning of the book that was to provide the losses under leg 2, is there? A. There is nothing in this sentence, but in the absence of that uncertainty, you will not have an effective transaction.

Q. You will not have a compliant transaction? A. An effective transaction, compliant transaction. It will not be agreed by auditors and therefore won't achieve the financial objective that the parties are seeking to achieve.

Q. Unless they fail to apprehend the lack of risk? A. Unless they fail to apprehend the lack of risk, yes.

Q. By reason of the way in which the transaction is presented? A. I suppose that is a possibility, yes." 226 I am conscious that Mr Bromley was not the person within Guy Carpenter (UK or Australia) who had day to day responsibility for the negotiations for the stop loss cover (large and small). However, the force of that point is somewhat tempered by the consideration that Guy Carpenter chose not to call those who did. Nonetheless, making every allowance for the fact that Mr Bromley was not involved on a day to day basis, I have concluded that I should be very hesitant in accepting his evidence where it does not accord with the probabilities objectively ascertained, or where it is not supported by other, acceptable, evidence. Jones v Dunkel submissions 227 The plaintiffs made submissions against Macquarie and PwC, based on the decision of the High Court of Australia in Jones v Dunkel (1959) 101 CLR 298. NCRA made a similar submission against Guy Carpenter. Macquarie 228 The plaintiffs' submission against Macquarie was based what the plaintiffs said was a failure to call three employees: Mr Kent (see para [23] above), Mr Hugh Toll and Mr Cameron Duncan. Each of Messrs Kent and Toll had made a statement that was filed and served. 229 The plaintiffs said that the decision, whether Macquarie should terminate the underwriting of the converting note issue, was Mr Kent's. I conclude in para [600] below that the subunderwriting agreements were not subject to an implied term of the kind for which the plaintiffs contend. It follows that there is no extant dispute to which (on the plaintiffs' analysis) Mr Kent's evidence could be relevant, and no basis for drawing any inference adverse to the Macquarie parties from the fact that he was not called. 230 The plaintiffs submitted that Mr Toll was one of those "allocated to target [Mr Saville] as an investor in the Note issue" (written submission in chief, chapter 4, para 2.6.5). Mr Toll's statement (which was not in evidence) asserted, according to the same paragraph, that he did not attend any presentation to Mr Saville. Since Mr Saville gave no evidence that Mr Toll did attend any such presentation, it is entirely unclear to me why any inference adverse to the Macquarie parties should be drawn from the fact that they did not call a witness to deny something that was not alleged against them. 231 Mr Duncan worked with Mr Toll in seeking to sell the converting note issue to investors. The plaintiffs alleged (written submissions in chief, chapter 4, para 2.6.6) that Mr Duncan "faxed the 7 January 1999 Macquarie Essentials … to [Mr Saville]". It does not follow from this that Mr Duncan could have given evidence on any relevant issue; and the plaintiffs did not identify the issue to which, it is said, his evidence might have gone. PwC 232 The plaintiffs' submission against PwC was based on what the plaintiffs said was a failure to call Ms Payne (see para [57] above) and an employee, Ms Stephanie Smith. Ms Payne dealt with tax matters. There is no doubt that she, together with Mr Murray, represented PwC on the DDC. Ms Smith was one of those assisting Mr Murray in the review of the half yearly accounts to 30 June 1998. 233 The plaintiffs indicated in their written submissions in chief (chapter 7, para 1(3)) that they proposed to make specific reference to areas where Jones v Dunkel inferences should be drawn. 234 The plaintiffs asserted in their written submissions in chief (chapter 7, para 234 - there is some inconsistency in the numbering of the written submissions in chief against PwC) that Ms Payne's "attendance at all or most of the DDC meetings is a reason why her evidence generally as to what transpired at those meetings would have been of considerable assistance to the Court." Thus, they submit, "the failure of PwC to call Ms Payne as a witness is significant." 235 The principle discussed in Jones v Dunkel and numerous subsequent cases facilitates the drawing of an inference in certain circumstances. Where a particular inference, or conclusion, is available on evidence that is before the Court, the Court may be assisted in coming to that conclusion, or drawing that inference, by the unexplained failure of a party to call a witness where, in the ordinary way, the witness could be regarded as having relevant knowledge and as having been "in the camp" of that party. 236 Jones v Dunkel has work to do where competing inferences or conclusions of fact are available. It is not simply a blunt instrument for belabouring a party that fails to call a witness who might have been expected to have been called. The plaintiffs' submissions seem to overlook this point. 237 In their written submissions in chief (chapter 7, para 232) the plaintiffs submitted that Mr Murray did not have a reasonable basis for expressing the opinions which he, as a member of the DDC, expressed through the DDC's supplementary report of 12 January 1998. They submitted further that the same inference should be drawn against Ms Payne, because she has not been called. 238 If, on the evidence, I concluded that Mr Murray had no reasonable basis for making the relevant representations, then it is likely that the same could be said of Ms Payne. In circumstances where she gave no evidence, the inference that she did not possess reasonable grounds could more comfortably be drawn if otherwise it were available. But the plaintiffs pointed to no evidence that is peculiar to her. If this aspect of their case is good, because it should be concluded that Mr Murray did not have reasonable grounds, then it matters not that the same could be said of Ms Payne. As the plaintiffs have structured their submissions, if this aspect of their case fails because it cannot be concluded that Mr Murray did not have reasonable grounds (I apologise for the double negative) then, because there is no additional material relied upon vis a vis Ms Payne, the submission based on Jones v Dunkel goes nowhere. 239 In their written submissions in chief (chapter 7, paras (162) and (163)), the plaintiffs referred to Ms Payne's interest in the Dresdner waiver. They submitted in the latter paragraph that "[p]lainly, Ms Payne considered it a significant matter in the context of issuing the due diligence report, which Ms Payne herself signed." The material to which the plaintiffs referred makes that submission good. The plaintiffs then submitted that "[t]he Court may infer that nothing Ms Payne could have said would have assisted PwC in this regard." I do not understand the point of this submission. As I have said, the material to which the plaintiffs refer makes good the submission; that being so, there is no work for Jones v Dunkel to do. If the Jones v Dunkel point is said to go to some other inference of fact available against PwC because of the failure to call Ms Payne, the plaintiffs do not identify it. 240 The plaintiffs' submissions, vis a vis Ms Smith, focussed on a number of things done by her in the course of the half yearly review. If the plaintiffs were seeking only to make the point that PwC, through Ms Smith, had notice of things that came to her attention in the course of her duties (and in some cases this appears to be the point of the submission - see for example the written submissions in chief, chapter 7, paras 3.4(6), (7), 61(c), (e) and 107) then I would accept it. I note that the paragraphs to which I have referred made no reference to Jones v Dunkel either by name or by principle. 241 Where Jones v Dunkel and Ms Smith were mentioned in the same breath, the plaintiffs did not on any occasion identify the inference that they said should be drawn from the failure to call her. I refer to chapter 7 of the written submissions in chief at paras (61j), (87) and (199). As I have said, it is not enough to show that the occasion arises for the drawing of a Jones v Dunkel inference. It is necessary to identify the conclusion or inference of fact that can more confidently be drawn because that Jones v Dunkel inference is available. Guy Carpenter 242 NCRA submitted that Jones v Dunkel inferences may be drawn against Guy Carpenter for what was said to be their unexplained failure to call the two employees, Messrs Ramsay and Sheridan, who had day to day conduct of the negotiations with GCR and NCRH in relation to the large and small stop loss contracts. Guy Carpenter submitted that, since Mr Bromley was the ultimate decision maker and he had been called, no adverse inference should be drawn. 243 On the view to which I have come, it is not necessary to resolve this question. However, if it were necessary for me to do so, I would conclude in principle that Jones v Dunkel inferences were available against Guy Carpenter because of their unexplained failure to call Messrs Ramage and Sheridan. I say that because, to the extent that conclusions or inferences as to Guy Carpenter's knowledge could be drawn from the material on which NCRA relied, Messrs Ramage and Sheridan (who were the ones with day to day involvement) might be expected to have personal knowledge of the relevant matters. Mr Bromley's knowledge was in the main secondhand, derived either from Messrs Ramage and Sheridan or through being copied in on e-mails and correspondence. 244 There can be no doubt that knowledge gained by Messrs Ramage and Sheridan in their dealings with GCR and NCRH as to the large and small stop loss contracts was knowledge gained by them in the course of and for the purposes of their employment by Guy Carpenter. 245 In those circumstances had it been necessary to do so, I would have been prepared to draw Jones v Dunkel inferences against Guy Carpenter, where appropriate, by reason of the unexplained failure to call Messrs Ramage and Sheridan. (In case it is not obvious from what I have said, I do not regard the "explanation" given - that Mr Bromely's mind is the relevant mind and his knowledge the relevant knowledge - as adequate.)

Expert witnesses 246 I regret to say that in this case the issue of credibility requires examination in connection with one of the expert witnesses. I use the word "credibility" in the same sense as I have used it in considering the witnesses of fact; and I do not use it to denote the thoroughness, or logical power, of the reasoning of that expert witness. 247 The plaintiffs called as an expert a chartered accountant, Mr William John Bartlett. Mr Bartlett was instructed to report, and did report, on a number of questions, including (and I summarise) the accounting standards applicable to PwCB's review of the half yearly accounts to 30 June 1998; the responsibilities of a reasonably competent chartered accountant in fulfilment of PwCA's retainer in connection with the prospectus and the DDC; and the impact on the half yearly accounts as at 30 June 1998 of a number of transactions including the smoothing cover, deferred acquisition costs (DAC) and other matters. 248 Mr Bartlett gave extensive consideration to the smoothing cover. He concluded that leg 1 should not have been brought to account as at 30 June 1998, simply because it was not entered into until some months after that date. Further, he concluded, there was material available from which PwCA should have concluded that leg 1 was not a commercial transaction, so that they should have been put on enquiry as to the existence of, and sought information about, leg 2. 249 Mr Bartlett also gave evidence as to what Mr Murray should have done in performance of PwCA's obligations relating to the due diligence process. His expertise was challenged, and he sought to bolster it through a supplementary affidavit sworn 2 June 2006, in which he gave evidence of various engagements that he had undertaken in the past, which he said had qualified him to express the opinions in question. 250 I have three major concerns with Mr Bartlett's credibility. The first is that, in my view, he conducted himself more as an advocate than an expert witness. I give the following examples:

(1) On occasion, he would seek to justify an opinion by reference to a legislative or other standard, only to concede on challenge that the standard on which he placed reliance was inapplicable. For example, at one point, he called in aid the Sarbanes-Oxley legislation in the United States of America, notwithstanding that this legislation was introduced some six years after 30 June 1998; when challenged, he agreed that it was inapplicable (T7302.22-7303.30).

(2) In relation to the likelihood of attachment of cover under leg 1, Mr Bartlett, although he acknowledged that a competent chartered accountant could have concluded that it was more likely than not that the cover would have attached, nonetheless maintained that the profit could not be taken up unless there was certainty of recovery. When pressed on this point, Mr Bartlett asserted that the requirement for certainty "may be somewhere in there" (ie, in the relevant accounting and auditing standards) and referred to "something … around the various SAC items", although "I can't put my finger on it right now" (the reference to "SAC" is to a "Statement of Accounting Concepts" - in this case, SAC4). When taken to the relevant part of SAC4, Mr Bartlett conceded that it required probability rather than certainty, but would not accept the point being made. See T7349.31-7350.18, 7363.05-7364.25. No attempt was made in re-examination to refer Mr Bartlett to any other paragraph of SAC4 (or of any other SAC) and no other paragraph was pointed to in submissions.

(3) Mr Bartlett criticised Mr Murray for failing to address issues which Mr Bartlett himself had failed to notice, let alone address, in his first report: for example, the cancellation provision in the leg 1 contract, and the impact of the "front ended" premium under that contract. Mr Bartlett agreed in cross-examination that he had been given the necessary material to consider these matters, and had carefully reviewed it, when he had written his first report (T7299.22-.39).

(4) Mr Bartlett on at least two occasions told Mr Saville, before these proceedings were commenced, that Mr Saville had a strong claim against Macquarie, or against Macquarie and PwC (T7345.40-.47).

(5) PwC obtained access to, and cross-examined Mr Bartlett on, a draft report that he had prepared for officers of GCRA, in which he considered questions relating to the smoothing cover. One of the subjects of that draft report was the accounting for the smoothing cover under the applicable Australian Standard (AASB 1023). Mr Bartlett said of that draft report that its purpose "was to set out the alternatives as opposed to advocate the one alternative." (T7267.45-7268.06). PwC submitted that in these proceedings what Mr Bartlett had done was "to advocate the one alternative." I accept that submission. 251 To my mind, these matters of themselves make it very difficult to accept Mr Bartlett's opinions where they are countered by other expert evidence (as was the case for a number of issues). 252 The second concern is that, in relation to the smoothing cover, aspects of Mr Bartlett's evidence in these proceedings were not consistent with his advice to the GCRA officers in the draft report to which I have referred. (I should say that, although the report in question was expressed to be a draft, Mr Bartlett did not rely upon its character as a draft to justify the inconsistencies on which he was cross-examined.) I give the following examples:

(1) Mr Bartlett's evidence in these proceedings was that PwC should have concluded, on the face of leg 1, that it was an uncommercial contract. However, in his draft report to the GCRA officers, Mr Bartlett said that "some parties argue" that the contract was uncommercial. In cross-examination, he agreed that this form of wording was intended to indicate that there were different views available (T7347.15-.31).

(2) In his report in these proceedings, Mr Bartlett said that the first leg should not have been accounted for as at 30 June 1998 because it was not signed until November 1998. He said that market practice permitting such accounting, where there was a retrospective attachment date, was "barely acceptable". However, in his draft report, he said that both forms of accounting treatment (ie, including or excluding the effect of the contract in the accounts) were "equally reasonable" (T7282.18-7284.15).

(3) Mr Bartlett's evidence in these proceedings was that the second leg of the smoothing cover should have been brought to account as at 30 June 1998. However, in his draft report, he said that there were plausible arguments, based on its attachment date (1 January 1999) to support the proposition that the second leg need not be brought to account until the financial year beginning 1 January 1999. 253 Mr Bartlett was re-examined in relation to the draft report. He said that he did not seek to use knowledge gained from the current proceedings when giving advice to the GCRA officers. However, his analysis of the smoothing cover in the draft report is almost identical with his analysis thereof in his principal report in these proceedings; and the draft report uses courtbook references to documents in these proceedings. 254 The third concern on the question of Mr Bartlett's credibility relates to his attempt to qualify himself to give evidence on due diligence procedures. He referred, in his affidavit sworn 2 June 2006, to a number of due diligence engagements in which he claimed to have been involved. One of those related to an initial public offering for the AMP Office Trust. Mr Bartlett rejected the proposition that he did not regularly sit on the due diligence committee for that offering. However, documents produced under subpoena by Ernst & Young (of which firm Mr Bartlett was at the relevant time a partner) name other members of the firm as its representatives on the due diligence committee, and do not name Mr Bartlett in that capacity. The documents so produced reveal further that Mr Bartlett attended only one - the 21st and final - meeting of that due diligence committee; and only part of that meeting. 255 Another transaction to which Mr Bartlett referred was an initial public offering for the AMP Shopping Centre Trust. Again, documents produced under subpoena by Ernst & Young show that Mr Bartlett was not its representative on the due diligence committee for that offering, and was not named as a member of that committee; and that he did not attend any meeting of that committee. 256 I regard these matters as extremely serious. They have led me to the view that I should not accept Mr Bartlett's opinions unless, independently of his reasoning in support of them, I find that they are logically persuasive and soundly based on, or related to, the relevant facts; or unless they are supported by the views of other experts which I find, in the ordinary way, to be persuasive. 257 Further, and dealing with the third matter to which I have referred, I find that Mr Bartlett has not shown that he was qualified to express the opinions that he did in relation to PwC's, and Mr Murray's, participation in the NCRH due diligence process. Accordingly, I reject that evidence. THE CASE AGAINST THE MACQUARIE PARTIES Issue 1: the alleged misleading or deceptive conduct of Macquarie up to 18 November 1998 258 As will be seen from the plaintiffs' formulation of this issue and the Macquarie parties' response, there is a dispute as to the case that is open to the plaintiffs on the pleadings. Specifically, the Macquarie parties take issue with the generality of both the introductory words, apparently referring to all the conduct of Macquarie up to and including 18 November 1998, and the concluding words, seeking to evaluate the alleged conduct of Macquarie "in all the circumstances of the case". 259 This question also arises in relation to issue 24. As I understand it, that issue was propounded by the Macquarie parties. The plaintiffs assert that the words "in all the circumstances evidenced" should be interpolated at some convenient point so as to define the operation of the phrase "in fact". The pleaded case 260 It is therefore necessary to have regard to the structure of the pleaded case, before turning to the parties' respective submissions as to the way in which the plaintiffs should be allowed to advance that case. 261 The plaintiffs' contentions against the Macquarie parties start at 6FAS para 40. (In earlier paragraphs, the plaintiffs set out their contentions as to the relationship between the individual Macquarie parties, and their businesses and functions, but nothing of present moment turns on this.) 262 The first group of representations said to have been made by the Macquarie parties to Mr Saville is set out in 6FAS para 46. Those are representations said to have been made at a meeting in October 1998 between Mr Saville and Messrs Coultas and Jackson. There is a significant dispute in the evidence as to the date of and events during this meeting and as to what was said. For the reasons that I give in paras [345] to [350] below, I conclude that the meeting took place on 16 November 1998, at Mr Saville's home. 263 The second group of representations said to have been made by the Macquarie parties to Mr Saville is set out in 6FAS para 48. They are said to have been made by Mr Jackson to Mr Saville, when Mr Jackson on or about 29 October 1998 gave Mr Saville a copy of a document called "Macquarie Equities Essentials" dated that day. 264 6FAS para 49A alleges a group of representations said to have been made by Macquarie to the other members of the DDC on 5 November 1998: styled the "Macquarie 5 November 1998 DDC Representations". 265 The next group of representations said to have been made by Macquarie to Mr Saville (although indirectly) is alleged in 6FAS para 50. They are said to have been made on or about 10 November 1998 by MECM, when it gave Mr Bloch a copy of a "Dealer's Note" dated 4 November 1998, dealing with the converting note issue. 6FAS para 51 alleges that those representations were made to Mr Bloch with the knowledge and intention that they would be, or would be likely to be, conveyed to Mr Saville; and 6FAS para 52 alleges that in fact they were conveyed to Mr Saville, on about 10 November 1998. 266 The last relevant group of representations is alleged in 6FAS para 55. They are representations said to have been made on or about 12 November 1998, which was when the Macquarie parties gave Mr Saville a copy of the draft prospectus in respect of the proposed converting note issue and a draft letter relating, among other things, to the proposed sub underwriting. 267 The alleged purpose of the representations alleged in paras 46, 48, 50 and 55 is set out in 6FAS para 56: to induce Mr Saville to make investment recommendations to the plaintiffs, including for the purpose of inducing the plaintiffs to take a placement of converting notes, to sub underwrite the converting notes issue, to acquire rights to subscribe for converting notes and otherwise "to participate in the proposed issue of converting notes". (See 6FAS para 45, which is referred to in para 56.) 268 Paragraph 58 of 6FAS alleges an omission by the Macquarie parties: an alleged failure to inform the relevant plaintiffs (ICM and AOIT, who agreed to sub underwrite part of the converting note issue) that the Macquarie parties had reserved for themselves "the possibility of not exercising an entitlement to terminate the Underwriting Agreement, should such an entitlement arise, in circumstances where it may be in Macquarie's interests not [to do so], but not in the interests of sub-underwriters". That is called the "Sub-Underwriting Agreement Omission". 269 The materiality of the matters alleged in paras 46, 48, 50 and 55 is dealt with in 6FAS paras 60 to 66. 270 6FAS para 67A alleges further representations said to have been made by Macquarie to the DDC, this time on 18 November 1998: styled "the Macquarie 18 November 1998 DDC Representations". 271 Matters said to falsify the representations said to have been made by Macquarie are alleged in 6FAS paras 70 to 75. Each paragraph deals with a class of representations, the class being defined by subject matter:

(1) Para 70 deals with "Balance Sheet Representations".

(3) Para 72 deals with "Converting Note Security Representations".

(4) Para 73 deals with "Future Prospects Representations".

(5) Para 74 deals with "Purposes of the Capital Raising Representations".

(6) Para 75 deals with the representations alleged in para 55(h): an alleged representation that "an independent actuarial review by Trowbridge had confirmed the adequacy of the New Cap Group's claims provisioning". 272 6FAS para 75A alleges Macquarie's knowledge as at 18 November 1998. 6FAS para 75B alleges that Macquarie made various representations "despite having considered" various specified matters. 273 Against that background, 6FAS para 75C alleges that "[b]y reason of the matters alleged in paras 70 to 75B above, by 18 November 1998 [various specified representations said to have been made by Macquarie] were misleading and deceptive, or likely to mislead or deceive." 274 The document then turns its attention to matters said to have occurred in the period from 18 November 1998 to 12 January 1999. Those matters can be put aside for later consideration. 275 The structure of 6FAS is plain. The conduct of Macquarie that is alleged to have been misleading or deceptive of Mr Saville and, through him, the plaintiffs in the period up to and including 18 November 1998 comprises the following elements:

(1) the making of the representations alleged in paras 46, 48, 50 and 55, for the purposes alleged in paras 45 and 56, and the omission alleged in para 58;

(2) the matters said to falsify the representations, as alleged in paras 70 to 75; and

(3) the circumstances that make the alleged representations and the alleged omission misleading or deceptive, as alleged in paras 70 to 75B.

On this analysis, it is the matters so confined, and the evidence properly led in support of them, that govern both the amplitude and the resolution of the first issue. Is a wider approach available? 276 However, the plaintiffs submitted, it was open to them to put this aspect of their case in the way propounded by them in issue 1. They relied on:

(1) The requirements of PN 100 in its application to statements of contentions; and

(2) Repeated statements, in cases of the highest authority, to the effect that the question, whether there has been misleading or deceptive conduct, requires examination of the course of conduct as a whole in the light of relevant facts and circumstances: see for example Butcher & Anor v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 at 604 [37] and 605 [39] (Gleeson CJ, Hayne and Heydon JJ). (In their written submissions in chief, chapter 4 para 4.1.2, the plaintiffs referred to Butcher at para [19]; that passage in the judgment of the majority said nothing relevant to this point.) 277 It is in principle correct to say that a statement of contentions pursuant to PN 100 is not required to comply with all the formalities of a pleading (insofar as the word "formalities" can be considered appropriate to Judicature Act pleadings). But the requirement to state contentions in summary form without formality (PN 100, para 6(1), (2)(a)) does not negate the obligation to state the facts, together with adequate particulars, on which the plaintiff relies, and to identify the legal grounds for the relief claimed (para 6(2)(b), (c)). 278 Bergin J said in Brambles Australia Ltd Trading as CHEP Australia v Tatale Pty Ltd & Anor [2006] NSWSC 204 at para [9] that statements of contentions served essentially the same purposes as pleadings. Her Honour, speaking in the context of the current Practice Note, SC Eq 3 (which, in relation to statements of contentions, does not differ materially from the requirements of PN 100), said that the requirements of the Practice Note were intended to ensure that each party knows the case made against it, to set the ambit of pre trial procedures such as discovery, and to "define the limits within which the trial will be conducted". 279 A similar point, in respect of pleadings properly so called, was made by Lander J in Arthur Young & Anor v Tyco International & Ors (1995) 182 LSJS 367, 370. His Honour said that the question of the adequacy of pleadings ought to be approached not by looking with a critical eye for some deficiency, but by reference to "the ultimate question; does the pleading give fair notice of the case to be made against the other party at trial, thereby minimising the risk of injustice arising from surprise." 280 This aspect of pleadings was emphasised by Mason CJ and Gaudron J in Banque Commerciale SA En Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279. Their Honours said at 286 that pleadings were required to state with sufficient clarity the case to be met, and thus "to ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her and, incidentally, to define the issues for decision". This meant, their Honours said, "that, in general, relief is confined to that available on the pleadings". 281 Mason CJ and Gaudron J stated at 286-287 that "the circumstances in which a case may be decided on a basis different from that disclosed by the pleadings are limited to those in which the parties have deliberately chosen some different basis for the determination of their respective rights and liabilities." Their Honours said at 287 that "[t]he question whether the parties have chosen some issue different from that disclosed in the pleadings as the basis for the determination of their respective rights and liabilities is to be answered by inference from the way in which the trial was conducted." 282 In the same case, Brennan J said at 288 that, once the parties have been brought to an issue on their pleadings, "the court's function is to determine that issue and to grant relief founded on the pleadings unless the parties are allowed to alter the issues at the trial without amendment of the pleadings". 283 I do not think that the High Court intended to say anything different in cases such as Butcher. It is certainly correct to say that in the majority judgment at 605 [39] their Honours referred to the need to view the agent's conduct "as a whole"; and that at 631 [128] McHugh J said that the question, whether the relevant conduct was misleading or deceptive, or likely to mislead or deceive, had to be decided "having regard to all the circumstances of the case". But the conduct in respect of which the question, was it misleading or deceptive or likely to mislead or deceive, is asked and decided is that identified in the pleaded case. Likewise, the relevant circumstances that are alleged to make it misleading or deceptive, or likely to mislead or deceive, are those identified in the pleaded case. To the extent that evidence is admitted without objection that is capable of bearing on those questions, then that evidence may be taken into account: subject to the general "duty of a judge to reach his decision on evidence that is legally admissible, and to put evidence only to those uses which the law allows" (Hughes v National Trustees, Executors & Agency Co of Australasia Ltd (1978) 143 CLR 134, 153 (Gibbs J, with whom Mason and Aickin JJ agreed)). 284 I do not think that the requirements of PN 100 or SC Eq 3 were intended to derogate from the fundamental entitlement to procedural fairness identified by Mason CJ and Gaudron J in Banque Commerciale. It should be emphasised, as their Honours did (169 CLR 279 at 286), that the rule that relief is generally confined to that available on the pleadings "secures a party's right to this basic requirement of procedural fairness." Indeed, I think, to the extent that the Court does dispense with requirements of formality or technicality, it should equally be zealous to ensure that the basic requirements of procedural fairness continue to be available to the parties. 285 In the present case, there can be no suggestion that the Macquarie parties, or for that matter any of the defendants who appeared during the hearing, acquiesced either expressly or by inference in any widening of the pleaded case against them. This was made clear on a number of occasions: including on 14 December 2005 when (shortly before adjourning for the long vacation) I directed the parties to reconsider, with a view to refining, the Statement of Issues as it then stood. Mr Oslington QC, who appeared with Dr Bell of counsel for the Macquarie parties, said at T2954.41 that his clients' position was that compliance with that direction was not intended "to afford the opportunity to the plaintiff [sic] to in any way depart from its [sic] pleaded case." Clearly, that proposition was correct: see what I said at T2956.31; and see also what Mr Douglas QC (who appeared with Mr Hammerschlag SC and Mr Muddle and Mr Katekar of counsel for the plaintiffs) said at T2957.11. I made it plain that I accepted Mr Oslington's proposition; and Mr Douglas made it plain that he did not dissent from it having regard to earlier rulings that I had given. 286 That having been said, an analysis of the representations, of the matters said to have falsified them, and of the allegation of misleading or deceptive conduct founded on those matters, must occur within the context of, and acknowledge, all material circumstances (so far as the evidence discloses them) existing at the relevant times. An assessment of materiality should take into account, as well as the alleged misleading or deceptive conduct, the surrounding circumstances alleged in the relevant paragraphs of 6FAS and the evidence going to those circumstances. By way of example, and without limitation, I refer to the anterior allegations relating to the institution of the DDC, its functions and the functions of its various members, and matters undertaken or done by Macquarie in relation to the DDC and its work. 287 In this way, I think, the requirement to consider the conduct as a whole against the background of the relevant circumstances will be satisfied; and at the same time, the plaintiffs will be held in substance to their pleaded claim on this aspect of their case against Macquarie. Elements of the first issue 288 The first issue may be broken down into the following elements:

(1) What (if any) representations were made by Macquarie to Mr Saville (directly or, as the plaintiffs would have it, indirectly through Mr Bloch) as alleged in the relevant paragraphs of 6FAS?

(2) Were such representations as are found to have been made representations of existing fact, of opinion, or as to future matters?

(3) Were any such representations as are found to have been made falsified or shown to have been made without a reasonable basis, according to their nature, having regard to the falsifying facts alleged in the relevant paragraphs of 6FAS?

(4) Whether, and if so in what respects, the allegations of misleading or deceptive conduct as at 18 November 1998 have been made out. 289 Questions of reliance would fall for consideration later (under issues 8, 9 and 20 to 23). However, particularly having regard to the way in which the Macquarie parties advanced their submission that they made no representations by the draft prospectus, it will be necessary to consider some of Mr Saville's evidence that might be thought to go to the question of reliance. Approach 290 For reasons that I give in paras [345] to [350] below, I find that there was only one meeting (during 1998), and that it occurred at Mr Saville's home on 16 November 1998. That was after Mr Saville had received the draft prospectus and the draft underwriting agreement, which I find occurred on 12 November 1998. Accordingly, I propose to consider the alleged representations by addressing first 6FAS para 48, then para 50, then para 55 and, finally, para 46. 6FAS para 48: the "Macquarie Equities Essentials" representations 291 The pleaded case is that the representations said to have been conveyed by this document were made on or about 29 October 1998. The particulars assert that the "Macquarie Entities Essentials" document was given by Mr Jackson of MECM to Mr Saville on or about 29 October 1998. 292 The only evidence in support of the particulars is found in para 98 of Mr Saville's first statement (23 July 2003; exhibit PX 3). Having referred to the document, he said that, to the best of his recollection, it was sent to him by Mr Jackson "soon after the October Presentation". (He had earlier, in para 84, identified the "October Presentation" as having occurred "in or around October 1998".) 293 I do not accept Mr Saville's somewhat tentative evidence that the document was sent to him by Mr Jackson. There are a number of reasons for this. The first is that there was no reference to the document in any version of the summons prior to the 5FAS filed on 1 December 2003. Mr Saville agreed in cross-examination that when the original summons was filed (which was on 16 November 2001) his mind was focussed on the representations on which he had relied in making the investments, and that he had read the draft of the summons carefully to ensure that it was complete and accurate (T1053.21-1054.14). 294 Further, Mr Saville conceded more than once in cross-examination (eg T949.38-950.14) that he did not in fact recall when he received the document, accepting that it could have been in 1999 (T1051.37). More importantly, he conceded (after some prevarication at T1051.43-1052.3) that he could not recall when he had first read the document, and accepted that he could not claim that he placed any reliance on it in entering into the sub-underwriting agreements or in taking up the rights (T1052.15-.31). 295 Accordingly, Mr Jackson not having given any evidence to the effect that he gave the document to Mr Saville at any time, or that he caused this to be done, I am not satisfied that any of the representations set out in 6FAS para 48 were made at or about the time or in the manner therein alleged or particularised. 296 Before I depart from this aspect of the plaintiffs' case, I should note that I regard Mr Saville's evidence-in-chief in para 98 of his first statement, asserting a recollection that Mr Jackson sent him the document in question on or shortly after 29 October 1998, as an example of reconstruction not founded on any true recollection. I should note also that the plaintiffs in written (chapter 1 para 10.1) and oral (T8735.21-8736.7) submissions in reply advanced a theory that Mr Saville's handwritten notes on his copy of this document indicated that it was "inherently likely" that he had received it before signing the sub-underwriting agreements. The difficulty with this submission is that it finds no support in Mr Saville's evidence; indeed, it is inconsistent with the evidence given by him in cross-examination to which I have referred above. Specifically, after Mr Saville had made those admissions in cross-examination, no attempt was made to re-examine him as to the possible significance of the handwritten notes. I have to say that in my view both this aspect of Mr Saville's evidence and the submissions advanced in support of it smack of the opportunistic. 6FAS para 60: representations made to Mr Bloch 297 There is no doubt that Macquarie sent to Mr Bloch, on about 10 November 1998, MECM's "Dealer's Note" dated 4 November 1998 relating to the proposed converting note issue. Macquarie's evidence is that the note was given to Mr Bloch in his own right, because Macquarie understood that he represented the Pacific Rim Arbitrage Fund. Mr Bloch gave no evidence to the contrary. Although he said that he had passed the document on to Mr Saville, he gave no evidence that he did so at the request of any representative of Macquarie, or because he thought that Macquarie might want him to do so. 298 In this context, although Mr Bloch said in his affidavit sworn 13 June 2003, para 21, that from time to time when he received telephone calls from Mr Coultas, Mr Coultas "would sometimes make specific reference to Duncan [Saville] asking in words to the effect "do you think Duncan would be interested in this?"", he did not suggest that this had happened in relation to the Dealer's Note dated 10 November 1998. Indeed, Mr Bloch did not even suggest that he received the Dealer's Note from Mr Coultas, or that he had any discussion with Mr Coultas (or with anyone else from Macquarie) in relation to it. (I interpose that the document could not have been sent by Mr Coultas himself, because he was attending his brother's wedding in New Zealand as at 10 November 1998; and in those circumstances, it is unlikely that Mr Coultas himself discussed the document with Mr Bloch.) 299 The key element relating to these representations is found in 6FAS para 51, which asserts that the representations made to Mr Bloch by the Dealer's Note "were made … in circumstances where Macquarie knew or intended that such representations would be conveyed to [Mr Saville], or would be likely to be so conveyed, for the purposes" of inducing Mr Saville to recommend ICM and others to invest in the issue. If this key element is not made out, it must follow that Macquarie did not make any representation to Mr Saville in or by the Dealer's Note as alleged in 6FAS paras 50 and 51. 300 The plaintiffs sought to deal with this evidentiary issue by asserting in reply (written submissions in reply, chapter 1, para 3.3) that "[t]he evidence suggests that Macquarie believed that Bloch and Saville were both representing, at least, Pacific Rim. Doubtless with Bloch in a more junior capacity than Saville." The difficulty with this theory is that, contrary to its terms, it finds no support in the evidence. The plaintiffs referred to no evidence in support of it. Nor was it put to any witness called by the Macquarie parties. 301 The plaintiffs submitted further that it was "[a] fair reading of" a passage of Mr Coultas' evidence in cross-examination that "[h]e provided the Dealer's Note to Bloch in the belief that he would pass it on to Mr Saville" (ibid). There are a number of difficulties with this submission. I have referred to one: Mr Coultas was in New Zealand at the relevant time, and did not himself provide the document to Mr Bloch. Another is that the proposition for which the plaintiffs contend does not emerge from the passage of transcript that they cite in support; indeed, it is scarcely consistent with that passage. A further, and decisive, problem is that the proposition was not put to Mr Coultas in cross-examination; nor was it put to him that he instructed or requested any other employee of Macquarie so to act. 302 Perhaps the plaintiffs recognised this weakness in their position. They asserted (ibid, para 3.4) that the Macquarie parties' submissions on this point did "not sit well with the fact the [sic] Macquarie chose not to call the employee who forwarded the Dealer's Note to Bloch". The Macquarie parties can hardly be criticised for doing this in circumstances where the plaintiffs had led no evidence from Mr Bloch to the effect that whoever it was that provided him with the Dealer's Note requested him to pass it on to Mr Saville, or suggested to him that he might do so. There was no relevant evidence (on this point) to which the hypothetical uncalled employee could reply. 303 Thus, I am not satisfied that the representations alleged in 6FAS para 50 were made by Macquarie to Mr Saville in the manner alleged in 6FAS para 51. 6FAS para 53: the draft underwriting agreement and draft prospectus 304 Mr Saville's evidence-in-chief was that he received a letter from Macquarie enclosing a copy of the draft prospectus and a copy of the draft sub-underwriting agreement "[o]n or about 12 November 1998" (exhibit PX 3, para 105). The letter in question was dated 12 November 1998. The documents that Mr Saville exhibited to his affidavit, purporting to be copies of the letter and its enclosures, were incomplete. However, Mr Saville conceded in cross-examination that he read the letter and the enclosures carefully when he received it, and that the enclosures were complete (T943.46-944.6). It was Mr Moran of MECM who sent the letter and its attachments to Mr Saville. There is no reason, save for mistake, why Mr Moran would have sent an incomplete version of the attachments; and every reason why he would have sent a complete version. It was not put to Mr Moran in cross-examination that he did send an incomplete version of the documents to Mr Saville. 305 The plaintiffs nonetheless submitted that not all the attachments to the letter were received. In my view, this is another example of an opportunistic submission, based on a manifest deficiency in the plaintiffs' own evidence. I accept the Macquarie parties' submission (written submissions in chief, para 48) that "[i]t is striking that the pages which Mr Saville accepted [in cross-examination] that he received, but now contends in final submissions were not received, just happen to be those which contained disclaimers and an indemnity clause". This striking fact points up the opportunistic nature of the submission. It is also striking that the plaintiffs discovered, as a separate document, the pages missing from the document exhibited to Mr Saville's statement; one of those missing pages refers to the letter of 12 November (the date of the draft letter) and not 17 November (the date of the final, accepted, letter); and another of those pages has Mr Saville's handwriting on it. 306 I am satisfied that the entire document (including all annexures to the letter and the draft sub-underwriting agreement sent with it) was sent to and received and read by Mr Saville. The relevance of the disclaimers 307 The significance of this goes beyond Mr Saville's credibility, or reliability, as a witness. That is because the terms and conditions attached to the draft sub-underwriting agreement included disclaimers and an indemnity clause in the following terms: "5. Except for any liability which cannot be excluded by law, Macquarie does not accept any responsibility or liability for the contents of the Prospectus (including any draft or supplementary prospectus) or in relation to the offer of the Converting Notes. You acknowledge and agree that none of its directors, officers, employees or advisers makes any warranty or representation as to the accuracy of the information given to you and Macquarie, its directors, officers, employees and advisers exclude and disclaim all liability, except as may not be excluded by law, for any expense, losses, damages or costs that may be incurred by you as a result of that information being inaccurate or incomplete in any way for any reason. … 8. Macquarie, its servants or agents makes no recommendation as to whether you should participate in the sub-underwriting of the Capital Raising nor do they make any representations or warranties to you concerning the Capital Raising. You should make your own decision to participate based on your own enquires [sic] and the information contained in the draft Prospectus and the proposed amendments to the draft Prospectus contained in Attachment 7 of this letter. … 13. You will at all times indemnify Macquarie and each of its officers, employees and agents against any loss (including legal costs and expenses on a full indemnity basis) or liability incurred arising from any claim or proceeding by any person (including the Issuer) to the extent that such loss or liability was caused by a breach by you of this agreement. 14. You acknowledge that you have an obligation to keep this Offer confidential." 308 Mr Saville agreed that he read the draft underwriting agreement when he received it on or about 12 November 1998. He believed that he would have read its attachments carefully (T941.3-.7). I accept this evidence. My observation of Mr Saville in the witness box was that he was a man who considered with care any proposition put to him; and I do not believe that he would have treated any differently a document the terms of which would govern a substantial investment (if made). 309 Mr Saville agreed further that, when he received the final form of sub-underwriting agreement on 17 November 1998, he read it carefully, noting that its terms and conditions came as no surprise to him (which confirms that he had read and considered the draft). He said that he accepted those terms and conditions and intended by his execution of the documents to bind the relevant plaintiffs to them. (See T955.9-.28.) In particular, Mr Saville said that he did not think that he could ignore, or that he would not otherwise be bound by, the terms that I have set out in para [307] above (T1125.17-.18). 310 Likewise, Mr Saville read the draft prospectus. It contained, among other things, the following: "Notwithstanding that it may be referred to elsewhere in this Prospectus, Macquarie Equity Capital Markets Limited was only involved in the preparation of the following part of this Prospectus: that part of the Prospectus where it is named as Lead Manager and Underwriter in the Corporate Directory. Macquarie Equity Capital Markets Limited has given, and at the time of lodgement of this Prospectus has not withdrawn, its consent to the issue of this Prospectus with that part included in the form and context in which it is included. Macquarie Equity Capital Markets Limited did not authorise or cause the issue of any other part of this Prospectus. Macquarie Equity Capital Markets Limited is acting as Lead Manager and Underwriter to the Issue. The Company has agreed to pay Macquarie Equity Capital Markets Limited the fees set out in Section 11.2 of this Prospectus. Notwithstanding that it may be referred to elsewhere in this Prospectus, Macquarie Equities Limited was only involved in the preparation of the following part of this Prospectus: "Brokerage rates offered by Macquarie Equities Limited" in Section 3. Macquarie Equities Limited has given, and at the time of lodgement of this Prospectus has not withdrawn, its consent to the issue of this Prospectus with those parts included in the form and context in which they are included. Macquarie Equities Limited did not authorise or cause the issue of any part of this Prospectus". 311 Mr Saville agreed that he understood from this that Macquarie was not accepting liability for the whole of the prospectus. In particular, he recognised that the information of particular interest to him, going to the net tangible assets (NTA) of NCRH, was information in respect of which Macquarie did not accept responsibility. (See T1118.17-.46, 1119.1-.3.) 312 In para 120 of his first statement, Mr Saville referred to a number of matters that he said were "contrary to the information which I had reviewed to" 17 November 1998. Those matters were: "120. Had I been informed on or before 17 November 1998 of each of the following matters, contrary to the information which I had reviewed to that date: (a) the new management team of NCRH and the NCRH underwriting strategy in 1998 was not likely to affect positively the financial prospects of NCRH;

(b) NCRH's investment portfolio was subject to security granted to Chase Manhattan Bank and the amount so secured was of the order of US$207 million;

(c) NCRH would, following the issue of the Notes still have substantial conditional obligations (being the security granted to Chase Manhattan Bank and a guarantee given by it in respect of the obligations of NCRH to the extent of USD30 million);

(d) as at 30 June 1998 and as at 17 November 1998 and subsequently NCRH was in default of a net worth loan covenant given by NCRH to Dresdner Bank which rendered NCRH immediately liable to repay to Dresdner Bank US$25 million; (e) the actual and pro forma consolidated balance sheet in the Draft Prospectus and the Prospectus and the 30 June 1988 accounts reviewed by PWC and provided to me at the October Presentation did not fairly and accurately represent the financial position of NCRH as at 30 June 1998 in that the balance sheet: (i) included only the profit arising from the whole account aggregate of loss reinsurance policy issued by General & Cologne Reinsurance Australasia Limited in favour of NCRH, but failed to disclose the right of recovery of General & Cologne Reinsurance Australasia Limited under the casualty excess of loss reinsurance policy issued by NCRH, in contravention of accounting standard AASB 1001; (ii) deferred acquisition costs in an amount of US$13.4 million, in contravention of accounting standard AASB 1023, was included in the net assets of NCRH as at 30 June 1998; (iii) disclosed that the net assets of NCRH, as at 30 June 1998, were US$127,479,000 when they were, at least, US$19.1 million less than that amount; (iv) failed to include any substantial prudential margin in respect of outstanding claims, contrary to the accounting policy of NCRH;

(f) as at 30 June 1998, NCRH did not have net assets of US$127,479,000, in that the net assets of NCRH, as disclosed in the actual and pro forma consolidated balance sheet which was included in the Draft Prospectus and in the Prospectus: (i) included retrocession recoveries in an amount of US$13.839 million of which at least US$5.7 million was not recoverable; (ii) included deferred acquisition costs in an amount of US$13.4 million which did not satisfy the tests prescribed by accounting standard AASB 1023;

(iii) included a provision for outstanding claims, which failed to include any substantial prudential margin; (g) as at 30 June 1998, NCRH did not have retrocession coverage in an amount of US$13.839 million which was valid and collectable in that US$5.7 million of the retrocession recoveries was not recoverable; (h) as at 30 June 1998, deferred acquisition costs in an amount of US$13.4 million were not fully recoverable; (i) that NCRH was likely to incur substantial additional operating losses during the second half of 1998 and 1999; (j) as at 30 June 1998, the date of the October Presentation, 12 November 1998 or 17 November 1998, NCRH did not have net assets clearly in excess of US$100,000,000 needed to maintain a licence for NCRB (which in turn meant that NCRH's Bermudian subsidiary could not write business in Bermuda); (k) as the date of the October Presentation, 12 November 1998 or 17 November 1998, the then current market price of NCRH shares equated to substantially more than half the NTA per share of NCRH; (l) the Notes could not be described as 'solid security' as while NCRH was not expected to have borrowings that rank equally or ahead of the Notes there were guarantees that ranked equally in certain conditions. Further, as a large majority of NCRH's assets had been given as security to Chase Manhattan Bank the financial flexibility of the Group was less secure; (m) the accounting policy adopted by NCRH in respect the pro forma and consolidated balance sheet in the Draft Prospectus and the Prospectus and the accounts for NCRH as at 30 June 1998 reviewed by PWC , was not consistent with the policy adopted by NCRH in respect of the fifteen month period ending 31 December 1997, in that there had been a change in the treatment of outstanding claims in the actual and pro forma consolidated balance sheet by the reduction of the prudential margin applied to those claims; (n) that one of the stated reasons for the fund raising (ie "to enhance [NCRH's] credit rating") would not be valid because NCRH's credit ratings would not be improved because the funds raised were insufficient given the above matters; (o) that the due diligence committee responsible for the preparation of the Prospectus did not include Trowbridge or require Trowbridge to report directly to it, would not conduct verification of all statements in the Draft Prospectus and Prospectus with due care and diligence, would not follow up outstanding matters with due diligence (including the issue of a supplementary prospectus, if required) or investigate other matters which required further research or would permit or allow management to issue press releases which did not accurately set out claims development and acceleration, I would have declined to participate and I would not have signed the acceptances of the sub-underwriting agreement on behalf of ICM and AOIT, or made recommendations and instructions, as the case may be, to the Plaintiff companies in respect of the purchase of shares, rights and Notes in NCRH from 17 November 1998 onwards."

(The words struck out were objected to by PwC and not pressed.) 313 Mr Saville agreed that each of those was a matter outside the area for which (I interpolate, to his understanding) Macquarie in the draft prospectus accepted responsibility (T1272.39-.44). He accepted that, had he queried any of those matters with Macquarie, his expectation was that Macquarie would have sought further information from those responsible for the particular subject matter of the query and reported back to him (T1274.28-.40). 314 These matters do not go merely to reliance. They go also to the question, whether in all the circumstances Macquarie should be regarded as having made any representation to Mr Saville when on 12 November 1998 it sent him the draft prospectus and the draft underwriting agreement. They form part of the relevant context, or circumstances, within which that question must be addressed and answered. Why were the documents sent? 315 The plaintiffs submitted firstly that, when Macquarie sent the draft prospectus to Mr Saville on 12 November 1998, together with the draft underwriting agreement, it did so for its own benefit. They submitted secondly that such representations as the draft prospectus conveyed could not be regarded as representations made by NCRH, because the whole purpose of the DDC process was that the prospectus would not be issued until the DDC had reported to the directors of NCRH on its deliberations and the directors, having considered the DDC's report, had resolved to proceed. The plaintiffs submitted thirdly that NCRH "had specifically not authorised the document for release" as at 12 November 1998, and that "Macquarie was aware of that fact". 316 I accept the first submission. I do not accept the second or the third. 317 It is convenient to start with the third submission - that NCRH had not authorised the release of the draft prospectus as at 12 November 1998, and that Macquarie was aware of this. That submission is directly inconsistent with the plaintiffs' submissions in chief against the directors and Messrs Williams and Aroney. The relevant submission is in chapter 5 para 22(6)(f), the first sentence of which reads: "The Directors (and Williams and Aroney as DDC Members) authorized the text of, and the issue of, the Draft Prospectus and the Prospectus for the purpose of inducing and inviting sub-underwriters and investors to invest in Rights, Convertible Notes and Shares issued by NCRH." (Emphasis supplied.) 318 Similar points are made again at para 22(6)(a) and (b), which in substance assert that the directors and Messrs Williams and Aroney knew or ought to have known that the draft prospectus would be communicated to potential sub-underwriters and investors, so that they should have foreseen that the provision of misleading information in the draft prospectus would cause economic loss to (in particular) the plaintiffs. Those submissions are based on earlier submissions in the same chapter: para 5.6, which addresses 6FAS para 127, which in turn addresses the directors' and officers' alleged knowledge of the Macquarie parties' approaches to potential sub-underwriters. 319 The evidence to which the plaintiffs refer in support of those submissions makes good the proposition that the directors and Messrs Williams and Aroney knew and approved of Macquarie's proposed use of the draft prospectus to secure sub-underwriting and placement commitments. For example, the minutes of the DDC meeting of 8 October 1998 record, in para 5.2, a statement by Dr McKenzie that the latest and virtually final draft of the prospectus would be used in the "roadshow" (the "roadshow" was of course the presentation and attempted selling of the converting note issue to shareholders and others). The following day, 9 October 1998, Macquarie circulated to DDC members its timetable showing, among other things, that the draft prospectus would be circulated to potential sub-underwriters on 20 October 1998. 320 The plaintiffs make a similar point in their written submissions in chief against PwC (chapter 7, para (124)(c)); again, they support the submission with evidence which makes it good (although they overstate the effect of a "concession" said to have been made by Mr Murray in cross-examination). 321 Further, the plaintiffs assert by 6FAS para 55 that NCRH as well as Macquarie made representations to Mr Saville "[i]n providing the draft prospectus to" him. That paragraph necessarily assumes that the draft prospectus was provided to Mr Saville with NCRH's permission, or at least knowledge and acquiescence. (This pleading is also inconsistent with the second and third submissions identified in para [315] above.) 322 To the contrary of the submission under consideration (being the third of those identified in para [315] above), I conclude that NCRH was well aware that the draft prospectus was being circulated to potential sub-underwriters (and, if it matters, to potential investors in the converting note issue), and had (or would have been seen to have had) acquiesced in that. Indeed, I think, the proper conclusion is that NCRH, knowing through its directors and officers that the draft prospectus would be so circulated, agreed that this should happen. It is clear beyond doubt that Macquarie was aware of the facts that lead to these conclusions. It is equally clear that NCRH agreed to, or acquiesced in, the circulation of the draft prospectus. Thus I reject the third submission. It follows that the second submission identified in para [315] above must also be rejected. Macquarie a mere conduit? 323 The plaintiffs relied on the decision of Beaumont J in Karawi Constructions Pty Ltd v Bonefind Pty Ltd & Ors (1993) 15 ATPR ¶ 41-265. That was a case where a purchaser of real estate relied on a false representation, in a brochure given to it by the agent, as to net lettable area. The agent argued, among other things, that it was merely passing on information supplied by the principal. In support of this submission, it relied upon evidence given by the applicant's managing director to the effect that he understood it was the vendor that was responsible for putting the false information in the brochure. Beaumont J did not find this evidence decisive: he said, at 41,571, that the managing director was "necessarily speculating on what had transpired between the vendor and the vendor's agent", and hence irrelevant to the characterisation (as a maker of, or mere conduit for the supply of, the information) of the conduct of the agent. 324 In this case, by contrast, the relevant evidence of Mr Saville was more than speculation. It was founded upon - perhaps more accurately it was his understanding of - the statements in the draft sub-underwriting agreement and draft prospectus to which I have referred in paras [310] and [311] above. 325 The agent appealed from the decision of Beaumont J, and the Full Federal Court rejected that appeal: John G Glass Real Estate Pty Ltd v Karawi Constructions Pty Ltd (1993) 15 ATPR ¶ 41-249. The Full Court said at 41,359: "In the present case the appellant adopted the information in question and incorporated it as a central and prominent feature of their selling effort on behalf of the vendor. There was certainly no express disclaimer of the appellant's belief in the truth of the information in the brochure - indeed there was an express assertion of such belief. As part of its ordinary business the agent was providing information in a persuasive form with a view to achieving a sale of its principal's property and of course earning commission. It was this conduct which the learned trial judge, correctly in our opinion, held to be misleading and deceptive. Once the falsity of the figure was demonstrated, it seems to us that no other conclusion could follow." 326 The majority in Butcher questioned one aspect of this reasoning: the reference to the absence of express disclaimer, and the express assertion of belief in the truth of the information contained in the brochure. Their Honours said at 612 [67]: "It does not seem quite correct to describe an estate agent which says it has no reason to doubt the accuracy of information but says it does not guarantee it, advises interested parties to make their own enquiries, and says interested parties have the responsibility of satisfying themselves in all respects, as making an "express assertion" of belief in the information." 327 Of course, in the present case, Macquarie made no assertion of belief in the truth of the matters asserted in the draft prospectus; on the contrary, I think, cl 5 of attachment 5 to the draft sub-underwriting agreement should be read as an express negation of any such belief. 328 The majority in Butcher noted at 607 [47] that the diagram in issue in that case was plainly not made by the agent, and that the circumstances of the case "negated any suggestion that the agent had adopted the surveyor's diagram as its own, or that it had verified its accuracy." Their Honours, taking into account among other things the disclaimers, held that there had been no relevant representation by the agent. I note that in Butcher, as in Karawi Constructions, the agent asserted a belief in the reliability of the information that it was conveying to prospective purchasers (see the judgment of the majority in Butcher at 608 [49]). 329 The significance of disclaimers, as part of the conduct to be considered in considering whether a representation has been made, was considered by the Full Federal Court in Poulet Frais Pty Ltd v The Silver Fox Company Pty Ltd (2005) 220 ALR 211. Their Honours concluded, in the circumstances of that case, that no representation was made as to sales or profitability. They said at 227-228 [79] to [81]: "[79] In our view, however, no reasonable person who had read and considered the whole of the documentary material provided by Poulet Frais to Mr and Mrs Baker could have been under any illusion that Poulet Frais was representing to him or her that, provided the franchisee complied with the Lenard's system, any particular weekly level of gross sales would be achieved or any particular level of annual net operating profit would be achieved. It is not easy to see how Poulet Frais could have made more clear than it did that it was making no representations to Mr and Mrs Baker touching on the likely profitability of the Hilton shop and that Poulet Frais expected them to obtain their own advice on that issue. This was stated in plain terms in disclosure document 1 and disclosure document 2 and, indeed, Mr and Mrs Baker signed an acknowledgment to that effect in August 1997.

[80] Moreover, part of the conduct of Poulet Frais towards the applicants was its conduct in providing to Mr and Mrs Baker a copy of the Lenard's standard franchise agreement more than 2 months before the franchise agreement was executed. Mr and Mrs Baker were advised to take legal advice in respect of the standard form agreement and they did so. The standard form agreement included the clauses that became cll 26.4 and 33 of the franchise agreement: see [69] and [70] above. The terms of those two clauses served to emphasise what was, in any event, apparent from the terms of the information pack and the disclosure documents, namely that Poulet Frais was not giving any guarantees or assurances as to the turnover or profitability that Silver Fox would experience as a franchisee.

[81] In the circumstances, to find that the sales/profitability representation was made would be to ignore the statements on the fifth page of the financial packages that formed part of the disclosure documents. It would also be to ignore the effect of the certificates signed by the applicants, their solicitor and their accountant that the franchise agreement and attendant risks had been explained. A significant aspect of the franchise agreement, as the applicants must be assumed to have understood, was that by entering into it the applicants acknowledged that no representations had been made to them "that the Franchised Business [would] be successful and produce turnover, gross or net profits at any level or rate or at all"." 330 The circumstances of this case are similar to, although in one important respect stronger than, the circumstances in Butcher and Poulet Frais. The respect in which they are stronger is that Mr Saville acknowledged having read and understood the disclaimers and limitations, and understood that the Macquarie parties were not accepting responsibility for the information of particular interest to him. 331 Acceptance of this evidence does not require the Court to give effect to the disclaimers and limitations as contractual bars to an action for misleading or deceptive conduct. It does no more than take those matters into account in considering whether the Macquarie parties made any representations at all: an approach sanctioned (indeed, in my view, required) by, among others, the authorities to which I have referred. The evidence is also relevant to reasonable reliance: Leda Holdings Pty Ltd v Oraka Pty Ltd (1997) 20 ATPR ¶ 41-601 at 40,516 (Branson and Emmett JJ). 332 The Macquarie parties relied on the decision of the Court of Appeal in Orix Australia Corporation Limited v Moody Kiddell & Partners Pty Ltd & Anor [2006] NSWCA 257. The respondent (Moody Kiddell), a finance broker, made an application on behalf of a customer to the appellant (Orix), a financier. The finance application contained information, provided by the customer to Moody Kiddell, that was misleading or deceptive. Orix was induced by that misleading or deceptive information to provide financial assistance to the customer. The question for decision was whether Moody Kiddell was liable for the resultant damage. 333 Ipp JA (with whom Spigelman CJ and Basten JA agreed) discussed the relevant principles at paras [40] to [46], referring to a number of cases including Yorke & Anor v Lucas (1985) 158 CLR 661 and Butcher. His Honour then turned at para [54] to the application of the principles established by those cases to the facts of the particular case. He referred to the decision in Butcher at 604 [36], [37], and to the ways in which an agent's conduct might be analysed. One such analysis turns on what a reasonable person in the position of the representee might make of the representation. Another turns on what the representee actually made of it. His Honour pointed out at para [57] that, where the misleading or deceptive conduct was aimed at one person, "the questions whether particular conduct was misleading and whether there was reliance on that conduct, tend to become elided (or merged)." 334 His Honour then dealt with the significance of the actual knowledge and understanding of an individual whose knowledge or understanding is alleged to be that of the representee. He said at paras [59]-[60] that it was of fundamental importance; and of decisive importance where that individual believed that the agent was no more than a conduit: "59 In a case where the alleged victim of misleading conduct is a single entity, and the knowledge and understanding of the entity is that of a particular individual, the actual knowledge and understanding of the individual is of fundamental importance. If the individual recipient of information believes a disclaimer to mean that the agent is not the source of the information said to be misleading, and that the agent is merely passing on information supplied by others, that must be decisive. It is then not necessary to construe the disclaimer. 60 Further, if the individual recipient, in fact, is fully cognisant of the fact that, in disseminating the information, the agent is doing no more than acting as a conduit, then that knowledge and understanding, too, must be decisive. There could then be no basis in justice or logic for finding that the agent was liable for misleading or deceptive conduct under s 52. It is not then necessary to have regard to what others might reasonably believe in consequence of the "conduct"."

335 It may be that his Honour's approach is to some extent in conflict with that of Beaumont J in Karawi Constructions, although on the facts of each case the two approaches can be accommodated. But if there is some conflict, then, clearly, it is the approach of Ipp JA that I should adopt. In any event, for the reasons that I gave in para [324] above, this case can be distinguished on its facts from the facts found by Beaumont J in Karawi Constructions. 336 The application of the reasoning of Ipp JA in Orix to the facts of this case suggests that Mr Saville's understanding is of decisive importance. There is no doubt that, on the plaintiffs' case, his knowledge and understanding were theirs. I do not think that the situation is any different because at least some of the conduct that the plaintiffs said was misleading or deceptive was aimed not only at them but also at other potential underwriters, and at potential subscribers. It is the plaintiffs who allege that misleading or deceptive representations were made to them. What is required is the characterisation of the relevant conduct as between them and the Macquarie parties; and in that characterisation, Mr Saville's understanding is, for the reasons that I have given, the key consideration. 337 Further, I note that Ipp JA in Orix at para [70] said, relying on the majority decision in Butcher, that the existence of a disclaimer is relevant to, but not dispositive of, the characterisation of the conduct relied upon: "[t]he characterisation of the agent's conduct depends on a consideration of all the relevant circumstances and the existence or otherwise of a disclaimer is not necessarily determinative". 338 In the present case, of course, the "disclaimer" upon which the Macquarie parties rely is of particular significance given that Mr Saville read carefully, understood and considered himself (and the plaintiffs through him) to be bound by, that material (see para [309] above). No representation by Macquarie 339 All the circumstances to which I have referred support the conclusion that the Macquarie parties did not make any relevant representation to Mr Saville by MECM's letter of 12 November 1998 and its attachments, including the draft prospectus. Further, it might be asked, how could one rationally say that they (or MECM) did, in circumstances where Mr Saville did not regard them as doing so? In this context, as the majority observed in Butcher at 604 [37], where what is in issue is "a causal link between the impugned conduct and the loss that is claimed", what must be analysed is "the conduct of the defendant in relation to that plaintiff alone … bearing in mind what matters of fact each knew about the other as a result of the nature of their dealings … ". 340 This is not a case of the kind referred to by Beaumont J in Karawi Constructions, where the applicant's apparent understanding that no representation was being made was based on speculation. As I have said, Mr Saville had read and understood the relevant material setting out the basis on which the documents were supplied and received. It is clear from his evidence summarised in para [313] above that he regarded Macquarie as a mere conduit between him and the company in relation to the kinds of financial information in which he was particularly interested: cf Yorke at 666, where Mason ACJ, Wilson, Deane and Dawson JJ referred to the "conduit" expressly or impliedly disclaiming any belief in the information passed on, and "merely passing it on for what it is worth". 341 The plaintiffs submitted that MECM provided the draft prospectus to Mr Saville for its own purposes: so that he, or those associated with him, might agree to sub-underwrite part of the converting note issue. I accept that submission, although as I have said NCRH agreed with or acquiesced in that conduct, so that the provision of the draft prospectus to Mr Saville (and to other potential sub-underwriters and investors) was done for its purposes also. But it cannot be regarded as dispositive. It is but one of the circumstances to be considered. It was in the interests of the respondent in Butcher, and the appellant in Poulet Frais, to provide the information relied upon in those cases; but, as was held in those cases, they did not thereby make any representation to the party to whom the material was provided. 342 The draft prospectus (and, to the extent that it is relevant in this context, the prospectus) were the documents of NCRH. Mr Saville understood that this was so. It is correct to say that Macquarie (or, at least, MECM) had been involved in the drafting of those documents - although it does not appear that Mr Saville was aware of, or turned his mind to the possibility of, this circumstance. But the great bulk of the information in the documents did not come from Macquarie; most of it came from NCRH, and parts of it came from Trowbridge, PwC or Phillips Fox. 343 It may be accepted that Macquarie used the draft prospectus for the purpose of persuading potential sub-underwriters and investors to convert their interest into firm commitments. But it does not follow from this that Macquarie thereby adopted as its own, so as to be seen on its own account to represent to potential sub-underwriters and investors, all the information set out in the draft prospectus. On the contrary, both the disclaimers in the prospectus and (in the case of sub-underwriters such as Mr Saville or those associated with him) in the draft sub-underwriting agreement make it plain that Macquarie was not doing so. As I have said more than once, Mr Saville understood that this was so. 344 The source of the representations presently under consideration is in each case the draft prospectus. I conclude that Macquarie did not make any of those representations to Mr Saville when MECM provided him with a copy of the draft prospectus under cover of its letter of 12 November 1998. Accordingly, I am not satisfied that the representations alleged in 6FAS para 55 were made by Macquarie to Mr Saville in the manner alleged and particularised in that paragraph. 6FAS para 46: the "October presentation" 345 I have given in paras [137] to [141] above some references to Mr Saville's attempts, either in the summons (as it stood from time to time) or in his statements, to date the meeting. Mr Coultas and Mr Jackson each say that the meeting occurred on 16 November 1998. They both say, and I accept, that there was only one meeting at Mr Saville's home, and only one meeting with him during 1998. They are able to date the meeting at 16 November 1998 by reference to documentary records: Mr Coultas' employee expense reimbursement form attaching extracts from his corporate American Express card statements, and a taxi booking record for 16 November 1998. 346 An e-mail sent by Mr Moran in the evening of 4 November 1998 indicated that Mr Saville had not by then been contacted: he was not recorded among those who had received a copy of the draft prospectus. Mr Coultas went overseas on the morning of 5 November 1998, and did not return until late on 11 November 1998. It follows that no meeting that he attended with Mr Saville could have occurred before 12 November 1998 (accepting, as I do, the obvious inference from Mr Moran's e-mail). 347 It was put to Mr Coultas in cross-examination that the meeting with Mr Saville occurred on 12 November 1998 (T2442.07-.10). That is a curiosity, given that Mr Saville has never asserted, in written or oral evidence, that he met Mr Coultas on that date. 348 At one point, Mr Saville asserted that he believed that 3 November 1998 "is probably correct" (T1013.24), and then that the meeting occurred within a range of "two days either side" of that date (T1014.34-.35). I reject that evidence. Mr Saville's poor recollection of any detail as to date, and the shifting and inconsistent accounts that he has given, make it implausible in the extreme that he could be precise (even to the point of giving a range 1 to 5 November 1998); and I regard his attempt to do so as reflecting unfavourably on his credibility. 349 Having asserted in chief that "[t]he precise date of the October Presentation is largely immaterial to the overall question of whether the Plaintiffs' loss was caused by the conduct of the Defendants" (written submissions in chief, chapter 3, para 3.2.2), the plaintiffs devoted much ink in reply to the proposition that the meeting (or the first meeting, as they would have it) could be dated with some precision (written submissions in reply, chapter 1, section 2.0). I do not propose to refer in detail to those submissions. They are speculative, and in many cases assert matters that were not put to relevant Macquarie witnesses. It is sufficient to say that I regard the objective probabilities as favouring the proposition, supported by Messrs Coultas and Jackson, that the meeting occurred on 16 November 1998; as, likewise, does such contemporaneous documentary material as is available. I take into account also the general views that I have formed as to the credibility of the three witnesses concerned. 350 Thus, as I have said, I find that the meeting occurred on 16 November 1998; it was at Mr Saville's home; and there were present Mr Saville, his associate Mr Bass, and Messrs Coultas and Jackson from Macquarie. 351 In general, I accept the substance of the accounts of that meeting given by Messrs Coultas and Jackson. Before I turn to those accounts, I shall deal with the accounts given by Mr Saville and my conclusions in respect of them (in which context reference should be made to what I have said in paras [136] to [141] above, whilst dealing with the topic of Mr Saville's credibility). 352 It follows, from my finding as to the date of this meeting, that the context, or circumstances, relevant to the assessment of what (if any) representations were made includes Mr Saville's receipt, reading and understanding of MECM's letter of 12 November 1998 with all its enclosures. Attention to detail is required 353 Before I turn to the detail, I should deal with the submission by the plaintiffs that "[p]recisely when and precisely what words were used by those present are not findings essential to the plaintiffs' actions" (plaintiffs' submissions in chief, chapter 4, para 14.1). I do not accept that submission, at least in its application to the meeting of 16 November 1998. The plaintiffs' case is that the Macquarie parties made representations at that meeting which were misleading or deceptive. It is in my view plain that, where representations are said to have been made orally, it is necessary to prove with some precision the words used. In Watson v Foxman & Ors (1995) 49 NSWLR 315, McLelland CJ in Eq said at 318-319: "Where, in civil proceedings, a party alleges that the conduct of another was misleading or deceptive, or likely to mislead or deceive (which I will compendiously described as "misleading") within the meaning of s 52 of the Trade Practices Act 1974 (Cth) (or s 42 of the Fair Trading Act ), it is ordinarily necessary for that party to prove to the reasonable satisfaction of the court: (1) what the alleged conduct was; and (2) circumstances which rendered the conduct misleading. Where the conduct is the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances. In many cases (but not all) the question whether spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition. Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience. Each element of the cause of action must be proved to the reasonable satisfaction of the court, which means that the court "must feel an actual persuasion of its occurrence or existence". Such satisfaction is "not ... attained or established independently of the nature and consequence of the fact or facts to be proved" including the "seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding": Helton v Allen (1940) 63 CLR 691 at 712. Considerations of the above kinds can pose serious difficulties of proof for a party relying upon spoken words as the foundation of a causes of action based on s 52 of the Trade Practices Act 1974 (Cth) (or s 42 of the Fair Trading Act ), in the absence of some reliable contemporaneous record or other satisfactory corroboration." 354 His Honour's observations have received appellate approval: see Moukhayber v Camden Timber and Hardware Co Pty Ltd [2002] NSWCA 58 at [28] (Heydon JA, with whom Beazley and Santow JJA agreed), and Aneve Pty Ltd & Ors v Bank of Western Australia Ltd [2005] NSWCA 441 at [49] (Hodgson JA, with whom Santow and Bryson JJA agreed). 355 It is of course the plaintiffs' case that the representations were made not only orally but also in writing, by the handing over and discussion of PowerPoint slides (in hard copy form). However, consistent with my general acceptance of the evidence given by Mr Jackson as to the meeting of 16 November 1998, I conclude that the slides in question were not handed over, nor were they shown to Mr Saville or discussed, at that meeting. Thus, to the extent that representations are to be spelled out of the meeting, they must be spelled out of what was said. It follows from what McLelland CJ in Eq said in Watson that I must be reasonably satisfied with some precision, based on actual persuasion grounded in the evidence, of the words that were said, before I can consider whether they were in fact misleading in the proved circumstances. For the reasons that follow, I feel no sense of actual persuasion, and am not satisfied on the balance of probabilities, that the representations alleged in 6FAS para 46 were made orally. Mr Saville's accounts 356 In his first statement, Mr Saville gave a detailed account of this meeting (exhibit PX 3, para 88): "88. During the course of the October Presentation I recall Coultas and/or Jackson leading me through all of the slides (as identified in paragraphs … above), and expanding upon each of the points made in each of those slides. I recall that Coultas and/or Jackson said to me words to the effect of:

"New Cap is aiming to raise approximately A$80 million through a rights issue and placement of converting notes.

This issue and placement provides an opportunity for investors to invest in a company in transition, which is operating in an improving reinsurance environment.

From your point of view, there are a number of things going for this investment. Whilst the company has incurred small losses since it commenced its operations, the company now has an improved and more efficient group and management structure and has employed a new underwriting team and underwriting strategy. The company considers that it has a much greater control over risk and the type of business it is now writing and this will increase its profits. It is looking forward to a profitable renewal season in the New Year, partly due to an improving reinsurance environment.

The company needs to remove the restrictive debt that it is carrying. The debt is not recognised by rating agencies, the security committees of major brokers or the regulatory authorities, which is holding the company back. The debt is also not tax effective.

What the company proposes to do is replace the debt with US$50 million in equity. This will be achieved through the issue of converting notes, which will be substantially treated as equity and give investors the benefit of an attractive interest coupon and provide downside protection.

The NTA of the company is driven by its investment portfolio and its claims reserves. The company has a substantial investment portfolio held mainly in US treasury bonds and other securities of a similar nature, and no equities. External advisers manage the fixed interest portfolio. It has a substantial independently assessed claims reserve to meet its future and present liabilities, which includes a prudential margin, so we see there being plenty of upside.

The NTA of the company at 30 June 1998 was $2.61. We consider that its share price is currently undervalued compared to net asset backing, and its NTA multiple is currently approximately 0.4 times. We expect that investors will require that the conversion price will be at a substantial discount to net tangible assets per share.

There is significant downside protection against any fall in the NCRH share price, since conversion takes place at the market price of NCRH shares as at the time of conversion. This downside protection continues until the share price drops to US$40 cents, the par value of the shares.

The company has made a small loss in the first six months of the current financial year, which resulted predominantly from the 1997 underwriting year. The company believes that the 1998 underwriting year is profitable, although no profit has yet been taken into account. With the changes in management and improved underwriting strategy we are forecasting a profit after tax for the year ended 31 December 1999.

The note structure has considerable benefits, and the notes will rank before ordinary share capital. After the issue of the notes, the company will have little or no debt.

Given the present price of New Cap's shares, the management changes which have been put in place and the generally improving reinsurance market, we consider there is a substantial upside potential for investors. The converting notes will provide investors with a secure yield, and the added benefit of substantial upside potential."" 357 However, when asked in cross-examination to give his best recollection of what was said at the meeting, Mr Saville said (T1018.7-.31): "Q. Just recount to his Honour, in the first person, the substance of what you were told at that meeting?

A. The presentation from Macquarie involved two people, with some slides. The conversation - I can recall words to the effect of, "Duncan, this is a very interesting investment. New Cap Re is a new reinsurance company. It has made some losses to start with, but it has a new management team, a new underwriting team. It has a new underwriting practice. The instrument is right up your street - it's a converting note. The note is going to convert at a substantial discount to net assets."

