James Hardie Industries NV v Australian Securities and Investments Commission [2010] NSWCA 332 | Case summary

James Hardie Industries NV v Australian Securities and Investments Commission [2010] NSWCA 332 | Case summary | Zoe

Australian Securities and Investments Commission v McLeod [2000] WASCA 101; (2000) 22 WAR 255 Australian Competition and Consumer Commission v Signature Security Group Pty Limited [2003] FCA 3; (2003) ATPR 41-908 Australian Securities and Investments Commission v Fortescue Metals Group Ltd (No 5) [2009] FCA 1586; (2009) 76 ACSR 506 Australian Securities and Investments Commission v Chemeq Limited [2006] FCA 936; (2006) 58 ACSR 169 Australian Securities and Investments Commission v Citigroup Global Markets Australia Pty Ltd (No 4) [2007] FCA 963; (2007) 160 FCR 35 Australian Securities and Investments Commission v Southcorp Limited (No 2) [2003] FCA 1369; (2003) 130 FCR 406 Australian Securities and Investments Commission v Macdonald (No 12) [2009] NSWSC 714; (2009) 259 ALR 116 Australian Securities Commission v Nomura International Plc (1998) 89 FCR 301 Australian Telecommunications Commission v Kreig Enterprises Pty Ltd (1976) 14 SASR 303 Australian Woollen Mills Ltd v FS Walton & Co Ltd [1937] HCA 51; (1937) 58 CLR 641 Boughey v R [1986] HCA 29; (1986) 161 CLR 10 Campomar Sociedad Limitada v Nike International Limited [2000] HCA 12; (2000) 202 CLR 45 Bull v Attorney General (NSW) [1913] HCA 60; (1913) 17 CLR 370 Cat Media Pty Limited v Opti-Healthcare Pty Limited [2003] FCA 133; (2003) ATPR 41-933 Cream Holdings Ltd v Banerjee [2004] UKHL 44; [2005] 1 AC 253 CSR Ltd v Wren (1997) 44 NSWLR 463; [1998] Aust Torts Reports 81-461 Domain Names Australia Pty Ltd v .au Domain Administration Ltd [2004] FCAFC 247; (2004) 139 FCR 215 Exicom Pty Ltd v Futuris Corporation Limited (1995) 123 FLR 394 Fox v Percy [2003] HCA 22; (2003) 214 CLR 118 General Electric Co (of USA) v General Electric Co Ltd [1972] 1 WLR 729; [1972] 2 All ER 507 Gett v Tabet [2009] NSWCA 76; (2009) 254 ALR 504 Global Sportsman Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82 CASES CITED: Henville v Walker [2001] HCA 52; (2001) 206 CLR 459 Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd [1978] HCA 11; (1978) 140 CLR 216 Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2008] NSWCA 206; (2008) 73 NSWLR 653 Interlego AG v Croner Trading Pty Limited (1992) 39 FCR 348 James Hardie & Co Pty Ltd v Hall as Administrator of Estate of Putt (1998) 43 NSWLR 554 Jubilee Mines NL v Riley [2009] WASCA 62; (2009) 69 ACSR 659 Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705 Morley v Australian Securities and Investments Commission [2010] NSWCA 331 National Exchange Pty Ltd v Australian Securities and Investments Commission [2004] FCAFC 90; (2004) 49 ACSR 369 Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191 Poseidon Ltd & Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332 R v Firns [2001] NSWCCA 191; (2001) 51 NSWLR 548 R v Wright [1980] VR 593 Re HIH Insurance Ltd (in liq) and HIH Casualty and General Insurance Ltd (in liq); Australian Securities and Investments Commission v Adler [2002] NSWSC 483; (2002) 42 ACSR 80 Rivkin Financial Services Ltd v Sofcom Ltd [2004] FCA 1538; (2004) 51 ACSR 486 Royal Warrant Holders' Association v Edward Deane & Beal Ltd [1912] 1 Ch 10 S & I Publishing Pty Ltd v Australian Surf Life Saver Pty Ltd (1998) 88 FCR 354 SCA Packaging Ltd v Boyle [2009] UKHL 37; [2009] 4 All ER 1181 Sutton v A J Thompson Pty Ltd (in liq) (1987) 73 ALR 233 Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 Tillmanns Butcheries Pty Ltd v Australasian Meat Industry Employees' Union (1979) 27 ALR 367 Transport Publishing Co Pty Ltd v Literature Board of Review [1956] HCA 73; (1956) 99 CLR 111 Watson v Foxman (1995) 49 NSWLR 315 Weitmann v Katies Ltd (1977) 29 FLR 336

1.1.1. The misrepresentation case 4 There were three components of the misrepresentation case. The first component related to statements made in slide 4 of a series of slides (the slides) that had been lodged with the Australian Stock Exchange (ASX) in June 2002. Those statements were "future claims separated and fully funded" and "no future liability - no provision required" (the statements in slide 4). The slides, including relevantly slide 4, had formed part of two oral presentations given by Peter Macdonald, JHINV's Chief Executive Officer, in London and Edinburgh in June 2002. The slides related to the establishment, in 2001, of the Medical Research and Compensation Foundation (the Foundation) and the total amount of funding available to the Foundation to meet potential asbestos claims against two James Hardie subsidiaries, James Hardie and Coy Pty Limited (Coy) and Jsekarb Pty Limited (Jsekarb). The slides were later lodged with the ASX and made available to the public. 5 The trial judge held that the information in slide 4 contravened the misleading and deceptive provisions of ss 1041E and 1041H. His Honour made declarations to that effect. 6 The second and third components of the misrepresentation case related to statements made at the Edinburgh and London presentations by Mr Macdonald in respect of the Foundation and the funding that was available to meet potential asbestos claims. It was alleged that, in Edinburgh, Mr Macdonald said "asbestos has been ring fenced", "asbestos is a non-issue" and "the foundation is fully funded to meet future claims". It was alleged that, in London, Mr Macdonald said the "Foundation is fully funded" and "James Hardie has no liability". 7 Although his Honour held that those statements were made and were materially misleading, he found that a contravention of s 1041E had not been made out in respect of those statements. His Honour was not satisfied that the representations made in Edinburgh and London would have the effect of inducing persons to purchase shares or of increasing, reducing, maintaining or stabilising the price for JHINV shares. 8 JHINV has appealed against his Honour's findings of contravention in relation to the first component of the misrepresentation case. 9 ASIC has cross-appealed against the rejection of the second and third components of its misrepresentation case that JHINV contravened s 1041E in respect of the statements made at the Edinburgh and London presentations. 10 JHINV has also filed a notice of contention, in which it seeks to support the trial judge's decision in respect of the Edinburgh and London representations. JHINV contends that his Honour was in error in holding that the Edinburgh and London representations were made and were misleading. JHINV also contends that his Honour was correct in holding that the Edinburgh and London representations would not have the required inducing effect.

1.2. Some general introductory remarks 14 Certain companies in the James Hardie Group of companies had been major manufacturers and distributors of asbestos products in Australia and overseas. Prior to the events that underlie the appeal, JHIL had been the holding company in the James Hardie Group and had manufactured and sold asbestos products itself up until 1937. 15 Coy and Jsekarb (later renamed Amaca Pty Limited and Amaba Pty Limited respectively) were JHIL subsidiaries. Both had been manufacturers and distributors of asbestos products in Australia until 1987. Each company had been subject to a significant number of asbestos claims by their own employees (employee claims) and by persons who had worked in industries that used their asbestos products (industry claims). Claims by persons who had used asbestos products in domestic and other non-industry circumstances were starting to emerge (non-industry claims). An actuarial study undertaken for James Hardie in 1998 estimated the potential exposure to known and potential asbestos-related claims was in the order of $281 million. 16 Following a plan of reorganisation and capital restructuring in 1998, a new company, James Hardie NV (JHNV), was incorporated in Holland as an intermediary holding company, with its common stock owned by indirect subsidiaries of JHIL. JHIL contributed its fibre cement businesses, its US gypsum wallboard businesses, its Australian and New Zealand building systems businesses and its Australian windows business to JHNV and its subsidiaries. 17 Some time after this restructure, JHIL gave consideration to a further restructure of the group. One of the considerations driving the new proposal was a desire to separate from the James Hardie Group those companies in the Group that were at risk of further asbestos claims being made against them. Another objective was to achieve a better worldwide income tax position (at [80]). 18 At a Board meeting held on 15 February 2001, JHIL decided that the separation would proceed. The new structure involved the establishment of the Foundation, which was a trust entity with an independent Board. JHIL's shares in Coy and Jsekarb were vested in the Foundation and thereafter it was the Foundation's function to manage and pay out asbestos claims against Coy and Jsekarb. The Foundation also had a $3 million fund for research into asbestos-related diseases. The Foundation was established shortly after the 15 February 2001 Board Meeting. 19 The restructure was formalised by way of a members' scheme of arrangement (the Scheme) under the Corporations Act, s 411. The Scheme was approved by Santow J on 11 October 2001 (at [33]). Under the Scheme, JHINV, a Dutch incorporated company, became the holding company in the James Hardie Group. JHIL became a wholly owned subsidiary of JHINV. This aspect of the restructure was effected by JHIL issuing to JHINV 100,000 partly paid shares at a cost of $50 each, with an uncalled amount on each share of $19,603.62. The total uncalled capital on the shares was $1.96 billion (at [30]). Following the restructure, JHINV controlled the same assets and liabilities as JHIL held prior to the reorganisation. 20 An integral part of the restructure arrangement was the execution of a Deed of Covenant and Indemnity (DOCI), under which JHIL covenanted to pay substantial annual sums to Coy and Jsekarb for 50 years. In return there were: covenants by Coy and Jsekarb not to sue JHIL in relation to their manufacture and sale of asbestos products; an indemnity in respect of claims against JHIL by asbestos claimants; and a put option for Coy to acquire from a (future) sole shareholder in JHIL its shares in JHIL. 21 Matters relating to these arrangements are subject of the judgment in Morley v ASIC. The events which relate to this appeal arose subsequently to the events that were the subject of that appeal. 22 The first of those events involved the Edinburgh and London presentations, which were part of a larger 'roadshow' conducted between May and December 2002, in which Mr Macdonald gave a number of presentations relating to the then present circumstances and the future aims of the James Hardie Group, both in Australia and overseas. The presentations consisted of either an oral presentation and PowerPoint slideshow followed by a question and answer session or one-on-one meetings or group meetings at which hard copies of the slides were handed to participants. 23 The statements in slide 4 and the statements made by Mr Macdonald at the Edinburgh and London presentations were the subject of the misrepresentation case. ASIC claimed that these representations contravened s 1041E of the Corporations Act. ASIC also claimed that the statements in slide 4 formed the basis of a contravention of s 1041H. ASIC's case in respect of the statements in slide 4 was made out under both sections. The case under s 1014E, insofar as it related to statements made by Mr Macdonald in Edinburgh and London, was not made out. 24 The second of the events occurred in March 2003, when JHINV resolved upon a series of steps to effect a further restructure of the James Hardie Group so as to sever the Group's connection with JHIL. The intention was to eliminate any connection that the James Hardie Group had with asbestos-related liabilities. JHINV did not immediately disclose the arrangements involved in this restructure. This restructure, and the steps by which it was effected, are the subject of the non-disclosure case, which the trial judge also found was made out.

2.2.1. Finding of the trial judge as to the representation conveyed by the phrases " fully funded " and " no future liability " 50 The ASX, Edinburgh and London representations each contained the phrase "fully funded" and also used a phrase as to future or further liability. In this respect, the ASX representations used the phrase "No future liability"; the Edinburgh representations used "fully funded to meet future claims"; and the London representations, "James Hardie has no liability" 51 His Honour held that the reference in the Edinburgh representations to "fully funded" was a reference to the position in June 2002, that is, at the time that the presentation was made (at [955]). Likewise, his Honour also held that the statement in slide 4 conveyed the meaning that the Foundation was fully funded in 2002 and there was no future liability that required a provision to be raised in the accounts (at [956]). His Honour made the same finding in respect of the London representations (at [980], [984]). In making this finding, his Honour expressly rejected the argument advanced by JHINV that the statement as to the Foundation being "fully funded" was an historical statement directed to the position 12 months previously when the Foundation was established (at [980]-[983]). 52 His Honour held that the emphatic nature of the words "fully funded" and "no future liability" implied "certainty or high likelihood" (at [957], [989]). As his Honour stated, at [959], "the vice lay in choosing to use over-emphatic language". In this regard, his Honour held that what is conveyed does not need to match the words used (at [957], [989]). 53 His Honour held that the statement that the Foundation was "fully funded" was not merely a repetition of information already in the public domain in respect of something that had happened over a year previously (at [960]). Rather, his Honour found that it was a statement relating to the position of the Foundation as at June 2002, which was a new assertion, not in the public domain (at [961]).

2.2.4. Finding of the trial judge as to whether there had been a breach of s 1041E 60 The trial judge, at [1021], stated that s 1041E called for a predictive exercise: the statement made had to be examined in light of the circumstances that existed at the time and the question asked whether it would have been likely to induce members of the public to purchase JHINV shares. No issue was taken with that approach. 61 His Honour held that the statements in slide 4 were false in a material particular or materially misleading and were likely to have the effect of inducing persons to acquire JHINV shares and to have the effect of maintaining or stabilising the share price. 62 In this regard, his Honour held that the members of the market to whom slide 4 was addressed: "… included the sophisticated and the unsophisticated and the reaction of each was likely to be similar to that discussed with respect to the … ASX Announcement." (at [1062]) 63 His Honour's reference to the reaction of persons to the ASX Announcement was a reference to his earlier findings in respect of the ASX Announcement relating to the establishment of the Foundation. 64 In response to a submission that the ASX Announcement did not convey certainty that the Foundation had funds sufficient to meet all asbestos claims and that there was no evidence of anyone being misled, his Honour said: "[313] It was submitted that the … ASX Announcement did not convey certainty that the Foundation's funding was sufficient to meet all Asbestos Claims. It was submitted that no evidence was adduced of any person being mislead by the Final ASX Announcement. It has been held, however, that where a regulatory authority seeks to prevent conduct in breach of provisions like Section 52 this will often be the case and such an applicant will rely upon the terms of the representation and the circumstances in which it was, or is to be made, looking to the notional representative class member as the basis for assessing the likely effect of the conduct in question ( National Exchange Pty Ltd v Australian Securities and Investments Commission [2004] FCAFC 90; (2004) 49 ACSR 369 at [23]).

[314] Where the representation is to be made to the public or to a section of it, consideration must be given to its effect upon an ordinary or reasonable member of the class in question. In this case the class was broad. It not only included financial market analysts and investors but also stakeholders of a wide range. It included the sophisticated and the unsophisticated." 65 His Honour held that if the document was misleading, or likely to be so, the notional representative class member must be shown to labour under some erroneous assumption, or may be expected to do so: (at [315]): see Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2008] NSWCA 206; (2008) 73 NSWLR 653 at [608]. 66 His Honour accepted that a sophisticated reader might understand that there was uncertainty associated with asbestos claims to be made in the future, but that to an unsophisticated stakeholder, the message in the ASX Announcement was that it was certain that the Foundation had sufficient funds to pay all legitimate asbestos claims (at [316]). 67 His Honour found that the statements in slide 4, along with the London and Edinburgh representations, were designed by Mr Baxter to have the effect of encouraging the purchase of JHINV shares and the maintenance or stabilisation of the market for those shares (at [1022]). 68 In reaching his conclusion in respect of the statements in slide 4, his Honour reiterated that the members of the market to whom slide 4 was addressed included the sophisticated and the unsophisticated and the reaction of each was likely to be similar to that discussed with respect to the ASX Announcement. 69 His Honour was fortified in the conclusion he had reached by the interpretations placed upon the statements in slide 4 by Mr Thompson and Mr Simons (at [1063]). His Honour also noted that there was an increase in the share price within a fortnight of the release to the market of the slides, which may have been influenced in part by the statements in slide 4 (at [1064]). 70 The trial judge held that the Edinburgh representations and the London representations were false in a material particular or materially misleading as Mr Macdonald (and hence JHINV) knew (at [1024]). However, his Honour concluded that the representations did not have the relevant inducing effect. In respect of the Edinburgh representations, his Honour, at [1066], was not satisfied: "… that the statements made by Mr Macdonald to an audience of three analysts, institutional investors, or fund managers was likely to have the effect Mr Humphris placed upon them. And none of them, in fact, was induced to recommend the purchase of JHINV shares. The absence of any purchase means that there could be, in fact, no maintaining or stabilising effect on the market." 71 As to the London representations, his Honour found, at [1070], that: "The same conclusion applies a fortiori to the London Representations that were made to a non-investing audience of one. The statements were not likely to induce the purchase of JHINV shares and Mr Humphris needed more material before he could express an opinion on whether they were likely to maintain or stabilise the market for JHINV shares." 72 Accordingly, his Honour rejected ASIC's allegations that JHINV had breached s 1041E in making the Edinburgh and London representations. 73 ASIC cross-appealed against his Honour's findings that there was no relevant likely inducing effect in respect of either the Edinburgh or London representations. By notice of contention, JHINV sought to uphold his Honour's decision, on the basis that the statements made in Edinburgh and London did not give rise to the misleading representations alleged by ASIC. The contention point logically arises first for determination. 74 His Honour also held that JHINV knew or ought reasonably to have known that the statements were false in a material particular or were materially misleading. His Honour had earlier, at [1024], made a finding that Mr Macdonald was aware that the ASX, Edinburgh and London representations were false or misleading and not in a minor way.

3.1.1. Campomar Sociedad Limitada v Nike International Limited 81 In Nike, the Court endorsed the observation of Deane and Fitzgerald JJ in Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 202, that whether or not conduct amounted to a representation is "a question of fact to be decided by considering what [was] said and done against the background of all surrounding circumstances". In Taco Bell, Deane and Fitzgerald JJ further observed that: "In some cases, such as an express untrue representation made only to identified individuals, the process of deciding that question of fact may be direct and uncomplicated. In other cases, the process will be more complicated and call for the assistance of certain guidelines upon the path to decision." 82 The Court noted, at [101], that the "other classes of case" that Deane and Fitzgerald JJ had in mind included cases where those representations were made to the public at large, or a section thereof. The Court observed, at [102], that: "It is in these cases of representations to the public … that there enter the 'ordinary' or 'reasonable' members of the class of prospective purchasers. Although a class of consumers may be expected to include a wide range of persons, in isolating the 'ordinary' or 'reasonable' members of that class, there is an objective attribution of certain characteristics." 83 Given the "heavy burden" that s 52 imposed, catching both intentional and non-intentional conduct, the Court held, at [103], that where the representation is made to a wide and undefined section or group, such as consumers, the section must be "regarded as contemplating the effect of the conduct on reasonable members of the class": see Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191 at 199 per Gibbs CJ. The Court sought to identify the characteristics of the ordinary or reasonable member of such class as follows: "Where the persons in question are not identified individuals to whom a particular misrepresentation has been made or from whom a relevant fact, circumstance or proposal was withheld, but are members of a class to which the conduct in question was directed in a general sense, it is necessary to isolate by some criterion a representative member of that class."

Conduct is likely to mislead or deceive if that is a real or not remote possibility, regardless of whether it is less or more than 50%: Global Sportsman ." 92 The Court further noted, at [18], that the likelihood of persons being deceived or misled was not a matter to be proved by evidence, or judicial notice or its statutory equivalent. Rather: "The existence or otherwise of such a likelihood is a jury question for the trier of fact: Australian Competition and Consumer Commission v Telstra Corp Ltd (2004) 208 ALR 459 per Gyles J." 93 On this basis, the Court considered that direct evidence of being misled was not of much assistance, at least where the representation was made to a large and diverse group. This was because evidence of some members of the large group might be unrepresentative. For example, in Domain Names Australia, the Court pointed out that if the respondents had called 50 of the 418,000 recipients, not only would that be expensive in terms of court time, it would be open to a submission that those 50 witnesses represented only 0.01 per cent of the recipients and their evidence ought thus be considered as unrepresentative and unreliable. Nor was opinion evidence of assistance. In this regard, the Court referred to the observation of Dixon CJ, Kitto and Taylor JJ in Transport Publishing Co Pty Ltd v Literature Board of Review [1956] HCA 73; (1956) 99 CLR 111 at 119 that: "... ordinary human nature, that of people at large, is not a subject of proof by evidence, whether supposedly expert or not." 94 The Court noted that market research evidence had been received coolly in recent years in the Federal Court. 95 In Cat Media Pty Limited v Opti-Healthcare Pty Limited [2003] FCA 133; (2003) ATPR 41-933, Branson J said: "... It seems to me that evidence of opinions based on market research and expert appreciation of consumer behaviour will rarely be of assistance in litigation where the Court's primary concern is with the behaviour to be expected of, and the judgments likely to be made by, ordinary (even if it might be thought, somewhat credulous) members of the community intent on making a relatively modest purchase in a conventional way. I endorse the comment of Beaumont J in Pacific Publications Pty Ltd v IPC Media Pty Ltd that where a claim is essentially a matter for the Court's impression, expert views which are merely `impressionistic' can be given no more than nominal weight ..." 96 Although addressing a different subject matter, in Australian Woollen Mills Ltd v FS Walton & Co Ltd [1937] HCA 51; (1937) 58 CLR 641 Dixon and McTiernan JJ commented, at 657, that: "In a question how possible or prospective buyers will be impressed by a given picture, word or appearance, the instinct and judgment of traders is not to be lightly rejected, and when a dishonest trader fashions an implement or weapon for the purpose of misleading potential customers he at least provides a reliable and expert opinion on the question whether what he has done is in fact likely to deceive." 97 The role of the trial judge in determining the 'likelihood' of deception was explained by Lord Diplock in General Electric Co (of USA) v General Electric Co Ltd [1972] 1 WLR 729; [1972] 2 All ER 507. His Lordship said, at 738; 515: "[W]here goods are sold to the general public for consumption or domestic use, the question whether such buyers would be likely to be deceived or confused by the use of the trademark is a 'jury question'. By that I mean: that if the issue had now, as formerly, to be tried by a jury, who as members of the general public would themselves be potential buyers of the goods, they would be required not only to consider any evidence of other members of the public which had been adduced but also to use their own common sense and to consider whether they would themselves be likely to be deceived or confused.

