Morley v Australian Securities and Investments Commission

sumer Commission v High Adventure Pty Ltd [2005] FCAFC 247; Australian Securities and Investments Commission v Adler [2002] NSWCA 483; (2002) 42 ACSR 80; Australian Securities and Investments Commission v Beekink [2007] FCAFC 7; (2007) 238 ALR 595 re HIH Insurance (in provisional liquidation); Australian Securities and Investments Commission v Adler [2002] NSWSC 483; (2002) 24 ACSR 80; House v The King (1936) 55 CLR 499; James Hardie Industries NV v Australian Securities and Investments Commission [2010] NSWCA 332; (2010) 274 ALR 85; James Hardie & Co Pty Ltd v Putt (1998) 43 NSWLR 554; Lowe v The Queen (1984) 154 CLR 606; Re One.Tel (In liquidation); Australian Securities and Investments Commission v Rich [2003] NSWSC 186; (2003) 44 ACSR 682; Pearce v The Queen (1989) 194 CLR 610; Rich v Australian Securities and Investments Commission [2004] HCA 42; (2004) 220 CLR 129; Postiglione v The Queen [1997] HCA 26; (1997) 189 CLR 295, Vines v Australian Securities and Investments Commission [2007] NSWCA 75; (2007) 73 NSWLR 451; (2007) 62 ACSR 1; Category: Consequential orders Parties: Phillip Graham Morley - Appellant & Cross-Respondent (2009/00298408) Peter James Shafron - Appellant & Cross-Respondent (2009/00298416) Australian Securities and Investment Commission - Respondent and Cross-Appellant in both matters Representation: Counsel: B C Oslington QC, R A Dick SC & N H Bender - Morley B W Walker SC, R Lancaster SC & N J Owens - Shafron A J L Bannon SC, R T Beech-Jones SC, J Single & S E Pritchard - ASIC Solicitors: Henry Davis York - Morley Middletons - Shafron Clayton Utz - ASIC File Number(s): CA 2009/00298408 CA 2009/00298416 Decision under appeal Citation: Australian Securities and Investments Commission v Macdonald (No 11) [2009] NSWSC 287; and Australian Securities and Investments Commission v Macdonald (No 12) [2009] NSWSC 714 Before: Gzell J File Number(s): SC 1490/07

Judgment 1THE COURT : We gave judgment in these and related appeals and cross-appeals on 17 December 2010 ( Morley v Australian Securities and Investments Commission [2010] NSWCA 331; (2010) 274 ALR 205: "the appeal judgment"). These reasons should be read together with the appeal judgment. We identify paragraphs of the appeal judgment in the manner AJ [200]. 2The outcome of the appeal judgment was relevantly two contraventions of the Law by Mr Shafron, one in failing to advise Mr Macdonald or the board of JHIL in relation to the need for disclosure of the DOCI to the ASX (AJ [971]-[1036]: "the DOCI contravention"), and the other in failing to advise the board that Trowbridge's 2001 estimates had not taken into account superimposed inflation and a prudent estimate would have (AJ [1037]-[1039], [1060]-[1073]: "the superimposed inflation contravention"); and one contravention by Mr Morley, in failing to advise the board of the limited nature of the review of the cash flow analysis by PwC and Access Economics (AJ [1091]-[1122]: "the cash flow analysis contravention"). 3As explained at AJ [1144]-[1148], we deferred consideration of relief from liability, disqualification and pecuniary penalty in relation to Mr Shafron and Mr Morley, against the possibility of further evidence and to provide an opportunity for further submissions. Also outstanding was Mr Morley's costs appeal, briefly identified at AJ [1150]-[1151], [1153]. 4No further evidence was called. Further written submissions were provided, in part taking up prior written and oral submissions. The parties did not wish a further oral hearing. 5For the reasons which follow - (a) neither Mr Shafron nor Mr Morley should be relieved from liability for their contraventions; (b) Mr Shafron should remain disqualified from managing corporations for 7 years, and in place of the judge's order Mr Morley should be disqualified from managing corporations for 2 years from 27 August 2009; (c) in place of the judge's orders, Mr Shafron should be ordered to pay a pecuniary penalty of $50,000 and Mr Morley should be ordered to pay a pecuniary penalty of $20,000; and (d) Mr Morley's costs appeal should be dismissed. 6We vary the judge's costs orders to the extent that Mr Shafron should be ordered to pay one quarter of the costs of the DOCI Disclosure issue in lieu of one third of those costs. 7No order should be made as between ASIC and either Mr Shafron or Mr Morley as to the costs of the appeal and cross-appeal.