They are aware that I like special instruments and discount net asset plays. "The net assets are driven effectively by two sides: the assets, which are AAA-rated bonds, US Treasuries, independently managed by Salomon Brothers; the liabilities will be, or have been, independently reviewed by Trowbridge in terms of the claims provisions. The purpose of the issue was to replace debt and to provide the company with better opportunities going forward. The note instrument would be a converting note issue. It would be a 7.5 per cent coupon, or thereabouts. It would convert at a discount to the ordinary share price, and there is downside protection in the event that the ordinary shares go down." 358 The contrast between the two accounts is stark. I do not accept the account in exhibit PX 3. There are a number of reasons for this, including that it too bears all the hallmarks of reconstruction (in the sense explained in para [124] above). 359 The contrast between Mr Saville's purported recollection in his statement and his limited recollection in the witness box is of itself sufficient to cause me to doubt the former. My general view of his credibility is another reason for doubting the former (in fact, to the extent that the latter refers to the PowerPoint slides, this observation applies to it also). 360 Mr Saville said in cross-examination that he could not recall who "composed" the account of the "October presentation" contained in para 58 of exhibit PX 3; he did not know whether or not it was a reconstruction from documents; and he could not recall whether he had given instructions that set out the verbatim account that now appears in para 88 (T1044.11-.38). At the least, those admissions do nothing to inspire any feeling of confidence in, such as might engender "actual persuasion" as to the veracity of, the written account. 361 A little later, Mr Saville suggested that he "might have read the Dealer's Note to prompt" him in relation to the composition of para 88 (T1045.24). In fact, the account of the conversation in substance follows the format of a PowerPoint presentation document used by Macquarie in the roadshow (which was produced to the plaintiffs on discovery). The Macquarie parties submitted that para 88 "is clearly a reconstruction from that document." (Macquarie parties' outline of submissions, para 147). I find that submission persuasive. 362 The plaintiffs' solicitors, Deacons, served (but did not file) a signed statement made by Mr Saville on about 22 June 2003. That statement referred in para 84 to a meeting "in or around October 1998" said to have taken place at Mr Saville's home, and to have been attended by Messrs "Coultis" [sic] and Jackson. It is clear that this is the meeting that was the subject of the written and oral accounts set out in paras [356] and [357] above. The account of that meeting, in paras 84 to 89, sets out things that were said to have occurred. For example, it refers to documents said to have been given to Mr Saville, to the contents of those documents, and to Mr Coultas or Mr Jackson "leading me through" documents said to have been provided. In stark contrast to accounts of other meetings (including during 1998) contained in that statement, nowhere in paras 84 to 89 did Mr Saville purport to give any verbatim account of anything said by Messrs Coultas and Jackson (or either of them) during the meeting. 363 I accept the evidence of Messrs Coultas and Jackson that the roadshow presentation documents were not provided to Mr Saville at the meeting. Nor could the version identified by Mr Saville have been presented to him at any meeting from mid October 1998 up to 3 or 4 November 1998 (which was the range of dates within which, in different accounts, he dated the meeting), because it contained data referable to a later structure of the capital raising, one which did not come into existence until 12 November 1998. But that is not the present point, which is that Mr Saville did not, in the unfiled statement, give any verbatim account of anything said, or purported to have been said, at the meeting. 364 There are other aspects of Mr Saville's evidence as to this meeting that I regard as entirely unsatisfactory: for example, his shifting evidence (and the shifting case enunciated through various versions of the summons, bearing in mind his evidence that he read and approved them) as to the date of the meeting; and his shifting evidence as to specific details of the proposed issue that were purportedly discussed at the meeting. In this latter context, some of his accounts (including those set out in various versions of the summons) were clearly wrong, because they referred to details of the proposed raising (for example, the issue price of the notes or the number of notes to be issued) that were not correct at the time of the purported discussion. Those matters (and I have not tried to list them all) give me no confidence whatsoever in either the quality or the integrity of Mr Saville's purported recollection. 365 I conclude that:

(1) the account of the meeting given in para 88 of Mr Saville's first statement (exhibit PX 3) should not be accepted; and

(2) the documents said to have been provided or discussed at the meeting, both in para 88 (and following) of exhibit PX 3 and in the particulars to 6FAS para 46, were not provided or discussed at the meeting which took place. 366 For completeness, I add that if there were (as Mr Saville suggested) a second meeting, it occurred not in 1998 but in 1999. I reject his evidence suggesting that there were two meetings, close together, in October or November of 1998. 367 Thus, it is necessary to look at Mr Saville's account of the meeting as given in the witness box (see para [357] above) and the account given by Messrs Coultas and Jackson, to see what (if any) representations Macquarie made at that meeting. The accounts of Messrs Coultas and Jackson 368 Mr Jackson denied that the documents identified by Mr Saville as having been discussed and handed over at the meeting were in fact so discussed or handed over (statement dated 23 August 2005, exhibit 1-3DX 4, para 84). That evidence was not challenged. The plaintiffs submitted that Mr Jackson may have been confusing the "October presentation" meeting (ie, the meeting that I have found took place on 16 November 1998) with another meeting that, the plaintiffs submit, occurred shortly after the "October presentation". As I have said, I find that there was only one meeting during 1998. It follows that I do not accept the submission that Mr Jackson was confused in the manner suggested. 369 Mr Coultas could not deny that some documents were provided to Mr Saville at the "October presentation", although he had no recollection of doing so (statement dated 19 August 2005, exhibit 1-3DX 3, para 27). 370 Mr Coultas did however deny providing any roadshow documents to Mr Saville. He said that Macquarie had a very strict policy that no document that included a profit forecast should be handed out unless the forecast were included in a prospectus. This evidence is to some extent undermined by the evidence referred to in para [152] above, but - at least at a level of generality - I accept it. 371 Mr Jackson accepted that he made a number of statements at the meeting, which dealt with the following topics:

(1) The changes in management (including Mr Thompson's replacement by Mr Daya as chief executive officer, Mr Aroney's appointment as chief financial officer, the removal of Mr de Chelard and the appointment of a new team of underwriters).

(2) The conservative nature of the investment portfolio "with investments held in US treasuries and bonds rather than equities".

(3) The company's stock would be re-rated if it achieved a profit.

(4) Shares in NCRH "are now trading at a large discount to stated NTA and the actuarial review provides comfort that the balance sheet is fairly stated. The converting notes are a preferred security."

(5) On the stated net asset position of NCRH there was room for substantial error in the actuarial assessment of liabilities before noteholders could be "exposed", so that "[t]he question for investors in the notes is - how wrong could the actuary be?".

(Exhibit 1-3DX 4, paras 86, 88.) 372 Mr Coultas accepted that he may have said words to the effect that the converting note mechanism offered "significant downside protection against any fall in the NCRH share price since conversion takes place at the market price of NCRH shares as at the time of conversion. The downside protection continues until the share price drops to US 40 cents, the par value of the shares". He accepted that he may also have said "[t]he note structure has considerable benefits, and the notes will rank before ordinary share capital." (exhibit 1-3DX 3, para 29). 373 Mr Coultas accepted that either Mr Jackson or Mr Saville said words to the effect that NTA were a function of the investment portfolio and the claims provision; that the investment portfolio was "blue chip"; and that "the real issue is the Trowbridge confidence level underpinning the NTA figure. … How much do Trowbridge have to be wrong before noteholders start to lose their money?" (ibid, para 31). What representations were made? 374 Taking Mr Saville's oral account of the meeting at face value, and putting it together with what Mr Coultas or Mr Jackson agreed was said (as opposed to what they agreed might have been said, or could not disagree might have been said), the following representations could be spelled out:

(1) That NCRH had a new management and underwriting team in place.

(2) That the assets of NCRH were substantially "blue chip": US Treasury notes and bonds.

(3) That unless the Trowbridge assessment of claims liabilities were substantially inaccurate, noteholders would be protected for their investment.

(4) The question for noteholders was, therefore, how wrong could Trowbridge be?

(5) The conversion mechanism for the NCRH converting note issue gave noteholders significant protection against any fall in the NCRH share price.

(6) Notes would convert at a substantial discount to net assets.

(7) The purpose of the issue was to replace debt and to provide NCRH "with better opportunities going forward". 375 With the possible exception of the last, none of those corresponds directly to any pleaded representation (although some, for example the first and the third, contain elements of pleaded representations). However, taking at face value both Mr Saville's oral evidence of the meeting and what Messrs Coultas and Jackson agreed was said, none of the representations alleged in 6FAS para 46(a) to (e) or (g) were made orally. Sub paragraph (f) could be said to be made out to the extent that it alleges a purpose of removing restrictive debt and replacing it with equity. The remaining part of that alleged representation - "improving the New Cap Group's security ratings" - is not made out, although on Mr Saville's account of the conversation, there was a reference to a purpose of providing NCRH "with better opportunities going forward". It might be argued that a better security rating would provide "better opportunities going forward". The evidence in this case suggests that the better a reinsurance company's rating, the better the class of business that it could attract. 376 Messrs Coultas and Jackson did not in terms accept that they made statements in terms of or to the effect of 6FAS para 46(f). Nonetheless, one of the purposes of the converting note issue was to remove restrictive debt and replace it with what was (substantially but not wholly) equity. A perceived, or expected, or hoped for, consequence was that NCRH's rating would be improved, so that it would be able to write better quality business. I am satisfied that Messrs Coultas and Jackson were, or at least Mr Jackson was, aware of this. I am satisfied that they were, or he was, aware that it was a "selling point" for the converting note issue. In those circumstances, notwithstanding my general view of Mr Saville's credibility, I accept his evidence that statements making good the representation alleged in 6FAS para 46(f) were uttered at the meeting of 16 November 1998. 377 Thus, I find, a representation was made at that meeting to the effect of that alleged in 6FAS para 46(f). I am not satisfied that any of the other representations alleged in that paragraph were made at that meeting. Representation of fact or of opinion? 378 Macquarie submitted that the representations alleged to have been made by it (6FAS paras 46, 48, 50 and 55) were representations of opinion and not of fact. Thus, it submitted, a debate as to the misleading or deceptive quality of those representations was limited to matters such as whether the opinions were honestly held, believed to be correct, and based on reasonable grounds. 379 On the findings that I have made, that question requires consideration only in respect of the representation alleged in para 46(f). That is not a representation of opinion but a representation of fact. It is a representation of the purposes of NCRH in undertaking the capital raising. Specifically, it is a representation that the packages included the two elements set out in sub para (f). 380 No doubt, the representation could also be analysed as being Macquarie's "opinion" or, in more common language, understanding, as to the purposes of NCRH. However, I propose to proceed on the basis that the representation should be regarded as one of present fact (ie, as one as to the fact of the purposes of NCRH at the time it was made); and I suspect that the great majority of people to whom such a statement was made would so interpret it. Was the representation false? 381 The representation alleged in 6FAS para 46(f) is one of the "Purposes of the Capital Raising Representations" that are said to have been falsified by the matters alleged in 6FAS para 74. (The other representations in that category are those set out in 6FAS paras 50(b) and 55(n); I have found that Macquarie did not make those representations to Mr Saville.) Paragraph 74 alleges many matters that are said to falsify those representations, and in case that were insufficient incorporates by reference matters alleged in 6FAS paras 70 to 73 and 75. 382 Many of the matters so alleged (either expressly or by incorporation) as falsifying the Purposes of the Capital Raising Representations are manifestly incapable of doing so. Those that might perhaps bear upon the question involve two allegations, propounded repetitively and indistinctly, through a series of overlapping assertions:

(1) That from October to December 1998, NCRH was facing a liquidity squeeze of mounting proportions, so that it might not be able to meet all its obligations (or might not be able to do so without the proceeds of the converting notes issue.)

(2) That repayment of the Dresdner facility was forced and not voluntary. 383 It will be noted that the representation alleged in 6FAS para 46(f) does not purport to state exclusively the purposes of NCRH. The stated purposes are said to have "included" those set out. Thus, it was not false to state that the purposes included those specified unless those purposes were not in fact among the purposes of NCRH in undertaking the capital raising. 384 The Dresdner debt was "restrictive". It was not classified as equity and therefore was not taken into account, as part of the capital of NCRH, by ratings agencies. Further, the interest payable was not regarded as deductible for Australian purposes, so that NCRH obtained no tax deduction for interest paid. By contrast, the greater part of the converting note issue would be treated as equity, and interest on the balance - the debt portion - would be deductible. 385 The evidence makes it plain that one of the express purposes of the raising was to improve the capital base of NCRH so as to make it more attractive to ratings companies and, therefore, to reinsurance brokers and those seeking reinsurance. It is clear that any re-rating of NCRH would depend on its achieving a profit in 1999. But the capital raising was part of, and fundamental to, the proposed re-rating. 386 It follows that the representation in terms was substantially accurate, in relation to the purposes that it stated. However, the plaintiffs submit, it should be regarded as falsified, and therefore as misleading or deceptive, because it conveyed the suggestion that the repayment of Dresdner was voluntary, whereas it was not. 387 One difficulty with this aspect of the plaintiffs' case is that the falsifying matters alleged, and the submissions put in support of them, address the Purposes of the Capital Raising Representations indiscriminately. However, as will be seen by comparing 6FAS para 46(f) with paras 50(b) and 55(m), it is necessary to pay close attention to the particular form of the representation alleged (and in the present case, to the particular words used, by which it is said to have been conveyed). 388 I do not think that it is correct to say that repayment of the Dresdner loan was forced. I deal with the question of Dresdner's attitude to NCRH's actual or threatened defaults in paras [1359] to [1387] below, in connection with the question of causation on the 33rd and 36th cross-claims. What follows, which is at a level of some generality, should be read in conjunction with those paragraphs. It is plain that NCRH had made, or threatened, default of a number of covenants of the Dresdner facility on a number of occasions. From time to time, it negotiated waivers with Dresdner to cover actual or threatened defaults. It is plain that Dresdner would want the facility repaid. It does not follow, however, that repayment was forced, or involuntary. It was in the interests of NCRH to repay the facility, if it could do so through a capital raising that would improve its equity position and overcome the tax disadvantages attaching to the Dresdner facility. I have no doubt that Dresdner was very happy to be presented with the repayment programme offered by the converting note issue. But it does not follow that the representation as to this aspect of the purpose was false simply because Dresdner was keen to get its money back. Dresdner had not made demand, nor had it threatened action. 389 Certainly, there was a letter of 11 October 1998 in which Dresdner had asserted that NCRH was in breach of certain covenants, and that Dresdner was under no obligation to continue extending credit. However, internal Dresdner documents brought into existence at the same time indicate that Dresdner's intention was "to exit if/when feasible". In the same document, the author (Mr Valencourt, who appears to have had day to day responsibility for the facility) said that he did not believe that circumstances warranted the "precipitous" action of demanding immediate and full repayment of the balance. In substance, Mr Valencourt recommended to the credit committee that Dresdner should execute the then contemplated further amendment, rather than demand repayment with the attendant risk of "possible prolonged and costly litigation and regulatory action". 390 I conclude that, to the extent that the representation alleged in 6FAS para 46(f) has been shown to have been made, and assuming that it is a representation of present fact rather than opinion, it was not false at the time it was made. 391 If, contrary to my conclusion but as Macquarie submitted was the case, it is to be regarded as a representation of opinion, then it is plain that Macquarie was not aware of the great majority of the matters alleged to falsify it, and that such matters as Macquarie was aware of could not do so. Conclusion on first issue 392 The pleaded case, that the Macquarie parties were guilty of misleading or deceptive conduct up until and including 18 November 1998, fails. (Issue 1 refers to 17 November 1998, but my conclusion speaks as at both dates.) The first issue should therefore be answered "no". Issues 2, 3 and 4: continuing representations? 393 6FAS para 76 alleges that, by reason of a vast number of "facts, matters and circumstances" incorporated by reference to earlier paragraphs, the representations alleged in paras 46, 48, 50 and 55 were continuing representations up until the allotment of the converting notes. It alleges accordingly that Macquarie had a duty to act in certain ways in the event that it became aware of changed circumstances which might falsify any of those representations. The allegations of falsification (or of falsifying circumstances) alleged in 6FAS paras 77 and 79 do not extend to the Purposes of the Capital Raising Representations. Thus, one might think, issues 2 to 4 require no further consideration. 394 However, issue 4 as formulated by the plaintiffs enquires whether any failure on the part of Macquarie to act, as pleaded in 6FAS para 81, was in all the circumstances of the case misleading or deceptive. 395 The Macquarie parties say that the true issue in substance is whether the representations alleged in 6FAS paras 46, 48, 50 and 55 were or became misleading by reason of the alleged failure to inform alleged in para 81. 396 To the extent that the plaintiffs' formulation of issue 4 is intended to allege some free standing case of misleading or deceptive conduct based on the failure to inform alleged in para 81, it goes beyond the pleaded case. The pleaded case relies on:

(1) The alleged representations (6FAS paras 46, 48, 50 and 55) and the circumstances alleged to make them continuing (6FAS para 76).

(2) The supervening circumstances alleged to falsify some (but not all) of those representations (and other representations, to the DDC) (6FAS paras 77, 79).

(3) Macquarie's knowledge of those and other matters, and Macquarie's views on related matters (6FAS paras 79, 79A).

(4) Macquarie's absence of belief, or lack of reasonable grounds for belief, in some (but not all) of those representations and the various DDC representations (6FAS para 80). 397 After the failure to inform is alleged in 6FAS para 81, the plaintiffs' pleaded case turns its attention to representations that Macquarie is said to have made to the DDC on 12 January 1999, to the directors' resolution on the same date to allot the converting notes and the allotment of those notes, to Macquarie's knowledge (actual or imputed) of a vast number of circumstances, and to the falsification of the representations said to have been made to the DDC on 12 January 1999. This aspect of the case appears to go to the "indirect representation" case (see 6FAS para 81K), which is the subject of issues 30 and 31. 398 6FAS para 83 then alleges that Macquarie's conduct referred to in paras 39A to 82A was misleading or deceptive. It thus incorporates all those aspects of the plaintiffs' case against Macquarie that rely on misleading or deceptive conduct:

(1) The case based on misleading or deceptive conduct up until and including 18 November 1998, in turn based on the representations alleged in 6FAS paras 46, 48, 50 and 55 and the alleged falsity thereof.

(2) The case based on misleading or deceptive conduct thereafter up until and including 12 January 1999, in turn based on the alleged continuing nature of those representations and their alleged falsification by supervening events.

(3) The indirect causation case based on the representations alleged to have been made by Macquarie to the DDC on 12 January 1998, the alleged misleading or deceptive quality of those representations, and their alleged causal link, through the resolution of the DDC, to the act of the directors in resolving to allot the converting notes. 399 Nothing in this structure suggests that there is a freestanding case, divorced from the alleged continuing representations and their alleged falsity, of misleading or deceptive conduct by reason of the alleged failure to inform pleaded in 6FAS para 81. On the contrary, I think, that case is inextricably and inevitably tied to the various representations (including but not limited to continuing representations) that are alleged to have been operative in the period up until and including 12 January 1999, and to the circumstances that are alleged to have falsified those representations. 400 It follows, from my finding as to the only representation that was made (6FAS para 46(f)), and the circumstance that it is not one of those alleged in 6FAS paras 77 or 79 to have been falsified after 18 November 1998, that issues 2 to 4, insofar as they relate to 6FAS para 81 and the alleged continuing representations, do not arise. Accordingly, each should be answered "does not arise". 401 I have not overlooked that 6FAS para 81 refers not only to the alleged continuing representations but also to various representations alleged to have been made by Macquarie to the DDC on 18 November 1998 and 12 January 1999. However, those alleged representations are to be considered under issue 5, to which I now turn. Issue 5: the various representations to the DDC 402 Again, the parties differ as to the case that is legitimately open to the plaintiffs. 403 The dispute relates to the circumstances said to make the various DDC Representations misleading or deceptive. The plaintiffs say that this question is to be answered "in all the circumstances of the case". The Macquarie parties say that it should be confined to the pleaded matters that are said to make those representations misleading or deceptive. The pleaded case 404 The representations fall into two groups. The first group comprises: (1) The Macquarie 5 November 1998 DDC Representations (alleged in 6FAS para 49A);

(2) The Macquarie 18 November 1998 DDC Representations (alleged in 6FAS para 67A); and

(3) The DDC Representations (alleged in 6FAS para 39D to have been made by Messrs Peck, Williams and Aroney, by Macquarie through Dr McKenzie, by PwC through Mr Murray and Ms Payne and by Phillips Fox through Mr Mutton). 405 As I have already pointed out, 6FAS paras 70 to 75 allege matters that are said to falsify various of the pleaded representations said to have been made by Macquarie to Mr Saville. 406 6FAS para 75A alleges Macquarie's knowledge of matters pleaded in a number of antecedent paragraphs. 407 6FAS para 75B alleges that Macquarie made the first group of representations (summarised in para [404] above) "despite having considered" various matters defined by reference to antecedent paragraphs and sub paragraphs. 408 Against that background, 6FAS para 75C alleges that "[b]y reason of the matters alleged in paras 70 to 75B above" a number of representations, including the first group of DDC Representations, "were misleading or deceptive, or likely to mislead or deceive". 409 The second group of representations comprises what are called the Macquarie 12 January 1999 DDC Representations (alleged in 6FAS para 81A) and the DDC Supplementary Representations (alleged in 6FAS para 39E to have been made by Messrs Peck, Williams and Aroney and by Macquarie, PwC and Phillips Fox - in this case, unlike the DDC Representations, Phillips Fox is said to have made it through Mr Peck). 410 As with the first group of representations, there is an allegation of Macquarie's knowledge (6FAS paras 81G and 81H) and an allegation that Macquarie made the representations "despite having considered" certain matters (para 81I). It is then alleged in para 81J that "[b]y reason of the matters alleged in paras 70 to 80I above" a number of representations, including those in the second group, "were misleading and deceptive or likely to mislead or deceive". 411 In other words, the structure of the pleading is the same for each group. 412 Substantially for the reasons that I have given in paras [277] to [285] above, when considering the dispute between the parties as to the ambit of the first issue, I conclude that the Macquarie parties' objection to the way that the plaintiffs formulate issue 5 is soundly based. The misleading or deceptive character of the representations with which issue 5 is concerned is to be assessed by reference to the matters pleaded as rendering them misleading or deceptive: 6FAS paras 70 to 75B in the case of the first group and 6FAS paras 70 to 81I in the case of the second group. However, the approach to be taken is that outlined in para [286] above, mutatis mutandis. 413 The next matter to be considered about this aspect of the pleaded case is that it is not alleged that any of the representations on which it was based were made to Mr Saville (or in any other way to the plaintiffs), and it is not alleged that Mr Saville (or in any other way the plaintiffs) directly relied upon any of the matters represented, or were directly misled or deceived by them. Instead, it is said, that but for the misrepresentations:

(1) The DDC would not have made the representations upon which the board relied in resolving to sign and issue the prospectus and issue the converting notes.

(2) The directors would not have resolved to sign and issue the prospectus.

(3) The directors would not have signed the prospectus.

(4) The prospectus would not have been issued, or would not have been issued in the form in which it was issued.

(5) Messrs Peck and Daya as delegates of the board would not have resolved on 12 January 1999 to issue the converting notes.

(6) The converting notes would not have issued, and "the plaintiffs would not have been issued with, or acquired, Converting Notes, Rights and shares" (6FAS para 81K(f), referring to paras 272 to 299).

(7) "The Plaintiffs would not have suffered the loss which they now claim" (6FAS para 81K(g)). 414 In other words, the case of misleading or deceptive conduct founded on the representations now under consideration goes only to the so-called "indirect representation" case, which is the subject of issues 30 and 31. The pleaded case is bad in law 415 Since I have come to the conclusion (for the reasons given in paras [493] to [530] below) that the indirect representation case is not available in law to the plaintiffs, and would fail in fact if it were, it is not necessary to deal further with issue 5, and I do not propose to do so. It does not arise, and should be so answered. Issue 6: the applicable legislative regime 416 The conclusions to which I have come mean that it is not necessary to decide this issue, and it should be answered accordingly. Issues 7 to 9: causation and reliance 417 I have concluded that the Macquarie parties made only one representation directly to Mr Saville, and that it was not misleading or deceptive. It follows that these issues do not arise, and they should be so answered. Issues 10 to 15: evidentiary issues 418 I have dealt with these, one way or another, and to the extent that I consider it necessary, in relation to issue 1. It is not necessary expressly to decide them. Issue 16: continuing representation? 419 This can arise only in respect of the one representation that I have found was made: that alleged in 6FAS para 46(f). For the reasons that I have given, that representation was not misleading or deceptive at the time it was made. 420 The representation was superseded at the latest once Mr Saville received and read the prospectus. NCRH set out in full in the prospectus what it said were its purposes in undertaking the capital raising. (It may be the better analysis that the representation was superseded a little earlier, when Mr Saville received and read the draft prospectus - it being in no material way different to the final version. But nothing turns on this.) 421 In any event, the representation in question was made to Mr Saville as part of a presentation designed to persuade him, and through him companies with which he was known to be associated, to sub-underwrite part of the converting note issue. That purpose was achieved when ICM and AOIT each agreed on 17 November 1998 to sub-underwrite part of the issue. That having been achieved, the purpose of the representation was spent. See Macquarie Generation v Peabody Resources Limited [2000] NSWCA 361 at para [20] (Mason P); and see cases such as Briess v Woolley [1954] AC 333 and With v O'Flanagan [1936] Ch 575. 422 Issue 16 should be answered, as to the representation alleged in 6FAS para 46(f), that it did not continue, at the latest, beyond the point when ICM and AOIT became bound to their respective sub-underwriting agreements with MECM. Issues 17 to 19: miscellaneous matters 423 Issues 17 and 19 (or their substance) have been considered already. It is not necessary expressly to decide them. Issue 18 does not arise on the findings that I have made. Issues 20 to 23: Mr Saville's evidence as to reliance; authority 424 Issue 20 substantially replicates issue 9, and can be put to one side. Issue 21 raises the question of the acceptability of Mr Saville's evidence as to reliance. The plaintiffs say that "this is a submission on evidence and not an agreed issue." It is not an issue arising on the pleadings (contrast issues 9 and 20), but it is certainly a factual issue that lay at the heart of all parties' submissions on reliance. Its resolution depends heavily on questions of credibility, and balancing inferences from disparate pieces of evidence. For these reasons, I think, I owe it to the parties and others (including appellate courts) who may undertake the burden of reading these reasons to set out my views on the acceptability of that evidence. 425 Issue 22 raises a separate question as to the pleaded case on reliance, and I will leave it as I have left issues 9 and 20. 426 Issue 23 raises another separate aspect of reliance: namely, whether Mr Saville had authority from each of the plaintiffs to make the various decisions that it is said he made, whereby those plaintiffs acquired their various interests in securities of NCRH. Since a resolution of that question does not depend on the detailed application of any of my conclusions as to credibility, I will not undertake it. Approach 427 I should make it plain that I propose to deal with the concept of reliance in general and not with reliance as between the plaintiffs and any individual defendant or group of defendants. Thus, for example, I will focus on what in general was material to Mr Saville's decision-making, not on specific matters such as his understanding of the limitations in section 11.7 of the prospectus, or of the roles of various parties. 428 The first hurdle that the plaintiffs face is that their case on reliance depends at least in part on the acceptance of Mr Saville's evidence of reliance. For the reasons that I have given in paras [127] to [146] above, I do not in general regard Mr Saville's evidence as credible. I see no reason to except from that general impression his evidence as to reliance. On the contrary, some features of that evidence to which I refer below confirm that the general impression should extend to that evidence. 429 The plaintiffs did submit that the question of reliance could be determined in their favour in any event. They submitted (in reply) that, accepting that they "must doubtless prove causation as part of the statutory count, there is no compulsion for that to be proved by direct evidence from the decision maker" (written submissions in reply, chapter 1, para 11.7). The plaintiffs submit, correctly, that reliance may be inferred: see for example Havyn Pty Ltd v Webster [2005] NSWCA 182. Santow JA (with whom Tobias JA and Brownie AJA agreed) said in that case at para [116(g)] that "[t]he Court may by inference determine the effect which a representation is taken to have had … . Such an inference may arise where a representation … was materially likely to induce the representee to enter into a contract and the person actually enters into the contract … ". 430 All of that may be accepted. But the application of that approach requires a consideration of the precise representations found to have been made. In this section of these reasons, I am not undertaking that task but, rather, examining both the reliability of Mr Saville's express evidence as to reliance and the conclusions that I draw as to reliance based on that evidence and other relevant circumstances. Mr Saville's evidence-in-chief as to reliance 431 In paras 78 to 114 of his statement dated 23 July 2003 (exhibit PX 3), Mr Saville identified what he said were a number of sources of information about NCRH. Those sources included:

(1) What was said by Messrs Coultas and Jackson at the "October presentation", and the documents that Mr Saville said were given to him at the "October presentation".

(2) Research and other material about NCRH, prepared by MECM and other brokers, and from Bloomberg.

(3) NCRH's announcement of the terms of the note issue, made on 28 October 1998.

(4) The "Macquarie Equities Essentials" Report of 29 October 1998, which Mr Saville said was sent to him by Mr Jackson "soon after the October Presentation".

(5) The Macquarie dealer's notes sent by Mr Bloch to Mr Saville on about 10 November 1998.

(6) The draft prospectus, which Mr Saville said he received on or about 12 November 1998, together with the draft underwriting agreement.

(7) Other information received by Mr Saville from various sources, including Bloomberg, after he received the draft prospectus. 432 In para 92 of that statement, Mr Saville said: "92. At the time of the October Presentation, it was my judgment based on what I was told and the materials that I was given to read, that the proposed Notes offer was a very attractive one, for reasons including: (a) the form of the converting notes provided substantial protection in a downwards movement in the listed share price of NCRH because the conversion took place at the then market price of those shares (providing that the share price did not drop below US40 cents, which was well below the then share price of NCRH); (b) the investment offered considerable upside as the conversion price had a fixed maximum and the conversion would take place at a discount to the then trading price of NCRH shares if the shares were trading at above the issue price of the Notes; (c) the shares in NCRH were trading at a substantial discount to the NTA per share of NCRH as disclosed in the materials provided to me, unlike most financial services companies, so that there were thus good prospects of the share price improving once the identified deficiencies in NCRH had been corrected (which the information provided to me said); and (d) there were some indications of positive changes at NCRH which, if successfully implemented, would allow NCRH to be better rated by the stock market and lead to an increase in its share price."

433 In para 118, Mr Saville said that it was for those reasons that he signed the sub-underwriting agreements on behalf of ICM and AOITL, and that those reasons were supported by the further information that he had gathered, including "in particular the Draft Prospectus". 434 In paras 107 to 110 of his statement, Mr Saville pointed to various features of the draft prospectus that, apparently, were of significance to him. These matters included:

(1) The statement of the NTA ranging between AUD2.06 and AUD2.20, which Mr Saville said in para 107(a) "was still materially higher than the conversion price of the Notes" even though it was lower than figures that he said had been given to him earlier.

(2) Trowbridge's review of the claims provisions, concluding (as Mr Saville saw it) that NCRH's provision was reasonable, although by implication not containing a prudential margin of any significance.

(3) The reduction of the issue price of the notes from AUD1.50 to AUD1.30, which Mr Saville "understood … resulted from the unusually high incidence of identified major claims."

(5) The fact that the assets were not at risk because they were fixed interest securities.

(7) The new management team, the revised underwriting strategy and what he said was the expectation of profits from 1999 onwards.

(8) The range of possible central estimates given in the Trowbridge report, from USD122 million to USD177 million. 435 A somewhat similar approach was described by Mr Saville in para 3 of his statement dated 2 November 2005 (exhibit PX 11), to which I have referred in para [131] above. Mr Saville appreciated "that the major issue about the value of the NCRH depended upon whether the claims provisioning was adequate": in which he "was reassured by the fact that the claims provision had been independently assessed by Trowbridge" (para 109(d)). 436 In para 120 of his statement, Mr Saville set out his reaction to some fifteen identified matters which he says were "contrary to the information which [he] had reviewed to" 17 November 1998. He said that he would not have participated in the notes issue, or otherwise involved the plaintiffs in purchases of shares, rights or notes, had he been informed of all those matters. Further, he said, if he had been informed of any one of those matters, he would have considered its impact on the NTA and future prospects of NCRH, and would have either declined to participate or requested a change in the terms of the note issue. Further, if he had been told of more than one of those matters, he would have been even more wary; and, if told of three or more, in all probability he would have decided not to participate. Mr Saville's evidence in cross-examination 437 Mr Saville said more than once that he relied on a "package" of information (see for example T1666.13-.15). I understood him to be saying by this that, in relation to any specific matter or topic, he relied on the totality of what might have been said, in relation to that matter or topic, in all the information given to him. I do not regard that as unusual or surprising. 438 However, it became clear from Mr Saville's cross-examination that his approach to the investments was by no means as rigorous as the careful and cautious approach described in his statements. 439 The draft prospectus (and, for that matter, the prospectus) advised the reader considering investment in the notes to read the Prospectus Balance Sheet "in conjunction with the Half Yearly Report for the six months ended 30 June 1998 and the Consolidated Financial Statements for the period ended 31 December 1997" (section 6.2). I think it is clear that Mr Saville did not do so:

(2) The plaintiffs discovered a copy of the financial statements to 31 December 1997, but Mr Saville's evidence was that he could not recall when it was that he received those accounts, nor that he looked at them before signing the subunderwriting agreements (T946.07-947.23; 1188.46-1189.02; 1193.32-.37). Mr Saville accepted that it was possible that he made the investment decisions for the plaintiffs "without bothering to look at the last annual accounts of New Cap" (T1209.31-.42).

(3) The plaintiffs did not discover any copy of the half yearly accounts to 30 June 1998. Mr Saville accepted that, had he received them, he would have retained them, filed them and provided them to the plaintiffs' solicitors for the purposes of discovery (T1678.21-1679.12). He did not suggest that there was any reason why, if the plaintiffs had those accounts, they would not have been discovered.

(4) When asked whether he would have wanted to see the last annual accounts, Mr Saville replied that he "had up-to-date information" and "might not necessarily have wanted the 1997 accounts." (T1149.39-42). The "up-to-date information" to which he referred was that set out in the prospectus, and that comprised in the draft of what became the 23 December 1998 ASX announcement and what Mr Daya had said to him (in late December 1998) "[p]lus possibly the unaudited accounts" (T1149.44-1150.13). Since Mr Saville could not recall consulting the half yearly accounts, and since no copy of them has been discovered, I do not accept this last answer as evidence that Mr Saville did in fact review them. 440 Had Mr Saville accepted the advice in section 6.2 of the prospectus, he would have discovered (for example) the extent of NCRH's assets pledged to Chase as at 31 December 1997. Mr Saville accepted that the advice was "perfectly sensible and wise" (T1188.36) and that to understand NCRH and the half yearly financial statements, it would be desirable to consider the financial statements as at 31 December 1997 (T947.31-.35, 1150.15-.27). 441 Mr Saville's stated reasons, as to why he may not have gone to the previous financial statements, are illuminating (T1150.32-.40): "A. New Cap Re, on the surface, is not a difficult company to analyse. You have got a net asset figure, which is driven by an investment portfolio, which is really US treasuries, some AAA bonds, and on the other side you have got claims provisions which have been audited and signed off by Trowbridge. In essence, that's your company. You have got your upside with your management, your debt, the purpose for your issue, but it is not that difficult an investment to analyse." 442 It might be thought that Mr Saville thereby described the essence of the matters on which he relied, but he denied that this was so, saying that what he relied upon was "[e]verything I have said before" (T1150.44). For reasons that follow, I do not accept this last answer as correct. I think that in truth the matters on which Mr Saville relied were those that he described at T1150.32-.40 (although with some additional considerations, to which I refer in para [465] below). 443 Mr Saville did not make any systematic attempt to check or verify any of the information given to him, either in the draft prospectus or otherwise, before signing the sub-underwriting agreements on 17 November 1998. Mr Saville did say at T1121.9 that he "carried out [his] own investigations", but gave no detail over and above that offered in his statements of the nature of those investigations or, even, when they were made. Some matters that I think may be among those "investigations" are referred to in para [455] below. 444 One of the things that, by implication from para 120(o) of his statement dated 23 July 2003, Mr Saville appeared to be asserting that he understood (or that had been conveyed to him in "the information which [he] had reviewed" up until 17 November 1998) was that Trowbridge was a member of the DDC. None of the material provided to Mr Saville suggested that Trowbridge was a member of the DDC. Mr Saville gave no evidence that anyone had told him that Trowbridge was a member of the DDC. It seemed to be some assumption made by him on the basis of his general experience ( T1634.29-1636.34). In fact, as Mr Saville effectively acknowledged in the passage of his cross-examination to which I have just referred, it is clear from a reading of the prospectus (or the draft prospectus) overall that Trowbridge was not a member of the DDC. Mr Saville did not trouble to check his assumption with any of the advisers, or with the company. I think that this is an accurate reflection of its unimportance to him at the time. 445 In para 120(l) of the same statement, Mr Saville said that:

"The Notes could not be described as "solid security" as while NCRH was not expected to have borrowings that rank equally or ahead of the Notes there were guarantees that ranked equally in certain conditions. Further, as a large majority of NCRH's assets had been given as security to Chase Manhattan Bank the financial flexibility of the Group was less secure." 446 Mr Saville knew, from his reading of para 4.5 of the draft prospectus, that NCRH had "collateralised its risk positions" (T1177.37). He said repeatedly that he took this statement "at face value" (T1178.38, 1179.29) but, because he "read the statement at face value" (T1179.35), he did not make any investigation to ascertain the extent of the collateralisation. The plain inference from all this is that, despite the concern expressed in para 120(l) of his statement, Mr Saville was not at the time interested in the extent of that collateralisation. This inference is supported by Mr Saville's knowledge of the way, or mechanism, by which noteholders would obtain access to the assets of NCRH:

(1) The reinsurance business was operated by the operating companies, NCRA and NCRB (T1148.32);

(2) The converting notes were issued by the holding company, NCRH (T1148.27);

(3) In a practical sense, to the extent that assets of the group were in the subsidiaries, noteholders could only recover if NCRH proved in the winding up of those subsidiaries (T1713.24);

(4) In a practical sense, noteholders ranked behind unsecured creditors of the subsidiaries (T1713.34);

(5) Secured creditors ranked ahead of unsecured creditors (the latter of course including noteholders) (T1706.26); and

(6) Because of the structure of the NCRH group, the claims of policyholders (whose policies were issued by the subsidiaries) had effective or practical priority over the interests of noteholders (reluctantly conceded at T1307.21-1308.1). 447 It follows that the concerns expressed by Mr Saville in para 120(l) of his statement dated 23 July 2003 were not, and do not reflect, concerns held by him at the time. Paragraph 120(l) (and indeed the whole of the plaintiffs' case based on the relationship between the NCRH Group and Chase) overlooks the fact that the LOCs were given as security for claims, and the assets pledged to Chase were pledged as security for the performance by Chase of its obligations under the LOCs. Since claims were brought to account (whether accurately or not is a different question) in determining the net assets of NCRH, any attempt to categorise the assets pledged to Chase as a liability over and above the risks in respect of which the relevant LOCs were issued involves a substantial element of double counting. That is not to deny that the extent of collateralisation of assets had an impact on cash flow; clearly, it did. But cash flow is a different issue, as Mr Saville himself seemed to recognise in para 120(l) when he referred to "financial flexibility". 448 In para 120(i) of his statement, Mr Saville referred to the following proposition (which, I emphasise, is to be read by reference to the introductory words of the paragraph as something that was contrary to the information that he had received up until 17 November 1998): "That NCRH was liable to incur substantial additional operating losses during the second half of 1998 and 1999". 449 The loss for the six months to 30 June 1998, as disclosed by the half yearly financial statements, was USD14.8 million. The Trowbridge Prospectus Report identified a number of claims made after 30 June 1998, with a total possible (gross) exposure of USD17.1 million. 450 Mr Saville calculated that total losses for the 1998 calendar (and financial) year might amount to AUD40 million, or about USD25 million. (In doing so, he seems to have discounted or offset the impact of some of the subsequent events to which Trowbridge had referred.) However, he acknowledged that, because of some fourteen matters, there was a real risk that losses for 1998 might exceed his calculated figure of AUD40 million; but that he made his investment decision knowing and accepting that risk, and with no representation in the prospectus that it might not come home (T1555.4-1556.1): "Q. Before the adjournment, Mr Saville, I put to you each of the following matters, and I want you to bear them in mind when I ask you the question again and, if necessary, I would like you to write them down. I will give you a pen and paper. The first matter is your calculation of likely losses of US$40m for the 1998 year. A. Right.

Q. Second, the difficult industry conditions. Third, a respectable view that the premium rates might go lower. Fourth, the company had reduced its capital base through the first-half losses. Fifth, the legacy of the old team which may continue into 1999 or beyond. Sixth, the company lacked an A-grade rating, making it less attractive to brokers. Seventh, there was an uncertainty across the reinsurance industry generally on the catastrophes. Eighth, the Trowbridge range extended to US$37m above their mid-point and could go beyond. Ninth, warnings in the prospectus about risks and uncertainty. Tenth, the claims for the 1998 year were still coming in and may continue after the year end. Eleventh, there was no profit projection in the prospectus. Twelfth, the accounts would not come out until March. Thirteenth, Vesta might lead to an additional $12.5m in losses. Fourteenth, Charman might lead to further losses. Could you read those matters and tell me if you understand the 14 matters I have put to you? A. I understand.

Q. In the light of those matters, you were aware that there was a real risk, at the time of making your investment, that the losses for 1998 might significantly exceed your calculation of US$40m? A. There was risk, yes.

Q. And it was a real risk, wasn't it, Mr Saville? A. Always a real risk, yes. Q. And you made your investment conscious of and accepting that risk, didn't you? A. Yes.

Q. And you were aware that there was no representation being made to you in the prospectus that that risk would not come home? A. Yes." 451 Mr Saville also accepted that he was aware that there was a real risk that the company might make losses for 1999, as opposed to 1998 (T1556.3-.6). He said that he understood that the prospectus made no representation as to whether there would be profits or losses for that year, and that he had to make his own judgment on that (T1556.13-.22). 452 When Mr Saville read the "tombstone" announcement of February 1999, indicating losses of the order of USD90 million for the previous year, he understood (after some equivocation as to taking that announcement "on face value") that some of the risks that he agreed that he knew were present might have come home (T1556.24-.37). 453 Thus, on his own evidence, Mr Saville was aware that there was a real risk that NCRH was likely to incur substantial additional operating losses during the second half of 1998, and that there was a risk that it might incur further losses in 1999. It is also apparent that Mr Saville accepted the possibility of further losses (over and above his figure of AUD40 million) as a "real risk". These matters cast doubt on the veracity of para 120(i). 454 Further, insofar as Mr Saville sought to suggest by the introductory words of para 120 that the information set out in sub para (i) was contrary to information that he had reviewed prior to that date, the information that is said to have conveyed the position as to further losses is not identified. Indeed, as he made clear, neither of those implied representations was made by the prospectus. 455 Finally, in this respect, there was a deal of cross-examination of Mr Saville as to enquiries made by him from sources other than the defendants. Without going into the detail of that evidence, it is clear that Mr Saville sought, accepted and no doubt relied on information from those other sources: which included information to the effect that investment in NCRH was "speculative" and that there was a real risk of continuing or ongoing losses deriving from the poor underwriting decisions made in 1997 and 1998 (see, generally, T1544-1547, 1661, 1695, 1726-1727). The information that Mr Saville received from other sources included a Merrill Lynch briefing paper dated 4 September 1998 and an ABN Amro briefing paper of 16 November 1998. At least the former was available to him before he first made any investment decision. 456 I have referred in paras [323] and following above to the decision of Beaumont J in Karawi Constructions. His Honour said in that case (15 ATPR ¶ 41-265 at 41,570) that "in considering whether in all the circumstances the conduct of the respondent was misleading or likely to mislead, a failure by the applicant to check or verify a representation may negate reliance." 457 Of course, Beaumont J was not seeking to lay down a rule of general application. His Honour was making the point that the question, whether reliance has been established, is something that needs to be considered on the whole of the available material (including, as I have said above, the nature of the representations found to have been made and what happened after they were made); and that, in some circumstances, an inference, adverse to reliance, may be drawn from a failure to check or verify a representation. 458 For example, if that which was represented were unlikely or improbable, evidence of reliance without any attempt at verification might be treated with some suspicion. On the other hand, if that which was represented were inherently plausible, and if the representor was someone who should be thought to have knowledge of the subject matter of the representation, a failure to check or verify might not negative reliance. 459 The plaintiffs' submissions went further, and asserted that "[t]he proposition that a failure to check a representation negates reliance is directly contradicted by a wealth of authority" (written submissions in reply, chapter 1, para 11.2). Unfortunately, the first two cases of that wealth that the plaintiffs cite do not bear out the submission. Discouraged by that, I have not further investigated the lode. 460 Firstly, the plaintiffs cited the judgment of Hayne J in Henville & Anor v Walker & Anor (2001) 206 CLR 459 at 509-510 [165]. His Honour there said (and I paraphrase closely) that nothing in the relevant provisions of the Trade Practices Act suggests that carelessness of the applicant should be taken into account in deciding what was the amount of loss or damage actually suffered. In other words, contributory negligence is not relevant to the question of causation that is posed by (in that case) s 82(1) of the Trade Practices Act. It does not support the proposition for which the plaintiffs cited it. 461 The second authority cited by the plaintiffs was the judgment of the majority (Gaudron, Gummow and Hayne JJ) in I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 at 129-130 [60]. Again, that citation does not support the submission. Their Honours were negativing the proposition that contributory negligence should be taken into account in analysing the statutory test of causation under s 82 of the Trade Practices Act. 462 I do not think that the question of checking or verifying is of dispositive significance in this case, on the issue of reliance. It is, however, something to be taken into account. My strong view of Mr Saville, flowing from my observations of him in the witness box and his astuteness and intelligence, is that he would be slow to accept "at face value" any representation made to him with the intention of inducing him (either personally or on behalf of others) to enter into substantial financial commitments. Successful businessmen rarely achieve that status without checking and questioning what they are told; plainly, Mr Saville is a successful businessman. Thus, to the extent that the issue is of any significance, it does not assist Mr Saville. 463 As I have foreshadowed in para [443] above, the evidence demonstrates a failure by Mr Saville to check the representations that he has said were made to him and on which he has said he relied. That failure is instructive, having regard to the information obtained by Mr Saville from other sources, pointing out the speculative and risky nature of an investment in NCRH. 464 Combining what I have just said with my general observations as to the credibility of Mr Saville's evidence, I would conclude that his detailed evidence of reliance should be rejected. It has all the hallmarks of reconstruction, and no quality of persuasion. I think that the reality is that, as I said in para [442] above when referring to T1550.32-.40, three of the key factors in his investment decision were:

(2) underlying that, the quality of the investment portfolio; and

(3) the claims provisions. 465 To these factors there needs to be added Mr Saville's understanding of the conversion mechanism, whereby noteholders were offered significant protection from further falls in the share price. There is also a question as to DAC. Mr Saville's analysis at T1550.32-.40 does not deal with DAC. Perhaps he did not consider DAC to be a tangible asset. Perhaps he was content to accept the Prospectus Balance Sheet "at face value" insofar as it dealt with DAC. In any event, if DAC are to be treated as a tangible asset, then NTA will fall to the extent that DAC are (or should have been) written down or written off. That will have no impact on the worth of the underlying tangible investments, but it will have an obvious impact on the statement of shareholders' equity in the balance sheet and, therefore, on NTA (once again, assuming that DAC are to be treated as a tangible asset). 466 There are other factors that confirm this approach to the question of reliance (insofar as it depends on Mr Saville's evidence). 467 In a document that Mr Saville prepared in January 1999, apparently for the benefit of the plaintiffs, he demonstrated that even if shareholders' funds were USD80 million "on an NTA basis, if that was equivalent to fair value, the notes technically would still have face value, before interest, and things like that" (T1519.1-.4). His calculations hypothesised a further USD82 million in losses (over and above the position revealed as at 30 June 1998, and over and above further hypothesised losses of USD27 million to 31 December 1998, but bringing to account the proceeds of the capital raising). Those transactions would still leave AUD80 million in capital "after the noteholders are repaid" (T1519.31-.36). 468 Of course, if DAC were to be written down or written off, then the hypothetical losses embodied in Mr Saville's calculations would have a more drastic impact; and the tolerance, or buffer, for further losses (before the capital of the notes would not be covered) would be reduced. Mr Saville did not engage in that refinement of analysis; but the fundamental point of his analysis is clear, and in my view confirms that for him the NTA and its constituents were, together with the conversion mechanism, the key factors in his decision. 469 In addition, Mr Saville thought that there was a significant prospect of gain in the investment. If the company were to make profits, then NTA would be enhanced by the accumulation of profit on the balance sheet (T1311.7-.16). Further, if there were to be a history of profits by the time the notes were to convert to ordinary shares in November 2001, the market price might equal or stand at a premium to NTA (T1311.18-.21). In this event, noteholders would derive a substantial benefit. Mr Saville recognised in para 92(b) of his statement of 23 July 2003 that "the investment offered considerable upside as the conversion price had a fixed maximum and the conversion would take place at a discount to the then trading price of NCRH shares if the shares were trading at above the issue price of the Notes". 470 In this context, Mr Saville appeared to accept that, balancing upside potential and downside protection, the investment "was a no-brainer" (T1391.44-1392.10): "Q. And I gathered from what passed between you and Mr Fagan and his Honour this morning that the decision to enter into that sub-underwriting agreement, all the reasons you gave about hedging and upside and downside, was not a hard decision, was it? A. I was attracted to the investment, yes.

Q. I am sorry? A. It was an attractive investment.

Q. Frankly, the way you described it made it sound like it was a no-brainer, as my kids would now say. Is that how you saw it at the time? A. I found it as very attractive, yes." 471 Finally, in considering Mr Saville's evidence of reliance, what he said for the purposes of this litigation in his statements may be contrasted with his reactions to bad news in the latter part of 1998. I refer to the warning from the Royal Bank of Scotland (RBoS), and the draft of the 23 December ASX announcement, referred to in paras [572] and [575] to [578] below. 472 Mr Saville did not react to these discoveries with horror. He did not seek to withdraw from such commitments as had already been made. He did not return to Macquarie, PwC or Phillips Fox and complain that he had been misled. On the contrary, he continued to commit the plaintiffs to purchases of NCRH's securities. Conclusions on the general question of reliance 473 I do not accept Mr Saville's detailed evidence of reliance as conveyed (for example) in para 120 of his statement dated 23 July 2003. Contrary to that evidence, I find that the matters on which he relied were:

(1) The statement of NTA in the various materials given to him (by implication including DAC in the amount stated as an asset, and apparently a tangible one);

(2) His understanding of the fundamental constituents of NTA - namely, the worth of the assets and the accuracy of the claims reserves;

(3) His understanding that the conversion mechanism offered significant protection in the event of further losses (to an amount exceeding USD100 million from the position shown as at 30 June 1998, but adding in the proceeds of the capital raising); and

(4) His understanding that the conversion mechanism "offered considerable upside" if NCRH did turn the corner and commence to make profits. 474 It remains the case that the answer to issue 21 should be simply "does not arise". However, had it been necessary for me to decide issue 21, I would have answered it by saying that Mr Saville's evidence as to reliance cannot be accepted in its entirety, but only to the extent indicated in the preceding paragraph. The same applies to the extent that other defendants raise as an issue the acceptability of Mr Saville's evidence as to reliance. Issues 24 to 26: falsifying facts; Macquarie's knowledge 475 For the reasons given in paras [291] to [344] above, I conclude that none of the representations alleged to have been made otherwise than by Messrs Coultas or Jackson at or during the "October presentation" were in fact made. For the reasons given in paras [345] to [377] above, I conclude that the only representation made by Messrs Coultas and Jackson at or during the "October presentation" was that alleged in 6FAS para 46(f). For the reasons given in paras [381] to [390] above, I conclude that this representation was not false at the time it was made. On those conclusions, issues 24 to 26 do not require further answer. Issues 27 to 29: the "Sub-Underwriting Agreement Omission" 476 These issues relate to the Macquarie parties' alleged reservation to themselves of the possibility of not terminating the underwriting agreement should an opportunity to do so arise, and to their alleged failure to inform ICM and AOIT of that reservation (6FAS para 58). 477 6FAS paras 60 and 63 allege that Mr Saville (directly or indirectly) caused ICM and AOIT to enter into their respective sub-underwriting agreements (and, in the case of AOIT, caused it to agree to acquire converting notes). That is said to have been done on the faith of the representations alleged in paras 46, 48, 50 and 55 "and without having been informed of the Sub-Underwriting Agreement Omission". Paragraphs 62 and 66 allege that ICM and AOIT would not have entered into their respective sub-underwriting agreements if they had been informed of "the Sub-Underwriting Omission" (which I assume to refer to what is defined in para 58 as "the Sub-Underwriting Agreement Omission"). 478 Those matters are part of the matters upon which the plaintiffs rely in 6FAS para 83 for their assertion that the Macquarie parties engaged in conduct that was misleading or deceptive, or likely to mislead or deceive. 479 It will be seen that the omission referred to in 6FAS para 58 comprises two elements:

(1) The Macquarie parties intended to reserve for themselves the possibility of not exercising an entitlement to terminate, should it arise;

(2) In circumstances where it might be in their interests, but not in the interests of sub-underwriters, not to terminate. 480 The plaintiffs' submissions refer to Mr Saville's evidence in PX 3 para 129. That paragraph reads as follows: "129. If Macquarie told me before I signed the acceptances of the sub underwriting agreements that it was reserving unto itself the possibility of not exercising that power in circumstances where it may not be in its interests to do so but would be to the detriment of the interests of sub underwriters or that Macquarie would not consider the interests of sub underwriters (or would prefer its own interests) when considering whether to exercise any right to terminate the underwriting agreement, I would have required those sub underwriting agreements to be amended to require Macquarie to terminate the underwriting agreement on the occurrence of any of the events of termination referred to in section 11.2 failing which I would not have signed the acceptances and would not have made recommendations and instructions, as the case may be, to the Plaintiffs in respect of the purchase of shares, rights and Notes in NCRH from 17 November 1998 onwards." 481 That evidence goes beyond the allegation in 6FAS para 58, in the clause "or that Macquarie … the Underwriting Agreement". Be that as it may, the plaintiffs submitted that Mr Saville's evidence on this point "was unshaken in cross-examination". That submission is correct only if it is taken as referring to the whole of the alleged reservation of rights: in other words, as referring to both elements as I have analysed the alleged omission in para [479] above. 482 The plaintiffs relied on Mr Saville's evidence at T1656-1657. I set out the whole passage in which the part relied upon by the plaintiffs occurs: "Q. Do you suggest there was a material adverse clause in the sub-underwriting agreement as distinct from the underwriting agreement? A. My apologies. Well, I was under the impression there was one, as the underwriter. Q. I accept that. I am asking about the sub-underwriting agreement. A. I didn't - I didn't think of asking. Q. You have had experience in public offerings before, have you not? A. Yes.

Q. It is common in public offerings for there to be material adverse clauses in sub-underwriting agreements; do you agree? A. In underwriting agreements, yes. Sub-underwriting, I am not sure. Q. Even if there are not such clauses in sub-underwriting agreements it is common for sub-underwriting agreements to contain conditions obliging an underwriter to exercise its right to withdraw on material adverse changes; correct? A. Sorry, differentiate - you are saying in the sub-underwriting agreement those clauses should be representing what's in the underwriting agreement. Q. Yes. A. I'm sure that's possible.

Q. You took no steps, did you, to protect yourself against a material adverse change, if it occurred, between the time of the prospectus and the time of the issue of the notes? A. I felt I had protection under the underwriting agreement.

Q. So you relied, in effect, on Macquarie exercising its rights and thereby protecting you? A. Correct.

Q. Did you obtain any assurance from them that they were going to do so? A. I think you assume it's - no, I didn't obtain assurance - separate assurance.

Q. Did you make any inquiries as to what proportion of the underwriting Macquarie itself held onto as distinct from laying off to somebody else? A. I can't recall if I was told that. Q. Well, do you recall if you asked? A. I can't recall.

Q. It is something you would have asked had you been acting prudently, would you not? A. I am not sure that they would tell me. Q. Because one way, I want to suggest to you, you could have measured Macquarie's commitment to this proposal would be to find out how much of the underwriting they had maintained; do you agree with that? A. No, not necessarily." 483 That evidence does not sit well with Mr Saville's evidence, already referred to (see paras [308] to [311] above), that he read, considered and understood the terms of the draft sub-underwriting agreement when it was sent to him on 16 November 1998, and that he checked the terms of the final version before accepting it and sending it off, and that those terms "came as no surprise to him". 484 It must follow from that evidence that Mr Saville read, considered and understood the following: " Additional terms of the offer (1) Additional terms under which this Offer is made, which you will be deemed to have made or agreed to in the event that you accept this Offer, are set out in Attachments 2 to 5. In particular, please note that your obligations in relation to the Capital Raising will terminate only if the obligations of Macquarie under the proposed Underwriting Agreement cease or are terminated. If Macquarie elects to terminate, or not to terminate the Underwriting Agreement, being entitled to do so, you will be bound by such election. The circumstances under which Macquarie may terminate the Underwriting Agreement are set out in the draft Prospectus." (Letter of agreement, page 3.) "(2) You acknowledge and agree that you will accept the decisions and actions of Macquarie under or in respect of the Underwriting Agreement and Macquarie is not obliged to consult with you as to any such matter and nothing in this agreement qualifies the exercise or non-exercise of the rights of Macquarie under the Underwriting Agreement in any way. Without limiting the foregoing, if Macquarie elects not to terminate the Underwriting Agreement, although entitled to do so, you will be bound by that election and obliged to fill your obligations as set out in this agreement and have no claim against Macquarie in respect thereof." (Attachment 5, clause 2.) 485 Taken at face value, the plain import of those terms is that Macquarie was entitled to consult its own interests, to the exclusion of the interests of sub-underwriters, in deciding whether or not to terminate the underwriting agreement if it might become entitled to do so. I have no doubt that Mr Saville understood this; he is clearly an astute and intelligent man, and is and was a very experienced businessman. 486 It follows, as to the first element of the omission alleged in 6FAS para 58, that Macquarie informed Mr Saville in clear terms that the decision whether or not to terminate the underwriting agreement (should it become entitled to do so) was its alone, and that it could make that decision without consulting any sub-underwriter. 487 It is correct, as a matter of language, to say that the terms to which I have referred did not in so many words tell Mr Saville that Macquarie might make a decision not to terminate where it was in its interests, but not those of sub-underwriters, not to terminate. However, Mr Saville can scarcely have understood otherwise. It is apparent from his evidence at T1657.17-.27 that he understood that Macquarie was laying off to sub-underwriters at least some of its underwriting risk, but that he was not concerned with the proportion laid off. I think the better inference from his evidence is that he understood that Macquarie, notwithstanding that it was laying off risk, retained a financial interest in the performance of the underwriting agreement. If commonsense did not tell him this, cl 7 of attachment 5 did: "7. As Underwriter to the Capital Raising, [MECM] has a financial interest in its success, as described in the draft Prospectus." 488 Section 11.2 of the draft prospectus (which is where the events of default under the underwriting agreement were defined) sets out the fees payable to MECM, including (with some exceptions) 2.5% of the amount raised (in round figures, a fee of USD1.25 million) and a "Management Fee" of $1,875,000 (presumably, Australian rather than US dollars). 489 Even allowing for the sub-underwriting fees payable by Macquarie, its interest in the success of the raising was, and must have been seen by Mr Saville to have been, substantial. 490 To the extent that Mr Saville's evidence in PX 3 para 129 is intended to suggest that he was not aware that Macquarie might, to its advantage but the disadvantage of sub-underwriters, decide not to terminate the underwriting agreement even though it became entitled to do so, I do not accept it. It suggests a degree of financial and commercial naivety that is entirely inconsistent with my assessment of Mr Saville, and with my observations of him in the witness box. 491 In any event, Mr Saville (and through him the plaintiffs) and the Macquarie parties were dealing at arm's length. As Mr Saville in effect acknowledged at T1657.1-.15, he could have sought to protect himself (ie, he could have sought to renegotiate the relevant terms in the sub-underwriting agreement). He did not do so. The very purpose of sub-underwriting being to lay off risk, he must have appreciated that his interests (or the interests of the plaintiffs whom he committed to sub-underwrite) might conflict with those of MECM in the event that MECM became entitled to terminate the sub-underwriting agreement. In those circumstances, I do not think that Macquarie had any obligation to disclose to Mr Saville over and above the disclosure that it made (see Gleeson CJ (with whom Meagher JA and Samuels AJA agreed) in Lam v Ausintel Investments Australia Pty Limited & Ors (1989) 97 FLR 458 at 475. 492 I therefore conclude, as to the claims of misleading or deceptive conduct based on 6FAS para 58: issue 27 should be answered "yes"; issue 28 should be answered "yes; and through Mr Saville's own knowledge and understanding"; and issue 29 should be answered "no". Issues 30 and 31: the indirect causation case 493 I have set out in paras [404] to [413] above the pleaded structure of this case. The case is bad in law 494 In substance, what is alleged is a "but for" case: that "but for" the alleged misleading or deceptive conduct of Macquarie, relating to the various DDC representations, NCRH would not have issued the prospectus, the plaintiffs would not have agreed to sub-underwrite or acquire rights or other securities, and the board (through its committee) would not have agreed to issue the notes. 495 This formulation confuses a necessary precondition with an effective cause (to adapt the distinction drawn by Gummow J in Elna Australia Pty Limited v International Computers (Australia) Pty Limited (No 2) (1987) 16 FCR 410, 419). The "but for" test of causation is not that postulated by s 82 of the Trade Practices Act or its analogues: Wardley Australia Limited & Anor v The State of Western Australia (1992) 175 CLR 514; cf March v E. & M. H. Stramare Pty Limited (1990) 171 CLR 506. 496 To put it another way (adapted from the language of Hodgson JA in Stanilite Pacific Limited (in liquidation) & Anor v Seaton (t/as PricewaterHouse) & Ors (2005) 55 ACSR 460, 497-498), the conduct complained of (assuming that it occurred, and that it was misleading or deceptive) provided the opportunity for the losses to occur, but did not relevantly cause them to be incurred. 497 The test of causation is not something to be resolved by the application of some formula. It involves normative analysis, requiring attention to be paid to the purpose of the legal norm that has been breached: see para [1109] below. Thus, as Mc Hugh J said in Allianz Australia Insurance Limited v GSF Australia Pty Limited & Anor (2005) 221 CLR 568 at 586 [54], "causality is determined in light of the subject, scope and objects of the Act." In the same case, Gummow, Hayne and Heydon JJ pointed out at 597 [99] "that notions of "cause" as involved in a particular statutory regime are to be understood by reference to the statutory subject, scope and purpose." 498 The requirement for normative analysis does not permit the Court to make value judgments that are uninformed by the legal context, as Gleeson CJ pointed out in Travel Compensation Fund v Tambree (t/as R Tambree and Associates) (2005) 80 ALJR 183 at 191 [29]. His Honour said that the relevant norms must be derived from legal principle. In that case, where the action was one for damages pursuant to s 68 of the Fair Trading Act for contravention of s 42, the norms to which attention was required were those to be found in that Act. Gummow and Hayne JJ said at 193 [46] that whilst considerations of legal policy might enter into the selection of those causative factors which are determinative of loss, it did not follow "that in any given case the ultimate issue is whether "the defendant ought to be held liable to pay damages for [the] harm [suffered]"." Their Honours had said earlier, at 193 [45], that in some cases "the answer to a question of causation will require examination of the purpose of a particular cause of action, or of the nature and scope of the defendant's obligation in the particular circumstances." 499 It cannot be said a priori that s 82 is satisfied only where there is a direct causal link between the contravening conduct and the loss or damage. In Sellars v Adelaide Petroleum NL & Ors (1992) 179 CLR 332, Brennan J pointed out at 356-357 that "where the making of a false representation induces a person to act in a certain manner, loss or damage may flow directly from the act and only indirectly from the making of the representation; but in such a case the act "is a link - not a break - in the chain of causation"." It does not follow from what his Honour said that every case of indirect causation, no matter how it is structured either as a pleaded case or on the evidence, will fall within s 82. This is not a case in which the plaintiffs say that they themselves were induced to act by the representations that are the subject of present consideration. 500 The Macquarie parties submitted that an indirect causation claim, pleaded in the way that I have indicated, is not available to the plaintiffs in any event, by reason of the decision of the Court of Appeal in Digi-Tech. In that case, the Court said at 62 IPR 212 [156] to [158]: "156 The Janssen-Cilag and Stockland category of claim is materially different to that which occurs when plaintiffs suffer loss because they, themselves, are induced by misleading representations to perform some act or omission by which they are prejudiced. The difference lies in the fact that in the first category of case no conduct on the part of the plaintiff forms a link in the causation chain. In the second category, the inducement of the plaintiff and his or her act or omission causing loss is an essential part of the chain. Without such inducement and a consequential act or omission on the part of the plaintiff there is indeed no linking chain between the misleading conduct and the plaintiff's loss. 157 This analysis demonstrates the fallacy of applying the so-called indirect theory of causation to this case. 158 On the assumption that Digi-Tech's forecasts as to the revenue and gross margin of the products were misleading and deceptive, that misleading and deceptive conduct resulted in Deloitte producing, in essence, a misleading and deceptive valuation to support the price of $72.5m. That valuation enabled the investment scheme to be put together and proposed by Urwin to the appellants. But to complete the chain of causation, there must be something linking the appellants' loss to their entry into the investment scheme. That link is the inducement of the appellants and their consequential act of entering into the transaction to their prejudice. Without that link, there is no proof that the misleading conduct caused the loss." 501 However, the plaintiffs submitted that there was authority to the contrary in their favour. They relied on the decisions in Port Stephens Shire Council v Booth & Ors (2005) Aust Torts Rep ¶ 81-807 and Janssen-Cilag Pty Ltd v Pfizer Pty Limited (1992) 37 FCR 526. 502 Port Stephens was a case of negligence. Relevantly, the plaintiffs (respondents) sued on alleged negligent misrepresentations in certificates under s 149 of the then Local Government Act 1919 issued by the defendant (appellant) council. The council submitted that it was necessary for the plaintiffs to establish that they had read or learned of the terms of the certificates and had been misled by them, so as to show that they had been induced by the misrepresentation alleged to have been made in the certificates to act to their detriment. It submitted that there was no causation in the absence of reliance, and no doctrine of general reliance, and that actual reliance had not been proved. 503 The evidence of the plaintiffs' solicitor, Mr Williams, was that he had read the certificates in question and had some (although limited) understanding of the matters disclosed by them. 504 Against that background, Giles JA (with whom Beazley JA and Hunt AJA agreed) said at 67, 846 [147]: "[147] Causation may be established by reliance on a misleading statement, or it may be otherwise established; there can be causation, including reliance, through an agent. It is not necessary that the purchasers themselves had read the terms of a s 149 certificate and were misled by its terms, and causation may be established by proof that, because the certificate was misleading, the purchasers through Mr Williams were not alerted to the forecast noise affectation and proceeded with their purchases when they would not have done so had the certificate been framed with reasonable care." 505 His Honour's statement that "causation … may be otherwise established" must be read in the context of what follows. It is clear that his Honour regarded Mr Williams as, relevantly, the agent of the plaintiffs, so that if he, in the performance of his duty as their solicitor to read the certificates, was not alerted to the relevant problems (which should have been disclosed had the certificates been drafted adequately) then causation was established. 506 That reasoning is remote from the facts in this case. There is no basis for suggesting that the board of NCRH or its members were in any way the "agent" of Mr Saville or the plaintiffs. The "indirect causation" (as the plaintiffs would have it) of which Giles JA spoke is not dissimilar to the plaintiffs' "direct causation" case in these proceedings: that they themselves did not read (or otherwise become familiar with) the allegedly misleading or deceptive material, but their "agent" Mr Saville did so, and they through him were misled or deceived by that material. 507 Janssen-Cilag was a case where, so the applicant alleged, the respondent made misleading or deceptive misrepresentations about its drug "Combantrin" and thereby induced consumers and pharmacists to buy that drug rather than the applicant's drug "Vermox". The applicant claimed that it had suffered loss through lost sales of Vermox. The respondent said, among other things, that the applicant "is not a person who relied on" any of the alleged representations. As I have noted in para [500] above, the Court of Appeal in Digi-Tech considered Janssen-Cilag to be "materially different to [the class of case where] plaintiffs suffer loss or damage because they, themselves, are induced by misleading representations to perform some act or omission by which they are prejudiced". 508 Lockhart J said in Janssen-Cilag at 529 that "the cases … do not impose some general requirement that damage can be recovered only where the applicant himself relies upon the conduct of the respondent constituting the contravention of the relevant provision." However, his Honour said at 530, "the preposition "by" in s 82(1) … indicates the requirement that there be a sufficient cause or link between the respondent's conduct and the recoverable loss or damage … . The respondent's conduct must be the real or direct or effective cause of the applicant's loss; it must have been "brought about by virtue of" the conduct which is in contravention of s 52." 509 Lockhart J concluded that, on the basis of the facts alleged in Janssen-Cilag's statement of claim, the statutory test of causation set out in s 82 could be met. In other words, his Honour decided that the particular question thrown up by Pfizer's defence should be answered in favour of Janssen-Cilag. If I may say so with respect, it is self evident why this should be so in cases such as slander of goods, or passing off, where the intended, natural and obvious result of the wrongful conduct is that consumers will be misled and will divert their purchases accordingly. That is not in truth indirect causation at all. 510 His Honour's observations are not authority for the proposition that indirect causation is available (or that the test of causation in s 82 is satisfied by indirect causation) where it is alleged that a misrepresentation induced entry into a transaction. In any event, if that did follow from what his Honour said, it is not open to me to accept it, having regard to what was said in para [159] of the decision in Digi-Tech. 511 It follows that issue 30, whether qualified as the plaintiffs suggest or otherwise, must be answered "no". The case would fail on the facts 512 That makes it unnecessary to consider the factual issues raised in issue 31. However, if those matters arose for decision, I would conclude that if the plaintiffs' indirect causation case was open to them in law, it would fail on the facts. That is because the plaintiffs have not made out that the directors on 18 November 1998 or their delegates on 12 January 1999 relied on any relevant representation made by Macquarie. 513 Further, to the extent that it is an element of this aspect of the plaintiffs' case against the Macquarie parties that the other members of the DDC relied on representations alleged to have been made by Macquarie to the DDC (see paras [404] and [409] above), there is an element of artificiality. I do not doubt that other members of the DDC relied upon Macquarie's representatives (in general, Dr McKenzie) in relation to matters that were within Macquarie's assigned or assumed areas of responsibility. Indeed, the proposition can be stated more widely: I do not doubt that each member of the DDC relied on each other member in relation to matters within that other member's assigned or assumed areas of responsibility. But it does not follow that (for example) other members of the DDC relied on Dr McKenzie in relation to accounting or legal matters. Thus, the scope for misleading or deceptive conduct by any member of the DDC, vis a vis other members, seems to me to be limited to that member's assigned or assumed areas of responsibility. But the plaintiffs do not confine their case, in relation to representations said to have been made by Macquarie to other members of the DDC (or, for that matter, said to have been made by any other member of the DDC to his or her colleagues on it) in that way. 514 The position as between the DDC and its members on the one hand and the directors (or those of them who were not members of the DDC) on the other is a little different. Although there was but scant evidence that any director paid any attention to the activities of the DDC, I think it safe to accept that each director (with the possible exception of Messrs Daya and Peck, who were members of the DDC) would not have resolved to sign the prospectus unless satisfied that the DDC had reported appropriately. To that extent, I think, the directors may be taken to have relied upon the representations made by the DDC prior to the issue of the prospectus. But it does not follow that any director relied on any member of the DDC beyond what that director understood to be that DDC member's assigned or assumed areas of responsibility. That must be plain in the case of Messrs Peck and Daya, who knew from their participation in the work of the DDC what areas of work had been assigned to or undertaken by each other member. And I think it is also plain in the case of the other directors, for the reasons that follow. The resolution of 18 November 1998 515 I start with the resolution of 18 November 1998. There are two problems with this. Firstly, there is no evidence that any of the directors received the minutes of the DDC meetings of 5 and 18 November 1998 in which (according to the plaintiffs) the Macquarie 5 November 1998 and 18 November 1998 DDC representations were contained. The plaintiffs' written submissions refer back to their submissions on issues 8 and 30 and to "further factual presumptions". Nothing said in the submissions dealing with issues 8 and 30 bears on the point to which I am referring. The "further factual presumptions" are not spelled out. The plaintiffs point to no evidence to show that any board member had any knowledge of the Macquarie 5 November 1998 and 18 November 1998 DDC representations. 516 Mr Ghose gave no evidence of reliance on any representation made by Macquarie through the DDC report. He referred to, and said he was satisfied by, sign offs given by a number of people; those people did not include any employee of Macquarie. 517 The evidence of Messrs Beach, Deery and Morrissey was that they were aware of the limited areas of responsibility assigned to Macquarie in the DDC conduct memorandum, and that, to the extent that they relied on Macquarie, they did not do so beyond that limited area of responsibility. 518 Mr Peck gave no evidence that he (in his capacity as a director, considering whether to authorise the issue of the prospectus) relied on any representation made by Macquarie through the DDC report. Of course, Mr Peck was a member of the DDC, and aware of what had been done (and by whom) in relation to the preparation and verification of the prospectus. Although he said that he relied on various members of the DDC for their contributions to various sections of the report, he gave no specific evidence of reliance on Macquarie. To the extent that he gave general evidence of reliance on a "drafting committee" or "drafting sub committee" (which evidence was admitted as evidence of understanding, there being no evidence of the establishment of any such committee or sub committee or its membership), he did not attribute any particular responsibility to Macquarie, or allege any particular reliance on work undertaken by Macquarie. The resolution of 12 January 1999 519 I turn to the resolution of 12 January 1999. The power to issue the notes was delegated to Messrs Daya and Peck by a resolution of the board on 5 January 1999. There is no evidence from any member of the board that, in so resolving, he relied on any representation or action by Macquarie. On the contrary: Messrs Beach, Deery and Morrissey said words to the effect that Mr Beach asked whether everything had been discussed and disclosed and was everything out on the table to which someone - unidentified - "answered "yes" without any hesitation or qualification" (see paras 81 and 82 of Mr Beach's statement dated 6 October 2005, exhibit 5,7,8DX 6). 520 The resolution to issue the notes on 12 January 1999 was preceded by a meeting of the DDC on the same day. The issue of significance, and the essential subject of that meeting, was the question of claims development. A number of senior employees of NCRH or NCRA, including Messrs Daya, Williams, Aroney, and Sparkes, was present. They were asked in substance whether there was anything to disclose; they said in substance that there was not. 521 When it came to the resolution of Messrs Peck and Daya, as delegates of the board, to issue the notes, Mr Peck said that he relied in substance on information provided by management at the DDC meeting (see para 452 of his statement dated 4 October 2005, exhibit 9DX 1). He confirmed this in cross-examination at T5010.9-.15, agreeing that he relied upon the absence of any report from management of any new material matters. 522 Mr Peck did not say that he placed any reliance upon Macquarie when resolving on 12 January 1999 to issue the notes. That may be contrasted with other aspects of his evidence, where in other contexts he did assert reliance on Macquarie (see, for example, exhibit 9DX 1, paras 360, 364). 523 At a board meeting on 17 February 1999, Mr Peck confirmed to his fellow directors the significance of the lack of any report from management of adverse claims development: see the minutes of that meeting; and see Mr Ghose's evidence at para 375 of his affidavit sworn 8 September 2005. 524 Thus, of the two members of the board who (as delegates of all) resolved on 12 January 1999 to issue the notes, one - Mr Peck - gave no evidence that, in joining in the resolution, he relied on any representation made by Macquarie. The other - Mr Daya - did not give evidence, and accordingly there is nothing to suggest that he did rely on any representation made by Macquarie. In any event, it is inherently unlikely that he did, given that the almost inevitable inference on the totality of the evidence is that he was all too aware of the significant adverse claims development and that he decided, for his own reasons, to keep it to himself. 525 None of this evidence is surprising; indeed, it reflects the objective probabilities at the time. Adverse claims development was the key issue. That was a matter for management in the first instance and Trowbridge in the second. It was not a matter in respect of which Macquarie possessed, held itself out as possessing, or was believed to possess any knowledge or expertise independent of the sources to which I have referred. There was no reason for the board on 5 January 1999 or its delegates or the DDC on 12 January 1999 to look to Macquarie for information on claims development. There was every reason for them to look, as they did, to management. Other matters 526 There are other reasons why in my view the indirect causation case (if in law it were available to the plaintiffs) would fail on the facts. I deal in paras [613] to [677] below with the representations that the plaintiffs allege were made by the prospectus. I then deal in paras [678] to [829] below with the matters alleged by the plaintiffs to falsify them. I conclude in substance that, to the extent that representations were made by the prospectus, they were not false as at 18 November 1998. It follows that the plaintiffs have not made out their case that the prospectus was misleading or deceptive when it was issued. Thus, to the extent that it is open as a matter of law to say and as a matter of fact to conclude that representations made by the DDC caused the issue of the prospectus, and that the prospectus caused the plaintiffs to invest in converting notes, there was no misleading or deceptive conduct "by" which any loss or damage flowing from that investment was suffered. 527 For this reason also, the indirect representation case fails as at 18 November 1998. 528 The position is somewhat different as at 12 January 1999. For the reasons that I give in paras [913] to [918] and [986] to [998] below, the likely significant increase in claims liabilities was such that NCRH should have taken steps either to issue a supplementary or replacement prospectus or to withdraw the issue. But, as I say in para [931] below, the only director or officer of NCRH (or, for that matter, NCRA) who had knowledge of the relevant matters was Mr Daya, and he withheld that from both his colleagues on the DDC and his colleagues on the board. Thus, no member of the DDC apart from Mr Daya had any knowledge of what I have concluded was the only relevant supervening matter. It follows that it was not misleading or deceptive for any member of the DDC apart from Mr Daya to join in the making of the 12 January 1999 DDC representations. 529 For this reason also, the plaintiffs' indirect causation case, if otherwise available as a matter of law and a matter of fact, would fail as at 12 January 1999. Conclusion 530 Thus, if issue 31 does arise, then leaving out the intermediate steps in it, it must be answered "no", because there was in fact no reliance by the relevant persons on any of the alleged representations. Issues 32 and 33: as to Mr Saville's knowledge of and likely reaction to certain matters 531 On the view to which I have come on the preceding issues, these issues do not arise as between the plaintiffs and the Macquarie parties, and should be so answered. 532 That concludes my consideration of the plaintiffs' misleading and deceptive case (or cases) against the Macquarie parties. I turn now to the negligence case. Issues 34 and 38: duty of care? 533 It is convenient to consider these issues together. 534 The relevant duty of care is alleged in 6FAS para 86 to be based on matters alleged in a large number of identified paragraphs, to have subsisted from 18 November 1998 to 12 January 1999 and to comprise the following four elements: "(a) ascertain from Trowbridge its opinion as to the effect of the New Cap Group's claims experience on the claims provision which ought to be adopted by NCRH and, to the extent possible, the resultant effect on NCRH's NTA; (b) require Trowbridge to report to the Due Diligence Committee as to the impact of the New Cap Group's recent claims experience on the claims provision which ought to be adopted by NCRH and, to the extent possible, the resultant effect on NCRH's NTA; and

(c) obtain such opinions and reports from Trowbridge prior to forming any view that there had been no material changes in the affairs of the New Cap Group in the period after 17 November 1998, prior to the allotment of the Converting Notes on 12 January 1999; (d) not make the Macquarie 12 January 1999 Representations, or the DDC Supplementary Representation, unless satisfied on reasonable grounds that those representations were true." 535 Before I turn to the applicable principles, I should note that the earlier paragraphs of 6FAS that are referred to in para 86 include paras 46, 48, 50 and 55 (the paragraphs alleging pre prospectus representations that I have dealt with at some, perhaps excessive, length above). Because I have concluded that, with the exception of the representation alleged in para 46(f), none of those representations were made, the pleaded basis for the existence of a duty of care must be read down accordingly. General observations 536 The plaintiffs did not rely upon any decision holding that a member of a due diligence committee, formed in connection with a capital raising, owed a duty of care to investors in their respective positions; bearing in mind that the plaintiffs made their investments in various ways, including by sub-underwriting, subscription and on-market acquisition. In those circumstances, the Macquarie parties submitted, "the incremental jurisprudential course mandated by the High Court" must be applied "to analyse the existence or otherwise of the duty of care alleged by reference to established principles in the area of pure economic loss." (Macquarie parties' outline of submissions, para 679). The plaintiffs did not dispute that proposition, and I accept it. 537 The parties relied on numerous decisions. Before I turn to those decisions (or to so many of them as I find helpful), I set out a number of basic and, I think, uncontroversial propositions:

(2) Its issue was authorised by the directors, each having signed it.