(c) slide 4 did not contain or make any representation or assessment of the sufficiency of the funding as at February 2001, as assessed by JHINV in June 2002. 102 These three submissions were predicated upon an acceptance of JHINV's argument that the language used in slide 4 represented the historical position as at 2001. We reject that argument for the reasons that follow. 103 ASIC's pleaded case was that the statements in slide 4 conveyed representations of sufficiency of funding and of JHINV having a reasonable basis for that assertion. JHINV challenges that any such representations were made by the statement "fully funded" in slide 4. Accordingly, it is necessary to consider JHINV's submissions on this issue, making the necessary allowance for the finding we go on to make, that slide 4 was a statement as to the present position. 104 The first submission arises from the importance the trial judge attributed to the emphatic language used in the slides. His Honour rejected the submission that the statements in slide 4 (and for that matter, the statements made by Mr Macdonald in Edinburgh and London, with which we deal later) said nothing as to whether the outcome was "certain" or "highly likely". Rather, as his Honour said, at [957]: "… The term ' fully funded ' is emphatic as is the phrase ' no future liability '. The emphatic nature of the statements implies certainty or high likelihood. What is conveyed does not need to match the words used." 105 JHINV submitted that it was not clear whether, in rejecting its submission, his Honour relied upon both statements in slide 4, that is, "future claims separated and fully funded", as well as "no future liability - no provision required" but that if he did so, that was contrary to the case advanced by ASIC, which it contended relied only upon the statement "future claims separated and fully funded" in respect of the representation as to certainty or high likelihood. JHINV submitted that in any event, it was not possible to take from the shorthand statements in slide 4: "… an unqualified and current assessment as to the funding position of an entity JHINV did not control and in respect of which it had no ongoing connection or access to information." 106 The first part of this submission, that ASIC relied on only one of the two statements in the slide, must be rejected. In the pleading, ASIC relied upon both aspects of the statements in slide 4: (see [261] of the final statement of claim, extracted above at [34]). His Honour's finding was based upon both aspects. In both its written and oral submissions, ASIC refuted JHINV's assertion that it relied on only one of the statements in slide 4. JHINV did not point to any part of the transcript below where the extent of the pleading was modified in any way. ASIC submitted that in any event, the expression "no future liability - no provision required" was "part and parcel" of the context of the misleading statement in slide 4, that the Foundation was "fully funded". It submitted that to divorce the two statements, both of which were in emphatic terms, was artificial: to say something was fully funded carried with it the logical inference that there was no need for any additional provision. 107 The second part of the submission, that it was not possible for the trial judge to make a finding that a representation of certainty and high likelihood was made, was no more than a restatement of JHINV's overall position on this aspect of the appeal. Our conclusion on this is at [173]-[174]. 108 JHINV's second submission was that the statement "future claims separated and fully funded" said nothing about the assumptions made or the confidence with which the claims had been separated and funded. It submitted that the statements in slide 4 conveyed no more than that funding was provided by reference to calculations and estimates which involved predictions as to the future incidence and outcomes of claims. This, JHINV submitted, called for explanation or inquiry as to the relevant detail such that the ordinary reasonable member of the public who had access to slide 4 would have appreciated this and, if unfamiliar with the company's public statements, would have sought more information. That person would, therefore, have sought out JHIL's original announcements as to the creation of the Foundation and its funding in February 2001 and would also have accessed information in JHINV's 2002 Annual Report and in a Form 20-F lodged with the US Securities and Exchange Commission. The content of these documents is discussed below. 109 ASIC submitted that this "complex process", which JHINV asserted would be undertaken by an ordinary member of the public, did not find any support in the evidence, nor could any reasonable assumption be made that this is what an ordinary member of the public or any relevant subset of the public would do. ASIC submitted that the words were unqualified and unequivocal and were to be understood in the way found by the trial judge. 110 The resolution of these competing contentions depends upon the composition of the relevant class to whom the statements were directed. Given the wide range of persons within the class, we consider that the approach for which JHINV contends is unrealistic. Some members of the general public interested in investing in shares would be experienced enough, or sufficiently savvy, to know that investment decisions ought only be made after proper research and investigation. Others would not be so experienced or savvy. In any event, it is a moot point as to what proper research and investigation would entail. Would it involve accessing the Form 20-F? Would the reasonable member of the class know that James Hardie had lodged a Form 20-F? Would the reasonable member of the class search out information released into the public domain after the slides were released by the ASX? If not, then it is factually relevant to observe that, of the information relied upon by JHINV, only the filing of the Form 20-F predated the release of the slides. The Annual Report and the analyst's opinions all postdated the publication of the slides on the ASX website. 111 In any event, we do not accept that the statements in slide 4 called for explanation or inquiry. We accept that the statements in slide 4 were in an abbreviated form and would have indicated to a reasonable member of the class reading it that some corporate and/or financial activity lay behind them. However, we do not accept that a reasonable member of the class would necessarily go searching for available information to ascertain whether they were accurate statements or whether some qualification should be read into them. 112 The third submission was that slide 4 did not contain or make any representation or assessment of the sufficiency of funding as at February 2001, as assessed by JHINV in June 2002. JHINV submitted that questions asked of Mr Macdonald in Edinburgh were indicative of how slide 4 ought to be interpreted. In this regard, Mr Baxter had recorded, in his notes of the meeting, a question concerning the Foundation and asbestos liability in terms, "How much time before it runs out?". This question, it was submitted, was inconsistent with slide 4 conveying a representation that JHINV's current assessment of the adequacy of funding was that it would be sufficient. 113 The trial judge, at [979], rejected that Mr Baxter's note made it clear that the statement "fully funded" was an historical one. His Honour said that was contrary to his reading of the slide and was inconsistent with the way Mr Thompson and Mr Simons understood the slide. His Honour also considered that Mr Baxter's note was unhelpful because the context in which the question was asked was not known. Further, to give to the statements in slide 4 the meaning and relevance placed upon them by JHINV would be contrary to what was known of Mr Macdonald's purpose in making the roadshow presentations, namely, to extol the current position of JHINV. The slides and slide 4 in particular was one of the communication tools employed to convey that message. 114 ASIC's submission to this Court supported his Honour's finding. It contended that Mr Baxter's note did not and could not sensibly provide any confirmation of the meaning of "fully funded" as relating to the position in February 2001. For a start, it submitted that there was no context to Mr Baxter's note in which it could be assessed: it was not known who asked the question; to what topic it was directed; or whether it was directed to a statement in the slide or to something that was said. ASIC suggested that the question could have been directed to the time the asbestos liability ran out. It submitted that this was at least its likely context, as otherwise the question implied that the fund would run out and it was only a question of when. ASIC pointed to the unlikelihood that Mr Macdonald would publicly state the fund would run out of money. 115 We agree with ASIC's submission that Mr Baxter's note does not provide support for JHINV's submission. It is a matter for the Court to determine whether a representation is or is likely to be misleading. Obscure and non-contextual evidence such as Mr Baxter's note does not assist in making that determination. We see no error in his Honour's reasoning on this point. We would add that, even if Mr Baxter's note was indicative of how the slide was interpreted by those at the Edinburgh presentation, it is of no assistance in determining how the statements in slide 4 would have been interpreted by members of the public who read them on the ASX website.

3.2.3. The context of slide 4: whether the statements referred to the historical position 116 JHINV also contended that his Honour erred in the meaning he gave to the words "fully funded" and "no future liability" in slide 4 by isolating the slide from its context. The relevant context in which JHINV submitted that the slide should be interpreted was: (a) that it was one of a complete set of slides and had to be understood in that context; (b) that it was intended to accompany an oral presentation; and (c) that the information in slide 4 had to be understood in the context of other information already disseminated by the company in the Form 20-F and the 2002 Annual Report. 117 A central aspect of JHINV's context argument was directed to its fundamental position that slide 4 was to be understood as a statement of the sufficiency of funding as at February 2001 when the Foundation was established and not as at June 2002 when slide 4 was lodged with the ASX. In this regard, JHINV submitted that the trial judge had misinterpreted the information in slide 4 because he had isolated the slides and slide 4 in particular, from their proper context. It said that slide 4 was part of a set of slides which had to be viewed comprehensively. Had his Honour done so, JHINV submitted, he would have concluded not only that the slides related to the historical position, but also that they failed to convey a message of certainty. 118 If the statements in slide 4, properly understood, related to the then present circumstances of JHINV, there is no doubt these statements were misleading. At the time the slides were lodged with the ASX, JHINV knew that anticipated future asbestos-related claims were estimated to exceed, in a substantial amount, the actuarial estimate given in February 2001 that had been the basis upon which the Foundation was funded. The inadequacy of the Foundation's funding had become apparent by September 2001 and JHINV was aware of this. On 24 September 2001, the Chairman of the Foundation wrote to Mr Macdonald, informing him that the Foundation had commissioned its own report from the actuarial firms Trowbridge and Towers Perrin. That report predicted that Coy could be insolvent in less than nine years and that the expected value of future claims had been estimated to be $574 million, as compared to the advice given in February 2001 that estimated further claims at $355 million. The chairman of the Foundation pointed out in his letter to Mr Macdonald that available funds were only likely to meet 40 per cent of future claims, that additional funding of some $200 million would be required to meet a "20 year life" of the Foundation, and that the Foundation's properties would need to be liquidated within six years. 119 As we have said, JHINV knew the Foundation was seriously underfunded. Although ASIC did not expressly put its argument this way, it cannot go unremarked that, given the state of JHINV's knowledge, an unqualified statement on a regulator's website as to "fully funded", would be misleading, even if the information was historical. If the statement related to the past, it would have been misleading to make a statement in June 2002 as to the position in 2001 without qualifying that statement to reflect changed circumstances. As a statement of the present position, the statement was expressly and blatantly false, as we have just explained. 120 Notwithstanding this, JHINV's context argument was based upon:

3.2.3(i) The format of the slides and the need to read the slides as a whole 121 JHINV submitted that slide 4 ought to be interpreted in the context of the complete set of 34 slides. In this respect, it submitted that the slides that were lodged with the ASX provided an overview of JHINV's worldwide plans for its businesses. In particular, slides 2 and 4 provided an historical overview of the company, namely, the transfer of the subsidiaries and the new corporate structure, including the establishment of the Foundation in 2001. According to JHINV, the historical information was important, given that the presentations in which the slides were used were being made to persons unfamiliar with the James Hardie Group and its operations. It followed on this argument that the information conveyed in slide 4 was and could only be interpreted in an historical context as relating to the position at the time the Foundation was created. In this regard, JHINV relied upon the language used in the slide being in the past tense, reflecting the historical nature of the information in it. 122 We accept that the slide had to be read in the context of the slides as a whole. However, some slides related to the past, some to the present and some to the future position of the company. The language of the individual slides, and indeed, each statement in slide 4, is therefore relevant in determining what each particular slide and statement related to. In this respect, contrary to JHINV's argument, we do not agree that the language of slide 4 used or involved the past tense, in the sense of being a statement which related to the position of the company when the Foundation was established in February 2001. 123 One difficulty is that the statements were in abbreviated form: "fully funded"; and "no future liability". The word "funded", however, is not used as a verb as such, the part of speech where tense reposes. It is used in conjunction with a missing or absent participle. If the language engaged was, "future claims are separated and are fully funded", there would be no argument. Even if the phrase read, "future claims were separated and were fully funded", it may well have been misleading to leave the matter as an intended use of the past tense. As noted above, this was not only the incorrect position, but JHINV knew it was the incorrect position. On its own, the phrase "fully funded" bears the sense of the present, or at least, equally of the present as it might refer to the past. 124 However, the phrase "fully funded" in slide 4 did not stand on its own. The phrase, "future claims separated and fully funded" appeared in conjunction with the phrase "no future liability - no provision required". Although it was clear on the face of the slide that reference was being made to the establishment of the Foundation in 2001 and to claims made in the future coming under the auspices of the Foundation, the language was otherwise unqualified. Importantly, the second phrase "no future liability - no provision required" provided context indicating the present position. In our opinion, the statement "future claims separated and fully funded" would not have been understood by the reasonable person in the notional class who read it in the historical sense for which JHINV contended. 125 Another aspect of this part of the context argument was that slide 4 had to be read in association with the slides as a whole. JHINV submitted that slide 34 contained an express disclaimer as to certainty and made an express reference to "legal proceedings". It followed, on this argument, that the representation as to certainty could not have been made out. It will be remembered, however, that slide 34 stated that "the presentation contains forward looking statements". It was never contended that slide 4 fell into this category. If slide 4 was to be interpreted as relating to the historical position of the company, which was JHINV's principal argument, the disclaimer in slide 34 would not apply to slide 4. If slide 4 did relate to the present, and noting that this was not JHINV's position on the appeal, we would not be prepared to find that a standard-form disclaimer, located at the very end of a long slide presentation, was sufficient to put members of the notional representative class on notice that the statements in slide 4 ought to be interpreted with further qualification. It would be no defence for JHINV, having made statements which it knows to be plainly false and misleading, to rely upon a statement such as appears in slide 34.

3.2.3(ii) The purpose for which the slides were prepared 126 Next, it was submitted that the slides had to be understood in the context in which they were used: that is, to accompany an oral presentation. JHINV submitted that as the language used was in summary form, anybody reading them would have understood that there would have been some accompanying explanation given. JHINV also relied on the statement by Mr Baxter, in his affidavit of 5 March 2008, that in relation to the preparation and planning of the roadshows: "[i]t was the usual practice, at the Roadshow presentations that I attended, that a copy of the presentation was handed to each attendee at the meeting… In accordance with JHINV's disclosure policy practice, copies of Roadshow presentations were lodged with the ASX." 127 ASIC argued that JHINV's submission that the slides were designed to accompany an oral presentation and should be interpreted in that context, failed in light of the fact that the slides were provided to the ASX without any qualifying words as to how they ought to be interpreted. ASIC submitted that the release of the slides in unqualified terms to the market in Australia nullified the proposition that the information contained therein was not intended to be a complete or stand-alone explanation of the matters and subjects referred to. Nor was it reasonable to understand an unqualified statement in one document as being informed in a material respect by information in other, unreferenced documents, even if there were other documents in the public domain. 128 ASIC further submitted that there was no basis for assuming that reasonable readers of the slides, who had accessed them on the ASX website, would have read everything the company had published elsewhere at a prior point in time, or even around the same time, or retained the detail of what was contained in such other material, even if had been read. 129 ASIC submitted that, in any event, there will rarely be only one reasonable response or reaction to material published to a wide class of persons: National Exchange at [24]. In making this submission it accepted that the persons to whom the information in the slides was directed might involve more than one sub-class. However, it submitted that this underscored its submission that the unqualified information in slide 4 as published to the market was misleading. ASIC submitted that it was not appropriate to attempt to identify a single hypothetical member of a wide class of persons as the reader of this material and to determine the reasonable response of that person: see Domain Names Australia v .au Domain Administration at [26]. 130 Whilst we agree that the format of the slides was likely to indicate to anyone reading them that they were part of a presentation, or were accompanied by some presentation, that does not assist JHINV's case. Persons reading the slides on the ASX website did not have access to any information given in the accompanying presentation. There was nothing in Mr Baxter's evidence or covering letter to the ASX, upon which JHINV relied, which identified the nature, time or circumstances in which the slides were used. As statements made to the public, the slides had to be understood by reasonable members of the class to whom the information was directed. We reject the argument that members of that class would interpret the statements in slide 4 with reference to oral presentations about which they had no information and, certainly, no information as to the content of such presentations. We would add that the evidence of Mr Thompson and Mr Simons, being persons to whom both the information in the slides and the accompanying oral presentation were provided and who were part of the more sophisticated class of investors to whom the information was directed, does not support JHINV's contention that slide 4 was presented as referring to past events. As discussed below, their evidence was to the contrary.

3.2.3(iii) Information generally available in the market 131 The third context argument upon which JHINV relied and which is related to the question of the relevant class to whom the information is directed, was that the slides would be understood by a reasonable investor not to contain the representations of certainty or high likelihood and reasonable basis, as those representations were inconsistent with information generally available in the market. This submission was based on public statements made by JHINV since the establishment of the Foundation in February 2001. Those statements were contained in a Form 20-F filed with the US Securities and Exchange Commission on 1 October 2001 and in JHINV's Annual Report for the financial year ending 31 March 2002. JHINV argued that slide 4 should have been assessed in the context of the public statements in Form 20-F and in the 2002 Annual Report, rather than despite them. It submitted that had his Honour done so, he would not have concluded that the statements in slide 4 contained representations as to certainty or high likelihood, as that was contrary to JHINV's public documents. 132 JHINV also relied on the opinion expressed by Mr Humphris, ASIC's expert, who understood that there was a degree of uncertainty in respect of predictions of funding of future asbestos claims. JHINV further contended that the analysts who had commented on James Hardie's asbestos exposure had a similar understanding. 133 ASIC submitted that there were no public statements made by JHINV which could have assisted any reasonable reader of the slides in making an assessment of the extent of the potential asbestos liabilities. ASIC contended, in particular, that there was no information in the Annual Report that enabled an analysis to be undertaken to assess whether the Foundation was fully funded in respect of future asbestos liability. 134 It is necessary to look at the Form 20-F and the Annual Report in some detail in order to deal with these submissions.

As these two former subsidiaries are no longer a part of James Hardie, and all such claims have been successfully defended by JHIL, no provision has been established in the Company's accounts at March 31, 2001. While it is difficult to predict the incidence or outcome of future litigation, we believe it is unlikely that significant personal injury suits for damages, in connection with the former manufacture or sale of asbestos containing products, will be filed against JHIL or its current subsidiaries , or if filed, we believe it is remote that such suits would have a material adverse effect on our business, results of operations or financial condition. Our belief is based in part on the separateness of corporate entities under Australian law, the limited circumstances where 'piercing the corporate veil' might occur under Australian law, and there being no equivalent under Australian law of the U.S. legal doctrine of 'successor liability'. The courts in Australia have confirmed the primacy of separate corporate entities and have generally refused to hold parent entities responsible for the liabilities of their subsidiaries absent any finding of fraud, agency, direct operational responsibility or the like." (emphases added) 137 JHINV relied upon this material as evidence that its public statements in respect of the funding of future asbestos claims were cautionary. ASIC submitted that this involved a misconstruction by JHINV of its own document. The statement "The Company calculated its asbestos provision" in the second paragraph of Note 10 set out above, referred back to the statement in the previous paragraph, that the Company, that is, JHIL, held a provision for asbestos litigation of $187.7 million as at 31 March 2000. There was no reference in the Note to any estimate of future liabilities made for the purposes of the Foundation's responsibility for future asbestos claims. It followed on ASIC's argument that this information said nothing as to the funded position of the Foundation. In addition, the statements made in the last paragraph of Note 10 set out above, and in particular, the statements, "while it is difficult to predict the incidence or outcome of future litigation" and "we believe it is remote that such suits would have a material adverse effect on our business, results of operations or financial condition" relate to claims against JHIL and not to prospective claims for which the Foundation was to be responsible. 138 The flow of information in Note 10 does not make for an easy read. There is an initial reference to the Foundation and to the separation of the former subsidiaries and their control by the Foundation. There is then a reference to the provision made by the Company for asbestos as at 31 March 2000. The "Company" in that context must be a reference to JHIL, as JHINV was not involved as at March 2000. The next paragraph makes reference to "the Company's" calculation of the asbestos provision, which logically reads, or at least could logically read, as a reference back to the provision referred to in the previous paragraph, that is as the provision made as at 31 March 2000, as there was no need to make provision for asbestos liabilities for the 2001 financial year given the establishment of the Foundation. That is the point made in the next paragraph of the Note. 139 The next reference is to the difficulty of prediction of claims and the fact that the amounts greater than "the provision established" could be incurred by Coy and Jsekarb which "[are] now controlled by the Foundation". Again, it could be reasonable to read this as still referring to the 2000 provision, that being the likely reference in the earlier part of the paragraph. If it was a reference to the position as it stood in respect of the Foundation, a number of comments can be made. The reference to the provision made in the Foundation is nearly a hundred pages earlier. If that was remembered, the observant reader would notice that the provision in the Foundation was significantly greater than the provision that JHIL had made in 2000 for asbestos claims. That might give the reader some comfort as to the certainty or high likelihood of the adequacy of the provision made in the Foundation. 140 Much would also depend upon when the document was read. If the Form 20-F had been read in October 2001, a later statement in June 2002 as to "fully funded" might be understood as a statement of certainty or high likelihood at that point of time. It is also possible to read the statement as to difficulty of prediction as a general statement in respect of asbestos claims, regardless of the provision made. However, an increased provision, as in fact had occurred with the establishment of the Foundation, would give some comfort to the reader. 141 The various possibilities as to how the information in Note 10 could be read strengthened ASIC's position, rather than supported JHINV's case. If there was confusion or uncertainty or different reasonable interpretations available in respect of the information in the market place, JHINV's contention that its public message was a cautionary one as to potential asbestos liability is not made out in respect of the market to which the information was directed. 142 ASIC also submitted that, if Note 10 provided any contextual support for JHINV's argument, it was relevant that only a partial explanation was given of the basis upon which JHINV held the stated belief that it was unlikely that future claims would have an adverse material effect on business: viz the statement: "Our belief is based in part on the separateness of corporate entities". ASIC pointed out that no other basis was stated and this partial reason was not inconsistent with JHINV's CEO stating that the Foundation was fully funded as at June 2002. The statement to which this submission referred is made in the third paragraph of Note 10, which is specifically directed to the potential liability of JHIL and its current subsidiaries. In the same paragraph, the statement is made that the former subsidiaries are no longer part of James Hardie. For these reasons, we do not consider that this part of Note 10 advances or supports ASIC's argument. Likewise, it provides no assistance to JHINV.

(b) The ASX Presentation reinforced the company's message and, when viewed in the circumstances at the time including generally available information, would be likely to impact materially on the factors, including the factors set in sub-paragraph 4(b), that affect the market price of JHINV shares." 151 Mr Humphris confirmed in oral evidence that the slides contained information that was generally available. Mr Humphris was not cross-examined on his statement that the ASX presentation did not appear to disseminate any information not generally available in the market place. In particular, he was not asked to identify the nature of the information which was generally available. Perhaps that is because it was understood the information generally available included statements such as in the Form 20-F lodged with the New York Stock Exchange in which it was stated that it was difficult to predict the incidence or outcome of future litigation. The statement in the 2002 Annual Report was not dissimilar. 152 Mr Humphris also said the slides contained essentially the same information that had been lodged with the ASX in May 2002 following roadshows in Australia. This statement has to be understood in the context of the material used in the Australian presentations. A set of slides was used in the Australian roadshows in May 2002. However, the equivalent of slide 4 was entitled differently. It was headed: "Transformation completed", as opposed to "Restructured for focus and growth" in slide 4. It contained the same three subheadings as slide 4. However, under the heading "Asbestos foundation established in 2001" there was no reference to "fully funded", which was an essential part of ASIC's misrepresentation claim in respect of the statements in slide 4. Rather, the statement read, "future claims separately funded". The second statement as to "no future liability - no provision required" was in the same terms as slide 4. In our opinion there is a qualitative difference, both in the heading to the slide and in the statement "future claims separately funded". 153 The trial judge noted, at [1036], that Mr Humphris' opinion with respect to the likely effect of slide 4 was qualified, because Mr Humphris had only considered the statements in slide 4 in the context of the Edinburgh and London roadshows. He had not considered the likely effect on persons who gained access to the slides through the ASX, without having any information given in the roadshows. His Honour then referred to Mr Humphris' evidence in (b) set out at [149] above. Importantly, his Honour, at [1037], noted Mr Humphris' evidence that the investors to whom Mr Humphris was referring in the paragraph were: "… mainly institutional investors located in the UK. The inducement to acquire shares might not have necessarily resulted in immediate purchase of shares by persons in this category since it was likely that not all of those persons would have been following JHINV prior to the ASX Representations." 154 JHINV submitted that Mr Humphris' evidence supported the view that a reasonable investor may consider the use of the expression "fully funded" as it appeared in slide 4 as not conveying certainty of funding, because, given the other information in the market place, a reasonable investor would appreciate the uncertainties involved in estimating future liabilities. 155 JHINV also relied on Mr Humphris' opinion concerning the ASX Announcement. Mr Humphris observed that the ASX Announcement bore the authority of an official JHIL release which referred to the establishment of the Foundation and its benefits for claimants and investors in positive terms and said: "It is likely that the Final ASX Announcement would be perceived positively by investors and that they would accept the validity of statements made by JHIL concerning the Foundation being fully funded and the resolution of James Hardie's asbestos liability. Notwithstanding this likely general acceptance, a reasonable investor may have considered that residual Foundation funding risk remained despite the statement 'fully-funded Foundation' contained in the Final ASX Announcement, particularly in view of the statement contained in JHIL's 2000 Annual Report released on 20 June 2000 (Item 107): 'a contingent liability exists in respect of the ultimate costs of settlement of claims yet to be made which cannot be measured reliably at the present point in time ." (emphasis added) 156 Mr Humphris' opinion expressed in this paragraph was directed to the question whether the ASX Announcement would be likely to induce the sale or purchase of JHIL shares, a question to which he responded in the negative. However, JHINV relied upon it to support its position in respect of the statements in slide 4, because Mr Humphris' view was that a reasonable investor who read the ASX Announcement, which contained more statements relating to certainty than did the slides, may have considered that there was a residual funding risk, despite the statement "fully funded". In other words, a reasonable investor might appreciate the uncertainties involved in estimating future liabilities and thus understand the phrase "fully funded" on that basis. According to JHINV, the same could, therefore, be said of a person who read slide 4. 157 For its part, ASIC submitted that Mr Humphris' opinion was that the statement in slide 4 "reinforced the company's message" which was a positive one: asbestos claims were under the auspices of the Foundation and were fully funded and JHINV had no ongoing asbestos liabilities. 158 We do not agree with JHINV's submission. Indeed, we have not found Mr Humphris' opinion to be of assistance on the question whether the statements in slide 4 were misleading or likely to mislead. In the first place, that part of his opinion upon which JHINV relied was given in respect of a different question, namely, the likely inducing effect of the statements made. Secondly, it is apparent from the evidence to which his Honour referred, at [1036], that Mr Humphris considered slide 4 in the context of being read by or being part of a presentation to institutional investors. However, the slides were generally available on the ASX website as stand alone information, unaccompanied by any explanation or other context. 159 More importantly, accepting that there was other information that was generally available, namely, statements to the effect that predictions could not be certain, two things follow. First, the statements in slide 4 did say something new. In unadorned terms, slide 4 stated: "future claims separated and fully funded" and "no future liability - no provision required." That was a statement to the market that, as at June 2002, claims were fully funded. Secondly, if JHINV had meant that something less than "fully funded" should have been understood by these statements, or that they were to be read subject to qualification, then they could have said so in equally simple terms. For the reasons we have given at [125], slide 34 was not up to that task.

In addition to these normal operational issues is that regarding asbestos liability in Australia. We believe conservative investors would be well advised to allow about A$0.30 (A$100m) for asbestos contingencies, in addition to the assets available via the Asbestos Foundation. We have no good feel for these numbers and they simply reflect a 'back of the envelope' allowance. It is a fact that Australia has one of the highest per-capita incidences of Mesathelioma [sic], and JHX (or its predecessor companies) was a significant manufacturer during the period specified. Asbestos expense to JHX at the time the foundation was set up was running at A$15-20m per year, and the foundation was established with assets of A$303m. Although JHX has no direct exposure to asbestos and all apparent liability rests with the Asbestos Foundation (a charitable trust), we believe it would be prudent to assume there may be recourse to JHX should the Foundation's assets prove insufficient 162 This material post-dated the release of the slides on 12 June 2002. JHINV's argument, therefore, was of necessity predicated upon an assumption that the reasonable reader of the slides on the ASX website would not have acted on the information therein shortly after its release. Rather, the reasonable person would have waited some time, perhaps over a month, before entering the market. The argument requires the further assumption that the reasonable reader of the slides would have also researched analysts' reports to see what statements were being made. Such research would have had to have been thorough, as it appears that only two analysts of the many analysts in the market made comment. Reliance on these two reports required either an assumption that investors would have thoroughly researched the opinions of analysts, or would have been lucky enough to chance upon them. If the reports were only available to investors paying for access to them, a further assumption is required that a reasonable person would purchase professional investment analysis in order to qualify information in JHINV's public statements. 163 Given the various assumptions that need to be made before the analysts' reports could properly be said to provide context in which to understand the statements in slide 4, we do not find JHINV's reliance on analysts' reports of assistance.

3.2.3(vi) Conclusion on language and context arguments 164 The question as to whether slide 4 was an historical reference to the position in 2001 when the Foundation was established or whether it was a statement of the then current position of the Foundation, falls to be determined in the context of the language used and the circumstances in which the slides were released to the public. We have determined that the reasonable reader of the slide would not have understood it to be referring only to the position in 2001 but as being a statement as to the current position. 165 The question whether the statement "fully funded" conveyed certainty or high likelihood also depended upon whether the slide would have been read as stand-alone statements, or would have been understood in the context of other information publicly available. In circumstances where the information in the slide was unqualified, we have concluded that the reasonable member of the class to whom the slides were directed would not have sought out other publicly available information and in particular, the information in the Form 20-F, which was the only publicly available information at the time the slides were released to the public. To the extent reference might have been had to the 2002 Annual Report, which became publicly available shortly after, the information was effectively the same as in the Form 20-F. 166 Although those two public documents referred to the difficulty of assessing future claims, they did so firstly in a context that was arguably referable to periods prior to the establishment of the Foundation or at least not clearly referable to the then current position and, secondly, in terms that expressed JHINV's confidence in the asbestos claims not having a material adverse effect on the business results or financial condition of the company. Thus, when in June 2002 a statement was made in the slides that claims were "fully funded", the normal meaning of the words would have conveyed the present position in terms that were unqualified.

3.2.4. The reliance on the ASX Announcement reasoning 167 JHINV's final argument focussed on the difference in the language of the slide as compared to the ASX Announcement. JHINV submitted that the trial judge erred in basing his conclusion in respect of the reasonable basis representation on the reasons he had given in respect of the ASX Announcement, in spite of the differences in both the language used and the context of the release of each statement. 168 The trial judge held, at [995], that the reasonable basis representation alleged by ASIC had been made out for the same reasons he gave in respect of the ASX Announcement. His Honour's reasoning in relation to the ASX Announcement is to be found at [312]-[322]. As his Honour observed, at [312], the allegation in respect of the ASX Announcement was that it: "… conveyed, or was capable of conveying, that the material available to JHIL provided a reasonable basis for the assertion that it was certain that the amount of funds made available to the Foundation would be sufficient to meet all legitimate present and future Asbestos Claims brought against Coy and Jsekarb." 169 His Honour found that the notional representative class was large and not only included financial market analysts and investors, but also a wide range of stakeholders, including sophisticated and unsophisticated stakeholders alike. His Honour accepted that a sophisticated reader might understand that there was uncertainty associated with future asbestos claims, but only upon the assumption that the emphatic statements such as "fully funded" could only be made if very conservative assumptions had been adopted in determining the level of funding for the Foundation. His Honour's finding in this regard (at [317]) was supported by Mr Thompson's evidence that any matter of financial prediction of the type contained in the ASX Announcement involved a degree of uncertainty, but that it depended upon the assumptions made. Mr Thompson said that what was conveyed in the meeting was that: "There was definitely confidence that everything was okay, so by that I would read into that some very, very conservative assumptions had been used." 170 The position was different, in his Honour's view, in respect of an unsophisticated stakeholder. To such a person, the plain English meaning of the language used in the ASX Announcement was that it was certain that the Foundation had sufficient funds to pay all legitimate asbestos claims (at [318], [320]). His Honour also held, at [322], that no reasonable reader would think that the statements had been made without supporting material. It is to be remembered that JHINV was aware at least by 6 October 2001 that the Foundation was seriously underfunded. 171 JHINV challenged his Honour's reliance on this reasoning in finding that the statement in slide 4 was misleading. It submitted that the ASX Announcement was a multi-paragraphed document released to the media. By contrast, slide 4 was structured in bullet point form and was part of a much larger slide presentation, which was intended to be used in conjunction with an oral presentation. 172 ASIC submitted that his Honour's approach was available to him, given that the same phrase "fully funded" was used in both slide 4 and the ASX Announcements. It submitted that an emphatic statement of this type made to the ASX would be likely to convey to persons reading it that the underlying assumptions upon which it was made were conservative and supportable. This was the view Mr Thompson had of such language when used in the Edinburgh presentation. ASIC also submitted that the context in which each was released did not assist JHINV, as the issue of full funding of asbestos liabilities was a live one at all times, whether that be in 2001 or in June 2002.

4.1. Meaning of " likely " in s 1041E and s 1041H 180 ASIC's case was that JHINV breached s 1041E by making statements and/or engaging in conduct "likely" to have a particular effect: namely, to induce persons to apply for financial products or induce persons in the jurisdiction to dispose of or acquire financial products, or to have the effect of increasing, reducing, maintaining or stabilising the price for trading in those products. 181 It is well accepted in the authorities that the word "likely" carries with it a range of meanings, from "probable", in the sense of "more probable than not", or "more than a fifty percent chance", to "material risk", as seen by a reasonable person as "such as might happen", to "some possibility", that is, more than a remote or bare chance. Or it may mean that the conduct engaged in is inherently of such a character that it would ordinarily cause the effect specified, or "real chance or possibility": see Tillmanns Butcheries Pty Ltd v Australasian Meat Industry Employees' Union (1979) 27 ALR 367 per Bowen CJ at 375; Deane J at 382. See also Cream Holdings v Banerjee [2004] UKHL 44; [2005] 1 AC 253 at [12]. 182 The same approach was taken in an altogether different context in Boughey v R [1986] HCA 29; (1986) 161 CLR 10, where the High Court considered the phrase "likely to cause death" in the Criminal Code (Tas), s 157. The majority, Mason, Toohey and Deane JJ held, at [15], that the word "likely" conveyed "the notion of a substantial - a 'real and not remote' - chance regardless of whether it is less or more than fifty percent". 183 It is also notable that s 1041E was moulded on the Trade Practices Act 1974 (Cth), s 52, where it is undisputed that the word "likely" bears the meaning of real and not remote chance: see Global Sportsman Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82 at 87. 184 There was in fact no dispute on the appeal that for the purposes of s 1041E and s 1041H, the word "likely" means "real and not remote chance". There is authority to the contrary, in respect of s 1041E's predecessor, s 998, where it was held "likely" in this legislative context meant "more probably than not": see Australian Securities and Investments Commission v McLeod [2000] WASCA 101; (2000) 22 WAR 255 at [47]; Australian Securities Commission v Nomura International Plc (1998) 89 FCR 301 per Sackville J at 395-396. The same meaning has been given to the word "likely" in other legislative contexts: see, for example, Australian Telecommunications Commission v Kreig Enterprises Pty Ltd (1976) 14 SASR 303 per Bray CJ. With respect to these decisions, the comment of Baroness Hale of Richmond in SCA Packaging Ltd v Boyle [2009] UKHL 37; [2009] 4 All ER 1181 at [68] is compelling: "… Parliament can always use the word 'probable' if that is what it means ..." 185 Although there was no dispute as to the meaning of the word "likely", the following remarks of Deane J in Tillmanns Butcheries provide helpful guidance as to the approach to be taken in determining whether certain conduct is likely to have a given effect. His Honour stated, at 382, that: "… in the context of s 45 D (1) [of the Trade Practices Act 1974 (Cth)], the preferable view is that the word 'likely' is not synonymous with 'more likely than not' and that if relevant conduct is engaged in for the purposes of causing loss or damage to the business of the relevant corporation, it will suffice, for the purposes of the sub-section, if that conduct is, in the circumstances, such that there is a real chance or possibility that it will, if pursued, cause such loss or damage. Whether or not such conduct is likely (in that sense) to have that effect is a question to be determined by reference to well-established standards of what could reasonably be expected to be the consequence of the relevant conduct in the circumstances. In determining the answer to that question, it will be relevant that the persons engaging in the conduct did so with the purpose of causing such loss or damage." (emphasis added) 186 In determining whether there is a likely effect, the concern is not only with direct or sole effects. This is apparent from the Trade Practice cases. Section 52 provides that in trade or commerce a corporation shall not engage in conduct which is likely to be misleading or deceptive or which is likely to mislead or deceive. In Poseidon Ltd & Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332 Brennan J stated, 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". 187 In Henville v Walker [2001] HCA 52; (2001) 206 CLR 459 Gleeson CJ said, at [13]: "It will commonly be the case that a person who is induced by a misleading or deceptive representation to undertake a course of action will have acted carelessly, or will have been otherwise at fault, in responding to the inducement. The purpose of the legislation is not restricted to the protection of the careful or the astute. Negligence on the part of the victim of a contravention is not a bar to an action under s82 [allowing the recovery of compensation/damages against a person who has contravened s52(1)] unless the conduct of the victim is such as to destroy the causal connection between contravention and loss or damage." 188 It is also convenient at this point to consider Dowsett J's comment in National Exchange, at [23], where his Honour dealt with the question of what needed to be proved to satisfy the statutory requirement that conduct mislead or be likely to mislead. In this regard, Dowsett J said, at [23]: "The way in which such a test is propounded in a particular case may, to some extent, reflect the way in which the applicant has sought to satisfy it. An applicant may seek to prove misleading effect by showing that many representees were misled. To discharge the relevant onus, it may well be necessary to show that a significant proportion was misled. On the other hand, there will be cases, such as the present case, where there is little, or perhaps no evidence that any person was actually misled. Where a regulatory authority seeks to prevent conduct in breach of a provision such as s 52 of the TP Act or subs 1041H(1) of the Act, this will often be the case. Such an applicant will rely upon the terms of the representation and the circumstances in which it was, or is to be made, looking to the notional representative class member as the basis for assessing the likely effect of the conduct in question. To speak of a reasonable member of a class necessarily implies that one is speaking of a significant proportion of that class. It is impossible to postulate a situation in which the reasonable member of a class is not representative of such a proportion." 189 His Honour also noted, at [24], that the test for determining whether persons were "likely to be misled" was an objective one and, at [25], that the criterion for selecting the class member was reasonableness, in the sense he discussed in the passage set out above. 190 Jacobson and Bennett JJ generally agreed with Dowsett J. Their Honours observed, at [49], that a statement which is literally true may nonetheless be misleading (see Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd [1978] HCA 11; (1978) 140 CLR 216 at 227-228 per Stephen J). Their Honours added, at [50]: "A document which, when read as a whole, is factually true and accurate may still be capable of being misleading if it contains a potentially misleading primary statement which is corrected elsewhere in the document but without the reader's attention being adequately drawn to the correction." 191 In this case, JHINV did not assert that the statement "fully funded" was literally true. Its defensive position was that it related to a time past. Whether the statement was true or not would not be to the point on this argument. We have rejected JHINV's argument on this point. Consistent with our finding in this matter, we make two comments. First, if JHINV meant for persons to have access to other information in the market, it should have directed attention to that information or to the existence of other information within the slide. Secondly, the likely misleading nature of the statement may well have been augmented, not explained away, by comments in earlier documentation. Thus, if the reasonable investor had seen the 2001 Annual Report and then read a slide which said: "Asbestos Foundation established 2001 - future claims separated and fully funded - no future liability - no provision required"

The program is designed to introduce James Hardie to a large number of foreign investors that are in most cases unfamiliar with the company." 202 The trial judge, at [932], noted this material and commented, at [933]: "The Edinburgh Roadshow and the London Roadshow were part of this investor relations programme that Mr Baxter said was designed to expand the market for JHINV shares in the core Australian markets as well as in the world's major equity centres in the US, Europe and Asia. The paper said there were two related objectives: to reduce share price volatility and increase trading liquidity." 203 JHINV submitted that Mr Baxter's paper did not support the conclusion that the statements made in slide 4 were to "quell apprehension as to whether or not sufficient funds were held by the Foundation to meet all present and future Asbestos Claims", as found by his Honour, at [1062]. JHINV submitted that in any event there was nothing indicating that there was any apprehension that needed to be "quelled". It further submitted that although Mr Baxter's paper referred to volatility in share trading, it did not identify the causes of the volatility. 204 JHINV drew the Court's attention to various other parts of Mr Baxter's paper. It noted from the first paragraph, that the program was designed to expand the market for JHINV's shares in the core Australian market. Two related objectives were identified in the second paragraph, one to reduce the share price volatility and the other to increase trading liquidity. JHINV submitted that the effect of this material was that the purpose of the slideshow was not "to quell apprehension as to whether or not sufficient funds were held by the [Foundation] to meet all present and future Asbestos Claims" as found by his Honour. Rather, it submitted that the slides were meant to be part of a roadshow in the UK and Europe where foreign investors "are in most cases unfamiliar with the company". According to JHINV, the other slides were intended for the purpose indicated in the extract above. 205 In the "Roadshow Feedback" section of his paper, Mr Baxter discussed the outcome of the feedback surveys conducted after each conference presentation and roadshow and noted that one of the main findings from the feedback survey was that: "The prospect of a residual asbestos exposure remains of significant interest to US investors - one broker has published a report that argues that these concerns are unwarranted and this view is being generally well received." 206 The broker's report referred to in this paragraph was the report of CSFB dated 24 July 2002, which stated: "Offshore investors, in particular those based in the US, remain concerned about James Hardie's history of asbestos exposure. In our opinion, such concerns are unwarranted."