(3) Those named (with consent) in the prospectus were involved in its issue, at least to the extent of the individual responsibilities accepted by them as set out in section 11.7 of the prospectus.

(4) NCRH, its directors and the others involved in the issue of the prospectus had statutory liabilities for misleading or deceptive conduct, false or misleading statements, material omissions and the like in relation to the prospectus or the converting note issue. (I will use the term "statutory liabilities" to denote all relevant liabilities under the Corporations Law as it stood at the relevant times.)

(5) Those liabilities were tempered by what the parties called the "due diligence" defences: the constellation of provisions dealing with reasonable grounds, reasonable belief, reasonable precautions and the like; and the general power of the Court, found in s 1318 of the Corporations Law, to relieve against civil liability. (I will use the term "due diligence defences" to denote all those matters including s 1318. I do so acknowledging the submission, for Phillips Fox in particular, that the relevant provisions should be seen to limit the statutory liabilities rather than to provide defences.)

(6) The DDC was established to seek to ensure that those who might otherwise incur statutory liabilities should have the benefit of the due diligence defences. 538 The statutory scheme is one that provides statutory rights to investors for misleading or deceptive conduct, false or misleading statements, material omissions and the like; but at the same time provides defences where appropriate steps have been taken to seek to prevent the occurrence of those matters. To the extent that the due diligence process succeeded in identifying and rectifying incorrect or misleading or deceptive statements or omissions, investors would benefit. But the primary focus of that process was on the protection of those who issued, or were involved in the issue of, the prospectus. The primary responsibility assumed by members of any due diligence committee is owed to those whom, they know, will rely on their work. Those who will rely on that work are those who might have statutory liabilities to investors. 539 Thus, the question posed is whether that primary assumption of responsibility, intended to benefit those who by statute bear the burden of potential liability to investors, should be supplemented by a secondary responsibility owed directly or indirectly to those investors. The relevant principles 540 Recent decisions of the High Court make it plain, in the context of a claim for pure economic loss, that:

(1) Reasonable foreseeability of loss is not of itself a sufficient basis to impose a duty of care: Tame v New South Wales (2002) 211 CLR 317, 329 [6] (Gleeson CJ; Tame was a case of alleged psychiatric injury, but what his Honour said applies a fortiori to a case of pure economic loss); Sullivan v Moody & Ors (2001) 207 CLR 562, 576 [420] (another case of alleged psychiatric and other injury; the comment just made in relation to Tame applies).

(2) Nonetheless, reasonable foreseeability is a necessary condition of duty: Tame at 355 [103] (McHugh J).

(3) The absence of reasonable foreseeability negates the existence of a duty of care (following from (2)).

(4) A plaintiff's "vulnerability", in the sense of its inability to protect itself from the consequences of a defendant's want of reasonable care, is an important requirement in analysing whether any such duty of care is owed: Woolcock Street Investments Pty Limited v CDG Pty Limited & Anor (2004) 216 CLR 515, 530 [23] (Gleeson CJ, Gummow, Hayne and Heydon JJ).

(5) Another important consideration is assumption of responsibility coupled with known reliance: Woolcock Street at 531 [24] (ibid).

(6) The existence and terms of any relevant contract may bear upon the existence and content of a duty of care: Astley & Ors v Austrust Limited (1999) 197 CLR 1, 22 [47] (Gleeson CJ, McHugh, Gummow and Hayne JJ). To adapt the words of Lord Steyn (with whom the rest of the House of Lords agreed) in Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830 at 857, the role of the law of tort is to fill gaps where other remedies are not available.

(7) The relevant statutory and common law context, including the allocation of responsibilities and the provision of remedies, is relevant to the determination, whether a duty of care should be imposed in a particular case: Esanda Finance Corporation Limited v Peat Marwick Hungerfords (1997) 188 CLR 241, 282, 286 (Mc Hugh J); and see Perre & Ors v Apand Pty Limited (1999) 198 CLR 180, 192 [5] (Gleeson CJ; his Honour repeated this sentiment in Tame at 329 [6]), 226 [120] (McHugh J). 541 To an extent, the material relevant to these headings overlaps. Foreseeability of loss 542 The plaintiffs submit that it was "perfectly foreseeable that [they] could incur loss if Trowbridge's opinion was not obtained or the 12 January 1999 representations were made without a reasonable basis" and also that "it was in fact foreseen by Macquarie" that they could so suffer loss (plaintiffs' submissions in reply, chapter 1, para 35.13). 543 The Macquarie parties submit that the question is whether it was reasonably foreseeable that an investor might suffer loss if the opinion of Trowbridge as to the adequacy of NCRH's claims provisions and the impact thereon of recent experience were not obtained. 544 A significant deterioration in claims experience, and its impact (or possible impact) on the adequacy of NCRH's claims provisions, had been drawn to the attention of the market by means of the announcement made to the ASX on 23 December 1998. About a week before, at the DDC meeting on 17 December 1998, Messrs Williams and Aroney informed the DDC (as the minutes record) that "there were significant difficulties with trying to estimate the year end result of the company" and that "it was like that the company would not be able to have any meaningful snapshot of [its] likely year end result before the time for allotment of the notes." Dr McKenzie said that he accepted that advice. In turn, I accept that evidence: there is no reason why Dr McKenzie would have queried what Messrs Williams and Aroney told the DDC, and he had no reason to doubt their integrity. (In this context, I do not accept the plaintiffs' submission that the circumstances of entry into the Vesta contract, and the alleged collateral "agreements" relating to it, were sufficient to cast a pall over the honesty and objectivity of all the management of NCRA. Mr de Chelard was responsible for that contract and its incidents; none of Messrs Daya, Williams or Aroney were.) 545 Nonetheless, at the DDC meeting on 12 January 1999, Dr McKenzie enquired in effect whether the work of Trowbridge had got to a point that anything of significance for the DDC had emerged from it. As the minutes show, Mr Daya reported in substance that he was in daily contact with Trowbridge, but that their work had not advanced far enough to determine the impact of claims experience on the year end results. None of those present at the meeting who perhaps might have been thought to have had some knowledge of these matters (including Mr Williams, Mr Aroney and Mr Peck - a director, and chairman of the board audit committee) expressed any disagreement with, or surprise at, Mr Daya's report. Dr McKenzie said that Mr Daya seemed to be cautious, prudent and conservative and that he had no reason to doubt his honesty. He gave detailed reasons for this (1-3DX 8, para 403). That evidence was substantially unchallenged (and, to the extent that it was challenged, was not shaken) and I accept it. 546 The plaintiffs rely on a memo of 18 December 1998 from Dr McKenzie to Messrs Kent, Donnelly and Best. In that memo, Dr McKenzie (who was going on leave) raised with his colleagues the possibility that there might be a need to issue a supplementary prospectus. He referred to adverse developments in claims experience in a number of areas, and to matters that might offset those adverse developments to some extent. He reported the advice of management "that the total new loss of $12.1 million is not so large that it could necessarily remain a material figure after making these … offsets". He noted that further information was to be provided on 18 December 1998, and that the DDC would consider that information on 21 December 1998. He noted also that Phillips Fox were to draft an ASX announcement and a supplementary prospectus "on a contingency basis". 547 In that memorandum, Dr McKenzie stated: "A further issue is whether [MECM] would wish to exercise its termination right under the Underwriting Agreement (eg on the basis of material adverse change ("MAC")). The offer is almost fully sub-underwritten and the sub-underwriting agreements do not give the sub-underwriter an independent right to terminate. So the financial incentive for [MECM] is not to terminate. But we might not wish to persist with the issue if our sub-underwriters were likely to wear significant loss as a result of the MAC and be aggrieved against us." 548 The plaintiffs rely on this memorandum in support of the submission that "[Dr] McKenzie had specifically concluded that the opinion of Trowbridge should be sought in light of the circumstances known to him on 17 December 1998" (submissions in chief, chapter 4, para 4.34.4); or that "[Dr] McKenzie had concluded in December that the opinion of Trowbridge should be sought in the light of the circumstances known to him." (submissions in reply, chapter 1, para 35.14). There is nothing in the memorandum to support that submission. The memorandum includes five references to Trowbridge. The first four of those relate to aspects of the Trowbridge report contained in the prospectus. The fifth I have referred to: the statement that "Trowbridge is due to provide [NCRH] on 18 December with information that will permit [NCRH] to estimate a December half-year P&L", which the DDC would consider on 21 December 1998. 549 Clearly, had Trowbridge provided information to the company on 18 December 1998, the DDC would have been bound to consider it; and, no doubt, would have done so. But it does not follow, because Dr McKenzie contemplated that Trowbridge might provide the company with information that the DDC would consider, that he thought that it was necessary that such information should be sought. The plaintiffs have not submitted that Dr McKenzie assented expressly, or in terms, to the proposition that this was his state of mind in December 1998. Although he was cross-examined at length, I do not think that the proposition was put to him. 550 My assessment of Dr McKenzie is that had he held the opinion or view that the plaintiffs ascribed to him in their submissions, he would have followed it up. That is to say, had he held the opinion that the advice of Trowbridge was necessary, he would have ensured that it was obtained, or satisfied himself that there were good reasons why it could not be obtained. He does not appear to have done either of those things. In those circumstances, and taking into account also the matters referred to in the previous paragraph, I do not accept the submission that Dr McKenzie in December 1998 held the opinion that the opinion of Trowbridge should be sought. 551 The plaintiffs submit further that "it was incumbent upon Macquarie to approach the matter of Trowbridge's opinion in light of the known deteriorations and other warning signs with some rigour and some degree of formality" (written submissions in reply, chapter 1, para 35.14). It is not entirely clear what are the "known deteriorations and other warning signs" to which the plaintiffs refer. If it were intended to refer to the known deteriorations amounting to perhaps USD12.1 million that were the subject of the 23 December 1998 ASX announcement, then those matters had been put into the public domain (along with possible offsets) through the medium of that announcement. If it were intended to refer to some other deterioration or warning sign, the written submissions did not identify them. 552 In oral submissions, the plaintiffs adverted to a table containing four items, totalling about USD77 million (T7910.12-.24). The first of those was USD30 million, based on Mr Ghose's evidence as to what in his mind might be the outer limit of under reserving as at 30 June 1998. (The actual amount to which Mr Ghose referred was in fact USD28 million, but the submission does not fail only because of the rounding up.) 553 The figure of USD28 million comes from a memorandum prepared by Mr Ghose for Eldon, in connection with the capital raising. He referred to "the most pessimistic reserves assumption that [NCRH's] book value may be eroded by another $28 million in 1998". He said of this that: "it was a number not scientifically arrived at and it was … a worst case scenario" (T3807.35); it was "my own private assessment of the potential deterioration as discussed with Macquarie and my investors and others" (T3809.18); and it was "my private, … unscientific, worst case scenario … not based on actuarial analysis, but more of an investor's gut feel, if you will" (T3809.27). 554 Dr McKenzie did not regard this as "particularly newsworthy" (T3292.20; and see para [173] above). He noted that the range of potential variation shown in the Trowbridge report in the prospectus was in fact larger. 555 The plaintiffs' oral submissions on this point effectively elevated Mr Ghose's "gut feel" as to the possible worst case scenario into an actual USD30 million underprovision. However, I think, the better view of this aspect of Mr Ghose's evidence is in substance that he derived a range of variance from the Trowbridge report in the prospectus, and in his own mind fixed on USD28 million as the likely outer limit of possible adverse variation. See T3879.7 ff. In any event, I think that Mr Ghose was simply pointing out to Eldon's investors the potential downside in an investment in the converting notes. I do not think that he was telling them either that there was a real likelihood of a further deterioration of the magnitude of USD28 million, or that he had reason to think that there might be a further deterioration of that magnitude. 556 To the extent that Mr Ghose discussed this matter with Dr McKenzie, I do not think that he said anything more than he told his investors, and I do not think that Dr McKenzie understood it other than in the way that I have analysed it above. 557 The second item was the loss of USD12.1 million that was the subject of the 23 December 1998 ASX announcement. Given that it had been canvassed in the announcement (which came to the attention of Mr Saville, and which he understood), it cannot be categorised as "undisclosed". 558 The third item related to the Vesta claim. That was said to be USD15 million. It was disclosed in the prospectus as a possible claim (which NCRH was defending, and which it believed it would win) of USD12.5 million. No explanation was offered of the 20 percent increase to USD15 million; and in any event, as with the previous item, this was a disclosed possible loss. 559 The fourth item is based on the proposition that Trowbridge was considering adding a provision of a further $20 million for disputed claims, and that Mr Williams informed the DDC of this on 17 December 1998. That proposition is based on a note taken by Ms Morris of Phillips Fox which reads (with some elongation of abbreviations) as follows: "P W - Trowbridge will not be doing anything from last analysis - only adding in $20 million for disputed claims." 560 The minutes of that DDC meeting make no reference to any such advice from Mr Williams. Nor does it appear in the draft minutes that were circulated for comment. It was put to Dr McKenzie and Mr Murray in cross-examination that Mr Williams did say words to the effect recorded in Ms Morris' note. They denied that he did. So did Mr Mutton: see para [870] below. Mr Williams had no reliable recollection of having said this (his cross-examination on the point at T6594.8 and following commenced with his being shown Ms Morris' note; he agreed "that there was a concept that for the disputed claims, they would have a basket allocation on the basis that we thought it was prudent … ", but did not remember what the amount of the allocation was (T6595.9-.17)). It became apparent that he had no recollection apart from the note that was not his (T6596.10). No other person who attended that DDC meeting gave evidence in support of Ms Morris' note; indeed, it was not raised with all of the attendees. Perhaps more significantly, neither Mr Atkins nor Mr Minty said that it was his view as at 17 December 1998 that there should be such a provision for disputed claims; indeed, the topic was not raised in cross-examination with either of them. Ms Morris did not give evidence. 561 I do not accept that Mr Williams made a statement to the meeting to the effect recorded in Ms Morris' note. I accept the denials by Dr McKenzie, Mr Murray and Mr Mutton that such a statement was made. 562 Thus, if the "known deteriorations and other warning signs", to which the plaintiffs referred in their submissions in reply (see para [551] above), were intended to refer to the supposed undisclosed further deterioration of $77 million, I am not satisfied that there was any such undisclosed further deterioration. On the contrary, on the evidence, the only further deterioration was the $12.1 million (gross of set-offs) disclosed to the market on 23 December 1998. 563 I have already dealt with such further information as Dr McKenzie obtained between 17 December 1998 and 12 January 1999: principally, the assurances given by Mr Daya at the DDC meeting on the latter date (see para [545] above). 564 In all the circumstances as they were known to Dr McKenzie and through him to Macquarie (there being no basis for concluding that any other employee of any of the Macquarie parties had any relevant knowledge additional to that of Dr McKenzie), it was not reasonably foreseeable that the plaintiffs could suffer loss if the converting notes were issued without a report being obtained from Trowbridge as to claims deterioration after 18 November 1998. There was nothing, apart from the disclosed possible loss of $12.1 million gross of set-offs, to indicate that there was anything other than a theoretical risk of loss because of further adverse claims experience. To the extent that there was a theoretical risk of loss (because adverse claims development is one of the hazards of insurance and reinsurance), Mr Saville was well aware of it. (Indeed, it had been drawn to his attention explicitly during the "October presentation" of 16 November 1998: see paras [371(5)] and [373] above.) 565 Further, Trowbridge had provided a report for inclusion in the prospectus and had consented to be named in the prospectus. Accordingly, it had a statutory duty during the application period (18 November to 31 December 1998) to notify NCRH of any significant change or significant new matter relating to its report (see s 1023A of the Corporations Law). If NCRH failed to take appropriate action in response to any such notification, Trowbridge could have withdrawn its consent to the inclusion of its report in the prospectus. 566 Although Dr McKenzie was not aware of the precise provisions of the Corporations Law at the time, his evidence, which I accept, was to the effect that he expected that Trowbridge would have withdrawn its consent to be named, and for its report to be included, in the prospectus, or at least to have advised the DDC, if it had formed a view prior to 12 January 1999 that its report had become materially inaccurate. Mr Donnelly gave evidence of a similar expectation, and again I accept this evidence (noting that it was not challenged in cross-examination). Although those expectations are not completely consistent with the requirements of s 1023A, that is no reason to disregard them entirely. 567 In circumstances where Trowbridge had taken no action, either as required by s 1023A or in accordance with the expectations of Dr McKenzie or Mr Donnelly, why should Macquarie have foreseen that there was anything other than a theoretical risk that, as at 12 January 1999, the claims experience of NCRH had deteriorated materially beyond that disclosed in the 23 December 1998 ASX announcement, so as to require, or at least make desirable, the obtaining of a further report from Trowbridge? 568 The absence of reasonable foreseeability of loss is of itself a basis for concluding that there was no duty of care. Vulnerability 569 I do not think that the plaintiffs were relevantly vulnerable. They had the benefit of the statutory protections afforded by the Corporations Law in the event that there was misleading or deceptive conduct associated with the issue or the prospectus, or that there were materially false statements in, or materially false omissions from, the prospectus. 570 True it is that a number of these protections are qualified by the due diligence defences, including the general power of the Court to excuse. But that cannot assist the plaintiffs: why should the Court impose a common law duty of care that exceeds in its ambit or reach a statutory protective scheme? More importantly, having regard to the existence and nature of that statutory protective scheme, why should a common law duty of care arise from Macquarie's membership of a DDC when the existence of that committee was not a mandatory component of the scheme? 571 The plaintiffs' submissions did not grapple with these problems. Instead, they focussed on the plaintiffs' alleged vulnerability arising from what was said to be their inability to protect themselves by making adequate enquiries, and the Macquarie parties' alleged ability to make those enquiries. 572 It is clear that the plaintiffs, through Mr Saville, had access to senior management of NCRH and NCRA. Indeed, Mr Saville availed himself of that access, in a meeting (or meetings) on 21 or (and) 22 December 1998. Mr Saville had received a copy of the draft ASX announcement (substantially but not completely in the form that it was ultimately made, on 23 December 1998). He met Messrs Daya and Williams. Mr Saville well understood that the real danger in the investment was that NCRH's claims liability might be underestimated (see para [564] above; and see his concessions at T1172.04 and 1205.11). He just as much as Macquarie could have asked questions of Mr Daya and Mr Williams about the matters revealed by the draft ASX announcement (or any other matters of concern to him concerning claims exposure), and had as much prospect of getting an accurate and sufficient answer. 573 The plaintiffs submit that Macquarie's position was in effect privileged because, through its membership of the DDC, it was able to insist on the provision of a further report by Trowbridge. However, this argument assumes that there was something in the known circumstances to put Macquarie on notice that such a report might be required even having regard to (among other things) the matters revealed by the 23 December 1998 ASX announcement. I am not satisfied that Macquarie was put on notice of the need for any such further report. To the extent that Mr Daya had been given information by Trowbridge demonstrating a real possibility of a material adverse movement over and above that revealed by the 23 December announcement, he kept that information to himself. As I have noted already when, at the DDC meeting on 12 January 1999, a question was asked as to whether there were any material matters to report, no one (including Mr Daya) volunteered anything. In the absence of some warning or indication suggesting the desirability of a further report, why should Macquarie have concluded that a further report was necessary, and delayed the issue of the converting notes until it was obtained? 574 Further, Mr Saville could have sought to protect the position of ICM and AOIT as sub-underwriters by negotiating appropriate changes to their sub-underwriting agreements. For example, he could have sought the inclusion of an express right for ICM and AOIT to terminate on the ground of material adverse change. He did not do so (although he did negotiate for, and obtained, an increased sub-underwriting fee). 575 Nor did Mr Saville look to the Macquarie parties for any advice in relation to the proposed investment. There is no evidence that he had any relevant contact with them after 18 November 1998 up until (or for that matter after) 12 January 1999. At the same time, he was receiving information from other analysts; he engaged in his own research; and he received a specific warning, through Mr Goddard, from the RBoS - the bank approached by ESS for financial assistance in connection with its investment in the converting notes. 576 Mr Goddard's evidence was that he had received a telephone call from a senior officer - "the Head" - of RBoS "cautioning me against the investment". He said that the officer said to him "you should make sure that there has been no material change to the financial circumstances of the company, that there has not been an increase in claims out of line with previous expectations, and that the position has not changed since the prospectus was issued." Not surprisingly, Mr Goddard says that he "took this word of caution … very seriously". (See Mr Goddard's first affidavit sworn 28 October 2005, para 19.) 577 Mr Saville conceded that Mr Goddard passed this warning on to him on about 21 to 23 December 1998, and that Mr Goddard told him that the RBoS was cautioning against the investment, that the claims experience needed to be investigated, and that the plaintiffs should seek confirmation whether the information provided in the prospectus was current. Mr Saville accepted that this was a very serious warning, which he took seriously (see his cross-examination at T974-979 and T1736-1737). 578 Mr Goddard said that, after this conversation, he and Mr Saville spoke and Mr Saville told him that he had spoken to "senior officers of New Cap [who] provided me with a draft Announcement" and that he was satisfied (second affidavit sworn 28 October 2005, para 3). 579 Mr Saville ignored the warning. He did not seek any assurance, or further information, as to claims developments over and above what was conveyed in his meeting or meetings and by the terms of the draft of the 23 December 1998 ASX announcement. 580 The plaintiffs' submissions did not explain how, in all the circumstances to which I have referred, they could be regarded as relevantly vulnerable. As I have said, I conclude that they were not. Assumption of responsibility/known reliance 581 These concepts are more usually seen as relevant where the case is one of negligent misstatement rather than negligent omission (and the case, at least as to the duty of care alleged in 6FAS para 86(a) to (c), appears to be one of negligent omission). But to the extent that they are relevant to the pleaded case of negligence, it is clear that Macquarie assumed no responsibility towards the plaintiffs. 582 As I have said, the responsibility assumed by Macquarie as a member of the DDC was a responsibility owed to those who were relying on the DDC and its work for the purposes of the due diligence defences in the event that the prospectus was misleading or deceptive or materially inaccurate. 583 Nor, apart from the DDC process, did Macquarie assume any responsibility to ICM and AOIT in respect of the sub-underwriting agreements. The terms of those agreements (known to and understood by Mr Saville) are clearly inconsistent with any assumption of responsibility. 584 Nor is there any evidence that Mr Saville (or anyone else on behalf of him or the plaintiffs) made known to Macquarie any reliance on the performance of Macquarie's work as a member of the DDC. Mr Saville did not say that he knew that there was a DDC, or that Macquarie was a member of it. It may be accepted that Mr Saville, as an astute and experienced businessman, would have been aware that due diligence committees were brought into existence in connection with capital raisings by way of prospectus; and that, had he turned his mind to it, he may well have concluded that at least MECM and MEL might be represented on any due diligence committee established for the purpose of the converting note issue. Nonetheless, as I have said, if these matters were present in his mind he did not say so; and it is undoubtedly the fact that he had no contact at all with Macquarie after 18 November 1998 until after the notes were allotted on 12 January 1999. Contractual terms and other matters of context 585 At least so far as ICM and AOIT are concerned, the terms of their contracts with MECM made it plain that MECM disclaimed any liability in relation to the prospectus, any draft or supplementary prospectus, and in relation to the offer of converting notes; and ICM and AOIT gave the acknowledgments to which I have referred relating to the absence of representations. Why should Macquarie (or specifically MECM) be subjected to a common law duty of care that subverts the contractual protection for which it bargained and which, for good consideration, ICM and AOIT agreed to give? 586 The other plaintiffs were not bound as a matter of contract by the terms of the sub-underwriting agreements. Nonetheless, they through Mr Saville must have understood the basis upon which the material was being supplied to them. Further, the draft and final versions of the sub-underwriting agreement provided that the letter, its attachments and the draft prospectus "are strictly confidential", must not be disclosed "to any person", and were "made available … solely to enable you to consider the [offer of sub-underwriting and firm commitments]." (see page 3 of the draft letter under the heading "Confidential Information"). That statement formed part of the terms and conditions that Mr Saville understood, and to which, so far as he was able, he intended to bind the plaintiffs (see paras [308] and [309] above). 587 To the extent that the plaintiffs claim loss either through sub-underwriting or through application for the allocation of rights, no duty of care should be imposed that subverts the contractual protection agreed to be given to Macquarie, or the basis upon which the relevant information was supplied to those plaintiffs. To the extent that the plaintiffs' claims arise from transactions outside the contemplated purposes for which the information was provided, the law should not impose a duty of care that puts those plaintiffs (who through Mr Saville have knowingly used the information other than for the purposes for which it was provided) in a position of advantage compared to those who were bound by the terms, or who restricted their use of the information to the purposes for which it was provided. 588 Further, I think that the statutory scheme of protection is relevant in this context also. Where the legislature has seen fit to prescribe rights and liabilities (including through the prescription of defences), the courts should be slow to engraft their own scheme of protection, through the mechanism of a common law duty of care. They should be slow to find gaps where the legislature has created a self-contained and detailed scheme of protection. Availability of other remedies 589 I have dealt with this in different contexts above. Conclusion on duty of care 590 For these various reasons, I conclude that the Macquarie parties owed no duty of care to the plaintiffs or any of them. Issue 34 should be answered accordingly. To the extent that issue 38 requires a separate answer, it should be answered "yes" (although this simple answer does not give effect to the variety of reasons that I have given when considering this question). Issues 35 to 37: breach; causation; limits of any duty owed 591 Since I have concluded that no duty of care was owed, these issues do not arise, and should be answered accordingly. Issue 39: implied duty of good faith 592 The implied duty is alleged in 6FAS para 96 as follows: "It was an implied term of each of the ICM Sub-Underwriting and the AOIT Sub-Underwriting Agreement that MECM was obliged to exercise its decision as to whether or not to terminate the Underwriting Agreement in good faith, having regard to the interests of ICM and AOIT." 593 The duty is said to be "implied by law": a proposition that does not enlighten the reader as to whether the plaintiffs rely on implication in fact or implication in law. Their written submissions (chapter 4, paras 4.39.3, 4.39.4) seemed to place one foot in each camp. The plaintiffs acknowledged that there is no existing authority establishing sub-underwriting agreements as a class of contract into which obligations of good faith would be implied as a matter of law (see McHugh and Gummow JJ in Byrne v Australian Airlines Limited (1995) 185 CLR 410, 449). However, at para 4.39.4.6, the plaintiffs submitted that implication of the term in fact was available (B P Refinery (Westernport) Pty Limited v President, Councillors and Ratepayers of the Shire of Hastings (1977) 180 CLR 266, 283). 594 To my mind, there is a real policy question as to the extent to which, and the circumstances in which, the courts should, through the implication of a duty of good faith, interfere in commercial contracts negotiated at arm's length between parties of relevantly equivalent standing. See Esso Australia Resources Pty Ltd v Southern Pacific Petroleum [2005] VSCA 228 at para [2] (Warren CJ) and para [25] (Buchanan JA). Be that as it may, it is plain that no duty of good faith can be implied where the duty (or, more accurately, the precise content of the particular duty sought to be implied) is inconsistent with an express term of the contract. This is so both for implication in law (Byrne) and implication in fact (B P Westernport). Further, even if there is no direct conflict between the term sought to be implied and any express term of the contract, the express terms of the contract as a whole may negate the implication: see Giles JA (with whom Sheller and Ipp JJA agreed) in Vodafone Pacific Limited & Ors v Mobile Innovations Ltd [2004] NSWCA 15 at paras [194] to [198] (addressing inconsistency between the terms of the contract and the terms sought to be implied) and paras [199] to [207] (addressing an express exclusion of implied terms). 595 I dealt with what is now 6FAS para 96 in an earlier judgment in these proceedings, dealing with the application for leave to amend that gave rise to 5FAS ([2003] NSWSC 1012). At paras [43] and [44], I identified five features that told against the implication. The Macquarie parties relied on what I there said. I set out those paragraphs: "43 On its face, the implied term that is sought to be alleged by para 96 is inconsistent with the express term that I have referred to in para [40] above. Firstly, that express term specifies that the relevant plaintiff will be bound by any decision of Macquarie to terminate or not to terminate the underwriting agreement. Secondly, the relevant plaintiff agrees to accept, among other things, any such decision. Thirdly, the relevant plaintiff acknowledges that Macquarie is not obliged to consult with it before making any such decision. Fourthly, it is stipulated that "nothing in this agreement qualifies the exercise or non exercise of the rights of Macquarie under the Underwriting Agreement in any way". The last matter by itself, and all those matters cumulatively, seem to be inconsistent with the proposition that, by reason of some obligation of good faith implied by law into the sub underwriting agreements, Macquarie was bound to have regard to the interests of the relevant plaintiff in making its decision whether or not to terminate, and was to make that decision in good faith having regard to those interests.

44 Finally, the term adverts to a decision not to terminate, although an entitlement to do so has arisen. It provides that the relevant plaintiff will be bound by that decision but yet obliged to fulfil its obligations, and will have no claim against Macquarie. That seems to reinforce the clear impression from the earlier features that I have referred to." ("[T]he express term … referred to in para [40] above" is a reference to the term set out in para [592] of these reasons.) 596 I have considered what I there said in the light of the competing submissions. On reflection, I adhere to what I said. 597 It may be wondered why, having expressed those views, I granted leave to amend so as to introduce what is now 6FAS para 96. The reasons were explained in paras [45] and [46] of my earlier reasons: "45 However, the plaintiffs wish to argue that the obligation to act in good faith lies at the core of every contract (see the judgment of Finn J in South Sydney District Rugby League Football Club Ltd v News Ltd (2000) 177 ALR 611, [426] (citing Tymshare Inc v Covell 727F 2d 1145, 1152 (1984)). The plaintiffs also wish to argue that an implied term of this nature is incapable of exclusion, and that in at least some circumstances a clause in a contract that on its proper construction permitted a party to act in bad faith would be unenforceable as against public policy. There is academic support for this argument: see Seddon & Ellinghaus , Cheshire & Fifoot's Law of Contract (8th Australian edition, LexisNexis Butterworths, 2002) at para [10.49]. Those circumstances indicate to my mind that, notwithstanding the views I have expressed, the plaintiffs should not be precluded from advancing the argument to which paragraph 96 is the key.

46 I am also conscious of what Hope JA said in Castlemaine Tooheys Ltd v Carlton & United Breweries (1987) 10 NSWLR 468, 492 when his Honour, in considering whether an implied term was inconsistent with a term or the terms of the contract, said that "in some cases at least it would be appropriate also to have regard to the matrix of facts in which the transaction took place."" 598 The plaintiffs did not in terms advance the submissions foreshadowed in para [45]. In any event, those submissions would seem to me to fall foul of the decisions in Vodafone and Esso Resources. 599 As to the matter foreshadowed in para [46], I need say only that nothing in the factual matrix tells against the view that I expressed in paras [43] and [44] of my earlier reasons, or otherwise in favour of the implication of a term. 600 I therefore conclude that the term alleged in 6FAS para 96 should not be implied into the sub-underwriting agreements. Issue 39 should be answered accordingly. Issues 40 to 43: breach, loss and other matters 601 In light of my conclusion on issue 39, these issues do not arise for consideration, and should be answered accordingly. Issues 44 to 50: defences 602 The views to which I have come mean that the plaintiffs fail on all their causes of action against the Macquarie parties. It is accordingly unnecessary to consider the specific defences with which these issues are concerned; the issues do not arise for consideration, and should be answered accordingly. Issues 51 to 57: damages 603 Since the plaintiffs have not made out any cause of action against the Macquarie parties, it is unnecessary to consider these issues as between the plaintiffs and the Macquarie parties and they should be so answered. Issues 58 and 59: limitation issues 604 Although these issues do not arise on the findings that I have made, they relate to questions that were reserved when I gave leave to the plaintiffs to make the amendments that resulted in the fifth and sixth further amended summonses. I will deal with it, notwithstanding its seeming lack of utility, for the reason given in para [120(4)] above. 605 Macquarie made no submissions on this issue, taking the course of relying on submissions made by other parties. 606 The relevant amendments were introduced in 5FAS, which was filed on 1 December 2003 pursuant to leave granted on 14 November 2003 (and see too my reasons of 7 November 2003: [2003] NSWSC 1012). 607 In light of the approach taken by the Macquarie parties, I shall be brief, relying on what I say in relation to the directors and Messrs Williams and Aroney (paras [1144] to [1153] below); Phillips Fox (paras [1198] to [1213] below); and PwC (paras [1338] to [1343] below). 608 Substantially for the reasons that I give in those paragraphs, I do not think that this is an appropriate case to "otherwise order". I need add to what I there say only the following specific points:

(1) The question only arises in respect of the claims under the ASIC Acts 1989 or 2001 and the Trade Practices Act, since the claims under the Corporations Act were not time barred when 5FAS was filed.

(2) The Macquarie parties did not point to any particular circumstances of prejudice, or to any other relevant factor. 609 It follows that there is no reason to "otherwise order", and that the amendments introduced against the Macquarie parties by 5FAS should take effect, according to the general rule, from the date of filing of the summons (16 November 2001). Conclusion on the case against the Macquarie parties 610 The plaintiffs' case against the Macquarie parties fails. The 6FAS should be dismissed against them. 611 It follows that each of the Macquarie parties' cross-claims for contribution or indemnity must also be dismissed. THE CASE AGAINST THE DIRECTORS AND MESSRS WILLIAMS AND ARONEY Issue 60: was the conduct of NCRH up until the issue of the prospectus misleading or deceptive? 612 This issue focuses on six groups of representations that the plaintiffs allege were made by the draft prospectus and the prospectus. The pleaded case 613 The first group of representations (6FAS, para 104) are the "Prospectus Balance Sheet Representations". They focus on the "Actual and Pro-Forma Consolidated Balance Sheet" (Prospectus Balance Sheet) set out in the draft prospectus and prospectus (it is not necessary to distinguish between them for the purposes of this issue, and I will refer henceforth simply to the prospectus); on what was said about the Prospectus Balance Sheet in section 6.2 of the prospectus; and in section 4.3 of the prospectus (which deals with the topic of "Operating Results and Recent Events"). 614 6FAS para 105 alleges three representations relating to the NTA of NCRH, which are called the "Prospectus NTA Representations". 615 6FAS para 106 alleges two representations relating to the security of the converting notes and the disclosure of a charge over some assets of the group's investments to secure LOCs. They are called the "Prospectus Converting Note Security Representation [sic]". 616 6FAS para 107 alleges a representation as to the future prospects of NCRH. Not surprisingly, that is called the "Prospectus Future Prospects Representation". 617 6FAS para 108 alleges four representations relating to the purposes of the capital raising. They are called the "Prospectus Purposes of the Capital Raising Representations". 618 Finally for present purposes, 6FAS para 109 alleges three representations relating to the adequacy of the reserves. They are called the "Prospectus Claims Reserve Adequacy Representations". 619 The matters said to falsify those representations, and what is said to be the knowledge of the directors and Messrs Williams and Aroney of those falsifying matters, are alleged in 6FAS paras 111 to 122. 620 After dealing with a number of other matters that are the subject of other issues (including the case of primary contravention that the plaintiffs seek to make against NCRH), 6FAS turns to the liability alleged against the directors and Messrs Williams and Aroney in paras 144 and following. In substance, it is alleged that the directors and Messrs Williams and Aroney were knowingly concerned or involved in the contraventions alleged against NCRH (paras 152 and 153) and, or alternatively, were themselves guilty of conduct contravening ss 995(2), 996(1) and 999 of the Corporations Law and s 42 of the Fair Trading Act (para 154). The case against Messrs Williams and Aroney is based not on their having been officers of NCRH (they were not), but on their having been members of the DDC who were thereby said to have been involved in (and to have supervised) the preparation of the prospectus (6FAS, para 145). 621 To the extent that it is necessary, I will deal with the detail of the alleged representations, and of the matters alleged to falsify them, in considering each group of representations. Unfortunately, this task has been complicated by the way in which the directors and officers structured their written submissions. 622 As I have already recorded, I directed the parties in their written submissions to address specifically those of the issues that concerned them. Messrs Beach, Deery and Morrissey structured their submissions in an order of their own, and provided a table cross-referencing those submissions to the issues propounded against them. That approach had its difficulties: including that in many cases it was necessary to refer to several parts of their submissions to find out what they said on any given issue. Whilst the thematic structure of their submissions was understandable, the task of relating those submissions to the issues was not facilitated by the approach chosen. 623 Mr Ghose took a somewhat similar approach. His submissions, like those of Messrs Beach, Deery and Morrissey, were structured according to themes of his own choosing. A cross-reference was then provided to the statement of issues. However, that cross-reference simply referred the Court to those parts of the submissions (in some cases, Mr Ghose's submissions, and in other cases, those of Messrs Beach, Deery and Morrissey as adopted by Mr Ghose). A common answer to a particular issue was that the Court should not make the findings sought "by reason of the matters set out in Part Three of these submissions". Part Three occupied in excess of 120 pages, divided into some 320 paragraphs. In some (but not all) cases, the cross-reference given condescended to refer to specified paragraphs; in other cases, it did not. 624 The structure of the submissions for Mr Peck was even less satisfactory. Again, they were structured thematically. However, there was no systematic attempt to cross-reference those submissions to the issues propounded against Mr Peck. 625 Although the written submissions for Mr Williams did refer to the issues, the content of the response in most cases left me entirely ignorant of his case on individual issues. 626 The result is that, in addition to the difficulties to which I have pointed in para [117] above, resolution of the plaintiffs' case against the directors and Messrs Williams and Aroney has been impeded substantially by the way in which most of those defendants chose to structure those submissions. 627 I should note further that the written submissions for Mr Williams raised two specific contentions in relation to the statement of issues. The first was that the case was to be decided by reference to the pleadings, and not by reference to the issues (written submissions dated 31 July 2006, paras 156-161). That submission (or position) reflects a fundamental misunderstanding. I made it plain that I proposed to decide the case by reference to the statement of agreed issues. I made it plain also that the direction to prepare a statement of agreed issues was not to be taken as an invitation to any party to depart from, or expand upon, issues formulated on the pleadings. Thus, to the extent that there have been disputes as to the availability or width of an issue propounded by a party, I have had recourse to the pleadings to resolve the dispute. Further, in considering issues, I have referred (and will refer) to the pleadings, so as to enable the issue to be understood. But it does not follow that the statement of issues is simply, as the written submissions for Mr Williams contended, "no more than an aide memoire ordered by the Court to allow easier navigation about relevant issues." It was intended to be, and I am treating it as, the statement of relevant issues as they arise on the pleadings. 628 Mr Williams' second contention was that the Court could not consider the agreed issues as against him because NCRH was not a party (written submissions, paras 162-174). Thus, it was submitted, the proceedings should be dismissed as against Mr Williams on the ground that they were an abuse of process (para 175). That contention is not raised by Mr Williams in his defence, nor is it the subject of any issue propounded as between him and the plaintiffs. In those circumstances, I do not propose to consider it. The Prospectus Balance Sheet Representations 629 The first three of the alleged representations (6FAS para 104) relate to the Prospectus Balance Sheet and the statements made of it in section 6.2 of the prospectus. In substance, the plaintiffs say, NCRH represented that the Prospectus Balance Sheet fairly and accurately represented the financial position of NCRH as at 30 June 1998 (sub para (a)); that there was no material difference between the financial position of NCRH as at 30 June 1998 and what was indicated in the prospectus balance sheet (sub para (b)); and that the net assets of NCRH as at 30 June 1998 were USD127,479,000 (sub para (c)). 630 Two further representations can be considered together with the three that I have just indicated. There is an alleged representation that the retrocession coverage of USD13.839 million as at 30 June 1998 "was valid and collectible" (sub para (e)), and that DAC of USD13.4 million were fully recoverable (sub para (f)). 631 There is no doubt that the Prospectus Balance Sheet showed, by extraction from the "Actual Balance Sheet 30 June 1998" the figures for net assets, retrocession recoveries and DAC to which I have referred. However, the question as to what, if any, representations were made by the Prospectus Balance Sheet is not to be considered simply by looking at page 24 of the prospectus. Page 24 is the page where the Prospectus Balance Sheet is set out. It is necessary to refer to section 6.2. Section 6.2, which appears in a section of the prospectus headed "Effect of the Issue on New Cap Re", reads as follows: " 6.2 Pro-forma Balance Sheet The Pro-Forma Consolidated Balance Sheet of New Cap Re at the end of this Section 6 shows the effect of the Issue and Placement and the subsequent repayment of existing borrowings as if the transactions had occurred on 30 June 1998. The adjustments are based on available information and certain assumptions the Company believes are reasonable. The key assumption used in preparing the Pro-Forma Balance Sheet is that the amount of the raising is the equivalent of US$50 million. The Pro-Forma Balance Sheet is for informational purposes only and should not be construed to be indicative of the Company's consolidated financial position or results of operations had the transactions been consummated on the date assumed and does not project the Company's consolidated financial position or results of operations for any future date or period. The "actual" balance sheet amounts have been drawn from the consolidated balance sheet of the Company at 30 June 1998. Accordingly, for a complete understanding of the Pro-Forma Balance Sheet, it should be read in conjunction with the Half Yearly Report for the six months ended 30 June 1998 and the Consolidated Financial Statements for the period ended 31 December 1997 that are available from the Company as described in Section 11.6. The effects of post 30 June 1998 events on the Company's net tangible assets as described in section 4.3 are not included in the Pro-Forma Balance Sheet.

Adjustment due to Converting Note Issue Cash and investments increase by USD47.2 million representing the assumed proceeds of US$50 million raised by the Converting Notes less issue and underwriting expenses of approximately US$2.8 million. The Pro-Forma Balance Sheet has been prepared on the basis that the proceeds of the Rights Issue and Placement are classified separately into their debt and equity components. The debt component (US$9.8 million) represents the present value of the future interest payments over the term of the Converting Notes. The balance is classified as equity. Issue expenses have been classified in proportion to the debt/equity split of the security. The debt portion is capitalised in other assets and will be amortised over the term of the security. The equity portion is netted off against shareholders' equity. PricewaterhouseCoopers, New Cap Re's auditors, have confirmed this treatment is in accordance with generally accepted accounting principles and Australian Accounting Standards, in particular AASB 1033 "Presentation and Disclosure of Financial Investments" (AASB 1033). Since its release in December 1996, there has been considerable debate regarding AASB 1033 and, in particular, its requirements for the classification of compound financial instruments. In October 1998, the AASB issued Exposure Draft ED 98 proposing amendments to AASB 1033. The amendments, if approved, would require the Converting Note to be reclassified entirely as debt. The proposed application date of the amendments would require the Company to first reflect the reclassification in its financial statements for the half-year ending 30 June 2000. Adjustment due to Repayment of existing loan This illustrates the repayment of the Company's loan of US$25 million as at 30 June 1998 (currently US$23.75 million) from the proceeds of the Rights Issue and Placement. This includes the write-off of the remaining capitalised costs associated with the existing loan. The company intends that this loan will be fully extinguished by 31 January 1999 at the latest." 632 In their respective defences Mr Ghose, Messrs Beach, Deery and Morrissey, Mr Peck and Mr Williams, one way or another and in differing terms, put in issue the making of the Prospectus Balance Sheet Representations alleged in 6FAS para 104. By contrast, Mr Aroney admitted that the prospectus made the representations alleged in 6FAS para 104(a), (c), (e) and (f). 633 The submissions for Messrs Beach, Deery and Morrissey accepted that "[t]he Prospectus may be taken to have represented that NCRH's balance sheet position as at 30 June 1998 was in accordance with the first column of figures on page 24" (the page where the Prospectus Balance Sheet is set out). I note however that the concession as to what was represented by the Prospectus Balance Sheet is subject to an express qualification as to prudential margin (which was dealt with elsewhere in the prospectus). 634 Mr Ghose's submissions adopted the "common submissions" for Messrs Beach, Deery and Morrisey on this issue. It seems to follow that the position accepted by Messrs Beach, Deery and Morrissey set out in the previous paragraph is accepted also, and with the same qualification, by Mr Ghose. 635 Mr Peck's submissions on these alleged representations are not easy to follow. As to sub para (a), they appear to accept that the representations alleged as to the Actual and Pro Forma Consolidated Balance Sheets were made, but to assert that those representations need to be understood in the light of other material contained in the prospectus. They accept that the representations alleged in sub paras (c) and (e) were made. They deny that the representations alleged in sub paras (d) and (f) were made. As to sub para (g), they state that "[i]t is accepted that this representation is made by the absence of any indication to the contrary" (written submissions, para 230). 636 Mr Williams' submissions do not in terms deal with the question, whether the alleged representations were made as pleaded. Nor do the written submissions for Mr Aroney. 637 Both because of the precise terms of the concession made by Messrs Beach, Deery and Morrissey in final submissions, and because of the issues taken on the pleadings, it is necessary to deal with the question of what representations were made by the prospectus. This question also arises in the plaintiffs' cases against PwC and Phillips Fox. 638 To some extent, the plaintiffs' submissions sought to focus on the Prospectus Balance Sheet and to ignore what was said about it in section 6.2 of the prospectus (although, in at least some cases, the particulars given of the various representations alleged in 6FAS para 104 did refer to section 6.2). The Prospectus Balance Sheet cannot be divorced, or considered in isolation, from what was said about it in section 6.2. 639 Section 6.2 makes a number of things plain:

(1) The purpose of the Prospectus Balance Sheet: to show the effect of the converting note issue, and the repayment of the Dresdner facility, as if those transactions had occurred on 30 June 1998.

(2) The "actual" balance sheet amounts were taken from the Consolidated Balance Sheet of NCRH as at 30 June 1998.

(3) The effects of events after 30 June 1998 were not shown in the Prospectus Balance Sheet.

(4) The Prospectus Balance Sheet was "for informational purposes only".

(5) The Prospectus Balance Sheet was not intended to be indicative of the consolidated financial position or results of NCRH had the transactions incorporated in it been effected on 30 June 1998.

(6) The Prospectus Balance Sheet did not project NCRH's consolidated financial position or results of operations for any future date or period.

(7) To understand the Prospectus Balance Sheet (and, I add, the financial position of NCRH) reference should be made to both the report for the six months ended 30 June 1998 and the financial statements for the period ended 31 December 1997. 640 In considering what, if any, representations are made by the Prospectus Balance Sheet, it must be noted that it comprises three elements:

(1) A column headed "Actual Balance Sheet 30 June 1998".

(2) Two columns under the heading "Adjustments": the first column headed "Converting Note Issue" and the second "Repay Current Loan".

(3) A third column headed "Pro Forma Balance Sheet". 641 Thus, the Prospectus Balance Sheet (ie, the "Actual and Pro-Forma Consolidated Balance Sheet" appearing on page 24 of the prospectus) is a composite entity, made up of the elements that I have described. 642 The heading to section 6.2 refers only to the third of these elements - the Pro-Forma Balance Sheet. So do the first, third, fourth, fifth and sixth paragraphs. In my view, it is a fair reading of section 6.2 that, when it refers to the "Pro-Forma Balance Sheet" (with or without a hyphen, and with or without the inclusion of the word "Consolidated"), it is referring to the third component - the "Pro-Forma Balance Sheet" column - of the "Actual and Pro-Forma Consolidated Balance Sheet" appearing on page 24. (The introduction of the word "Consolidated" into the first paragraph of section 6.2 gives rise to some confusion; but if I am wrong in what I have said in the first paragraph, then the apparent distinction sought (by hypothesis) to have been introduced through the word "Consolidated" makes the point plainer in relation to the heading and the other paragraphs.) 643 Thus, I think, the statement in the fourth paragraph of section 6.2 (which comprises the three matters in para [639(4)-(6)] above) should be read in accordance with its terms: as referring to the third column ("Pro Forma Balance Sheet"), to which I have referred in para [640] above. 644 With those observations in mind, I turn to consider the individual representations falling into the first sub group of the Prospectus Balance Sheet Representations. I do so on the basis that each representation is particularised as an express one, with its source being particularised by reference to particular parts of the prospectus. 645 Sub paragraphs (a) and (b) of 6FAS para 104 can be considered together. The representations alleged in those sub paragraphs do not appear in the particularised place: section 6.2 of the draft prospectus. Nor do I think that they appear on a fair reading of section 6.2, whether or not I am right in my view as to the distinction apparently intended to be drawn between the Actual Balance Sheet column and the Pro-Forma Balance Sheet column. Thus, as against all of the directors and officers apart from Mr Aroney, I conclude that the representation alleged in 6FAS para 104(a) was not made. Mr Aroney has admitted that it was made. As against all the directors and officers (including Mr Aroney), I conclude that the representation alleged in 6FAS para 104(b) was not made. 646 The representation alleged in sub para (c) falls into a different category. That is particularised as arising from page 24 of the prospectus - ie, from the Prospectus Balance Sheet. 647 There is no doubt that the first column of that balance sheet, purporting to reflect figures stated in the Actual Balance Sheet as at 30 June 1998, does suggest in terms that NCRH had net assets of USD127,479,000 at balance date. The representation thus made is not only that this is what was shown in the consolidated balance sheet as at 30 June 1998. I think it must be taken to be a representation by NCRH that the consolidated balance sheet was accurate. Thus, I think, NCRH did make the representation alleged in sub para (c). 648 For essentially similar reasons, I think that NCRH did make the representations alleged in sub paras (e) and (f). Again, the amounts referred to in those sub paragraphs are shown in the Actual Balance Sheet column of the Prospectus Balance Sheet. It is correct to say that the qualifying words "all of which was valid and collectible" and "were fully recoverable" do not in terms appear. However, a representation that the net assets of USD127,479,000 included retrocession recoveries receivable of USD13,839,000 and DAC of USD30,650,000 necessarily implies that those amounts were real, or collectible, or recoverable (and, in the case of the first item, that would also appear from the description "receivable"). 649 The representation alleged in sub para (d) - as to net assets - is said by the particulars to be sourced in section 4.3 of the prospectus. That is a lengthy section. It is in two parts. The first deals with "Operating Results". The second deals with "Effect of Recent Events". Unfortunately, although necessarily (both for this aspect of the case and for others), it is necessary to set out section 4.3 in full: "4.3 Operating Results and Recent Events Operating Results From inception to 30 June 1998, the Company posted after-tax accumulated losses of US$22.6 million. For the six months ending 30 June 1998, the Company recorded gross written premium of US$174.5 million, net earned premium of US$82.9 million and a combined ratio of 124.7%. This compares to gross written premium of US$213.4 million, net earned premium of US$148.2 million and a combined ratio of 108.6% for 1997. The loss for the six months ending 30 June 1998 resulted predominantly from claims development relating to the 1996 and 1997 underwriting years (ie contracts beginning in those years) which were underwritten when the Company was in its infancy, and was mainly confined to a few clients within the classes of Aviation, Property Risk and Marine. No profit was recognised in this period in respect of the 1998 underwriting year. In determining the result for the six months, a new claims provision of US$141.1 million was established in accordance with the reserving policy set out in Section 4.9. The independent actuaries, Trowbridge Consulting, in their report (see Section 10) have calculated the net provision required, on a central estimate basis, at US$139.6 million. The Company accepts the Trowbridge Consulting view on the appropriate net central estimate and if a prudential margin of between 5% to 10% was added to this net central estimate in accordance with the Company's current reserving policy, this would have the effect of reducing the net tangible asset backing for Ordinary Shares by between US 7 cents and US 15.5 cents per share. Effect of recent events The company also engaged Trowbridge Consulting to review the likely net loss to the Company from major events occurring after 30 June 1998, including the crash of Swissair Flight 111 and Hurricane Georges in the Caribbean and USA. The results of this review are set out in the Trowbridge Consulting Independent Actuary's Report in Section 10, and the loss estimates below are based on that report. Although the Swissair and Hurricane Georges events will affect the Company's results, they need to be seen in the light of the premium pools available for the respective classes. In classes such as major airlines and property catastrophe, claims happen only occasionally but they are for large amounts. Hurricane Georges appears to be the most significant catastrophe in the property insurance market for some time. The Company's earned premium for property catastrophe business in 1998 is expected to be about US$25 million, and so the estimated net loss of US$6.5 million from this event will contribute about 26% to the loss ratio for that class. For the Swissair crash, it is estimated that earned premium on the relevant contracts during the September quarter will reduce the net loss of US$8.3 million by US$1.3 million to a net impact of US$7 million. The impact of the net loss from these two events on the Company's net tangible assets is estimated to be US16.8 cents per Ordinary Share. The Company has significant retrocession protection on its property, aviation and space classes, and the Company is not aware of any other event which will have a material impact on its second half results. In particular, whilst the Company was exposed to two recent satellite launch failures, Galaxy 10 on 27 August 1998 and Globalstar on 9 September 1998, its likely net loss attributable to these events is approximately US$2 million. However, in recognition of the uncertainty highlighted in the Trowbridge Consulting Independent Actuary's Report and to provide additional comfort as to the adequacy of its reserves, the Company is seeking to procure further retrocessional protection, on a stop loss basis, to insulate itself against claim deterioration. As a result, relative retrocessional expense is expected to increase." 650 In my view, it is impossible to spell out of section 4.3 the representation alleged in sub para (d). To the contrary of that allegation, I think that on a fair reading section 4.3 makes it plain that, as at the date of the prospectus, the net assets of NCRH are likely to differ from what was disclosed in the Prospectus Balance Sheet and perhaps materially so. I say this based on both the disclosure as to addition of a prudential margin as recommended by Trowbridge (see in particular the last paragraph of the first part of section 4.3) and the disclosure of "Recent Events" and their likely impact. 651 The last of the Prospectus Balance Sheet Representations is that alleged in sub para (g). The plaintiffs' submissions do not address the source of that representation; and, unlike the others, no particulars are given. 652 It is sufficient to say that I am not satisfied that this representation was made. It may be that, if one reads together both the prospectus and the financial statements referred to in section 6.2 (as was recommended to the reader), such a representation could be spelled out. But, the plaintiffs not having troubled to address on this, I do not propose to trawl through those documents to see if this can be done. In this context, I record that I made it plain to the parties on a number of occasions that I proposed to deal with the case not only on the issues stated but also by reference to those portions of the evidence to which, in submissions or elsewhere, they might refer. This is an example of the application of that oft stated policy. The Prospectus NTA Representations 653 Mr Aroney admits in his defence the making of the representation alleged in sub para (a). The other directors and officers put it in issue (again, in one way or another) in their respective defences; and all of them (including Mr Aroney) put the remaining representations in issue. 654 The submissions for Messrs Beach, Deery and Morrissey accepted that the representations alleged in sub paras (a) and (c) of 6FAS para 105 were made. They appear to accept that the representation alleged in sub para (b) was also made. 655 Mr Ghose appears to adopt the position of Messrs Beach, Deery and Morrissey. The written submissions for Mr Williams do not raise an issue as to whether Prospectus NTA Representations were made; and neither do those of Mr Aroney. 656 Mr Peck appears to accept that the representation alleged in sub para (a) was made, and does accept that the representation alleged in sub para (c) was made. He does not accept that the representation alleged in sub para (b) was made and refers to sections 10 and 11.4 of the prospectus. However, as the written submissions concede, the Trowbridge report in section 10 overlaps completely with the disclosure in section 4.3. Thus, the failure to refer to it is nominal rather than significant. 657 I think it is plain that the representations alleged in sub paras (a) and (c) were made. That is apparent from the pages of the prospectus to which reference is made. 658 Sub para (b) falls into a slightly different category. Mr Peck's submissions are correct in pointing out that s 10 of the prospectus, the Trowbridge report, deals with possible material claims that might have an impact on the financial position of NCRH. They are correct also in pointing out that s 11.4 of the prospectus discloses litigation relating to the Charman Syndicate (and related litigation) and litigation over the Vesta contract. I think the better view of section 11.4 is that NCRH is suggesting to readers that the events therein described are unlikely to impact, significantly or otherwise, on its financial position for the second half of 1998. 659 Thus, although sub para (b) might be regarded as incomplete (because it does not refer to sections 10 and 11.4), I conclude that the representation alleged was made. The Prospectus Converting Note Security Representation 660 Messrs Beach, Deery and Morrissey "do not dispute that the Prospectus contains representations as pleaded and particularised" in 6FAS para 106. Mr Ghose appears to adopt the same stance. 661 Mr Peck's written submissions do not make it clear whether he accepts that the representation was made. 662 As before, Mr Williams' submissions do not address whether the representation was made, but deal with other matters. 663 Mr Aroney's submissions appear to take a similar position. 664 The representations are tied by particulars to particular sections of the prospectus: pages 1 and 3 in the case of sub para (a) - the "solid security" representation - and section 4.10 in the case of sub para (b) - the "collateral for letters of credit" representation. 665 In my view, on a fair reading of the prospectus as a whole and paying attention to the sections referred to in the particulars, NCRH did make each of the Prospectus Converting Note Security Representations. The Prospectus Future Prospects Representation 666 In 6FAS para 107, this representation is tied by particulars to page 3 of the prospectus. On page 3, under the heading "Company Fundamentals", NCRH stated that it had "a new management team and a revised underwriting strategy designed to improve operating performance". There were other statements - as to the independent review of Trowbridge confirming "the adequacy of the Company's claims provisioning" and as to NCRH's "conservative investment philosophy and US dollar capital base" - that could be seen to relate to the financial wellbeing of NCRH. 667 Each of the directors and officers in his defence puts in issue the making of this representation. 668 Messrs Beach, Deery and Morrissey submit that the relevant statements on page 3 of the prospectus "are simple statements of present facts and on no reasonable construction convey any representation as to the prospects of the company for the second half of 1998, let alone that such prospects were "good"." (common submissions, section 11c, para 226). They point out that disclosures elsewhere in the prospectus indicate a likely second half loss ranging between USD19.1 million and USD26.3 million. Mr Saville acknowledged that this was indicated by the prospectus (T1313.8-1314.22). 669 The plaintiffs submit that what was disclosed on page 3 "was clearly designed to suggest to the potential investor that past mistakes had been rectified, that adequate claims reserves or claims provisions had been made for the claims which had arisen in the past, and that with the new management team and the revised underwriting strategy a conservative investment philosophy and US dollar capital base, the company is well positioned to move forward. This is a company with good prospects." (written submissions in reply, chapter 2, para 60). However, the question is not one of the intent, or "design", of the prospectus but of what on a fair reading (including putting the material particularised into context) it conveys. 670 In my view, the relevant material on page 3 of the prospectus is intended to suggest that NCRH had sought to address the causes of its past poor performance. Such a suggestion may well carry with it the implication, or inference, that the steps taken were believed, or hoped, to have been appropriate. But it does not follow that, by saying that past mistakes had been addressed, NCRH was representing that its prospects for the second half of 1998 were good. I would reach that conclusion simply on the basis of the language used on page 3, but I accept the submission put for Messrs Beach, Deery and Morrissey that other material disclosed in the prospectus in any event makes it impossible to spell out a representation that prospects for the second half of 1998 were "good". 671 I conclude that the Prospectus Future Prospects Representation was not made. The Prospectus Purposes of the Capital Raising Representations 672 Each of the directors and officers by his defence puts in issue the making of those representations. However, in written submissions Messrs Beach, Deery and Morrissey "do not dispute that the representations pleaded … were conveyed by statements appearing at" the relevant page of the prospectus. 673 In 6FAS para 108, the representations are tied as a group to page 1 of the prospectus (the chairman's letter to shareholders) and section 4.5 ("Purpose of the Issue and Institutional Placement"). 674 When one reads the representations alleged against the relevant portions of the prospectus, it is clear that the representations were made. There is nothing else in the prospectus to which any of the defendants point that qualifies or restricts them. I conclude that they were made. The Prospectus Claims Reserve Adequacy Representations 675 There can be no doubt that NCRH did make the representations alleged in sub paras (b) and (c) of 6FAS para 109. Each of the representations alleged is taken, either by an accurate paraphrase of or as a direct quotation from, a particular part of the prospectus: page 3 in the case of the former and section 4.3 in the case of the latter. Thus, notwithstanding that the directors and officers put the making of those representations in issue, I am satisfied that NCRH did make them. 676 The position is not so clear in relation to the representation alleged by sub para (a). However, when one puts together the relevant statements on pages 1 and 3 and in section 10, I think that the representation was made. Page 1 points out that the adequacy of NCRH's claims provisioning "has been reviewed by a leading independent actuarial firm". Page 3 states that the Trowbridge review "confirms the adequacy of the Company's claims provisioning". Section 10 is the Trowbridge report. It states that Trowbridge was asked to comment, among other things, on "the adequacy of the outstanding claims provision" and that Trowbridge concludes "that the provision is reasonable, although … it does not include a prudential margin of any significance." 677 However - and this is a matter to be considered when dealing with the plaintiffs' case as to falsification of the representations - it is necessary to bear in mind other statements in the prospectus that bear on the adequacy of the provision for outstanding claims. It is also necessary to bear in mind that, on a fair reading, the representations speak as at 30 June 1998, or of the adequacy of the reserves as at that date: see para [824] below. Were the representations false? The Prospectus Balance Sheet Representations 678 The plaintiffs rely on three matters to falsify these representations:

(1) The balance sheet included the profit of under leg 1 of the GCR transaction but did not disclose the likely loss under leg 2;

(2) DAC in the sum of USD13.4 million should not have been included in the net assets; and

(3) Contrary to the previous accounting policy of NCRH, there was no substantial prudential margin; a prudential margin in accordance with the alleged policy would have required an additional provision of about USD9 million. Impact of the GCR transaction 679 The GCR transaction is relevant to the first, third and fifth of the Prospectus Balance Sheet Representations (6FAS para 104 (a), (c), (e)), the first of which is relevant only as between the plaintiffs and Mr Aroney. 680 The first question relating to the GCR transaction is whether it (and whether "it" means leg 1, leg 2 or both does not presently matter) could properly have been brought to account as at 30 June 1998. The contract was not made until September 1998. It was not even being discussed prior to 30 June 1998, although the antecedent large transaction, the structure of which was substantially utilised for the small transaction, was under discussion, and its terms agreed in principle, well before 30 June 1998. 681 There is no independent expert evidence to support the proposition that the transaction could properly have been accounted for as at 30 June 1998, although there was some evidence of "industry practice" that might support the form of accounting that was adopted. Such evidence as there was on this topic came from Mr Bartlett. His evidence did not clarify the extent, propriety or acceptability of the alleged practice. In any event, having regard to my reservations as to the acceptability of his evidence, I do not regard it as of itself providing any justification for what was done. 682 By contrast, the accounting standards are relatively plain. AASB 1029 requires by clause 16 that each half year period should be treated as a discrete reporting period. AASB 1002 requires by clause 4.1 that financial statements are to be prepared on the basis of conditions existing at the reporting date. In clause 4.2, it permits reflection of events occurring after the reporting date, provided that they give additional evidence of conditions existing at reporting date or reveal a condition existing at the reporting date. This is confirmed by clause 5.1.1 of the same standard, which says that an event occurring after the reporting date should not be used to adjust assets and liabilities if the event does not relate to conditions existing at the reporting date. 683 In my view, those clauses of the standard lead to the conclusion that the effect of leg 1 should not have been brought to account as at 30 June 1998. 684 None of the directors or officers sought to support the proposition that it might have been proper to bring the effect of leg 1 to account as at 30 June 1998. For the reasons that I have given, they were wise not to attempt this task. 685 Much evidence was directed, and time taken in submissions, to address the question, whether in any event it was proper to bring leg 1 to account without also bringing leg 2 to account. The relationship between the two legs is significant for a number of reasons. However, there is no basis for concluding that the error committed by bringing leg 1 to account should have been compounded by the further error of bringing leg 2 to account. 686 Before I leave this topic, I should point out that Mr Murray "thought it [leg 1] was appropriately brought to account" (T6215.37). So far as I am aware, he offered no justification for this proposition (or, indeed, for the fact that he had effectively accepted the accounting treatment for leg 1, with a presently irrelevant qualification as to accounting for the premium). In any event, PwC did not in their written or oral submissions point to any such justification (whether contemporaneous with the events in question, or current). 687 The prima facie consequence of including the net effect of leg 1 in the accounts as at 30 June 1998 was that NCRH's loss for the six months then ending was understated, and its gross and net assets were overstated, by the amount of USD5.675 million. (This figure was frequently stated as USD5.7 million; nothing turns on the difference.) 688 The thresholds of materiality were not in dispute. For individual items, an item having an impact of less than 5% on the profit and loss or balance sheet was immaterial. Between 5 and 10%, an item may or may not have been material; an exercise of judgment was required to determine materiality. Above 10%, it was material. 689 It follows that the prima facie overstatement was on any view relevant to the statement of the net loss, and may have been material to the net assets. However, the directors and officers submitted that it was not material, because, at the time it was decided to bring the net effect of leg 1 to account, it was also decided to increase the claims provision by a "special prudential margin" of USD5 million. Thus, they submitted, the net impact on the reported loss and on net assets was USD0.7 million, and therefore immaterial to either. 690 The plaintiffs disputed that there was such an offset. In any event, they said, the whole transaction (including, if it occurred, the creation of an offsetting special prudential margin) remained material. It remained material, they submitted, because it was relevant only to the accounts that the company prepared under Australian Generally Accepted Accounting Principles (GAAP). For reasons that I shall develop, they submitted that it was not relevant to accounts prepared for Dresdner, which were required on a quarterly basis and to be prepared under US GAAP. 691 Each of Messrs Ghose, Beach, Peck, Williams and Aroney gave evidence that (at least to his understanding) the prudential margin, originally to be fixed at USD9 million, had been increased to USD14 million to offset the benefit taken up for the first leg of the GCR transaction. The views that I have expressed as to the credibility of Messrs Peck, Williams and Aroney mean that their evidence on this point must be given close scrutiny. So should the evidence on this point of Messrs Ghose and Beach: although for a different reason. They were remote from the transaction, and their "knowledge" of what was done came in substance from the other three to whom I have referred; in particular, Mr Peck. 692 A further relevant point on this is that Messrs Deery and Morrissey gave no evidence-in-chief of any knowledge or understanding of such an increase in the proposed central margin. As I have recounted in paras [188] and following, Mr Deery in cross-examination accepted initially that there was no connection between the USD5 million component of the prudential margin and leg 1; but, having had the opportunity to reflect on this overnight, he sought and was given leave to correct (so he said) his evidence on this point. By contrast, Mr Morrissey at no time asserted that there was in his mind any link between the two. 693 However, there are a number of contemporaneous documents that throw light on the question. To my mind, those documents make it plain that:

(1) The half yearly accounts approved by the board on 2 September 1998 showed, on their face, an explicit prudential margin of USD14 million; whereas

(2) Documents prepared earlier, and up to about a week before that board meeting, showed an explicit prudential margin of USD9 million. 694 The accounts contained in the board papers for the meeting of 2 September 1998 (and approved by the board on that day) included, of course, a balance sheet. That showed figures for current and non current outstanding claims totalling USD161,526,000, and current and non current retrocession recoveries receivable totalling USD13,839,000. 695 Later in the same papers, there was a break up of some of the information given in the draft balance sheet, including the make up of the outstanding (current and non current) claims figures to which I have already referred. Significantly for present purposes, that break up showed, as part of the gross discounted figure of USD161,526,000, a discounted net central estimate before prudential margin of USD141,001,000 and a prudential margin of USD14 million. 696 Any board member who read the papers with reasonable care would have understood from this that the claims figure included a discounted net central estimate of USD141,001,000 and a prudential margin of USD14 million. (He would also have understood that to these items there should be added an amount of USD6,525,000 for profit commission reserve; and, having worked through the arithmetic, he would have observed that the figure thus obtained, USD161,526,000, corresponded to the arithmetic total of the amounts shown for current and non current outstanding claims in the balance sheet.) 697 As I have said, there are earlier documents that show a proposed prudential margin of USD9 million. They include a spreadsheet provided to PwC, and retained by PwC as a working paper, titled in handwriting "Effect of the Stop Loss Adjustment". In the column headed "Pre Stop Loss 30 Jun 98" there is shown, against the narration "Prudential Margin", an amount of USD9 million. 698 Again, the Trowbridge report of 25 August 1998, which was provided to the board as an appendix to a very lengthy document known as the "Half Yearly Report 1998 and Recommended Action Plan", noted that NCRH proposed to adopt a provision of USD150 million (rounded down from USD150,002,000) which included a prudential margin of USD9 million. 699 Those board papers also included a report from Mr Johnson, the senior underwriter of NCRA, commenting on "the preliminary draft results for the half-year distributed internally". That report stated that the provision for outstanding claims was "inclusive of a prudential margin of $9.0M". 700 The Trowbridge report had been given to the Audit Committee for its meeting on 26 August 1998. The material given to the Audit Committee was distributed by Mr Aroney. It was copied to, among others, Messrs Ghose and Daya. At this point, it appears, the concept of a further strengthening of the reserves was proposed. The draft minutes of the Audit Committee Meeting (which was held on 27 August 1998) noted that "following discussions with Price Waterhouse Coopers [sic], the Company had further strengthened the reserves by an additional $5M prudential margin." 701 Those draft minutes also noted that the central estimate proposed by the company was USD141 million, whereas that derived by Trowbridge was USD150 million. The difference appears to relate to the discounting factor, there having been some disagreement between NCRH and Trowbridge as to the mean term to settlement. 702 Thus, there can be little doubt that at some time between 25 and 27 August 1998, it was decided (or suggested) that NCRH should increase its prudential margin by USD5 million. (I note that the plaintiffs say that the verb "increase" is incorrect, because on the Trowbridge figures, the central estimate should have been USD150 million and not USD141 million, so that to settle on what was arithmetically a net discounted claims figure of USD150 million involved no prudential margin and to settle on a net discounted claims figure of USD155 million involved only a USD5 million prudential margin. That can be put to one side: the relevant point for present purposes is how, according to the company's documents as they were provided to and should have been understood by the board, the claims reserve figure was derived.) 703 The material to which I have referred was considered by two of the accounting experts, Messrs Bartlett and Goldsworthy. (Mr Goldsworthy was called by Messrs Beach, Deery and Morrissey.) Messrs Bartlett and Goldsworthy conferred (together with other accounting experts: Mr Hulse, called by PwC; and Mr Hullah, called by NCRA). In the joint report which was prepared following that process, Messrs Bartlett and Goldsworthy agreed as follows (exhibit PX 29, items 24 and 25):

(1) "[t]hat NCRH's accounting records and other working papers show the central estimate was $141 million and the total prudential margin was $14 million in the 30 June 1998 accounts."