Volatility remains a problem and has tracked well above the ASX 100 and the ASX listed peer companies, Boral and CSR over the past 3 years. Uncertainty in global equity markets in the past year has prompted a re-weighting of funds away from growth stocks towards value plays. ASX listed growth stocks have generally had a poor run this year with JHX one of the few to recover from mid-year lows." 208 There was also a section titled "Issues", which read: "The main drivers of any change of sentiment, profit forecasts and share price targets for the balance of the year will continue to be: - the outlook for US housing - pulp prices - the USD:AUD exchange rate - asbestos liability issues - other unforeseen external shocks." (emphasis added) 209 In our opinion, the evidence to which we have referred above did support the trial judge's finding at [1062]. Mr Baxter's paper clearly explained the objectives of the investment relations program and the strategy JHINV had adopted in respect of the roadshows at which the slides were presented, namely, its objective of "[reducing] share price volatility and [increasing] trading liquidity". The strategy had as its centrepiece the showcasing of James Hardie's investment attractiveness. One of the attributes it promoted was JHINV's strong balance sheet and cash flow. 210 The paper also recognised that residual asbestos exposure remained a concern, especially for US investors. JHINV recognised that asbestos was an issue for its forward investment strategy. It was a specifically stated "Issue". In that context, a statement that asbestos claims were "separated and fully funded" could only have been intended to quell, or aid the process of quelling, concerns in the market place about such exposure. Otherwise, it can be asked rhetorically, why make the statements? Certainly not for the mere blandishment of an old thorny problem. 211 In this regard, the placement of the slide early in the presentation was itself significant. It was a way of stating to potential investors at the outset that there was no present or ongoing problem with asbestos because the company had dealt with that issue. JHINV could thus proceed, untrammelled by past problems, on the basis of presenting itself as a company with good performance, management and growth prospects. This was the subject matter of slide 5 and those that followed. 212 Further, the reason for dealing with such concerns in the context of presentations intended to expand the company's investor base can readily be seen as seeking to assure the market that the company had dealt with the problem of asbestos claims, by separating them out of the James Hardie Group of companies and by having the funds to fully meet such claims where they thenceforth resided, that is, in the Foundation.

Q. And where you have said the words 'not an issue', in the last two lines of paragraph 11 of your affidavit, can I suggest also that it is quite possible that those words were not said, but that is your present-day reconstruction of what may have happened? A. My recollection is that the conversation took place, that there was - you know, it was a historical event, and it was all closed, you know, therefore, not an issue, not something that investors or future investors should be concerned about." 218 In re-examination, he gave the following evidence: "Q. In answer to a question from Mr Finch, you referred to James Hardie and CSR, and you said the two companies took - I think your words were - very different approaches. What did you mean by that? A. What I meant with that was that CSR had set aside a provision for asbestosis claims and were making regular contributions into that as the circumstances changed, whereas the James Hardie approach, to my recollection, was one of setting aside and setting up this structure and then ring-fencing it, such that no further - well, on the face of it, no further claims would be liable." 219 Mr Thompson was also cross-examined as to whether he understood that there was always uncertainty involved in financial transactions: "Q. In 2002, it was unnecessary to tell you that any matter of financial prediction of the sort involved in these circumstances involved a degree of uncertainty? A. Yes, and something - I suppose there will always be uncertainties of varying degrees. As you pointed out, it depends on what assumptions. If they had made assumptions that each claimant was going to be, you know, a million Australian dollars, then it's a very, very - it's all a question of - from an investor's perspective, it's a question of risk and reward. There was definitely confidence that everything was okay, so by that I would read into that some very, very conservative assumptions had been used ." (emphasis added) 220 In his affidavit evidence, Mr Simons stated: "18. My notes record and I recall that during the meeting Macdonald spoke about asbestos in words to the following effect: Macdonald: 'The asbestos liability has been shifted to a foundation';

4.2.3. Whether evidence to support the trial judge's finding as to the effect of slide 4 on JHINV's share price 224 JHINV submitted that there was no evidence to support the trial judge's finding in relation to the effect that slide 4 would have on JHINV's share price. JHINV also submitted that there was no evidence to support his Honour's finding that the statements in slide 4 would have induced an Australian investor to purchase JHINV's securities. 225 Central to JHINV's submissions in this respect was the evidence given by Mr Humphris whom, as noted above, was an expert called by ASIC. It was submitted by JHINV that, to the extent that Mr Humphris gave any evidence on these matters, he specifically stated that it was not his opinion that persons who received the slides as a result of them being provided to the ASX would have been induced into buying or selling JHINV's securities. Further, it was submitted that his evidence as to persons being induced to purchase JHINV securities was only in relation to international investors. 226 JHINV also argued that as Mr Humphris considered that slide 4 did not contain any new information for Australian investors, his opinion was conclusive that reasonable members of the investing public could not have been induced to purchase JHINV securities, nor could a statement in the slide have the likely effect of increasing the share price. We have already dealt with a similar contention as to Mr Humphris' evidence at [151], [152] and [159] above. We have not accepted that JHINV's summary is a fully accurate reflection of Mr Humphris' evidence and accordingly we do not accept its submission in this regard. Further, JHINV's public and unequivocal statements in slide 4 in respect of asbestos, "future claims separated and fully funded" and "no future liability - no provision required" would itself have carried particular authority in contrast with any previous statement of uncertainty, which itself would have reinforced the likely inducing effect even if there was information already in the market place. We would add that, in any event, it is for the Court to determine whether the representation was likely to induce persons to dispose of or acquire financial products and that opinion evidence is not conclusive on this issue. 227 As it turned out, the trial judge considered that the expert evidence provided by Mr Humphris was of no assistance in his determination. His Honour said: "[1060] It was submitted that Mr Humphris did not address the correct question. He opined on the effect of the slides on those who attended the Edinburgh Roadshow and the London Roadshow. Mr Humphris agreed in cross-examination that he did not consider the effect of the slides on persons who had access to the slides through the ASX. He had only considered that information in the context of the Edinburgh Roadshow and the London Roadshow.

(c) material other than in the slides that may have induced a purchase, such as the positive forecasts in JHINV's financial reports. 238 JHINV submitted that, in any event, dissemination to the market would not have taken over two weeks and the trading volumes recorded on 28 June could not be found to be the result of a release to the public via the ASX website on or about 12 June 2002. 239 ASIC submitted that his Honour's reasoning and his conclusion in [1062] were correct. First, it emphasised that the exercise required by s 1041E was a predictive one. It contended that his Honour's finding that the subsequent share price increase may have been influenced in part by the statements in slide 4 and the finding that these statements were likely to have the effect of inducing persons to buy shares, was part of that predictive exercise. ASIC submitted that this exercise was aided by evidence independent of that given by Mr Humphris and, in particular, on the share price data that it adduced as part of its case. 240 ASIC also submitted that JHINV's argument that Mr Humphris' evidence conclusively established that the statements in slide 4 could not have induced purchases of its shares, was illogical for a number of reasons which revolved around ASIC's central proposition that slide 4 contained new information. That is a proposition with which we have agreed and, accordingly, we do not accept JHINV's submission on this point. 241 ASIC also submitted that his Honour was entitled to consider that Mr Humphris' evidence was of no assistance in circumstances where he had not considered the likely effect of the slides on persons who had access to them through the ASX. We agree with this assessment. ASIC also disputed any criticism of its provision of the ASX's Time Series Daily Trading Movements. 242 In determining whether a representation is likely to induce a person to act, it is not necessary to demonstrate that a person has so acted: Taco Bell at 201 to 202 per Deane and Fitzgerald JJ. The exercise required of the court by s 1041E is both hypothetical and predictive. The court may have regard to the market reaction, as we discuss below in respect of the non-disclosure case, as a cross-check against the assessment of the predictive exercise being undertaken. However, the market reaction is not conclusive of the question. Besides, his Honour placed little emphasis on the increase in share price two weeks after the release of shares to the market. It was really little more than a side comment, in which his Honour observed that there was an increase in the share price two weeks later, "which may have been influenced in part by slide 4". 243 The ASX representations were made to a large and composite market, the sophisticated and unsophisticated, as his Honour termed it. It is for the trial judge, as the relevant fact finder, to determine whether the reasonable member of the class would likely to have been induced to acquire or dispose of shares, or whether the materially misleading representation was likely to increase, decrease, maintain or stabilise the price of the securities. There was no error in his Honour's conclusion that the ASX representations were likely to have the effect of inducing persons to acquire JHINV's shares and to have the effect of maintaining or stabilising the market price. Of its nature, the determination required by s 1041E is impressionistic, but the Court makes the finding in a commonsense way, having regard to the terms of the representation made. 244 In this case, the statements made in slide 4 were direct, unqualified and unreferenced, amounting to a representation that was materially misleading. The trial judge was correct in his assessment that the statements in slide 4 were designed to have a particular effect, namely, to quell apprehension as to the sufficiency of funding and to correct the negative perception of JHINV in the market place. Asbestos had been a well-known problem for JHINV for a long period, with the 2001 restructure being an attempt to eliminate the problem. As it transpired, the 2001 attempts had not been successful. 245 His Honour's finding as to the consequent negative perception of JHINV's securities was correct. The representations carried a message that asbestos was no longer a problem, because it had been fully funded and JHINV had no further liability in respect of it. As a matter of common sense, the representations would likely induce persons to acquire JHINV shares and would also have the effect of maintaining or stabilising the share price. After all, an objective of JHINV's investor relations program, as expressly stated by Mr Baxter in his 31 August Board paper, was to "reduce share price volatility". The Court, in the absence of any other evidence, should be slow to find that JHINV's intention referred to in the Board paper was not likely to be achieved. In Nike, the joint judgment said, at [33]: "However, it is well established by the authorities referred to by the Privy Council in Cadbury-Schweppes Pty Ltd v The Pub Squash Co Ltd [1980] 2 NSWLR 851 that, where there is such a finding of intention to deceive, the court may more readily infer that the intention has been or in all probability will be effective." 246 Likewise, Gummow J (Black CJ and Lockhart J agreeing) in Interlego AG, in the context of the Trade Practices Act, s 52, said, at 394: "It is well established that the demonstration of a fraudulent intention may be used to support an inference that the intent was effectuated and that there was a contravention of s 52 of the TP Act."

5.2.2(i) The evidence of Mr Thompson 259 JHINV submitted that the trial judge erred to the extent that he relied upon Mr Thompson's evidence in finding that Mr Macdonald made a statement at the Edinburgh presentation that the asbestos claims were fully funded. It submitted that in accordance with the authority of Watson v Foxman (1995) 49 NSWLR 315, the Court needed to be satisfied with a reasonable degree of precision as to the words that were spoken. JHINV submitted that Mr Thompson's evidence did not reach the necessary level of satisfaction in terms of proof. It contended that Mr Macdonald's statement that the asbestos claims were "fully funded" conveyed no more than that funding was provided in 2001 by reference to calculations and estimates which involved predictions as to the future incidence and outcome of claims at that time. The description "fully funded" said nothing as to whether that outcome was considered 'certain' or 'highly likely', as distinct from, for example, 'reasonably likely' or 'probable'. 260 In Watson v Foxman McLelland CJ in Eq held, at 318, that where a party alleged that the conduct of another was misleading or deceptive or likely to mislead or deceive within the meaning of the Trade Practices Act, s 52, or the Fair Trading Act, s 42, it was ordinarily necessary to establish first, the alleged conduct sought to be impugned and, secondly, the circumstances which rendered the conduct misleading. If the conduct in question was the speaking of words, it was 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." 261 His Honour continued, at 318-319: "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." 262 McLelland CJ in Eq observed, at 319, that given the frailty of human memory and the many subconscious influences on it, it may be difficult to persuade the court, to the necessary degree of satisfaction, that the words had the misleading effect, in the absence of any reliable contemporaneous record or other satisfactory corroboration. 263 Mr Thompson gave evidence both by way of affidavit and orally, the relevant aspects of which are set out at [215]-[219] above. He had no precise recollection of the words used, nor could he recall whether slide 4 was shown at the Edinburgh presentation. For the purposes of preparing his affidavit, Mr Thompson was shown slide 4. He noted the statement in the slide as to asbestos claims being "separated and fully funded" and said that he recalled that Mr Macdonald said words to the effect: "The foundation is fully funded to meet future claims, so asbestos is not an issue for James Hardie". Mr Thompson also recalled in his affidavit evidence that Mr Macdonald said, "We set up a foundation and asbestos has been ring fenced". Mr Thompson said that he queried Mr Macdonald, by asking, "How can you guarantee that?", but that he did not recall the answer. 264 JHINV was critical of the manner in which Mr Thompson's affidavit was prepared, submitting that rather than being permitted to give his unaided recollection as to what was said, he was shown slide 4 so as to prompt his memory. In other words, his evidence was a reconstruction. Indeed, Mr Thompson was cross-examined to this effect, to which he responded, "This - yes. This is my recollection - it may not be word perfect - of what was said". 265 Mr Thompson was pressed in cross-examination that what Mr Macdonald had said might have been a reference to the past. Mr Thompson responded: "If [Mr Macdonald] had said 'the Foundation was fully funded', it implies that there might - to me, it implies that there might be future liability." 266 The trial judge did not accept that Mr Thompson's evidence was entirely a reconstruction and was satisfied Mr Thompson had a recollection of the effect of what was said, namely, that the asbestos liabilities were fully funded. His Honour referred to the principles in Watson v Foxman and reviewed Mr Thompson's evidence, including the cross-examination upon which JHINV relied to assert that the evidence was not sufficiently precise to establish the misleading effect of Mr Macdonald's statements (at [942]). 267 JHINV argued that notwithstanding his Honour's analysis at [942], Mr Thompson's evidence was not sufficient to enable his Honour to have found that what was said was likely to be misleading, in accordance with the principles in Watson v Foxman. JHINV submitted that if in fact the words Mr Macdonald had used were, "When we set it up it was fully funded" or "it's likely to be fully funded", ASIC's case would fail at the inception. 268 The evaluation of the cogency and sufficiency of evidence is very much a matter for the trial judge. Although this Court exercises its appellate powers by way of rehearing: see Fox v Percy [2003] HCA 22; (2003) 214 CLR 118 at [25] 126-127; Gett v Tabet [2009] NSWCA 76; (2009) 254 ALR 504 at [10]-[23], the respect to be given to the fact finding function of the trial judge is well rehearsed in the authorities. This is also emphasised in the Court's judgment in Morley v ASIC at [255]-[256]. 269 We find no error of principle in his Honour's approach to the assessment of Mr Thompson's evidence, nor any error in his being satisfied that Mr Macdonald made statements that asbestos claims were fully funded, notwithstanding that Mr Thompson's evidence was "to the effect" of what was said. His Honour understood the degree of satisfaction required in the circumstances; he saw Mr Thompson give his evidence orally and he examined the totality of the evidence. In our opinion, Mr Thompson was clear as to the substance of what Mr Macdonald said. Further, there were two aspects of Mr Thompson's evidence that, to our mind, reinforces his evidence that Mr Macdonald said that asbestos claims were fully funded. The first is the question he asked of Mr Macdonald during the presentation, "How can that be guaranteed?", in respect of the statement "asbestos has been ring fenced", and the second is Mr Thompson's evidence (referred to above at [265]) that if Mr Macdonald had been referring to the past, it would have implied to him that there might be future liability. Both these statements are consistent with Mr Macdonald having said that the Foundation was fully funded. 270 Furthermore, we would reject JHINV's submission that Mr Thompson's response in the course of cross-examination, replicated above at [264], was a concession that his evidence was a reconstruction. Mr Thompson's answer was clear, when he said, "This is my recollection". This was evidence of an actual recollection, albeit not necessarily a verbatim account of the exchange between himself and Mr Macdonald.

5.2.3. Mr Baxter's notes 275 As it did with respect to the ASX representations, JHINV again relied upon the notes taken by Mr Baxter during the course of the Edinburgh roadshow. It argued that the best evidence in relation to what was said at the Edinburgh roadshow was revealed by the questions Mr Baxter recorded as being asked at the meeting. Mr Baxter's note was as follows: "Asbestos - How secure Any comeback? How much time before it runs out Any obligation to pay more." 276 JHINV submitted that such questions were inconsistent with Mr Macdonald making statements as to the current position of asbestos claims, or saying that the funding was "full", in the sense that it was or would be sufficient and would not run out. 277 As stated at [114]-[115], the evidence did not disclose the context in which the questions recorded in Mr Baxter's notes were asked, or even that they were in fact asked. On the assumption they were asked, it is not apparent whether the questions were asked at the beginning of the presentation or when the slides, particularly slide 4, were shown or during the question and answer session. Nor is there any record of who asked the questions or the responses made to any of them. However, JHINV denied that in order to neutralise the effect of statements such as, "asbestos is ring fenced", it needed to establish that these questions were asked after the presentation. Rather, it submitted that the questions only made sense on the basis that the representation was in respect of what had been done in the past. 278 JHINV also relied upon the fact that Mr Baxter had a statutory obligation to disclose to the ASX any information that was new and to disclose to the recipients of such information that they had received information that was not generally available. It accepted that had statements been made in June 2002 that there was certainty as to the funding of the Foundation, that information would have been new. It also accepted that such information "would have been clearly, on one view, price sensitive". These obligations made it probable, on this submission, that Mr Macdonald's statements were only made in the historical sense for which JHINV contended. This submission is not of particular assistance, reliant as it is upon the subjective decision making of JHINV. We discuss this matter below in respect of the non-disclosure case. 279 We have dealt earlier with Mr Baxter's note. In brief, we accept that this was evidence that had to be evaluated by the trial judge and that the questions as recorded provided some support for JHINV's case that Mr Macdonald did not make any representation as to the present position of the funding or as to the sufficiency of funding. However, there was no evidence of the context in which the note was made. We do not know whether the questions were asked, or by whom, or whether they were questions Mr Baxter might have wanted to inject into any discussions, or whether he did, or whether any responses were given. An obvious explanation for Mr Baxter's note, which is consistent with ASIC's case, would be that the statements upon which ASIC's case relies were made in response to the questions recorded. In our opinion, there was no error in his Honour not being satisfied that Mr Baxter's note of these questions established JHINV's contentions. 280 JHINV further submitted that the finding that Mr Macdonald's statements related to the present position was inconsistent with Mr Thompson's recollection that Mr Macdonald's statements were not new, that they were dealing with matters of history and that Mr Macdonald was speaking of matters which occurred over a year earlier (at [948]). Considered on its own, this aspect of Mr Thompson's evidence might be seen to provide some support for JHINV's assertion that Mr Macdonald was making statements as to past events. However, to isolate this evidence from the whole of Mr Thompson's evidence is to distort its clear effect as was found by his Honour.

[970] In cross-examination Mr Simons agreed that he had no good recollection of the exact words that Mr Macdonald used. But he said he did have some recollection of the meeting. He just could not remember the exact words that were said. He said in answer to the proposition that he was told that the legal advice was that they had set up a Foundation and that the company was no longer liable in respect of the operating subsidiaries that had been transferred to the Foundation: 'A. Yes, that's right. In my own words, the understanding I gained on this subject from the meeting was that we would not, if we were to become shareholders, have any risk of the company's earnings, in the future, being reduced by unexpected asbestos claims.'" 287 JHINV submitted that upon a proper consideration of Mr Simons' evidence, including the cross-examination (see [221] above), the sum effect of his evidence was that JHINV had received advice that future asbestos claims against it were unlikely to be successful. It was submitted that that evidence was insufficient to support a finding that the representation alleged as to legal advice had been made out. 288 ASIC submitted that Mr Simons' evidence did not change as a result of his cross-examination. In particular, he did not retract what he had said in his affidavit and the effect of his cross-examination was to confirm his affidavit evidence. It was apparent that Mr Simons had not endorsed the proposition contained in the question that what had been said was: "… the legal advice was that they had set up a Foundation and that the company was no longer liable in respect of the operating subsidiaries which had been transferred to the Foundation." 289 Rather, even though Mr Simons answered, "yes that's right" in respect of that proposition, he then explained in his own words what he understood he had been told, namely, that if they were to become shareholders, they would not have any risk of the company's earnings being reduced by unexpected asbestos claims in future. Although Mr Simons accepted that he understood there was still the possibility that claims might be made against the company in the future, his understanding was that such claims were unlikely to be successful. It was clear from his evidence that this understanding came from being told of JHINV's legal advice. 290 We consider that his Honour's finding was open to him on the evidence. It seems apparent from Mr Simons' evidence that a number of things were said about legal advice and in circumstances where he did not withdraw his affidavit evidence on this point but confirmed, in his own words, what he understood was the effect of the legal advice, the fact that he agreed that something else was said does not mean that he was seeking to qualify his evidence in any way. Rather, the other matters to which he agreed, on a proper reading of his evidence, were additional matters he accepted were said during the course of the meeting.