(2) "[t]hat NCRH's directors and management went through a reasonable and thorough process in assessing the outstanding claims liabilities … ".

(3) "[t]hat the total prudential margin included in the 30 June 1998 accounts, according to the accounting records of NCRH, was $14 million." 704 I therefore conclude that the prudential margin originally proposed (on a discounted net central estimate of USD141 million) was USD9 million, and that it was increased, shortly before the accounts were approved by the board, to USD14 million. 705 It is thus necessary to consider whether, as the directors and officers submit is the case, the increase in the figure for prudential margin was proposed to offset the benefit of leg 1. 706 The plaintiffs appear to suggest that the discounted net central estimate adopted as the basis of the outstanding claims figure in the accounts to 30 June 1998 was not USD141 million. They refer to Mr Murray's advice to the Audit Committee and the board, recommending adoption of the Trowbridge figure, of USD150 million as the net central estimate. If the plaintiffs are thereby seeking to suggest that the prudential margin adopted was only USD5 million, then, for the reasons given, I do not agree. The question falls to be determined by what the company actually did, not by what Mr Murray (or Trowbridge) thought it should do. But it may be that the submission does not go so much to the apparent increase in the central estimate as to the reason for it, which is the question that I now turn to consider. 707 There is no contemporaneous document recording the purpose of the increase. That would not be surprising if the plaintiffs' case - that this was all an artifice designed to produce a US GAAP figure that would show compliance with the minimum net worth covenant under the Dresdner loan agreement - is to be accepted. Thus, the question must be considered by reference to the evidence of the various witnesses, and having regard to what appear to be the probabilities, objectively ascertained, insofar as the evidence permits their ascertainment. 708 Mr Aroney understood that the benefit of leg 1 should not be taken up in the accounts as at 30 June 1998. He was a chartered accountant; he was familiar with the relevant standards; and he understood that leg 1 was not a "subsequent event" that could be reflected in the accounts. I am satisfied that Mr Peck too understood this. I am satisfied that he understood that, if the benefit of leg 1 were taken up, the accounts would (or at least might) be materially misleading. I am satisfied that he understood that the directors should not approve accounts that were (or might be) materially misleading. 709 Those circumstances seem to me to favour the view that the increase of USD5 million in the prudential margin was intended to offset the benefit of leg 1. Once the decision had been made to take up the net benefit of leg 1 in the accounts, there were two choices. One was to publish accounts that, as at least Mr Aroney and Mr Peck understood, would be materially misleading under Australian GAAP. The other was to take some step to ensure that the results stated in the accounts were not materially misleading under Australian GAAP. In my view, it is consistent with the understanding of Messrs Aroney and Peck, and with the probabilities viewed objectively, that they would have sought to ensure that the accounts were not materially misleading under Australian GAAP. 710 This view of events is confirmed by the evidence of Messrs Ghose and Beach. As I have said, I accept them as witnesses who sought to give truthful evidence to the best of their ability, although their evidence on this point requires careful analysis for the reasons that I have given in para [691] above. It is consistent with what I find to have been the state of mind, and intention, of each of Messrs Aroney and Peck, that they would have communicated to board members the proposition that the increase in the prudential margin was intended to offset the benefit of leg 1. An understanding engendered by communications at the relevant time is some evidence of the making of those communications; and the making of those communications is some evidence of the understanding, or purpose, communicated. 711 Mr Ghose said several times that it was his understanding that the original figure of USD9 million proposed as a prudential margin was increased by USD5 million in effect to offset the benefit of leg 1. He described it as a "special prudential margin for a special contract" (T3720.22), "as an offsetting for the GCR contract" (T3885.44), and as an increase "to cover the GCR contract" (T3887.41). I accept that this was his understanding of the purpose of the USD5 million increase in the prudential margin. 712 Mr Beach said in para 35 of his first statement (18 August 2005, exhibit 5,7,8DX 6) that at the board meeting on 2 September 1998 either Mr Peck or Mr Daya said words to the effect that "[t]here is an additional US$5m prudential margin included in the draft accounts which offsets the benefit of the transaction with GCR." He confirmed this in cross-examination. For example, at T4157.28, he said that his understanding was that "the benefit from this contract, so far as I was concerned at the time, had been reversed by the $5 million addition to the prudential margin". 713 The plaintiffs submit that Mr Beach's view was in fact "that the US$5 million prudential margin … was inserted to provide more certainty to the estimate of claims, rather than to negate the impact of the smoothing cover." (written submissions in chief chapter 5, para 3.1 (74)). They refer to his cross-examination at T4180.18-.38. I do not accept that submission. In my view, it either misrepresents or, more benignly, misunderstands the relevant evidence. 714 It was suggested to Mr Beach (T4179.41) that bearing in mind what he knew about the smoothing cover, he could not have been a party to the resolution to the effect that the accounts gave a true and fair view of the state of affairs of NCRH as at 30 June 1998. He said, at T4180.23, that from his perspective "the economic benefit of the smoothing cover had been reversed by the addition to the prudential margin … ". These questions and answers then followed (T4180.27-.38): "Q. Could I suggest to you that the prudential margin was something which was intended, as you understood it on 29 September 1998, to provide more certainty to the estimate of claims which was made by the company's actuaries? A. I would agree with that. Q. And it wasn't there to negate a smoothing cover which had been entered into by the company? A. I accept what you've said. At the time, I felt that it had negated it. Subsequently, and especially in preparation for this, I would agree with what you've just said." 715 In my view, Mr Beach made it plain that his acceptance of the proposition contained in the question commencing at line 33 was based on his present understanding; but that his understanding at the time (December 1998) was as I have set it out. I do not regard this passage of cross-examination as inconsistent with either his evidence-in-chief or other passages of cross-examination that bear on this point. 716 The plaintiffs submit further that in any event I should reject Mr Beach's evidence on this point because his explanation, that the reason for both the transaction and its negation was to generate a business relationship with Guy Carpenter and GCR, was opportunistic and should not be accepted. On the contrary, I think, that answer reflected Mr Beach's understanding at the time. He was a reinsurance broker. He must have understood that Guy Carpenter was a very large reinsurance broker, and that GCR was one of the world's largest reinsurance groups. I have no doubt that he understood that a relationship with Guy Carpenter and GCR would be of benefit to NCRH. I regard his evidence on this point as credible, and I accept it. 717 The plaintiffs submit further that the "additional" prudential margin of USD5 million was introduced to placate Mr Murray. It is apparent from PwC's letter of 27 August 1998 to the audit committee that his view was that there was an implied prudential margin of USD5 million: based on the discounted loss reserves of USD155 million shown in the draft accounts compared to the Trowbridge central estimate of USD150 million. He said that "the explicit prudential margin at June 1998 should be at least $9 M". The draft minutes of the audit committee meeting of 27 August 1998, to which I have referred in para [700] above, provide some support for this submission. 718 The plaintiffs' submission appears to assume that the company was bound to accept the Trowbridge central estimate. The documents to which I have referred show that management adhered to the central estimate of USD141 million, and that the board was prepared to support management on this. Other documents show that there were various rationalisations for the difference (including the discount factor, to which I have referred already). There is no doubt that Mr Murray wished the company to be more conservative in its reserving. There is no doubt that Mr Murray and the company (including both management and the board) took a different view as to what was the implicit prudential margin. But it does not follow that the figure of USD5 million (whether as a prudential margin or a component of a prudential margin) was introduced to placate Mr Murray. 719 The plaintiffs refer to Mr Murray's evidence that he had not been told that the figure of USD5 million was included to offset the benefit of the recovery under leg 1, and that he would have disapproved of this had he been told. Even if that evidence is to be accepted (and I think that it should be), it does not mean that the evidence of, in particular, Messrs Ghose and Beach, should be rejected. 720 The plaintiffs submit that the whole purpose of the process (including in that description both the taking up of the benefit under leg 1 and the alleged increase in the prudential margin) was to enable the company to report a minimum net worth under US GAAP of at least USD125 million. If that proposition be accepted for the purposes of argument, it does not follow that the figure of USD5 million was not intended to offset the benefit of leg 1. On the contrary, if one accepts that as the "gravamen of the plaintiffs' case in relation to this issue" (plaintiffs' written submissions in reply, chapter 2 para 9), it is more rather than less likely that the transaction would have been structured as Mr Peck and others said it was, and as Mr Ghose and Mr Beach understood it was, so as to enable the directors to sign off on the Australian GAAP accounts on the basis that the results reported in them were not materially misleading. 721 Again, if one accepts for the moment the plaintiffs' submission as to the purpose of the process, it is self evident that Mr Murray would not have been told: it is inconceivable that, had he known of the relevant circumstances, he would not have alerted his colleagues in PwCB, who were responsible for preparation of the US GAAP accounts. Given that Mr Murray attended the audit committee meeting on 27 August 1998, it is unlikely that what the plaintiffs submit was the true purpose for the process would have been discussed, and it is likely that the increase in the prudential margin would have been explained by some anodyne proposition such as that contained in the draft minutes. 722 Accordingly, I do not accept the plaintiffs' submission that the increase in the prudential margin was introduced to placate Mr Murray. 723 I therefore conclude that the prudential margin originally proposed to be taken up, USD9 million, was increased by USD5 million, and that this was done specifically to offset the benefit of leg 1 in the financial statements for the half year ended 30 June 1998. I conclude that this was done to enable the directors to approve those financial statements on the basis that the results reported in them were not materially misleading. 724 To the extent that the Prospectus Balance Sheet Representations relate to individual line items in the Prospectus Balance Sheet (ie, 6FAS para 104(c), (e) and (f)), they are concerned with the line items to which reference is made and not to the components or derivation of those line items. Thus, a representation as to net loss, or net assets, is not falsified, and is not of itself misleading or deceptive, because the method of derivation might be suspect. The same applies - indeed, with greater force - to the more general representation alleged in para (a). If, as I have concluded, the understatement of the net loss and overstatement of net assets following from the introduction of the net effect of leg 1 were effectively cancelled out by an increase in the prudential margin, then there was no remaining material impact on the financial statements. 725 It follows that I do not think that the Actual and Pro-Forma Consolidated Balance Sheet in the prospectus was falsified because the retrocession recoveries shown as receivable in it included the net benefit of leg 1 of the GCR transaction. DAC 726 Deferred acquisition costs are costs incurred in obtaining business. They are to be recorded as assets where they can be measured and where it is probable that they will give rise to premium revenue that will be recognised in subsequent financial periods. Where they are so recognised, they will be amortised over time according to the way that the premium revenue is earned. See generally AASB 1023. 727 It was common ground that the accounting for DAC was to be undertaken by reference to AASB 1023, paras 10.4 and 10.5. I set them out: "Acquisition Costs 10.4 Acquisition costs incurred in obtaining and recording policies of insurance must be deferred and recognised as assets where they can be reliably measured and it is probable that they will give rise to premium revenue that will be recognised in subsequent financial years. 10.4.1 Acquisition costs are incurred in obtaining and recording policies of insurance. They include commission or brokerage paid to agents or brokers for obtaining business for the insurer, selling and underwriting costs such as advertising and risk assessment, the administrative costs of recording policy information and premium collection costs. 10.4.2 Because such costs are usually incurred at acquisition whilst the pattern of earnings occurs throughout the policy periods, which may extend beyond the reporting date, those acquisition costs which lead to the obtaining of future benefits for the insurer will need to be recognised as assets. the amount of acquisition costs recognised as assets will need to be amortised over the financial years expected to benefit from the expenditure. 10.4.3 For an asset to be recognised, it must be probable that the future economic benefits will eventuate, and that it possesses a cost or other value that can be measured reliably. Direct acquisition costs such as commission or brokerage are readily measurable. However, it may be difficult to reliably measure indirect costs which give rise to premium revenue, such as administration costs, because it is difficult to associate them with particular policies of insurance. 10.5 Deferred acquisition costs must be amortised systematically over the financial years expected to benefit from the acquisition costs incurred. When the recoverable amount of deferred acquisition costs is below cost, that is, when the sum of the deferred acquisition costs and the present value of both expected future claims and settlement costs, in relation to business written to the reporting date, exceeds related unearned premiums, the deferred acquisition costs must be written down to recoverable amount and the write-down must be recognised as an expense. 10.5.1. The carrying amount of deferred acquisition costs will need to be written down to recoverable amount where this is less than the deferred costs, based on an assessment of the aggregate portfolio of insurance business written by the insurer to the reporting date." 728 The plaintiffs submit "that … DAC was [sic] not recoverable, either in full or in part, because it was not probable that the sum of those costs and the present value of expected future claims and settlement costs in the second half of 1998 would have been less than the related unearned premiums" (written submissions in chief, chapter 5, para 3.1 (84)). In support of this proposition, they referred to that part of their submissions on their case against PwC that dealt with DAC. 729 In my view, that approach is likely to produce a degree of confusion. From the perspective of NCRH, and therefore from the perspective of the directors and officers (with the exception of Mr Aroney), the significant fact was that PwC's review of the half yearly accounts did not challenge the proposition that DAC could properly be recorded as an asset in the amount stated. Whilst it is undoubtedly correct to say that intention to mislead or deceive is not necessary to a finding of misleading or deceptive conduct, nonetheless the circumstance of the auditors' "sign off" (to use a convenient but insufficient and perhaps incorrect description) is part of the circumstances to be considered in determining whether NCRH was guilty of misleading or deceptive conduct by including DAC in its half yearly accounts. Further, the question of the auditors' sign off is relevant to the due diligence defences. 730 Nonetheless, there does remain a question of principle to be decided: namely, was it open to a competent chartered accountant in the position of Mr Murray, acting reasonably and having regard to all relevant information, to conclude that DAC could be carried in the half yearly accounts in the stated amount? If the answer to this question is "yes", there can be no question of misleading or deceptive conduct on the part of NCRH - at least, absent demonstration of something such as actual knowledge that Mr Murray was wrong and that the amount could not be carried (a case which is not alleged). 731 Although I have framed the question as enquiring whether DAC could be carried in the stated amount, the precise point is more limited. The falsifying event alleged in 6FAS para 111(b) refers to DAC in the amount of USD13.4 million, and not to the total amount of DAC, in the sum of USD30.65 million, shown in (for example) the Prospectus Balance Sheet. The figure of USD13.4 million relates to the amount of DAC referable to the 1998 underwriting year (1 January to 31 December 1998). 732 Mr Hulse expressed the opinion that a competent chartered accountant in Mr Murray's position, acting reasonably and having regard to and placing reliance on the actuarial reports, would have concluded that DAC of $13.427 million in respect to the 1998 underwriting year could be carried as an asset. Mr Goldworthy expressed the opinion, based on what he said was the application of the recoverability test set out in AASB 1023 para 10.5, that there was no requirement for NCRH to make a provision against that amount of DAC in its balance sheet as at 30 June 1998. 733 By contrast, Mr Bartlett expressed the opinion that this amount of DAC should not have been recorded as an asset. 734 Messrs Hulse and Goldsworthy agreed, in the joint report, on a methodology or model for assessing the recoverability of DAC (exhibit PX 29, appendix 2). 735 The model takes the amount of unearned premium carried forward, USD109,133,000 (net). It divides that unearned premium into the "1997 and prior" and 1998 years: USD17,876,000 and USD91,257,000 respectively. It applies to those respective portions a derived net claims ratio for each period: 100.1% and 82.2% respectively. The cost of claims thereby calculated totals USD92,907,000, comprised of USD17,894,000 for the first period and USD75,013,000 for the second period. Subtraction of the total claims cost calculated thereby from the total (net) unearned premium yields a calculated "future underwriting profit" of USD16,226,000. Since the amount of DAC for the 1998 year was USD13,427,000, this was said to demonstrate a surplus or, as they called it, "margin available to meet further claim or settlement costs", of USD2,799,000. 736 The joint report exposes three substantial differences between Messrs Hulse and Goldsworthy on the one hand and Mr Bartlett on the other:

(1) Mr Bartlett thought that the cumulative aggregate loss ratio over all years (excluding certain costs which all three agreed should be deducted, and "normalised" by excluding "exceptional losses" - although with some dispute as to what constituted "exceptional losses") should be used in assessing the recoverability of DAC. In Mr Bartlett's view, the appropriate combined loss ratio to apply to all the unearned premium was 96.6%. Messrs Hulse and Goldsworthy expressed the view that the appropriate loss ratio for each underwriting year (more strictly, period) should be applied to the unearned premium for that year.

(2) Mr Bartlett engrafted onto the test prescribed by the standard (which test, as I have said, Messrs Hulse and Goldsworthy thought could be answered through the methodology that I have described) a "subjective piece" or "second leg" which required some sort of evaluation (I am tempted to revert to Mr Ghose's expression "gut feel") as to "how the company was travelling" (T7182.14-.21; 7187.36). Messrs Hulse and Goldsworthy did not accept that this was required by the standard or that it formed part of the practice of competent chartered accountants who in 1998 were assessing the recoverability of DAC.

(3) Mr Bartlett expressed the view that DAC should be presumed to be irrecoverable unless it was demonstrated otherwise; Messrs Hulse and Goldsworthy were of the view that DAC should be considered to be recoverable unless demonstrated otherwise. 737 I do not think that AASB 1023 necessarily dictates the use of a cumulative aggregate loss ratio, as Mr Bartlett contends. Indeed, para 10.5 does not prescribe any method for assessing the recoverability of DAC. What is required is an assessment of whether "the recoverable amount of deferred acquisition costs is below cost, that is, when the sum of the deferred acquisition costs and the present value of both expected future claims and settlement costs, in relation to business written to the reporting date, exceeds related unearned premiums". 738 Where the unearned premiums relate to more than one underwriting period, there is to my mind a certain logic in assessing each component separately, and then accumulating the results of those separate assessments. But it is not necessary to express a concluded view; it is sufficient to say that the approach for which Messrs Hulse and Goldsworthy contend is (as I find) one that is (or was in 1998) available on a reasonable interpretation of para 10.5. 739 Indeed, Mr Bartlett appeared to concede that this was so:

(1) He accepted that other people did not use a cumulative aggregate loss ratio, and said that he did not disagree with people assessing recoverability on a different basis to that propounded by him (T7181.41-7182.12).

(2) He accepted that, at least today, the assessment was made using separate loss ratios for each relevant book of business (T7183.45).

(3) He agreed that it would have been open to NCRH in 1998 further to subdivide the unearned premium, not only by reference to underwriting years but also by references to classes or risk (T7184.23-7185.33).

(4) He agreed further that the method propounded by Messrs Hulse and Goldsworthy represented industry practice despite what in Mr Barlettt's view was "the black letter law in the standard" (T7186.38-.47). 740 In the light of Mr Bartlett's concessions, and my own view as to what is consonant with the standard, I conclude that the recoverability model propounded by Messrs Hulse and Goldsworthy is an appropriate model for testing the recoverability of DAC. 741 The second disagreement relates to Mr Bartlett's "subjective" test. It was not suggested that this was something required by the standard. However, as I understand Mr Bartlett's evidence, it was his view that a competent chartered accountant, having carried out a calculation to test the recoverability of DAC, should then subject the result to some subjective analysis. 742 It may be accepted, as all experts agreed (see for example the joint report exhibit PX 29 at item (18)) that where the recoverability test suggests a borderline outcome then further analysis may be required. But it was not suggested that the outcome of the analysis performed by Messrs Hulse and Goldsworthy showed an uncertain or borderline outcome. 743 Mr Bartlett's suggested subjective test appeared to require consideration of factors such as possible further deteriorations in the book (or books) of business, and the views of management as to how those books might develop. But those are factors that are (or should properly be) taken into account in fixing the claims incurred but not reported (IBNR) component of the claims reserve. The net loss ratios that were used in the model of Messrs Hulse and Goldsworthy took into account incurred claims, including IBNR. To pay some separate attention to factors that go to the make up of the IBNR allowance would be to double count. 744 Thus, I conclude, not only is Mr Bartlett's subjective analysis not in principle something that is required by AASB 1023, its application (as explained by him) is logically unsound. 745 The third disagreement relates to what might be called the onus of proof in relation to recoverability of DAC. Mr Bartlett acknowledged that his view - that DAC should be assumed to be irrecoverable unless the contrary were demonstrated - was not derived from any express statement in any applicable accounting standard: he said that his view was derived from "the fundamental standard that follows all auditing … commonsense" (T7189.8). I do not see why commonsense requires rejection of the answer obtained from application of the model propounded by Messrs Hulse and Goldsworthy where that model is in principle appropriate and where (as was the case at the time) there was no reason to doubt the integers adopted in it. 746 The agreement in the joint report that the assessment of the outstanding claims liabilities was reasonable and thorough (see para [703(2)] above) supports the proposition that it was reasonable to rely on the available data in concluding that DAC were recoverable. I conclude, among other things because I accept the evidence of Messrs Hulse and Goldsworthy in preference to that of Mr Bartlett, that it was open to Mr Murray, or to a competent chartered accountant in his position, so to conclude. 747 So far (and following the way in which the plaintiffs put this part of their case) I have considered the accounting for DAC by reference to Mr Murray. The plaintiffs did not submit that any separate or distinct considerations applied to the directors and officers. It follows that if (as I conclude) it was reasonably open to Mr Murray, or to a competent chartered accountant in his position, to conclude on the available data that DAC was recoverable, it was equally open to the directors and officers to do so. 748 The directors and officers make a further submission in relation to DAC (common submissions part 3, paras 112 and 113). They submit that the asset comprised of DAC and the related liability comprised of unearned premium are of their nature amounts that change over time. Thus, whilst they may be fixed at any given point in time (including, for example, the half yearly reporting date of 30 June 1998), they should not be understood to continue unchanged from those stated amounts. Premium is earned over time; and, as it is earned, the related DAC are amortised. 749 The submission appears to me to be correct. However, it does not bear on the particular representations under consideration, all of which, one way or another, relate to the financial position of NCRH as at 30 June 1998. Prudential margin 750 For the reasons I have given in paras [693] to [703] above, the total claims provisions taken up by NCRH in its half yearly financial statements included, in the view of management and the board, a prudential margin of USD14 million. However, the view of Trowbridge as set out in its prospectus report (section 10 of the prospectus) was that the company's provision "does not include a prudential margin of any significance." Clearly enough, that was disclosed to any reader of the prospectus who chose to read section 10. 751 The reader would also have noted from section 4.3 of the prospectus that NCRH said: "The Company accepts the Trowbridge Consulting view on the appropriate net central estimate and if a prudential margin of between 5% to 10% was added to this net central estimate in accordance with the Company's current reserving policy, this would have the effect of reducing the net tangible asset backing for Ordinary Shares by between US 7 cents and US 15.5 cents per share." 752 The stated acceptance of Trowbridge's view as to the appropriate net central estimate necessarily connotes acceptance of Trowbridge's related "view" that the provision does not include any significant prudential margin. That this is the correct reading of the paragraph is confirmed by the reference to addition of a prudential margin of 5 to 10% and the impact of that on NTA. 753 The quoted passage from section 4.3 also makes plain that the provision (described by Trowbridge as one not including a prudential margin of any significance) was not in accordance with "the Company's current reserving policy". That is why the impact on NTA of the application of that current reserving policy was stated. 754 The plaintiffs' submissions do not grapple directly with this problem. Instead, they devote substantial effort to seeking to show that the figures adopted on 2 September 1998 for the half yearly accounts were themselves inaccurate and misleading. But the plaintiffs sue on the statements in the prospectus, and the falsifying matters alleged in 6FAS para 111 are alleged to have had effect "[a]s at 18 November 1998". 755 It will be noted that para (c) of 6FAS para 111 alleges firstly that the actual and Pro-Forma Consolidated Balance Sheet did not include any prudential margin in respect of outstanding claims, and secondly that had the company's previous accounting policy been followed, it "would have added a prudential margin of approximately US$9 million to its outstanding claims provision, appearing in the actual and pro forma Balance Sheet … ". 756 As the prospectus disclosed in section 6.1, the company had about 80,217,289 shares on issue. It was a matter of simple arithmetic to work out that an NTA impact of 7 to 15.5 cents per share would equate, in balance sheet terms, to a range (in round figures) of USD5.6 million to USD12.4 million. The mid point of the range thus disclosed is USD9 million. I think it is clear from the information provided in the prospectus (including in particular the NTA impact of a prudential margin set out in section 4.3) that the company's net assets would be affected adversely in precisely the way that 6FAS para 111(c) says should have been disclosed. Conclusion on Prospectus Balance Sheet Representations 757 I find that such of the representations as were made were not falsified by the matters alleged in 6FAS para 111. The Prospectus NTA Representations 758 The plaintiffs rely on the following matters to falsify those representations (6FAS para 114): "114. As at 18 November 1998, the Prospectus NTA Representations were false: (a) For the reasons referred to in paragraph 111 above; (b) Because, had the Draft Prospectus and the Prospectus, in calculating the range of NTA of NCRH: (i) adopted the applicable exchange rate between US$ and A$ at or about 18 November 1998; (ii) deducted from the NTA figure of US$127,479,000 in the actual balance sheet at page 24 of the Draft Prospectus and the Prospectus, US$14.8 million for Swiss Air and Hurricane Georges claim, being the amount of likely loss for those events identified in the Trowbridge Report at page 44 of the Draft Prospectus and the Prospectus, plus US$2.3 million for the Galaxy Ten and Globalstar Satellite losses, being the amount of likely loss for those events identified in the Trowbridge Report at page 44 of the Draft Prospectus and the Prospectus; and (iii) also deducted the prudential margin of US7 cents to US15.5 cents per share referred to at page 11 of the Draft Prospectus and the Prospectus, the range of NTA for NCRH would have been materially lower than A$2.06 to A$2.20 per share. Particulars Had the Reserve Bank average exchange rate between the US$ and the A$ for 18 November 1998 been applied to the calculation above, the range of NTA would have been A$1.93 to A$2.07. (c) Because, had the Draft Prospectus and the Prospectus, in calculating the range of NTA of NCRH: (i) adopted the calculation referred to in paragraph (b) above; (ii) also deducted from the NTA figure of US$127,479,000, US$5.7 million from retrocession recoveries to take account of the right of recovery of GCRA under the casualty excess of loss re-insurance policy issued by NCRA; (iii) also deducted US$13.4 million, being the amount of deferred acquisition costs included in the net assets of NCRH as at 30 June 1998, in contravention of accounting standard AASB 1023; (iv) also deducted from the lower end of the range of NTA, the amount of US$4.4 million, being the difference between "likely" loss from the Swiss Air claim of US$8.3 million, and the potential loss from that claim of US$12.7 million, each such figure detailed in the Trowbridge Report at page 44 of the Draft Prospectus and the Prospectus, the range of NTA for NCRH would have been materially lower than A$2.06 to A$2.20. Particulars Had the Reserve Bank average rate exchange rate between the US$ and A$ for 18 November 1998 been applied to the calculation above, the range of NTA for NCRH would have been A$1.47 to A$1.69." 759 For the reasons that I have just given, the Prospectus NTA Representations were not falsified by the matters set out in 6FAS para 111. 760 I should note that in their written submission in chief (chapter 5, para 3.2(4)(c)), the plaintiffs asserted that DAC should not have been included in the NTA calculation because they were not a tangible asset. That assertion has not been pleaded or particularised. It is based upon an answer given by Mr Murray to a question asked by me (T6383.19). I do not think that the plaintiffs should be permitted to extend their pleaded and particularised case by relying, opportunistically, upon an answer to a question that, on reflection, perhaps should not have been asked. 761 The next falsifying matter relied upon (6FAS, para 114(b)(i)) relates to the USD/AUD exchange rate. The implicit proposition, that the NTA calculations in the prospectus should have been performed utilising the exchange rate on the very date of issue of the prospectus, smacks of the unreal. No doubt for this reason, the plaintiffs' written submissions in chief did not address the point, and their written submissions in reply (chapter 2, response to common submissions, para 37) stated that "[t]he Plaintiffs have not sought to rely upon this part of their pleading in the submissions in chief." I take that to mean that this alleged falsifying circumstance is no longer relied upon. If it were relied upon, I would have concluded that it did not falsify the NTA representations, substantially for the reasons given in the relevant section (common submissions, section 5, paras 137 to 144) of the written submissions for Messrs Beach, Deery and Morrissey. 762 The next alleged falsifying circumstance relates to what might be called for convenience NCRH's exposure to catastrophe claims: the Swissair claim, the Hurricane Georges claim and the satellite (Galaxy 10 and Globalstar) claims. 763 The prospectus dealt with these matters in the second part ("Effect of recent events") of section 4.3. After discussion, the prospectus stated that the impact of the net loss from the Swissair and Hurricane Georges claims was estimated at US16.8 cents per share. It stated further that the likely net loss attributable to the satellite claims was approximately USD2 million. 764 The plaintiffs' written submissions in chief go beyond the matters alleged in 6FAS para 114(b)(ii), by referring to "other known post-30 June losses": Hurricane Mitch and claims by Sirius and China Re (written submissions in chief, chapter 5, section 3.2(4)(e)). To the extent that they do so, they should be rejected. 765 In relation to the claim as pleaded, the essential contention appears to be that NCRH should not have brought to account, in estimating the net exposure to the Swissair claim, earned premium of USD1.3 million for the September quarter. The Trowbridge report stated the total exposure for Swissair and Hurricane Georges at USD14.8 million. The prospectus adopted this, but netted off what it said was the earned premium in respect of Swissair. The plaintiffs submit "that this squarely contradicts the Trowbridge report" (written submissions in chief, chapter 5, para 3.2(e)). I do not accept that submission. The Trowbridge report defines the "net loss" for the Swissair claim (and the Hurricane Georges claim) as "the net total of gross claims, retrocession recoveries, reinstatement premiums inwards and outwards and the expected adjustment to IBNR reserves at year end." It does not appear from this that Trowbridge had taken account of earned premium. 766 The plaintiffs did not submit (and nor did they or anyone else lead evidence to suggest) that it was inappropriate to take account of earned premium in the way that was done in section 4.3 of the prospectus. 767 In my view, section 4.3 makes plain both the divergence between what is stated and the Trowbridge report and the reason for that divergence. There being no basis upon which I could conclude that it was incorrect, let alone false or misleading, to net off earned premium against the net exposure derived by Trowbridge, I conclude that the Prospectus NTA Representations were not falsified because of the way that the prospectus dealt with catastrophe claims. 768 The next falsifying circumstance alleged (sub para (b)(iii)) relates to the NTA impact of a prudential margin of US7 to 15.5 cents. 769 I have the greatest difficulty in understanding this aspect of the plaintiffs' case. The prospectus disclosed what NCRH said was the range of impacts on NTA resulting from the adoption of a defined range of prudential margins. True it is that the range was stated in USD, and the NTA per share was stated in AUD. But any reader armed with the exchange rate and a calculator could have worked out the impact. 770 The next group of alleged falsifying circumstances are alleged in 6FAS para 114(c). The first of those refers back to sub para (b), and must be rejected for the reasons that I have given. 771 The second of those refers to the inclusion of the net benefit of leg 1 in the net assets and, therefore, the NTA calculation. The implicit assumption is that the NTA was overstated. For the reasons that I have given in paras [691] to [725] above, I think that there was no material overstatement; any reversion to the position where the net benefit of leg 1 was not taken up would require, on the findings that I have made, a reduction in the prudential margin from USD14 million to USD9 million. 772 The next matter alleged refers to DAC. For the reasons that I have given in paras [726] to [749] above, I do not accept that the net assets of NCRH were overstated by USD13.4 million on account of DAC. 773 The final matter alleged relates to the amount allowed for the Swissair claim. The Trowbridge report indicated at page 44 of the prospectus that the "potential but unlikely" maximum net loss could amount to USD12.7 million, but allowed what Trowbridge thought was a "most likely net loss" of USD8.3 million. The information was there for any reader of the prospectus to see. Any reader who was concerned to understand the impact of the potential maximum net loss on NTA could perform the calculation using the information in the prospectus; and any reader who desired to understand the AUD impact could perform the appropriate exchange rate calculation. 774 I conclude that the Prospectus NTA Representations were not falsified by any of the matters alleged in 6FAS para 114. The Prospectus Converting Note Security Representation 775 The plaintiffs rely on the following matters to falsify those representations (6FAS para 115): "115. As at 18 November 1998, the Prospectus Converting Note Security Representation was false in that: (a) the holders of Converting Notes were unsecured creditors of NCRH, but not NCRA or NCRB; (b) the assets of the New Cap Group comprised mostly assets of NCRA and NCRB; (c) a substantial part of the assets of NCRA and NCRB had been given as security to Chase to support the contingent liabilities to Chase under a letter of credit and collateral agreements; (d) the effect of the letter of credit and collateral arrangements with Chase, relevantly, were that: (i) Chase issued letters of credit to reinsureds of NCRA or NCRB; (ii) if NCRA or NCRB committed an event of default, Chase and/or its collateral agent were entitled to realise the securities and the assets in the collateral account; (iii) the funds from the realisation of the securities and assets in the collateral account could be retained by Chase and/or its collateral agent at least to the extent of the amount of letters of credit on issue; Particulars Letter of advice from Phillips Fox to NCRH dated 23 March 1999. (e) the amount of contingent liability of NCRA and/or NCRB to Chase in respect of letters of credit issued by Chase to cedents of NCRA or NCRB as at 31 October 1998 was US$193,154,982."

776 I have set out in para [31] above why LOCs were required to be given, and the structure whereby they were given: including the security requirements of Chase as the issuer of the LOCs. 777 There is no doubt that Chase had security over a substantial portion of the group's assets. The balance sheet of NCRH as at 30 June 1998 identified cash and investments of USD270.69 million. About six weeks later, 17 August 1998, LOCs on issue amounted to USD181.8 million and the amount of security held in the collateral account was USD205.2 million. Again, at the time the prospectus was issued on 18 November 1998, cash and investments were USD275.1 million; the value of LOCs on issue was USD193.15 million; and the amount held as security in the collateral account was USD225.3 million. 778 The plaintiffs' written submissions in chief on this issue (chapter 5, para 3.3) go well beyond the terms of the pleaded case, insofar as they refer to what the plaintiffs call (at sub para (4)) "[t]he decline in the liquidity position of [NCRH] caused by the increasing requirement to post, and collateralise, LOCs during the course of 1998". The Prospectus Converting Note Security "Representation[s]", as they are alleged in 6FAS para 106, have nothing to do with liquidity, which concerns cash flow. They are concerned with the security position of noteholders, which involves considerations of available assets and priorities. But the point that the plaintiffs make - that the "portion" of the investments held as collateral for LOCs (section 4.10 of the prospectus) was in excess of 80% of cash and investments at the times to which I have referred in the previous paragraph - is correct. 779 Nonetheless, it does not follow that the "solidity" of the security offered by the converting notes was adversely affected by the extent to which the group's assets were held as security for LOCs. It was plain on the face of the prospectus that:

(a) the assets of NCRH were in substance its interests in its wholly owned subsidiaries, NCRB and NCRA (being direct in the former case and indirect in the latter; but nothing turns on this); and

(b) the actual business of reinsurance was undertaken by those wholly owned subsidiaries. 780 The prospectus did not represent that noteholders would have priority over creditors of NCRB or NCRA. It was plain to any reader of the prospectus that the realisation of NCRH's interests in its subsidiaries could not occur (or be finalised) until all creditors of those subsidiaries had been paid out. To the extent that the process of realisation involved the runoff of the book of business, reinsureds would be paid either out of assets or, if there were no available assets, by drawing down on LOCs. Where LOCs were drawn down, Chase would be entitled to recoup itself from its security. Where LOCs were not drawn down, and expired, the amount held as security would be reduced accordingly. 781 Thus, neither the existence of the LOCs nor the requirement to give security to Chase in respect of them, had any impact on the priority, or "security", of noteholders. Neither of those matters diminished the net assets available to noteholders in the event of runoff. To the extent that the LOCs and claims were interrelated or overlapped, the net assets of the company available to noteholders were not affected; and to the extent that there was no overlap (because no claim was made under a policy in respect of which an LOC had been issued) the assets would in due course be released from the collateral account. 782 Mr Bartlett appeared to accept the analysis that I have outlined (T7453.47-7455.3): "MR BATHURST: Q. Yes, I'll start again. Assume that one or other of the insuring companies was wound up. The assets of the insuring companies would first be applied, as you understood the position, in payment of the creditors of the insuring companies? A. Yes.

Q. The secured creditors of the insuring companies, that is those creditors who had the benefit of the letters of credit, would get the benefit of their security; correct? A. Yes.

Q. The unsecured creditors, which would include policy-holders who did not have the benefit of letters of credit, would then receive dividends or distributions out of the assets of the insuring company? A. Yes.

Q. Any surplus would then go, after payment of liquidators' expenses, to the shareholder, namely, the parent company? A. Mm-hmm.

Q. And it would only be that portion that was paid to the parent company which would be available for distribution to the parent company's creditors, including the noteholders; correct? A. If I assume that there's no intervention by insurance regulators, yes.

Q. Do you suggest that insurance regulators were in some way able to intervene to affect the distribution of assets of an Australian company to Australian insureds? A. APRA does it all the time. For a lot of these companies that are in run-off, they require 99 per cent confidence level on claims and the money is locked up.

Q. All that would mean, if that be the case, is that in the case I'm putting to you, the money would never flow up to the holding company; correct? A. Yes.

Q. So the noteholders, in those circumstances, would have no access to the assets of the insuring company? A. That's right.

Q. And that means, does it not, that it was immaterial to the noteholders whether or not the assets of the subsidiary are secured for payment of the subsidiary's debts or otherwise? A. I think I would accept your argument."

783 Nothing in the prospectus is inconsistent with the analysis accepted by Mr Bartlett; and his reservation, as to what the Australian Prudential and Regulatory Authority (APRA) might do in the case of runoff - is immaterial, for the reason that he appeared to accept. 784 In all the circumstances, whilst I accept that the full extent of collateralisation was not suggested by the words "[a] portion" appearing in section 4.10 of the prospectus, it does not follow that either the terms or the practical operation of the LOC facility, or its concomitant obligations for the giving of security, had any adverse impact on the "security" or priority afforded to noteholders. 785 I do not think that the representations in question are falsified by the circumstance that the true extent of collateralisation could have been more fully disclosed. In this context, Mr Bartlett said that whilst he would have preferred to see fuller disclosure, he "wouldn't die in a ditch over it" (T7458.45-7459.9). 786 I should note that the plaintiffs' submissions in reply (chapter 2, response to common submissions, para 39) refer to concerns expressed by Messrs Deery and Ghose. Those concerns relate not to the security position of noteholders but to the impact of the collateral requirements on the liquidity position of NCRH. For the reasons given in para [778] above, that is not relevant to the case of falsification that is alleged in 6FAS para 115. 787 I conclude that the Prospectus Converting Note Security Representations were not falsified by the matters alleged in 6FAS para 115. The Prospectus Future Prospects Representation 788 Since I have concluded that this representation was not made, it is unnecessary to consider the falsifying circumstances alleged in 6FAS para 117. The Prospectus Purposes of the Capital Raising Representations 789 The plaintiffs rely on the following matters to falsify those representations (6FAS para 119): "119. As at 18 November 1998, the Prospectus Purposes of the Capital Raising Representations were false in that: (a) As at 30 June 1998, NCRH's published accounts disclosed net assets of US$127.5 million; (b) NCRH had incurred further losses since 30 June 1998, in addition to those excluded in NCRH's published accounts, from Swiss Air and Hurricane Georges, of US$14.8 million; Particulars The Trowbridge Report, at page 44 of the Draft Prospectus and the Prospectus. (c) NCRH had incurred further losses since 30 June 1998, in addition to those included in NCRH's published accounts, from Galaxy 10 and Globalstar Satellites, of US$2.3 million;

Particulars The Trowbridge Report, at page 44 of the Draft Prospectus and the Prospectus. (d) In order for NCRB to maintain its licence to write reinsurance business, it had to maintain a statutory and capital surplus of US$100 million; Particulars Section 4.14 of the Draft Prospectus and the Prospectus. (e) NCRH was in default of a net worth covenant under its loan agreement with Dresdner, entitling Dresdner to immediate repayment of US$25 million;. (f) A large proportion of the New Cap Group's assets were held by NCRA and NCRB, the majority of which assets were, in turn, tied up as collateral for letters of credit issued by Chase; (g) As a result of paragraphs (a) to (f) the New Cap Group was facing a cash flow squeeze, in that it would have difficulties meeting its claims prior to the receipt of premiums in the 1998/1999 renewal season; and (h) As a result of paragraphs (a) to (g), if NCRH did not receive substantial capital from the Converting Note issue, NCRA and NCRB would not have been able to continue writing business." 790 The first four matters relied upon (sub paras (a) to (d)) are not controversial. Nor, by itself, is the sixth (sub para (f)). But the sting of the first four matters is in their alleged consequence - the fifth; the sting of the first six matters is in their alleged consequence - the seventh; and the sting of all those matters is in their alleged consequence - the eighth. 791 The plaintiffs' approach to this aspect of their case is encapsulated in their written submissions in chief (chapter 5, para 3.5 (5)): "(5) The documentary evidence reveals the following:

(a) On 1 May 1998, the strategic development plan provided to the Directors by Mr Daya identified that publishing an underwriting loss in 1998 " would have a serious adverse impact for the company in terms of security approval going forward " [ AFD.509.389 ');" > AFD.509.389 , PLA.507.055 ');" > PLA.507.055 ]. (b) The same document indicated that Mr Daya was of the view (which he shared with the Directors) that it was necessary to generate a total capital base of US$200 million, that was " an industry benchmark below which the company will have difficulty attracting other than distressed business". (c) Each of the Directors, and Mr Williams, were aware of the contents of the strategic development plan [ PFO.503.132 ');" > PFO.503.132 , AFD.509.389 ');" > AFD.509.389 ]. Paul Williams presented the strategic development plan to the Directors at the 1 May 1998 meeting. (d) In a note which Mr Peck prepared for points of discussion with Mr Ghose in August 1998, which he also copied to Mr Daya [ WDP.503.262 ');" > WDP.503.262 , PLA.504.133 ');" > PLA.504.133 ], Mr Peck recorded his views:

Before 1999 renewal season - without more capital we will be struggling to attract the better business and risk ending up with a poor book of business and back to 1997. Staff will only hang on for a limited period of time - they will want to see some action soon to give them comfort about the future of the company. They understand that without more capital the company has not got a sustainable business. (e) In the Half Yearly Report 1998 and Recommended Action Plan, drafted by Mr Williams and presented to the Directors at the 2 September 1998 meeting (draft appearing at [ NCR.511.166 ');" > NCR.511.166 ] and final appearing at [ NCR.512.032 ');" > NCR.512.032 at 037 ]), the executive summary states: The company's pre-eminent problem is a lack of sufficient capital to be considered as an acceptable reinsurance security. As such, we have analysed the efficacy of the business as a going concern. (f) The report goes on to state [ NCR.511.166 ');" > NCR.511.166 at 172 , NCR.512.032 ');" > NCR.512.032 at 037 ]: Without additional capital, we would only get distressed business and increase the likelihood of further losses. (g) Section 5 of the Half Yearly Report and Recommended Action Plan presented to the board on 2 September 1998 identified critical issues as including the " single all-encompassing hurdle towards future operation - Insufficient Capital " [ NCR.512.032 ');" > NCR.512.032 at 085 ]. Also in that section it includes the following propositions: (i) The company needed a capital of US$200 million, although ideally US$250 million. The net assets of US$127 million indicated a deficit of US$73 million. (ii) The company needed an " A " rating to reduce LOC requirements. (iii) Cash and investments currently amounted to US$270 million, with LOC usage up to US$182 million, with collateral of US$210 million. This indicated a level of free funds of only US$60 million. (h) Mr Daya informed all of the other Directors on 26 October 1998 that in his view, unless the additional capital was obtained through the capital raising process prior to the time of the 1999 renewal season, the brokers would not be conducting business with the company [ CXD.504.213 ');" > CXD.504.213 , CXD.504.215 ');" > CXD.504.215 ]. (i) On 11 January 1999, Mr Peck made clear his understanding of the true position that New Cap Re was in, particularly in relation to the quality of business that it was able to attract [ AFD.507.139 ');" > AFD.507.139 ]."

792 The real difficulty with this aspect of the plaintiffs' claim is that there is an abundance of documentary evidence to suggest that the purposes of the proposed capital raising were in substance as alleged in 6FAS para 108. The issues that are the subject of the representations alleged, and of the stated purposes, were recognised as early as April 1998. On that date, a strategic development plan, identifying those problems, was prepared for the board and given to Dresdner. That document was substantially repeated in a board memorandum of 1 May 1998. The issues were addressed again in the Half Yearly Report and Recommended Action Plan. They were emphasised in a business plan dated 26 October 1998, which stated the reasons for seeking further capital as follows: "- We have told the entire world we will go out and get additional capital. - We decided at our last meeting that we will infuse more capital into the company. - Without additional capital, most broking houses will cease doing business with us. - We need the capital to repay expensive and tax inefficient debt. - We need to enhance the credit rating ability of the company. - The capital raising will be the last piece in the puzzle, validating the changes and the transition the Company has undergone. - To be able to take advantage of the opportunities that present themselves in the local marketplace." 793 To the extent that it adds anything, the announcement that NCRH made to the ASX of the capital raising included the following: "The purpose of the rights issue and institutional placement is to raise additional capital to meet the following objectives: * To increase the company's capital base in order to meet the increasing capital standards of the insurance industry and thereby assist the writing of reinsurance business; * To replace borrowings of approximately US$23.75 million; and * To position the company for an enhanced claims paying rating." 794 The plaintiffs' submissions do not in terms advance the proposition that the oft stated purposes were a sham. That is an immediate barrier to acceptance of this aspect of the plaintiffs' case. However, as I understand their submissions, the plaintiffs seek to bypass this barrier in the following way (written submissions in chief, chapter 5, para 3.5(3)): "(3) In paragraph 119 of the 6FAS [ PLD.PLA.017.0001 ');" > PLD.PLA.017.0001 ], the bases on which it is alleged that these representations were misleading and deceptive are set out. The relevant factual propositions are: (a) In order to continue writing business with its current set of broker clients, NCRH required more capital than it had at 30 June 1998. (b) By the time the Prospectus was issued, due to the losses known to have emerged up to 18 November 1998, the converting note raising was only going to put NCRH in about the same capital position as it was at 30 June 1998 (paragraphs 119(a)-(c)). (c) NCRH was in default of its net worth covenant to Dresdner, and was forced to repay the loan. NCRH needed the funds from the capital raising in order to do that (paragraph 119(e)). (d) Due to its obligations to repay Dresdner, and its obligations to capitalise its letters of credit, NCRH's level of free funds had fallen substantially such that, if the funds from the converting note issue were not obtained, by 1999, NCRH would have no funds available to continue to meet claims, nor would it be able to continue writing business (paragraph 119(f)-(h))." 795 The first of those propositions is not one that the plaintiffs plead or particularise in 6FAS para 119 as a falsifying matter. 796 The second proposition does no more than restate, without the addition of a purpose, the representation alleged in 6FAS para 108(a). Nor is it made good on the facts, given that the losses alleged in 6FAS para 119(b) and (c) total USD17.1 million, whereas the net benefit of the capital raising (which, it must be remembered was fully underwritten, and therefore assured to NCRH) was about USD30 million more. I recognise that of the net amount to be raised, about USD10 million would be treated as debt; so that capital would not be enhanced by the full post Dresdner amount of about USD30 million; but the basic principle remains unchanged. 797 In their written submissions in chief (chapter 5, para 3.5(22)), the plaintiffs make much of the evidence of the directors as to their understanding that NCRH was in breach of its net worth covenant under the Dresdner facility, and as to the relationship between the waiver and the capital raising. Accepting for the purposes of argument that there was a breach of the net worth covenant, and that Dresdner waived that breach to enable the capital raising to proceed, this fails to demonstrate that repayment of the Dresdner facility was not one of the purposes of the capital raising. Nor does it demonstrate that the Dresdner facility was anything other than "restrictive", or that the proceeds of the converting note issue would not yield "more efficient capital". 798 Dresdner had made it plain that it would grant the waiver if the capital raising were fully underwritten; and the Macquarie parties had made it plain that they would not underwrite the issue unless the waiver were in place. The two things were interdependent. The Dresdner waiver was executed before the prospectus was issued, but was held in escrow; it became unconditional once the underwriting agreement was executed and the prospectus was issued. The DDC and the board proceeded on the basis that all these things would happen. I have great difficulty in seeing why they were not entitled to do so; and even more difficulty in seeing that these matters have any relevance to the falsifying circumstances alleged in 6FAS para 119. 799 The third and fourth propositions are contentious. I have referred to the Dresdner situation in paras [388] and [389] above, and concluded at para [390] that NCRH was not, in the plaintiffs' words, "forced to repay" the Dresdner facility. (I refer also to the more detailed analysis, in the context of NCRA's cross-claims, in paras [1359] to [1387] below.) That conclusion is confirmed by the renegotiation of the Dresdner covenant, the result of which was that (conditional on Macquarie's agreeing to underwrite the converting note issue) Dresdner waived compliance with its net worth covenant on condition that it be repaid USD13.75 million forthwith, and the balance from the proceeds of the issue by 29 January 1999. (See the "Waiver and Amendment Agreement", dated 17 November 1998.) 800 NCRH did not need the proceeds of the capital raising to pay the first instalment, although, as I have said, payment of the second instalment was to be made out of those proceeds. In any event, given that a stated purpose of the capital raising was to replace the existing (ie, Dresdner) debt, this can hardly be a falsifying circumstance. 801 The fourth matter relates to the so called "free funds crisis". In substance, the plaintiffs' case is that by the last quarter of 1998, the combination of the obligation to repay Dresdner USD13.75 million and the increasing level of collateralisation of assets meant that NCRH was running out of available cash, and could not meet its obligations. 802 The plaintiffs' submissions on the so called free funds crisis accept the proposition that as at 31 October 1998, the level of free funds (ie, cash and investments not required as collateral for the LOC facility) was about USD50 million; and they accept that the directors were informed of this on 18 November 1998. There is no doubt that, as the plaintiffs submit, the level of free funds had declined during 1998: due to both the adverse claims experience and the need to provide ever increasing collateral to support the ever increasing face value of LOCs on issue. It does not follow from this that, as the plaintiffs submitted, NCRH could not continue in business without the capital injection. 803 Cash flow projections provided to the directors up until 18 November 1998 suggested that NCRH would have sufficient cash to enable it to meet its obligations for the remainder of the calendar year and (by inference at least) up until 12 January 1999, when it was expected that the net proceeds of the converting note issue would become available. Certainly, the cash flow position as projected did not disclose a superabundance of liquidity; particularly if (as was modelled on a "worst case scenario") the whole of the outstanding Dresdner debt of USD23.75 million were required to be repaid. Certainly, the directors were concerned at the company's present and projected cash situation. They were right to be concerned. Certainly, the directors required Mr Aroney and others to monitor and report on the cash situation. Again, they were right to do so. 804 None of this shows that, on the information available as at 18 November 1998, NCRH would be unable to continue in business without the proceeds of the capital raising. On the contrary, on the information available as at 18 November 1998, NCRH and its board were entitled to conclude (and, I find, did conclude) that the company could continue to trade and meet its obligations. 805 This aspect of the plaintiffs' submissions (insofar as they purport to deal with the situation as at 18 November 1998 - and I emphasise that 6FAS para 119 deals with falsifying circumstances alleged to exist as at that date) is heavily informed by hindsight. This is apparent not just in the written submissions in chief but particularly in the written submissions in reply (chapter 2, response to common submissions, para 44 at page 23). The plaintiffs, in seeking to rebut the written submissions of Messrs Beach, Deery and Morrissey on the topic of liquidity as at 18 November 1998, refer to their own written submissions in chief, chapter 5, para 6.7. That reference is irrelevant to the question of liquidity (or cash flow squeeze, or free funds crisis) as at 18 November 1998. It deals with the situation from 17 November 1998 to 12 January 1999. 806 Thus, if one looks at the alleged Purposes of the Capital Raising Representations in the manner set out in the plaintiffs' written submissions in chief (see para [794] above), the matters upon which the plaintiffs rely (to the extent that they fall within their pleaded and particularised case) do not falsify the representations. In my view, the same conclusion follows if one looks directly at the falsifying matters alleged in 6FAS para 119. 807 As the plaintiffs in their pleading accept, the prospectus disclosed the depletion of capital by reason of the matters referred to in 6FAS paras 119(b) and (c). Thus, to the extent that those matters were relevant to the stated purposes, they were disclosed; prospective investors could make their own judgment. 808 Paragraph (d) by itself goes nowhere; and the plaintiffs do not put a case (either in 6FAS or in submissions) that any of the falsifying events should have been seen, at 18 November 1998, as likely to deplete the statutory capital surplus of NCRB below USD100 million. 809 I have dealt with the Dresdner covenant. In any event, given that a stated purpose of the loan was to repay Dresdner, it is hard to see how any default or hypothetical default could falsify that stated purpose; default, or the likelihood of default, might be thought to confirm that stated purpose. 810 Sub paragraph (f) is correct as a matter of fact. It does not by itself detract from, let alone falsify, any of the stated purposes. 811 Sub paragraph (g) overstates the position, for the reasons that I have given. As at 18 November 1998, the information available to NCRH and its directors indicated that, although with careful attention and management, the company could meet its obligations and continue in business. There was not at that time any reason to think that NCRH would have to defer paying debts otherwise due until it could satisfy them out of the cash flow generated by premiums written for business in January 1999. 812 For the reasons that I have already given, sub para (h) is not made out. 813 On either approach, I conclude that the Prospectus Purposes of the Capital Raising Representations were not falsified by the matters alleged in 6FAS para 119. The Prospectus Claims Reserve Adequacy Representations 814 The plaintiffs rely on the following matters to falsify those representations (6FAS para 121): " 121. As at 18 November 1998, the Prospectus Claims Reserve Adequacy Representations were false in that: (a) On 27 August 1998, PwC (Pat Murray) advised Peck, Deery, Morrissey, Daya and Aroney, at a meeting of the audit committee of NCRH, that he recommended the company adopt a higher prudential margin, of at least US$9 million, but this advice was not followed in the accounts included in the Draft Prospectus and the Prospectus at page 24. (b) On or about 26 August 1998, each of the Directors, and Williams and Aroney, were aware from the Half-Yearly Report 1998 and the Recommended Action Plan, that Rob Johnson, Senior Underwriter of the New Cap Group, recommended the application of a prudential margin of 15% in addition to the net discounted central estimate, which advice was not followed by NCRH in the accounts included in the Draft Prospectus and the Prospectus at page 24. (c) Each of the Directors, and Williams and Aroney, were aware on or about 25 August 1998, that Verne Baker, internal actuary for the New Cap Group, had provided a central estimate for claims provisions of US$154.7 million excluding prudential margin. Trowbridge had reviewed that figure and provided a central estimate, excluding prudential margin, of US$151.1 million at that time. (d) The New Cap Group's net central estimate for its claim provisions, including a US$14 million prudential margin at or about October 1998, was US$141.1 million. (e) The net central estimate of the New Cap Group's claims provisions of US$139.6 million referred to in the Trowbridge Report dated 26 October 1998, at page 43 of the Prospectus, included no prudential margin."

815 In substance, the matters thus alleged are correct as matters of fact. As they show, there were differences of opinion between Mr Murray, management and the board; between Mr Johnson, other senior management and the board; and between Mr Baker, other senior management and the board. Those disagreements related to the level of provisioning, and the extent of any prudential margin, as at 30 June 1998. But the disclosure in the prospectus went beyond the relevant provisions made in the half yearly financial statements. 816 At the risk of repetition, it is necessary to bear in mind that the prospectus disclosed not only the claims provision and retrocession recoveries receivable, as taken from the half yearly financial statements as at 30 June 1998 (through the Prospectus Balance Sheet), but also:

(1) The view of Trowbridge that the discounted net central estimate as at 30 June 1998 was USD139.6 million.

(2) The view of Trowbridge that the provision made in the half yearly accounts "is reasonable, although … it does not include a prudential margin of any significance." (this and the preceding statement are taken from the Trowbridge Prospectus Report).

(3) That NCRH accepted Trowbridge's view of the appropriate discounted net central estimate. (4) The impact on NTA of adding a prudential margin to that net central estimate of between 5% and 10% (this and the preceding statement are taken from the first part of section 4.3 of the prospectus).

(5) That there had been a deterioration in the claims position because of the impact of catastrophe claims after 30 June 1998.

(6) The likely impact on both the balance sheet and NTA of those events (this and the preceding statement are taken from the second part of section 4.3 of the prospectus). 817 The representations alleged in 6FAS paras 109(a) and (b) cannot be divorced from, and considered independently of, the prospectus. When they are considered in the light of all relevant disclosures made in the prospectus (including the matters referred to in the preceding paragraph), it is very difficult to see how the matters alleged in 6FAS para 121 are capable of falsifying them. 818 Further, the representations and their alleged falsification must be considered on the basis that, on a fair reading, they speak as at 30 June 1998: see para [824] below. I proceed on the basis that a reasonable reader would have thus understood them. The plaintiffs in their written submissions in chief (chapter 5, para 3.6(3)) put their case as depending on the following propositions: "(3) The manner in which it is alleged that the Claims Reserve Adequacy Representations were misleading as at 18 November 1998 as against the Directors, Williams and Aroney, is contained at paragraph 121 of the 6FAS. To this end, the Plaintiffs put forward 3 propositions: (a) NCRH rejected the advice of its internal actuary, Trowbridge and PwC on the amount of the central estimate of claims which should have been contained in the 30 June 1998 accounts (paragraphs 121(a) and (c)).

(b) NCRH rejected the advice of each of PwC, Verne Baker and Rob Johnson on the amount of prudential margin it should have carried in the 30 June 1998 accounts (paragraphs 121(b) and (d) of the 6FAS). (c) By 18 November 1998, Trowbridge had advised that the central estimate which NCRH had adopted in its 30 June 1998 accounts, which were published in the Prospectus, was inadequate by US$14 million. Trowbridge did not " confirm the adequacy " of the company's claims provisioning (paragraph 121(e))." 819 The relatively ancient history referred to in sub paras (a) and (b) appears to me to have no relevance to the question of the falsification of the Prospectus Claims Reserve Adequacy Representations as at 18 November 1998. Things had moved on by then. Trowbridge had reviewed the provision. The basis of its review was set out in its Prospectus Report. I have referred more than once to relevant aspects of that report. The question of truth or falsity as of 18 November 1998 depends on what was known at that date. Of course, matters of history may be relevant: but only to the extent that they are not superseded, or that they inform later matters. I do not understand how the first two matters continued to be relevant once Trowbridge had reconsidered the adequacy of the claims provision, in circumstances where the prospectus included Trowbridge's (short form) report and where NCRH made plain that it accepted Trowbridge's view as set out in that report. 820 As to the third matter: there may be a semantic distinction between the wording of the prospectus and the wording of the Trowbridge report. In the chairman's letter, Mr Ghose said that "the adequacy of [NCRH's] claims provisioning … has been reviewed by a leading independent actuarial firm." On page 3 of the report, the investment highlights set out included, under the heading "Company Fundamentals", the statement that "[a]n independent actuarial review by Trowbridge confirms the adequacy of the Company's claims provisioning." 821 It is plain from the Trowbridge Prospectus Report that Trowbridge was retained to comment, among other things, on the adequacy of NCRH's provision for outstanding claims. The first paragraph of the Prospectus Report reads as follows: " You requested Trowbridge Consulting to undertake an assessment of the outstanding claims liability of New Cap Reinsurance Corporation Holdings Limited ("the Company") including its subsidiary companies as at 30 June 1998. You also requested that we examine the progress of claims after 30 June 1998 and up to the date of our report in order to comment on the implications of this experience for 1998 financial results and the adequacy of the outstanding claims provision." 822 The conclusion that Trowbridge reached may be split into three elements:

(1) The adopted provision for outstanding claims of USD141.1 million as at 30 June 1998.

(2) Trowbridge's assessment of the discounted net central estimate at USD139.6 million.

(3) The following proposition: "The net provision adopted by the Company is thus slightly higher than our net central estimate, with the difference not being material in the context of the uncertainty surrounding the estimates. We thus conclude that the provision is reasonable, although we note that according to our assessment it does not include a prudential margin of any significance". 823 Trowbridge thus confirmed that the claims provision as at 30 June 1998 was "reasonable". It did so in response to a request that it review "the adequacy of the outstanding claims provision". If Trowbridge were intending to draw some distinction between adequacy and reasonableness, the distinction is not explicit. But if it were intending to do so, the point could only be that, on Trowbridge's view, the "reasonable" provision adopted by the company "does not include a prudential margin of any significance." 824 When the statements on pages 1 and 3 of the prospectus, to which I referred in para [820] above, are read in conjunction with what is said on the same topic in the first part of section 4.3 (and in conjunction with the Trowbridge report), it is apparent that the representation as to adequacy was intended to speak of the provision that was made in the half yearly accounts, as at the time at which that provision spoke. Plainly (because the effects of events after 30 June 1998 were dealt with both in the Trowbridge report and elsewhere in the prospectus), the statement was not intended to refer to the adequacy of the 30 June 1998 provision as at 18 November 1998. I think that this must have been clear to any reasonable and careful reader of the prospectus. 825 I therefore conclude that the representations alleged in 6FAS paras 109(a) and (b) were not falsified because, by 18 November 1998 (or by the date of the Trowbridge Prospectus Report, 26 October 1998), it had become apparent that catastrophe claims after 30 June 1998 were likely to render the provision inadequate to the extent of about USD14 million. 826 In my view, a reasonable (and reasonably careful) reader of the prospectus would not have been misled by the variation in language to which I have referred in para [820] above. Indeed, given that both page 3 and section 4.3 of the prospectus direct the reader's attention to the Trowbridge Prospectus Report, and given that any reasonable and careful reader must have appreciated (as, I interpose, did Mr Saville) that the principal risk to investors was that of adverse claims development, it is inconceivable that such a reader would not have gone to the Trowbridge report to see for himself or herself what it said. 827 Thus, I conclude that the matters alleged in 6FAS para 129 do not falsify the representations (properly understood) alleged in 6FAS paras 109(a) and (b). 828 That leaves the third of the Prospectus Claims Reserve Adequacy Representations. None of the matters alleged in 6FAS para 121 are capable of falsifying it, and the plaintiffs did not so submit. Indeed, the only falsifying matters relevant to it are some of those alleged in 6FAS para 129, which speaks not at 18 November 1998 but of the period from that date to 12 January 1999 (which is the subject of issue 63). Conclusion on issue 60 829 For the reasons I have given, the conduct of NCRH alleged in the relevant paragraphs of 6FAS was not misleading or deceptive. The issue must be answered "no". Issue 61 - information given to Mr Saville on 21 December 1998 830 This issue is raised against Messrs Daya and Williams only. 831 The plaintiffs rely on Mr Saville's account of the meeting in his first statement (exhibit PX 3) at para 139. The only relevant things that Mr Saville says in that paragraph are:

(1) "I do not now have a specific recollection of what was said at the meeting but my recollection of my overall impression as a result of that meeting was that the prospects for NCRH were positive and that nothing had occurred since the time of the Prospectus to cause me to reconsider the reasons which caused me to sign the sub underwriting agreements … and cause investments in rights, Notes and shares in NCRH."

(2) "At the end of the meeting I was provided with a copy of [a] draft announcement … and Daya walked me through it." 832 In para 140, Mr Saville said that when he read the draft announcement "[i]t appeared to me that the effect of the disclosed claims would be absorbed by the premium pools available, reserves held for unearned premium and claims incurred but not reported [and a number of other matters] … ". He said further that "[o]ther possible gains were foreshadowed by Daya in his handwritten annotation at the bottom of the Draft Announcement." 833 Mr Williams said in his statement dated 25 September 2005 (exhibit 10DX 1) at para 9.1.3 that from time to time he assisted Mr Daya in dealing with shareholders and potential investors and that he attended the meeting of 21 December 1998 "in that capacity". 834 The evidence does not permit a conclusion that, at the meeting in question, Mr Saville was provided with any information other than that comprised in the draft announcement given to him by Mr Daya and through which he was "walked" by Mr Daya. The plaintiffs' submissions in chief appear to recognise as much, because they address only information comprised in the draft announcement, and proffer reasons why, they say, it was incomplete or misleading. 835 The draft announcement nominates Messrs Daya, Williams and Ghose (in that order) as people to be contacted for further information; and it provides their contact details. In the absence of any evidence to the contrary from Mr Williams, I would infer that he was aware of the terms of the draft announcement: including that he was nominated as a person to contact for further information. I would also infer that he attended the meeting of 21 December 1998 knowing that Mr Daya proposed either to give Mr Saville a copy of the draft announcement or, at the very least, to give him the information contained in it. 836 6FAS para 131 refers to this meeting, and alleges that the information given at it "was incomplete, and/or gave a misleading impression." However, the particulars that are given refer only to a number of statements in the draft announcement, the first six of which come directly from its terms and the seventh and last of which comes from Mr Daya's handwritten note. This is of particular concern where issue 61 as formulated by the plaintiffs uses the well worn phrase "in all the circumstances of the case". Mr Daya was not a party to the process of formulation of the issues; and Mr Williams, as I have indicated, appears to have some disagreement with the concept. In any event, I take it from the plaintiffs' written submissions in chief that "the circumstances of the case" go no further than the matters to which they refer; and I approach the resolution of the issue on that basis. 837 The draft announcement is described as: "PRIVATE & CONFIDENTIAL DRAFT ANNOUNCEMENT Awaiting Board approval." 838 It states that: "[t]he second half of 1998 has featured an unusually high incidence of major claim events - 2 major airline crashes, two highly destructive hurricanes … and 2 major satellite losses." 839 It deals in one section with Swissair and Hurricane Georges and in the next section with "Other recent claims": Hurricane Mitch and Thai Airlines (relating to an aeroplane crash on 11 December 1998). 840 The draft announcement then turns to the effect of those matters on the results for 1998. It states that they will affect the results, but that other matters are relevant: "While these claims developments will affect New Cap Re's results for 1998, they need to be viewed in conjunction with: · the premium pools available in the respective classes; · the reserves held for unearned premium and claims incurred but not reported; · profit commission adjustments; and · the performance of New Cap Re's book of business overall. In addition, and most importantly, the company's ASX announcement of 28 October 1998 referred to the inclusion of a prudential margin of 5% to 10% of the net claims provision. This equates to a contingency amount of approximately US$7 million to US$14 million. At this stage it is not possible to predict the ultimate net effect of all those developments on New Cap Re's results for the 1998 year." 841 At the foot of the draft announcement, there was the following, apparently in Mr Daya's handwriting: "Duncan Bear in mind that we have some "balls in the air" which may not land until tomorrow p.m. This press release may change substantially for the better. Azmin". 842 Notwithstanding that it was Mr Daya who physically handed over the document to Mr Saville, and who discussed it with him, both Mr Daya and Mr Williams "gave" Mr Saville the information contained in the printed text of that document. (Alternatively, in terms of 6FAS para 131, both Mr Daya and Mr Williams "informed" Mr Daya of the matters contained in the printed text of the document.) However, on the evidence as it stands, there is no basis for a conclusion that Mr Williams as well as Mr Daya gave Mr Saville the information comprised in Mr Daya's handwritten note, or informed him of the matter thereby conveyed. 843 The plaintiffs submitted that the statement as to the four offsetting items was misleading because no one knew, or had enquired of Trowbridge, the monetary amount of those items. 844 I do not accept that submission. The four matters to which reference was made all bear on the subject, which is "New Cap Re's results for 1998". The announcement makes the point that the additional losses referred to could not be viewed as net losses; and that there were other factors to be considered. I do not agree that it was misleading to point to the existence of those offsetting items (the plaintiffs did not submit that they were not capable in principle of offsetting, to a greater or lesser extent, the notified losses) even though they had not been quantified. 845 The plaintiffs submitted that the reference to a prudential margin of 5 to 10% of the net claims provision was misleading because that provision had been "eaten up" by the time the prospectus was issued. It is correct to say that the deterioration (from catastrophe claims occurring after 30 June) that was referred to both in the ASX announcement of 28 October 1998 and in the Trowbridge Prospectus Report was in round figures equivalent to the USD14 million prudential margin that (as I have found) was embodied in the claims provision made by NCRH as at 30 June 1998. Nonetheless, it does not follow that it was misleading to refer to the prudential margin in the context of this announcement. 846 The plaintiffs submitted alternatively that if that were a reference to the prudential margin range set out in the first part of section 4.3 of the prospectus, "that amount was not a 'contingency' which could be used to offset against the deterioration … ; the company had to hold that amount as a margin in any event." (plaintiffs' submissions in chief, chapter 5, para 4(2)(c)). I have to say that I do not understand that submission. It does not explain why "the company had to hold that amount as a margin in any event", in circumstances where it was not propounded in the prospectus as a margin, but merely as an illustration of the effect of a margin "in accordance with the Company's current reserving policy" (to take the words of section 4.3). 847 Finally, the plaintiffs submitted, "[t]he statement that it was "not possible to predict the ultimate net effect of all these developments" was misleading, by reason" of two specified matters (plaintiffs' submissions in chief, Chapter 5, para 4(2)(d)). That submission conveniently ignores the words preceding those italicised: "At this stage". The two matters to which the plaintiffs refer - that the DDC had resolved to obtain the advice of Trowbridge, and that Trowbridge was conducting its review for the purposes of the 31 December 1998 audit, do nothing to falsify the proposition that the ultimate net effect of those developments could not be predicted as at 21 (or 23) December 1998. Indeed, the very facts that a further report was needed, and that much work had to be done, confirm the accuracy of the proposition. 848 Although Mr Saville referred in his statement to Mr Daya's handwritten notes, as did the particulars in 6FAS para 131, the plaintiffs' written submissions did not address it. 849 I conclude that the information given to Mr Saville on 21 December 1998, in the form of the draft ASX announcement, was not incomplete or misleading in the manner or for the reasons pleaded and particularised. 850 It follows that issue 61 must be answered "no". Issue 62: knowledge of the directors and Messrs Williams and Aroney by 18 November 1998 851 This issue refers to sub paras (a) and (c) of 6FAS para 111, and to paras 115, 117, 120, 121 and 127. 852 The first six of those sub paragraphs and paragraphs (ie, all but 6FAS para 127) relate to, respectively, two of the matters alleged to falsify the Prospectus Balance Sheet Representations, the matters alleged to falsify the Prospectus Converting Note Security Representations, the matters alleged to falsify the Prospectus Future Prospects Representations, the matters alleged to falsify the Prospectus Purposes of the Capital Raising Representations and the matters alleged to falsify the Prospectus Claims Reserve Adequacy Representations. 853 The issue as phrased goes to the accessory liability case pleaded against the directors and officers in respect of the alleged misleading or deceptive conduct case based on the alleged falsity of those representations. Since I have found that, to the extent that they were made, they were not falsified by the matters alleged in the paragraphs of 6FAS with which issue 62 is concerned the issue does not arise. It should be so answered. 854 However, insofar as the issue deals with 6FAS para 127, it requires consideration. That paragraph alleges that each of the directors and officers knew or ought to have known that Macquarie intended to use the draft prospectus to seek to secure sub-underwriting agreements and institutional placements. 855 For the reasons that I have given in paras [317] to [319] above, that is correct in respect of Messrs Daya, Peck, Williams and Aroney. The particulars given in 6FAS para 127 do not address the knowledge (actual or imputed) of any other director. The plaintiffs' written submissions in chief (chapter 5, para 5.6) do not allege actual knowledge other than in the cases of Messrs Daya, Peck, Williams and Aroney. They do seek, somewhat faintly, to argue imputed knowledge; but it does not appear that the matters relied upon to support that submission were put to any of Messrs Ghose, Beach, Deery or Morrissey. 856 In those circumstances, I am not prepared to conclude that any of Messrs Ghose, Beach, Deery or Morrissey "ought reasonably to have known" of the matters alleged in 6FAS para 127. 857 Issue 62 should be answered:

(1) As to the matters pleaded in 6FAS para 111 (a), (c), 115, 117, 120 and 121: does not arise.

(2) As to the matters alleged in 6FAS para 127: yes as to Messrs Daya, Peck, Williams and Aroney; but no as to Messrs Ghose, Beach, Deery and Morrissey. Issue 63: knowledge of the directors and Messrs Williams and Aroney up to 12 January 1999 858 This issue deals with some nineteen matters that are alleged to have falsified the Prospectus NTA Representations, the Prospectus Future Prospects Representations, the Prospectus Converting Notes Security Representations, the Prospectus Claims Reserve Adequacy Representations and the Prospectus Purposes of the Capital Raising Representations in the period from 18 November 1998 until 12 January 1999. It requires consideration only to the extent that I have found that NCRH made those representations. 859 The plaintiffs divide their submissions on this issue into six categories. It is convenient to follow that division in considering the issue. Vesta 860 The relevant allegations are those set out in 6FAS para 129 (a), (b), (i) and (o): "129. In the period from 18 November 1998 and 12 January 1999, NCRH became aware of circumstances which rendered the Prospectus NTA Representations, the Prospectus Future Prospects Representations, the Prospectus Converting Notes Security Representations, Prospectus Claims Reserve Adequacy Representations, and the Prospectus Purposes of the Capital Raising Representations false in that: (a) On 29 October 1998, the Due Diligence Committee considered that it was necessary to disclose in the Prospectus the amount of the claim brought against NCRA and/or NCRB by Vesta, in the amount of US$12.5 million, in respect of which the New Cap Group had allowed for no reserve. (b) Subsequent thereto, in the Draft Prospectus, it was disclosed that Vesta had brought a claim against NCRA and/or NCRB for US$12.5 million, but the lack of any reserve for the claim was not disclosed, and it was not taken into account in the calculation of the range of NTA for NCRH disclosed in the Draft Prospectus and the Prospectus. … (i) On 17 December 1998, the Due Diligence Committee was informed that the New Cap Group still had no reserve in respect of the Vesta claim, but that the Vesta claim involved US$10 million in disputed claims on the expected scenario, and US$15 million in disputed claims on another scenario. … (o) On 12 January 1999, the Due Diligence Committee was informed that further catastrophe claims of US$1 million on Vesta had been experienced by the New Cap Group. …". Background 861 Reference was made to the Vesta claim in section 11.4 of the prospectus as follows: " 11.4 Litigation … Vesta Fire Insurance Corporation of Birmingham, Alabama (Vesta) has recently issued the Company with a letter of claim for US$12.5 million, relating to a property reinsurance contract for the 1997 year. The Company has disputed the claim and soon after the claim was made the Company was issued with a Notice to Arbitrate served on behalf of Vesta. The Arbitration Notice does not further particularise the nature of the claim. Until the claim is particularised it is not possible to provide any further substantive comment. New York attorneys have been instructed to represent the interests of the company, and to defend vigorously any proceedings." 862 Unlike other disclosed events in sections 4.3 and 10, there was no indication of any impact on either net assets or NTA. 863 Mr Saville understood from the disclosure in relation to Vesta that there was a risk (T1404.38) and that NCRH might fail in its defence so that its position might deteriorate in an amount up to USD12.5 million plus costs (T1405.2-.8). He understood that there was a range of possibilities, from complete success to complete failure, and was prepared to run that risk (T1406.14-.25). He did not take that matter up during his meeting with Mr Daya on 21 December 1998, nor did Mr Daya say anything to him about it (T1406.27-30, 1407.21-28). 864 Mr Bartlett was cross-examined about the disclosure concerning Vesta. On the basis of four assumptions, he agreed that it was reasonable for a person in Mr Murray's position to have accepted the disclosure that was made (T7439.14-.29): "Q. I want you to make these assumptions, if you would be so kind: firstly, it was management's firm view that the claim was not valid; secondly, the initial draft that disclosed for Vesta was done by the company's United Kingdom lawyers; thirdly, the form of disclosure was supported by legal representatives on the due diligence committee; fourthly, there were discussions as to disclosure with management resisting the inclusion of the $12.5m amount, but management was overruled and the $12.5m amount was included. Making those assumptions, would you agree with me that it was reasonable for a person in the position of Mr Murray on the due diligence committee to accept the disclosure which was recommended by those persons? A. I think based on all those assumptions, yes." 865 It is plain on the evidence - and the plaintiffs did not submit otherwise - that each of the four assumptions put to Mr Bartlett was correct in fact. Although that cross-examination was directed at the position of Mr Murray, it seems to me to follow that it was reasonable for anyone having any responsibility for the contents of the prospectus to accept the disclosure that was made in relation to Vesta unless he (or she) was aware of something that might falsify any of the assumptions. Thus, from the perspective of the directors and officers, Mr Bartlett's evidence supports the adequacy of the disclosure except to the extent that any of them might have known of additional circumstances that would, or might, falsify any of the assumptions: particularly the implicit assumption as to the invalidity of the claim. The DDC meeting of 17 December 1998 866 Before I turn to the knowledge of individual directors and officers in relation to Vesta after 18 November 1998, I should deal with sub para (i) of 6FAS para 129. It is there alleged that three pieces of information were given to the DDC on 17 December 1998:

(2) On one scenario, the claim involved a dispute as to USD10 million.

(3) On another scenario, the claim involved a dispute as to USD15 million. 867 In addition, in their written submissions the plaintiffs assert that Mr Williams informed this meeting of the DDC that Trowbridge would be "adding in US$20 million for disputed contracts" (written submissions in chief, chapter 5, para 6.2 (7)). 868 The minutes of the meeting confirm the first of the three items to which I have referred in para [866] above. They do not confirm the second or the third. 869 For the second and third matters, and for the alleged statement by Mr Williams, the plaintiffs rely on the handwritten notes of Ms Morris. For the reasons that I have given in paras [559] to [561] above, I do not accept those notes insofar as they assert that Mr Williams informed the meeting that Trowbridge would be "adding in US$20 million for disputed contracts"; and I have referred in particular to Mr Williams' total lack of any recollection apart from the note that was not his. 870 Mr Mutton denied that, at the DDC meeting of 17 December 1998, anyone said words to the effect that the Vesta claim involved USD10 million on one scenario and USD15 million on another. He said that such a statement "would have been completely inconsistent with the information provided to the Due Diligence Committee regarding the Vesta claim. If such a statement had been made, I believe that I would recall it and that it would have resulted in detailed discussion" concerning supplementary disclosure. He said that there was no such discussion. See his statement dated 23 August 2005 (exhibit 14DX 1, para 310). In para 359 of the same statement, Mr Mutton said, concerning the "20 million in disputed contracts", that there was no such discussion at the DDC meeting of 17 December 1998. 871 Notwithstanding the reservations that I hold concerning Mr Mutton as a witness, I accept his evidence on these points. It is consistent with Dr McKenzie's evidence and with the absence of any reference to those matters in Dr McKenzie's contemporary notes. I accept that, had either of the matters been raised, there would have been discussion and investigation. Plainly, there was not. 872 I therefore find, in relation to the DDC meeting of 17 December 1998, that:

(1) there was no reference to the Vesta claim involving USD10 million on one scenario or USD15 million on another; and

(2) Mr Williams did not inform the meeting that Trowbridge was proposing an additional reserve of USD20 million for disputed contracts. 873 I turn to the knowledge of the individual directors and officers. Mr Ghose 874 Mr Ghose was not a member of the DDC. He gave no evidence that he knew of such discussions of Vesta as took place at various meetings of the DDC; and it was not put to him that he had such knowledge. 875 The plaintiffs have not shown that Mr Ghose had knowledge of the matters alleged in sub paras (a), (i) and (o) of 6FAS para 129. Indeed, I think, their written submissions on this issue do not mention Mr Ghose's name at all. The focus of those submissions (at chapter 5, para 6.2 (13)) appears to be "that at least by 12 January 1999, NCRH, through its officers, was provided with information that suggested that the position in relation to the Vesta claim had at least crystallised" to a point that is discussed. The "officers" are presumably those referred to in the preceding sub paras (1) to (12): Messrs Daya, Peck, Williams and Aroney. 876 As to sub para (b): clearly, Mr Ghose knew what was (and what was not) disclosed in the prospectus. However, he gave no evidence that he was aware that no reserve had been fixed for Vesta; and it was not put to him that he had such knowledge. 877 I find that Mr Ghose knew of the disclosures that were made in the draft prospectus (and, if it matters, the prospectus) in relation to Vesta, but that he did not know that no reserve had been fixed for Vesta, or that the Vesta claim was not taken into account in the calculations underlying statements as to NTA. Mr Beach 878 Mr Beach was not a member of the DDC. In substance, his defence in relation to this aspect of the plaintiffs' claim is that "he acted with due diligence and in reasonable reliance upon the DDC to continue monitoring the Vesta dispute from 18 November 1998 to 12 January 1999" (see his individual submissions at para 89). 879 Again, the plaintiffs' written submissions in chief on this aspect of issue 63 do not mention Mr Beach (or, to jump ahead, Mr Deery or Mr Morrissey) by name. However, in their written submissions in reply (response to common submissions, para 49), the plaintiffs appear to change their tack. Having referred to their submissions in chief (which, as I have noted, do not mention Mr Beach, or Messrs Deery or Morrissey, by name), they assert that "[a]t the very least, the Non Executive Directors [sic] knowledge of the Vesta claim, which was substantial in itself, is evidence which should have caused them to have concerns about the integrity of management and NCRH's ability to defend the claim." 880 Two things need to be said about that submission. The first is that it is not the way that the plaintiffs' case on falsification was pleaded or particularised, and for that reason alone it should be rejected. The second is that the proposition was not put to Messrs Morrissey or Deery in cross-examination (indeed, Mr Deery was not cross-examined at all on Vesta). There was a vague and collateral approach, to the factual point of the submission now sought to be made, in the cross-examination of Mr Beach (see in particular T4168.2-4169.21), but it was not put squarely to him that such knowledge as he had "should have caused [him] to have concerns about the integrity of management and NCRH's ability to defend the claim." Both because the submission goes beyond the pleaded and particularised case and because it was not put (squarely in one case or at all in the others) to Messrs Beach, Deery and Morrissey, I reject it. 881 I make the same finding, in relation to Mr Beach's knowledge of the matters alleged in 6FAS para 129 (a), (b), (i) and (o) as I made in para [877] above concerning Mr Ghose. Messrs Deery and Morrissey 882 For reasons that should be apparent from what I have just said concerning Mr Beach, I make, in relation to each of Messrs Deery and Morrissey, the finding that I have made, in the preceding paragraph, in relation to Mr Beach. Mr Daya 883 Mr Daya was not a member of the DDC. Nonetheless, he was one of the officers of the New Cap Group who was most closely concerned with its workings, including by providing information to members, and the committee, on request. 884 I think it is safe to infer that Mr Daya was aware of the matters referred to in sub para (a). He must have been aware of what was (and was not) said in the prospectus, as alleged in sub para (b). 885 As to sub para (i), I think that it is safe to infer that Mr Daya knew that the DDC was informed on 17 December 1998 that there was (still) no reserve fixed for the Vesta claim. It is unnecessary to consider the balance of that sub paragraph in view of my finding in para [872] above. 886 As to sub para (o), Mr Daya attended the DDC meeting on 12 January 1999. The minutes disclose that Mr Williams informed the DDC that nothing had changed in relation to Vesta, and that he specifically confirmed that the company neither held nor proposed to hold a provision for the Vesta claim. Contrary to what is said in sub para (o), the minutes do not show that on 12 January 1999 the DDC "was informed that further catastrophe claims of USD1 million on Vesta had been experienced by the New Cap Group." The plaintiffs do not point to any other evidentiary source to make this sub paragraph good against Mr Daya. Messrs Peck, Williams and Aroney 887 I am satisfied that each of Messrs Peck, Williams and Aroney had knowledge of the matters alleged in the relevant sub paras of 6FAS para 129 to the same extent that Mr Daya did. In each case, this follows from his membership of the DDC. Additional stop loss cover 888 The relevant allegations are those set out in 6FAS paras 129 (c)-(f), (h), (p) and (s): "… (c) At the Due Diligence Committee meeting on 18 November 1998, Daya stated that the volatility of the claims experience of the New Cap Group tended to come from the stop loss and aggregate excess of loss contracts written by the New Cap Group, and confirmed that the New Cap Group was seeking additional whole account stop loss cover in respect of such contracts, in order to give additional certainty as to the outcome for prior years. (d) At the NCRH board meeting on 18 November 1998, Ghose informed the board that stop loss protection should be in place before the issue of the Converting Notes proceeded. (e) On or about 18 November 1998, NCRH determined that it would seek additional whole account stop loss protection in order to give certainty in respect of the volatility of claims for the 1997 and 1998 books of business. (f) On or about 18 November 1998, the following wording was added to the Prospectus: "However, in recognition of the uncertainty highlighted in the Trowbridge Consulting Actuary's Report and to provide additional comfort as to the adequacy of its reserves, the Company is seeking to procure further retrocessional protection, on a stop loss basis, to insulate itself against claim deterioration. As a result, relative retrocessional expense is expected to increase." … (h) On 17 December 1998, Williams informed the Due Diligence Committee that the New Cap Group had not received any quotes as yet on the stop loss cover and that he would report back to the Due Diligence Committee as to any progress with the purchase of stop loss cover. … (p) On 12 January 1999, Williams informed the Due Diligence Committee that the New Cap Group had not received any quotes as yet on the stop loss cover, and that it was still in negotiations with interested parties. … (s) The Converting Notes were allotted, and the funds provided to NCRH, without the stop loss cover being obtained by the New Cap Group." 889 Sub para (q) might be thought to relate to the same topic, but the plaintiffs put it into a different category and for convenience I shall do likewise. Background 890 As I have said, the Trowbridge Prospectus Report concluded that the discounted net central estimate of NCRH's claims liabilities as at 30 June 1998 was USD139.6 million. However, Trowbridge stated, the estimate was of necessity attended with uncertainty. The range of uncertainty was illustrated in tabular form by considering "a range of ultimate undiscounted net loss ratios for each underwriting year, all of which are plausible". For the 1996/1997 year, the range was from 115% to 145%, with a mid point of 125%. For the 1998 year, the range was 80% to 110%, with a mid point of 90%. The corresponding USD value of the discounted net liability as at 30 June 1998 ranged from USD122 million to USD177 million, with a mid point of USD140 million. 891 Trowbridge stated that the mid point "is approximately the central estimate basis from our review" but that "[i]t is possible that the ultimate result could still lay outside the range shown." 892 In the second part of section 4.3, after dealing with the effect of recent events, the prospectus stated the following:

"However, in recognition of the uncertainty highlighted in the Trowbridge Consulting Independent Actuary's Report and to provide additional comfort as to the adequacy of its reserves, the Company is seeking to procure further retrocessional protection, on a stop loss basis, to insulate itself against claim deterioration. As a result, relative retrocessional expense is expected to increase." 893 In this context, it should be noted that Mr Bartlett conceded that the disclosure in the prospectus was adequate, in circumstances where the company did not know whether or not it could obtain the cover and, if it could, at what cost (T7472.35-7473.30). Mr Bartlett was correct to make that concession. 894 In those circumstances, the only real issue can be whether events after 18 November 1998 falsified the statement that was made in the prospectus concerning additional stop loss cover. Knowledge 895 The first four sub paras (6FAS para 129 (c)-(f)) relate to the decision to seek additional stop loss cover, and to disclose this in the prospectus. Of themselves, they are unremarkable, and I think it can be said with safety that each of the directors and Messrs Williams and Aroney must have been aware of the matters alleged in sub paras (d), (e) and (f); and that Messrs Daya, Peck, Williams and Aroney must have been aware also of the matters alleged in sub para (c). 896 Likewise, each of the directors and Messrs Williams and Aroney must have known (or, had he turned his mind to it, would have appreciated) the matters alleged in sub para (s). 897 I have to say that I do not understand how the matters alleged in sub paras (h), (p) and (s) (considered individually or together) could falsify what was said in the prospectus on the topic of additional stop loss cover. 898 For the reasons that I have given as to their positions and duties, I conclude that Messrs Daya, Peck, Williams and Aroney were aware of the matters alleged in sub paras (h) and (p). 899 The plaintiffs do not in their written submissions refer to any evidence showing that the matters alleged in sub paras (h) and (p) relating to meetings of the DDC, were communicated to Messrs Ghose, Beach, Deery or Morrissey. Thus, given that they were not members of the DDC, there is no reason to conclude that they knew matters communicated to the DDC as alleged in sub paras (h) and (p). Hurricane Georges 900 The relevant allegation is that set out in 6FAS para 129(g):

"(g) Williams informed the Due Diligence Committee on 17 December 1998 that the exposure to Hurricane Georges had increased by USD3 million because the retrocession cover which was thought by NCRH to be in place was not actually in place." Background 901 The minutes of the DDC meeting of 17 December 1998 reveal the following in relation to Hurricane Georges: " 9. HURRICANE GEORGES PW referred to a fax from Tim Sparkes to Guy Carpenter, and noted the following: · there is a retrocession gap of $3m on the $15m excess $5m layer due to actual purchase not equating to deemed underlying resinsurances [sic]; · Trowbridge had not detected this gap in their 30 June 1998 report, and it was totally unexpected by management, it is seen as a major unanticipated error by Volker de Chelard not to have actually taken out all the retro protection intended; · otherwise, the position with Hurricane Georges is as previously reported. IM noted that the Trowbridge Report in the Prospectus states that because of the Company's retrocessions that its net loss for Hurricane Georges stays within $1 million to $2 million of its estimate of $6.5 million over a wide range of claims. This statement appeared no longer completely accurate as a result of this retrocession gap. However, PW noted that a reinsurance contract with Renaissance Re in respect of Hurricane Georges will now produce a profit of $2.7 million, and this will largely offset the retrocession gap. Discussion then ensued as to the operation of the contracts written in respect of Hurricane Georges and the retrocession contracts written. IM queried whether the Company has a system in place to detect other retrocession gaps and whether the Company can ensure that this does not happen again. PA noted that this gap was very unusual, and was really just an oversight. … IM queried whether or not it was possible that Volker had under purchased retrocession at another time and therefore whether or not the Company may need to check its whole book of business. AM also queried whether there might be another retrocession gap up to 31 December 1998. PW noted that all retrocession will be renewed as of 1 January 1999. PW noted that the $15m in excess of $5m was a complicated layer to place, although it was a very valuable layer for the Company. PW advised the Committee that he would check the whole book of business for potential retrocession gaps and report back to the Committee if there was any doubt that there would be any further issues in respect of the Company's retrocession program. Although this is unlikely as most layers had now been employed and the $15m x 5 layer is the only one with inuring deemed cover." Knowledge 902 What is said in 6FAS para 129(g) is factually inaccurate. The meeting was not informed that the exposure had increased by USD3 million because retrocession cover was not in place. It was informed that there was a "gap" of USD3 million in one layer of the retrocession cover, but that there was a substantial (USD2.7 million) offset. 903 The fax from Mr Sparkes to Guy Carpenter that was referred to in the minutes was produced at the meeting; and there was in evidence a copy heavily annotated by Dr McKenzie. The plaintiffs refer to this document in their submissions (although it is not referred to in sub para (g)). It does not substantiate the allegation that is made in sub para (g). 904 The plaintiffs' written submissions in chief on this topic (chapter 5, section 6.4) refer to a number of matters that go well beyond sub para (g), both in subject matter and in date. Consistent with the approach that I have taken, I do not propose to take those matters into account when considering this aspect of issue 63. 905 Substantially for the reasons that I have given, I conclude that Messrs Daya, Peck, Williams and Aroney were aware of the matters alleged in sub para (g) to the extent of what is shown in the minutes of the DDC meeting of 17 December 1998. I repeat what I have said in para [902] above as to the discrepancy between those minutes and 6FAS para 129(g). 906 As with the additional stop loss allegation, the plaintiffs give no evidentiary references to show that the matters alleged in sub para (g) were communicated to Messrs Ghose, Beach, Deery or Morrissey; and I find that, to the extent that this matter was discussed at the DDC meeting of 17 December 1998, none of them was informed of it. Trowbridge's updating of its assessment of reserves 907 The relevant allegations (which relate to Messrs Daya and Williams only) are those set out in 6FAS paras 129 (j) to (m): "(j) On or about 23 December 1998, Trowbridge (Atkins and/or Minty) advised Daya and Williams that the discounted net provision for claims, after allowing for retrocession recoveries up to 31 December 1998, including a prudential margin of US$10,187,000, was US$204,403,000, as compared to the figure of US$141 million, plus 5% to 10% prudential margin used for the purposes of calculating the NTA of NCRH in the prospectus. (k) On 29 December 1998, Trowbridge (Atkins and/or Minty) advised Daya and Williams that the discounted net provision for claims up to 31 December 1998, after allowing for retrocession recoveries, including a prudential margin of US$10,641,000 was US$214,229,000, as compared to the figure of US$141 million, plus 5% to 10% prudential margin used for the purposes of calculating the NTA of NCRH in the Prospectus. (l) On or about 8 January 1999, Trowbridge (Atkins and/or Minty) advised Daya and Williams that the discounted net provision for claims net of retrocession recoveries, to 31 December 1998, including a prudential margin of US$11,886,000, was US$249,608,000, as compared to the figure of US$141 million, plus 5% to 10% prudential margin used for the purposes of calculating the NTA of NCRH in the Prospectus. (m) On or about 11 January 1999, Trowbridge (Atkins and/or Minty) advised Daya and Williams that the discounted net provision for claims net of retrocession recoveries, to 31 December 1998, including a prudential margin of US$11,637,000, was US$244,376,000, as compared to the figure of US$141 million, plus 5% to 10% prudential margin, used for the purposes of calculating the NTA of NCRH in the Prospectus." Background 908 Trowbridge began its assessment of NCRH's reserves, for the purposes of the year end financial statements, in November 1998. On 13 November 1998, Trowbridge wrote to NCRA (Mr Daya); Mr Daya forwarded the letter to, among others, Messrs Williams and Aroney. The letter included a "review [of] progress towards meeting year-end requirements". It stated that the issues to be examined included the "[a]ppropriateness of the industry benchmarks and the adjustments that were made to benchmarks for various contracts". 909 This meeting was attended by (among others) Messrs Peck, Williams, Aroney and Daya. It follows that, by at least 13 November 1998, Messrs Daya, Williams and Aroney were aware of the review, and of its elements as explained in Trowbridge's letter and its attachments. 910 No doubt, had Mr Peck turned his mind to the subject, he would have realised (if in fact he did not know) that Trowbridge was undertaking a year end review of claims reserves. No doubt, the other directors would also have realised that, had they turned their minds to it. (Messrs Peck and Beach were members of the audit committee, and thus perhaps more likely than other directors to be aware of the steps being taken to prepare draft accounts for the year ending 30 December 1998; but my conclusion does not turn on this.) 911 However, the question posed by 6FAS para 129 (j)-(m) turns not on general knowledge, imputed knowledge or understanding, but on the precise matters identified in those sub paragraphs. The plaintiffs' submissions on this topic employ a degree of generality that does not assist in resolving the issue of knowledge of the particular matters alleged. 912 There is no doubt that Trowbridge from time to time prepared what were called "model summaries", or draft assessments, of claims reserves for the year ended 31 December 1998. On 23 December 1998, Trowbridge prepared a model summary which took account of claims data up until the end of November 1998 (the latest information in its possession). On 8 January 1999, Trowbridge prepared a further model summary, taking into account claims data for December 1998. The bulk of the work was undertaken by Ms Robertson, supervised by Mr Minty. Mr Atkins had less direct involvement. Sub paragraph (j) 913 The plaintiffs' submissions do not specifically address this sub paragraph. They do not point to any evidence that would enable me to conclude that Mr Atkins or Mr Minty conveyed to Mr Daya or Mr Williams the information set out in the sub paragraph. 914 However, Mr Minty's evidence, which on this point I accept, was that he and Ms Robertson met Mr Daya on 23 December 1998, and gave him a copy of the model summary of that date. That model summary showed a discounted net provision of USD204.483 million, including a prudential margin of USD10.187 million. It is plain from Mr Minty's evidence that it was a draft, and that further work was required (and was in fact undertaken): including, but not limited to, analysis of individual contracts and analysis of December claims data. 915 Mr Minty did not give evidence to the effect that the 23 December 1998 model summary, or its contents, were communicated to Mr Williams. Sub paragraph (k) 916 Mr Minty was on leave from 24 December 1998 until 4 January 1999, and again from 6 to 11 January 1999. However, he gave evidence, based on the records of Trowbridge, of work undertaken and meetings attended by Ms Robertson during those periods. 917 Mr Minty said that Ms Robertson met Mr Daya on 29 and 30 December 1998, and that she provided him with (among other things) a copy of the then current versions of the model summary. That model summary showed a discounted net provision of USD214.229 million, including a prudential margin of USD10.641 million. 918 Mr Minty did not say, and the plaintiffs did not point to any evidence to show, that Mr Williams was present at either of those meetings, or that the model summaries or their contents were otherwise communicated to him. Sub paragraph (l) 919 Mr Minty's evidence was that on about 5 January 1999, Trowbridge received from NCRH December claims data (including updates of data already provided to the end of November 1998). The model summary was updated. 920 Mr Minty says, relying on Trowbridge's records, that Ms Robertson met Mr Daya on 8 January 1998 and gave him a copy of the model summary as at that date, together with other data. That document showed, among other things, a discounted net claims provision of USD249.608 million, including a prudential margin of USD11.886 million. 921 Again, it is plain from Mr Minty's evidence that the model summary required further, and probably substantial, work before it could be regarded as finalised. 922 The plaintiffs did not point to any evidence that showed that Mr Williams was present at the meeting on 8 January 1999, or that the model summary given to Mr Daya on that day (or its contents) were communicated to Mr Williams. Sub paragraph (m) 923 Mr Minty said that he and Ms Robertson met Mr Daya on 11 January 1999. He does not in terms say that any model summary was given to Mr Daya on that date. I think it is the proper inference from his evidence that this was done. In any event it is likely to have happened. Those inferences are supported by the agenda for the meeting of 11 January and by Mr Minty's and Ms Robertson's handwriting on their copies of that agenda. 924 The plaintiffs identified a model summary with a printout date of 11 January 1999. I infer that this is the document given to, and discussed with, Mr Daya on that day. It shows a discounted net provision of USD244.376 million, including a prudential margin of USD11.637 million. 925 Mr Minty did not give evidence that Mr Williams was present at the meeting, or that the information contained in the model summary was communicated to him; and the plaintiffs pointed to no such evidence. Conclusion 926 I am satisfied, on the evidence to which I have referred, that sub paras (j)-(m) are made good as against Mr Daya. I am not satisfied that they are made good against Mr Williams. 927 The plaintiffs' submissions did not refer to any evidence to show that the model summaries referred to in those sub paragraphs, or their contents or their substance, were communicated to any of the directors other than Mr Daya, or that they or their substance were communicated to Mr Aroney. Mr Aroney's evidence on this point was in substance that Mr Daya excluded him from the process of exchange of information between NCRH (or NCRA) and Trowbridge over the period November 1998 to January 1999. He was not challenged on this aspect of his evidence and, notwithstanding my general view of his credibility, I accept it. 928 The plaintiffs make a number of more general submissions. For example, they point to what they say was knowledge of Messrs Peck, Williams and Aroney, gained from their membership of the DDC, as at 17 December 1998 and 12 January 1999. They point also to general evidence showing that the directors and Messrs Williams and Aroney were aware of the nature of the work being undertaken by Trowbridge, and of the significance of that work. 929 None of the matters to which the plaintiffs point, either in general or in particular terms, shows that any of the directors (apart from Mr Daya) or Mr Aroney or Mr Williams had any knowledge of the model summaries to which I have referred or of their contents or substance. 930 Accordingly, I find that the allegation of knowledge, as to the matters referred to in these sub paragraphs, is made good against Mr Daya only and not otherwise. 931 One consequence of this finding is, inevitably, that Mr Daya dishonestly maintained silence when the question was asked at the 12 January 1999 DDC meeting (he being one of those present), whether anyone knew of anything material that should be communicated to the DDC. On any view, the preliminary results disclosed by Trowbridge's analyses (as summarised in the model summaries from time to time) were material, notwithstanding that the analysis was not complete. It is quite clear in my mind that if Mr Daya had communicated to the DDC on 12 January 1999 the substance of the information being provided to him by Trowbridge, the DDC would not have recommended to the Board (or its delegates) to issue the converting notes but would have recommended, instead, that the capital raising be terminated (or "pulled" to use an expression that was bandied about in cross-examination). The proposed special prudential margin 932 This relates to 6FAS para 129(q): "(q) On 12 January 1999, Daya informed the Due Diligence Committee that the NCRH board was considering a "special prudential margin" of US$10 million to US$20 million to be added to the existing provisions in NCRH's accounts for the 1998 year in a material amount." Background 933 Following the meeting between Mr Daya and Ms Robertson on 8 January 1999, Mr Daya sent Ms Robertson an e-mail. He said, among other things: "On stop loss/agg. loss contracts, I am not happy showing the full limits as IBNR, would rather set up a separate "prudential margin" for these, but with specific figures for the contracts in question. Could we discuss on Monday?" 934 The agenda for the meeting of 11 January 1999 shows that this was a topic for discussion. However, Mr Minty gave no evidence that it was discussed. His copy of the agenda for that meeting (on which he made notes) does not refer to any discussion. Ms Robertson's copy contains the somewhat delphic annotation "Separate Category", linked to the relevant agenda item. There is no evidence (or at least, the plaintiffs' submissions did not refer to any) of the discussion that gave rise to that comment. The DDC meeting of 12 January 1999 935 This meeting was attended by (among others) Messrs Peck, Williams, Aroney and Daya. 936 The minutes of the meeting (signed by Mr Peck as a true and correct record) contain the following at item 24: "24. TROWBRIDGE REPORT ON 1998 YEAR AD reported that: · he is in daily contact with Trowbridge, who are still processing the data. There is still a lot of work to be done, it is early days yet and not yet possible to determine the impact on the year end results (for example based on what he has seen, personal accident and property classes needed further analysis on both the assumed and retro sides); · the Company has conducted a special study on stop loss contracts for 1997 and 1998. As a result AD was considering recommending to the board of the Company the creation of a "special prudential margin" to ensure that there could be no adverse surprises in 1999; and · it was seen that there is some volatility in this area and while most of the other business is protected the Company needs to ensure that this area is adequately provided for unless it buys its own stop loss protection as referred to in the Prospectus." 937 The handwritten notes of the meeting (taken by one of the junior solicitors of Phillips Fox) attribute the following to Mr Daya: "Special … reserve: for stop loss. - too early, 10-20 mill. as a special prudential margin." 938 Clearly enough, what Mr Daya is recorded in the minutes as having said, on the topic of a special prudential margin, was brought to the attention of those present at the meeting - relevantly, for present purposes, Messrs Peck, Williams and Aroney. 939 The plaintiffs do not submit that what Mr Daya said, on the topic of a special prudential margin, was conveyed to Messrs Ghose, Beach, Deery and Morrissey. 940 The plaintiffs submit (written submissions in chief, chapter 5, para 6.6 (7)) "that the proposal to insert [the] provision in the accounts arose directly from advice which Mr Daya had received from Trowbridge that an additional provision was necessary." 941 Neither sub para (q) nor such evidence as there is of what Mr Daya said at the DDC meeting on 12 January 1999 on the topic of special prudential margin suggests that the DDC members were informed that Trowbridge had advised that the proposed provision be created. Nor do the plaintiffs point to any evidence that Trowbridge did in fact give such advice. Thus, the finding of knowledge is, as I hope I have made clear, limited to Mr Daya's advice to the DDC as recorded in the minutes and (perhaps) amplified by the handwritten notes. 942 It is apparent from that part of the plaintiffs' written submissions to which I have referred that the plaintiffs see the true significance of this information as based on the proposition that it came from, or reflected the advice of, Trowbridge. I think that this must be so: ie, that the significance of the proposition must lie in its source, rather than in the mere fact that it was conveyed by Mr Daya to the meeting or that it was conveyed as something that the board "was considering". The alleged liquidity crisis 943 The relevant allegations are those set out in 6FAS para 129 (n) and (r): "(n) On or about 11 January 1999, the New Cap Group had a cashbook balance of US$1,344,550, but had US$11,532,393 in claims payable at that time, plus a further US$22,711,921 in further claims payable, which had been postponed to future weeks.

(r) By 12 January 1999, each of the Directors, and Williams and Aroney, knew, or ought to have known, that almost the entire proceeds of the capital raising would be disbursed almost immediately by NCRH to repay the remaining amount outstanding on the Dresdner loan, payments to Macquarie for its services in respect of the capital raising, and to pay claims." 944 Unfortunately, as with many other topics that are the subject of issue 63, the plaintiffs' submissions go well beyond the case thus pleaded. Sub para (n) 945 Information to the effect of that alleged in sub para (n) was contained in a treasury memorandum of NCRA dated 11 January 1999. That memorandum was the last of a series, six in all, dated from 7 December 1998 to 11 January 1999. (There may be more; these six are the subject of detailed analysis in the plaintiffs' written submissions in chief, chapter 5, para 6.7(20) and following.) 946 Each of the memoranda in question is shown as having been given to, among others, Messrs Daya and Aroney. It follows that Messrs Daya and Aroney were aware of their contents. 947 The plaintiffs do not appear to submit that the information comprised in the treasury memorandum of 11 January 1999 (which is the basis of sub para (n)) was communicated to any of the directors. Sub paragraph (r) 948 There is no doubt that NCRH's cash position was tight from at least late December 1998 up until 12 January 1999. There is no doubt that NCRH was doing what it could to postpone the payment of claims. The submission for Mr Aroney, that this does not indicate a liquidity crisis but is consistent with "due diligence", whilst having some theoretical attraction is less than compelling in the light of the circumstances existing over that period. 949 However, part of the problem - part of the reason for the cash shortage - was the need to hold a USD20 million "buffer" of unpledged assets until the Dresdner loan was repaid. This requirement had been imposed as part of the renegotiation that was formalised, including a waiver of any existing breaches, upon issue of the prospectus. The plaintiffs' submissions in chief do not refer to this, although plainly it must have had (and I think the evidence shows did have) a significant impact on liquidity. 950 The plaintiffs make much of the proposition that NCRH liquidated assets to pay claims. Of itself, this is hardly surprising. It is part of the business of an insurer (or reinsurer) to invest funds, so as to derive the income on them, and to have recourse to the investments as required when claims are to be paid. However, the plaintiffs submit, Mr Ghose accepted that this was a "worst case scenario" (T3766.33-.39). That submission cannot be accepted. It takes Mr Ghose's evidence on an analysis at a much earlier date (28 September 1998) and misstates it significantly. 951 The cash flow projection to which the relevant evidence relates went forward from 30 September 1998 to 31 December 1999 on what was described as a "Worst Case" projection. It projected "Free Funds" (ie, cash and securities available to the company over and above those required to support LOCs on issue) in excess of USD40 million at each date. The plaintiffs accepted that the projections assumed the repayment of Dresdner (T3764.30) and Mr Ghose agreed (T3764.31). 952 The covering memorandum (which was sent to all members of the board, except Mr Daya) raised a number of issues. One related to the amount of security related to support LOCs, which as I have already said varied according to the nature of the assets pledged. The memorandum stated: "The final area to consider is the "haircut" on the collateral funds. This is currently 15% as we have elected to include corporate paper in the accounts. The haircut can be reduced to 5% if we switch to holding only short-term US Treasury bills in the account. If only cash was held in the account, then we would receive 100% credit and there would be no "haircut". This is obviously an option in a worst case scenario." 953 Mr Ghose agreed that if only cash were held in the collateral account, the company's earnings would be reduced (T3766.3). It was in that context, and after a discussion of the impact of the earnings rate on reserves (following from the relationship between the discount rate and the earnings rate, and the circumstance that a higher discount will produce a lower reserve figure), there occurred the passage on which the plaintiffs rely (T3766.33-.39): "Q. You knew and understood when you received this memorandum that holding only cash was clearly something which would only be applicable to a worst-case scenario? A. It was certainly highly desirable, yes.

Q. It was applicable only on a worst-case scenario? A. Yes, it was, as Mr Eastham points out, yes." 954 In my view, it is plain from the passage in question that Mr Ghose did not concede "that liquidating the company's portfolio of investments in this matter was a "worst case scenario"" (plaintiffs' written submissions in chief, chapter 5, para 6.7(3)). But in any event, it is plain beyond argument, when the evidence is put into context, that Mr Ghose did not make the concession that the plaintiff sought to fasten upon him. 955 There are other problems with the plaintiffs' reliance on, and analysis of, the Treasury memoranda. One is that the memoranda refer to the "cash book" position of the company to which they relate - and in at least one case (the memorandum for 21 December 1998) it appears that the cash position shown was for NCRA only and did not address the cash position of NCRB. Of course, the liabilities of NCRH, and the resources available to pay them, are in substance equivalent to the combined liabilities and resources of both companies. 956 Another problem is that NCRH's cash flow was heavily seasonal. The majority of business was written in the first month of the calendar year, and presumably the premiums for that business were received in that month or the following. Neither the memoranda nor the submissions based on them take account of this phenomenon; but it is plain that both the board and management were acutely conscious of it. 957 As I have said, there can be no doubt that cash flow was tight. But, absent some analysis of the impact on cash flow of the requirement to keep a USD20 million "buffer" until the balance of the Dresdner loan was repaid, it does not follow that the cash flow position was so grave that the directors, or Messrs Williams and Aroney, should have taken some step to seek to halt the issue of the converting notes. 958 Nor, returning to the subject of sub para (r), does it follow that the directors at least either knew or ought to have known that the bulk of the proceeds of the capital using would be disbursed in the manner there indicated. USD20 million of the amount thereby disbursed would be freed up, and available to NCRH in the ordinary course of its business, immediately upon payment of the balance of the Dresdner loan. Conclusions on issue 63 959 My findings on the first sub issue (Vesta) are set out in paras [877], [881], [882], [884], [885], [886] and [887]. 960 My findings on the second sub issue (additional stop loss cover) are set out in paras [895], [896], [898] and [899]. 961 My findings on the third sub issue (Hurricane Georges) are set out in paras [905] and [906]. 962 My findings on the fourth sub issue (Trowbridge's assessment of reserves) is set out in paras [926] to [930]. 963 My findings on the fifth sub issue (special prudential margin) are set out in paras [938], [939] and [941]. 964 My findings on the last sub issue (liquidity crisis as at 12 January 1999) are set out in paras [946], [947] and [958]. 965 Issue 63 should be answered in accordance with those paragraphs. Issue 64: obligation to inform of change of circumstances relating to the representations alleged to have been made by NCRH 966 It is necessary to repeat, as in any event the full text of the issue makes clear, that the alleged obligation to inform relates to changed circumstances that would render the representations made by NCRH in the draft prospectus and the prospectus misleading or deceptive. It looks at the period from the issue of the prospectus (18 November 1998) up until the issue of the converting notes (12 January 1999). The representations that are the subject of this issue are those set out in 6FAS paras 104 to 109: at the risk of further wearying the reader, I repeat that they are all said to have been made by NCRH in the draft prospectus and the prospectus. 967 None of the directors (or Mr Williams or Mr Aroney) submitted that NCRH had no obligation to inform Mr Saville of any relevant change of circumstances during the period to which I have referred. I proceed on the basis that NCRH did owe Mr Saville, and through him the plaintiffs, such an obligation. The issue therefore requires attention to be focussed on the directors and Messrs Williams and Aroney. 968 It is also necessary to bear in mind that the pleaded case against the directors and Messrs Williams and Aroney alleges both accessory liability (6FAS para 152 as to all, and para 153 as to the directors) and direct or principal liability (para 154). The principal liability is said to flow from the matters alleged in 6FAS paras 103 to 131: · the prospectus (para 103); · the representations (paras 104 to 109); · the character of certain of those representations as being made with respect to future matters (para 110); · the falsification of the representations and the alleged knowledge thereof (paras 111 to 122); · the purposes for which the draft prospectus and the prospectus were provided to Mr Saville and, it is said, through him to the plaintiffs (paras 123 to 126); · knowledge of that purpose (para 127); · duty, based on the matters alleged in paras 123 to 127, to inform Mr Saville of changed circumstances (para 128); · changed circumstances from 18 November 1998 to 12 January 1999 (para 129); · knowledge of those changed circumstances (para 130); and · the meeting between Messrs Saville, Daya and Williams on 21 December 1998, and the information then conveyed to Mr Saville (para 131). 969 It follows from this structure that the key paragraph, for the purposes of issue 64, is 6FAS para 128: "128. By reason of the facts, matters and circumstances detailed in paragraphs 103 to 127 above, to the extent that each of the Directors, and Williams and Aroney became aware of any change in circumstances such as to render any of each of the representations in paragraphs 105 to 110 above false after each of the relevant representations had been made, the Directors, and Williams and Aroney: (a) were under a duty to inform ICM, Saville and/or AOIT of such change; or alternately; (b) were under a duty, to the extent that any such change in circumstances falsified each or any of the relevant representations, to ensure that such a change in circumstances was made specifically known to ICM, Saville and/or AOIT from the Prospectus or otherwise." 970 If that allegation is not made good then, with one exception, the plaintiffs' case of direct liability must fail. 971 The exception relates to the case founded on s 996(1) of the Corporations Act (6FAS, para 154(b)). Messrs Beach, Deery and Morrissey admit that by their signatures they authorised the issue of the prospectus. That admission was properly made. Messrs Ghose, Daya and Peck likewise, by signing it, authorised the issue of the prospectus. 972 The exception is not relevant to issue 64, because liability under s 996(1) deals with the situation on issue of the prospectus: ie, as at 18 November 1998. By contrast, issue 64 focuses attention on the period from that date up until 12 January 1999. 973 The Corporations Law contained in Parts 7.11 and 7.12 a detailed scheme for the protection of investors in securities. That scheme included specific provisions in relation to prospectuses as issued (s 996) and after issue (ss 1023B and 1024) and, in addition, general prohibitions that could attach to, but which went beyond, statements in and omissions from a prospectus (ss 995, 999, as well as others on which the plaintiffs do not rely). 974 Where the foundation for the complaint is that a prospectus was, or statements within it were, misleading or deceptive either at the time the prospectus was issued, or became so by reason of subsequent events, then primary liability rests with the company that issued the prospectus (ss 995, 1023B and 1024) and those who authorised its issue (s 996). The direct liability of the company under ss 995, 1023B or 1024 is supplemented by accessory liability on the part of those involved in the contravention (s 1005(1)), calling up the general provisions of s 79 and the specific provisions of s 1006. 975 Of course, misleading or deceptive conduct in relation to dealings in securities may occur outside the context of a prospectus. Where it does, then direct or accessory liability will depend upon identification of the perpetrator of the conduct and of those (if any) involved in it. But the case that the plaintiffs seek to make out is one founded on the prospectus and its alleged inadequacies, both at the time of issue and thereafter up until the time of issue of the converting notes pursuant to it. 976 If it be assumed, for the purposes of the argument, that NCRH was guilty of misleading or deceptive conduct in relation to the prospectus, then those who authorised or caused its issue may have both primary liability (s 996) and accessory liability (s 1005(1)). The terms of s 1005(1) are such that any accessory liability may relate not only to the prospectus as issued but also to subsequent events that enliven an obligation to issue a supplementary or replacement prospectus. 977 In those circumstances, the room for some independent and freestanding obligation of disclosure cast upon directors and officers must be very limited. One would not expect to find such an obligation arising at large if the circumstances said to give rise to it were such as to attract an express head of principal or accessory liability. Absent some allegation of conduct on the part of the directors or officers, whereby they either made representations to Mr Saville or the plaintiffs or adopted representations thus made by NCRH, I do not think that there is any independent obligation of disclosure. (I have used the term "officers" for convenience. I accept that Messrs Williams and Aroney were not officers of NCRH. The points that I have just made must, therefore, apply to them a fortiori.) 978 In circumstances where the plaintiffs' case of misleading or deceptive conduct in relation to the prospectus falls completely within the statutory scheme of principal and accessory liability that I have described, I do not think that there was cast upon the directors or Messrs Williams or Aroney any independent obligation to inform Mr Saville of changes in circumstances. If such an obligation existed, it was owed by NCRH. The duty of the directors (and, for the sake of argument, Messrs Williams and Aroney) was to ensure that NCRH met its obligations. If NCRH did not do so, it had primary liability. If the directors, or Messrs Williams or Aroney, were relevantly involved, they may have had accessory liability. I do not think that they had any independent principal obligation to inform Mr Saville, or through him the plaintiffs, of any change in circumstances relating to representations made by NCRH in the prospectus. Such obligations as they may have had under s 996 spoke as at the date of issue of the prospectus and not during the period with which issue 63 is concerned. 979 I conclude that issue 64 should be answered "no". Issue 65: breach of any obligation to inform 980 Since I have concluded that the directors and Messrs Williams and Aroney owed no such independent duty, this issue does not arise and it should be so answered. 981 In any event, and perhaps as a matter of curiosity, I note that 6FAS does not allege any breach of the duty to inform that is pleaded in para 128. Issue 66: withdrawal of prospectus or issue of supplementary prospectus The pleaded case 982 The relevant allegations are set out in 6FAS paras 136 to 141: "136. By reason of the matters pleaded in paragraphs 129(a) to 129(k) above, NCRH became aware during the application period in relation to the Prospectus, that the Prospectus was deficient in that: (a) it contained material statements that were false or misleading or likely to mislead or deceive; and

(b) there were material omissions from the Prospectus, within the meaning of section 1023B of the Corporations Law. 137. Further, by reason of the matters pleaded in paragraph 129(a) to 129(k) above, NCRH became aware during the application period in relation to the Prospectus that: (a) there had been significant changes affecting matters included in the Prospectus;

(b) significant new matters had arisen the inclusion in the Prospectus of information about which would have been required if the matter had arisen when the Prospectus was prepared, within the meaning of section 1024(1) of the Corporations Law.

138. By reasons of the matters pleaded in paragraph 133 to 137 above, NCRH became aware of matters prior to allotment of the Converting Notes which rendered representations made by it in the Prospectus misleading and deceptive.

139. In the premises, NCRH was obliged, as soon as practicable after becoming aware of the said matters, to lodge a supplementary prospectus correcting the said deficiencies and containing particulars of the changes and new matters, pursuant to sections 1023B(2) and 1024(2) of the Corporations Law.

140. In contravention of sections 995(2), 1023B(2) and 1024(2) of the Corporations Law, NCRH failed or neglected to lodge a supplementary Prospectus correcting the said deficiencies and containing particulars of the said changes and new matters. 141. Further or in the alternative, by reason of the matters referred to in paragraph 129 above, prior to 12 January 1999, NCRH ought to have withdrawn the Prospectus, and given reasonable public notice of the withdrawal, including making an ASX announcement, and the reasons for the withdrawal." 983 The reference to "matters pleaded in paragraphs 129(a)-129(k)" picks up allegations of events occurring prior to 18 November 1998 (para 129 (a) and (b)) and from then until 31 December 1998 (para 129 (c)-(k)). 984 Although 6FAS para 138 refers to a time span up to the allotment of the notes (on 12 January 1999), it is based on the matters alleged in paras 133 to 137, which do not range beyond 31 December 1998. Thus, the pleaded events that are said to have enlivened ss 1023B and 1024 of the Corporations Law all occurred prior to 31 December 1998. 985 By contrast, 6FAS para 141 is not so limited (because it refers to all the matters alleged in para 129, including those ranging from 8 to 12 January 1999). However, it does not appear to be based on, or to allege the operation of, ss 1023B or 1024 (or, in terms, any other provision of the Corporations Law). Of what did NCRH become aware during the relevant period? 986 For the reasons that I have given in paras [908] to [925] above, Mr Daya became aware of the matters communicated to him by Trowbridge (including by the provision to him of draft model summaries) in the meetings of 23 and 29 December 1998 and 8 and 11 January 1999. 987 The plaintiffs' case is that by force of s 762(4), NCRH should be deemed, or taken, to have become aware of those matters that were so communicated to Mr Daya. I am not sure that s 762(4) has this effect. It reads: "762. Conduct

(4) Conduct engaged in on behalf of a body corporate: (a) by a director, servant or agent of the body within the scope of the person's actual or apparent authority; or (b) by any other person at the direction or with the consent or agreement (whether express or implied) of a director, servant or agent of the body, where the giving of the direction, consent or agreement is within the scope of the actual or apparent authority of the director, servant or agent;

shall be deemed to have been engaged in also by the body corporate." 988 Nonetheless, I think, Mr Daya's position and responsibilities were such that his knowledge must be imputed to NCRH. He was a director of NCRH and the managing director and chief executive officer of NCRA. Either de facto, or by some more formal process of delegation, he was the officer within the New Cap Group who had (or had assumed) responsibility for dealing with Trowbridge in relation to Trowbridge's assessment of claims reserves for the purposes of the year end financial statements and audit. It is plain from the evidence, including that of Mr Minty to which I have referred, that Mr Daya was the conduit for information passing between the New Cap Group and Trowbridge; in this context, I refer to Mr Aroney's evidence that he himself was effectively excluded from that process. 989 In those circumstances, I think, it is proper to conclude that the knowledge gained by Mr Daya in the course of his dealings with Trowbridge was the knowledge of, or is to be imputed to, NCRH. 990 However, as the plaintiffs put their submissions, they rely on all matters on which the directors and Messrs Williams and Aroney became aware up until 12 January 1999, in support of their proposition that an affirmative answer should be given to issue 66. 991 The relevant obligations are those contained in ss 1023B and 1024 of the Corporations Law. Those sections provide as follows: "Correction of false or misleading statements etc in prospectus by a supplementary or replacement prospectus 1023B (1) [Application] This section applies if a prospectus relating to securities of a corporation has been lodged and the corporation becomes aware, during the application period in relation to the prospectus, that the prospectus is deficient because: (a) it contains a material statement that is false or misleading; or (b) there is a material omission from the prospectus. Note : because of subsections 1024C(2), 1024F(1) and 1024G(3), a prospectus may be taken to include information in another document. This should be taken into account when considering whether the prospectus is deficient. 1023B (2) [Lodgment of supplementary or replacement prospectus] As soon as practicable after becoming so aware, the corporation must lodge a supplementary prospectus or a replacement prospectus that corrects the deficiency and that complies with whichever of sections 1024A and 1024B applies. [s 1023B insrt Act 31 of 1994 Sch 2, eff 5 Sep 1994] Changes or new matters requiring the issue of a supplementary or replacement prospectus 1024 (1) [Application] This section applies if a prospectus relating to securities of a corporation has been lodged and the corporation becomes aware, during the application period in relation to the prospectus, that: (a) there has been a significant change affecting a matter included in the prospectus; or (b) a significant new matter has arisen the inclusion in the prospectus of information about which would have been required by this Part if the matter had arisen when the prospectus was prepared. 1024 (2) [Lodgment of supplementary or replacement prospectus] As soon as practicable after becoming so aware, the corporation must lodge a supplementary prospectus or a replacement prospectus that contains particulars of the change or new matter and that complies with whichever of sections 1024A and 1024B applies. [s 1024 subst Act 31 of 1994 Sch 2, eff 5 Sep 1994]." 992 It will be observed that in each case the relevant awareness of the corporation is that which it acquires "during the application period in relation to the prospectus". By virtue of the applicable definition of "application period" in s 9, the relevant application period for the purposes of ss 1023B and 1024 was the period commencing on 18 November 1998 (when the prospectus was issued) and ending on 31 December 1998 (which was the last day by which application for the issue of the securities could be made). In this context, the "Overview" given in section 1.1 of the prospectus stated: " Last date for acceptance and payment Subscription money must be received by the Company's Share Registry by 5.00 pm (Sydney time) on 31 December 1998." 993 It follows that such knowledge as NCRH gained through Mr Daya of events that occurred after 31 December 1998 could not enliven the operation of ss 1023B or 1024. 994 The question for consideration is, therefore, whether knowledge gained through Mr Daya of events that occurred up until 31 December 1998 was sufficient to enliven those sections. (I put the matter this way because in my view, such knowledge as I have found the other directors, or for that matter Messrs Williams and Aroney, acquired up until 31 December 1998 - see my conclusions in relation to issue 63 - was not sufficient to enliven the operation of either section. In addition, there is a very real question as to whether the knowledge of Messrs Williams and Aroney was the knowledge of, or should be imputed to, NCRH at all.) 995 Thus refined, the question, for the purposes of issue 66, focuses attention on 6FAS para 129 (j) and (k). My findings as to what was communicated by Trowbridge to Mr Daya on the relevant dates, 23 and 29 December 1998, are set out in paras [913] to [918] above. 996 The prudential margin figures set out in the Trowbridge model summaries given to and discussed with Mr Daya on 23 and 29 December 1998 were (by my calculation) about 5.2% of Trowbridge's view, at each date, of the discounted net central estimate. If one increases the amount of the claims provision as at 30 June 1998 (USD141 million, which did not include a prudential margin of any significance according to the Trowbridge prospectus report) by an equivalent percentage, and compares the result to the provision shown in the model summaries, the increase from the 30 June 1998 figure to the figure in the model summary is in excess of USD56 million as at 23 December 1998 and in excess of USD65 million as at 29 December 1998. Those figures suggest an adverse movement in the claims provision, over the six months from 30 June to 31 December 1998, in excess of 38% or 44% respectively. 997 It is plain from Mr Minty's evidence that much work was required to be done on the model summaries. For example, they did not take into account the December claims experience. (As will have been seen from what I have said in paras [919] to [924] above, the revision of the model summaries to take account of the December claims experience did not ameliorate the position.) But allowing for the incomplete and draft nature of the figures, and allowing for the fact that more work was needed, the figures showed at least the possibility, and more realistically the likelihood, of a very severe deterioration in the outstanding claims liability. To put the figures into perspective:

(1) The upper limit of the range of figures for the discounted net liability at 30 June 1998 (without any prudential margin) in the Trowbridge prospectus report was USD177 million; the implicit net discounted claims figure in the 23 December 1998 model summary is in excess of USD194 million, and in the 29 December 1998 model summary is in excess of USD203 million.

(2) If one takes the provision as at 30 June 1998 (USD141 million) and adds the deterioration disclosed in the 23 December 1998 ASX announcement (about USD12 million), the implicit further deterioration is of the order of USD41 million or USD54 million, depending on the model summary used for the purpose of the comparison. Consequences 998 On any view, I think, the information disclosed by Trowbridge to Mr Daya on 23 and 29 December 1998 was significant. On any view, I think, NCRH's knowledge of that information through Mr Daya enlivened its obligations under s 1024 of the Corporations Law. 999 As I have said, the plaintiffs rely also on s 1023B. As I understand it, they submit that statements in the prospectus became false or misleading, because of events that occurred, and of which NCRH became aware, during the application period, so that s 1023B was enlivened. 1000 The contrast between ss 1023B and 1024 (particularly, read in light of s 1023A) suggests that s 1023B relates to statements that were false when made, not to statements that are falsified by supervening events. But it is not necessary to express a concluded view, because it follows, from what I have said as to the enlivening of s 1024, that issue 66 should be answered "yes", although the "circumstances" that require this answer are limited in the way that I have indicated above. Issue 67: the applicable legislative regime Outline of the plaintiffs' case 1001 The legal bases for the plaintiffs' claims against the directors and Messrs Williams and Aroney are pleaded in 6FAS paras 152 to 154 and 156. Paragraphs 152 and 153 plead accessory liability: "152. By reason of the matters pleaded in paragraphs 113, 116, 118, 120, 130, 131 and 144 to 151 above, each of the Directors, and Williams and Aroney was a person who was knowingly concerned in the contraventions of NCRH pleaded in paragraphs 132, 139, 140 and 141 above, within the meaning of: (a) section 79 of the Corporations Law;

(b) section 5(3) of the Australian Securities and Investments Commission Act 1989 and/or section 5(3) of the Australian Securities and Investments Commission Act 2001, insofar as these provisions incorporate by reference, respectively, section 79 of the Corporations Law and section 79 of the Corporations Act;

(c) in the alternative to (b), section 75B of the Trade Practices Act 1974. 153. By reason of the matters pleaded in paragraphs 113, 116, 118, 120, 130, 131 and 144 to 151 above, each of the Directors was a person involved in the contravention of Parts 7.11 and/or 7.12 of the Corporations Law by NCRH under s 1006(2)(b) and (c) of the Corporations Law." 1002 6FAS para 154 pleads primary contraventions of ss 995(2), 996(1) and 999 of the Corporations Law and s 42 of the Fair Trading Act. 1003 6FAS para 156 pleads that each of the plaintiffs "is a person who has suffered loss or damage by" the conduct alleged on the part of the directors and Messrs Williams and Aroney. It relies upon s 1005(1) of the Corporations Law, and the equivalent provisions of the ASIC Acts 1989 and 2001, the Trade Practices Act and the Fair Trading Act. 1004 The plaintiffs accept that the Trade Practices Act has (and from 1 July 1998 had) no application to conduct in relation to financial services (submissions in chief, chapter 2, para 1.7(5)). They submit that the consequence is that "[a]s at November 1998/January 1999, … a person involved in the preparation and distribution of a defective disclosure document was subject to section [sic] 995, 996, 999 and 1005 of the Corporations Law" (ibid, para 1.7(6)). 1005 The plaintiffs submit further that the conduct of NCRH that they allege was misleading or deceptive was conduct in relation to financial services, and that it contravened s 12DA of the ASIC Act 1989. 1006 Thus, the plaintiffs submit, the accessory liability of the directors and Messrs Williams and Aroney arose not only under s 79 of the Corporations Law, but also under s 5(3) of the ASIC Act 1989 (which calls up, in a somewhat convoluted way, Parts 1.2 and 1.3, and therefore s 79, of the Corporations Law). Further, in relation to the directors, the plaintiffs allege that they had accessory liability under s 1006 of the Corporations Law for the contraventions of Parts 7.11 and 7.12 alleged against NCRH. The legislative regime Corporations Law and Act 1007 The Corporations Law was enacted through s 82 of the Corporations Act 1989 (Cth), which section applied in New South Wales by s 7 of the Corporations (NSW) Act 1990 (NSW). The Corporations Act 1989 was repealed with effect from 15 July 2001, by the Corporations (Repeals, Consequentials and Transitionals) Act 2001, on which date the Corporations Act 2001 (Cth) commenced. 1008 The plaintiffs rely on s 1401 of the Corporations Act 2001. Section 1401 is applicable, and not ss 1383 or 1384, because these proceedings were not commenced until 16 November 2001: ie, after the commencement of the Corporations Act 2001. 1009 Section 1401 reads as follows: "1401 Creation of equivalent rights and liabilities to those that existed before the commencement under repealed provisions of the old corporations legislation (1) This section applies in relation to a right or liability (the pre-commencement right or liability ), whether civil or criminal, that: (a) was acquired, accrued or incurred under a provision of the old corporations legislation of a State or Territory in this jurisdiction that was no longer in force immediately before the commencement; and (b) was in existence immediately before the commencement. However, this section does not apply to a right or liability under an order made by a court before the commencement. (2) For the purposes of subsections (3) and (4), the new corporations legislation is taken to include: (a) the provision of the old corporations legislation (with such modifications (if any) as are necessary) under which the pre-commencement right or liability was acquired, accrued or incurred; and (b) the other provisions of the old corporations legislation (with such modifications (if any) as are necessary) that applied in relation to the pre-commencement right or liability. (3) On the commencement, the person acquires, accrues or incurs a right or liability (the substituted right or liability ), equivalent to the pre-commencement right or liability, under the provision taken to be included in the new corporations legislation by paragraph (2)(a) (as if that provision applied to the conduct or circumstances that gave rise to the pre-commencement right or liability). Note: If a time limit applied in relation to the pre-commencement right or liability under the old corporations legislation, that same time limit (calculated from the same starting point) will apply under the new corporations legislation to the substituted right or liability - see subsection 1402(3). (4) A procedure, proceeding or remedy in respect of the substituted right or liability may be instituted after the commencement under the provisions taken to be included in the new corporations legislation by subsection (2) (as if those provisions applied to the conduct or circumstances that gave rise to the pre-commencement right or liability). Note: For pre-commencement proceedings in respect of substituted rights and liabilities, see sections 1383 and 1384."

1010 In Shum Yip Properties Development Ltd v Chatswood Investment and Development Co Pty Ltd (2002) 40 ACSR 619, Austin J analysed the operation of the transitional provision, and in particular s 1401 at 622-623 [9]-[12]. His Honour said in substance that an acquired, accrued or incurred right or liability under the old legislation that was in existence immediately before the commencement of the new legislation was enforceable under the new legislation as though the relevant provisions of the old legislation formed part of the new legislation. His Honour said: "[9] The Corporations Law was replaced by the Corporations Act 2001 (Cth), effective on 15 July 2001. The operation of the transitional provisions in Chapter 10 of the new Act is intricate. Rather than seeking to preserve the provisions of the Corporations Law with respect to matters that occurred, and proceedings that commenced, before 15 July 2001, the transitional provisions of the new Act generally have the effect of substituting new, corresponding rights and liabilities and deeming new corresponding proceedings to have been commenced: see s 1370. For the purposes of the present case, the key provisions are ss 1401, 1408 and 1383.

[10] Section 1401 applies where a right or liability has arisen under a provision of the old corporations legislation that was no longer in force immediately prior to 15 July 2001. Thus it applies where a person in the position of Ms Wong incurs a liability to a person in the position of CIDC for breach of a civil penalty provision regarding the statutory duties of corporate officers, and is exposed to a statutory action for damages under the civil penalty provisions, in the form in which those provisions existed before 13 March 2000. Section 1401 (2) says that the new corporations legislation is taken to include the provision of the old corporations legislation (with such modifications (if any) as are necessary) under which the pre-commencement right or liability arose, and as from 15 July 2001 persons with rights and liabilities under the old legislation acquire equivalent rights and liabilities under the provision taken to be included in the new corporations legislation (s 1401 (3)). Section 1408 has the effect of preserving the old transitional provisions, including ss 1471 and 1473, under which rights and liabilities that arose before 13 March 2000 have been preserved notwithstanding the Corporate Law Economic Reform Act. In effect, therefore, we are to read the new Corporations Act as if it contains provisions equivalent to the old ss 232 (2) and (6), 246AA, and 1317HD, in the form in which those provisions existed prior to 13 March 2000 (with any necessary modifications, but I cannot see that any modifications are needed).

[11] Section 1383 of the new Act has the effect that, in the present circumstances, a new proceeding under the Act, equivalent to the proceeding before the commencement of the Act, is taken to have been brought in this Court, but the Court is taken to be exercising federal jurisdiction under the provisions of the new corporations legislation that correspond to the relevant old provisions. As Note 2 (b) to s 1383 (3) points out, the "provision of the new corporations legislation" under which such proceeding is taken to have been brought is the provision deemed to have been included in the new legislation by force of s 1401 - that is, a new provision having the same effect as the Corporations Law provision prior to the amendments of 13 March 2000.

[12] The simple conclusion emerging from this tangled reasoning is that one continues to apply the substance of the pre-13 March 2000 provisions of Corporations Law, treating those provisions as if they were part of the new Corporations Act. For the remainder of these reasons for judgment I shall use the old section numbers, ss 232, 246AA and 1317HD, without specifying the statutory source, but in each case meaning to identify the artificial provision deemed to have been inserted in the new Act in the fashion that I have described. As far as I can tell, the old, intermediate and new provisions are so similar in substance that my conclusion as to the applicable law has a potential impact in the present case in only two respects." 1011 It is apparent from what his Honour said at 622 [10] that s 1401 applied to a liability that had been incurred "for breach of a civil penalty provision regarding the statutory duties of corporate officers" leading to exposure "to a statutory action for damages under the civil penalty provisions". That - at least in relation to the Corporations Law claims - includes the plaintiffs' claims against the directors and Messrs Williams and Aroney. 1012 The validity of s 1401 was confirmed by the High Court in Forge v Australian Securities and Investments Commission (2006) 229 ALR 223. 1013 On that basis, I think, the applicable legal regime for what I will continue to call the Corporations Law claims is to be found in the Corporations Act 2001, which for the purposes of those claims is to be treated as though it included (with all necessary amendments) those provisions of the Corporations Law under which the claims arose. 1014 Thus, I conclude, the plaintiffs' claims against the directors and Messrs Williams and Aroney, founded on the provisions of the Corporations Law to which I have referred, remain available. They are in strictness claims under the Corporations Act 2001, as though the relevant provisions of the Corporations Law were provisions of that Act. No party submitted that there was any "necessary" modification required to be made to the relevant provisions of the Corporations Law. ASIC Acts 1015 Section 12DA of the ASIC Act 1989 prohibited a corporation from engaging in misleading or deceptive conduct in relation to financial services. The definition of "financial service" in s 12BA referred to providing, or services supplied in relation to, a "financial product". In the same section, a "financial product" was defined to mean, among other things, a security. The expression "security" was not defined in the ASIC Act 1989, and therefore has the same meaning as it has under the Corporations Law (strictly speaking, of the Australian Capital Territory): s 5(2) of the ASIC Act 1989. The case proceeded on the basis that the converting notes were securities. No one has submitted to the contrary: indeed, the submissions of various defendants to the effect that s 52 of the Trade Practices Act had no operation, because of the exclusions in relation to financial services (s 51AF) necessarily assumed that they were. 1016 Section 12GF of the ASIC Act 1989 provided a remedy to a person who suffered loss or damage. That remedy was against the contravenor or "any person involved in the contravention". Section 5(3) provided, relevantly, that s 79 of the Corporations Law as it then stood applied "as if the provisions of this Act were provisions of that Law". By that mechanism, the test of involvement in s 79 applies for the purposes of an action under s 12GF to recover loss or damage for contravention of s 12DA. 1017 The ASIC Act 1989 was repealed on 15 July 2001, and the ASIC Act 2001 commenced. Section 276 of the ASIC Act 2001 contains a "savings" regime relating to rights or liabilities that were acquired, accrued or incurred under a carried over provision of the old ASIC legislation, and that were in existence immediately before the commencement. Section 12DA was a carried over provision under old ASIC legislation: see the definitions in s 254(1) of the ASIC Act 2001. 1018 Section 276(2) provides that on the commencement of the ASIC Act 2001, the person having such an acquired, accrued or incurred right or liability acquires, accrues or incurs an equivalent right or liability under the corresponding provision of the ASIC Act 2001 "as if that provision applied to the conduct or circumstances that gave rise to the pre-commencement right or liability." Section 276(3) provides that the right or liability may be enforced under any relevant provision of the ASIC Act 2001. 1019 The scheme is thus somewhat similar to the scheme under s 1401 of the Corporations Act 2001, although (because the ASIC Acts have almost identically corresponding provisions) there is no need for the provision of the old Act to be, as it were, brought up into the new. (Where there is no corresponding provision under the ASIC Acts, section 277 may apply.) 1020 The analysis of Austin J in Shum Yip as to acquired, accrued or incurred liabilities (see paras [1010] and [1011] above under s 1401 of the Corporations Act 2001) applies with equal force to the same concept in s 277 of the ASIC Act 2001. 1021 Thus, accrued rights and liabilities under the ASIC Act 1989 are enforceable pursuant to, and as rights or liabilities under, the ASIC Act 2001. Fair Trading Act 1022 The plaintiffs rely also on s 42 of the Fair Trading Act. Section 42 had no operation from 13 March 2000 in relation to dealings in securities (see s 955A of the Corporations Law) by the Corporate Law Economic Reform Program Act 1999 (Cth) and now s 1041K of the Corporations Act. 1023 No defendant submitted that s 42 of the Fair Trading Act was incapable of operation in the circumstances alleged in 6FAS paras 103 to 131. The interaction between the general regime under s 42 and the specific regime under Part 7.11 of the Corporations Law, in relation to the same subject matter, is a topic of great difficulty. There is a real question whether it is an appropriate inference from s 1041K (and from s 995A before it) that the legislature intended the Corporations Act (or Law) to be the sole repository of rights and liabilities for misleading or deceptive conduct relating to financial products or financial services from 13 March 2000. In circumstances where the parties did not address this issue, I do not propose to deal with it. 1024 The directors and Messrs Williams and Aroney did however submit that there was no allegation of any "conduct" (whether by act, omission, silence or otherwise) on their part to ground the allegation based on s 42 of the Fair Trading Act. I think that that submission is correct. The allegation of breach of s 42 is made in 6FAS para 154(e), "by reason of the matters pleaded in paragraphs 103 to 131". The only allegations that are specific to them are those of knowledge of the circumstances relied upon by the plaintiffs to falsify the representations alleged against NCRH in paras 104 to 109, and knowledge alleged elsewhere (for example, paras 127 and 130). The only other relevant matter is the "duty" alleged in para 128. Neither the legal source nor character of that duty (which is said to arise from the representations, the circumstances said to falsify them and the alleged knowledge of those falsifying circumstances) are spelled out. Nor is there any allegation of breach of that duty. 1025 In those circumstances, I think, it is correct to say that 6FAS does not plead a freestanding case of misleading or deceptive conduct against the directors and Messrs Williams and Aroney, based on s 42 of the Fair Trading Act. That is because there is no pleaded case to give content to the bare allegation of misleading or deceptive conduct contained in para 154(e). 1026 It follows that in principle the available legislative regimes are:

(1) The Corporations Act 2001, insofar as by s 1401 it picks up those sections of the Corporations Law on which the plaintiffs rely (both as to principal liability and as to accessory liability);

(2) The ASIC Act 2001, insofar as it picks up s 12DA of the ASIC Act 1989 and gives a remedy for the alleged contravention (relevant to accessory liability only); and

(3) Section 42 of the Fair Trading Act (in relation to principal liability). 1027 In dealing with issue 60, I considered the following questions:

(1) To what extent were the representations alleged in 6FAS paras 104 to 109 made by NCRH?