5.3. The cross-appeal: Edinburgh and London representations: the relevant effect on the market 292 The trial judge found that the Edinburgh and London representations were not likely to induce the purchase of JHINV shares. His Honour stated that s 1041E requires that the: "… impugned statement has a real and not remote chance of inducing persons to take the various steps enunciated in the provision with respect to financial products." (at [1053]) 293 His Honour noted that the purpose of s 1041E is to prevent market manipulation. For that reason, it was not necessary that the impugned statement was the sole inducement: see Henville v Walker; Sellars v Adelaide Petroleum NL. As the representation did not have to be the sole inducement, his Honour considered that the fact that fund managers, research analysts and institutional investors conduct financial research before making a recommendation to purchase a share, did not preclude a finding that the representations were likely to have the necessary effect (at [1056]). 294 However, his Honour held, at [1066], that the statements made to an audience of three analysts, institutional investors or fund managers in Edinburgh and to a non-investing audience of one in London, at [1070], were not likely to have "the effect Mr Humphris placed on them". Mr Humphris, ASIC's expert, had given evidence that the representation would have an inducing effect. His Honour held, at [1066] and [1070], that the fact that there had been no purchases by the three attendees in Edinburgh and the one in London meant that "there could be in fact no maintaining or stabilizing effect on the market". His Honour accepted, at [1069], that if the statements had been made to a larger audience, they may well have been likely to have induced the purchase of shares or to maintain or stabilise the market for those shares. Insofar as the London representations were concerned, his Honour held, at [1070], that Mr Humphris needed more material before he could express an opinion on whether the representations were likely to maintain or stabilise the market for JHINV shares. 295 The trial judge based this conclusion on the principle that where the likelihood of an occurrence of an event is in issue and relevant facts are available, they are to be preferred to prophesies: see dictum of Deane J in Tillmanns Butcheries at 347. In that case, the Court was required to determine whether an interruption to the supply of meat and smallgoods to Tillmanns Butcheries was likely to cause substantial loss or damage to the business. Deane J considered that post-representation conduct was relevant to the question whether there was a likely effect. His Honour stated, at [12]: "Section 45D(1) proscribes conduct only if it be engaged in for the purpose of causing loss or damage to the business of the relevant corporation. Even though conduct be engaged in for such a purpose it will be outside the proscription contained in the subsection unless it 'would have or be likely to have' that effect. Plainly the reference to 'would be likely to have is meant to convey a lower degree of likelihood than the reference to 'would have'. In the case where conduct has not occurred, a court would be constrained to determine whether conduct 'would have' the specified effect by reference to the ordinary standard of whether it was more likely than not that it would. In such a case, if 'likely' is interpreted as meaning 'more likely than not', it would add little to the practical scope of the section. On the other hand, if conduct had run its ordinary course and had not had the specified effect, it would be but rarely that a court would feel justified in disregarding the lesson of the event and finding that while the conduct did not have the specified effect it had been more likely than not that it would have that effect (see per Dixon J Willis v Commonwealth (1946) 73 CLR 105 at 116)." 296 A similar approach was taken in Rivkin Financial Services Ltd v Sofcom Ltd [2004] FCA 1538; (2004) 51 ACSR 486 in respect of the insider trading provisions of the Corporations Act and in Australian Securities and Investments Commission v Fortescue Metals Group Ltd (No 5) [2009] FCA 1586; (2009) ACSR 506, where the court was concerned with s 674. These cases are considered below in relation to the non-disclosure case. 297 In Interlego, a passing-off case, Gummow J, at 389, observed that evidence of actual deception would have been admissible. Citing from Royal Warrant Holders' Association v Edward Deane & Beal Ltd [1912] 1 Ch 10 at 14-15, his Honour said: "… [it is not necessary] in passing-off cases to prove that any person has actually been deceived. Of course the fact, if proved, that persons of ordinary intelligence have in truth been deceived, would be very material in assisting the court in coming to the conclusion that the mark or the picture complained of was calculated to deceive." 298 Interlego also provides support for his Honour's approach that the audiences for the presentations in London and Edinburgh were too small and, we would add, were composed of experts. Gummow J, citing a statement by Lord Diplock in General Electric, said, at 388, that: "[W]here goods are of a kind which are not normally sold to the general public for consumption or domestic use but are sold in specialised markets consisting of persons engaged in a particular trade, evidence of persons accustomed to dealing in that market as to the likelihood of deception or confusion is essential. A judge, though he must use his common sense in assessing credibility and probative value of that evidence is not entitled to supplement any deficiency in evidence of this kind by giving effect to his own subjective view as to whether or not he himself would be likely to be deceived or confused." 299 This is consistent with the well-settled principle, in misleading or deceptive conduct cases, that the court should consider the attributes and the knowledge of persons to whom the relevant conduct is directed: Weitmann v Katies Ltd (1977) 29 FLR 336 at 340 to 343 per Franki J; Sutton v A J Thompson Pty Ltd (in liq) (1987) 73 ALR 233 at 240; Taco Bell at 201 to 202 per Deane and Fitzgerald JJ. 300 ASIC submitted that the trial judge erred in concluding, at [1071], that the limited number of persons to whom the investor briefings in Edinburgh (three persons) and London (one person) were made, and the fact that these persons did not invest in JHINV shares, meant that the cross-appellant failed to establish that the cross-respondent contravened s 1041E, in respect of those representations. ASIC submitted that the correct question to be addressed in relation to a breach of s 1041E is whether the false or misleading statement is "likely to" induce or be productive of a certain outcome. It submitted that the test is "predictive in nature" and that in assessing the likelihood of the outcomes prescribed by s 1041E, the trial judge ought to have given primary weight to:

5.3.1. JHINV's declared intent 304 Mr Baxter's paper to the September Board meeting is referred to at [200]-[201] above. It will be recalled that the means by which JHINV intended to expand the market for JHX shares was "by raising awareness of JHX among a larger number of institutions and simultaneously converting that awareness into positive sentiment". It appears that this was part of a longer term strategy. As Mr Baxter stated in the paper: "The program is designed to introduce James Hardie to a large number of foreign investors that are in most cases unfamiliar with the company." 305 JHINV submitted that Mr Baxter's paper did not support his Honour's factual conclusion, at [1022], that the representations were designed to have the effect of encouraging the purchase of JHINV shares and the maintenance or stablisation of the market for those shares. His Honour concluded that that was the natural and probable purpose of the exercise and there was nothing to suggest that purpose was thwarted. His Honour considered that was one of the circumstances to be taken into account. 306 JHINV submitted that there is a relevant difference between information likely to induce persons to dispose of or acquire shares and information likely to induce persons to give consideration or further consideration to the acquisition of shares. It submitted that the present case fell into the latter category. Mr Baxter's comment that the investor program was designed to "introduce James Hardie to a large number of foreign investors that are in most cases unfamiliar with the company", may appear to support that submission. 307 However, isolating this statement in this way gives a quite misleading slant to Mr Baxter's paper, the opening words of which were: "This year's [investor relations] program is designed to expand the market for JHX shares". The means by which it proposed to do so was as we have indicated. We also reiterate that as Mr Baxter makes crystal clear in his paper, the objectives of the strategy were to reduce volatility, increase trading liquidity and to manage market expectation. In our opinion, this submission is simply untenable. 308 JHINV also relied on evidence about the decision-making processes usually adopted by professional investors. It submitted that the evidence of Mr Simons, Mr Thompson and Mr Humphris was that this information provided during the roadshows would be treated as general introductory information which would be followed up. This is dealt with below.

5.3.2. Reliance on factors other than the representations 309 The trial judge considered that the fact that fund managers, research analysts and institutional investors conducted financial research before making a recommendation did not preclude a finding that the information was likely to induce a person to acquire securities. Mr Humphris gave evidence on that matter, stating that professional investors would not usually make investment decisions based solely on what was said at a presentation. This was consistent with the evidence of Mr Thompson and Mr Simons, which is considered below. JHINV submitted that the effect of this evidence was that the decision to invest would be made following a detailed analysis of financial and other material, which would include prior disclosures. It followed, according to JHINV, that there was no way in which the information conveyed in the presentation could be said to be likely to induce the purchase or sale of securities. 310 Mr Thompson said that the decision to invest would "definitely" turn on an analysis of JHINV's actual and prospective financial position. Mr Thompson had not conducted a detailed financial analysis prior to the June 2002 lunch. On JHINV's submission, this was because the meeting was introductory. Mr Thompson gave evidence that, in addition to the information received at the presentation, he would consider many other factors in deciding whether to invest. Other factors included the strength of the balance sheet, comparison with existing competitors and research on how senior management were "incentivised" and their attitude to risk. In cross-examination, Mr Thompson gave evidence of a range of other sources of information that he would have had access to in order to conduct his analysis. 311 Mr Simons gave evidence that Pyrford's investment decision-making process involved, firstly, 'rigorous' analysis of the financial returns of the company; and secondly, a meeting with senior management. That process was to identify companies with a share price that did not accurately reflect the degree of opportunities available to those companies, compared to the risks. 312 JHINV submitted that the effect of this evidence was that in the ordinary course, no investment decision would be based in isolation on the meeting with its management team. A thorough financial analysis would also be undertaken. 313 There was no error in his Honour's finding at [1056]. The law is clear that the misleading statement does not have to be the sole factor likely to induce a person to acquire or dispose of shares. The effect of JHINV's submission is that a misleading representation could not have an inducing effect in a sophisticated market because such investors would rely upon their own inquiries. There are problems with this submission, not the least of which is the difficulty that might arise if the only relevant information in the market was information sourced from the company itself. Even information obtained from other sources, or some of it, at least, may itself have originated from the company. If the information originating from the company was misleading, that may well have an effect on how other information was interpreted. 314 In any event, as ASIC submitted, and as Mr Thompson and Mr Simons stated, the reasonable investor, who, we interpolate, may be sophisticated or unsophisticated, would weigh up a possible financial reward against the risks associated with the particular acquisition under consideration. In the case of JHINV, asbestos would be an obvious risk factor in this assessment. That being so, the likely inducing effect of the statements made by Mr Macdonald, which was to negate asbestos as a risk factor and thereby enhance the financial rewards that would flow to an investor, was apparent.

5.3.3(iii) Whether assumptions on which opinion was based were made out on the evidence 328 JHINV submitted that Mr Humphris made a number of material assumptions, not made out on the evidence. In particular, it submitted that Mr Humphris' opinion was based on there being a reasonable number of investors at the presentations, whereas that was not the case. Mr Humphris was cross-examined about the number of persons he had assumed were at the London presentation and conceded that if the presentation was made to only one person, then it would not be likely to have the effect of maintaining or stabilising the share price at a particular level. This was a significant qualification to his written opinion. 329 Whilst accepting that Mr Humphris' evidence had been qualified in this respect, ASIC pointed out that the cross-examination upon which JHINV relied was confined to the likely effect on the maintenance or stabilising effect on the share price and did not extend to the likely inducing effect on the acquisition of shares. It submitted that Mr Humphris' opinion in respect of that aspect of s 1041E therefore remained valid. ASIC also pointed out that Mr Humphris was only cross-examined about the London representation. There was no cross-examination directed specifically to the numbers attending the Edinburgh presentation and whether those numbers would have caused him to qualify his opinion in respect of either aspect of s 1041E. 330 The difficulty with ASIC's reliance on Mr Humphris' opinion as to the likely inducing effect on the acquisition or disposal of shares insofar as the Edinburgh and London representations were concerned, is that Mr Humphris' written opinion was not directed to the audience to whom the representations were made. In giving his opinion as to whether either of the representations would be likely to induce persons to acquire JHINV shares, Mr Humphris said that the statements made "would be likely to have the effect of comfort to ordinary investors" (emphasis added). He then referred to the expected net benefit from the removal of the asbestos issue in the form of expected valuation benefit and future share price increase. He concluded that this net benefit would be likely to have the relevant inducing effect in respect of the acquisition of shares. Read in context, that was a statement directed at the "ordinary investor", not the audience to whom the representations were made. Mr Humphris also said these statements applied to the question whether there was a likely effect on the maintenance or stabilisation of the share price. 331 ASIC submitted that in any event, to focus upon the size of the audience was an erroneous approach to the determination of whether there had been a contravention of s 1041E. It submitted that the effect of this approach would be that a multitude of single presentations to individual investors at each of which misleading statements were made, would not be a contravention, because the submission required a conclusion that s 1041E did not permit aggregation. ASIC submitted that the proper approach was to consider the character of the representation made and its likely effect. It asserted that it was apparent that this was the appropriate approach to the question of contravention of s 1041E, as the maker of a misleading representation may not know the impact on the individual recipient, which in any event might be an adviser to many other investors. 332 The difficulty with this submission is that it is directly contrary to the qualification Mr Humphris made in cross-examination. The Court is not bound by Mr Humphris' evidence. Nonetheless, one of the purposes of his evidence was to aid the Court in understanding the nature of the market, the manner in which participants in that market conduct themselves, and the effect that certain conduct is likely to have in that market. If the evidence so given is otherwise cogent, the Court should not lightly dismiss it. 333 However, all depends upon the circumstances and context. Mr Humphris' opinion was given in respect of a single presentation. The position might be different if within the same market, or part of the market, a number of one on one presentations were given within a defined period of time. The position might also be different if the sole entity to whom the presentation was made passed the information on to other participants in the market. However, there was no evidence of any such circumstance here. Accordingly, the only direct evidence on the likely effect of the representations was that there would have been a likely effect on "ordinary investors", which was not the audience to which the London and Edinburgh representations were made. It follows that there was no evidence as to the relevant effect on the share price in respect of the London and Edinburgh representations. Accordingly, the expert evidence did not assist ASIC's case and in part refuted it. 334 JHINV further pointed out that Mr Humphris had accepted that if other material was released to the market within days or weeks of such a presentation, including, for example, the company's annual report, he would expect a funds manager, analyst or institutional investor to take that material into account. However, Mr Humphris, in giving his opinion, did not take into account what was said in JHINV's Annual Report released to the market on 14 June 2002, that it was "reasonably possible that amounts greater than the provision established" for the Foundation could be incurred by the two former subsidiaries who were exposed to ongoing asbestos liabilities. The trial judge had considered that this was material relevant to any opinion expressed by Mr Humphris, observing, at [1070], that Mr Humphris needed more material before he could express an opinion on whether the representations were likely to maintain or stabilise the market for JHINV shares. 335 ASIC argued that this submission contained a material error, in that the statement in the financial accounts were not as JHINV asserted. Rather, the reference to the "provision for asbestos" was an entry which appeared in the JHIL accounts as at 31 March 2000. We have dealt with this in some detail above. The uncertainty associated with this aspect of the accounts may have diminished the persuasiveness of JHINV's submission if it were not for the fact (for the reasons we have given), that Mr Humphris' evidence did not assist this part of ASIC's case. 336 JHINV contended that Mr Humphris assumed that Mr Macdonald's statements were to the effect that there was an "extremely low risk of the Foundation running out of money". However, Mr Humphris did not take into account that a professional investor would not, in the face of the material in the Annual Report, act on the basis of what Mr Macdonald said, without asking further questions about the Foundation. JHINV also referred to Mr Humphris' concession that if the professional advisor had taken into account the statements in the Annual Report, it was at least possible that the person would not have taken the position that Mr Humphris had assumed, namely, that the statements made by Mr Macdonald were to be regarded as "company guidance" that there was an extremely low risk of the Foundation running out of money. This submission was essentially advanced as collateral support for the other alleged deficiencies in Mr Humphris evidence. 337 Given the view we have taken, we do not consider that this submission requires a separate response although it is appropriate that we refer to that part of ASIC's argument in which it submitted that JHINV's submission was tantamount to an admission that an officer of a corporation, in this case, the CEO, made a misleading statement on the basis that he would expect the recipient of the information to check what was said against other available information, or information that would become available to the market in the future. There is an ethical persuasiveness to this submission. However, both JHINV's and ASIC's submissions tend to divert attention from the question for the Court's determination, that is, whether the representation conveyed by the statements that Mr Macdonald made in Edinburgh and London had the relevant likely effect, in contravention of s 1041E.

5.3.4. Conclusion in respect of likely inducing effect 341 Section 1041E does not require proof of actual inducement. Deane J in Tillmanns Butcheries acknowledged that the fact that persons were not in fact induced is not necessarily determinative of the predictive exercise the court is required to undertake in determining whether a breach of s 1041E has been established. However, as his Honour pointed out, in certain instances where conduct has run its course, a court would rarely be justified in ignoring the actuality of what had happened: see also Interlego at 389. 342 The trial judge's finding that the Edinburgh and London representations were not likely to have the relevant inducing effect ought not be disturbed. The audience to whom the representations were made was a select and sophisticated audience, who, as a matter of their own professional responsibilities to clients would analyse and further research information they received before acting upon it. It would be expected that persons in their position would be likely to have some resilience to persuasion solely on the basis of a one hour presentation. 343 In making this comment, we are not to be taken in any way to be indicating that a company thereby has a licence to make misleading statements. Rather, our upholding of the trial judge's conclusion recognises that each case must be judged on its own facts and we consider that his Honour's conclusion was an available one and does not give rise to appealable error. 344 Finally, we reiterate that for the reasons we have discussed, Mr Humphris' evidence did not assist in the determination of whether the representations were likely to have the relevant inducing effect. Given the small number of persons to whom the representation was made and the sophistication of that audience, his Honour was correct in having regard to what in fact happened as a relevant cross-check to the Court's predictive exercise. Again, in the light of the small and sophisticated audience to whom the representations were made, the conclusion to which his Honour came was open to him notwithstanding that, as Mr Baxter stated in his paper prepared for the September Board meeting, the Edinburgh and London roadshows were integral to the strategy of introducing foreign investors to James Hardie.

For the purposes of [section] 674 … a reasonable person would be taken to expect information to have a material effect on the price or value of [enhanced disclosure] securities of a disclosing entity if the information would, or would be likely to, influence persons who commonly invest in securities in deciding whether to acquire or dispose of the [enhanced disclosure] securities." 353 The legislative history of s 674 has been set out on other occasions. (See, for example, Australian Securities and Investments Commission v Southcorp Limited [2003] FCA 1369; (2003) 130 FCR 406 at [8]-[12] per Lindgren J; Australian Securities and Investments Commission v Chemeq Limited [2006] FCA 936; (2006) 58 ACSR 169 at [42]-[46] per French J; Australian Securities and Investments Commission v Fortescue Metal Group (No 5) at [218]-[219] per Gilmour J; Jubilee Mines NL v Riley [2009] WASCA 62; (2009) 69 ACSR 659 at [45]-[54] per Martin CJ.) We respectfully adopt the historical narrative in these judgments. 354 The trial judge observed, at [1080], in respect of these provisions, that: "The continuous disclosure provisions are intended, amongst other things, to prevent selective disclosure of market sensitive information ( Australian Securities and Investments Commission v Southcorp Ltd [2003] FCA 1369; (2003) 130 FCR 406 at [2]. Protective legislation should be construed beneficially to the public ( Exicom Pty Ltd v Futuris Corporation Ltd (1995) 123 FLR 394 at 397), even if a distinction between " punitive " and " protective " proceedings or orders is elusive ( Rich v Australian Securities and Investments Commission [2004] HCA 42; (2004) 220 CLR 129 at [32])." 355 We agree with his Honour's comments. The continuous disclosure regime, contained in s 674 and the Listing Rules, is designed to enhance the integrity and efficiency of Australian capital markets by ensuring that the market is fully informed. The timely disclosure of market sensitive information is essential to maintaining and increasing the confidence of investors in Australian markets, and to improving the accountability of company management. It is also integral to minimising incidences of insider trading and other market distortions. 356 It is also to be noted that s 674 is remedial legislation to enhance the public interest and to protect individual investors. It should be construed beneficially "so as to give the fullest relief which the fair meaning of its language will allow": see Bull v Attorney General (NSW) [1913] HCA 60; (1913) 17 CLR 370 at 384 per Isaacs J. This principle was applied in the cognate context of the insider trading provisions which have overlapping purposes: see Exicom Pty Ltd v Futuris Corporation Limited (1995) 123 FLR 394, esp at 397 per Young J.

6.2. Trial judge's findings 362 His Honour concluded that ASIC had made out its charge that from 25 March 2003 until 30 June 2003, JHINV failed to notify the ASX of the ABN 60 Information in accordance with the ASX listing rules, thereby contravening s 674(2). There were two aspects of this finding. First, in respect of most aspects of the ABN 60 Information, his Honour found, at [1136], that the information that ought to have been disclosed was "not generally available" information, because it was not a "readily observable matter" within the meaning of s 676. Secondly, his Honour found that the ABN 60 Information would have had a material effect on the price or value of JHINV's securities. 363 The reasoning that underlay his Honour's conclusion was essentially twofold. First, there was a negative perception of JHINV in the market because of its association with asbestos through the James Hardie Group, which JHINV considered was important to dispel. His Honour considered, at [1103], that JHINV's internal documents revealed that JHINV was aware of the negative affect, or "blight", as his Honour termed it, that the asbestos connection was having on its share price. His Honour found, at [1121], that: "It was JHINV's possible connection to Asbestos Claims and not the amount of debt owed by JHIL to the Foundation that gave rise to the negative perception and that connection was through JHIL. The severing of that connection was likely to reduce the negative sentiment." 364 Secondly, the trial judge rejected JHINV's contention that the only "relevant information" required to be disclosed pursuant to s 674 was the settlement of JHIL's liability to the Foundation under the DOCI (see Morley v ASIC at [13]). Rather, the information required to be disclosed was the separation of JHIL from JHINV, including the cancellation of the partly paid shares and the DOCIA. His Honour's reasoning, at [1102], was: "… the settlement of the liability to the Foundation was but part of a series of steps approved at the 25 March 2003 Meeting, including the separation of JHIL from the James Hardie group by the cancellation of the partly paid shares. If there was a blight on the JHINV share value as a result of a perceived connection to asbestos through JHIL, then the separation of JHIL was just as significant as the discharge of the debt to the Foundation, if not more so." 365 His Honour reiterated this at [1108]: "In approving the steps at the 25 March 2003 Meeting, the directors of JHINV must have seen an advantage to JHINV. That advantage was the hope that the separation of JHIL from the James Hardie group would have the effect of increasing the JHINV share price. It was the separation of JHIL rather than the discharge of the debt that was the significant element in the steps approved at the meeting." 366 On appeal, JHINV contended that:

There were, of course, indemnity arrangements, which are discussed in Morley v ASIC at [13]. 374 At the time the Foundation was established in February 2001, JHIL made public statements that the value of potential future claims was in the order of $350 million. By late 2001, the estimate of the value of potential claims had increased to between $600-650 million. As we indicated with respect to the misrepresentation case, JHINV was aware by late 2001 that the original estimate of potential future asbestos claims was much too low. 375 Two decisions of the New South Wales Court of Appeal were of particular concern to the James Hardie Group in respect of its future liability for asbestos claims. 376 The first was the decision in CSR Ltd v Wren (1997) 44 NSWLR 463; [1998] Aust Torts Reports 81-461. In that case, the plaintiff was awarded damages in the Dust Diseases Tribunal for mesothelioma which was found to have been caused by his having inhaled asbestos fibres whilst employed in 1950 and 1951 by Asbestos Products Pty Ltd, a wholly-owned subsidiary of CSR Ltd, described in CSR's internal documents as part of CSR Ltd's building materials division. Asbestos Products Pty Ltd's board of directors were all staff members of CSR Ltd as were all non-factory personnel working at Asbestos Products Pty Ltd. The essential issue in the case was whether the relationship between CSR Ltd and the plaintiff was such as to give rise to a duty of care in CSR Ltd to protect him from the risk of foreseeable injury. The New South Wales Court of Appeal held that the fact that the operations of the subsidiary company were subject to direction, control or involvement by CSR Ltd and the fact that the management staff at the subsidiary company were all CSR Ltd staff gave rise to a duty of care owed by CSR Ltd to the plaintiff. That duty was co-extensive with the duty owed by an employer to an employee. 377 The second decision was James Hardie & Co Pty Ltd v Hall as Administrator of Estate of Putt (1998) 43 NSWLR 554. In that case, a claim had been brought by Mr Putt, a New Zealand resident, who had been employed in New Zealand by a subsidiary of JHIL, James Hardie & Co (NZ). In the course of that employment, Mr Putt had been exposed to asbestos products manufactured by the New Zealand company from raw asbestos supplied by either, or both, JHIL and James Hardie & Co (NZ). Mr Putt sued JHIL and James Hardie & Co (NZ) in the New South Wales Dust Diseases Tribunal. On appeal, the New South Wales Court of Appeal held that, in the absence of any evidence that a subsidiary company is a mere façade, the fact that a parent company exercises control and influence over its subsidiary does not of itself justify lifting the corporate veil so as to create a duty of care on the part of the parent company to an employee of the subsidiary. 378 Although cases brought against JHIL asserting liability on the basis of the decision in Wren had failed, JHIL remained concerned as to its exposure to such claims and undertook an analysis to determine whether, in the period from the late 1970s to 1987, the last date being when the two subsidiaries had ceased involvement in the asbestos industry, JHIL had involved itself in the affairs of Coy and Jsekarb in the manufacture of asbestos products such that the Wren principle might directly apply to it. If liability was established against JHIL on the basis of the Wren principle, the Covenants and Indemnities contained in the DOCI were valuable as they protected JHIL from co-extensive liability as a joint tortfeasor with Coy and Jsekarb (at [496]-[499]). This concern was not merely academic, as it appears that the analysis undertaken by JHIL revealed that from the mid to late 1970s to 1987, JHIL did have employees who supervised the manufacturing activities of Coy and Jsekarb. This was the subject of consideration in an advice from JHINV's solicitors, Allens Arthur Robinson (Allens) on 31 January 2003 (the first Allens' advice), which is discussed below. 379 The Putt decision had been favourable to JHIL, however, JHIL remained concerned that that decision might be overturned or that legislative intervention might expose it to liability in factual circumstances similar to those in Putt. There was also a concern that JHIL might be found liable for failing to direct the subsidiary employer to avoid foreseeable harm to the subsidiary's employees, a matter left open in Putt (at [496]). 380 In addition, the detrimental effect of the asbestos risk on the James Hardie Group in the US market was of concern. On several occasions in October 2001, Mr Macdonald mentioned to Mr Morley (Chief Financial Officer) and Mr Shafron (General Counsel and Company Secretary) that the asbestos risk was hurting the group in the US market. In the board papers of August 2002 the transfer of JHIL was also addressed by Mr Baxter (at [1103]). Indeed, such a proposal had been floated within JHINV and had been under consideration since possibly late 2001, or , at the latest, early 2002. At about the same time, Mr Macdonald raised the transfer of JHIL out of the James Hardie Group and into the Foundation, with Mr Morley citing as one reason for doing so his belief that US investors were still concerned by the asbestos risk. The matter remained under active consideration by JHINV through to March 2003. 381 The sale of the gypsum business in April 2002 triggered a breach of one of JHINV's lending covenants, so that it was required to renegotiate the terms of some of its long term notes. This took longer than expected and caused Mr Shafron to remark in his paper for the September 2002 Board meeting that: "… recent experience renegotiating with note holders shows that Foundation involvement can be an unwelcome distraction." (at [1094]) 382 The full text of Mr Shafron's paper is relevant. It stated: " Overview

(d) to the extent that effecting the transfer of ABN 60 is likely to be viewed positively by the JHINV Group's principal and syndicated lenders, it is likely a reasonable person would expect the transaction to be disclosed to shareholders and be viewed similarly." 385 On this advice, the change of control was a disclosable event under the continuing disclosure regime of the ASX Listing Rules. There were other parts of this advice relevant to the issues in this part of the case, which are referred to below. 386 At the 12 February 2003 Board meeting, Mr Shafron presented a memorandum to the Board entitled "ABN Transfer and Cancellation of Partly Paid Shares". In section 1, "Background and overview", Mr Shafron stated: "Circumstances have changed somewhat since the set up of the Foundation in February 2001 and the October 2001 restructure. From a cash point of view, the Company was not in a position to repay or pass across the indemnity amount in a lump sum prior to the sale of James Hardie Gypsum in April of 2002 (see sections 3 and 4 below). From a debt market point of view, the Company did not fully appreciate that continued arrangements in place between the Company and the Foundation would compromise its ability to borrow or refinance on optimal terms (see section 5). Nor did the Company anticipate the accounting treatment that the Foundation would adopt in respect of the indemnity payment receivable; it effectively ignores the future payments in the presentation of its balance sheets (see section 6)." 387 The memo continued that: "The preferred method of giving the Foundation direct access to the indemnity payments is by the transfer of control of ABN 60 to the Foundation … Transferring control of ABN 60, with the indemnity payment and other funds in ABN 60, avoids tax leakage and ensures that the largest possible amount remains available to claimants. This result was not possible prior to the enactment of new tax consolidation rules in Australia on 1 July 2002 (see section 7)." 388 The question whether there was any continued need for JHINV to hold the partly paid shares was next addressed. The paper stated that there was no sense in the Foundation acquiring the partly paid shares and that investigations by JHIL indicated that there would seem to be no ongoing or future need for the partly paid shares to remain in place. Three options for disposing of the partly paid shares were considered later in the paper. 389 In section 2, "Draft resolutions", Mr Shafron proposed that the Board consider, inter alia, that JHINV resolve to: "Request ABN 60 to reduce its share capital for no consideration by canceling all of its partly paid shares registered in the name of the Company" 390 Section 5 of the memorandum was headed "US debt market experience" and in it Mr Shafron reiterated that, notwithstanding that JHINV did not control the activities of the Foundation, nor own or control the activities of Coy or Jsekarb: "… recent experience (June to October 2002) renegotiating the terms of the Company's long term notes indicates that the mere existence of arrangements with the Foundation causes anxiety among certain lenders at least and prejudices the position of and the terms available to the Company.

The creation of the ABN 60 Foundation could make it easier for JHINV to secure debt funding from certain sources but this would be one of many factors that could influence JHINV's debt funding capabilities. Other factors would include: - the availability and cost of debt generally (long term bond rates, spreads etc) - the prevailing attitudes of lenders in debt markets generally (willingness/conservatism etc) - the company's share price and P/E i.e. company specific attitudes among equity investors as well as their attitudes generally towards for example, Australian stocks, stocks with exposure to US housing, value vs growth stocks etc etc - the economic outlook in the company's major markets - the company's cash flows and financial position generally - the existence or otherwise of other risk factors - perceptions of the company's management generally - the purpose for raising the debt 5. In the situations where lenders have demurred this has been because of concerns or exposures they have elsewhere related to asbestos which has had a collateral impact on their attitudes to JH. This has occurred in the minority of cases for which refinancing has been sought." 411 A comment needs to be made about para 2, as it omits any reference to the partly paid shares. If JHIL was ever found to have a liability for asbestos claims, then the existence of the partly paid shares made JHINV vulnerable if JHIL called upon them to fund its asbestos liability. The cancellation of the partly paid shares removed that vulnerability. 412 It should be recalled that Allens' first advice was that the transfer of JHIL was a disclosable event. On 25 March 2003 at 7.09 am, Mr Baxter sent an email to Mr Robb of Allens, in which he said that he had read extracts from the Board papers and did not think that the arguments advanced in the papers justified separate disclosure of the creation of the ABN 60 Foundation. The email then repeated paras 1-5 of Mr Baxter's "F2 disclosure" email of 23 March 2003. He requested that Mr Robb "let us know what you think on our pre-meeting call this morning". 413 On 25 March 2003, at a joint JHINV Board meeting at which Mr Robb was present, Mr Macdonald presented a short paper which contained the following statements: "ABN 60 is a non operating company with gross assets of AUD 94M, an indemnity payment obligation to the MRCF Group of NPV AUD 75.705M and a net worth of around AUD 18M. JHINV wishes to ensure that the net assets of ABN 60 are fully and effectively provided to the MRCF despite its unwillingness to take ABN 60 directly. Given this the best option is that ABN 60 be placed into a new stand-alone foundation called the ABN 60 Foundation." 414 Management reported that the Foundation had declined to take control of JHIL. Accordingly, the notice of exercise of the put option (discussed at [20] above) had not been served on the Foundation and the Foundation had indicated that it would not welcome such a notice. An alternative proposal was put forward that management said met all the objectives set out in the paper dated 7 March 2003, previously presented to the Board. 415 The Board decided to proceed with the creation of a second Foundation and thus resolved:

6.3.4. The second Allens' advice: 28 March 2003 419 On 28 March 2003, Allens advised that the implementation of the proposal could be effected lawfully. Allens also commented upon JHINV's continuing disclosure obligations in the following terms: "In our change of control advice [in their 31 January 2003 letter] we said that disclosure of the change of control should be made to the market under the company's continuous disclosure obligations. We understand that after considering this advice and its previous disclosures, the company is of the view that announcing this transaction to the market would not affect the price of its shares nor affect any decision by persons who commonly invest whether or not to buy them. If this view is correct, no disclosure is required." 420 JHINV rely on this as evidence that it had legal advice that disclosure was not required. 421 On 29 March 2003, a JHINV joint Board committee meeting discussed the need to disclose the ABN 60 Information to the market. Mr Robb of Allens was present at that meeting. The minutes recorded that on the basis of the Allens' advice of 28 March 2003 and after input from management, including previous disclosures, the committee determined that further disclosure was not necessary. 422 In deciding upon that course, JHINV took into account that at the time of separation, according to the balance sheet, JHIL had net assets of $18.5 million. This calculation was based on: (i) the difference between its asset position of cash in the sum $95 million and liabilities of $75 million, comprising JHIL's net present value of its payment obligations under the DOCI; (ii) the capital reduction of $1,430,425; and that in accordance with a calculation undertaken by Mr Salter, a director of JHIL, JHIL's potential asbestos liabilities were about $12 million, assuming that it had liabilities on the basis of the Wren principle. 423 The sum of $12 million estimated as JHIL's potential exposure to asbestos liability represented approximately 0.6 per cent of JHINV's market capitalisation. Mr Humphris, who, it will be recalled, was ASIC's expert witness, accepted, as recorded by his Honour, that "… if a company made a payment that had an NPV in terms of foregone revenue expressed as a percentage of its market capitalisation of less than one percent he would not consider that to be material."

On 31 March 2003, James Hardie deconsolidated and transferred control of its subsidiary ABN 60 Pty Limited (formerly James Hardie Industries Limited) to a newly created independent company called ABN 60 Foundation Pty Limited ('ABN 60 Foundation'). ABN 60 has obligations to make payments to the Medical Research and Compensation Foundation ('MRCF') consistent with the arrangements that were in place in February 2001." 429 There was no reference in this part of the results to the cancellation of the partly paid shares for no consideration. However, in a section of the results entitled "Appendix 4B Preliminary final report" under the heading "Discontinuing Operations", there is a reference to the sale of the gypsum business and then under the heading "ABN 60 Pty Ltd", the following appears: "On 31 March 2003, the company transferred control of ABN 60 Pty Limited ('ABN 60', formerly James Hardie Industries Limited) to a newly established company named ABN 60 Foundation Pty Ltd ('ABN 60 Foundation'). ABN 60 Foundation was established to hold the shares in ABN 60 and to ensure that ABN 60 meets its payment obligations to the Medical Research and Compensation Foundation. Following the establishment of the ABN 60 Foundation, JHINV no longer owns any shares of ABN 60 . ABN 60 and ABN 60 Foundation are managed by independent directors and operate entirely independently of the Company. The Company does not control the activities of ABN 60 or ABN 60 Foundation in any way. The Company has no economic interest in ABN 60 or ABN 60 Foundation, has no right to dividend or capital distributions, nor will it benefit in the event that there is ultimately a surplus of funds in ABN 60 Foundation or ABN 60. As a result of a change in ownership of ABN 60 on 31 March 2003, a loss on disposal of $0.4 million was recorded by the Company at 31 March 2003, representing the liabilities of ABN 60 (to the Medical Research and Compensation Foundation) of A$94.6 million ($57.2 million), the A$94.5 million ($57.1 million) in cash held on the balance sheet, and costs associated with the establishment and funding of ABN 60 Foundation.

JHINV has agreed to indemnify ABN 60 Foundation for any non asbestos related legal claims made on ABN 60. There is no maximum amount of the indemnity and the term of the indemnity is in perpetuity. The Company believes that the likelihood of any material non asbestos-related claims occurring is remote. As such, the Company has not recorded a liability for the indemnity. The Company has not pledged any assets as collateral for such indemnity." (emphasis added) 430 This was the disclosure upon which JHINV relied as fulfilling its obligation to disclose to the market the transfer of JHIL to ABN 60 Foundation, if in fact such disclosure was required. JHINV accepted that there was no reference in the material released on 15 May 2003 to JHIL's obligation under the DOCIA to indemnify JHINV for asbestos-related liabilities. This is the non-disclosure upon which ASIC relies to establish its case after 15 May and up until 30 June 2003. 431 The 2003 Annual Report released on 30 June 2003, provided a full report on the transfer of ABN 60 to the ABN 60 Foundation, including a reference to the DOCIA. 432 The report stated: "Following the establishment of the ABN 60 Foundation, JHINV no longer owns any shares of ABN 60. ABN 60 Foundation is managed by independent directors and operates entirely independently of James Hardie. James Hardie does not control the activities of ABN 60 or ABN 60 Foundation in any way. James Hardie has no economic interest in ABN 60 or ABN 60 Foundation, has no right to dividend or capital distributions, nor will it benefit in the event that there is ultimately a surplus of funds in ABN 60 or ABN 60 Foundation. Equally, and subject to further note below, the Company does not believe it will have any liability should future liabilities of ABN 60 or ABN 60 Foundation exceed the funds available to those entities. As a result of the change in ownership of ABN 60 on 31 March 2003, a loss on disposal of US$0.4 million was recorded by James Hardie at 31 March 2003, representing the liabilities of ABN 60 (to the Foundation) of A$94.6 million (US$57.2 million), the A$94.5 million (US$57.1 million) in cash held on the balance sheet, and costs associated with the establishment and funding of ABN 60 Foundation.

All of this has made investors nervous …" (emphases added) 437 There followed statements as to the decline in the share price of the four mentioned companies. The article continued: "But that isn't enough to make all investors comfortable. ' Just because you separate a company, it doesn't mean you eliminate the asbestos risk ,' says Craig Johnson, portfolio manager for two mutual funds at Leonetti & Associates Inc. 'From a fundamental standpoint, the outlook looks very good' for the businesses [mentioned in the article], the money manager says. Still, he sold his firm's Georgia-Pacific stake in January because of asbestos concerns." (emphasis added) 438 We note at this stage that ASIC's position was that disclosure was required even though the transfer of JHIL out of the James Hardie Group would likely have a positive effect on the share price. ASIC also submitted that disclosure is made in a "market context" and that the disclosure rules were directed to the market, which by definition consisted of "multiple views". Accordingly, ASIC did not have to establish that this information, if disclosed, would have a universal impact, that is, an impact across the whole of the market. 439 In a preliminary report by CSFB dated 17 June 2002 and entitled "James Hardie Indust: Letting the dust settle", the following appeared under the heading, "Key Points": "Offshore investors, in particular US-based, remain concerned about James Hardie's history of asbestos exposure. In our opinion, such concerns are overdone." 440 The report pointed out that "James Hardie produced and sold asbestos products in Australia only", a factor CSFB considered a crucial point of differentiation from other manufacturers. It also pointed out that JHIL had never been found liable for asbestos disease related claims. It then referred to the creation of the Foundation with $293 million in assets. 441 In the final section of the report, CSFB stated that two possible risks faced JHIL: one, that the Foundation might run out of money, due in part to the possibility that sufferers of asbestos disease might become more litigious; and two, that cases which had reaffirmed that the corporate veil cannot be breached might be overturned. 442 As to the first of these risks, the report stated: "We believe the general consensus amongst industry experts is that if we haven't already seen the peak in mesothelioma claims, we should by 2010. These claims tend to represent the highest payouts given the diseases' fatal nature. Recent settlements have been in the order of $500,000 but, in our opinion, are likely to rise further." 443 As to the second risk, the report said it was only in the event that the Foundation ran out of money (which the report stated was unlikely) that claimants would direct their attention to JHIL. 444 CSFB's final report, dated 24 July 2002, was in relevantly identical terms. There was a slight restatement of the "Possible risks", which were now stated in these terms: " Possible risks to JHlL

James Hardie currently faces a large number of claims from former workers exposed to asbestos. Last year, it established a $293 million investment fund to meet current and future claims." 447 In mid-2002 SalomonSmithBarney undertook an analysis of JHINV and identified asbestos as a key risk. Its report, dated 17 July 2002, stated: "Whilst [JHINV] has attempted to isolate its asbestos liability via the creation of [the Foundation] fund there is always the risk that future liabilities are not fully covered." 448 The same comment was made in its report dated 27 September 2002. 449 In November 2002, SalomonSmithBarney published its "Result preview" of JHINV, in which it again repeated its previous comments made in respect of asbestos claims against James Hardie. The same comment appeared in SalomonSmithBarney's "Company update" report of 23 December 2002. 450 On 16 August 2002, JP Morgan published its analysis of James Hardie Industries, in which it predicted a "long-term buy" of JHINV shares at A$6.40. Under a heading, "Share price drivers, if its fine today, will it rain tomorrow?", the report stated: "In addition to these normal operational issues is that regarding asbestos liability in Australia. We believe conservative investors would be well advised to allow about A$0.30 (A$100m) for asbestos contingencies, in addition to the assets available via the Asbestos Foundation. We have no good feel for these numbers and they simply reflect a 'back of the envelope' allowance. It is a fact that Australia had a high per-capita use of asbestos cement between 1945 and 1975. Australia has one of the highest per-capita incidences of Mesathelioma [sic], and JHX (or its predecessor companies) was a significant manufacturer during the period specified. Asbestos expense to JHX at the time the foundation was set up was running at A$15-20m per year, and the foundation was established with assets of A$303m. Although JHX has no direct exposure to asbestos and all apparent liability rests with the Asbestos Foundation (a charitable trust), we believe it would be prudent to assume there may be recourse to JHX should the Foundation's assets prove insufficient." 451 JP Morgan reiterated these comments in an Industry Report dated 25 October 2002, "Building Materials Sector: Investment ideas, share price drivers". 452 Deutsche Bank, in a report dated 12 May 2003, expressed the view that one of the key risks for JHINV was asbestos. Asbestos was again identified as one of four key risks in Deutsche Bank's report of 21 May 2003: "Asbestos liability - JHX have created the MRCF … which will finance all asbestos-related claims. However, there is a risk that these liabilities are not fully covered by the Foundation."

6.3.6. The views of management 453 JHINV's case was that those persons who were best placed to make an assessment as to whether disclosure was necessary, namely, the senior members of management (Messrs Macdonald, Shafron, Morley and Baxter) and the directors, had determined that disclosure was not required. 454 However, the statutory obligation to disclose involves an objective test (see [349]). Therefore, the views of a company's senior management or its directors cannot determine whether disclosure of any given information is required. That is not to say that the views of those who make the decision as to disclosure may not be relevant. For example, if there was particular information that informed the decision making of management, such information may be relevant to the determination of whether or not, objectively determined, disclosure was required. However, the ultimate decision of management or the directors to the disclosure or not of information is not determinative. 455 JHINV did not call evidence from the directors as to why the decision not to disclose was made. Its case was dependent on the fact that the decision had been made by management, and upon the contemporaneous documents that surrounded the decision making process. In particular, it relied on Mr Baxter's emails dated 23 March 2003, those of Mr Macdonald dated 26 March 2003, and the second Allens' advice. Of the witnesses who gave evidence, only Mr Brown, a director, gave evidence on this issue. Mr Baxter was cross-examined but had no independent recollection of the thinking that lay behind the decision that disclosure was not required. 456 Mr Brown said that at the time of Allens' first advice dated 31 January 2003, he did not address his mind to the question of disclosure, although he said he would not have questioned that advice. His recollection was that, at the time the decision not to disclose was made, it was done in the context of Allens' second advice, namely, provided that JHINV did not consider the separation of JHIL to be price sensitive, disclosure was not required. 457 When challenged in cross-examination that nothing had happened between January and March to change the factors in paras 6(a) to (d) in the first Allens' advice, set out above at [384], Mr Brown responded that he did not remember personally having addressed the matters referred to in that paragraph. He said that he had relied on the second Allens' advice, which he considered superseded the first advice. 458 Mr Brown said that the discussion within the Board in respect of disclosure had been around the question of whether the ABN 60 information was price sensitive. He said there had been vigorous discussion around that issue and that Mr Macdonald had given reasons which seemed fair and reasonable as to why the separation of JHIL was not price sensitive, with which the board committee had agreed. He said that one reason advanced by Mr Macdonald as to why disclosure was not necessary was because the separation of JHIL would be disclosed in the annual accounts, "then coming up". Another reason, of which Mr Brown had a "general recollection", was that the removal of the asbestos liabilities from the group was "not seen by the market to be particularly material and, therefore, wouldn't have a price effect". 459 Mr Brown agreed that the board committee was aware that JHINV had had difficulty in raising funds from note holders and that such difficulty was a reason for deciding upon the separation of JHIL. He was asked how he reconciled that with JHINV's position that the transfer was not price sensitive. He said, "I don't know how that was done at the time".