(2) To what extent were those representations falsified as at 18 November 1998 by the matters alleged in 6FAS paras 111, 114, 115, 117, 119 and 121? 1028 I concluded that the representations (to the extent that I had found they were made) were not falsified by those of the alleged falsifying events that I found had occurred. 1029 As will be seen from what I have said, the plaintiffs' case after 18 November 1998 is that the various representations alleged in 6FAS paras 104 to 109 were falsified (or further falsified) by the matters alleged in para 129, and that the directors and Messrs Williams and Aroney knew, or ought to have known, of those matters. I have considered the extent of their knowledge of the matters alleged in para 129 in considering issue 63 (and I considered the extent of their knowledge of the falsifying matters alleged in sub para (2) of para [1027] above in relation to issue 62). 1030 I think that the most convenient way to deal with this issue is to take each of the representations, to the extent that I have found they were made, and to see whether they are capable of being falsified, and were falsified, by any of the six categories of event into which the plaintiffs divided the allegations made in 6FAS para 129 (see para [859] above). 1031 When, in what follows, I refer to the representations or groups of representations by the title that the plaintiffs gave them and I have adopted, it should be understood that in each case I am referring to only so many of the representations in each group as I have found were made. The Prospectus Balance Sheet Representations 1032 These representations, either in terms or on their proper reading, speak of the position of NCRH as at 30 June 1998. It follows that the subsequent events alleged in 6FAS para 129 are not capable of falsifying them. 1033 If I am wrong in my view that the representations as to the balance sheet spoke only as at 30 June 1998 then, for the reasons that I give below in paras [1039] to [1042], the failure to disclose the position in relation to Trowbridge's updating of its assessment of claims reserve was misleading or deceptive. The Prospectus NTA Representations Vesta 1034 I do not think that the events alleged in relation to Vesta falsify these representations. I refer to what I have said in paras [863] to [865] above. Mr Saville's understanding of this aspect of the prospectus was one that any reasonably careful and intelligent reader would garner from it. The events alleged in 6FAS para 129(a), (b), (i) and (o) considered separately or together, do not falsify or qualify the position so understood. Additional stop loss cover 1035 6FAS para 129(c)-(f) sets out the circumstances in which the relevant wording was included in the prospectus. The matters alleged in sub paras (h) and (p) make it plain that NCRH was having difficulty in obtaining additional stop loss cover: at least, on acceptable terms. As sub para (s) correctly states, the converting notes were issued although NCRH had not obtained any additional stop loss cover. 1036 On a fair reading, the representation as to additional stop loss cover in the prospectus did not state that it would be obtained: either prior to the issue of the converting notes or at all. It follows that the failure to obtain the cover prior to issue of the converting notes cannot have falsified the representation. 1037 Further, investors must be taken to have understood from the disclosure made in the prospectus that further stop loss cover might not be obtained. They must be taken to have subscribed with that understanding. Whilst it might have been of interest to some investors (with a particular interest in the minutiae of the reinsurance business) to know whether or not additional stop loss cover had been obtained, it does not follow that it was necessary to disclose that it had not been obtained. Neither the failure to obtain additional stop loss cover nor the failure to disclose that it had not been obtained could have been misleading or deceptive. 1038 In this context, it may be worth noting that Mr Saville displayed no interest whatsoever in this aspect of the prospectus; and although he sought information from Messrs Daya and Williams in the meeting shortly prior to the issue of the 23 December 1998 ASX announcement, he did not on any version of that meeting raise the question of additional stop loss cover. Hurricane Georges: Trowbridge's updating of its assessment of reserves 1039 It is convenient to consider these matters together. 1040 For the reasons that I have given, the allegation in relation to Hurricane Georges is factually inaccurate (see para [902] above). To the extent that the true situation (a USD3 million gap in the retrocession cover) impacted on the discounted net claims liability, it falls within the question relating to Trowbridge's updating of its assessment of reserves. 1041 For the reasons that I have given in paras [996] and [997] above, the information conveyed by Trowbridge to Mr Daya and through him to NCRH was material. A deterioration in reserves (had it occurred) of either of the orders of magnitude disclosed to Mr Daya would have had a significant impact on the NTA per share. One of the key features of the converting note issue was the represented NTA per share (and the comfort that this would give noteholders through their priority over shareholders and, assuming that things went to plan, the conversion mechanism). A deterioration in reserves of the order disclosed would translate to a gross diminution in NTA per share of approximately USD0.70 to USD0.80. Of course, this gross impact might require to be adjusted by reason of other matters; but the sheer magnitude of the possible impact required disclosure. 1042 It must follow that, having regard to the representations as to NTA that I have found were made in the prospectus, the failure to disclose the possible or likely significant impact of the deterioration in reserves was misleading or deceptive. The proposed special prudential margin 1043 If one takes Mr Daya's e-mail of 8 January 1999 at face value (see para [933] above), there could be no impact on NTA. The proposal was to show certain reserves as special prudential margins rather than to include them in IBNR. The creation of a special prudential reserve as apparently proposed by Mr Daya would have been offset by an equal diminution in the IBNR figures for the affected contracts. The alleged liquidity crisis 1044 I do not think that questions of liquidity, or cash flow, are relevant to the NTA representations. The Converting Note Security Representations 1045 I do not think that it is necessary to consider the alleged falsifying events separately. The subsequent matters alleged in 6FAS para 129 do not in terms affect the representation alleged in sub para (a), which speaks as at 30 June 1998. However, disclosure of those matters (specifically, the deteriorating claims position) would have made it plain that the shareholders' funds as at 31 December 1998 were likely to be substantially less than they were at 30 June 1998. The Prospectus Purposes of the Capital Raising Representations 1046 Again, I do not think that it is necessary to consider the alleged falsifying events separately. In terms, the subsequent matters referred to in 6FAS para 129 do not bear on these representations. However, if the deteriorating claims position had been disclosed, any reader would have understood that the capital raising was unlikely to augment the capital of NCRH; at most, it might sustain its present, diminished and diminishing level. The Prospectus Claims Reserve Adequacy Representations 1047 The matters communicated by Trowbridge to Mr Daya on 23 and 29 December 1998, and again on 8 and 11 January 1999, must have made it plain to him, and through him to NCRH, that the Prospectus Claims Reserve Adequacy Representations could no longer be regarded as accurate. 1048 That being so, and because I do not think that the other categories of alleged falsifying events really bear on this representation, I do not propose to consider them separately. Conclusion 1049 As I have said, the matters communicated by Trowbridge to Mr Daya, and through him to NCRH, in December 1998 enlivened the operation of (at least) s 1024 of the Corporations Law. In addition, I think, those matters and the matters thereafter communicated by Trowbridge to Mr Daya, and through him to NCRH, imposed on NCRH an obligation of disclosure. Its failure to comply with that obligation, whilst proceeding with the converting note issue, was in my view misleading or deceptive. Consequences for the directors and Messrs Williams and Aroney 1050 In substance, the only misleading or deceptive conduct that I have found relates to the deterioration in claims reserves, as notified by Trowbridge to Mr Daya in December 1998 and January 1999. To the extent that NCRH contravened its obligations under the Corporations Law, or the ASIC Act 1989, by not disclosing that deterioration, or by not issuing a supplementary prospectus, Mr Daya was clearly a person knowingly involved. 1051 I have concluded that none of the other directors, nor Messrs Williams and Aroney, was aware of the information communicated by Trowbridge to Mr Daya. It follows that they were not involved, knowingly or otherwise, in the contraventions. 1052 Further, I think, Mr Daya's conduct in withholding the information from his fellow directors and from management was, independently of his accessory liability, misleading or deceptive. However, in circumstances where that is what he did, there is no basis for concluding that the other directors or Messrs Williams and Aroney were guilty of misleading or deceptive conduct in the circumstances to which issue 68 refers. Issue 69: other contravening conduct 1053 The case against the directors is based on their having signed the prospectus. Clearly, that would attract the operation of s 996. However, that section speaks as at the date of issue of the prospectus, and I have found that the prospectus was not at that date relevantly misleading or deceptive. 1054 Even if Messrs Williams and Aroney "relevantly caused the issue of the Prospectus through their role on the DDC" (as the plaintiffs submit in their written submissions on this issue), the finding that the prospectus was not, when it was issued, relevantly misleading or deceptive means that they could have no liability under s 996. 1055 The plaintiffs rely also, as against the directors, on s 999. They submit that the directors, by authorising the issue of the prospectus, themselves made the representations contained in it - including those that the plaintiffs submit were misleading or deceptive. 1056 The plaintiffs rely on the decision of Austin J in Cleary & Anor v Australian Co-operative Foods Limited & Ors (Nos 2 and 3) (1999) 32 ACSR 701 at 717 [55]. The facts considered by Austin J were substantially different from the present facts, as a perusal of para [55] shows. The only director who made any personal representation by the prospectus was Mr Ghose, in his chairman's letter. Unlike the directors in Cleary, the directors in this case did not otherwise communicate to readers of the prospectus any recommendation, opinion or view as a recommendation, opinion or view of the board or its members. 1057 Thus, I think, his Honour's reasoning may be distinguished. But it is unnecessary to pursue this to finality, because, as I have said, I do not think that the prospectus as issued was relevantly misleading or deceptive. Issue 70: accessory liability 1058 The plaintiffs in their submissions rely on s 1006(2)(b) as against the directors, and on s 79 as against the directors and Messrs Williams and Aroney. 1059 Section 1006(1) makes it plain that the section deals with "conduct being the issue of a prospectus in relation to securities … in which there is a material statement that is false or misleading … or … from which there is a material omission." If (as I have concluded is the case) the prospectus was not misleading or deceptive, then the work of s 1006 is finished. It is not apt to fasten accessory liability on directors in circumstances where the prospectus, or more accurately representations in it, become misleading or deceptive by reason of supervening events, or where those events enliven the operation of s 1024. 1060 At the risk of repetition, the only conduct that I have found was misleading or deceptive, or in breach of statutory obligations, related to the probable deterioration in claims reserves as notified by Trowbridge to Mr Daya, and through him to NCRH, in December 1998 and January 1999, and the failure to take any appropriate action in response. I have found that Mr Daya kept this knowledge secret from his fellow directors and from management. It follows from my findings that no finding of knowing involvement, based on s 79, can be made against the directors other than Mr Daya or against Messrs Williams or Aroney. Issue 71: causation 1061 I have no doubt that, if the extent of the likely further deterioration had been disclosed in December 1998 or prior to 12 January 1999, the DDC would not have recommended to the delegates of the Board that it issue, and the Board would not have issued, the converting notes. Further, and notwithstanding Mr Saville's somewhat blasé attitude towards adverse events of which he became aware (including the advice of RBoS and the communication of deterioration contained in the 23 December 1998 ASX announcement), I think that an announcement of deterioration of the magnitude suggested by Trowbridge's model summaries in January 1999 would have persuaded him that the plaintiffs, to the extent that it was possible to do so, should not proceed with their investments. In other words, I think, Mr Saville would have sought to ensure that, so far as possible, the plaintiffs did not complete their commitments. 1062 The way in which this might have worked out would depend on the situation of individual plaintiffs. Those who had taken firm commitments, or who otherwise had agreed to subscribe, for notes would presumably have had one or other of the options contemplated by s 1024E of the Corporations Law, the effect of which might have been that they recovered their money. Those of the plaintiffs who agreed to underwrite the issue were in a different situation, because they did not have the protection of the prospectus provisions in the Corporations Law. However, I think, deterioration of the magnitude suggested by the Trowbridge model summaries of January 1999 would have convinced Macquarie that there had been a material adverse change, and that it should not expose its subunderwriters to the likely consequences of that change. I think that a likely deterioration of that magnitude would have persuaded Macquarie to terminate the sub-underwriting agreement, as undoubtedly it would have been entitled to do. 1063 Thus, I think, the losses suffered by those plaintiffs who had agreed to subscribe for converting notes or to subunderwrite the issue would have been avoided had Mr Daya and NCRH complied with their obligations. That would not have availed those of the plaintiffs whose alleged loss flows otherwise than from subscription or underwriting. In their cases, the misleading or deceptive conduct could not be said to be causative of any losses sustained by plaintiffs other than those for whom proper disclosure would have provided an avenue of escape. I return to this below, in connection with issues 90-92. 1064 Since I have found that the prospectus was not (nor were representations in it) misleading or deceptive when issued, this issue does not require consideration. Its resolution is not necessary for the plaintiffs' case based on such misleading or deceptive conduct as I have found did occur. Issues 73 to 78: Miscellaneous issues; Mr Aroney's knowledge 1065 One way or another, the findings that I have made mean that these issues do not arise for consideration. To the extent that there remains an issue as to Mr Aroney's knowledge that Macquarie proposed to provide the draft prospectus to potential subunderwriters and applicants for notes, I refer to what I have said in paras [317] to [319] above. I do not think that there is any real "issue" as to whether Mr Aroney knew of this through his participation in the relevant DDC meetings or whether (as the plaintiffs allege) he "knew" of it because he understood that there was some "usual practice" of the kind alleged in 6FAS paras 124 and 125. Issue 79: duty of care 1066 6FAS para 159 alleges that the directors and Messrs Williams and Aroney owed each of the plaintiffs a duty of care: "159. By reason of the matters pleaded in paragraphs 157 and 158, each of the Directors, and Williams and Aroney, owed to each of the plaintiffs a duty of care, at least during the period 18 November 1998 to 12 January 1999, and at all events prior to the allotment of the Converting Notes, to: (a) ascertain from Trowbridge its opinion as to the effect of the New Cap Group's claims experience on the claims provision which ought to be adopted by NCRH and, to the extent possible, the result and effect on NCRH's NTA;

(b) require Trowbridge to report to the Due Diligence Committee as to the impact of the New Cap Group's recent claims experience on the claims provision which ought to be adopted by NCRH and, to the extent possible, the resultant effect on NCRH's NTA;

(c) obtain such opinions and reports from Trowbridge prior to forming any view that there had been no material changes in the affairs in the New Cap Group in the period after 18 November 1998, prior to the allotment of the Converting Notes on 12 January 1999; and

(d) ensure that all representations made in the Prospectus were true, accurate and complete and did not misrepresent the financial position of NCRH." 1067 6FAS para 157 repeats paras 123-128. Those paragraphs deal with what the plaintiffs say was Macquarie's provision to them of the draft prospectus, to seek to persuade them to sub-underwrite the converting note issue or to take firm placements of converting notes (para 123). That is said to have been done pursuant to a "usual practice" whereby precommitments were sought before the issue of a prospectus, involving marketing to prospective sub-underwriters and applicants (paras 124- 126). It is said that the directors and Messrs Williams and Aroney knew that Macquarie would undertake that marketing process (para 127). Paragraph 128 (which refers not only to paras 123-127 but also to paras 103-122) alleges that each of the directors and Messrs Williams and Aroney had a duty to inform the plaintiffs of any change of circumstances that might falsify the various representations that had been previously alleged, or to ensure that the plaintiffs were informed. 1068 6FAS para 158 alleges that each of the directors and Messrs Williams and Aroney knew a number of matters, including that: "(h) persons intending to acquire Converting Notes or shares in NCRH following the issue of the Prospectus, including, without limitation, each of the plaintiffs, would rely upon the truth, accuracy and completeness of the representations made in the Prospectus;

(i) prospective sub-underwriters and investors, including the plaintiffs, would be relying on the information contained in the Draft Prospectus and in the Prospectus, including the information provided by Trowbridge in its Independent Actuary's Report in making decisions as to whether to participate as sub-underwriters and to invest in Converting Notes and shares in NCRH; ". 1069 In their written submissions in chief (chapter 5, para 22(4)), the plaintiffs characterised the duty of care as being one "not to cause economic loss by giving misleading information to the Plaintiffs". That duty is said to be one that required the directors and Messrs Williams and Aroney "to obtain an updated advice from Trowbridge as to the claims position of the group prior to making any decision to proceed with the allotment" (ibid). (The plaintiffs distinguished the position of Mr Daya, on the basis that as they submit and in substance I accept - see para [931] above - he obtained that advice but did not pass it on to the DDC.) 1070 The basis upon which the plaintiffs allege that the duty was owed is explained in their written submissions in chief, chapter 5, para 22(7) as being either an application of the general principles in relation to duties of care to prevent pure economic loss established by cases such as Perre and Woolcock Street Investments, or alternatively as an application of the principles relating to negligent misstatement deriving from Hedley Byrne & Co Limited v Heller & Partners Limited [1964] AC 465. 1071 The plaintiffs' submissions in reply to the written submissions for Mr Aroney may suggest (at para 48) that the basis for the alleged duty of care is only the first of those to which I have referred. Mr Aroney's written submissions had asserted (para 210) that "[t]he duty alleged is a duty to avoid pure economic loss to the plaintiffs by the making of misleading statements. It is a claim for negligent misstatement and not for the separate category of cases dealing with the negligent performance of a service … ". In reply, the plaintiffs said that they did "not agree that [their] claim in negligence against Mr Aroney is one of negligent misstatement. It is a claim in negligence of failing to avoid economic loss." 1072 Other passages in the plaintiffs' submissions in reply suggest a similar abandonment of the principles relating to negligent misstatement. See:

· para 34 (second dot point) of the submissions in reply to the legal submissions for Messrs Beach, Deery and Morrissey; · paras 12 and 13 of the submissions in reply to Mr Peck; and · para 49 of the submissions in reply to Mr Aroney. 1073 Further, the plaintiffs' submissions in reply to the legal submissions for Messrs Beach, Deery and Morrissey and to the submissions for Mr Peck focus on the role of the directors in causing NCRH to issue the prospectus (and, as the plaintiffs would have it, thereby to make the representations contained in the prospectus). If this focus is deliberate, it might suggest that different considerations apply, as between the directors on the one hand and Messrs Williams and Aroney on the other, in considering whether any duty of care, of the kind alleged in 6FAS para 159, was owed. 1074 In those circumstances, it is necessary to pay particular and close attention to the factors that I have identified in para [540] above, to the extent that they are relevant to the negligence case against the directors and Messrs Williams and Aroney. To the extent that they are relevant, they tell against the imposition of a duty of care. I will not repeat all of what I have said; but two points require particular attention. The legal context 1075 Of those factors, the seventh - the relevant statutory and common law context - is of particular significance. The plaintiffs appear to have recognised this. In para 37 of their submissions in reply to the legal submissions for Messrs Beach, Deery and Morrissey, they state: "37. The submissions which have been made on behalf of the Non Executive Directors neglect the significant role which the Directors, and in particular the Non Executive Directors, played in ensuring that information which was provided to the investing public for the purpose of investing in public securities was accurate. In the Corporations Law, its predecessors and successors, this is an area which has been highly regulated. The importance of the accuracy of that information insofar as confidence in capital markets in Australia is concerned has always been given significant prominence so far as the various State and Federal legislatures of this country are concerned. The only reason why a duty such as that which has been propounded in the 6FAS would not be found, is because the legislature has intervened to such a significant extent to ensure the accuracy and reliability of information which is provided to the investing public that the common law does not need to fill the void." 1076 Again, in para 13 of their submissions in reply to the submissions for Mr Peck, the plaintiffs state: "13. On the Plaintiffs' case, the negligence case against Mr Peck rises no higher than the misleading or deceptive conduct case: Mr Peck ought reasonably to have obtained the opinion of Trowbridge prior to expressing the opinion that he expressed on 12 January 1999, and prior to making the resolution that he, as a Director, made on that date in resolving to allot the Converting Notes." 1077 It is difficult to see why the concession made in relation to Mr Peck would not apply to the other directors. 1078 The plaintiffs do not appear to submit that they could succeed in negligence (at least against the directors) where they would fail on their statutory case; and the concession to which I have referred in para [1076] above seems to confirm that they accept this. That is to say, to adapt the words of McHugh J in Perre at 226 [120], it does not appear to be the plaintiffs' case that another body of law cannot effectively deal with their claim for economic loss. In those circumstances, it follows (as his Honour said) that the Court "should be slow to use negligence law to impose a duty of care". (See too Lord Steyn's "gap" analysis in Williams, referred to in para [540(6)] above.) 1079 Equally, where (as the plaintiffs concede, in the submission that I have set out in para [1075] above) there is a "highly regulated" scheme for protection of the investing public, there are real risks in imposing a common law duty of care. If the duty does no more than mimic the scheme of statutory protection, it is otiose - at least, where the plaintiffs fall within the class of those entitled to the benefit of the statutory scheme (as they submit they do), and where a duty of care offers them no greater protection (as they appear to accept). If a duty of care is alleged to have some more onerous incident or content than the scheme of statutory regulation, then (as I pointed out in para [588] above) the courts should be slow to go where the legislature did not. 1080 These considerations support the conclusion that there is no basis for the imposition of the duty of care alleged. Assumption of responsibility/reliance 1081 Another factor that supports this conclusion - and a factor of significance if the basis of the duty of care, as an application of the principles deriving from Hedley Byrne, is pressed - relates to assumption of responsibility and known reliance. 1082 The plaintiffs address this at some length in their written submissions on issue 79. However, those submissions elide the significant distinction between NCRH on the one hand and the directors and Messrs Williams and Aroney on the other. 1083 The prospectus was put out by NCRH. The representations made in it were made by NCRH. This analysis is consistent with the way that the plaintiffs have pleaded their "representational" case against the directors and Messrs Williams and Aroney. See 6FAS paras 104-109, which sets out the various representations alleged to have been made by NCRH "[i]n the Draft Prospectus and the Prospectus". 1084 It follows that if NCRH is liable for any inaccuracy in, or falsity or misleading or deceptive quality of, any of those representations, then that liability is direct. It is not a vicarious or attributed liability. That is why 6FAS para 132 alleges that, by reason of (among other things) those alleged representations and their alleged falsity or falsification, NCRH breached various provisions of the Corporations Law (or cognate provisions in other legislation). 1085 I have referred in para [540(6)] above to the decision of the House of Lords in Williams. In that case, their Lordships considered the circumstances in which a director or employee of a company might incur personal liability for misrepresentations made by the company. Lord Steyn (with whom, as I have said, the others of their Lordships agreed) said that, for the director or employee to incur personal liability, he or she must assume responsibility for the representations made by the company, and the plaintiff must have relied on that assumption of responsibility. His Lordship said further that the question of assumption of responsibility was to be judged objectively, and that the reliance must be reasonable. 1086 The decision in Williams has attracted both curial and extracurial criticism. As to the former: see the judgment of McPherson JA in Interchase Corporation Limited (in liq) v Grosvenor Hill (Queensland) Pty Limited (No 3) [2003] 1 Qd R 26 at 59 [77]. As to the latter: see the note by Mr Peter Watts at (2000) 116 LQR 525. 1087 McPherson JA pointed out that, at least where the liability of the corporation was a vicarious liability for the act or omission of its director or employee, the reasoning in Williams was "an inversion of the whole doctrine" of vicarious liability, and was "fundamentally opposed to the decision of the House of Lords in Lister v Romford Ice & Cold Storage Limited [1957] AC 555." 1088 For the reasons that McPherson JA gave at 59 [78], his consideration, and criticism of, the decision in Williams was obiter. Nonetheless, if I may say so with respect, it is compelling. 1089 However, it does not follow from what his Honour said that the reasoning in Williams is flawed, in its application to a case such as the present, where the liability of the corporation is direct rather than vicarious. 1090 I have some doubt that it is necessary to explore this issue to finality, because the duty of care that is alleged in 6FAS para 159 is, in substance, a duty to take steps (both specific and general) to ensure that representations made by NCRH in the prospectus were accurate. The breach of that duty alleged in para 160 does not assert that the directors or Messrs Williams and Aroney themselves made any negligent misrepresentation. The point arises only because of the plaintiffs' apparent reliance on the principles in relation to negligent misstatements (see para [1070] above), and only if, contrary to indications in the plaintiffs' submissions in reply, that is still pressed. 1091 If the point remains alive, the factual answer to it is that even if there were some assumption of responsibility by the directors or Messrs Williams and Aroney (the plaintiffs do not in terms submit, nor do I find, that there was), there was no evidence from Mr Saville that he (or through him the plaintiffs) relied on any such personal assumption of responsibility. The closest that the plaintiffs come to addressing this point is in their submissions in chief, chapter 5, para 22(6)(f), where they assert that the directors and Messrs Williams and Aroney "authorised the text of, and the issue of, the Draft Prospectus and the Prospectus for the purpose of inducing and inviting sub-underwriters and investors to invest … ", and that "[t]hose circumstances established a relationship (of reliance) between the Plaintiffs and the Directors." 1092 Even if it be assumed that the authorisation referred to in that submission amounted to assumption of personal responsibility (and I do not think that it did), there must be evidence of actual - and reasonable - reliance. There was not; and it is no answer to say (as the plaintiffs' submission may be read to say) that it can be inferred. In this context, it is worth repeating that Mr Saville's evidence of reliance, unsatisfactory as it was, was that he relied on the "package" of information provided to him by Macquarie (as he said) and NCRH. I do not think that he gave any evidence that he understood that the directors or Messrs Williams and Aroney had assumed personal responsibility for statements made in the prospectus, or that he relied on any such personal assumption of responsibility; if he did, the plaintiffs did not refer to it in their submissions. 1093 Thus, if it is necessary to show assumption of responsibility and reliance, to make good the duty of care alleged, the plaintiffs have not done so. Conclusion on duty of care 1094 I conclude that the directors and Messrs Williams and Aroney did not owe the duty of care alleged in 6FAS para 159. Issue 79 should be answered accordingly. Issues 80 and 81: breach, causation 1095 In view of my conclusion on issue 79, issue 80 does not arise, and should be answered accordingly. I have adverted to one aspect of the question of causation in paras [494] to [510] above, and return to it in paras [1107] to [1118] below. Issues 82 to 89: various matters 1096 One way or another, the various findings that I have made mean that these issues do not require consideration. Issues 90 to 92: damages 1097 The issues relating to causation and damages were intertwined and extensive. For example, one way or another, all defendants put in issue the plaintiffs' pleaded case that Mr Saville made investment recommendations to them, or their alternative unpleaded case, advanced in their evidence and submissions, that Mr Saville made investment decisions for them. 1098 The pleaded case, based on recommendations, must fail, because the plaintiffs have failed to prove the process of recommendation and decision making. There are serious flaws in the unpleaded alternative case. Some of those flaws flow from my general views on Mr Saville's credibility as a witness. Others relate to specific gaps and other problems in his evidence even if it were to be accepted at face value. Notwithstanding those difficulties, the general impression I have is that, one way or another, Mr Saville directly or indirectly caused the plaintiffs to enter into the various transactions upon which they rely to quantify their loss. I propose to consider two specific questions relating to damages on the assumption that this was so. Onmarket purchases 1099 The plaintiffs claim a net figure of AUD40,158,494.56. They break this figure down into four categories (written submissions in chief, chapter 4, para 4.7.1): "4.7.1 The Plaintiffs losses are the subject of the report of Silvia dated 31 March 2005 [ WIT.PLA.009.0001 ');" > WIT.PLA.009.0001 ]. Table 3 of Appendix 6 of Silvia's report [ WIT.PLA.009.0007 ');" > WIT.PLA.009.0007 ] sets out in tabular form the verified details of each of the transactions on which the Plaintiffs rely. The Plaintiffs do not press the claims for acquisitions after 24 February 1999. The Plaintiffs case is that Macquarie's misleading conduct was a substantial cause of their purchase of Rights, Notes and Shares in New Cap, with a net cost of $40,158,494.56 after deduction of receipts from sales. The losses may be further broken down into the following categories: 4.7.1.1 Acquisition of Notes on 12 January 1999 pursuant to obligations under sub-underwriting agreements entered into in 17 November 1998: $4,661,221.50; 4.7.1.2 On market purchases of Rights between 30 November 1998 and 18 December 1998 and the subsequent acquisition on 12 January 1999 of Notes pursuant to the exercise of those Rights together with the purchase of Notes pre-allotment with settlement deferred to 12 January 1999: $33,557,580.69;

4.7.1.3 On market purchases of Shares between 30 November 1998 and 8 January 1999: $2,349,217.03; and

4.7.1.4 On market purchases of Shares and Converting Notes between 18 January 1999 and 24 February 1999: ($30,692.72)." 1100 The draft prospectus and the prospectus were given to Mr Saville, and (let it be assumed) through him to the plaintiffs, to induce the plaintiffs to enter into sub-underwriting agreements and to agree to take firm placements of converting notes. The interests of NCRH and Macquarie were coincident: to "get away" the converting note issue. From the perspective of NCRH, it did not matter whether the issue was taken up by underwriters or subunderwriters or by applicants for notes, as long as it was assured, one way or other, of receiving the net proceeds of the issue. From Macquarie's perspective, it was desirable to place as many of the notes as possible through firm commitments, and to have sub-underwriting commitments in place to cover any shortfall. 1101 Neither NCRH nor Macquarie had any interest in creating a secondary market in rights to the converting notes. Nor was it in their interests, in relation to the converting note issue, for those who might otherwise invest in the converting note issue to acquire shares onmarket: at least where this was done as an alternative to taking up the converting note issue. The converting note issue, if successful, would augment the capital of NCRH. Onmarket dealings in its shares would not. 1102 I think it is plain that Mr Saville understood the purposes for which he was given the draft prospectus and the prospectus. Those purposes, and the limitation on the use of the documents, were made plain (if not otherwise) by the terms of the documentation to which I have referred in paras [304] to [311] and [586] above. 1103 ICM acquired some 1,323,656 converting notes, at a cost of $1,720,752.39, under its sub-underwriting agreement. AOITL acquired some 2,261,899 converting notes, at a cost of $2,940,469.21, under its sub-underwriting agreement. (In each case I refer, and will continue to refer, to both subunderwritten and firm placements.) 1104 As the plaintiffs' submissions make plain, the balance of their claimed losses relates either to the acquisition of notes pursuant to the exercise of rights acquired by onmarket purchases prior to 31 December 1998 or to the acquisition of shares or notes onmarket both before (in the case of shares) and after 31 December 1998. 1105 The question raised is whether the loss or damage established "by" such contravening conduct as I have found occurred relates only to loss (to the extent proved) on converting notes acquired pursuant to the sub-underwriting agreements (in the extended sense in which I am using that expression), or whether it extends also to loss (to the extent proved) incurred on converting notes and/or shares purchased onmarket. The test of causation 1106 I have dealt with this to some extent, and in the particular context of the indirect causation case, in paras [494] to [510] above. I will not repeat what I there said, to the extent that it is relevant to the question of causation generally. 1107 The test of causation under s 82 of the Trade Practices Act and its analogues, requiring proof of loss or damage suffered "by" contravening conduct, has been examined and explained in numerous cases. In Wardley, the High Court concluded that s 82, through use of the word "by", invoked the common law concept of causation. 1108 McHugh J explained this in Henville at 489 [95] and following. His Honour said at 489 [96] that the common law concept of causation should not "be rigidly applied without regard to the terms or objects of the Act." 1109 At 491 [98], McHugh J referred with approval to the observation of Mahoney JA in Barnes v Hay (1988) 12 NSWLR 337 at 353, to the effect that a decision on the question of causation "involves … a normative decision as to whether, for the purposes of the case, the precedent act for which the defendant is responsible should be seen as causal of the plaintiff's loss … that evaluation is made … by a functional evaluation of the relationship and the purposes and policy of the relevant part of the law." Thus, McHugh J said at 491 [99]-[100]: "[99] In Environment Agency v Empress Car Co (Arbertillery) Ltd [83] , Lord Hoffmann pointed out that common sense answers to questions of causation will differ according to the purpose for which the question is asked. Furthermore, not only may there be different answers to questions regarding causation when attributing responsibility to different people under different rules, but there may be different answers when attributing responsibility to different people under the same rule [84] . In Chappel v Hart [85] , Gummow J referred to his Lordship's statements in order to highlight the fact that the making of value judgments and the infusion of policy considerations may temper issues of causation.

[100] In some situations, the legal framework may require a finding that, despite a causal connection in a physical sense between the breach and damage, no causal connection exists for legal purposes. In other situations, the legal framework may require a finding that a causal connection exists even though no more appears than that the damage followed after breach of a legal norm." 1110 His Honour referred at 491 [101] and following to two classes of case. In the first class, an act or omission of the defendant may have started a series of physical events that caused damage to the plaintiff, or may have failed to start a series of physical events that would have averted such damage. In the second, damage occurred because the plaintiff acted to his or her detriment by reason of or following some conduct of the defendant. But, his Honour said at 492 [103], that conduct: "… will not be regarded as causally connected with the detriment if it provides no more than the reason why the person acted to his or her detriment. If the defendant intended the person suffering a detriment to act in the general way that he or she did, the common law will invariably hold that a causal connection existed between the conduct and the detriment. But if the conduct merely provides the reason why the person acted, it will not be sufficient to establish a causal connection unless the purpose of the legal norm that the defendant has breached is to prevent persons suffering detriment in circumstances of the kind that occurred. If a broker negligently advises a client to retain some shares because they are a good investment, the broker will be liable for the loss sustained in retaining those shares. But if, having received that advice, the client decides to buy more shares, the broker will not be liable for the further losses unless the terms of the original retainer imposed on the broker a duty to advise in respect of further purchases." (emphasis supplied) 1111 McHugh J then said at 493 [104] that in some cases, resolution of the question of causation would depend on the purposes of ss 52 and 82 of the Trade Practices Act: in particular, whether those sections were "directed to providing a remedy only in respect of conduct that is directed at individuals or a section of the public". It is plain that ss 52 and 82, and their analogues, are so directed: see the decision of the majority in Butcher at 604-605 [36]-[37]. 1112 In general terms, the object of the relevant provisions of the Corporations Law was to protect those contemplating investments in offers of securities to which those parts of the Law applied. The means adopted included both requirements of disclosure and the imposition of liability, civil and criminal, for some cases of inadequate disclosure. Any test of causation that did not recognise those objects and take account of the statutory scheme would be inadequate. But it by no means follows that attention to the objects and mechanics of the statutory scheme requires the test of causation to take into account those who might rely on the prospectus or other offering document to make investments beyond the scope of the document, or other than in the securities offered: at least, where the document was not communicated to such persons with the intention or expectation that it might be relied upon for that wider purpose. 1113 Section 2 of the Trade Practices Act states its object as being "to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection." There is no equivalent express statement in the Fair Trading Act, but, as Gleeson CJ pointed out in Tambree at 191 [30], the same questions arise in considering whether loss or damage has been suffered "by" contravening conduct. Further, as his Honour said at 191 [31], it is necessary to have regard to the relevant aspect of trade or commerce that attracts the operation of the statute. On the assumption that the Fair Trading Act is in principle applicable, the aspect of trade or commerce involved is the offering of securities; in which case, the purposes to which I have referred in the preceding paragraph again suggest themselves as indicative of the relevant norm. Again, it is not apparent why the relevant norm requires the question of causation to be answered in such a way that it would protect those who did not rely on the prospectus for its obvious or intended purpose. 1114 Similar considerations involving similar normative analysis would arise under the general law. In Empress Car Co (Abertillery) Limited v National Rivers Authority [1999] 2 AC 22, Lord Hoffmann said at 31 that "[b]efore answering questions about causation, it is … first necessary to identify the scope of the relevant rule." His Lordship's statement was cited by Gummow J, with apparent approval, in Chappel v Hart (1998) 195 CLR 232 at 256 [63]; see too Gummow and Hayne JJ in Tambree at 193 [45]. Where the cause of action is one for damages for pure economic loss sustained by negligence, close attention must be focused on the relationship between the parties and (at least in this country) the relative vulnerability of the plaintiff compared to the defendant. 1115 These issues were considered by the House of Lords in Peek v Gurney (1873) LR 6 HL 377. That was a case where the appellant received a prospectus, inviting him (or the public) to take up shares in a company. He did not do so. However, some months later, he bought shares onmarket. He did so on the faith of a representation in the prospectus which was found to have been false. The House of Lords concluded that the misrepresentation was not relevantly causative of the loss. Lord Cairns stated the relevant principle at 413 to be that, to recover damages for a fraudulent misrepresentation, the misrepresentation must have been made with the intention that it should be acted upon by the plaintiff in the manner that in fact caused the plaintiff's loss. Thus, his Lordship said, "[t]he Appellant in this case has entirely failed to connect himself with the representations made in the prospectus, of which in my opinion an original allottee might have complained, but of which the present Appellant cannot, I think, complain." 1116 In Possfund Custodian Trustee Limited & Ors v Diamond & Ors [1996] 1 WLR 1351, Lightman J considered (in the context of a strikeout application) the decision in Peek. His Lordship stated at 1365 that the decision was authority for the proposition that "the object of a prospectus was to provide the necessary information to enable an investor to make an informed decision whether to accept the offer thereby made to take up shares on the proposed allotment, but not a decision whether to make aftermarket purchases." (See too his Lordship's observation at 1359 that a prospectus "could only found liability if relied on for the purpose for which it was issued, namely making the decision whether to subscribe, and not if relied on for the purpose of deciding whether or not to make purchases in the market": for which he cited the decision in Peek.) 1117 In Commercial Banking Company of Sydney Limited v R.H. Brown & Company (1972) 126 CLR 337, Menzies J (with whom Barwick CJ agreed) referred to Peek at 343 as authority for the proposition that "[a] person who makes a false and fraudulent misrepresentation is only liable to the persons to whom it is made, i.e. to the persons whom it is intended should act upon it". The reference to intention requires consideration of the purpose for which the misrepresentation was made; and the normative considerations to which Mahoney JA referred in Barnes suggest that the question of causation should take into account the intended consequences of the misrepresentation, to the extent that they occur and that loss is caused thereby. That is certainly consistent with McHugh J's example of a stockbroker advising a client to retain shares (emphasised in the passage that I have quoted in para [1110] above). 1118 Of course, if the issuer of the prospectus intends that aftermarket purchasers should rely on it, liability will be attracted, as Lightman J recognised in Possfund at 1366 (and, indeed, as was recognised in Peek by Lord Chelmsford at 398-400 and Lord Cairns at 412-413). The plaintiffs in Possfund proposed to rely on evidence of market practice which, they said, would show "an additional perceived intention on the part of the issuer and other parties to a prospectus, … to inform and encourage aftermarket purchasers" (at 1365). Thus, Lightman J did not strike out the statement of claim. But he allowed the case to proceed, not because he thought that Peek was no longer good law but because, particularly in light of the decision of the House of Lords in Caparo Industries plc v Dickman & Ors [1990] 2 AC 605, the evidence foreshadowed by the plaintiffs might demonstrate "the necessary proximity … between those responsible for the prospectus and the purchaser" (at 1364). Proximity no longer forms part of the test under Australian law for determining whether a duty of care is owed in respect of pure economic loss. Analysis 1119 Mr Saville did not discuss with any of the defendants, or otherwise (with one possible exception) make known to them, that (as the plaintiffs would have it) he proposed to use the information conveyed to him not merely for the purposes for which it was conveyed - to consider sub-underwriting the converting note issue - but also to consider making much more extensive investments in the securities of NCRH. Nor (with the same possible exception) was there any reason for any of the defendants to believe that Mr Saville might harbour ambitions over and above those disclosed by the extent of the sub-underwriting participation to which he committed ICM and AOITL. 1120 The possible exception to which I have referred in the previous paragraph relates to the fact that, after 18 November 1998, various plaintiffs, through MECM as broker, purchased rights and shares (and, after 12 January 1999, notes) onmarket. Thus, the plaintiffs submitted, the Macquarie parties should have realised that the plaintiffs were relying on the prospectus for purposes other than the limited ones for which (as I have found) the prospectus and draft prospectus were provided to the plaintiffs. It is entirely unclear why Macquarie should have made the connection (specifically, between whoever it was in MECM that handled the plaintiffs' orders, and those - Dr McKenzie and others - who were involved in the capital raising). It is even less clear why Macquarie should have concluded that the plaintiffs were using the information given to them other than for the precise and limited purposes for which, as they had agreed in writing, it was given to them. It is completely unclear what the Macquarie parties should have done had they so concluded. But I do not need to pursue this to finality, given my conclusions on the case against the Macquarie parties. 1121 More significantly, for present purposes, the plaintiffs did not point to any evidence to show that they had communicated to any of the other defendants their onmarket activities in relation to securities of NCRH. Nor did they point to any evidence to show that they had communicated to any defendant their intention to use the information given to them not just for the purposes for which it was given but also for the wider purpose of informing their decisions to make the onmarket purchases to which they now point in proof of their claim for loss. I do not regard the plaintiffs' onmarket activities as providing any basis for extension of such liability as might exist in relation to the prospectus. 1122 One of the selling points of the converting notes was what was said to be the preferred position of noteholders, vis a vis shareholders, and the benefit of the discounted conversion formula. In those circumstances, I think, there is legitimate cause to enquire why a person who makes representations in respect of converting notes thus favoured (or said to be favoured) over ordinary shares should also be taken to have been making representations about the merits of the ordinary shares. This is a concrete example, on the facts of the present case, of the need to apply some limitation on the kinds and extent of recoverable damages. 1123 A person who authorises, or causes or is involved in, the issue of a prospectus has statutory liabilities in respect of the contents of the prospectus. Ordinarily, a prospectus will describe (as did the prospectus in this case) a defined offer of securities. If the plaintiffs' case is correct, an issuer, and those involved in the issue, may be liable not just to the extent of the offer of securities comprised in a prospectus but (depending on other transactions that are undertaken supposedly in reliance upon the prospectus) to the whole extent of the issued capital of the company to which the prospectus relates. And on the plaintiffs' case, that liability would exist even if the person to whom the prospectus was given made no reference to his or her intentions in relation to the use of it, over and above use obviously contemplated by the express terms and purpose of the prospectus. It is difficult to understand the normative considerations that would require the affixing of liability in those terms or to that extent. 1124 In my view, there is no policy or normative reason for holding NCRH and Mr Daya responsible for all the consequences, over and above the intended (and perhaps foreseeable) consequences, of their contravening conduct. 1125 I therefore conclude that the losses of the plaintiffs should be limited to losses (if any) sustained by them in consequence of their agreement to participate in the converting note issue either by taking firm commitments of notes or by sub-underwriting the issue. Did the plaintiffs prove any loss? 1126 Issue 90 raises for consideration the general question, whether the plaintiffs have proved their alleged loss. One aspect of that issue relates to the matters just discussed: the extent of the transactions for which NCRH and Mr Daya should in law be required to accept responsibility. 1127 Another aspect relates to the contention, advanced by all defendants, that the plaintiffs have not in fact proved that they suffered any loss. 1128 The plaintiffs' approach to this aspect of the case was to rely on evidence from Mr Gibbons, the liquidator of NCRA, as to the financial position of NCRH and NCRA in December 2005, and as to the expected return to shareholders. The plaintiffs also relied on various reports to creditors prepared by Mr Gibbons or under his supervision during the liquidation. 1129 One of the difficulties with this approach is that it takes no account of relevant events that occurred after 12 January 1999. There are at least two categories of such events:

(1) Claims made after 12 January 1999 on policies written before 31 December 1998; and

(2) Claims made after 12 January 1999 on policies written after 1 January 1999. 1130 To some extent, of course, claims in the first category would have been included in reserves: including as IBNR. But, as the results of December 1998 showed, there was a likelihood that unexpected claims might be received of a magnitude far beyond the IBNR component of the claims reserve. The plaintiffs' evidence did not indicate whether there were further such claims or, if there were, what was their magnitude. Nor did it indicate the extent and magnitude of claims falling in the second category. Mr Gibbons' evidence as to the financial position of the companies in December 2005 necessarily took into account all those, and no doubt other, events. 1131 The plaintiffs led no evidence to isolate and quantify the effects of such claims on the position of NCRH and NCRA as at December 2005. It is however plain that there must have been claims in the second category; and in all likelihood there were claims in the first. Mr Williams said that it was possible to differentiate between such claims based on data maintained in NCRH's computer system, the SICS system. That exercise was not done (although, it appeared, Mr Gibbons had done a somewhat similar exercise, in connection with NCRA's claim against Guy Carpenter, distinguishing between policies written before and policies written after September 1998). 1132 In substance, the plaintiffs say, I should infer from Mr Gibbons' evidence of the position as at December 2005 (and such evidence as may be gleaned from his reports prior to that date) that the notes acquired by the plaintiffs were valueless when they were issued on 12 January 1999, so that the plaintiffs have lost the entire amounts of their investments. 1133 Mr Gibbons expressed the opinion that, in circumstances that he defined, there would be no return to NCRA's shareholders. He gave the following evidence in relation to that opinion (T2360.37-2361.14): "Q. Could I ask you to reconsider that opinion, making an additional assumption, which I will give to you. If, in calculating NCRA's liabilities and, in particular, its liability for claims which have been made by cedents and IBNR, one only took account of claims arising from pre-12 January 1999 policies and IBNR arising from pre-12 January 1999 policies, are you in a position [to say], having regard to that assumption and also your earlier evidence, that there would not be any return to NCRA shareholders? A. No, I am not in a position to be able to give a definitive answer to that, although I would say that I would presume there would be significant overlap with some of the claims that we have added back in here in paragraph 12. But without the benefit of looking at some sort of analysis of the breakdown, then it would be difficult to establish.

Q. So the best you can say is that, in those circumstances, there may or may not be a dividend to the shareholders? A. Of NCRA?

Q. Yes, on that assumption. A. That's correct. As I sit here, that's correct." 1134 In other words, Mr Gibbons was not prepared to support the proposition that, if consideration of the relevant circumstances were restricted to policies written in and before 1998 and claims made under those policies, there would have been no return to shareholders. 1135 The plaintiffs accept that the assessment of their damages requires a comparison of the price they paid with the real or fair value of what they bought. That is correct: see HTW Valuers (Central Qld) Pty Limited v Astonland Pty Limited (2004) 217 CLR 640 at 656-657 [35]-[36]. (This is not a case such as that exemplified in the decision of the Court of Appeal in Abigroup Contractors Pty Limited v Sydney Catchment Authority (No 3) [2006] NSWCA 282, where it may be appropriate to assess damages on the basis of a loss under a discrete part of a contract. The plaintiffs did not put their case in this way.) In carrying out that assessment, it may be necessary, as the court pointed out in HTW Valuers at 657 [37], to disregard market value as evidence of real or fair value where the market value is "delusive or fictitious" (perhaps, because the market has been manipulated; or perhaps, more simply, because it has been misinformed). 1136 Mr Bartlett did give evidence of what he said was the net asset position of NCRH as at 31 December 1998. However, that evidence was tendered only against PwC (as I recorded at T7159.46). Accordingly, and to deal with foreshadowed cross-examination by parties against whom that evidence was not tendered and against whom PwC had not sought to adduce expert evidence, I directed pursuant to s 135 of the Evidence Act that, subject to the further leave of the Court, Mr Bartlett's evidence would be admitted only between the plaintiffs and PwC: T7161.31. No party has sought leave to rely on that evidence in any other way. 1137 In any event, as Mr Bartlett acknowledged in the joint report, there are real difficulties with his methodology because it did not take account of a number of relevant matters, including earned premium, investment income and expenses after 30 June 1998; and because, in any event, it contained duplications and other errors. 1138 There was evidence of the market value of shares in and converting notes of NCRH after 12 January 1999. That evidence should be treated with reserve: at least up until 24 February 1999. The significance of this date is that it was then that NCRH made its "tombstone" announcement, of the possibility of hitherto unnotified losses of about USD90 million. After that announcement was made, the price of the notes fell from their issue price, AUD1.40 to AUD0.90. Mr Saville did not sell, or cause the plaintiffs to sell, their investments; on the contrary, he saw this as a buying opportunity. (I record, as a side note, that until final submissions the damages claimed by the plaintiffs included what they said was the lost value of onmarket purchases after 24 February 1999.) 1139 Thus, there is evidence that even an informed market regarded the notes as having had some value - although I acknowledge, as the evidence showed, that the value of the notes declined fairly swiftly in trading after 24 February 1999. 1140 The plaintiffs have not sought to value NCRH as at 12 January 1999, on the basis that there should be taken into account what became known thereafter as to the true extent of its claims liabilities under policies written prior to 31 December 1998. Nor have they shown that its worthless state in December 2005 was causally unrelated to events that occurred after 12 January 1999 and were not causally linked to the contraventions that I have found. Nor, more generally, have they sought to show that the market value of the notes after the tombstone announcement of 24 February 1999 was misinformed, or otherwise not a reliable indicator that, contrary to the plaintiffs' case, the notes had some value. 1141 In those circumstances, I conclude, the plaintiffs have failed to prove the amount of the loss that they sustained "by" the contraventions that I have found. It is unnecessary to give any more detailed response to issue 91. Issues 93 and 94: miscellaneous 1142 The conclusions to which I have come make it unnecessary to deal with these issues. Issues 95 and 96: limitation issues 1143 Although these issues do not arise, I will deal with them for the reasons given in para [120(4)] above. Background 1144 By the summons filed on 16 November 2001, the plaintiffs made a claim against the directors and Messrs Williams and Aroney for damages for contravention of s 12DA of the ASIC Act 1989. However, the ASIC Act 1989 had been repealed, and the ASIC Act 2001 had commenced, some four months earlier: on 5 July 2001. As and from 5 July 2001, any extant claim under the ASIC Act 1989 became one under the ASIC Act 2001, for the reasons that I have given in para [1018] above. 1145 Section 278 of the ASIC Act 2001 preserved the three year time limit for causes of action under the ASIC Act 1989. Thus, the last date for bringing a claim under the 2001 Act but based on contravention of the 1989 Act was 12 January 2002. (The limitation period was subsequently extended - with effect from 11 March 2002 - but the plaintiffs did not submit that the extended limitation period applied to their cause of action.) 1146 The cause of action under the ASIC Act 2001 was introduced by 5FAS, which as I have said was filed on 1 December 2003 pursuant to leave granted on 14 November 2003. The parties' submissions 1147 Messrs Beach, Deery and Morrissey submit that they "were entitled to proceed on the basis that the actions brought under the TPA and ASIC Act 1989 were misconceived and that the claim was therefore limited to the regime of the Corporations Law and the FTA" (legal submissions, para 111). They submit that the claim under the ASIC Act 2001 is not identical to the Corporations Law and Fair Trading Act claims - referring in particular to what I have called the due diligence defences (ibid). Thus, they submit, "[t]he factual matrix for determination of the issues as introduced in the 5FAS is therefore somewhat different to the one that existed previously" (ibid para 112). They submit that the plaintiffs have not discharged the burden on them of demonstrating that the justice of the case requires the extension of time, with the effect of depriving them of their limitation defences (relying on the judgment of McHugh J (with whom Dawson J agreed) in Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 at 553-554). 1148 The submissions for the other directors and Messrs Williams and Aroney took the same approach, either expressly or in substance; and stressed that the plaintiffs have offered no explanation for the tardiness of their decision to plead the correct cause of action. Analysis 1149 The reality is that at all material times the directors and Messrs Williams and Aroney have faced claims based on contravention of s 12DA of the ASIC Act 1989: a law applicable at the time of the acts and omissions alleged against them. The reality, over and above this, is that they have always faced similar claims under other legislative regimes for the same acts and omissions. In substance, as opposed to form or technicality, no different cause of action was introduced by the amendments in question. 1150 None of the directors or Messrs Williams or Aroney pointed to any freshly alleged material fact or particular. Thus, their complaints of prejudice are as much applicable to the factual case originally alleged against them as they are to the case now alleged against them. The change in the legal characterisation of that case cannot of itself demonstrate any additional, let alone substantial, prejudice. 1151 To the extent that there has been prejudice because of delay, that prejudice flows from the plaintiffs' decision to commence proceedings over two and a half years after the accrual of their causes of action, and from the fact that the hearing of the proceedings (after numerous amendments) did not commence for another four years. It is not prejudice to which the amendments of themselves have contributed, save insofar as those amendments may have delayed the hearing and resolution: a submission that was not put. 1152 Whilst it is less than satisfactory that the plaintiffs have not fully explained the delay in their pleading the correct cause of action, that does not seem to me to be a reason to shut them out. 1153 Taking those matters into consideration, I do not think that the amendments of themselves - and it is the amendments of themselves with which I am concerned - impose any, let alone any significant, prejudice on the directors or Messrs Williams and Aroney. Accordingly, there is no basis to "otherwise order". Were it necessary to decide the point, I would conclude that the relevant amendments should date back to the filing of the summons on 16 November 2001. 1154 In those circumstances, it is not necessary to consider the extent to which the due diligence defences might have applied to misleading or deceptive conduct other than conduct of the kind referred to in s 1008A(1) of the Corporations Law. Conclusion on the case against the directors and Messrs Williams and Aroney 1155 As against all but Mr Daya, the plaintiffs' case fails because there is no direct or accessory liability for such contraventions as I have found NCRH committed. As against Mr Daya, the case fails because the plaintiffs have not proved that they suffered any loss by the acts or omissions that I have found give rise to principal or accessory liability on his part. It follows that the proceedings must be dismissed against the directors and Messrs Williams and Aroney, and that those defendants' cross-claims for contribution or indemnity likewise must be dismissed. THE CASE AGAINST PHILLIPS FOX Introduction 1156 As I have noted, the plaintiffs put two separate claims in their case against Phillips Fox. The first claim is based on s 10 of the Partnership Act. The plaintiffs say that Mr Peck accepted the office of director of NCRH, and acted as a director (including as a member of the audit committee of the board) and as a member of the DDC in the ordinary course of the business of, or with the authority of, the partners of Phillips Fox. Thus, the plaintiffs say, Phillips Fox is liable for the loss and damage sustained by the plaintiffs as a result of the wrongful acts and omissions alleged against Mr Peck. 1157 The second claim is an indirect causation claim. The plaintiffs say that Phillips Fox was guilty of misleading or deceptive conduct vis a vis the board of NCRH in relation to the prospectus, the alleged need to issue a supplementary prospectus, and the issue of the converting notes on 12 January 1999. 1158 To enable what follows to be understood, I set out the summary in Phillips Fox's written submissions of the case against them, noting that in para 1.2 of their written submission in reply, the plaintiffs expressed agreement "with the broad outline" of that summary: "A. INDIRECT CAUSATION CASE AGAINST PHILLIPS FOX (a) Case relating to prospectus

2. As against Phillips Fox, the plaintiffs contend that the prospectus was misleading in relation to Dresdner, Chase, Vesta and GCR. 3. The plaintiffs do not sue Phillips Fox under ss 996 and 1005, Corporations Law, as an issuer of the prospectus or as a person involved in a contravention under ss 79 or 1006(2). 4. Rather, the plaintiffs contend that either through s 995 or its analogues in the TPA, FTA or ASIC Acts, an adviser may be found liable to compensate an investor if it can be shown that the adviser made a misleading statement to the board of the company issuing the prospectus. In this case, the plaintiffs contend that, as a member of the DDC, Phillips Fox mislead the directors of NCRH and that the plaintiffs can recover in those circumstances. 5. The plaintiffs contend that no defences can be raised by an adviser to the issuer of a prospectus under the Corporations Law or the FTA as a matter of law. 6. The plaintiffs contend that their claims under ss 995 and 1005 against Phillips Fox are preserved notwithstanding the repeal of those sections. 7. The plaintiffs contend that the Court should answer the reserved question in Ingot v Macquarie (No. 3) [2005] NSWSC 255 relating to the amendment introducing the indirect causation claims against Phillips Fox in 6FAS such that those claims relate back to the time of commencement of the proceedings. 8. The plaintiffs contend that Phillips Fox made opinion representations to the NCRH board with respect to each of Chase, Dresdner, Vesta and GCR. In relation to these four matters: (a) the allegations concerning Chase, Dresdner and Vesta are generally based on the admitted knowledge of Mr Mutton; (b) in relation to GCR, the plaintiffs rely on a hotly disputed conversation between Mutton and Peck, contend that Peck's evidence should be preferred to Mutton on the topic and thus that Mutton had the knowledge allegedly communicated by Peck on the matter. 9. The plaintiffs contend that if it is found that the representations made by Phillips Fox to the board were misleading, the Court should find as a matter of causation that, but for the misleading conduct of Phillips Fox, no prospectus would have been issued, the plaintiffs would not have invested in the notes and therefore Phillips Fox must compensate the plaintiffs for the full amount of their investments. 10. The plaintiffs' alternative case on causation depends on reliance by Saville on allegedly misleading representations contained in the prospectus. (b) Plaintiffs' case relating to supplementary prospectus 11. The plaintiffs contend that by 17 December 1998, there were significant changes affecting matters in the prospectus and both NCRH and Phillips Fox via Mutton became aware of those matters by 17 December. However, Phillips Fox did not give written notice to NCRH under s 1023A and a supplementary prospectus was not lodged under s 1024. 12. Notwithstanding 11, Phillips Fox is not sued directly under s 1023A and s 1005. 13. The plaintiffs contend that the advice given by Phillips Fox (Mutton) was misleading on the topic of supplementary prospectus. 14. The plaintiffs contend that if a decision had been made to issue a supplementary prospectus, the issue would not have proceeded and no loss would have been suffered by the plaintiffs and therefore the plaintiffs are entitled to be compensated under s 1005 and its analogues. (c) 12 January 1999 representations 15. The plaintiffs contend that on 12 January 1999: (a) Peck made representations at the DDC meeting on behalf of Phillips Fox; (b) Peck's representations were misleading and led the committee of directors (including himself!) to authorise the issue of the notes. 16. But for the misleading conduct in 15, the plaintiffs contend no notes would have been issued, no loss would have been suffered by the plaintiffs and therefore the plaintiffs are entitled to be compensated under s 1005 and its analogues. B. SECTION 10 CASE 17. The plaintiffs contend that all of Peck's conduct as director, including his sitting on the DDC, was within the business of Phillips Fox as defined in the Partnership Agreement. The plaintiffs then make the related contentions in 18 to 22 below. 18. Peck was in fact acting in that capacity at all relevant times. 19. Peck was acting with the authority of his co-partners as director and member of the DDC at all relevant times. 20. Peck committed certain legal wrongs while acting in the course of business of Phillips Fox and with Authority. 21. The conduct in 17 to 20 falls within section 10, Partnership Act. 22. Peck, and therefore Phillips Fox, are liable to compensate the plaintiffs." Issues 97 to 99: the section 10 case 1159 It is unnecessary to go to the detail of issues 97 to 99, because the section 10 case must fail, for either of two reasons:

(1) I have found that the plaintiffs' case against Mr Peck fails at the level of liability, so that there is no liability to be attributed to Phillips Fox if (and assuming) that s 10 would otherwise make Mr Peck's partners at the time liable.

(2) The plaintiffs have not proved that they have suffered any loss. 1160 That leaves the indirect causation case. I have come to the conclusion that it must fail for any of three reasons:

(1) The claim is not in law available to the plaintiffs.

(2) Even if the claim were in law available, indirect causation is not made out on the facts.

(3) The plaintiffs have not proved that they suffered any loss. 1161 I will deal with those matters by reference to their relevant issues, and leave the remaining issues (limitation questions excepted) alone, on the basis that, by reason of the conclusions that I have just summarised, they do not arise. 1162 Included in the issues that I will leave unresolved are those advanced by former partners in the firm who retired between 18 November and 31 December 1998. Issue 100: knowledge 1163 Quite apart from what should be obvious and well understood reasons for not deciding moot points, there is a particular problem with the factual issues as between the plaintiffs and Phillips Fox. For example, issue 100 enquires whether the knowledge or conduct of Messrs Peck and Mutton during defined periods is to be attributed to Phillips Fox. That issue involves more than the circumstances on which the plaintiffs rely to attract the operation of s 10 and related principles. It involves also the question of what knowledge was possessed by Mr Peck and Mr Mutton at the relevant times. The plaintiffs' submissions on this topic are difficult to follow. They attempt to deal with issues 99 to 101 together, under various headings; they conflate issues relating to conduct with issues relating to knowledge (and conduct and knowledge are not always the same thing); and in the case of Mr Mutton in particular, they do not address specifically and in detail the allegations of knowledge made in 6FAS paras 178L to 178P (some of which are of themselves lengthy and all of which incorporate by reference - and sometimes extensively so - earlier paragraphs). Instead they take the approach of addressing knowledge (jumbled up with conduct) under various headings - Dresdner, Chase and Vesta - and move from there to a consideration of the supplementary prospectus issue, the stop loss cover issue and the 12 January 1999 DDC representations. 1164 It is very difficult indeed to seek to extract from those submissions a clear statement of the relevant knowledge that the plaintiffs say Mr Mutton possessed on the topics that are the subjects of 6FAS paras 178L-O, and of the evidence on which they would rely in support of such a submission. In many cases, of course, as a glance at the relevant paragraphs will show, both the knowledge and its source are obvious: for example, in many cases, the plaintiffs particularise documents to or from Mr Mutton, or manifestly considered by him. But that is not always so. 1165 The difficulty is compounded because the submissions for Phillips Fox whilst paying lip service to the statement of issues (in that from time to time they refer to various issues) are propounded, with some degree of repetition, on a thematic basis. Thus, as with (for example) the submissions for Messrs Beach, Deery and Morrissey, it is necessary to hunt through a number of sections of those submissions to seek to ascertain the entirety of Phillips Fox's submissions as to Mr Mutton's knowledge on a particular topic. 1166 It may be said with some degree of confidence that Mr Mutton knew, or ought to have known, of the substance of most of the topics referred to in 6FAS paras 178L-O; because in most cases, as I have said, the particularised source of knowledge makes it plain that this must be so. But there are exceptions: for example, the allegation of knowledge of the details of the GCR transactions alleged in para 178L(d) - in particular, knowledge of the existence and impact of leg 2. There are also paragraphs (for example, para 178L(bb)) which refer back to earlier paragraphs, in circumstances where those earlier paragraphs do not particularise the source of knowledge, either as to Mr Mutton or otherwise. 1167 Both the subject matters alleged to have been known and the means by which they are alleged to have been known are by no means clear, and the parties' submissions on the topic are unclear and diffuse. In those circumstances, I do not think that it is appropriate to undertake what in any event, having regard to the views to which I have referred in para [1160] above, is an exercise that leads nowhere in terms of the resolution of these proceedings. Issue 101: misleading or deceptive conduct? 1168 Because the indirect and direct causation cases fail, it is unnecessary to consider this issue, although some aspects of it are dealt with in paras [1173] to [1194] below (and other aspects of it have been dealt with above, in my consideration of the plaintiffs' case against the directors and officers). Issue 102: causation; is reliance by Mr Saville essential? 1169 In dealing with this issue, I assume that the applicable legislative regimes are those established by the Fair Trading Act and the Corporations Law to the extent that they are pleaded against Phillips Fox. The assumption is safe, insofar as it sets to one side the Trade Practices Act and the ASIC Acts 1989 and 2001, because the plaintiffs accepted that those regimes did not apply (written submissions in reply to Phillips Fox, paras 1.20-1.21). 1170 Phillips Fox submitted further that s 42 of the Fair Trading Act had no application, because the conduct alleged against them was not "in trade or commerce". For reasons that will be apparent from the summary of conclusions that I have given, it is not necessary to resolve that issue. 1171 In considering this aspect of the plaintiffs' case, it is necessary to bear in mind (as the summary of it set out in para [1158] above makes clear) that the plaintiffs do not allege that Phillips Fox made any representation direct to them; a fortiori, they do not allege that they relied on any such representation. 1172 I dealt with the plaintiffs' indirect causation case against the Macquarie parties in paras [494] to [510] above. There is no material distinction between the legal structure of the indirect causation case pleaded against the Macquarie parties and the legal structure of the indirect causation case pleaded against Phillips Fox. Thus, the conclusion that I expressed in para [511] relating to the indirect causation case pleaded against the Macquarie parties must apply equally to the indirect causation case pleaded against Phillips Fox. Reliance by the directors 1173 In 6FAS paras 178Q to 178U, the plaintiffs allege a series of representations said to have been made by Phillips Fox to the DDC, the board or both, on dates between 5 and 18 November 1998. 1174 6FAS para 178W alleges a "supplementary prospectus representation" said to have been made by Mr Mutton on behalf of Phillips Fox on about 17 December 1998, to the effect that in his opinion, based on the information then available, NCRH was not required to issue a supplementary prospectus. 1175 6FAS para 178X alleges representations made by Phillips Fox to the DDC immediately prior to the DDC's supplementary representations of that date to the board's delegates, pursuant to which (the plaintiffs say) those delegates resolved to issue the converting notes. 1176 Reliance is dealt with in 6FAS paras 178AD to 178AF. In substance, the plaintiffs allege that:

(1) On 18 November 1998, in deciding to make his or her own DDC representation to the board, each other member of the DDC relied on the representations hitherto made to the DDC by Phillips Fox.

(2) Likewise on 12 January 1999, in deciding to make his or her DDC supplementary representation to the board, each other member of the DDC relied on all the representations said to have been made by Phillips Fox to the DDC.

(3) In resolving to issue the prospectus on 18 November 1998, the board relied on the representations made by Phillips Fox to that time; and

(4) In resolving to issue the notes on 12 January 1999, the delegates of the board relied on all the representations of Phillips Fox made to that time. 1177 I have difficulty in understanding the plaintiffs' indirect reliance case insofar as it alleges that other members of the DDC relied on Phillips Fox. Each member of the DDC must have been aware of the roles undertaken by each other member, and of the responsibilities allocated to each member by the DDC conduct memorandum. It is stretching credulity to suggest that (for example) Mr Murray would have relied on a representation by Mr Mutton as to an accounting matter, or that Dr McKenzie would have relied on Mr Mutton as to an actuarial matter. There is no suggestion that Phillips Fox possessed, and withheld from other members of the DDC, some particular knowledge or skill, or that Phillips Fox misrepresented to other DDC members some fact or opinion within what those members should have understood to be the proper province of Phillips Fox. 1178 The evidence of reliance by other DDC members and the board on 18 November 1998 was, to put it mildly, sketchy. It does not appear that other DDC members or the board relied on Phillips Fox for anything outside the areas of responsibility undertaken by Phillips Fox pursuant to the DDC conduct memorandum, or areas of responsibility that might ordinarily be thought to fall within the province of legal advisers. This is particularly clear in the case of Messrs Ghose, Beach, Deery and Morrissey; indeed, none of the last three referred to the DDC report in their evidence-in-chief. 1179 Mr Ghose said that he did not perceive that Phillips Fox was accepting responsibility for any conduct of or representation made by Mr Peck (T3969.29-3970.21) and that he understood that Phillips Fox was not undertaking responsibility for commercial or financial matters, including the adequacy of the claims provisioning (T3973.8-3974.25). 1180 Mr Beach's evidence was that he understood that Phillips Fox was taking responsibility for legal matters, not for financial, commercial, technical, accounting or actuarial matters (T4315.1-.14, T4315.46-4316.34). Even this evidence has to be read in the context of Mr Beach's inability to swear that he had read the DDC report before signing the prospectus, so that whatever satisfaction he gained that the DDC had signed off on the draft prospectus was not gained from reading the report (T4250.7-.29). 1181 The evidence of Messrs Deery and Morrissey, as to the limited role and responsibilities of Phillips Fox relating to the prospectus, was in substance similar to the evidence of Messrs Ghose and Beach:

(1) See Mr Deery at T4514.14-.45, T4516.17-.46, T4517.12-.23.

(2) See Mr Morrissey at T4617.23-.44, T4619.22-4620.21. 1182 Again, in relation to the DDC's report of 12 January 1999, it does not appear that other DDC members or the delegates of the board relied on Phillips Fox for anything outside the areas of responsibility undertaken by or allocated to Phillips Fox pursuant to the DDC conduct memorandum, or indeed other areas of responsibility that might be thought to fall within the province of legal advisers. As to the resolution of the delegates of the board (Messrs Daya and Peck) on 12 January 1999 to issue the notes, there is again no evidence of reliance on any representation made by Phillips Fox. The Supplementary Prospectus Representation 1183 The assumption underlying the plaintiffs' case is that all members of the DDC engaged in substantially the same misleading or deceptive conduct as that alleged against Phillips Fox in making the DDC representations on 18 November 1998 and 12 January 1999. In those circumstances, it is very difficult to see how any member of the DDC could have relied on any representation by any other member as relating to anything more than the areas of responsibility allocated to or assumed by that other member. 1184 I have not dealt separately with the Supplementary Prospectus Representation, to the extent that it raises any separate question of misleading or deceptive conduct. As I have indicated, the representation is said to have been one of opinion. It follows that it could not have been misleading or deceptive unless Mr Mutton did not hold the opinion at all, or did not hold it on reasonable grounds. 1185 In substance, the material on which the plaintiffs rely, in support of their submission that Mr Mutton did not reasonably hold, or could not reasonably have held, the opinion is the information that was summarised in the 23 December 1998 ASX announcement. The gravamen of the plaintiffs' complaint appears to be that expressed in chapter 6, para 9(22)-(24) of their submissions in chief:

"(22) It defies belief, it is submitted, that Mr Mutton could not have considered the information in the 23 December announcement to have been material to investors, and it is submitted that his evidence to the contrary should not be accepted. (23) It is also difficult to fathom how it can fairly be said as an objective matter that the information was not material as being information reasonably required by investors and professional advisers for the purposes of making an informed assessment of the offer within the meaning of section 1022AA(2) of the Corporations Law . (24) It is accordingly submitted Mr Mutton's conduct in so advising, in failing to advise that a supplementary prospectus should be issued or that the Prospectus should be withdrawn, engaged in conduct which was misleading or deceptive or likely to mislead or deceive." 1186 The difficulty with this aspect of their case is thus rendered apparent. The plaintiffs say that the failure to issue a supplementary prospectus was misleading or deceptive because the information that should have been contained therein was material to investors. But that information was in fact conveyed to investors, by the 23 December 1998 ASX announcement, before the close of the application period. To the extent that the information was material to investors and their advisers for making an informed assessment of the offer, it was available to them. 1187 Certainly, the material was available to Mr Saville. He did not appear to regard it as of sufficient importance to dissuade him from the investment. He took no steps to seek to withdraw from the commitments that he had caused various plaintiffs to undertake. On the contrary, after 23 December 1998, he caused various plaintiffs to enter into further purchases of shares and notes. 1188 In those circumstances, this aspect of the plaintiffs' case has an air of unreality. In this context, it is necessary to bear in mind that the plaintiffs have chosen to advance this aspect of their case against Phillips Fox as a case of principal liability for misleading or deceptive conduct, not as a case for accessory liability (for example, in respect of a contravention by NCRH of ss 1023B or 1024 of the Corporations Law). If the conduct alleged were not misleading to the plaintiffs - because in any event the information was disclosed to Mr Saville - then it matters not whether the reasoning process that led to the decision to proceed by way of announcement rather than supplementary prospectus was justifiable. 1189 In any event, I think, it was open to Mr Mutton to rely as he did on management for advice as to the likely extent of the further deterioration, and the possible offsets. As is now known with the benefit of hindsight, Mr Daya was being less than frank with the board, the DDC and senior management in relation to his communications with Trowbridge (although on the plaintiffs' case, the first communication of a possible significant adverse movement in claims did not occur until 23 December 1998). I see no reason why Mr Mutton was not entitled to leave it to Mr Daya and senior management to communicate with Trowbridge, and to rely on them to inform him, and the DDC, of anything material communicated to them by Trowbridge. 1190 Nor do I think that the matters that were the subject of the 23 December 1998 ASX announcement were of such significance that no reasonable solicitor in Mr Mutton's position could have concluded that a supplementary prospectus was not required. There had been a significant deterioration in certain claims. But there were also offsets. It was reasonably open to Mr Mutton to conclude that the offsets may have reduced the impact of the deterioration to a point where a supplementary or replacement prospectus was not required. 1191 At the DDC meeting of 17 December 1998, Mr Williams referred to the adverse developments but cautioned that their overall impact could not be ascertained until after the end of the year, and that the identified (but unquantified) offsets might mean that there was no material deterioration. Clearly, I think, the DDC understood that it would take some time - beyond 31 December 1998 - for Trowbridge to do its work. This is supported by the evidence of Messrs Minty and Atkins, to the effect that, during December 1998, Trowbridge was not in a position to conclude that there had been a material adverse change. Indeed, Mr Atkins had advised Mr Mutton to that effect on 10 December 1998 - a week before the relevant DDC meeting. 1192 Mr Mutton's view, that a supplementary prospectus was not required at that time, was shared by Dr McKenzie and by Messrs Ghose, Beach and Deery. Further, Mr Mutton must have understood Trowbridge's obligations under s 1023A of the Corporations Law (see para [565] above). I think that he was entitled to assume from Trowbridge's silence that Trowbridge did not consider that the matters that were the subject of the 23 December 1998 ASX announcement indicated a major deterioration in the claims position of NCRH from what was disclosed in the prospectus. He said in para 336 of his statement (exhibit 14DX 1) that he had had a discussion with Mr Atkins on 10 December 1998 concerning the Swissair claim, in the course of which Mr Atkins said that an "insurance aware" reader of his report "would consider that this claim does fall within the provision I've set out in my report" (referring to the Trowbridge prospectus report). Mr Atkins did not recall that conversation, but had no doubt that it occurred (although there was some dispute as to other aspects of what was said). Mr Mutton's account of the conversation was supported by a file note. I accept that it did occur, and that Mr Atkins did say words to the effect that I have set out. In my view, Mr Mutton was entitled to draw comfort from Trowbridge's silence; and he said, in substance, that he did so (see para 369 of his statement). 1193 In those circumstances, I think that it was reasonable for Mr Mutton to form the opinion that he did in relation to the issue (or non issue) of a supplementary prospectus. The plaintiffs' case, that he was guilty of misleading or deceptive conduct in failing to advise that a supplementary prospectus should be issued, fails at the first hurdle. 1194 Thus, either because the disclosure made through the 23 December 1998 ASX announcement meant that the plaintiffs were not misled or deceived, or because the relevant opinion was reasonably open to Mr Mutton, this aspect of the plaintiffs' case against Phillips Fox fails. Issues 103 to 107: the applicable legislative regime; miscellaneous matters 1195 One way or another, the findings that I have made mean that these issues do not arise, and they should be answered accordingly. Issue 108: damages 1196 For the reasons that I have given in paras [1128] to [1141] above, I conclude that the plaintiffs have not proved that they have suffered any loss. 1197 On that basis, I do not need to consider the far more extensive ways in which Phillips Fox sought to answer the plaintiffs' case on damages, or to advance its case that the plaintiffs had suffered no loss. Issues 109 and 110: limitation issues 1198 It appears to be common ground, and in any event I conclude, that the plaintiffs' causes of action had accrued no later than 12 January 1999, when the notes were issued. It is not necessary to explore possible alternative candidates for the date of accrual, because no party submitted that resolution of any limitation issue would depend upon the cause of action having accrued on a date other than 12 January 1999. 1199 On that basis, the three year time limit imposed by s 68 of the Fair Trading Act (as it then stood) expired on 12 January 2002, and the six year time limit imposed by s 1005(2) of the Corporations Law expired on 12 January 2005. 1200 The plaintiffs' claim against Phillips Fox up until and including 5FAS was one brought pursuant to s 10 of the Partnership Act in respect of the acts and omissions alleged against Mr Peck. The first serious attempt to introduce a freestanding case against Phillips Fox, based on the acts and omissions alleged against Mr Mutton, was made by notice of motion filed on 1 October 2004. (At one stage, the plaintiffs had sought to include a separate negligence case in 5FAS, based, among other things, on acts and omissions alleged against Mr Mutton; but that attempt was not pursued at the hearing of the application as a result of which the plaintiffs were granted leave to amend in terms of what became 5FAS.) 1201 The notice of motion filed on 1 October 2004 was heard on 10 to 12 November and 10 December 2004, and dismissed for brief reasons given on 10 December 2004, supplemented by detailed reasons given on 17 December 2004 ([2004] NSWSC 1219). The draft 6FAS then propounded did include what can be called for convenience an indirect causation case against Phillips Fox, based on the acts and omissions alleged against Mr Mutton as well as Mr Peck. (Nothing turned, or turns, on the fact that the indirect causation case relied in part on the knowledge of, and acts and omissions alleged against, Mr Peck: clearly, those matters were issues in the case as it had been pleaded prior thereto.) 1202 In support of this application for leave to amend against Phillips Fox (ie, the application made pursuant to the notice of motion filed on 1 October 2004), the plaintiffs relied on the 29th cross-claim filed by Mr Peck. The case so advanced went beyond that advanced by Mr Peck in his 29th cross-claim; and I pointed out the consequences in paras [75] and [76] of my reasons given on 17 December 2004: "[75] I therefore do not accept the submission that the expanded case that the plaintiffs seek by 6 FAS to make against the relevant defendants is no more than the case sought to be made against them by Mr Peck in his cross-claims. The case that the plaintiffs now seek to make involves, in a very real and direct way, allegations that strike at the probity, or honesty, of the relevant defendants. It is, I think, appropriate to infer that the making of those allegations, at a relatively late stage in the proceedings, and some 6 years after the relevant events occurred, is likely to cause some significant prejudice to those defendants. That is prejudice that cannot be cured by any order, whether for costs or otherwise.