6.4.1. JHINV's submissions 460 JHINV's overarching submission on the appeal was that that it had carefully considered its disclosure obligations at a meeting of the Board committee on 29 March 2003. At that time, it had available the second Allens' advice of 28 March 2003 and a solicitor from that firm, Mr Robb, who present at the meeting when the discussions took place as to whether disclosure was required. It had based its assessment that the separation of JHIL was not disclosable on its publicly stated position that the risk of any asbestos liability having "a material adverse effect on ... business, results of operations or financial condition" was remote (as put in the 2001 and 2002 Annual Reports). JHINV also contended that those analysts who were interested in JHINV did not see a negative perception in the market place towards JHINV due to its connection with asbestos. It also pointed out that its share price had not "reacted" in any material way when it disclosed the transfer on 15 May 2003. JHINV encapsulated this argument in terms that the removal of a remote risk was not material and therefore disclosure was not required. Each of these factors was the subject of separate argument by JHINV. 461 JHINV also argued that the ABN 60 Information had to be assessed in light of JHINV's obligations under the Corporations Act, s 256B which required that it had to be satisfied that the cancellation of the partly paid shares would have no material effect on creditors. JHINV, in accordance with its legal advice, thus calculated the potential liability that JHIL had to asbestos claims on the basis that the Wren principle extended to it. On its calculation, JHIL potentially had a liability in the order of $12 million to $13 million. At the time of the transfer of JHIL to the ABN 60 Foundation, it had net assets of approximately $18 million. JHINV had, therefore, been satisfied that the cancellation of the partly paid shares would have no material effect on creditors. It followed on this submission that as the assessed potential liability for asbestos claims was less than the net assets position of JHIL at the time of transfer, the elimination of JHINV's contingent liability of $1.96 billion was not a material matter that required disclosure under s 674. 462 This submission can be dealt with immediately. There are at least two responses. First, as already mentioned, the calculation by JHINV of its potential liability did not include a sensitivity analysis in respect of the Putt decision. Secondly, s 256B is directed to an entirely different circumstance, namely, the position of creditors: there is an obligation to ensure that the cancellation of shares would not materially affect creditors, whose concern is in respect of payment of the debt owed to them by the corporation. Section 674 is directed to the effect on the price or value of the securities in the market. Accordingly, we do not consider that this submission advances JHINV's case on this aspect of the appeal. 463 Further, it appeared that this submission inferred that as no charge was brought under s 256B it should be concluded that JHINV had complied with its obligations under that section and therefore the elimination of the contingent liability of $1.96 billion was not a material matter that required disclosure. This inference cannot be drawn. The fact that no charge was brought under s 256B does not prove either that there had been no breach of that provision, or even that ASIC had investigated whether there had been a breach. In short, the fact that there was no charge can only stand for the proposition that there was no charge. It does not support the submission that because the regulatory authorities did not challenge JHINV's assessment of its obligations under s 256B, its assessment of the position in respect of s 674 was inviolable.

6.4.2. ASIC's submissions 464 ASIC submitted that there was evidence that the negative perception in the market place was a rational one. ASIC's submission in this regard was premised on the objective nature of the test in s 647. In applying that test, it was necessary to have regard to the range of investors, many of whom would be informed operators in that market. As informed operators, they would know that prior to the restructure in 2001, JHIL had been the holding company in the James Hardie group, JHINV held partly paid shares in JHIL which carried a contingent liability of $1.96 billion and if there was a shortage of funding in the Foundation, JHIL was the entity likely to be pursued by asbestos claimants. If that occurred, there was at least a possibility that JHIL would have recourse to the partly paid shares. 465 Further, if JHIL was found liable for asbestos claims on the basis that a particular case fell within the Wren principle, or if it was found liable for the conduct of Coy or Jsekarb, either because the decision in Putt was held to be wrong or because there was legislative intervention, then JHIL could call on the indemnity that had been provided by Coy and Jsekarb under the terms of the DOCI (see Morley v ASIC at [13]). 466 In addition, although JHINV had not manufactured or distributed asbestos products, JHINV's position as the holding company in the James Hardie Group gave it a connection to James Hardie's asbestos history, which, in turn gave rise to the negative marketplace perception to which we have referred. The transfer of JHIL out of the James Hardie Group was the means by which the negative perception that attached to JHINV in the market place could be countered. The transfer of JHIL and the cancellation of the partly paid shares meant that, whatever risks there might have been in JHINV being called upon financially in respect of JHIL's liability for asbestos claims, this position had been materially altered. 467 ASIC submitted that the analysts' reports supported this view. There was a consistent reference to the possibility of overturning the "corporate veil precedent". Likewise, there was mention that the second generation of claims by end users of asbestos products was starting to emerge. Importantly for the present discussion, JP Morgan, who had advised JHINV on the sale of the gypsum business, identified the possible exposure to liability for asbestos claims "due to asbestos claims arising from the current arrangements between James Hardie and the Foundation" as a continuing risk. 468 Against this background, ASIC submitted that the potential for JHIL to be made liable on asbestos claims was real and JHINV was cognisant of this. JHINV was in receipt of advice from senior counsel that the decision in Putt had left the question of JHIL's liability for failure to direct its subsidiaries to avoid foreseeable harm to their employees undecided: see [379] above. Further, following the decision in Wren, JHIL had commenced an analysis to ascertain whether, in the period 1970-1987, it was involved in the affairs of Coy and Jsekarb in their manufacture of asbestos product. The analysis revealed that this might have been the case: see the first Allens' advice. If that was so, there was the potential that claims could be brought against JHIL within the Wren principle. As stated above, should that eventuate, the Covenants and Indemnities contained in the DOCI were valuable because they protected JHIL from co-extensive liability as a joint tortfeasor with Coy and Jsekarb. 469 ASIC also submitted that JHINV's top management clearly understood that there was a perception that JHINV was potentially vulnerable because of the possibility that JHIL would be liable to asbestos claims, so that the value of JHINV's shareholding in JHIL would be affected.

6.5.1. The second Allens' advice 471 JHINV contended that Allens' legal advice was that disclosure of the ABN 60 Information was not required. The advice upon which it relied was the second advice, dated 28 March 2003. 472 In its first advice, dated 31 January, Allens said that the ABN 60 Information was disclosable. It provided four reasons as to why this was so (see [384] above). JHINV submitted that the first two reasons referred to in the advice, both of which related to the removal from JHINV's balance sheet of any ongoing obligation to make payments to the Foundation under the terms of the DOCI, had been found by his Honour to have been sufficiently disclosed. 473 The third reason, namely, the change of control of a subsidiary with assets of $100 million, no longer had the same relevance in March as it did when the January advice was given, because when it was transferred, JHIL had $18 million net assets. Mr Humphris had given evidence that, given the small percentage this bore to JHINV's market capitalisation, this was not material. His Honour implicitly accepted that this was so. However, as his Honour also stated, at [1113], that this was not the transaction in question. 474 On JHINV's submission that left only the fourth reason in the advice of 31 January (which it is convenient to set out again): "(d) to the extent that effecting the transfer of ABN 60 is likely to be viewed positively by the JHINV Group's principal and syndicated lenders, it is likely a reasonable person would expect the transaction to be disclosed to shareholders and be viewed similarly." 475 JHINV submitted that the introductory words, "to the extent that", were significant. It contended that those words did not reflect Allens' opinion that lenders would view the transfer positively. Rather, Allens was stating that if and to the extent that lenders would view the transaction positively, the ABN 60 Information would be disclosable. It was JHINV's assessment, as reflected in Mr Baxter's email of 23 March 2003, that the transfer of ABN 60 was only one of several factors that would affect the opinion of lenders. In particular, JHINV had considered that what was likely to be of importance to lenders was that JHINV's obligation to the Foundation via JHIL had been terminated. Allens, having been informed of these considerations, then advised JHINV in its letter of 23 March 2003 that on the basis: "… that announcing this transaction to the market would not affect the price of its shares nor affect any decision by persons who commonly invest whether or not to buy them … no disclosure is required." 476 JHINV further drew support for its contended position that it had legal advice that disclosure was not required from the presence of Mr Robb, a solicitor at Allens, at the Board meeting on 29 March 2003, when the requirement for disclosure was discussed. 477 We reject JHINV's submission. Allens' advice of 31 March did not have the effect for which JHINV contended, that is, that disclosure was not required. Allens' advice was clear. It stated that: We understand that after considering [the first Allens' advice] and its previous disclosures, the company is of the view that announcing this transaction to the market would not affect the price of its shares nor affect any decision by persons who commonly invest whether or not to buy them. If this view is correct, no disclosure is required." (emphasis added) 478 The advice clearly stated that "if" JHINV's view that announcing the separation would not affect the price of its shares "is correct", disclosure was not required. Allens had given JHINV one advice stating that disclosure was required. JHINV questioned that advice. In their response, which came in the second Allens' advice, the underlying legal advice remained the same. However, in noting that JHINV's view was that disclosure would not affect the price of its shares, Allens was clearly saying that it was a matter for JHINV's commercial judgment as to whether the separation would or would not affect its share price. In other words, as JHINV's lawyers, Allens were telling JHINV that they were not going to second-guess JHINV's assessment of the matters which would or would not commercially bear upon the share price. That is different in substance from saying that Allens advised that disclosure was not required. We do not see any basis upon which that construction could be given to the advice. 479 We have expressed our opinion strongly as to the meaning of the second Allens advice. We consider JHINV's reliance upon it to be both misplaced and opportunistic. However, even if Allens' advice had been to the contended effect, reliance on it would not assist JHINV on the question of breach of its continuous disclosure obligations if the information was required to be disclosed. In other words, the fact that supportive legal advice had been obtained would not obviate breach if disclosure was required.

In our view the trust is likely to be more than fully funded, hence the chances of claimants coming after Hardies for compensation look remote. If the funding does not prove to be adequate Australian legal precedent suggests that Hardies would not be liable. We believe that this structure will close the asbestos issue for the company." 485 UBS Warburg's revised valuation of the share price was $4.70. It stated: "Our valuation is reduced by 22cps or 4% to $4.70. Our target has been increased to $4.00 to reflect the resolution of the asbestos issue." 486 JHINV also submitted that to the extent that later analysts' reports continued to express concerns about JHINV's asbestos connection, there was a lack of any specific analysis as to why the negative concern existed, other than to refer to the existence of the Foundation and the risk it might run out of money. In particular, JHINV referred to the absence of any analysis in the SalomonSmithBarney reports of 17 July 2002, 27 September 2002, 8 November 2002, 15 November 2002 and 23 December 2002, the JP Morgan report of 16 August 2002 and the Deutsche Bank reports of 12 May 2003 and 21 May 2003. 487 Whilst it is true that these reports did not contain any express underlying analysis, it would not be expected that they would do so. They were bulletin-type publications, in which highly specialised and experienced market analysts reported on trends and made observations and generalised recommendations to a wide range of investors as to whether to buy, sell or hold a particular security. It was not a personalised service where such underlying analysis might be expected. 488 JHINV acknowledged that Deutsche Bank referred to asbestos as a "key risk" in its 21 May 2003 report and that Citigroup Smith Barney reported on 31 July 2003 that there remained a risk that future liabilities were not covered. However, JHINV submitted that the negative references in these reports demonstrated that the separation of JHIL did not change the market perception of JHINV. There being no change in perception, there must not have been any material effect on the price of shares. 489 The trial judge was dismissive of JHINV's submissions as to the inference to be drawn from the Deutsche Bank and Citigroup Smith Barney reports. His Honour said, at [1124]: "In similar vein was the submission that two analysts, one on 21 May 2003 the other on 3 July 2003, continued to refer to asbestos or the risk that future liabilities of the Foundation might not be fully covered. The actual effect of the information is not determinative and two instances suggest that the majority of analysts had regarded the information as material." 490 JHINV submitted that the trial judge erred in the inference he drew in this paragraph. It submitted that a reference by only two analysts to the continuing risk did not permit an inference to be drawn that the majority considered the information was material. We agree with this submission. The absence of comment does not prove the inference his Honour drew. There could have been a multitude of reasons why more or other analysts did not make any comment. 491 JHINV further argued that these two reports, being the only ones that reported on the transfer, countered ASIC's case that the information would have had a favourable impact on the share price and was therefore disclosable. The fact that two analysts continued to report on the "asbestos risk" does not establish that the ABN 60 Information was not material. Not everyone in the market had to have the view that the ABN 60 Information was material. Accordingly, to the extent that these two reports are relevant to the enquiry in which the Court was engaged, the views expressed therein neither prove nor disprove the matter the Court was required to determine. However, as the above excerpts demonstrate, some of the analysts linked the negative perception in the market with asbestos.

6.5.3. JHINV's internal documents 492 JHINV submitted that its internal documents did not link the concerns it had in respect of any potential asbestos liability to its connection with JHIL, nor with the position of Australian investors. Rather, it submitted that the concern noted in its internal documents related to the concern that US investors had with JHINV's "residual asbestos exposure". 493 This submission must be rejected. In the first place, the submission ignores the fact that the residual asbestos exposure only arose because of JHINV's connection with JHIL through its holding of the partly paid shares. JHINV's internal documents expressly made that link. For example, in the Board Paper of 5 September 2002, Mr Shafron stated, "JHINV [is] still connected to the Foundation". He also made express reference to the cancellation of the partly paid shares, stating in terms not qualified in any way, that the proposal would be "good for JHINV". 494 ASIC also relied upon the statements in Mr Shafron's memorandum attached to the February Board Papers (set out at [390]) as to "the mere existence of arrangements with the Foundation [causing] anxiety among certain lenders". JHINV contended that this referred only to the ongoing indemnity payments, not to the partly paid shares, and only to JHINV's position in the US. We do not accept that the Board Papers would be so understood by the reasonable member of the investing class. 495 First, as a matter of plain English, the reference to the connection is not confined or qualified and thus could refer to both. Secondly, given that the recipients of the Board Papers were fully cognisant of the interrelationship between JHINV and JHIL, it would be expected that, if Mr Shafron intended to refer only to the existence of the indemnity arrangements, he would have said so. ASIC also submitted that the memorandum of Mr Walvaren of JP Morgan, attached to the Board Papers, did not support a conclusion that the market concern referred to in the Board Papers was limited to the obligations under the indemnity provisions of the DOCI. 496 Further, as ASIC submitted, the unlikelihood of the reference being confined to the indemnity was apparent from the action that was proposed, namely, the cancellation of the partly paid shares. 497 Any matter that affects a company's borrowing capacity will invariably have an effect on the company's share price. Should this proposition require evidentiary support, it is found in the first Allens' advice. 498 JHINV also contended that JP Morgan's advice, given in March 2002 (in respect of the refinancing in the US following the sale of the gypsum business) was that a reason for repaying the liability to the Foundation was so that JHINV could be "asbestos free", a consideration increasingly important in respect of its capital raising. JHINV said that the point of this advice was so that JHINV could remove that liability from the balance sheet. This is correct, but represents only part of the advice that JP Morgan gave at this time. JP Morgan's brief was:

6.5.4. Mr Humphris' evidence 504 Mr Humphris was requested to provide his expert opinion on the question: "On and from 25 March 2003, was the ABN 60 Information, information that a reasonable person would expect, if it were generally available; to have a material effect on the price or value of the securities of JHINV?" 505 In giving his opinion, Mr Humphris had regard to, among other things, the ABN 60 Information, the fact that operationally the company was performing well and the transfer of JHIL (the last remaining James Hardie company perceived as having any connection with asbestos) out of JHINV. Mr Humphris expressed his opinion that: "… on and from 25 March 2003, that the ABN 60 Information was information that a reasonable person would expect, if it were generally available, to have a material effect on the price or value of the securities of JHINV for the reasons set out below." 506 Mr Humphris then gave his reasons in six subparagraphs (a)-(f) and concluded that the aggregate net effect of these considerations was that: "… if the ABN 60 Information were generally available at the time, a reasonable person would expect it to have a positive material effect on the value and price of JHINV securities." 507 At trial, JHINV challenged the component parts of Mr Humphris' evidence. The trial judge rejected this approach, accepting the strength of the accumulation of factors that lead Mr Humphris to his conclusion and, at [1118], accepted Mr Humphris' opinion that the ABN 60 Information was likely to be sufficiently material to influence persons who commonly invest in securities in deciding whether or not to buy or sell securities in JHINV. 508 JHINV took the same approach on the appeal, challenging the individual components of Mr Humphris' reasoning. The thrust of this approach was that, if the individual components of his opinion did not survive challenge, there was no accumulation of factors to be considered. Forensically, such an approach can be effective. The question is whether JHINV's challenge in fact eliminated the bases upon which Mr Humphris formed his opinion, so that Mr Humphris' opinion ought to be given no weight. 509 It is necessary to go through each of the subparagraphs in full. 510 In para (a), Mr Humphris referred to the cancellation of the partly paid shares for no consideration and the consequent removal of the 'prospect' of JHINV being required to inject further equity into JHIL under certain conditions. JHINV submitted that para (a) ought to be dismissed as a relevant consideration, as it was based on an incorrect assumption that JHIL was in a negative asset position at the time of transfer, whereas it had surplus equity of about $18 million and assessed its potential asbestos exposure to be in the order of $12 million. JHINV contended that Mr Humphris had agreed in his evidence that given JHINV's assessment that the risk of asbestos liabilities adversely affecting its business was "remote", it followed that this reason was not "material" in the relevant sense. 511 The relevant cross-examination on this topic was as follows: "Q. Do you accept that in relation to [item (a)] you couldn't address two critical matters - that is, the likelihood or the ability? A. In relation to (a), based on the net asset position of JHIL, I assume it was material.

(d) Through the effective transfer of JHIL out of JHINV to the ABN 60 Foundation (by the issue of JHIL shares to ABN 60 Foundation and the cancellation of the one share of JHIL that was held by JHINV), JHINV would derive potential value benefit from the elimination of expected ongoing costs in JHIL … in the light of JHIL's removal from the JHINV group and JHIL's apparent lack of surplus net assets as at the date of its transfer …" 515 JHINV's challenge on appeal to the statements made in these two paragraphs was that they were based on an assumption that there was a perceived asbestos risk which attached to JHIL that would be significantly removed from JHINV by the separation of JHIL. However, it contended that the assumption was not proved. 516 Contrary to JHINV's assertion, there was evidence both in JHINV's internal documents and in the analysts' reports that supported the assumptions upon which Mr Humphris' opinion was based. The Board papers for the Board meeting on 5 September 2002, including Mr Shafron's paper and the JP Morgan advice attached to those papers (see [382] and [383] above) referred to recent experience renegotiating with noteholders demonstrating that the company's involvement with the Foundation "can be an unwelcome distraction". This was a clear reference to a negative perception because of the connection with asbestos. The Board paper then specified the continuing links with the Foundation and noted that the separation would be good for JHINV. In the attached paper from JP Morgan, there was also specific reference to the due diligence centred around JHINV's continuing exposure to asbestos liability. The Deutsche Bank report dated 21 May 2003 and the Citigroup Smith Barney report dated 31 July 2003 identified asbestos risks. 517 Mr Humphris conceded that he had not quantified the risk and accepted that if JHINV's assessment that the prospect of claims coming home was remote, then the company's view that this was not a material risk was acceptable in "terms of claims". He pointed out, however, that JHINV had not addressed investor sentiment, that is, the impact of the asbestos connection on its share price. He agreed that the company's obligation was to inform the market of the position and that it did not have to respond to irrational market behaviour. Nonetheless, he said that in some cases, a company has to deal with such behaviour. 518 We do not consider that the failure to quantify the potential liability undermines this aspect of Mr Humphris' evidence. As JHINV's exposure with the US refinancing demonstrated, there was a perception relating to asbestos that was of sufficient concern to the lenders such that to preclude them renegotiating the loans until a significant due diligence had been undertaken. 519 The fifth factor (para (e)) advanced by Mr Humphris to support his opinion related to the DOCIA, in which JHIL provided an indemnity to JHINV in respect of past and future asbestos liabilities. Mr Humphris said the indemnity was material, describing it as the "comfort factor", or "like an insurance policy", in that it further reduced the risk to JHINV having to meet any potential liability for asbestos claims. Mr Humphris stated that he considered that to be material in the minds of investors, notwithstanding that he had not quantified that risk. His position was that a lot of things have an effect on the market which cannot be quantified. Mr Humphris specifically rejected the proposition that, on its own, this factor was not material. 520 The final factor (para (f)), referred to JHINV's indemnity to JHIL under the DOCIA for non asbestos liabilities, was not advanced as material and does not need to be considered. 521 The challenges to Mr Humphris' opinion do not succeed. Mr Humphris' qualifications and expertise have been referred to earlier (see [147] and [324]). At the time of giving evidence, he was the Managing Director of an independent merchant bank which provided corporate finance and advisory services, primarily to Australian listed companies. 522 Whilst it is correct that Mr Humphris' opinion was based on an assumed negative perception of JHINV in the market because of its link with asbestos, that assumption was borne out by other evidence. His inability to quantify the risk, or the extent or degree of its materiality, was not to the point. The effect of his evidence was that the market is a dynamic environment in which many, often conflicting, forces interact. A quantitative assessment of the impact of a particular set of circumstances in such an environment would itself have been a dubious and probably unsupportable undertaking. Further, what the trial judge had to determine was the hypothetical reasonable person's prospective assessment as to whether particular information would have a material effect on the price or value of securities. This does not necessitate a quantitative assessment. 523 Mr Humphris had the expertise to express an opinion as to what a reasonable investor would consider to be material. The trial judge was entitled to accept Mr Humphris' opinion, the overall effect of which was not eliminated by the challenges to the separate components of his opinion.

6.5.5. Whether the separation of JHIL was material 524 JHINV challenged the finding that the separation of JHIL was "material" and therefore disclosable. JHINV submitted that there was no evidence to support his Honour's finding, at [1108], that the advantage to JHINV in the transfer of JHIL was the "hope" that it would have the effect of increasing its share price. It also submitted that whether or not JHINV had such a "hope" does not answer the question whether the separation was material. 525 At a general level, these submissions ignore the evidence and inferences that his Honour could properly draw from the evidence. It is sufficient in this regard to refer to Mr Macdonald's memorandum to the directors on 21 March 2003, in which he stated that the transfer of JHIL would make "even clearer" JHINV's separation from any "asbestos legacy" and would also enable the cancellation of the partly paid shares. Mr Macdonald's memorandum refers to JHINV thus being "advantaged" by the separation. 526 However, in deference to the arguments of counsel, we deal with the particular arguments raised by JHINV. There were in effect two main thrusts to JHINV's submission on this issue. First, JHINV contended that on the evidence, there was no basis for his Honour to reject the soundness of the Board's commercial judgment and that of others who participated in the decision. Secondly, JHINV again challenged the trial judge's finding of a "negative perception". 527 The first of these arguments seeks to import a subjective element into the determination of materiality. The test is an objective one. The matters a company takes into account and the reasons it has for deciding that information is not disclosable may be relevant, in that they provide part of the factual matrix in which the determination of materiality has to be made. However, the company's deliberations and ultimate decision are not determinative of whether information is material. That is the Court's decision after an evaluation of the whole of the evidence. Even if there was no other evidence apart from the company's own deliberations, it remains for the trial judge to evaluate whether information is material so as to require disclosure under s 674. 528 In this case, not only was there material available to his Honour other than the company's internal deliberations, but Mr Baxter's email to Mr Robb on 23 March 2003 demonstrates the flaw in JHINV's submission that the trial judge should not have rejected the soundness the company's decision. The email sets out JHINV's arguments as to why the ABN 60 Information was not material. However, it contains only those considerations that affirm the proposition advanced, namely, that disclosure was not required. It does not deal with the question of what the market's reaction might be to the disclosure of the information. 529 The second argument, which challenged the trial judge's finding that there was a negative perception in respect of JHINV's connection with asbestos, has been substantially addressed elsewhere and, therefore, it is necessary to deal with one additional matter only. JHINV suggested that the concerns of the US lenders, to which there was consistent reference in both JHINV's internal documentation and the analysts' reports, could have been due to factors that were not relevant to JHINV. In particular, it submitted that the concerns that were affecting US lenders may have related to the different principles that govern corporations in the US, namely, the successor liability principle, which does not apply to corporations in Australia. 530 A company's share price is an indicator of the company's perceived financial health and/or strength. It is a truism that liabilities, including contingent liabilities, may have a depressing effect on share prices. It is reasonable to assume, taken as a proposition on its own, that the more remote the contingency, the less effect it is likely to have on a company's share price. The converse is also correct. As a proposition on its own, the more direct the liability, the greater the effect it is likely to have on the share price. The interaction between a company's liabilities, whether those liabilities are contingent or not, the amount of the liabilities and other factors that relate to a company's financial position, are likely to be synergistic and non-lineal. That does not mean that one of those factors may not of itself be likely to have an effect on the share price. In this case, it is naïve to assert that JHINV did not have this in mind as an aspect of the "advantage" to JHINV in the separation of JHIL, involving, as that did, the cancellation of the partly paid shares, which carried a contingent liability of $1.96 billion. In this regard, it is not irrelevant to observe that JHINV accepted in argument on the appeal that evidence was not required to demonstrate the significance of the elimination of a contingent liability of that order.

6.5.6. Movement in JHINV share price on 15 May 2003 531 On 15 May 2003, JHINV's share price dropped from an opening price of $6.61 to a closing price of $6.35. Its average trading price on that day was $6.467. However, the volume of trades was the highest it had been in a month (at [1123]). There was no relevant movement in the share price in the succeeding days. JHINV submitted to the trial judge that this favoured a finding that if the transfer of JHIL was disclosed, it was not material, as there was only 20 cents difference in the opening and closing price. His Honour did not attach any weight to this evidence, as the question for his consideration was not ex post facto, whether the market reacted to the disclosure of information. The question was whether a reasonable person would expect the information to have a material effect on the market price (at [1123]). 532 In its submission on the appeal, JHINV contended that the actual effect of information on the market may be relevant to determining whether that information was material and therefore disclosable. 533 In Rivkin Financial Services Ltd v Sofcom, Emmett J was concerned with the whether the release of certain information to the market would have a material effect on the price or value of shares in a company. In that case, the question arose in the context of the insider trading provisions of the Corporations Act. An entity had acquired 5 per cent of the shares in a company and had requested the directors to call a meeting to remove a number of the existing directors. When that information was announced to the market there was little appreciable effect on the price of the shares. The Court was asked to infer that the information would not be likely to influence persons who commonly acquire shares in listed companies, in deciding whether or not to acquire or dispose of shares in the company. Emmett J, at [115], considered that as part of the announcement "appeared to have had no appreciable effect on the market", that was a measure of the lack of materiality of that information. 534 In ASIC v Fortescue Metals Group Gilmour J accepted, at [477]: "… that evidence of the actual effect of the information actually disclosed on FMG's share price may be relevant to assist the Court in its determination of whether s 674(2) has been contravened: Rivkin Financial Services Ltd v Sofcom Ltd (2004) 51 ACSR 486 by analogy at [113]-[116]; Jubilee Mines NL v Riley (2009) 253 ALR 673 at [33], [130] and [134]. This involves an ex post inquiry." 535 Gilmour J recognised that the section required an ex ante consideration. Nevertheless, his Honour considered, at [477], that: "Such evidence may constitute a relevant cross-check as to the reasonableness of an ex ante judgment about a different hypothetical disclosure." 536 Gilmour J derived support for this approach from Rivkin, as well as from the comment of the trial judge in the present matter, at [1067], where Gzell J said: "Where likelihood of the occurrence of an event is in issue and relevant facts are available, they are to be preferred to prophecies." 537 Gzell J's comment was made in a different context. We accept that evidence of the market's reaction to the release of information may be relevant as a cross-check in the manner suggested by Gilmour J. However, in this case, his Honour's failure to have regard to the market reaction on 15 May 2003 does not affect the ultimate outcome of the appeal. In the first place, although the share price was relatively stable, there was a significant increase in the volume of share trading, as noted by his Honour. Given the proximity in time to the public release of the information, the inference is that the market reacted to the information. Secondly, there is an issue as to whether such disclosure as was made on 15 May 2003 satisfied JHINV's statutory obligation. This is discussed in the next section. However, if there was no disclosure on 15 May 2003 that satisfied the statutory requirements, the trading results on that day and the immediately succeeding days would not be relevant in any event. 538 The question remains, therefore, whether the ABN 60 Information was information that a reasonable person would expect, if it were generally available, to have a material effect on the price or value of securities, in that the information would or would be likely to influence persons who commonly invest in securities in deciding whether to acquire or dispose of the shares. 539 Asbestos had been a problem for James Hardie for many years. Over a lengthy period it had sought to limit asbestos' negative impact on the company's business. Its attempt to do so in 2001 had not been totally successful. This was recognised by management, as demonstrated by the email traffic referred to above and by the company more formally within Board meetings. The connection with asbestos was perceived by JHINV to have been the problem it had encountered in its refinancing in the US after the sale of the gypsum business. Management also considered that the creation of the ABN 60 Foundation, into which JHIL was to be transferred, could make it easier to secure funding, although that was only one of a number of factors that could have that effect. 540 The severance of JHIL and the cancellation of the partly paid shares meant, as his Honour found, that there was no ongoing connection with the asbestos liability or any possibility of a call upon JHINV because of ongoing asbestos liabilities. In our opinion his Honour was correct that this was likely to have a material effect on the price or value of JHINV's securities.

6.5.7. Period of contravention 541 JHINV contended that if it was required to disclose the ABN 60 Information, it had done so on 15 May 2003, when it published its 4th Quarter report: see [427]-[430] above. ASIC accepted that the only component of the ABN 60 Information not contained in that report was the indemnity in the DOCIA from JHIL to JHINV in respect of any asbestos related liabilities. Reference to the indemnity in the DOCIA was included in the Annual Report released on 30 June 2003. 542 JHINV submitted that the indemnity information was not material and that the content of the disclosure made in the 4th Quarter report was sufficient so that the information required to be disclosed was "readily available" within the meaning of s 676(2). In support of this submission, JHINV relied upon Mr Humphris' evidence that the information released on 15 May 2003 was "readily observable". JHINV submitted that it was, therefore, "generally available" within s 676(2)(a). 543 It is implicit in this submission that s 676(2)(a) stands as an independent basis upon which information may be found to be "generally available" and that Mr Humphris' evidence appeared to elide the independent status of s 676(2)(a) and (b), as he said: "While the information concerning this transfer of JHIL is readily observable on and from 15 May 2003, and therefore can be regarded as being generally available on and from that date, this information does not appear to have been reasonably brought to the attention of investors who commonly invest in securities and the circumstances associated with the transfer of JHIL are not readily observable. To assess the response of investors the information would need to be reasonably brought to the attention of investors." 544 JHINV's submission as to the proper construction of the section is correct. Paragraphs (a) and (b) are disjunctive. It is sufficient if the condition in para (a) is satisfied, even if conditions in para (b) (both of which must be satisfied) are not. Mr Humphris' evidence did not deal with the materiality of the indemnity given to JHINV in the DOCIA in respect of asbestos liabilities. However, the question remains whether the ABN 60 Information was "generally available" from 15 May 2003 within the meaning of the section. 545 For the reasons given at [549] below, we consider that the DOCIA was an integral part of the ABN 60 Information, and its absence from the 4th Quarter report meant that there was no disclosure of the ABN 60 Information until 30 June 2003.

6.6. Conclusion on continuous disclosure obligation 546 The test under s 674 is an objective test, determined ex ante the relevant event which requires disclosure. That the party with the obligation to disclose might convince itself that information would not be expected to have a material effect on the price or value of its securities, does not answer the question whether the material was disclosable as required by s 674. 547 Although JHINV considered that the prospect of JHIL becoming liable for asbestos claims was remote, there was a significant body of evidence that supported his Honour's finding that JHINV's connection with asbestos was having a negative effect on JHINV's financial position in the market place. That evidence was to be found in JHINV's internal Board papers, in emails and conversations between members of management, in comments in the analysts' reports and Mr Humphris' expert evidence, all of which have been set out in detail above. 548 Underscoring the concerns expressed in this material was the possibility that JHIL might be found liable for claims on the basis of the principles in Wren, that claims in the secondary market might be sheeted home to JHIL and that liability of some kind might be legislatively imposed. Senior counsel accepted that if there was a prospect of any of those risks coming home, JHINV could come under a financial obligation. That obligation was to pay up to $1.96 billion, should JHIL find itself in a position that required it to call on the partly paid shares. The effect of the transfer of JHIL out of the James Hardie Group was to completely dispose of that liability for no cost. Given JHINV's acceptance that evidence was not required to demonstrate the significance of eliminating a contingent liability of that order, we do not consider anything more needs to be said on this. Accordingly, there is no basis to disturb his Honour's finding as to the materiality of this aspect of the ABN 60 Information and that breach of s 674 up until 15 May 2003 had been established. 549 That leaves the question whether the existence of the DOCIA was material for the purposes of s 674. We consider it was. JHINV embarked upon a carefully and comprehensively planned proposal to separate itself from any corporate connection with JHIL and to completely remove any possibility of an actual or perceived connection with potential asbestos liabilities. Mr Humphris' expert opinion, which the trial judge accepted and which has not been successfully challenged on the appeal, was that the DOCIA was material. The indemnity provided by the DOCIA in respect of ongoing asbestos liabilities cannot be viewed as a mere formality. The fact that JHINV considered that it should be provided with such an indemnity as contained in the DOCIA points to the vulnerability JHINV felt in having any connection whatsoever with asbestos. The indemnity contained in the DOCIA was an integral component of the steps JHINV took, both to separate JHIL from JHINV and to protect itself from any asbestos liability or any perceived connection with asbestos claims. The cancellation of the partly paid shares was one process to achieve those combined objectives. The DOCIA was another. Therefore, as indicated, we conclude that there was no disclosure as required by s 674 until 30 June 2003. 550 We would note that, despite JHINV's argument that the ABN 60 Information was not disclosable, the inference to be drawn from all of the evidence was that a reasonable person would expect that the information, if generally available, would have a material affect on the price of JHINV's shares. JHINV never answered this fundamental proposition. Rather, the focus of its argument was on the internal thinking of JHINV's management, which culminated in Mr Baxter's email to Mr Robb on 23 March 2003 and the second Allens' advice that, if JHINV's view was correct, disclosure was not required. In our opinion, this reflected JHINV's approach to its contravening conduct, which was exclusively one of continued self-justification. For the reasons we have given, that self-justification was seriously misplaced and demonstrated a fundamental disregard for its statutory obligations.

[168] Sensing the impropriety of another falls short, by itself , of a finding of dishonesty. But that is not the same as the court reaching a positive satisfaction that the person concerned 'has acted honestly', s 1317S(2)(b)(i), or that the person 'has acted honestly' within the meaning of s 1318. If the court is unable to reach a conclusion as to the appearance of honesty, but is not prepared to make the grave finding of dishonesty, more especially in circumstances where no evidence has been given directly by [the relevant director], the better view is that the jurisdiction to give dispensatory relief simply does not arise; indeed if it did arise, it would hardly be exercised favourably in the absence of demonstration of acting honestly, though that may not necessarily be enough." 561 Gzell J stated that honesty might be established from the circumstances surrounding the breach and from other evidence, including testimonial evidence as to the person's conduct before and after breach. Thus, his Honour said that he would not refuse to exercise the discretion simply because the persons involved in making the decision did not give evidence of honest intent. 562 JHINV submitted that because his Honour had already determined that the issue was not JHINV's assessment of materiality, but an assessment of the reasonable person's perception of whether a statement would have a material affect on the price of JHINV shares, his Honour failed to assess the steps JHINV had taken to determine whether disclosure was necessary. This is not correct. His Honour's finding that JHINV had asked itself the wrong question was made after a detailed consideration of what it had done to lead it to the conclusion that disclosure was not required. 563 JHINV further submitted that, in any event, the trial judge erred in making the following findings: that JHINV addressed the wrong question required by the legislation (at [210], [211]); and that JHINV did not explain why the question required by the legislation had not been addressed (at [211]). It also contended that his Honour made a number of factual errors. It was said that these errors were material, because they were the basis upon which the trial judge refused to infer that JHINV acted honestly. 564 The first of the alleged errors revolved around Mr Baxter's email of 23 March 2003. JHINV submitted that there was nothing in the email to suggest that he did not address the correct question required by the legislation, that is, whether the information would be likely to influence investors when deciding to buy or sell JHINV shares. It was submitted that in each of the reasons advanced by Mr Baxter, the underlying consideration was the likely reaction of investors. 565 This submission is correct, but only so far as it goes. The tenor of Mr Baxter's email was that there were reasons to support non-disclosure. However, as we have already explained, his email was directed at justifying that position. That exercise is only valid if the correct question is addressed. For the reasons we have given, his Honour was correct in finding that JHINV had not addressed the correct question. 566 JHINV gave no evidence, either at the liability hearing or at the penalty hearing, as to why it considered that the Allens' advice was inapplicable to the circumstances. It was open to his Honour in those circumstances to infer that JHINV's decision not to disclose was a well-thought out commercial decision made in the face of legal advice to the contrary. The fact that Mr Macdonald sought the expression of "other points" from Messrs Baxter, Shafron, Morley and Robb does not advance the matter very far. His email to these persons was made in the context of disclosure of the repayment of the Foundation. The email did not deal with the disclosure of the cancellation of the partly paid shares for no consideration, the transfer of JHIL or the DOCIA. 567 The burden of proving that the decision not to disclose was honestly made fell on JHINV. Mr Baxter held the view that the transfer was not material. Although he was an ASIC witness, it was not suggested to him in his evidence that he did not honestly hold that view. JHINV submitted that it was entitled to rely upon his evidence as the opinion evidence of a person who was possibly in the best position to assess the situation, given his expertise and his likely knowledge of the attitudes of shareholders. 568 However, the reality was that Mr Baxter was not able to give any relevant evidence on the point and, as we have explained, Mr Baxter's email of 25 March was self-serving. Ms Hellicar, a director of JHINV, gave evidence, but was not cross-examined on this issue. Mr Brown, another director of JHINV, also gave evidence. He said that he thought that there had been reliance on the second Allens' advice, which he understood was that disclosure was not required. Although there was no challenge to Mr Brown's evidence on this issue, this simply was not a correct reading of the advice. Rather, as we have said, JHINV's reliance on the advice was an opportunistic means of justifying its contravening conduct. In any event, management had the assistance of general counsel, Mr Shafron, who would have appreciated the purport of both Allens' advices. Apart from Mr Baxter, none of the other members of management gave evidence on this issue so as to discharge JHINV's onus. 569 Given all of these factors, no appealable error has been demonstrated in his Honour refusing to infer that JHINV's failure to disclose was an honest mistake. 570 Having reached that conclusion in respect of ground 12, it is not necessary to deal with ground 10, which is in reality a 'catchall' ground, encompassing grounds 11 and 12. It does not raise any matter which requires separate consideration. Ground 11 was directed at his Honour's finding that JHINV "should have" known that it was not addressing the question required by the legislation. It is unclear whether this submission was maintained in oral submissions, and it was not the subject of written submissions. We would reject it in any case. JHINV was required to comply with the continuous disclosure regime. There is no question that compliance with s 674 requires a company to ask the question required by the legislation, namely, whether the information would be likely to influence investors when deciding to buy or sell shares. If non-compliance with the legislation stemmed from a decision that was honestly made, then it was incumbent upon JHINV to provide the trial judge with some evidence of its honesty. It did not do so.

7.2. Was the breach flagrant? 571 The trial judge's finding that the breach was flagrant was also challenged, although not subject of a separate ground of appeal. 572 His Honour's finding that the breach was flagrant was made in the context of the policy underlying the disclosure provisions. In this regard, his Honour said, in respect of s 1001A(2): "… it has been said that the continuous disclosure provisions are intended, amongst other things, to prevent selective disclosure of market sensitive information ( Australian Securities and Investments Commission v Southcorp Ltd (No 2) [2003] FCA 1369; (2003) 130 FCR 406 at 408 [2]). Protective legislation should be construed beneficially to the public ( Exicom Pty Ltd v Futuris Corporation Ltd (1995) 123 FLR 394 at 397), even if a distinction between ' punitive ' and ' protective ' proceedings or orders is elusive ( Rich v Australian Securities and Investments Commission [2004] HCA 42; (2004) 220 CLR 129 at 145 [32]). The importance of Section 1001A(2) in terms of public policy is that it seeks to enforce immediate disclosure of information not generally available that might be expected to have a material effect on the price of listed shares. The significance that the legislature places upon continuous disclosure was discussed by French J in Re Chemeq Ltd; Australian Securities and Investments Commission v Chemeq Ltd [2006] FCA 936; (2006) 234 ALR 511 at 522-523 [42]-[46]." (at [179]) 573 His Honour considered that the same principles applied to s 674. As he said, at [215], "[t]he requirement of continuous disclosure is important in achieving an informed market". There was no submission to the contrary and we endorse his Honour's approach. 574 JHINV submitted that, if there was a breach, it was not flagrant. Rather, it was, at most, an error of judgment made in respect of a commercial matter, namely, negative perception in the market, which was unquantifiable. However, JHINV had been actively concerned about the negative perception in the market for nearly 18 months and the separation of JHIL was the chosen method, amongst a number of options, to eliminate it. Moreover, the senior management of JHINV had spent many years grappling with what his Honour called the "blight" of the Group's asbestos liabilities. There is no question that JHINV and its management were aware about the market's sensitivity to the asbestos issue. 575 Contrary to being an error of judgment, JHINV's strategy in not disclosing the ABN 60 Information was well thought through. What it told the market and when it did so was deliberate and also well thought through. Its contravening conduct demonstrated a significant disregard for honesty and transparency and a subjective willingness to interpret its statutory obligations to suit its own corporate purposes. 576 It follows that we reject the appellant's appeal on penalty. 577 We would only add that, in our opinion, the penalty imposed by his Honour was light, having regard to the seriousness of JHINV's contravening conduct. However, there was no cross-appeal in respect of the penalty imposed by the trial judge and our comments are confined accordingly.

James Hardie Industries NV v Australian Securities and Investments Commission

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