[76] The existence of this prejudice is, I think, a serious matter. Its significance is compounded when considered in conjunction with the other head of prejudice. That is because, as I have indicated, I do not think that it is possible to formulate a costs order (other than one requiring the plaintiffs to pay the whole of the costs of the proceedings to date, with perhaps specified "carve outs" for work that on any view can be seen not to have been wasted) that would compensate the defendants for the wasted costs that they would incur by reason of the amendments; and even such an order would leave unresolved difficulties to the prejudice of at least some defendants." 1203 I expanded on this in para [96]: "[96] I have also found, in substance, that the Macquarie Parties, PwC and Phillips Fox will suffer further prejudice of a kind that could not be compensated by any order for costs (even one requiring the plaintiffs to pay the whole of their costs to date) if leave to amend were granted. That is because the amendments would make, or revive, allegations striking directly at the honesty or probity of those entities and individuals within them. I am not to be taken as saying that a case of "mere" negligence, or "mere" misleading or deceptive conduct, does not impose stress on those against whom it is pleaded. That is inevitable. But I do think, consistent with the reasoning in Bishopsgate, that the enhancement of such a case by allegations in effect of dishonesty and knowing breach of the law imposes stresses of a substantially different, and substantially greater, kind. Those considerations are of particular significance, in relation to events occurring six years ago, where the inevitable consequence of granting leave to amend would be to push back yet further the trial date for proceedings that are (absent the amendments) ready for hearing. Particularly in the context where those allegations were made against the Macquarie Parties up to and including the 4th further amended summons, and dropped in 5 FAS, I think that their revival needs very substantial justification." 1204 The reference to "Bishopsgate" in that paragraph is a reference to the decision of the Appeal Division of the Supreme Court of Victoria in Bishopsgate Insurance Australia Limited (In Liq) v Deloitte Haskins & Sells [1999] 3 VR 863, and in particular to the reasons of Tadgell and Ormiston JJ (with whom Brooking J agreed) at 887-888 [60]-[62]. 1205 Undeterred by the failure, but perhaps guided by the reasons for it, the plaintiffs filed a further notice of motion for leave to amend. That notice of motion was heard on 10 March 2005, and I gave reasons on 4 April 2005 (Ingot v Macquarie [No 3] [2005] NSWSC 255). In substance, I concluded that leave to amend should be granted subject to certain terms, some of which were intended to ameliorate any disruptive and delaying consequences that might follow from the form of the proposed amendments. 1206 As I said in para [36] of those reasons, the amendments said to have been based on Mr Peck's 29th cross-claim introduced an entirely new case against Phillips Fox. Thus, I concluded, the amendments sought against Phillips Fox did not fall within, or were not authorised by, SCR Pt 20 r 4(5). However, I concluded, Pt 20 r 1 remained available as an alternative source of power for the grant of leave to amend. 1207 Consideration of the history of the matter would suggest that the Court should not "otherwise order". 1208 Both SCR Pt 20 r 4(5A) and s 65(3) of the Civil Procedure Act 2005 make it plain that the general position is that established by the common law: that an amendment to a pleading should date back to the date of filing of that pleading. The circumstances that support the application in this case of that general position include the following:

(1) In granting leave to amend subject to the condition mentioned, I had considered, and rejected, specific propositions relating to the alleged lack of adequate explanation, the personal prejudice of the relevant defendants and some difficulties relating to costs.

(2) Whether or not the plaintiffs were given leave to amend, Phillips Fox were exposed to a claim based on Mr Mutton's participation in the due diligence process, and a trial of those issues (with all the attendant consequences of costs and personal stress) would occur even if the plaintiffs were not allowed to advance them in their own case against Phillips Fox.

(3) The first application for leave to amend, to introduce an indirect causation case, had been made before the expiry of the limitation period; the indirect causation case that is now the subject of 6FAS paras 178A to 178AK is not in essence or substance different from that originally propounded.

(4) Leave to amend was sought and granted relatively shortly after the expiry of at least the later limitation period.

(5) The relatively brief time that elapsed between expiry of the limitation period and the application for and grant of leave further to amend could not of itself have contributed to any prejudice: particularly in circumstances where Mr Mutton's conduct in relation to the DDC and the capital raising would be a subject for examination at the trial in any event. 1209 Phillips Fox submitted that the expiry of the limitation period was of itself a matter of significance: the general rule, to which an extension was an exception (see McHugh J in Brisbane South at 541, 553; his Honour there emphasised, as well, that a limitation period was not some arbitrary cut off point but the legislature's judgment of where, in relation to litigation of stale causes of action, the competing interests should be balanced). 1210 Mr Mutton gave no evidence, and Phillips Fox did not submit, that he or the firm had taken any particular account of the expiry of the later limitation period. There was no submission to the effect that Phillips Fox had arranged its affairs on the basis that all issues relating to Mr Mutton's membership of and conduct in relation to the DDC and the capital raising were finalised by the expiry of time. 1211 Nor was there any submission to the effect that any particular aspect of the defence of the indirect causation case was hindered by the passage of time. I accept that, in general, the Court may infer that recollections will dim with the passage of time (and if some basis other than general experience were needed for the drawing of such an inference, the evidence in this case would provide it). But Mr Mutton had available to him a considerable database of documents relating to his relevant activities, and of course not just the minutes but also the notes (prepared by junior solicitors under his direction) of meetings of the DDC. I accept that his recall, particularly of matters relating to his reasoning processes at the time (a topic of significance where what is in issue either is, or includes, representations of opinion) would be diminished. Nonetheless, there is no specific aspect in which it can be said that the passage of time prevented Phillips Fox from mounting a full defence. At the risk of repetition, the complaints of prejudice were general rather than specific. 1212 Phillips Fox submitted that the plaintiffs should be required to demonstrate why the limitation periods ought not to be applied, and why Phillips Fox should be deprived of its limitation defence. I do not think that this is the analysis that is required. As I have said, the general rule is that if leave to amend is granted, the amendment dates back to the date of filing of the original pleading; and the power to "otherwise order" is an exception to that general rule. The submission is also inconsistent with the observations of Toohey and Gummow JJ in Brisbane South at 547, where their Honours noted the evidentiary onus on a prospective defendant in relation to prejudice and other discretionary considerations. As I have said, Phillips Fox raised no specific questions of prejudice; and to the extent that "Bishopsgate" prejudice was relied upon, that was something that I decided against Phillips Fox when I granted leave to amend. 1213 Had it been necessary for me to resolve the limitation issues, I would have concluded that the Court should not "otherwise order" in respect of the relevant amendments, so that those amendments should be taken to have been operative from 16 November 2001. Conclusion on the case against Phillips Fox 1214 The proceedings against Phillips Fox must be dismissed, and cross-claims for contribution or indemnity brought by Phillips Fox must likewise be dismissed. ISSUES 111-131: THE CASE AGAINST TROWBRIDGE 1215 Since the plaintiffs and Trowbridge have resolved their disputes, these issues do not require consideration. 1216 The plaintiffs and Trowbridge have agreed that the proceedings against Trowbridge should be dismissed. On 29 June 2006, I made orders to give effect to that agreement. On the application of various defendants, I stayed the relevant orders until the publication of these reasons. It follows from what I say in these reasons that there is no further reason to continue that stay. It will follow from those orders, when the stay on them is lifted, that the claims for contribution or indemnity made by Trowbridge must be dismissed. THE CASE AGAINST PwCA Introduction 1217 The plaintiffs' pleaded case against PwCA comprises three elements:

(1) A case based on a duty of care said to have been owed by PwCA to the plaintiffs as potential investors who might rely on the financial information contained in the prospectus;

(2) A "direct" causation misleading or deceptive conduct case, alleging reliance by the plaintiffs on certain representations said to have been made by PwCA in relation to financial information contained in the prospectus; and

(3) An "indirect causation" misleading or deceptive conduct case, based on representations said to have been made by PwCA to other members of the DDC and to the board, leading to the issue of the prospectus on 18 November 1998 and the issue of the notes on 12 January 1999. The plaintiffs' summary of their case 1218 The plaintiffs summarise their case against PwCA as follows (written submissions in chief, chapter 7, para 1(2)): "(2) The Plaintiffs' claims against PwC may be condensed into the following propositions:

(a) Had PwC conducted itself in accordance with its obligations under the accounting standards applicable at the time, the benefit of the CRC Contract, of US$5.675 million would not have been included in the 30 June 1998 accounts. This was because the contract was not executed until after 2 September 1998, and also because Mr Murray failed to make adequate inquiries of management in circumstances where he was on notice in respect of the transaction.

(b) At least part, or all, of the deferred acquisition costs (" DAC "), of US$13.427 million should not have been included in the 30 June 1998 accounts. Looking at it purely on the basis of the net claims ratio, at least $2.48 million ought to have been written off. This was a material figure, particularly having regard to the Dresdner net worth covenant. Taking into account the views which Mr Murray held at the time as to the likelihood of NCRH making losses in the second half of 1998, all of the DAC should have been expensed as at 30 June 1998.

(c) Mr Murray was aware, or ought to have been aware, of the US$125 million Dresdner covenant by 2 September 1998. Having that knowledge, Mr Murray ought to have understood at that time that the company could not comply with that covenant, which triggered at least an obligation to disclose the matter in the accounts, and that on that basis, the accounts could not be consolidated. By 18 November 1998, there can be no question that Mr Murray knew of the covenant and the breach thereof, which rendered the accounts in the Prospectus misleading without disclosure of these matters.

(d) By 18 November 1998, the 30 June 1998 accounts as appearing in the Prospectus disclosed a claims provision which contained no prudential margin. The disclosure in Section 4.3 of the Prospectus was misleading.

(e) PwC's failure to comply with the accounting standards, and the standard of conduct which is to be expected of experienced accountants with expertise in the conduct of the review of the financial statements of reinsurance companies, in respect of the errors in the 30 June 1998 balance sheet renders false the representations in the Draft Prospectus and the Prospectus in respect of the financial information contained in Section 6 of the Prospectus as explained in Section 4.3 of the Prospectus. Whether those representations were made by PwC or whether PwC only participated in the provision of that financial information in the Prospectus, it engaged in misleading conduct within the meaning of the statutory provisions pleaded.

(f) The stated purposes of the capital raising in the Prospectus, and representations as to the security of the converting notes, were misleading. The real purposes were to pay off Dresdner which was demanding repayment, and to give the company liquidity which it otherwise lacked by reason of its obligations to Dresdner. By reason of each of those matters, the converting notes were not secure. PwC knew of the matters which rendered these representations misleading before it represented to the DDC and to the Directors that it did not believe that the representations in the Prospectus were misleading and that there were no material omissions.

(g) The NTA calculation in the Prospectus was wrong for four reasons. First, if the adjustments are made to the balance sheet as it is alleged should have been made, the NTA figure would have been much lower. Second, by reason of the Dresdner breach, the accounts could not be consolidated. Third, the DAC was not a tangible asset. Fourth, the calculation did not include all of the integers known to the company (and the DDC) at the time. PwC knew of the matters which rendered these representations misleading before it represented to the DDC and to the Directors that it did not believe that the representations in the Prospectus were misleading and that there were no material omissions.

(h) By 12 January 1999, PwC knew of information which materially undermined the net assets position of the company as disclosed in the Prospectus. For those reasons alone, PwC did not have a reasonable basis for making the representations it made to the company on 12 January 1999.

(i) Further and in any event, PwC was obliged, under the DDC Conduct Memorandum which was part of its retainer, and by operation of law under the misleading and deceptive conduct provisions and as a part of fulfilling its duty of care to investors, to inquire of Trowbridge as to its updated views on the claims position of the company prior to allotment of the converting notes on 12 January 1999. Had that opinion been obtained prior to 31 December 1998, and also prior to 12 January 1999, the allotment would not have occurred, and the Plaintiffs would not have suffered their claimed loss." 1219 As will be apparent from what I have said earlier in these reasons, I do not accept a number of those propositions. 1220 It should be noted that in their submissions the plaintiffs use the expression "PwC" to denote the thirteenth defendants, PwCA. In this section of the reasons, and in some contrast to the generic practice adopted hitherto, I will attempt to maintain the distinction between the two firms by referring to the thirteenth defendants as PwCA. PwCA's summary of their defence 1221 PwCA state that the plaintiffs' case must fail for two fundamental reasons (written submissions in chief, section 1): "1.4 Despite the many attempts by the Plaintiffs to formulate a case which renders PwC liable for the losses which the Plaintiffs sustained as a result of their investment in the capital raising, the Plaintiffs have been unable to put forward a case establishing PwC's liability. That is not surprising, as there are two fundamental hurdles for the Plaintiffs which they have been unable to overcome. 1.5 Firstly, as is common ground, PwC did not issue or authorise the Prospectus, and only provided a report for inclusion in Section 9. PwC had a limited retainer, and participated in the DDC, but it had no role to investigate the general financial position of NCRH. That limited role was entirely to be expected, as the Prospectus was a transaction specific prospectus, in respect of which most if not all relevant financial disclosure was by NCRH to the market under the continuous disclosure regime, not through the Prospectus. 1.6 The Plaintiffs have endeavoured to overcome this difficulty by arguing that, by reason of the actual and pro forma balance sheet which was included in the Prospectus, PwC had a responsibility to investors to ensure that the actual financial position of NCRH was conveyed accurately. In doing so, they ignore the scope of PwC's retainer and the nature of the actual and pro forma balance sheet included in the Prospectus. They have also sought to overcome this difficulty by arguing that certain opinions by way of confirmations given by PwC, that were in the nature of negative assurance opinions, were misleading or deceptive, because PwC had no rational basis for the opinions, in the light of matters which were brought to PwC's attention and considered by it (and many of which were disclosed in the Prospectus) - they do not suggest that PwC's representatives did not hold the opinions they expressed, but rather that each of them held those opinions genuinely but perversely. Finally, they seek to overcome the difficulties with their case by arguing PwC had a particular responsibility to make inquiries of Trowbridge, itself retained by the Company to provide a report (which it had not withdrawn) in relation to the capital raising, in the face of management assurances that it was in daily contact with Trowbridge and there was nothing to report. 1.7 Secondly, the Plaintiffs' case is fundamentally flawed because it ignores the limited relationship between PwC and investors such as the Plaintiffs. The Plaintiffs' attempt to assert a duty of care owed by PwC to them is bound to fail in the light of considerable High Court authority. The confirmations given by PwC as a member of the DDC were not given to investors, but were given to the Directors, who were as aware as, or more aware than, PwC of the relevant matters. It was clearly stated in the Prospectus that PwC was only assuming responsibility for the statements made in Section 9, in the customary manner mandated by the Corporations Law. The evidence shows that this was understood by the Plaintiffs' representative, Duncan Saville. 1.8 These two fundamental flaws in the Plaintiffs' case ensure it must fail. It is not however necessary for PwC to rely upon those matters to succeed. Three aspects of the review work undertaken by PwC are subject to criticism. On of these, the question of whether the 30 June 1998 half-yearly accounts contained a prudential margin that was adequate or was in line with the company's accounting policy, has been belatedly abandoned by the Plaintiffs in their final submissions. PwC's work in relation to the remaining two matters of complaint, the CRC Contract and deferred acquisition costs, is said to be flawed on the basis of the evidence of the Plaintiffs' expert witness, William Bartlett. Given concessions made by Mr Bartlett, particularly that crucial matters were ones for judgment on which minds might differ, his evidence does not provide a basis for findings that PwC failed to do what was required of it. In any event, PwC's expert, Anthony Hulse, did not agree PwC's work was unsatisfactory. Give the Plaintiffs' quite proper concession that the Court will look carefully at placing reliance on Mr Bartlett's evidence, Mr Hulse should be preferred on all points on which these two accounting experts expressed different views." 1222 In addition, PwCA submit that the plaintiffs' submissions seek in significant ways to expand the case beyond that pleaded and particularised. PwCA submit that the plaintiffs should be held to their pleaded case, but that, in the alternative, the extended case must fail in any event. The plaintiffs' response 1223 At the commencement of their submissions in reply to PwCA, the plaintiffs summarised their response, and what they perceived to be the differences between them and PwCA, as follows: "1. There is a stark difference between the case which PwC seeks to answer in its submissions, and the case which is being put against it. 2. First, PwC seeks to confine, by a limited reading of the 6FAS, the case against it to one of representation only, rather than misleading or deceptive conduct (relying on Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; [2004] HCA 60 [ CASE.PLA.035.0001 ]). Other pleading points have been raised by PwC which are similarly unmeritorious.

3. Secondly, PwC seeks to answer a case of involvement in breaches of the Corporations Law by NCRH in issuing a misleading prospectus, thus seeking to avail themselves of certain defences. No " involvement " case is put against PwC.

4. Thirdly, PwC seeks to suggest that it had a very limited and insignificant role in the due diligence process. It did not. 5. Fourthly, PwC makes submissions that, even if the Prospectus was misleading, and even if Mr Saville was misled by it, it did not matter, as he would have caused the Plaintiff companies to invest anyway. PwC seeks to make good this submission by reference to the cross-examination of Mr Saville with respect to each individual error in the Prospectus. The Plaintiffs respectfully submit that this is not the correct approach. Mr Saville relied on the information contained in the Prospectus, which he took at " face value ", as a " package ". He appropriately conceded in relation to certain matters put to him, that he had a certain tolerance for risks identified in the Prospectus to be realised. However, it was not put to Mr Saville that he would have caused the Plaintiffs to invest had he known of all of the matters which were identified as risks in the Prospectus which were known, by at least 12 January 1999, to have become reality, in combination with the other matters which rendered the representations made in the Prospectus misleading. The Prospectus was, relevantly, misleading, and was a cause of the loss suffered by the Plaintiffs.

6. Fifthly, in relation to the negligence claim, PwC seeks to answer only a claim for negligent misstatement, when the case put extends to causing negligently economic loss. Further, in that connection, PwC seeks to rely on a limited scope of what its obligations were under the Prospectus Retainer, which is not reflective of the extent of those obligations, nor what PwC in fact did (and purported to do) in carrying those obligations out." The plaintiffs' propositions 1224 As I have said, some of the propositions into which the plaintiffs submit their case against PwCA may be "condensed" (para [1218] above) are unsustainable for reasons that I have given. It is convenient to deal with those, and with certain other points, before turning to the issues. Proposition (a) : leg 1 1225 The plaintiffs do not plead against PwCA in terms that the benefit of leg 1 could not have been included in the half yearly accounts because the contract was not executed until after 2 September 1998. The pleaded case of breach in relation to leg 1 (6FAS, para 256(e)) is that PwCA: "knew, or in the alternative, failed to ascertain that the profit arising from the whole account aggregate of loss reinsurance policy entered into by NCRA in September 1998 with GCRA had been included in the balance sheet but that the liability arising from the casualty excess of loss reinsurance policy issued by NCRA in favour of GCRA had not;". 1226 The plaintiffs submitted that it was open to them on their pleaded case to rely, as against PwCA, on the date of execution of the GCR contract. They referred to sub paras (f), (h), (j), (k), (p), (q) and (r) of 6FAS para 256 and to sub paras (a)(iv) and (b)(i) of para 265. None of those sub paragraphs refers in terms to the proposition that the benefit of leg 1 could not be included in the half yearly accounts because the contract was not entered into until after 2 September 1998 (or, indeed, after 30 June 1998). Some of the allegations assert that the amount brought to account for leg 1 was not recoverable: para 256(f), (h) and (n) (I note that the plaintiffs did not refer to this last sub paragraph in their submissions), and para 265(a)(iv) and (b)(i); none of those sub paragraphs mentions the date on which the relevant documents were signed, or the relevant provisions of AASB 1023. The other sub paragraphs to which the plaintiffs refer do not even mention the GCR transaction. Paragraph 256(o) does refer to it; the plaintiffs did not refer to this sub paragraph, perhaps because the case that it asserts is that leg 1 should not have been brought to account without bringing to account also the liability under leg 2. 1227 Thus, I do not think that the case advanced by this proposition is one that, on a fair reading, is open on the pleadings. 1228 The plaintiffs accept that knowledge of leg 2 was withheld from PwCA. Their case is in substance that PwCA were put on inquiry, and failed to discharge their obligations. 1229 In any event, I have accepted (see paras [689] to [723] above) that the benefit of leg 1 was in substance offset by an increase of USD5 million in the prudential margin (an increase that would not have occurred had the benefit of leg 1 not been brought to account). Given that, then the half yearly accounts were not misleading or deceptive because retrocession recoveries and net assets were overstated, and the loss was understated, by the amount of USD5.675 million brought to account as a recovery under leg 1 (see para [725] above). Proposition (b) : DAC 1230 For the reasons that I have given, it was reasonable to conclude that DAC was recoverable. Thus, subject to the question of "tangibility", it was reasonable to conclude that DAC could be included in the accounts at the stated amount. 1231 The proposition that DAC were not a tangible asset (referred to in proposition (g)) formed no part of the plaintiffs' pleaded or particularised case against PwCA, and the plaintiffs should not be permitted to rely upon it in submissions. I refer to what I have said in para [760] above. Proposition (c) : the Dresdner net worth covenant 1232 PwCA submit that "[t]here is no pleaded or particularised issue that PwC [sic] ought to have concluded that the Dresdner covenant had been breached as at 30 June 1998, or that the accounts could not be consolidated." The plaintiffs dispute this, submitting that PwCA is alleged to have known that NCRH could not consolidate its accounts because of the alleged breach of the Dresdner net worth covenant. That submission is correct: see 6FAS para 255A(ee), alleging that PwCA knew, among other things, of the matters alleged in para 71(d); and see also para 265A, which picks up, among other alleged falsifying matters, the allegation in para 72(d). 1233 However, the plaintiffs do not allege specifically that PwCA breached their alleged duties of care because they permitted the accounts to be prepared on a consolidated basis. If that allegation is open on the pleadings, it is only open through 6FAS para 256(k), which alleges that PwCA breached their duty of care because they certified that there was no materially false or misleading statement in, or omission from, the prospectus, and that neither the issue of the prospectus nor the offer of notes would involve misleading or deceptive conduct, in circumstances where they knew, among other things, of the allegation as to consolidation in para 71(d). 1234 The plaintiffs do not allege that the "PwC Representations", on which the plaintiffs claim to have relied, were false or misleading or deceptive because of the "consolidation" issue: see 6FAS para 265. However, they do appear to allege that PwCA engaged in misleading or deceptive conduct because of the consolidation issue: see para 265A(a), (d). 1235 Even if the allegation is thus open on the pleadings, it cannot be said to be one that was specifically flagged: contrast, for example, issues such as the GCR transaction and (in part) DAC. 1236 In any event, one of the stated purposes of the capital raising was to repay the Dresdner loan. Dresdner had issued a waiver in escrow, dependent only on issue of the prospectus. In those circumstances, the issue of consolidation was entirely theoretical. 1237 Further, given that (as I have concluded - see paras [388] and [389] above and paras [1360] to [1387] below) there was no evidence that Dresdner intended to exercise whatever rights it may have had on breach, there is no basis for concluding that it was misleading or deceptive to present the accounts on a consolidated basis. 1238 Further again, Mr Bartlett agreed in cross-examination that it was appropriate to prepare the half yearly accounts on a consolidated basis (T7306.21-.31). Even if events between then and 18 November 1998 raised the spectre of default under the Dresdner covenant, that spectre was banished, for all practical purposes, by the waiver that was given in escrow before the prospectus was issued, and that was freed from its escrow condition on issue of the prospectus. Proposition (d) : prudential margin 1239 PwCA submit that the plaintiffs have not pleaded that PwCA were responsible for section 4.3 of the prospectus. I think that this submission is correct, although (as with any aspect of the plaintiffs' case) the structure of the pleadings is such as to make the evaluation of such a submission an almost impossible task; and in any event, as I have noted the plaintiffs from time to time rely on allegations of the utmost generality to support cases of very specific particularity. 1240 The pleading issue need not be resolved. For the reasons I have given in paras [750] to [756] above, the prospectus was not misleading or deceptive in relation to prudential margin. Proposition (e) : compliance with accounting standards 1241 This proposition appears to raise the issue of whether PwCA made the "PwC Representations" which are said (6FAS, para 264) to have been made by PwCA through, or in, the draft prospectus and the prospectus. That is not an issue that is disposed of by any of the findings that I have made hitherto. It seems also to raise an issue as to whether, in the stated context, those representations were misleading or deceptive. I have dealt with that to some extent, concluding that they were not. 1242 To the extent that the plaintiffs by this proposition seek to put a case that PwCA "participated in" the making of the various representations alleged to have been made by NCRH in the draft prospectus and the prospectus (the representations alleged in 6FAS, paras 104 to 109):

(1) The claim of participation (if it is intended to raise a claim of accessory liability) has not been pleaded; and the plaintiffs' submissions in reply make it clear that their case is one of direct breach not "involvement" (para 3).

(2) I have found that a number of those representations were not made.

(3) I have found that the representations that were made were not falsified as at 18 November 1998 by the pleaded falsifying matters. Proposition (f) : purpose of the capital raising 1243 I have dealt with this in paras [789[ to [813] above, and concluded that the prospectus was not misleading or deceptive because of the stated purposes of the capital raising. Proposition (g) : NTA calculation 1244 The plaintiffs rely on four matters: adjustments to the balance sheet, consolidation, DAC and "all of the integers known to the company". 1245 I have concluded that the statement of NTA was not misleading or deceptive as at 30 June 1998, and that when the prospectus was read as a whole, that statement was not rendered misleading or deceptive by reason of supervening events up until 18 November 1998: see paras [758] to [774] above. 1246 Further, there is no pleaded or particularised issue that DAC were not a tangible asset. Proposition (h) : the position as at 12 January 1999 1247 To the extent that this proposition relies on the further claims that were discussed at the DDC meeting of 17 November 1998 and disclosed by the 23 December 1998 ASX announcement (and discussed a day or two earlier by Mr Saville with Messrs Daya and Williams, by reference to a draft of that announcement), I have concluded that there was no misleading or deceptive conduct and that it was reasonable for the DDC to conclude that no supplementary or replacement prospectus was required: see paras [1183] to [1194] above. 1248 To the extent that this proposition relies on Trowbridge's communications to the company, through Mr Daya, of a likely substantial increase in the required claims reserve as at 31 December 1998 (compared to the reserve as at 30 June 1998), I have concluded that Mr Daya kept this information to himself: see para [931] above. Proposition (i) : the requirement to obtain Trowbridge's opinion prior to 12 January 1999 1249 In substance, the issues relating to this proposition have been resolved by findings that I have made to date. To the extent that those issues remain unresolved, my conclusions on issue 132 (see the next section of these reasons) make it unnecessary to pursue them. Findings that I have made hitherto that bear on these issues are to be found:

(1) In relation to the Macquarie parties: in paras [542] to [567] above;

(2) In relation to the directors and officers: in paras [908] to [925] above (as to Mr Daya's knowledge), paras [926] to [931] (as to the other directors' and officers' knowledge) and paras [986] to [998] above (as to knowledge to be imputed to NCRH); and

(3) In relation to Phillips Fox: in paras [1189] to [1120] above. Issue 132: the PwC Representations What representations can be spelled out of the draft prospectus or the prospectus? 1250 The PwC Representations are those set out in 6FAS para 264 (a)-(e): "(a) the amounts set forth under the heading "Actual Balance Sheet 30 June 1998" in the actual and pro forma consolidated balance sheet which was included in the Prospectus and the Draft Prospectus fairly and accurately disclosed the financial position of NCRH as at 30 June 1998;

(b) as at 30 June 1998, NCRH had net assets of US$127.479 million;

(c) as at 30 June 1998, NCRH had retrocession coverage in an amount of US$13.839 million, all of which was valid and collectable;

(d) as at 30 June 1998, NCRH had deferred acquisition costs in an amount of US$30.650 million, all of which was fully recoverable; and

(e) the accounting policy adopted by NCRH in respect of its financial statements, including its balance sheet, was consistent with the policy adopted by NCRH in respect of the fifteenth month period ended 31 December 1997."

1251 It will be seen that these representations are in some cases substantially similar, and in others identical, to some of the Prospectus Balance Sheet Representations set out in 6FAS para 104: respectively, those alleged in sub paras (a), (c), (e), (f) (although the amount of DAC is different) and (g) of para 104. 1252 I have considered in paras [629] to [652] above whether NCRH made any of the Prospectus Balance Sheet Representations alleged in 6FAS para 104. I concluded that the representations alleged in sub paras (a), (b), (d) and (g) of para 104 were not made (with a presently irrelevant exception as to the first, in the case of Mr Aroney, who had admitted that it was made). Since the plaintiffs' case appears to be that PwCA made the PwC Representations through the draft prospectus or the prospectus, it follows that I do not think that the representations alleged in 6FAS para 264(a) and (e) were made at all - whether by PwCA or not. I should note that the submissions for PwCA did not in terms address whether the representations were made through (or in, or by) the draft prospectus or the prospectus; the point of the submissions was, rather, that PwCA did not make any of them. Did PwCA make any of the representations? 1253 In view of my conclusion as to which of the PwC Representations can be spelled out of the draft prospectus and the prospectus, it is, strictly speaking, necessary to consider whether PwCA made the second, third and fourth of them. But since the parties' submissions did not distinguish between the representations, a decision in respect of those that I have found can be spelled out of the prospectus would apply equally to the first and the fifth if, contrary to my conclusion, it were possible to spell them out of the draft prospectus and the prospectus. The plaintiffs' case 1254 The plaintiffs' pleaded case as to how it is that PwCA made the PwC Representations is set out in the introductory words of 6FAS para 264: "264. By reason of the audit and review by PWC of the financial statements of NCRH (pleaded in paragraphs 219 to 223), the participation of PWC in the preparation of the Prospectus and the Draft Prospectus, the participation of PWC in the Due Diligence Committee, (pleaded in paragraph 224), the marketing of the Institutional Placement and sub-underwriting rights issue as detailed in paragraphs 229 to 232 above and the provision by PWC of its permission or consent to the inclusion in the Prospectus of the actual and pro forma consolidated balance sheet which included the amounts set forth under the heading "Actual Balance Sheet 30 June 1998" (pleaded in paragraph 224), PWC represented to persons who might acquire Rights, Converting Notes or shares in NCRH following the issue of the Prospectus on the faith of the information contained in the Prospectus and to the persons who agreed on the basis of the information set out in the Draft Prospectus to participate in the Institutional Placement or to sub-underwrite the issue (" the PWC Representations ") that: …" 1255 The plaintiffs' submissions in chief on this issue are brief. It is convenient to set them out (paras (124)-(128)): "(124) It is alleged that PwC made representations to the Plaintiffs through the Draft Prospectus by reason of the following matters: (a) PwC conducted a review of NCRH's 30 June 1998 accounts and the reader of the Prospectus and Draft Prospectus was invited to have regard to the 30 June 1998 accounts;

(b) Through its role on the DDC, PwC was aware that the 30 June 1998 accounts, and a proforma balance sheet using the figures from those accounts, was included in the Draft Prospectus up to 17 November 1998;

(c) PwC was aware of the practice of underwriters (in this case, Macquarie) circulating a draft of the Prospectus to prospective investors in order to obtain sub-underwriting commitments and other pre-commitments to invest (knowledge which Mr Murray conceded in cross-examination he must have had at the time [ T6287 L16 to L40 ] [ PLW.503.057 ');" > PLW.503.057 at 063; PLA.519.212 ');" > PLA.519.212 at 217; PLA.523.343 ');" > PLA.523.343 ; PLA.523.344 ');" > PLA.523.344 ; PLA.523.345 ');" > PLA.523.345 ];

(d) PwC was aware through the DDC that drafts of the Prospectus were being used by Macquarie at roadshows specifically for the above purposes;

(e) PwC was named as auditor of NCRH in the Draft Prospectus. (125) In relation to the Prospectus, the above matters also apply. In addition, PwC represented to NCRH that it had provided advice in relation to Section 6 of the Prospectus (which cross-referred to Section 4.3 of the Prospectus). PwC knew that investors would rely on the information contained in Sections 4.3 and 6 of the Prospectus and that, in turn, NCRH had relied on PwC to advise it in relation to the content of those sections.

(126) All the above, it is submitted, supports the submission that a reasonable reader of the Draft Prospectus and the Prospectus would conclude that PwC had audited or been involved in the audit of the 30 June accounts and that as replicated in the Draft Prospectus and Prospectus, there was at least a representation that as at 30 June 1998, those accounts gave a true and fair view of the financial position and state of affairs of NCRH as at that date and that nothing since that date other than what was disclosed in the Prospectus materially impacted upon the truth and fairness of those accounts.

(127) If this submission is not accepted for the reasons set out above, the issue then becomes one of whether PwC engaged in conduct that was misleading and deceptive by participating in the provision of misleading financial information for the purpose of disclosure in the Draft Prospectus and Prospectus. (128) Whichever approach is adopted, it is submitted that PwC engaged in misleading and deceptive conduct in making the alleged PwC representations for the reasons set out above." PwCA's submissions 1256 PwCA rely on section 11.7 of the prospectus. Insofar as that section refers to PwCA, it reads as follows: "Notwithstanding that they may be referred to elsewhere in this Prospectus, PricewaterhouseCoopers were only involved in the preparation of the following parts of this Prospectus: Section 9. PricewaterhouseCoopers have given, and at the time of lodgement of this Prospectus have not withdrawn, their consent to the issue of this Prospectus with those parts included in the form and context in which they are included. PricewaterhouseCoopers did not authorise or cause the issue of any other part of this Prospectus." 1257 Section 9 of the Prospectus dealt with taxation and duty issues. The plaintiffs make no complaint of it. 1258 I note that on the last page of the prospectus, under the heading "Corporate Information", the auditors are said to be PwCB (giving their Bermudan address) and PwCA (giving their address in Sydney). 1259 Further, PwCA rely on section 6.2 of the prospectus, dealing with the prospectus balance sheet. I have set out the relevant portions of section 6.2 in para [631] above, and dealt with it, in relation to the Prospectus Balance Sheet Representations, at paras [639] to [643]. 1260 In his statement dated 19 September 2005 (exhibit 13DX 1), Mr Murray said at para 93: "93. In essence, the Proforma Balance Sheet showed what would have been the position, assuming all other things to have remained the same, if the proposed notes issue, institutional placement and subsequent repayment of existing debt, had all occurred as at 30 June 1998. That is, the task of compiling a proforma balance sheet as at 30 June 1998 involved notionally moving the notes issue, placement and debt repayment back to the date of the most recent accounts, and did not involve updating the accounts to the date of the issue. Therefore, the balance sheet as at 30 June 1998 was taken as stated in the recently issued accounts, was not amended in any way to take account of subsequent events, and, as is stated in section 6.2 of the prospectus, did not include the effect of post 30 June 1998 events, (the impact of such events of the net tangible asset position being described in section 4.3, as was also stated in section 6.2)." 1261 What he said is consistent with section 6.2 of the prospectus under the heading "Adjustment due to Converting Note Issue". I will not set out the whole of what was there said, but it included the following: "PricewaterhouseCoopers, New Cap Re's auditors, have confirmed [that the accounting] treatment [in the pro forma balance sheet] is in accordance with Generally Accepted Accounting Principles and Australian Accounting Standards, in particular AASB 1033 "Presentation and Disclosure of Financial Investments" [sic] … ". 1262 PwCA submitted that there was no evidence that they had communicated or conveyed to investors a general endorsement of the prospectus or its contents, or a general representation of its contents. This, they submitted, was consistent with the statutory regime at the time, under which principal liability for a prospectus lay with the company issuing it and the directors who authorised the issue, and under which advisers, experts and the like might be liable as accessories. 1263 PwCA submitted further that, on Mr Saville's own evidence, he understood that they were making no representation to him beyond the area of responsibility identified in section 11.7 of the prospectus. Analysis 1264 On the face of the prospectus, the representations that could be taken to have been made by PwCA were:

(1) Those in section 9 which, I repeat, are not the subject of any complaint.

(2) The representation in section 6.2 that the adjustments shown in the pro forma balance sheet to account for the converting note issue accord with relevant accounting principles and standards (ie, specifically, AASB 1033). 1265 However, as will be seen from 6FAS para 264 and their written submissions, the plaintiffs say that it is necessary to have regard not only to what was said in the prospectus but to PwCA's involvement in the half year review and the DDC. I have great difficulty in understanding why any of those matters, considered individually or together, and whether or not in conjunction with relevant statements in the prospectus, should be taken to have the result that PwCA made the representations in question by the circulation of the draft prospectus or the issue of the prospectus. 1266 In this context, I should note that the concession attributed to Mr Murray in para 124(c) of the plaintiffs' written submissions in chief goes well beyond his evidence at T6287.16-.40. He agreed only that it was shown in the minutes of the DDC meeting of 22 October 1998 that a draft of the prospectus would be provided to (potential) subunderwriters and that it was "likely" that he knew this at the time. That having been said, however, I have no doubt that Mr Murray knew at the time that Macquarie would distribute the draft prospectus to potential subunderwriters, and in this context I refer to what I have said in paras [315] to [320] above. 1267 Certainly, Mr Saville did not think that PwCA were making representations in, or accepting responsibility for, any part of the prospectus other than section 9. He said (T1271.34-1272.5): "Q. Yes. When you read the draft prospectus you recognised that Macquarie was only taking responsibility for a limited part of what was said in the draft prospectus, did you not? A. Yes.

Q. And had only authorised that limited part of the prospectus? A. Yes.

Q. You recognised also, on reading the draft prospectus, that other participants, including Trowbridge and PricewaterhouseCoopers, had identified their areas of responsibility and the parts they had authorised? A. Yes.

Q. And you knew that the prospectus as a whole had been issued with the authority of the directors of the company? A. Yes." 1268 He elaborated on his understanding, gained both from his reading of the prospectus and from his experience, as follows (T1721.23-1722.15): "Q. Then if I could take you, before I take you back to the Trowbridge report, to section 11. You have been asked a number of questions about this. If I could take you to page 373, PLA.531.127. You read, did you, the second paragraph in the first column: Notwithstanding that they may be referred to elsewhere in this prospectus, PricewaterhouseCoopers were only involved in the preparation of the following parts...Section 9. Did you read that? A. Yes.

Q. You understood when you read that that section 9 referred to the taxation section? A. Correct.

Q. And you read also in that section that PricewaterhouseCoopers did not authorise or cause the issue of any other part of this prospectus? A. Correct.

Q. In prospectuses and bidding statements which you have previously seen, you have seen disclaimers of that nature by experts? A. Yes.

Q. They are common, are they not? A. Yes.

Q. You understood their purpose to be to ensure that the expert is not liable for any part of the prospectus other than a part that he, she or it specifically authorised? A. Correct.

Q. And that was your understanding when you came to read section 11; correct? A. Yes." 1269 This evidence was against the interest of the plaintiffs and I accept it. It confirms the underlying point made by PwCA: that experts named as such in a prospectus are not thereby to be taken as making representations through the prospectus except to the extent that they accept specific responsibility for any part of its contents. But - to jump from the question of what representations were made to the question of causation, and to omit entirely any reference to the essential intermediate question, whether such representations were misleading or deceptive - it follows that Mr Saville did not regard PwCA as making any representations to him, or through him to the plaintiffs, except those set out in section 9 of the prospectus. (Although, as I have noted, PwCA were referred to specifically in section 6.2 of the prospectus - see para [631] above - Mr Saville was not re-examined to say that he understood this to mean that PwCA were accepting any responsibility for any of the statements made in section 6.2.) 1270 Thus, the terms of the prospectus itself, Mr Saville's evidence of his understanding of it and such evidence as there was of general practice all suggest that PwCA made no representations by the prospectus, except to the extent that they specifically accepted responsibility for it. Perhaps foreseeing this, the plaintiffs made the following submissions (written submissions in chief, chapter 7, para 20 - the submission is put in respect of issue 133, but clearly relates to issue 132): "(20) One matter to note in relation to the PwC Representations as pleaded, concerns the question whether, as PwC has submitted, PwC made any representations in the Prospectus at all, except in relation to Section 9 and the accounting for the proceeds of the issue. Irrespective of whether this is the case, it is submitted that there can be no doubt that PwC participated in providing the financial information in the Prospectus and thereby engaged in conduct in connection with the issue of securities and/or the issue of the Prospectus and/or allotment in relation to securities or otherwise engaged in conduct within the other and deceptive conduct provisions pleaded [ 6FAS paragraph 265, 266]. Therefore the question of the misleading character of what has be [sic] described as the PwC Representations are capable of being so characterised, but also if PwC engaged in conduct by participating in the provision of false information in the Prospectus and Draft Prospectus." 1271 I have some difficulty in understanding that submission. If it is intended to relate to the direct causation case founded on the PwC Representations, it goes well beyond the matters relied upon in 6FAS para 264 in support of the proposition that PwCA made the representations in question, and for that reason must be rejected. If it is intended to go to a case of accessory liability, that is a case that the plaintiffs have expressly disavowed (written submission in reply, para 3): no doubt, to seek to make it impossible for PwCA to rely on due diligence defences. If it is intended to go to a new and freestanding case of misleading and deceptive conduct, it goes beyond the pleadings and must be rejected. If it is intended to go to the indirect causation case, it can rise no higher than that case. 1272 Whatever the submission may mean (or whatever the aspect of the plaintiffs' case to which it may be directed), it cannot be accepted in relation to the direct causation case. As I have emphasised, this aspect of the plaintiffs' case against PwCA is that PwCA engaged in misleading or deceptive conduct by the making of representations - the PwC Representations - that were themselves false, or misleading or deceptive. It is of course correct that misleading or deceptive conduct extends beyond representations (even though, generally, it involves misrepresentations: Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Limited (1986) 12 FCR 477 at 504 (Lockhart J)). But that cannot help the plaintiffs in this case, because this aspect of their pleaded case is, relevantly for present purposes, a misrepresentation case: see Gleeson CJ, Hayne and Heydon JJ in Butcher at 603 [32]. 1273 Although I have in substance addressed the question as it relates to the prospectus, the plaintiffs did not submit that - leaving aside Mr Murray's knowledge of its use - any different considerations applied to the draft prospectus. Conclusion 1274 To the extent that the so called "PwC Representations" can be spelled out of the draft prospectus or the prospectus, PwCA did not make them. Nor did Mr Saville understand, or believe, that PwCA did. 1275 It follows that the direct causation case fails because PwCA did not make the representations on which it is founded, and Mr Saville did not understand or believe that they did. Issue 133: were the PwC Representations misleading or deceptive? 1276 On the findings that have been made, this issue does not arise and should be so answered. 1277 I will however note that in my view the dispute between the plaintiffs and PwCA as to the width of this issue - based on the plaintiffs' use, unqualified, of the words "in all the circumstances of the case" should be resolved in favour of PwCA. The plaintiffs' case, that the PwC Representations were misleading or deceptive, should be confined to the pleaded circumstances on which the plaintiffs relied to render those representations misleading or deceptive. The indirect causation case 1278 What I have said disposes of the first way in which the plaintiffs put their misleading or deceptive conduct case against PwCA: the direct reliance case. I now turn to the second way in which the plaintiffs put that case: the indirect causation case. The pleaded case is bad in law 1279 The pleaded structure of this case is set out in 6FAS paras 264A to 264I, 265A to 268 and 270 to 270G. In substance, it is similar to the indirect causation case pleaded against the other defendants. In my view, for the reasons given in paras [494] to [510] above, the indirect causation case that the plaintiffs plead against PwCA is bad in law, or as a matter of law is not available to the plaintiffs. The plaintiffs do not allege that they, through Mr Saville or otherwise, relied on any of the relevant representations (which are compendiously described in 6FAS para 265A as "the PwC DDC Representations"); and there is no evidence that they did. 1280 Further, and even if the case were available in law, it would fail on the facts. That is because, the case being one based on allegedly misleading or deceptive representations, and being confined accordingly (Butcher at 603 [32]), it must be proved that the board (on 18 November 1998) or their delegates (on 12 January 1999) relied on misleading or deceptive representations made by PwC. Their evidence was to the contrary. 1281 In substance, each of the board members who gave evidence said that he understood that PwC's responsibilities in the due diligence process were limited to specific accounting and tax matters, and that they were the only matters upon which he relied in giving weight to PwC's participation in the due diligence process. 1282 Mr Ghose understood that PwC had "signed off" on the accounting treatment for the notes and the review of the pro forma balance sheet (see para 213(j) of his affidavit sworn 8 September 2005). His understanding was based on PwC's retainer - which limited its responsibilities - and its two reports - likewise, dealing with confined subjects (T3961.35-3962.47). 1283 Mr Beach understood that PwC's responsibilities were limited to the accounting for the effect of the note issue in the pro forma balance sheet, taxation issues and the proper accounting for the notes (T4306.17-4308.36). Mr Deery understood that PwC had responsibility for accounting and tax matters specified in the due diligence task list (T4504.36-4506.30). Mr Morrissey's understanding was similar to Mr Deery's (T4611.44-4612.44). 1284 Mr Peck, of course, was familiar with the due diligence conduct memorandum, and understood the limitations of the responsibilities in it, and in the task list (T5012.9-.37, 5022.23-.34). He said in his statement (exhibit 9DX 1, para 350) that he "relied on PwCA in relation to all accounting and tax issues and matters specifically allocated to them in the due diligence process". 1285 Insofar as PwCA's responsibilities related to tax matters, no complaint is made. Insofar as they related to the accounting treatment for the notes, again no complaint is made. Insofar as they related to the pro forma balance sheet, no complaint is made as to their representation dealing with AASB 1033. I have found that there was no misleading or deceptive conduct in the statements made by PwCA in the prospectus. It follows that, on 18 November 1998, no director relied on any relevant misrepresentation made by PwC when deciding to sign, and thereby to authorise the issue of, the prospectus. 1286 The position is a little less clear as at 12 January 1999. However, it should be noted that the DDC committee's supplementary report of that date stated expressly that each member relied "on reports from the management of the Company and, in the case of the matters falling outside his/her area of expertise, on those members of the DDC with the appropriate expertise or to whom a particular investigation was assigned". Messrs Daya and Peck - both members of the DDC - must have understood this. Mr Peck certainly understood the limited areas of responsibility assigned to or undertaken by PwCA; and Mr Daya's understanding must have been similar. There was no evidence from either of them that, in resolving to issue the notes, they relied on any other representation made by PwCA. 1287 Insofar as the salient falsifying event as at 12 January 1999 was the likely and significant increase in claims reserves, that was a matter known to Mr Daya but withheld by him from his colleagues on the DDC and on the board. The confirmation given by the DDC on 12 January 1999 was to the effect that nothing had come to the attention of individual members to cause them to believe that there was any deficiency in the prospectus or any significant change affecting anything included in it. If, as I have concluded is the case, the communications from Trowbridge to Mr Daya were not shared with other members of the DDC, that statement cannot have been false, or misleading or deceptive, by reason of the substance of those communications. 1288 It follows that there is no evidence that either Mr Daya or Mr Peck, in resolving to issue the notes on 12 January 1999, relied on any misleading or deceptive representation made by PwCA. 1289 Further, and insofar as the indirect causation case relies on the proposition that other members of the DDC relied on representations made by PwCA, I refer to what I have said (in the context of the indirect causation case alleged against the Macquarie parties) in para [513] above. 1290 For those reasons, I conclude that the plaintiffs' indirect causation case against PwCA fails both in law and on the facts. I now return to the statement of issues. Issues 134-137, 140, 141: the "PwC DDC Representations", reliance 1291 To the extent that these issues go to the indirect causation case, the conclusions that I have reached mean that they require no, or no further, answer. 1292 Issues 134 and 135 do not arise, and should be so answered. 1293 Issue 136 should be answered "yes". 1294 Issue 137 should be answered "no". 1295 Issues 140 and 141 do not arise, and should be so answered. Issues 138, 139 and 142: the applicable legislative regime 1296 Having regard to the conclusion to which I have come, these issues do not arise. I have given some consideration to them in the context of the plaintiffs' case against the directors and Messrs Williams and Aroney (see paras [1001] to [1026] above). To the extent that the issue remains alive in the case against PwCA, I rely on what I there said. Issue 143: duty of care The pleaded case 1297 The duty of care is alleged in 6FAS para 255, which identifies both to whom, it is said, the duty was owed and the content of that duty: "255. In the premises, PWC owed to each of the plaintiffs, as members of a class or classes or persons who might reasonably and relevantly rely upon the actual and pro forma consolidated balance sheet and the other financial information contained in the Prospectus and, and in particular Section 6 thereof, a duty: (a) to exercise reasonable care and skill in their review of the financial information contained in Section 6 of the Prospectus and the Draft Prospectus including, without limitation, the actual and pro forma consolidated balance sheet of NCRH which was to be included in the Prospectus and the Draft Prospectus; (b) to exercise reasonable care and skill in the performance of their obligations as members of the Due Diligence Committee and in the undertaking of tasks assigned to them by that committee; (c) to exercise reasonable care and skill in ascertaining whether the financial information contained in Section 6 of the Prospectus and the Draft Prospectus including, without limitation, the actual and pro forma balance sheet of NCRH which was to be included in the Prospectus and the Draft Prospectus truly and fairly disclosed the financial position of NCRH; (d) to exercise reasonable care and skill in forming and expressing any opinion to NCRH or to the Due Diligence Committee to the effect that there was no material statement in the Prospectus or the Draft Prospectus that was false or misleading, that there was no material omission from the Prospectus or the Draft Prospectus and that neither the issue of the Prospectus or the Draft Prospectus, nor the offer of the placement of Converting Notes would involve conduct that was misleading or deceptive; (e) to exercise reasonable care and skill so as to ensure that the financial information contained in Section 6 of the Prospectus or the Draft Prospectus, including, without limitation, the actual and pro forma consolidated balance sheet of NCRH and any commentary thereon was in accordance with the applicable Australian Accounting Standards; (f) to exercise reasonable care and skill so as to ensure that the opinions expressed in Section 6 of the Prospectus or the Draft Prospectus, including, without limitation, the actual and pro forma consolidated balance sheet of NCRH and any commentary thereon was based on reasonable grounds; (g) to ascertain from Trowbridge its opinion as to the effect of the New Cap Group's claims experience on the claims provision which ought to be adopted by NCRH and, to the extent possible, the resultant effect on NCRH's NTA at least during the period 18 November 1998 to 12 January 1999; (h) require Trowbridge to report to the Due Diligence Committee as to the impact of the New Cap Group's recent claims experience on the claims provision which ought to be adopted by NCRH and, to the extent possible, the resultant effect on NCRH's NTA, at least during the period 18 November 1998 to 12 January 1999; and (i) to obtain such opinions and reports from Trowbridge prior to forming any view that there had been no material changes in the affairs of NCRH in the period after 17 November 1998, prior to the allotment of the Converting Notes on 12 January 1999." 1298 The reference to "a class or classes of persons" relates back to 6FAS para 240, in which the plaintiffs allege that information contained in the draft prospectus and the prospectus would be communicated not only to shareholders but also to six classes of "investors". I set out those classes: "240. At all material times, PWC knew or ought reasonably to have known that the information contained in the Prospectus and the Draft Prospectus would be communicated not only to shareholders so as to inform them of their rights in relation to the issue of Converting Notes pursuant to the Prospectus, but also, contemporaneously to investors in the following classes namely: (a) investors participating in the Institutional Placement; (b) the underwriter of the issue and Institutional Placement, Macquarie;

(c) sub-underwriters or proposed sub-underwriters of the issue;

(d) persons contemplating the purchase of ordinary shares in NCRH on or prior to 1 December 1998 so as to participate in the placement of Converting Notes; (e) persons who on or prior to 18 December 1998 would seek to acquire rights to apply for Converting Notes and thereafter apply for Converting Notes; (f) persons who directly or indirectly obtained a copy of the Prospectus and the Draft Prospectus prior to or contemporaneously with the issue and the Institutional Placement, for a purpose or purposes that included the purposes set out in (a) to (e) above." 1299 Of those six classes, the plaintiffs in further particulars have disavowed reliance on the first. None of the plaintiffs falls into the second. The plaintiffs have alleged in their further particulars that ICM and AOIT fall into each relevant class (ie, each of those alleged in sub paras (c) to (f)) and that the other plaintiffs fall into some, but not all, of those classes. It is however alleged that each of the plaintiffs falls into the last class. 1300 As I understand it, the plaintiffs say that the duty of care arises because of the matters alleged in 6FAS paras 219 to 254. Those paragraphs allege a great number of things, including: · The audit of NCRH's financial statements for the period ended 31 December 1997, and PwCA's role in that audit. · The review of NCRH's financial statements for the 6 months ended 30 June 1998, and PwCA's role in that review. · NCRH's retainer of PwCA in relation to the prospectus. · The DDC, its membership and the allocation of responsibilities in the DDC conduct memorandum. · PwCA's work in connection with the due diligence process, its reports to the DDC and its "Prospectus Report" to the board of NCRH dated 18 November 1998. · A great number of matters that, it is said, PwCA knew or ought to have known, including the way in which, the plaintiffs say, the draft prospectus and the prospectus would be used to solicit firm placements and sub-underwriting commitments. · The terms of various accountings and audited standards, and PwCA's obligations in respect of them as members of the Institute of Chartered Accountants, Australia. · PwCA's knowledge of the work undertaken and to be undertaken by Trowbridge, and the relevance of that work to NCRH's NTA and, therefore, share price. 1301 The alleged breaches of duty are set out in 6FAS para 256: "256. In breach of the aforesaid duties, PWC: (a) failed to consider, in their review of the half-year financial statements of NCRH for the period ending 30 June 1998, the likelihood of recovery of the deferred acquisition costs of US$13.4 million; (b) certified the balance sheet for NCRH as at 30 June 1998 which included deferred acquisition costs of US$13.4 million as a current asset;

(c) failed to consider subsequently the likelihood of recovery of those deferred acquisition costs; (d) failed to ascertain, in their review of the half-year financial statements of NCRH for the period ending 30 June 1998 or at any time subsequently, that deferred acquisition costs in an amount of US$13.4 million were not fully recoverable;

(e) knew, or in the alternative, failed to ascertain that the profit arising from the whole account aggregate of loss reinsurance policy entered into by NCRA in September 1998 with GCRA had been included in the balance sheet but that the liability arising from the casualty excess of loss reinsurance policy issued by NCRA in favour of GCRA had not; Particulars The GCRA whole account aggregate of loss reinsurance policy was addressed at the audit committee meeting of NCRH on 27 August 1998, which Pat Murray of PWC attended. (f) knew, or in the alternative, failed to ascertain, in their review of the half-year financial statements of NCRH for the period ending 30 June 1998, that retrocession recoveries in an amount of at least US$5.7 million were not recoverable; (g) certified the balance sheet for NCRH as at 30 June 1998 which included retrocession recoveries in an amount of US$13.839 million; (h) knew, or in the alternative, failed to ascertain subsequently, that at least US$5.7 million of the retrocession recoveries were not recoverable; (i) certified the balance sheet for NCRH as at 30 June 1998 which did not include a prudential margin of any significance when by PWC's own assessment, the prudential margin which should have been included in the balance sheet was at least US$9 million; Particulars Letter addressed to the board audit committee of New Cap Reinsurance Corporation Holdings Limited dated 27 August 1998. (j) failed to ascertain that the actual and pro forma balance sheet of NCRH which was included in the Prospectus and the Draft Prospectus did not truly and fairly disclose the financial position of NCRH; (k) confirmed to NCRH and to the Due Diligence Committee that they were of the opinion that there was no material statement in the Prospectus and the Draft Prospectus that was false or misleading, that there was no material omission from the Prospectus and the Draft Prospectus and that neither the issue of the Prospectus or the Draft Prospectus nor the offer of the placement of Converting Notes would involve conduct that was misleading or deceptive, such confirmation being given notwithstanding: (i) PwC's knowledge alleged in paragraphs 255A to 255D above; and (ii) The matters alleged in paragraphs 256 (a) to (j) above; (l) permitted or consented to the inclusion in the Prospectus and the Draft Prospectus of the actual and pro forma consolidated balance sheet; (m) ought to have ascertained that as at 30 June 1998, deferred acquisition costs in an amount of US$13.4 million were not fully recoverable; (n) ought to have ascertained that as at 30 June 1998, NCRH did not have retrocession coverage in an amount of US$13.839 million which was valid and collectable in that US$5.7 million of the retrocession recoveries was not recoverable; (o) ought to have ascertained that the profit arising from the whole account aggregate of loss reinsurance policy entered into by NCRA in September 1998 with GCRA had been included in the balance sheet but that the liability arising from the casualty excess of loss reinsurance policy issued by NCRA in favour of GCRA had not; (p) ought to have ascertained that the actual and pro forma balance sheet of NCRH which was included in the Prospectus and the Draft Prospectus did not truly and fairly disclose the financial position of NCRH; (q) ought to have ascertained that the actual and pro forma consolidated balance sheet in the Prospectus and the Draft Prospectus was not in accordance with applicable Australian Standards; (r) ought to have ascertained that the opinions expressed in Section 6 of the Prospectus and the Draft Prospectus were not based on reasonable grounds; and (s) ought to have obtained the advice or opinion of Trowbridge, prior to 12 January 1999, either for themselves or for the Due Diligence Committee, as to the effect of the New Cap Group's recent claims experience on the claims provision which ought to be adopted by NCRH and, to the extent possible, the resultant effect on NCRH's NTA." 1302 It will be seen that of these, all but the last relate either to the half yearly review (the first nine) or to the fruits thereof, insofar as the prospectus balance sheets were based on NCRH's balance sheet as at 30 June 1998. How the plaintiffs put their case 1303 Against that background, the plaintiffs appear to accept that, with one possible exception, the outcome of their case based on misleading or deceptive conduct will determine the outcome of their case based on negligence (written submissions in chief, chapter 7, para (267)). The possible exception relates to the breach alleged in 6FAS para 256(s) in respect of which the plaintiffs say, in the same paragraph: "Whatever the result in relation to the other claims raised against PwC[A] in this respect it is submitted that PwC[A] was clearly culpable in [sic] because of the work it knew Trowbridge was carrying out and Mr Murray's own inability to carry out an actuarial assessment." 1304 Thus, as the plaintiffs appear to accept, their case based on negligence faces an immediate hurdle, given my rejection of their case based on misleading or deceptive conduct in relation to the prospectus. 1305 The plaintiffs put their case in negligence on two bases:

(1) As a case of negligent misstatement in relation to what they call "the financial information contained in the prospectus which was reviewed by PwC[A]" (written submissions in chief, chapter 7, para (245(c)).

(2) Alternatively, based on a duty of care said to have been owed to each of the plaintiffs, as a member of one or other, or more, of the defined classes to avoid economic loss. The plaintiffs say that this aspect of the case is open to them "even if there was no negligent misstatement by PwC[A] (as distinct from NCRH), and even if there was no reliance by the Plaintiffs" (ibid, para (247)). 1306 The duty to avoid economic loss is said to be "based on the conduct of PwC[A] as a member of the DDC and being a party to the resolutions made by the DDC on 5 and 18 November 1998 and 12 January 1999 and the Prospectus Report made on 18 November, each of which approved the content of the Prospectus or in the case of the 12 January resolution represented that there were no reasons why the notes could not be allocated." (ibid, para (248)). Negligent misrepresentation 1307 Insofar as the case is based on negligent misrepresentation, it must fail, for two reasons. The first is that, as I have found in paras [1264] to [1274] above, the representations made by PwCA were limited to:

(a) The representations as to taxation matters in section 9; and

(b) The representation as to the application of AASB 1033 contained in section 6.2 of the prospectus (see para [1264(2)] above). 1308 No complaint is made of those representations. Mr Saville's evidence, to which I have referred in paras [1267] to [1268] above, was that he did not understand PwCA to have made any wider or more extensive representations in or by the prospectus; and it must follow that he did not rely on any such wider or more extensive representations. Specifically, to the extent that Mr Saville's evidence as to his reliance upon the financial representations contained in the prospectus ought to be accepted, it follows that he did not regard those representations as having been made by PwCA, save for the two matters that I have identified, and therefore did not rely upon them. 1309 Further, and to the extent that this aspect of the plaintiffs' case is based upon the "PwC Representations" identified in 6FAS para 264, I have found that those representations, to the extent that they were made by PwCA, were not misleading or deceptive; and as the plaintiffs appear to accept, it would seem to follow inevitably that they cannot found an action for negligent misrepresentation. No duty of care to avoid economic loss 1310 I turn to the second way in which the plaintiffs put their case in negligence against PwCA. I refer to what I have said in paras [536] to [539] above in relation to the negligence case against the Macquarie parties. 1311 Before I turn to those of the factors listed in para [540] above that are of present relevance, I shall deal with the terms of PwCA's retainer and with the obligations that were assigned to it by the DDC memorandum. PwCA's retainer 1312 The terms of PwCA's retainer, in relation to the capital raising, are set out in PwCA's letter to the directors of NCRH dated 14 October 1998 (accepted on 4 November 1998 by Mr Daya). Relevant terms of that letter include the following: "… 3. In accordance with the draft Due Diligence Memorandum we understand that you require us to: (a) review the proforma consolidated balance sheet of NCR (and any commentary) to be included in the Prospectus (the Proforma Balance Sheet) including whether the proforma balance sheet has been prepared in accordance with Australian Accounting Standards, NCR's existing accounting policies and properly incorporates the terms and effect of the proposed issue and stated assumptions, (b) advise on the accounting for the converting notes and related issue costs, and (c) any other matters as may be expressly agreed upon between us and confirmed in writing. … 4. Our review will be conducted in accordance with relevant Australian Auditing Standards and will be substantially less in scope than an audit. We will not express an audit opinion on the Proforma Balance Sheet. 5. Responsibility for the preparation of the Proforma Balance Sheet, including its adequate disclosure, is that of the Board of Directors of NCR. This responsibility extends to the maintenance of adequate accounting records and internal controls and the selection and application of accounting policies. … 7. Our work in relation to the Prospectus cannot be relied upon to disclose errors, irregularities or illegal acts, including fraud or defalcations, that may exist. However, we will conduct reasonable enquiries and we will inform you of any such matters that come to our attention in the course of our work. 8. In respect of the Proforma Balance Sheet, we envisage providing the Directors and the Due Diligence Committee with a negative assurance opinion which will state that nothing has come to our attention to cause us to believe that the Proforma Balance Sheet is incorrect or misleading (the "Report"). 9. In respect of the accounting for the Converting Note and related issue costs, we envisage providing you with an opinion letter as to the appropriate accounting treatment in accordance with Australian Accounting Standards. We acknowledge that this letter may be provided to the Due Diligence Committee and the opinion expressed therein may be referred to in the Prospectus. … 11. As a member of the Due Diligence Committee we (Pat Murray or an alternate) will attend all meetings of the Due Diligence Committee and complete the steps assigned to us in accordance with the due diligence memorandum and checklist. We will only provide advice on the mattes reviewed by us within the scope of our due diligence and draw to the attention of the Due Diligence Committee any matters arsing [sic] out of our review within the scope of our expertise. Responsibility for the preparation and for authorising and causing the issue of the Prospectus is that of the Directors, and we must not be taken as having prepared or authorised or caused the issue of the whole or any part of the Prospectus. 13. … Those parties who rely on our Report and work should do so within the context of this Terms of Reference letter. Our Report is not intended for general circulation or publication, nor is it to be reproduced or used for any purpose other than the Prospectus due diligence process without our written consent in each specific instance except as required by law. We will not assume any responsibility for losses occasioned to any party as a result of the circulation, reproduction or use of that report contrary to the provisions of this paragraph. … 15. We shall use reasonable skill and care in the provision of the services set out in this letter. We shall accept liability to pay damages for losses arising as a direct result of breach of contract or negligence on our part in respect of services provided with, or arising out of, the engagement set out in this letter; however, the liability of PwC, its partners and staff (whether in contract, negligence or otherwise) shall in no circumstances exceed seven times fees paid in the aggregate in respect of all such services." 1313 The DDC conduct memorandum stated in para 3.1 that all members of the DDC were required to raise with other members "any matter that they believe requires investigation (or further investigation) as part of the due diligence program". It provided for "Delegation of Primary Reporting Duties" in section 3.4. Relevantly, section 3.4 stated that:

" · Tax issues are to be referred to PricewaterhouseCoopers. · Accounting due diligence issues are to be referred to PricewaterhouseCoopers. Accounting due diligence will be conducted in relation to the Company's Australian and Bermuda operations. · Business and operating issues are to be referred to the Company's officers. The Reporting Persons undertaking due diligence on behalf of the members are not in a contractual arrangement with the members and do not act as agent for the members. The delegation does not constitute an abdication of responsibility by the Committee or its members. However the members may rely on Reporting Persons in relation to the particular areas of enquiry for which they are responsible … ." 1314 The end result of the due diligence process was stated in section 4.2, which, speaking of the due diligence report to be prepared, said: "The report will confirm that each member of the Committee is satisfied with: · the due diligence procedures adopted; · the system established; and · the enquiries and prospectus verification procedures undertaken. The report will also confirm each Committee Member's opinion that such enquiries, procedures and systems constitute reasonable enquiries and establish that reasonable precautions have been taken and due diligence exercised in the context and that, relying on other members of the Committee in relation to their particular areas of expertise, nothing has come to the attention of any member that causes them to believe that: · the prospectus contains a material statement which is false or misleading, or omits material information; or · that [sic] the issue of the prospectus and the issue of securities under the prospectus may involve conduct that is misleading or deceptive or may be likely to mislead or deceive." 1315 Section 5 of the memorandum referred to "areas of … responsibility" set out in appendix 1. The only areas specifically assigned to PwCA were item 11 (dealing with taxation and related issues, and involving some eleven subjects, none of which are the subject of complaint) and item 12 (dealing with accounting). The specific subjects listed under item 12 are two: AASB 1033, and the test for declaring dividends under Bermudan law (something of which no complaint is made). 1316 Finally, item 13, dealing with prospectus and related issues, said that the topic of "converting note terms" was the responsibility of "all". Authorities upon which the parties relied 1317 The plaintiffs cited a great number of cases in support of their submissions that PwCA owed them the duty of care in question. Their citations tended not to descend to the level of detailed analysis, nor to explain why it was that decisions on the readily distinguishable facts of the cases that they cited (the plaintiffs cited no case that was factually in point with the present) should lead to the conclusion that a duty of care was owed on the facts pleaded and proved in this case. 1318 I do not propose to burden these reasons with extensive analysis of the cases cited by the plaintiffs. There are a number of reasons:

(1) As I have indicated, the cases - most of which concern audits - are readily distinguishable.

(2) To the extent that the plaintiffs rely on English decisions, they turn on the central concept of proximity, which is now not in Australia the determinant of the existence of a duty of care.

(3) To the extent that the plaintiffs cite decisions from New Zealand, those decisions appear to be based on the reasoning of the House of Lords in Anns v Merton London Borough Council [1978] AC 728, which does not represent the law in this country (or, for that matter, in England, following the decision of the House of Lords in Caparo ). Reliance in the Anns doctrine "conflate[s] the elements of proximity and foreseeability, so that if the ultimate damage to the plaintiff was reasonably foreseeable, a prima facie duty of care [arises]": see McHugh J in Esanda at 278-279; as all the decisions in that case make clear, foreseeability without more does not give rise to a duty of care to avoid economic loss. 1319 PwCA likewise cited a number of decisions, placing particular reliance on the decision of the High Court in Esanda. However, great care needs to be taken in applying statements, other than of the broadest principle, in that case, for a number of reasons: (1) It was a case of alleged negligent misrepresentation; the present analysis is concerned with the existence of the alternative duty of care (to avoid economic loss) propounded by the plaintiffs, not with the relatively well understood principles relating to negligent misrepresentation.

(2) It is distinguishable on its facts, involving an audit, and not the performance of due diligence work (nor, for that matter, given that the plaintiffs put reliance on it, a half yearly review).

(3) The analyses of, in particular, Dawson J and Gaudron and Toohey JJ proceed from the standpoint that proximity is the determinant of the existence of a duty of care.

(4) The appeal concerned a strikeout application, and the question was whether the pleading was deficient in what it propounded to found the duty of care (see Gummow J at 310). The statements of principle need to be read in that context. 1320 Nonetheless, I think, there are statements, both of principle and as to relevant considerations, that offer valuable guidance. 1321 In the first category, I refer to the analysis of Brennan CJ at 252: "The uniform course of authority shows that mere foreseeability of the possibility that a statement made or advice given by A to B might be communicated to a class of which C is a member and that C might enter into some transaction is not sufficient to impose on A a duty of care owed to C in the making of the statement or the giving of the advice. In some situations, a plaintiff who has suffered pure economic loss by entering into a transaction in reliance on a statement made or advice given by a defendant may be entitled to recover without proving that the plaintiff sought the information and advice (48). But, in every case, it is necessary for the plaintiff to allege and prove that the defendant knew or ought reasonably to have known that the information or advice would be communicated to the plaintiff, either individually or as a member of an identified class, that the information or advice would be so communicated for a purpose that would be very likely to lead the plaintiff to enter into a transaction of the kind that the plaintiff does enter into and that it would be very likely that the plaintiff would enter into such a transaction in reliance on the information or advice and thereby risk the incurring of economic loss if the statement should be untrue or the advice should be unsound. If any of these elements be wanting, the plaintiff fails to establish that the defendant owed the plaintiff a duty to use reasonable care in making the statement or giving the advice. … " 1322 In the present case, A equates to PwCA; B to NCRH; and C to the plaintiffs. However, the duty of care for which the plaintiffs contend relates to the work undertaken by PwCA for NCRH pursuant to the retainer evidenced in the letter of 14 October 1998. 1323 Reference to the underlying contract between PwCA and NCRH directs attention to the following observations of Gummow J at 298-299: "Then there is the matter of the interrelation between contract and tort. The existence or content of the obligations owed by A to B might be excluded or limited, subject to any particular overriding policy considerations or statutory provision, by the terms of the contract between A and B. Why then should A bear a greater responsibility to C, subject only to the defence of contributory negligence on the part of C? C is a party with whom there has been no dealing in respect of the subject matter of the contract." 1324 In the second category, I refer in particular to the consideration by McHugh J at 282-288 and by Gummow J at 303-304 of factors to be considered in analysing whether a duty of care arises on particular facts. 1325 In the circumstance, I think, the question must be answered by reference to the general principles that I have extracted in para [539] above, informed by the observations to which I have referred. Analysis 1326 I conclude that the circumstances did not give rise to a duty on PwCA to avoid economic loss to the plaintiffs. There are a number of reasons why this is so. 1327 I have referred to the relevant statutory scheme in paras [537] and [538] above, and to a question arising from it in para [539]. That question arises for consideration equally as between the plaintiffs and PwCA, and the answer given (as between the plaintiffs and the Macquarie parties) in para [588] above is equally applicable as between the plaintiffs and PwCA. 1328 Another matter of significance relates to the limitation of liability that PwCA sought and obtained in their contract of retainer. If the plaintiffs' case is correct, and PwCA owed them (and other members of the various classes to which they claimed to have belonged) the duties of care alleged in 6FAS para 255, there would be no such limitation of liability. In the result, PwCA would have a greater liability to the plaintiffs than it would have had to the client for whom it provided the relevant services, notwithstanding that (as McHugh and Gummow JJ pointed out in Esanda at 286 and 303 respectively) the fault of NCRH was the primary cause of the plaintiffs' loss and the alleged negligence of PwCA's role was secondary or subsidiary. 1329 Nor is the apparent disparity between the potential liability of PwCA to NCRH and the potential liability of PwCA to the plaintiffs (if the plaintiffs are correct) limited to the monetary extent of that potential liability. The plaintiffs seek to make PwCA responsible for a number of matters that are outside the areas of responsibility undertaken by or assigned to PwCA pursuant to its retainer and the DDC conduct memorandum. In other words, the plaintiffs seek to make PwCA liable to them for matters in respect of which PwCA could have had no liability to NCRH: an anomalous outcome. 1330 Further (and with reference to the analysis of Lord Steyn in Williams to which I have referred in para [540(6)] above), the law does provide remedies against those who participate in the issue of a false, misleading or deceptive prospectus. Speaking as at 1998 and 1999, they may have been exposed to liability under the Corporations Law, the ASIC Act 1989 or (in the case of individuals) the Fair Trading Act. In addition, they may have been liable under the general law for negligent misrepresentation. (I repeat that, in this case, the case based on negligent misrepresentation fails because there were no relevant representations, and there was no relevance reliance.) Insofar as the facts relied upon might suggest statutory accessory liability, with its accompanying due diligence defences, there is a very real question of policy as to why the common law should intervene to impose an alternative basis of liability without any equivalent defence. 1331 One group of matters on which the plaintiffs relied to support their pleading, in 6FAS para 253, that PwCA assumed responsibility to shareholders in NCRH and also to the classes of investors and the like to which the plaintiffs claimed to belong (as set out in 6FAS para 240 - see para [1298] above), were the matters set out in paras 246 to 252. Those matters were:

(1) The ASX listing rules, and consequential requirements (including accounting requirements under the Corporations Law as it then stood, and continuous disclosure requirements under the Corporations Law and the listing rules);

(2) The requirements of various accounting standards; and

(3) Obligations said to have been imposed on PwCA by virtue of the partners in that firm being members of the Institute of Chartered Accountants. 1332 Those matters do not assist in establishing a duty of care. They may give content to, or help to define the terms of, a duty of care if otherwise one arises. King CJ said as much, in the Full Court of the Supreme Court of South Australia, in Esanda Finance Corporation v Peat Marwick Hungerfords (1994) 61 SASR 424 at 432-433, and his Honour's approach was upheld on appeal: see for example Dawson J, 181 CLR 241 at 254; and see too McHugh J at 291 and Gummow J at 311. 1333 Although the plaintiffs sought to frame their classes of persons to whom the suggested duty of care was owed to avoid any problem of indeterminacy, I do not think that they have succeeded. The problem of indeterminacy reflects the unwillingness of the common law to countenance "liability in an indeterminate amount for an indeterminate time to an indeterminate class" (the well known aphorism of Chief Judge Cardozo in Ultramares Corporation v Touche (1931) 255 NY 170, 179, cited with approval on countless occasions since). The first, second and third classes may be thought to be relatively confined (bearing in mind that the first two are not relevant in the present context). But the fourth and fifth classes go well beyond what might be thought to be the likely (or foreseeable) target of the prospectus; and so does the sixth class, insofar as it picks up the fourth and the fifth. 1334 Of course, if the fourth and fifth classes are excluded (and the sixth class, insofar as it seeks to pick them up), then the plaintiffs' claim is very substantially limited: the only subunderwriters were ICM and AOITL. The plaintiffs' submissions did not seek to grapple with this difficulty, save to submit (by assertion of the conclusion, rather than by reasoning to it) that the classes for which they contended were not uncertain, or indeterminate: see for example their submissions in reply to PwC, chapter 4, paras 13.12 to 13.14. Conclusion 1335 For these reasons (which, I acknowledge, in at least some parts go beyond the question of the existence of a duty of care, and extend to questions of breach and reliance) I conclude that the plaintiffs' case in negligence against PwCA fails:

(1) As to the case based on negligent misrepresentation, because there was no relevant misrepresentation by PwCA and no relevant reliance; and

(2) As to the alternative case based on a general duty of care to avoid economic loss, because no such duty of care arose in the circumstances. Issues 144 to 155: breach, other defences 1336 In light of what I have said, these issues do not arise (or do not arise separately) and should be answered accordingly. Issues 156 to 160: damages 1337 Likewise, these issues do not arise as between the plaintiffs and PwCA, and should be answered accordingly. Issues 161 and 162: limitation issues 1338 I refer to what I have said in paras [1198] to [1207] above. Much of that is equally applicable to the limitation issue as between the plaintiffs and PwCA. In particular, as I observed in Ingot [No 3] in paras [34], [36] and [37], the relevant amendments against PwCA:

(1) Introduced a case that was in substance new as between the plaintiffs and PwCA; but

(2) Were based in substance on allegations made by Mr Peck against PwCA in his twelfth cross-claim. 1339 The plaintiffs submitted that the question, whether the Court should "otherwise order", did not arise, because the essential facts to notify PwCA of the relevant claims had been alleged in earlier articulations of the summons that had been filed within the limitation period. It is apparent from what I have just said that I did not accept that proposition on 4 April 2005 when I published my reasons in Ingot [No 3]. Nor, for the reasons there given, do I accept it now. 1340 PwCA pointed in submissions to an asserted want of satisfactory explanation for the delay in introducing this aspect of the plaintiffs' case against them, and to "Bishopsgate" prejudice. They did not point to any specific prejudice, but submitted, rather, that it could be inferred. 1341 As to want of explanation: had I considered this to be a crucial matter, I would have refused leave to amend. Having decided to grant leave to amend (with a reservation of the question of the effective date of the amendments) I do not regard any want of satisfactory explanation for delay as having any further relevance. 1342 As to prejudice: I accept that Mr Murray's recollection of the specific events relevant to the new claim must have dulled with the passage of time. Nonetheless (as was apparent), PwCA had maintained, as one would expect of experienced auditors, appropriate records of their work done in connection with the prospectus and the due diligence process. I do not think that such prejudice as may be inferred was shown to have had any real or significant impact on the ability of PwCA to defend themselves against this aspect of the plaintiffs' case. 1343 Had it been necessary for me to consider the limitation issues, I would have concluded that the Court should not "otherwise order" in respect of the relevant amendments, so that those amendments should be taken to have been operative from 16 November 2001. Conclusion on the case against PwCA 1344 The proceedings against PwCA must be dismissed, and cross-claims for contribution or indemnity brought by PwCA must likewise be dismissed.

NCRA's CROSS-CLAIMS 1345 I turn now to the thirty third and thirty sixth cross-claims. 1346 The 36th cross-claim (as for convenience I shall call it; but it is, more accurately, the second further amended 36th cross-claim) alleges that the directors of NCRA (Messrs Ghose, Daya, Peck and Williams) and its chief financial officer (Mr Aroney) owed it fiduciary duties and a duty of care, which duties they breached by:

(1) In the case of the fiduciary duties, causing or permitting NCRA to enter into the GCR transaction for what is called a "dishonest and fraudulent design"; and

(2) In the case of the duty of care, failing to put NCRA into runoff on or shortly after 2 September 1998 or to recommend that this be done. 1347 NCRA and Mr Ghose have resolved their differences, with the result that NCRA will discontinue the 36th cross-claim as against Mr Ghose. It remains alive against Messrs Daya, Peck and Williams (as directors) and Mr Aroney (as an officer). It is not in dispute that Mr Aroney, NCRA's secretary and chief financial officer, was an officer. There is a dispute as to whether this is so because (as NCRA submits) he was "a person who [was] concerned in, or [took] part in, the management of" NCRA (Corporations Law, s 82A, referring back to the definition of "executive officer" in s 9), or only because (as he submits) he was the company's secretary. On the view to which I have come, it is not necessary to resolve that dispute. 1348 The dishonest and fraudulent design (for convenience, I will use NCRA's designation) is alleged in para 53 as being one to permit NCRA to: " … (b) account for the GCRA transaction in such a way as to enable the 1998 half yearly accounts and the US GAAP 1998 half yearly accounts to falsely overstate assets and understate loss in the manner described below; the Cross-Defendants were acting in breach of their fiduciary duties to NCRA, pursuant to a dishonest and fraudulent design ( the dishonest and fraudulent design ) which was to enable the 1998 half yearly accounts and the US GAAP 1998 half yearly accounts to falsely overstate assets and understate loss, with the result that the 1998 half yearly accounts issued on behalf of the New Cap Group falsely reported that, on a consolidated basis, the New Cap Group had: (c) Net claims incurred of US$6.675million less than would otherwise have been reported; (d) an Underwriting Result US$5.675million better than would otherwise have been reported; (e) an Accumulated Loss at the end of the period of US$5.675million less than would otherwise have been reported; (f) additional retrocession recoveries receivable of US$5.675million; (g) additional Net Assets of US$5.675million; and the US GAAP 1998 half yearly accounts falsely reported that on a consolidated basis the New Cap Group had additional Net Assets of US$6.5 million in circumstances where: (h) Leg One was not entered into until after 30 June 1998; (i) Leg One and Leg Two were in substance one transaction; (j) the certain loss NCRA accrued under Leg Two was not accounted for; and (k) the existence or intended effect of Leg Two was deliberately concealed from the auditors and external actuary. Particulars of falsity, dishonesty and fraud

(i) Because Leg One and Leg Two were, in substance, one transaction, AAS1001 required that they be accounted for according to their substance rather than their form. It was false, therefore, to account for Leg One in the 1998 half yearly accounts without also accounting for Leg Two. (ii) Leg One and Leg Two were interdependent and therefore should have been accounted for together. It was false, therefore, to account for Leg One in the 1998 half yearly accounts without also accounting for Leg Two. (iii) Because Leg Two was certain to result in a loss to the limit of its cover and because it was part of the same transaction as, or was interdependent with, Leg One, neither Section 1 of Leg One nor Leg Two involved any transfer of risk and hence neither was a reinsurance contract under which the proceeds of any claim could be claimed as reinsurance proceeds. (iv) Because Section 1 of Leg One did not involve any transfer of risk it was false to claim the proceeds under Section 1 of Leg One as an asset (that is, as reinsurance recoveries) when, in substance, those proceeds were an advance with an attached repayment obligation constituted by Leg Two." 1349 It is then alleged that:

(1) The purpose for which NCRA entered into the GCR transaction was not a proper purpose of NCRA (para 54); and

(2) The dishonest and fraudulent design was carried out by: · Authorising or permitting NCRA to enter into the transaction; · Not disclosing the existence or intended effect of leg 2 to PwCA or Trowbridge, in circumstances where it was known that the effect of leg 1 would be brought to account as at 30 June 1998 but the effect of leg 2 would not; and · Not disclosing the dishonest and fraudulent design to Trowbridge, PwCA or Dresdner (para 55). 1350 The case on causation is pleaded in paras 57 to 59. In essence, it is said that, but for the implementation of the dishonest and fraudulent design:

(1) Dresdner would not have negotiated to amend the facility, but would have terminated it and demanded repayment; and

(2) because of the attitudes of PwCA, Trowbridge and MECM, the capital raising would not have proceeded and NCRA would have gone into runoff. 1351 The 33rd cross-claim (again, a label of convenience for what is, more accurately, the third further amended 33rd cross-claim) builds on the 36th cross-claim. It asserts that the Guy Carpenter parties knew of circumstances which, to an honest and reasonable person, would suggest the dishonest and fraudulent design alleged in the 36th cross-claim; and that, with that knowledge, they assisted in the execution of the dishonest and fraudulent design and, or alternatively, were involved in the breaches of statutory duty alleged against the defendants to the 36th cross-claim. In essence, therefore, the case against the Guy Carpenter parties is framed in two ways, relying on:

(1) What is often called the second limb of Barnes v Addy (1874) LR 9 Ch App 244, 251 - knowing involvement in breach of fiduciary duty; or

(2) Section 79 of the Corporations Law, in relation to alleged involvement in the breaches of statutory duties alleged against the defendants to the 36th cross-claim. 1352 It follows from this structure that the case on causation against the Guy Carpenter companies is that alleged against the defendants to the 36th cross-claim. 1353 On 3 August 2005, an order was made by consent in effect separating out, for later determination, questions of entitlement to and quantification of equitable compensation, in the event that any relevant breach of duty, and any general law or statutory involvement in any such breach of duty, were found. However, as all relevant parties agree, there remains for determination at this stage of the proceedings a threshold question of causation: in substance, whether, but for the breaches of duty alleged, NCRA would have gone into runoff earlier than it did, or would otherwise have had the opportunity to avoid losses that it says it thereafter incurred. 1354 I have come to the conclusion that the threshold (if I may so call it) question of causation should be answered in favour of the cross-defendants. In part, that has been flagged in what I have said in paras [388] and [389] above. Although those paragraphs addressed only the position of Dresdner, it is plain that Dresdner's likely reaction to a reported net worth of USD119.6 million as at 30 June 1998 is the key to the present question of causation, notwithstanding that the question involves as well the likely reactions of PwCA, Trowbridge and MECM. In those circumstances, consistent with the general approach that I have outlined in para [118] above, I do not propose to deal with the questions of breach of duty and involvement. In addition to the reasons that I gave in those paragraphs, I think that it is undesirable to deal in detail (as would be necessary) with allegations of very serious commercial impropriety - more bluntly, fraud - when even a resolution of those questions in favour of NCRA would not assist it. 1355 There is an additional complicating factor, closely related to the question of causation. That concerns the means by which NCRA entered into legs 1 and 2. In substance, it was the board of NCRH (in its meeting in Toronto on 2 September 1998) that decided that NCRA should do so. There is thus a very real question as to whether, in those circumstances, it can be said that Messrs Daya and Peck (in their capacities as directors of NCRA) and Williams in any real sense "caused" NCRA to enter into legs 1 and 2, or whether Mr Aroney "permitted" it to do so. Alternatively, and as was submitted in particular for Mr Aroney, there may be a very real question of ratification of any breach that in fact occurred. However, as I have indicated, I propose to explain my decision by reference to the causation case that is pleaded in paras 57 to 59 of the 36th cross-claim. 1356 My conclusion on causation does not, however, dispose of the 36th cross-claim insofar as it alleges that the remaining cross-defendants owed a common law duty of care to NCRA, and breached that duty by failing to cause it to go into runoff on or about 2 September 1998 (or, in Mr Aroney's case, failing to recommend that it do so). It will be necessary to return to that after dealing with the causation issue. NCRA's case on causation 1357 I have adverted already to the nature of this case. However, I think, it is desirable to set out in full the way in which the causation case is pleaded in paras 57 to 59 of the 36th cross-claim:

"57. As a result of entry into the GCRA transaction by NCRA,

(a) the 1998 half yearly accounts contained the false claim that NCRA had reinsurance recoveries receivable of US$5.675 million; and

(b) the US GAAP 1998 half yearly accounts contained the false claim that NCRA had reinsurance recoveries receivable of US$6.5 million.

58. As a result of the matters set out in paragraphs 53 to 57 above:

(a) a Compliance Certificate was issued to Dresdner falsely claiming that the NewCap Group had a consolidated net worth of US$126.1 million ( NA.020.020.0514 , NA.020.020.0515 , NA.020.020.0531 , NA.020.020.0539 );

(b) Dresdner continued negotiations with NCRH for an amended facility which but for the false accounting would have been terminated;

(c) NCRH avoided a demand for immediate repayment of the Facility;

Particulars Credit Agreement ( NA.020.004.0006 ) Article IX "Covenants" section 9.2 "Negative Covenants" - subs 9.2.2 "Minimum Consolidated Net Worth" - subs 9.2.16 "Restrictions on Surplus Relief Reinsurance Agreements" Credit Agreement Article XII "Events of Default" - section 11.1(vi) "non compliance with certain provisions" - section 11.2 "effect of event of default"

(d) PwC: (i) completed its review of the draft NCRH consolidated financial statements for the period ended 30 June 1998 and on or about 2 September 1998 PwC Bermuda provided its review report in respect of those financial statements ( NA.020.020.0554 );

(ii) issued the reports, gave the confirmations and consents, and otherwise conducted itself in the manner described in sub paragraphs (a) to (i) of paragraph 27 of the 31st Cross Claim;

(e) Trowbridge: (i) provided its Independent Actuaries Report dated 26 October 1998 ( NA.020.003.0023 ) for inclusion in the Prospectus and its report dated 10 November 1998 ( PLA.522.001 ) on outstanding claims as at 30 June 1998, in each case confirming Trowbridge's assessment of the central estimate of outstanding claims liability of the New Cap Group including NCRA at 30 June 1998 on a discounted basis at US$139.6m; and

(ii) thus concluded that the net provision adopted in the 1998 half yearly accounts was reasonable.

(f) MECM: (i) entered into the Macquarie Retainer ( MCQ.502.120 ) referred to in paragraph 43 of the 6th Further Amended Summons ( the Summons ); and (ii) made the Balance Sheet Representations and the NTA Representations referred to in paragraphs 70 and 71 of the Summons, as well as the Due Diligence Committee representations referred to in paragraphs 49A, 67A and 81A of the Summons.

59. But for any one or more of the matters in paragraphs 57 or 58: (a) the Capital Raising would not have proceeded; and/or (b) there would have been a collapse in market confidence in the NewCap Group and NCRA; and (c) NCRA would have gone into run off on or around 2 September 1998." 1358 The "GCRA transaction" is what I have called variously the GCR transaction or legs 1 and 2 together. I have explained paras 53, 54 and 55 (see paras [1348] and [1349] above). Paragraph 56 alleges the breach of general law and statutory fiduciary duties. Dresdner's attitude the key 1359 It is I think plain, and in any event I am prepared to assume for the purposes of dealing with the case on causation, that if Dresdner had decided to terminate the facility, call up the loan (demanding immediate repayment) and exercise its powers on default, then the capital raising would not have proceeded. Whether or not, in those circumstances, NCRA would have gone into runoff is less clear; but, again, I propose to deal with the question of causation on the assumption that this would have been so. The relationship with Dresdner 1360 Dresdner's likely reaction to a reported net worth under US GAAP of USD119.6 million must be gauged from its documents, its correspondence with NCRH and its interactions with directors and officers of NCRH. NCRA had procured a statement from Mr Valencourt. However, Mr Valencourt was not willing to give oral evidence. His expressed reason (in an e-mail from his lawyers in the United States of America to NCRA's lawyers, a printout of which was admitted without objection as one of NCRA's tendered documents) was that the passage of time had dimmed his recollection to the point where he did not feel that he could be of assistance. He was not a compellable witness. No party submitted that I should draw any "Jones v Dunkel" inference against any other, in relation to Mr Valencourt. 1361 As I have mentioned in para [29] above, there was a pre-existing business relationship between Dresdner and Mr Ghose, or Eldon. It is apparent that the relationship was, for some time, strong; although, as Mr Ghose acknowledged, it became strained over the course of 1998. Nonetheless, internal Dresdner documents (including the memorandum to which I have referred in para [389] above) make it plain that Dresdner, or at least Mr Valencourt, saw the relationship between Dresdner and Eldon as one of continuing value and utility. 1362 NCRA accepts in its written submissions that "[a]t times of difficulty in the relationship with Mr Valencourt and Dresdner, Mr Ghose was called in to negotiate … " (para 449). However, it submits, after 8 May 1998, "as events unfolded … the relationship between Mr Ghose and Mr Valencourt (and Dresdner) became severely strained" (para 450). Both those submissions may be accepted. Nonetheless, it is the fact that, notwithstanding the strain on the relationship, there was no occasion when, either through Mr Ghose's intervention or otherwise, a problem in the relationship was not resolved. 1363 As NCRA acknowledges in its written submissions (paras 384-387), there was a continuing history of default, cured by waiver and amendment, from January 1997 on. The first default occurred when NCRH entered into the LOC agreement with Chase without first giving proper notice to Dresdner. In a letter of 31 January 1997, Dresdner declared an event of default. The default was cured by an amendment agreement with an effective date of 14 February 1997. Mr Ghose said that he intervened with Mr Valencourt to facilitate discussions, which led to the amendment agreement (see paras 239 and following of his affidavit sworn 8 September 2005). I accept that evidence. 1364 Mr Valencourt's perception of the relationship between Dresdner and NCRH, as expressed in an e-mail dated 4 March 1998 to colleagues at Dresdner, was that "they [NCRA] have been waiver/amendment city from day one". A problem to which Mr Valencourt referred in that e-mail was that NCRH had made "[t]echnical defaults on scheduled (covenated) [sic] step-ups in S/E this year and in future". I take the expression "S/E" to refer to "shareholders' equity": ie, net worth. He referred to the fact that he was about to undertake a "due diligence" investigation of NCRH at its Sydney office. He said that "[d]epending on what we find out in Australia, and to the extent that we think of taking longer term pre emptive action, then I would want to explore (a) trying to get the company sold and having the bank debt prepaid … , (b) convincing the company to launch a secondary stock or convertible debt offering, and/or (c) in absolutely worst case, selling down our hold level." He referred to this last action as possibly "very messy". 1365 Mr Valencourt was cheered by the outcome of his due diligence investigations. He had been favourably impressed by Mr Daya. During those due diligence investigations, Mr Daya was able to explain to Mr Valencourt's satisfaction a number of problems that Mr Valencourt perceived in NCRH's operations, and to give Mr Valencourt assurances, which were accepted, as to the causes of those problems and steps being taken to rectify or eliminate them. 1366 In his report following the due diligence process, Mr Valencourt said:

(2) Actions had been taken to improve NCRH's operations and underwriting;

(3) "Solvency and reserve adequacy are not of the essence at this time";

(4) NCRH "has definitely gone a long way to learning how to be a better borrower from a technical/logistical point of view"; and

(5) Nonetheless, "there may still be a positive slope to the learning curve". 1367 In February 1998, NCRH had informed Dresdner that it wished to undertake a restructure and reorganise its lending facilities, including by paying out the Dresdner facility. To jump ahead:

(1) From May 1998, NCRH and Dresdner worked towards a restructure of the Dresdner facility, on the basis that a substantial part of the amount drawn down would be prepaid. That led to the restructure whereby the facility limit was reduced to USD25 million and Dresdner became the sole lender (an increase in its individual commitment). That restructure was undertaken in conjunction with a reduction in the level of the net worth covenant from USD140 million to USD125 million, and at a time when, plainly, Dresdner was aware of losses sustained by NCRH to date;

(2) Mr Ghose said that those circumstances "reinforced [his] view that despite Valencourt's concerns expressed to [him] orally and in writing, Dresdner did not consider New Cap an unacceptable risk and would not precipitously [sic] call in its loan." (affidavit, para 270). I accept that evidence; and

(3) Mr Ghose was not alone, among the directors of NCRH, in thinking that it was unlikely that Dresdner would call up the loan. Mr Morrissey said that the facility was "under almost constant review and negotiation" (T4547.39). Messrs Beach and Deery said in their statements that they were aware of the history of default, and that when there had been default there was a waiver; and neither thought that there was a serious risk that the facility would be called up. (As to Mr Beach: see exhibit 5,7,8DX 6, paras 55-57. As to Mr Deery: see exhibit 5,7,8DX 8, paras 66-59.) I accept their evidence. 1368 To return to the narrative: on 8 May 1998, Mr Ghose wrote to Mr Valencourt. He informed Mr Valencourt that NCRH was unlikely to meet the minimum net worth covenant (then USD140 million) as at 30 June 1998, and that NCRH wished to restructure the facility. He put some proposals, one of which included elimination of the net worth covenant. 1369 Dresdner was not averse to a restructure, but was not prepared to eliminate the net worth covenant. It did, however, propose alternatives. Without specifying dollar figures for the net worth covenant, the proposal offered, as a concept, four different levels of net worth, with different levels of interest applicable (the lower the net worth, the higher the rate). 1370 It is instructive to look at the loan application dated 22 June 1998 that Mr Valencourt submitted to Dresdner's credit committee in connection with the restructure. Mr Valencourt and his colleague Mr Gupta (one of the addressees of the e-mail referred to in para [1364] above) referred to the financial covenants as "draconian to say the least", and to clause 9.2.5 in particular as "Draconian in the absurd". They recommended that Dresdner increase its individual commitment to USD25 million, thereby providing 100% of the restructured facility. 1371 Mr Valencourt gave three reasons why this should happen:

(1) NCRH was "strongly solvent" and its new management and systems impressed him;

(2) There was the prospect of further business, and therefore fees, in the future; and

(3) The relationship between NCRH and Eldon suggested to Mr Valencourt that if the revised structure were approved, it would "probably lead to additional Eldon bank financings". 1372 Mr Valencourt and his colleague "strongly recommend[ed] approval". 1373 The credit committee accepted Mr Valencourt's recommendation and agreed to the restructure. On 24 June 1998, Dresdner provided a letter of commitment and terms sheet to NCRH. The terms included a 60 day temporary waiver of defaults, to allow time for NCRH and Dresdner to negotiate and execute an amendment agreement. 1374 The terms sheet offered four different levels for the consolidated net worth covenant, with varying interest rates. They ranged from a net worth of USD160 million through USD150 million and USD125 million to a low of USD100 million. (It is worth noting that Mr Valencourt's recommendation to the credit committee had specified an upper limit of USD175 million. Presumably, this was thought to be unduly optimistic.) The applicable interest rate increased as the level of the net worth covenant decreased. Mr Aroney's evidence, which on this point I accept, was that the difference in interest costs, as between USD125 million and USD100 million, from 1 July 1998 to 31 January 1999, would be about USD32,000. 1375 There is some internal tension in the terms sheet sent on 24 June 1998. The reference to net worth levels ranging from USD160 million to USD100 million appeared in the section of the terms sheet dealing with the interest rate payable (strictly, the margin to be charged over whichever was applicable of the "Dresdner Alternate Base Rate" or LIBOR). However, the proposed amendment to the net worth covenant (clause 9.2.2) specified a minimum net worth of USD125 million. Nonetheless, I think, it is plain from the terms sheet that in principle Dresdner was prepared to contemplate a minimum net worth as low as USD100 million, in exchange for a slightly higher interest margin. 1376 Ultimately, NCRH and Dresdner agreed that the level of the net worth covenant (clause 9.2.2) should be reduced to USD125 million until 30 June 1999 (see the letter of offer and terms sheet sent on 24 June 1998, accepted with amendments and returned by Mr Ghose on about 26 June 1998). The waiver and amendment that was executed on about 25 June 1998 did not in terms encompass the net worth covenant; it related to such defaults as might occur through the restructure of the New Cap Group. However, Dresdner and New Cap appear to have proceeded on the basis that, through the agreed (as amended) terms sheet, the net worth requirement as at 30 June 1998 (and indeed thereafter until the third amended agreement was made on 17 November 1998) was USD125 million. 1377 In late June 1998 (presumably, after the terms sheet of 24 June 1998 had been amended, agreed and signed) Mr Eastham asked Mr Valencourt whether the net worth level could be reduced to USD115 million. In an e-mail sent on 29 June 1998 to Messrs Daya and Aroney, Mr Eastham recorded Mr Valencourt's reaction as follows: "Asked Tony about the $115M … no go … explosion … eventually I calmed him down … appears to agree to something like this now [sic] he would have to go back to the Credit Committee. If we do want $115M, don't think it's impossible, but will have to be a concerted effort rather than a piece of late negotiation." 1378 When the extent of the likely loss for the six months ended 30 June 1998 became apparent to management, and with it the impact on the net worth of NCRH, there was discussion as to how this might be presented to Dresdner. Mr Eastham said in an e-mail sent on 19 August 1998 to Messrs Aroney and Daya that he believed that "there is a chance that Dresdner would go to $115M anyway (slight), maybe even a greater chance if we further reduce their exposure by say paying back an additional $10M." 1379 The inference, as at both 29 June 1998 and 19 August 1998, is that Dresdner was not inflexible on the amended net worth level of USD125 million, but that extensive negotiation, and perhaps something in exchange, would be required to achieve a further reduction. That inference is consistent with the "spread" of net worth levels stipulated in the terms sheet, relating to the interest margin. 1380 The second amendment agreement, executed to give time to put a fully negotiated amendment in place, included as a term - indeed, a condition - that a third, and presumably permanent, amendment be put in place by 31 August 1998 (later extended to 30 September 1998). 1381 There was negotiation over the terms of the third amendment agreement, including a revision of the net worth covenant to USD125 million up to the quarter ending on 30 June 1999, but the agreement was not executed. Accordingly, the temporary waiver lapsed, with the effect that the existing covenants (that had been the subject of the waiver) were reinstated. That was the basis for Mr Valencourt's statement in his letter to NCRH of 11 October 1998 "that New Cap is indeed in technical violation of the covenants in the … agreement". Nonetheless, Dresdner did not call up the loan, or declare default, or attempt to exercise its rights. It entered into further negotiations with NCRH to restructure the facility. 1382 I have dealt with some aspects of the letter of 11 October 1998, and Mr Valencourt's memorandum to the credit committee of the same date, in para [389] above. 1383 In my view, it is plain from the terms of Mr Valencourt's memorandum to the credit committee and from what followed that Dresdner was not desirous of declaring a default. True it is that Dresdner believed that NCRH had a net worth slightly in excess of USD125 million. But there is no basis, either in the documents or in the course of dealings between Dresdner and NCRH, for concluding that Dresdner would have acted any differently had it known that the "true" net worth of NCRH was USD119.6 million. 1384 Mr Valencourt made the following points in his memorandum to the credit committee:

(1) He had been "instructed … not to entertain any further amendments or waivers after expiration of existing waiver on 9/30/98, and to demand repayment of $25MM in full. … [He] explained that this would have to be reviewed with legal counsel to ascertain that there were no contract of [sic: clearly "contractual or"] regulatory pitfalls. [He] subsequently informed [Mr Ghose] of Dresdner's decision, enlisting angry response and accusation of dealing in bad faith. … [B]oth sides agreed to work together towards an amicable resolution."

(2) "Execution of the third amendment now looks like a certainty unless we wish to become exposed to possible prolonged and costly litigation and regulatory action."

(3) The due diligence investigation that he had conducted in March 1998 had been, from his perspective, satisfactory.

(4) "[T]he 1997 book continues to have its negative repercussions in 1998, but by the end of this year most of this business is expected to have run off, making 1999 the pivotal year for the company's earnings."

(5) The disclosed losses were "due entirely to continued loss development from the 1997 book and, more specifically, from the company's decision (for economic reasons) not to maintain in place certain CAT [catastrophe] retrocessions intended to insulate it from such 1997 losses during 1998 … ".

(6) The worst outcome would be runoff, which would produce "a greatly improved solvency margin, dividend upstreaming capability, and residual capital at the holding company generally in the $125MM-$130MM range after giving effect to bank debt … " (emphasis in original).

(7) Whilst he had been "instructed … to exit if/when feasible", there were arguments either way and "the issue at hand right now is a legal and regulatory one rather than a credit one."

(8) If the loan were to be called up "there could be a partial or total refunding of our fees, not to mention inability to collect current outstanding legal fees which may well exceed $125MM" (I trust, a mistake; presumably the correct amount was USD125,000).

(9) The condition of NCRH does not "warrant such precipitous [sic] action on our part".

(10) The recommendation was to "proceed along the lines articulated in our 10/11/98 letter": a reference to the letter in which Mr Valencourt referred to his belief "that New Cap Re is indeed in technical violation of the covenants" in the facility agreement, but "expressed the desire to resolve continuing problems surrounding the … agreement in an amicable and instructive manner", to which end, he had said, "it might be useful for both of us to revisit these issues in person with a mind to finding a middle ground." 1385 I do not accept that Mr Valencourt's recommendation would have been any different had NCRH disclosed a net worth (under US GAAP) as at 30 June 1998 of USD119.6 million. Nor do I accept that, in those circumstances, there would have been any outcome other than that which was documented in the third amendment agreement of 17 November 1998: in which, among other things, clause 9.2.2 was amended to refer to a level of USD100 million, with no step up requirement. 1386 No doubt, Dresdner was comforted, in entering into the third amendment agreement, by the prepayment of USD13.75 million, with a commitment to repay the balance by 31 January 1999; by the "cash buffer" covenant; and by the knowledge that repayment would be facilitated through the capital raising, which would be underwritten by MECM. But this does no more than show that Dresdner was looking for a solution that did not require it to call up the debt and seek to enforce its rights, with the attendant contractual and regulatory pitfalls of which Mr Valencourt had warned the credit committee. It certainly does not show that Dresdner would have ceased to negotiate, or refused to negotiate, had there been disclosed to it a net worth as at 30 June 1998 of USD119.6 million. 1387 I therefore conclude, contrary to para 56 (b), (c) of the 36th cross-claim, that Dresdner would have continued to negotiate with NCRH for an amended facility even if the "true" net worth as at 30 June 1998 had been disclosed to it, and that it would not have acted ("precipitously" or otherwise) to terminate the facility, call up the debt and exercise its rights on default in that hypothetical event. The position of PwC 1388 The immediate difficulty for this aspect of NCRA's causation case is that the relevant matter pleaded in para 58 (d) of the 36th cross-claim is not supported by - indeed, is inconsistent with - Mr Murray's evidence. NCRA recognised this difficulty in its submissions. To meet it, it submitted that the relevant evidence of Mr Murray could not be accepted (para 655), apparently for the reason that with "the benefit of hindsight and the obvious potential for criticism, and indeed liability in these proceedings … it is hardly surprising that he … sought to downplay the significance of any breach of the Dresdner covenants and the consequences of such a breach for NCRA" (para 652). 1389 To the contrary of NCRA's submission, I accept the relevant evidence of Mr Murray on this issue. So far from finding it informed by hindsight, I conclude that it is consistent with his actions at the time. He conceded in cross-examination that he did not seek to ascertain what was the dollar value of the net worth covenant: a concession that is hardly consistent with the instinct for self preservation. His concern was simply with the fact of breach, or potential breach; and he conceded that he relied on representations from management and the audit committee to satisfy him: again, a concession that is scarcely consistent with self preservation. 1390 It is plain that Mr Murray's concern was to be satisfied that Dresdner were negotiating, that they would continue to negotiate, and that there was likely to be a satisfactory outcome to the negotiations. Given that this is precisely what I have found would have been likely to occur even if Dresdner had been informed of the "true" net worth position as at 30 June 1998, it is apparent that Mr Murray's concerns would have been alleviated, and that he would not have felt the need to qualify the accounts in any way, or to insist on a note to the accounts. 1391 When Mr Murray participated in the audit of the year end accounts as at 31 December 1997, he was concerned that there was looming, as at 30 June 1998, a likely breach of the net worth covenant. He suggested a note to the year end accounts in the following terms: "The Directors consider that the covenants under the bank borrowing agreements are onerous and are seeking to renegotiate the terms of the agreements within six months. The Directors are confident of reaching agreement with the banks on mutually accepted terms or otherwise refinancing the loans." 1392 When Mr Murray suggested that note, the potential for a breach as at 30 June 1998 was "very likely" (as NCRH accepted in para 660(a) of its written submissions). Mr Murray regarded it as higher: in his letter to the directors dated 6 March 1998, he said: "In the absence of a change in the financing of the Company, the [net worth] covenant will not be met as at 30 June 1998. There is uncertainty as to the refinancing and/or repayment of the Dresdner loan and the consequences on the business thereof." (emphasis supplied). 1393 It is difficult to see why, absent some change in the facility, Mr Murray would have taken a stricter view in August/September 1998 relating to an actual breach, than he took in March 1998 relating to a prospective but in his view certain breach. 1394 NCRA made a number of submissions dealing with circumstances that, it said, differentiated the position in March 1998 from that in September 1998. The difficulty with those submissions is that there is no evidence of their impact, or possible impact, on Mr Murray's thinking as at August/September 1998. I do not propose to speculate. 1395 For these reasons, I conclude, contrary to para 58 (d) of the 36th cross-claim, that Mr Murray would not have acted in any markedly different way had the draft accounts been presented, on either an Australian GAAP or a US GAAP basis, without the benefit of leg 1. There are two additional matters that support this conclusion:

(1) As I have said, I find that the prudential margin was increased by USD5 million so as substantially to offset the benefit of leg 1 in the Australian GAAP accounts. If leg 1 had not been brought to account, it is unlikely that the level of prudential margin (at least, as it was perceived by NCRH) would have been so increased. A set of accounts that excluded the benefit of leg 1 would have shown a provision USD5 million lower. Thus, there would have been no material difference to the Australian GAAP accounts.

(2) Mr Murray gave evidence to the effect that termination of the Dresdner facility, and forced repayment, would not have caused him to question the going concern issue; at most, it might have restricted the ability of NCRA and NCRB to write in the future the level of business that they had written in the past (T6316.26-.43). I accept that evidence. The position of Trowbridge 1396 If the benefit of leg 1 had been taken out of consideration, net retrocession recoveries would have decreased by USD5.675 million. That would have affected both NCRH's and Trowbridge's calculations of the discounted net central estimate, since both took account of net retrocession recoveries, as Mr Minty recognised (T5795.41-.47; I regard this as having sought to correct his earlier, and perhaps inconsistent or at least incomplete, evidence on the same topic at T5778.19-5779.25). Presumably, it would only matter if, in NCRH's calculations, the offsetting USD5 million of prudential margin were also removed. I am not sure however that this was in Mr Minty's mind when he gave the evidence at T5795 to which I have referred. 1397 NCRA's submissions refer to Mr Murray's insistence on a prudential margin. If (as NCRA seems to submit would have occurred) that insistence had prevailed in the hypothetical situation under consideration (that the benefit of leg 1 was not brought to account), there would have been no different outcome in terms of Trowbridge's calculations. 1398 However, if leg 1 and the USD5 million increase in prudential margin were linked, then the company's discounted net central estimate would have remained about the same without leg 1 because, as I have said, the prudential margin would not have been increased to offset leg 1. The hypothetical Trowbridge figure would have been USD146.2 million, compared to the actual provision as at 30 June 1998 of USD141.1 million. Mr Minty's apparent correction at T5795 appears not to take into account the likely consequent reduction in the prudential margin. 1399 NCRH's undiscounted claims provision as at 30 June 1998 was USD155 million (as recorded in its financial statements for the half year; and see Trowbridge's report on that valuation dated 25 August 1998). Trowbridge's estimate of the undiscounted claims provision at the same date was USD150 million (see its report to which I have just referred). If the gross benefit of the GCR transaction, USD6.675 million, were removed from the accounts, each undiscounted provision would have increased by that amount: to USD161.675 million and USD156.675 million respectively. That is clearly correct as a matter of arithmetic; and I think it is consistent with Mr Minty's evidence referred to at para [1396] above. 1400 If, in the hypothetical circumstance that the benefit of leg 1 had not been brought to account, there had been no USD5 million special prudential margin, NCRH's undiscounted outstanding claims provision would have been reduced to USD156.675 million. Thus, NCRH's undiscounted outstanding claims provision would have been the same as the estimate provided by Trowbridge, and by inference NCRH's estimate would have included no prudential margin. The difference between the hypothetical discounted figures to which I have referred in para [1398] above reflects, among other things, the different approaches to the appropriate discount rate taken by NCRH and Trowbridge. 1401 In those circumstances, it is possible - indeed, I think, likely - that Mr Murray would have been firmer in his view that NCRH should carry some prudential margin. If the USD5 million prudential margin were reinstated, it is likely that Mr Murray would have been satisfied. On the hypothesis presently under consideration, the net assets under Australian GAAP would have been decreased by the net benefit of leg 1. The net assets under US GAAP would have been reduced by the gross benefit of leg 1. Thus, the Australian GAAP net assets would have been USD121.8 million and US GAAP net assets would be USD119.6 million. 1402 Presenting the accounts in this way would have addressed the concerns of both PwC and Trowbridge upon which NCRA relied in submissions. Thus, even if the benefit of leg 1 had been excluded from the accounts, there would have been no basis for PwC or Trowbridge to act in the ways attributed to them in para 58 (d), (e) respectively of the 36th cross-claim; and in my view they would not have done so. Further, and for the reasons that I have given, Dresdner would not have called up the loan or exercised its rights on default, so as in effect to stymie the capital raising process. The position of the Macquarie parties 1403 This aspect too of NCRA's case on causation faces an immediate difficulty. It is plain (and NCRA accepts - see paras 737, 781 of its written submissions) that Mr Jackson's views were of key importance to MECM's decision whether to become involved in the capital raising. That this was so is confirmed by Dr McKenzie and Mr Donnelly, whose evidence on this point I accept. Mr Jackson said more than once, and in different contexts, that a reported net worth as at 30 June 1998 of some USD5.675 million less than the figure actually reported (or reported losses greater by the same amount) would not of itself have caused him concern (see for example T2622.6-2623.43, where the proposition is expressed in various ways). 1404 Indeed, Mr Jackson said that when he learnt on 23 December 1998 (through the ASX announcement of that date) that the additional losses would reduce net assets to about USD100 million, this did not cause him to doubt his view that NCRH remained, nonetheless, "a turnaround story" (T2565.4-.12). 1405 I accept those aspects of Mr Jackson's evidence. His views at the time, as summarised in that evidence, were based on his assumption, or belief, that the worst of the 1997 losses had worked through NCRH, and that it would return to profit in 1999. As events turned out, he was wrong in both respects. But his evidence was that he achieved satisfaction on those points through his discussions with management. Having achieved it - as I accept he did - it follows that a further loss, or diminution in capital, of the order of USD5.675 million, would not of itself have been a concern. As he said, it would not of itself have had any impact on the "turnaround story", and would not of itself have reduced the net assets to a point where the perceived "deep discount" of share price to NTA no longer existed. It was those two matters - the turnaround story and the deep discount - that underpinned Mr Jackson's view. They explain why a balance sheet that did not take account of leg 1 would not of itself have been of any concern to him. 1406 In this context, it is necessary to bear in mind that Mr Jackson focussed on the Australian GAAP accounts. For the reasons that I have given, I find that the prudential margin was increased effectively to offset the benefit of leg 1. If the benefit of leg 1 had been removed from the accounts, it is likely that the prudential margin would have been lowered. On that basis there would have been no material difference in net assets under Australian GAAP, so that the question of Mr Jackson's, or Macquarie's, reaction does not arise. 1407 If, in the hypothetical circumstance that the net benefit of leg 1 were not brought to account, Mr Murray had nonetheless obtained satisfaction of his desire for an increase in the prudential margin, then it is likely that the USD5 million introduced to offset leg 1 would have remained. On that basis, reported net assets under Australian GAAP would have been reduced by USD5 million. I am satisfied on Mr Jackson's evidence that this would not of itself have caused him to change his view at the time. I am satisfied on the evidence of Dr McKenzie and Mr Donnelly that they would not have acted otherwise than in fact they did (indeed, the submissions for NCRA did not really suggest to the contrary), in the event that Mr Jackson remained optimistic. 1408 There is another matter to consider in this context. Dr McKenzie said in his statement (exhibit 1-3DX 8, para 173) that he was "unsettled" when he learned that NCRH might be in technical breach of his loan covenants, and might therefore be forced to repay the balance of the Dresdner facility. However, he said, he was "unsettled by the fact that this information had not been raised by New Cap Re management through the DDC process". In other words, it was the manner of the revelation rather than its substance that "unsettled" him. 1409 Whilst I accept that Macquarie might have examined the capital raising more carefully had they been informed in September 1998 of a breach of the net worth covenant, it remains the fact that their decision, whether or not to participate, would have been guided to a large extent by Mr Jackson's views. It is plain that Mr Jackson's views depended not on his analysis of the legal relationship between NCRH and Dresdner, or on the possibility of breach (technical or otherwise), but on his analysis of the underlying merits (as he perceived them) of NCRH and its business. 1410 Thus I conclude, contrary to para 58 (f) of the 36th cross-claim, MECM would have acted no differently had the net benefit of leg 1 not been brought to account. I note that para 58 (f)(ii) refers to various representations said to have been made by Macquarie. I should not be taken as accepting, in or by the conclusion that I have just expressed, that all those representations were made. In this context, I refer to what I have said on that topic in considering the plaintiffs' case against the Macquarie parties. Conclusion on NCRA's causation case 1411 I conclude that the causation case pleaded in the 36th cross-claim, of which the core is para 58, fails. Guy Carpenter's additional submissions on causation: Mr Saville's attitude 1412 Guy Carpenter submit that NCRA's case on causation:

(1) alleges that but for NCRA's entry into the GCR transaction, the capital raising would not have proceeded (referring to paras 57-59 of the 36th cross-claim);

(2) contains an implicit assumption in this allegation "that Macquarie committed itself to the capital raising and investors were sought"; but

(3) nonetheless "proceeds on the basis that … Mr Saville and the plaintiff companies would not have supported the capital raising if NCRH's net assets were US$5.675 million less than their stated amount in the half yearly accounts of the Company as at 30 June 1998".

(See para 170 of Guy Carpenter's written submissions on causation.) 1413 I have some difficulty in understanding this characterisation of NCRA's causation case. In substance, para 58 of the 36th cross-claim says that as a result of a number of matters, including prominently NCRA's entry into the GCR transaction and the way in which the effect of that transaction was taken up in NCRH's financial statements, a number of things happened. They included that MECM entered into its retainer and made the representations upon which the plaintiffs relied in their case against the Macquarie parties. Paragraph 59 alleges that but for any one or more of the matters alleged in paras 57 and 58 - ie, among other things, but for MECM's entering into its retainer and making the representations alleged - the capital raising would not have proceeded, and other matters may have happened. 1414 In bare and probably insufficient outline, the theory of causation that Guy Carpenter attribute to NCRA is that:

(1) entry into the GCR transaction, and the accounting for it, caused MECM to enter into its retainer and make certain representations; and

(2) if MECM had not done either of those things, the capital raising would not have proceeded. 1415 I accept that, as Guy Carpenter submit, it is at least "implicit" in this theory "that Macquarie committed itself to the capital raising and investors were sought" as a result of among other things, entry into the GCR transaction and the accounting for it. I do not accept that this aspect of NCRA's cross-claim proceeds thereafter on the basis attributed to it: that, "nevertheless", Mr Saville and the plaintiffs would not have acted if they did if the net assets of NCRH were USD5.675 million less than their stated amount in the half yearly accounts. 1416 If NCRA's causation case, as I have outlined it in para [1413] above, were made good, there would have been no capital raising. There would have been no prospectus or draft prospectus. There would have been no solicitation of Mr Saville. There would have been no solicitation of the plaintiffs through Mr Saville. There would have been no opportunity for Mr Saville, or through him the plaintiffs, to decide whether to support the capital raising if the net assets of NCRH were USD5.675 million less than the stated amount. 1417 Based on their analysis of the cross-claim (including as they characterise the case on causation), Guy Carpenter submit that "[t]he difference of US$5.675 million would have made no difference to Saville, in the sense that, by itself, it would not have deterred him from investing in the capital raising." (para 171). 1418 For the reasons that I have given, I do not think that this issue is raised on the pleadings, because NCRA's case, on this aspect, is that there would have been no capital raising but for the various matters to which I have referred. If, contrary to my analysis, the issue were raised, I would accept the submission. In substance, I think, the matters to which Guy Carpenter refer in paras 171-179 of their written submissions lead to the conclusions which they contend. I would add to those matters, Mr Saville's attitude in the face of the warning from RBoS: see paras [576] to [579] above. Case based on the failure to go into runoff 1419 This arises only under the 36th cross-claim. The relevant duties are those alleged in paras 21 and (save for Mr Aroney) 22A of the 36th cross-claim: "21. Each of the Cross Defendants owed NCRA a duty to exercise his powers and discharge his duties with the degree of care and diligence that a reasonable person in a like position in a corporation would exercise in the corporation's circumstances.

… 22A In conducting the business of NCRA, each of Messrs Daya, Ghose, Peck and Williams owed NCRA an equitable duty of care to act with the care and skill that an ordinary prudent man of business would exercise in conducting that business as it were his own." 1420 Paragraph 23 alleges that by 26 August 1998, the cross-defendants knew or should have known that the only option was to place NCRA into runoff. Paragraph 24 alleges that by no later than 2 September 1998, Mr Aroney should have recommended this to the directors of NCRA, and those directors should have resolved to put the company into runoff. Paragraphs 25 and 25A allege breach of the relevant duties because the cross-defendants did not act as, according to para 24, they were in the circumstances obliged to act. 1421 The duty of care alleged in para 21 is based on s 232(4) of the Corporations Law. NCRA submits further that para 21 also reflects the common law duty of care owed by directors: relying on cases such as Daniels & Ors (Formerly Practising as Deloitte Haskins & Sells) v AWA Limited (1995) 37 NSWLR 438. The equitable duty of care alleged in para 22A is based on the proposition that legal and equitable duties may co-exist, so that directors may be under an equitable duty of care that reflects their common law duty: relying on Lagunas Nitrate Co v Lagunas Syndicate [1899] 2 Ch 392 and Permanent Building Society (in liq) v Wheeler & Ors (1994) 14 ACSR 109. 1422 NCRA appears to accept that the standard of care imposed by the statutory duty of care reflects the common law; and as I have indicated, that the equitable duty of care imposes no higher standard than does the common law. 1423 The written submissions for Mr Peck accepted that he owed duties of the kind alleged, although they raised issues as to the correct characterisation of the duties (for example, whether they were of a fiduciary nature). On the view to which I have come, it is not necessary to consider those complications. 1424 The written submissions for Mr Williams admitted that he owed the statutory and common law duties of care alleged, but denied that he owed any equitable duty of care. Again, on the view to which I have come, it is not necessary to deal with this dispute. 1425 The written submissions for Mr Aroney accepted that he was an "officer" of NCRA, but only on the basis that he was a company secretary (para 20 of his written submissions on the 36th cross-claim). They did not concede that he was an executive officer, asserting that "he did not have sufficient management responsibilities". They relied on the decision of Gummow J in Sycotex Pty Ltd v Baseler (1994) 13 ACSR 766. However, the written submissions appeared to accept that, as an officer (even if only because he was a secretary of NCRA), he owed duties of the general nature alleged. The relevant principles 1426 On the current state of the authorities, the directors of a company owe a duty of care to that company: a duty to take reasonable care in the performance of their office (see Clarke and Sheller JJA in Daniels at 505); or a duty to exercise "a reasonable degree of care and diligence in accordance with the requisite standard" (see Ipp J, with whom Malcolm CJ and Rowland J agreed, in Vrisakis v Australian Securities Commission (1993) 9 WAR 395 at 450). 1427 In Vrisakis, Ipp J said at 450 that the test to be applied in deciding whether a director has exercised the requisite degree of care and diligence is that stated by Lord Hatherley LC in Overende Gurney Co v Gibb (1872) LR 5 HL 480 at 486-487: whether the directors "were cognisant of circumstances of such a character, so plain, so manifest, and so simple of appreciation, that no men with any ordinary degree of prudence, acting on their own behalf, would have entered into such a transaction as [was] entered into?". 1428 The duty of care has been described as an equitable duty of care, owed by persons who are fiduciaries (as Clarke and Sheller JJA pointed out in Daniels at 505). However, Ipp J said in Wheeler at 239, it is not thereby "to be equated with or termed a "fiduciary" duty". 1429 The duty is also one owed at common law but there is no sensible distinction between the common law and equitable duties of care. Nor is there any sensible distinction between those duties and the statutory duty of care imposed (in this case) by s 232(4) of the Corporations Law. 1430 There is no uniform applicable standard determining the ambit of the duty of care or the standard of care required. Those matters depend upon the particular circumstances of the case. See Ipp J in Vrisakas at 451. However, in determining whether in a particular case a director has exhibited the relevant standard of care and diligence, it is legitimate to inquire what an ordinary person with the knowledge and experience of that director might have been expected to have done in the circumstances if acting on his own behalf. See Ipp J in Vrisakas at 450, citing Pidgeon J (with whom Franklyn and Walsh JJ agreed) in Australian Securities Commission v Gallagher (1993) 10 ACSR 43 at 53. That test may require supplementation in the case of an executive director, who will be under an obligation (arising from an implied term in the contract of employment, but equally, I think, an incident of a common law or equitable duty of care) to have and to use the skills of a reasonably competent person in his or her category of appointment. See Santow J in Re HIH Insurance Ltd (in provisional liquidation) and Ors; Australian Securities and Investment Commission v Adler (2002) 41 ACSR 72 at 166-167 [372(5)]. (His Honour refers to Wheeler "at [14] ACSR 287-8" as authority for that proposition; I have been unable to verify the citation.) 1431 There is some ambiguity in the way that Pidgeon J framed the test. His Honour's test enquires "what an ordinary person… might be expected to have done if he was acting on his own behalf". Three points need to be made:

(1) The fact that one "ordinary person" might have decided in the relevant circumstances not to undertake a particular transaction does not mean that another "ordinary person" in the same circumstances might have decided to undertake it, and (without more) it cannot be said that one or other of those persons acted unreasonably simply because he or she decided "no" or "yes".

(2) Nor can it be said that a decision was unreasonable, in circumstances where one ordinary person taking into account relevant circumstances, might reasonably have decided one way but another ordinary person, taking into account the same circumstances, might reasonably have decided the other way.

(3) The court should be careful not to impose its own business judgment when assessing whether, in all the circumstances, it was reasonable for directors to enter into a particular transaction or to act (or refrain from acting) in a particular way. 1432 The first two considerations suggest to me that the negative test propounded by Lord Hatherley remains fundamental. Alternatively, they suggest that the "ordinary person" test propounded by Pidgeon J should be directed not to what that person "might be expected to have done in the circumstances if he was acting on his own behalf" but to whether that person "might be expected to have done as the directors did if he was acting on his own behalf." 1433 In determining whether a director has exercised the necessary degree of care and skill, it is necessary to bear in mind that risk and benefit are often two sides of the same coin, or two possible consequences of the same course of conduct, and that risk and return are an integral part of industry and commerce. Ipp J made this point plain in Vrisakis at 449-450 where his Honour said: "Further, the mere fact that a director participates in conduct that carries with it a foreseeable risk of harm to the interests of the company will not necessarily mean that he has failed to exercise a reasonable degree of care and diligence in the discharge of his duties. The management and direction of companies involve taking decisions and embarking upon actions which may promise much, on the one hand, but which are, at the same time, fraught with risk on the other. That is inherent in the life of industry and commerce. The legislature undoubtedly did not intend by s 229(2) to dampen business enterprise and penalise legitimate but unsuccessful entrepreneurial activity. Accordingly, the question whether a director has exercised a reasonable degree of care and diligence can only be answered by balancing the foreseeable risk of harm against the potential benefits that could reasonably have been expected to accrue to the company from the conduct in question." 1434 In similar vein, Clarke and Sheller JJA said in Daniels at 494 that "the duty of a director may be to display entrepreneurial flair and accept commercial risks to produce a sufficient return on the capital invested". 1435 Their Honours expanded on this at 501: "the courts have recognised that directors must be allowed to make business judgements and business decisions in a spirit of enterprise untroubled by the concerns of a conservative investment trustee. Any entrepreneur will rely upon a variety of talents in deciding whether to invest in a business venture. These may include legitimate, but ephemeral, political insights, a feel for future economic trends, trust in the capacity of other human beings. Great risks may be taken in the hope of commensurate rewards. If such ventures fail, how is the undertaking of it [sic] to be judged against an allegation of negligence by the entrepreneur? In our opinion the concept of negligence which depends ultimately "upon a general public sentiment of moral wrong doing for which the offender must pay" (Donoghue v Stevenson [1932] AC 562 at 580) can adapt to measure appropriately in the given case whether the acts or omissions of an entrepreneur are negligent." 1436 Thus, I think, the question for decision can be put in two ways:

(1) Could someone with an ordinary degree of prudence have entered into such a transaction if acting on her or his own behalf; alternatively

(2) Could an ordinary person with that degree of prudence and with the knowledge and experience of the directors have entered into the transaction in the circumstances if acting on her or his own behalf? 1437 In answering that question (whichever way it is posed) it is necessary to recognise that in some circumstances it may be appropriate for directors to "display entrepreneurial flair and accept commercial risks to produce a sufficient return on the capital invested", and that the mere foreseeability of harm does not of itself dictate that the question must be answered adversely to the directors in this case. It is necessary to balance risk and reward, or, more accurately, to be satisfied that the directors, acting reasonably and in the best interests of NCRA and employing their individual knowledge and skills and taking account of relevant circumstances, did so. Analysis 1438 Since I have concluded that there is no difference in principle between the statutory and equitable duties of care, it is convenient to consider together all NCRA's "negligence" claims against all the remaining cross-defendants to the 36th cross-claim, notwithstanding that one of them (Mr Aroney) is sued only pursuant to his alleged statutory duty of care. "Cross-road" - the available choices 1439 NCRA's written submissions on this topic referred to a "cross-road" at which NCRA had arrived by 18 August 1998. They rely upon an e-mail that Mr Williams sent to Messrs Peck and Eastham on that day, attaching a draft paper in which he stated that NCRH "faces a single all-encompassing hurdle towards future operation - Insufficient Capital. All other issues are a function of capital." 1440 That draft paper formed the basis of the half yearly report and recommended action plan that was considered by the board on 2 September 1998. Section 6 of that report identified four options for NCRH:

(1) runoff, which, it was said, would preserve most if not all of its book value;

(2) continue operations, with the risk of further losses;

(3) outright sale, which would realise only a heavily discounted value of the assets; or

(4) raise further capital from a credible investor, who would exercise some degree of control over the affairs of the company. 1441 In relation to the fourth option, the report recognised that " … without an injection of additional capital, the company would have insufficient capital to continue in its current form. The security committee of most major brokers would deem the company unacceptable security and resist using it for new or renewed business. A continuance of operations could risk further loss. Some emerging market clients would continue to do business with the company and premium levels would undoubtedly fall below $100 million in 1999." 1442 The draft report had recorded, in addition, that "without additional capital, management could not recommend a continuance of under-writing operations, particularly with regard to the current soft market environment. Doing so would risk further loss. As distressed security, it will be hard to retain the existing under-writers and impossible to attract quality clients." 1443 NCRA submitted that the only realistic options were runoff (perhaps with sale of the business as an alternative) or raising further capital. It submitted that senior management accepted this and that the board agreed. I think that those submissions should be accepted. Hindsight analysis 1444 However, the submissions do not show why, as at 2 September 1998:

(1) A reasonable chief financial officer in Mr Aroney's position, with the knowledge that he then possessed, and acting in the best interests of NCRA, should have concluded that runoff was the only option, and that to raise further capital and continue in business was entirely inappropriate; or

(2) A reasonable director in the position of Mr Daya, Mr Peck or Mr Williams, with the knowledge that they then possessed, and acting in the best interests of NCRA, should have concluded that runoff was the only option, and that to raise further capital and continue in business was entirely inappropriate. 1445 In truth, I think, this aspect of NCRA's 36th cross-claim is informed by hindsight. Hindsight, no doubt, is an extremely powerful analytical tool; but it was not a tool available to any of Messrs Daya, Peck, Williams or Aroney at the time. 1446 If it be accepted that a reasonable chief financial officer could have recommended, or a reasonable director could have decided, that in the best interests of NCRA runoff was not the only option, and that continuing in business with the benefits of a capital raising was something proper to be undertaken in the relevant prevailing circumstances, then this aspect of the cross-claim must fail. GCR transaction the key 1447 It is apparent from NCRA's written submissions that the key to its case in negligence lies in the GCR transaction. Paragraphs 155-157 make the point: "155. NCRA contends that, for reasons expanded later in these submissions, in the circumstances that prevailed at the time, but for the conclusion of the GCR transaction, the directors and officers of NCRA would have been forced to place NCRA into run-off. 156. If this contention is accepted, then the directors and officers of NCRA could not but have failed to exercise their duty of care to NCRA by failing to place it into run-off. 157. It has not been suggested, nor could it be in the circumstances of this case, that, in the absence of further capital, it was reasonable for the directors and officers of NCRA to continue trading on the basis that it previously had. NCRA contends that had accurate financial results been reported, NCRA would not have succeeded in raising further capital." 1448 There are ambiguities in the phrase "accurate financial results" in para 157. Does it refer to the financial results of NCRA (as, contextually, it seems to do) or of NCRH? If it refers to the financial results of NCRH, does it refer to the results according to Australian GAAP or the results according to US GAAP? 1449 If the phrase refers to the financial results of NCRA, then the submission must fail. There is no evidence that anyone regarded the results of NCRA as of themselves relevant to the capital raising. The only error that has been alleged to flow from the recording of the GCR transaction is that said to arise on consolidation in the accounts of NCRH. 1450 If the phrase refers to the results of NCRH according to Australian GAAP, then again the submission must fail. That is because, as I have found, the way in which the results were accounted for (including the offsetting increase in the prudential margin) meant that the results were not materially misleading. Thus, the way in which the GCR transaction was recorded (again, including the offsetting increase in the prudential margin) of itself had no impact on the capital raising unless one considers the Dresdner issue. 1451 If the phrase refers to the results of NCRH according to US GAAP, then the submission depends, in substance, on the matters that have been considered already in relation to Dresdner, and must fail for that reason. I think the reality is that even if "correct" results had been reported according to US GAAP (ie, a net worth of USD119.6 million as at 30 June 1998), Dresdner would not have intervened in such a way as to prevent the capital raising. On the contrary, I think, it is reasonably plain that Dresdner saw the capital raising as something that would have permitted it to "exit" the relationship on good terms and without encountering "legal and regulatory pitfalls". The position as at 2 September 1998 1452 As at 2 September 1998, the circumstances known to Messrs Daya, Peck, Williams and Aroney included the following:

(1) NCRH (and, presumably, its operating subsidiaries) had recorded losses for the accounting period ended 31 December 1997 and the half year period ended 30 June 1998.

(2) In substance, those losses flowed from risks underwritten during the 1997 underwriting years, and, in particular, from Mr de Chelard's approach to underwriting.

(3) The "tail" for risks underwritten by Mr de Chelard and his team in 1997 would persist through 1998 and into 1999.

(4) Mr de Chelard and his team had also been responsible for writing the 1998 book of business; at least some of that book of business included renewal of the (known to be unsatisfactory) business written in 1997.

(5) There had been a total restructure of management, with Mr Daya - a "turnaround artist" - coming in as managing director, Mr Aroney coming in as chief financial officer of NCRA, Mr de Chelard and his team being stripped of underwriting responsibility, a new underwriting team being brought in, and an inhouse actuary (Mr Baker) being appointed.

(6) Losses on the 1997 book of business had depleted the capital of NCRH by about USD25 million up to and including 30 June 1998.

(7) Although further losses might be expected on the 1997 book of business, the 1998 book of business was thought to be performing well.

(8) Nonetheless, if NCRH were to survive, it was essential that its capital be boosted and that the flow of losses be stemmed.

(9) Thus, although there might be tolerance for a further loss as at 31 December 1998, both investors and brokers (through whom NCRH, or more accurately, its operating subsidiaries obtained much of their business) would be intolerant of losses thereafter.

(10) In substance, Trowbridge's review of NCRH's claims provisions as at 30 June 1998 suggested that the provisions held were adequate, even if there were no significant prudential margin (see the analysis in paras [1399] and [1400] above). 1453 Those matters, and other relevant considerations, were laid out for all to understand and consider in the half yearly report and recommended action plan. As I have noted in para [1440] above, that document set out the options with which the board of NCRH was confronted. It may be accepted that, insofar as the board of NCRA was concerned, exactly the same options required consideration, and the circumstances laid out in the half yearly report and recommended action plan were relevant to that board's deliberations. 1454 The half yearly report and recommended action plan went further than simply setting out options. It contained management's analysis of each. The analysis was flawed, because of the way that it dealt with the GCR transaction - specifically, leg 1. That flaw had come into existence because of the way that Mr Daya rewrote the draft prepared by Mr Williams; but there is no reason to think that the directors other than Mr Williams were aware of this. 1455 There can be no doubt that the "safe" option was runoff. However, as the authorities to which I have referred make plain, directors of a company are not always bound to choose the safe option, when considering what course a company should take. They are entitled to consider whether the company should undertake some less safe option, but with the possibility of greater reward. Applying those generalities to the present case, I see no reason why the directors of NCRA were required to choose the safe option (as it then seemed) of runoff. They were entitled to consider whether, among other things, the original business model remained viable (on the assumption that NCRH's capital could be augmented): in other words, whether there was a profitable future for NCRH with an augmented capital base. Equally, I think it was open to an officer of NCRA in Mr Aroney's position to put forward for consideration all available options. So long as they were propounded with appropriate supporting information and analysis, I do not think that an officer in Mr Aroney's position was bound to recommend the safe option of runoff. 1456 I referred in para [1445] above to what I perceived to be NCRA's hindsight analysis in this aspect of its cross-claim. Hindsight shows that it was the severe, rapid and unexpected claims deterioration in December 1998 and beyond that caused the massive losses that, ultimately, led to the collapse of NCRH. There is no basis for thinking that any reasonable officer or director, considering the matter as at 2 September 1998, should have foreseen those losses. I note that Trowbridge's assessment of the claims reserves as at 30 June 1998 suggested in essence that they were adequate, although not conservative: not including any prudential margin. Further, and with the aid of hindsight, it could be noted also that Trowbridge's prospectus report likewise in substance confirmed the adequacy of the claims reserves as at 30 June 1998, although again on the basis that the reserves did not include a prudential margin of any significance. 1457 Continuing with hindsight analysis for a moment: the Macquarie parties supported the capital raising, in the sense that one or other of them agreed to act as an adviser, underwriter or broker. Notwithstanding the plaintiffs' submissions based on the attractiveness of the fees on offer, it is difficult to see why a large and reputable banking/financial organisation (and no one suggest that Macquarie did not possess those qualities) would have participated in a capital raising venture if it thought that the venture had no prospects of success. 1458 Further, as at early September 1998, and after the release of the half yearly results, a number of brokers expressed views on NCRH that could not be said to have reflected the proposition that runoff was the only option. Thus:

(1) ABN-AMRO referred to the losses, stating that they were caused by the "claims arising from the 1997 book of business" and noting that "[t]he investment proposition for [NCRH] relies upon the dramatic change in management and underwriting ability of the company since it wrote the 1997 book." The report continued: "New Management, new experienced underwriters and, above all, a focus on profit rather than the top-line mean NCC has a strong platform for profit growth from 1999 onwards. This fact, and the extreme discount to book value (38%) applied by the market enable us to remain positive on the stock. However, the lack of a successful track record means the company must deliver profits before it will be rerated. This will probably not occur until well into 1999. This timeframe and the sceptical attitude of the market makes investment in NCC a more speculative proposition. Accordingly, we maintain NCC as a buy, but definitely a SPECULATIVE BUY. Investors looking for a safer bet should buy ReAC - a proven performer - as a better entry into reinsurance." "NCC" was the ASX code for NCRH.

(2) Deutsche Bank likewise referred to the half yearly results and attributed them to the 1997 book of business. It said that despite that "disappointing result, the outlook for the company is considerably brighter" and that the company "is now well positioned to write profitable business using its strengthened underwriting team, and more technical underwriting approach and appropriate operating systems." It predicted that NCRH "should be able to embark on its maiden year of profits in FY99." The report noted that the share price would be unlikely to rise "until management gets some runs on the board", but identified three factors as likely to "drive" the share price:

"- Establishment of a profitable track record. Assuming there are no further surprises from FY97 business and that FY98 business continues to track well. NCC should be able to generate profits in FY99, resulting in a share price re-rating at least towards net asset value (currently A$2.59).

• Global consolidation in the reinsurance industry, with NCC a possible participant given its low valuation and desire for additional capital.

• An improvement in global reinsurance market conditions, with both NCC and RAC ($4.00) management indicating that there are early signs of rates bottoming in some classes."

(3) JB Were & Son were perhaps less optimistic, but stated that nonetheless that NCRH "[l]ong term has speculative potential to move towards our valuation of 186¢." That firm's analysis too suggested that the share price would not improve "until a positive profit history is achieved", but noted the restructure and that there would be "a more disciplined approach to risk selection moving forward".

(4) Merrill Lynch referred to the half yearly loss as disappointing. It stated that "short term uncertainty is likely to prevent any price recovery", and thus maintained an investment recommendation of "neutral". However, the report saw "positive developments" in the future, including the following:

" On the positive front - - NCC has expanded its underwriting team and replaced the original team with 6 new underwriters. The new team brings considerable experience in a range of risk classes and territories. Increasing diversity provides an increasing degree of comfort as to business written in the Jun 99 renewal season and beyond. - The risk management and back office infrastructure is now broadly in place. This has been a reduction in net risk retention, a change in retrocession levels (more), actuarial modelling of risk to individually evaluate the profitability profile of each contract and the impact of that contract on the overall risk profile of the portfolio. - NCC has also started auditing loss making clients. - Significant changes to the management team through 1997 and into 1998 have been encouraging. This team has shown considerable restraint in not releasing any profit from business written in 1998 despite the slight profit recorded year to date. - Finally, NCC remains inexpensive relative to its cash backing of $2.59 per share (46% discount). If nothing else changed, NCC would have to incur losses of more than $104m to even bring the current share price into line with NAV.

We have had a Neutral intermediate term recommendation on NCC since initiating coverage mid last year and despite some positive developments, see no reason now to change this opinion despite the share price." 1459 MECM downgraded its short term recommendation from "out perform" to "under perform", although it stated that its long term view was "market perform". That report, written by Mr Jackson (perhaps with his colleague, Mr Steven Wheen), stated the following after referring to the half yearly result and its impact: "- Although the losses stem from business written during 1997 by underwriters no longer with the Group and despite having a new management and underwriting structure in place, the loss will further delay a turnaround in market sentiment towards NCC in what is currently a difficult reinsurance pricing environment. - Although most investors recognise the massive discount at which the stock is currently trading to its NTA backing ps, prospective investors will continue to heavily discount the stated NTA backing until the Group posts a profit. - In this regard, MEL expects NCR will report a small profit during 2H98, however, this will not be announced until early 1999. Recommendation - NCC remains extremely cheap at current levels trading at roughly 50% its estimated NTA backing of A$2.75. - Despite this fact, likely disappointment at the quantum of the 1H98 loss and the probability of a 'wait and see' attitude being adopted by prospective investors, is expected to see further underperformance. Additionally, the cancellation of the share buyback may contribute to some short term weakness, albeit with limited downside. - As a consequence of the above, MEL has downgraded its short term recommendation to underperform from outperform previously." 1460 Those views were expressed by reference to, and within a few days of the release of, the half yearly report. Although each of them refers to the NTA, and to the discount (or "massive discount") of the share price to that NTA - something that might be realised, or turned to advantage, in an orderly runoff - none of the brokers suggested that runoff was the only option, or that clients should buy shares in NCRH only so as to enjoy the likely benefits of runoff. On the contrary, the majority of brokers seemed to think that conditions would improve in 1999 with some going so far as to predict a "maiden profit" during that year. 1461 I accept that Messrs Daya, Peck, Williams and Aroney were in possession of more information than the brokers. Nonetheless, the information that was relevant to their decision was in substance that which was encapsulated in the half yearly financial reports (on the basis that, as I have said many times, the overall result under Australian GAAP were not misstated because of the recording of leg 1). 1462 The reactions and recommendations of brokers in my view support the proposition that it was reasonably open to a director or officer, acting honestly and in what he believed to be the best interests of NCRA, to conclude in late August and early September 1998 that capital raising rather than runoff was an appropriate course. Conclusion 1463 For those reasons, I conclude that NCRA's case in negligence against Messrs Daya, Peck, Williams and Aroney must fail. Conclusion on the 33rd and 36th cross-claims 1464 Each of those cross-claims should be dismissed. It follows that all cross-claims for contribution brought in respect of them by the cross-defendants to them must likewise be dismissed. ORDERS 1465 I make the following orders:

(1) Order that the sixth further amended summons be dismissed against the first to eleventh, thirteenth and fourteenth defendants thereto.

(2) Order that the stay of orders 1 and 2 made on 29 June 2006 as between the plaintiffs and the twelfth defendant be lifted.

(3) Order that each cross-claim for contribution or indemnity in respect of a claim made by the plaintiffs in the sixth further amended summons be dismissed.

(4) Order that the third further amended 33rd cross-claim and the second further amended 36th cross-claim be dismissed against all cross-defendants thereto.

(5) Order that each cross-claim for contribution or indemnity in respect of a claim made by the cross-claimant in the third further amended 33rd cross-claim or the second further amended 36th cross-claim be dismissed.

(6) Reserve for further consideration the question of costs.

(7) Direct any party seeking an order or a special order for costs to notify (with a copy to my associate) the party or parties against whom such an order is sought within 28 days of the date on which these reasons are published; such notification to specify both the order or special order sought and in brief the reasons why it is sought.

(8) Reserve liberty to apply either in respect of costs or generally.

18/04/2007 - Amended representation for 14th defendant on record sheet - Paragraph(s) N/a 03/07/2007 - - Paragraph(s) 03/07/2007 - Para [245]: last word should have been adequatepara [334]: incorrect quotationpara [1024]: Trade Practices Act should have been Fair Trading Actpara [1363] first reference to NCRH should have been to NCRA. - Paragraph(s) [245], [334], [1024] and [1363]

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