1. RELIEF FROM LIABILITY 8We set out relevant parts of ss 1317S and 1318 of the Act, concerning relief from liability, at AJ [46], [48]. The elements of the two provisions are substantially the same. It must appear to the court that the person has acted honestly, and also that the person ought fairly to be excused for the contravention (s 1317S) or the negligence, default or breach (s 1318). The court may then relieve the person from a liability to which the person would otherwise be subject either wholly or in part. There is a specific direction to have regard to "all the circumstances of the case" in determining whether the person ought fairly to be excused. The discretion is wide, also calling for regard to all the circumstances of the case. 9The judge considered the statutory concept of acting honestly at PJ [11]-[22], concluding - " [22] In my view a person acts honestly for the purposes of ss 1317S(2) and 1318(1), in the ordinary meaning of that term, if that person's conduct is without moral turpitude in the sense that it is without deceit or conscious impropriety, without intent to gain improper benefit or advantage and without carelessness or imprudence at a level that negates the performance of the duty in question. That conclusion may be drawn from evidence of the person's subjective intent. But a lack of such subjective intent will not lead the court to conclude that a person has acted honestly if a reasonable person in that position would regard the conduct as exhibiting moral turpitude." 10The judge identified at PJ [68]-[73] some matters relevant to whether a person ought fairly to be excused and to whether the person should be relieved from liability, noting at PJ [69] that "[b]ecause each case will depend on its own circumstances, it is difficult to lay down guiding principles with respect to the second limb of ss 1317S(2) and 1318(1) ... ". There was no dispute on appeal over his Honour's approach to relief from liability, and we will not repeat what he said or give a separate exposition. We will refer as appropriate to any particular guidance in the authorities.

1.1 Mr Shafron 11Mr Shafron did not maintain his appeal against the judge's refusal to grant relief from liability, or otherwise submit that he should be relieved from liability for the DOCI contravention and the superimposed inflation contravention. He said that he "accepts responsibility for the contraventions found against him in this Court". We do not understand this to detract from his pending application for special leave to appeal to the High Court.

1.2 Mr Morley 12The judge addressed relief from liability for the cash flow analysis contravention at PJ [182]-[198]. 13The judge had said at PJ [23]-[30] to the effect that it was not necessary that a person give evidence that he or she acted honestly, and that a finding of acting honestly could be made "from an examination of the circumstances surrounding the breach of duty and from other evidence such as testimonials as to the person's conduct before and after the breach of duty"; but, referring to re HIH Insurance (in provisional liquidation); Australian Securities and Investments Commission v Adler [2002] NSWSC 483; (2002) 24 ACSR 80 at [166]-[168], that it was necessary that the court be positively satisfied that the person had acted honestly. This also was not disputed on appeal. 14His Honour declined to conclude that Mr Morley carelessly failed to appreciate that what he said might mislead unless something was added, or that his failure to advise the board of the limitations in the PwC and Access Economics reviews should be characterised as an isolated error of judgment falling short of a failure to act honestly. He said in the penalty judgment - " [191] I am not prepared to reach those conclusions. Mr Morley knew that PwC and Access Economics had not reviewed key variables in the Cashflow Model. One of those key variables was investment earning rates. Mr Morley explained to the meeting the sensitivity of the Cashflow Model to the adopted investment earnings rate of 11.7%. The Cashflow Model suggested that there would be a surplus in year 51. But Mr Morley pointed out that if the investment earnings rate was 10.7% the life of the fund would be halved. Mr Morley must have known that to make the statement he did conveyed the impression that PwC and Access Economics had given their imprimatur to the Cashflow Model." 15His Honour went on - "[192] In the absence of an explanation by Mr Morley of how he came not to mention the limitations in the PwC and Access Economics reviews I am not persuaded that I should make the positive finding that in failing to advise the board of the limitations in the reviews he acted honestly. 16The judge said at PJ [194] that if he were wrong in that view, he would reject relief "under one or other of the two discretions in [ss 1317S(2) and 1318(1)]". The reference to two discretions should be understood with reference to PJ [68] in relation to the non-executive directors. His Honour regarded the element of whether the person ought fairly to be excused as discretionary, as well as the subsequent discretionary element of whether the person should be relieved from liability. The former element is better regarded as the formation of a value judgment, not the exercise of a discretion: Vines v Australian Securities and Investments Commission [2007] NSWCA 75; (2007) 73 NSWLR 451; (2007) 62 ACSR 1 at [558] per Spigelman CJ, with whose reasons Ipp JA agreed; at [802] per Santow JA. 17His Honour had described Mr Shafron's failure to advise the board of the limitations in the reviews as a flagrant breach on his part, see [18] below. He said at PJ [195] that it was " a fortiori with respect to Mr Morley who was responsible for the Cashflow Model". He noted Mr Morley's apology in an affidavit read in the penalty hearing, and said - "[197] That stands in Mr Morley's favour. But for the reasons stated with respect to Mr Shafron and for the reasons stated above I do not accept the submission of aberration and those matters outweigh the fact of contrition". 18On our understanding "the reasons stated with respect to Mr Shafron", which included the basis for the description of flagrancy, were those stated in the penalty judgment - " [161] I do not accept that Mr Shafron's conduct is explained as momentary inattention. He understood that the scope of the review by PwC and Access Economics was limited and that key variables had not been considered. The Draft ASX Announcement contained the statement: 'In establishing the Foundation, James Hardie sought expert advice from a number of firms, including actuaries Trowbridge, Access Economics and PricewaterhouseCoopers. This [sic] advice supplemented the company's long experience in the area of asbestos and formed the basis of determining the level of funding required to meet all future claims.' [162] To allow that statement to pass when he knew that key assumptions in the Cashflow Model had not been checked by PwC and Access Economics was a flagrant breach on his part, albeit that primary responsibility lay with Mr Morley and, to a lesser extent, with Mr Macdonald." 19We allowed Mr Shafron's appeal against a like cash flow analysis contravention to that found against Mr Morley, because we did not think it could properly be found that Mr Shafron knew that the PwC and Access Economics reviews were in fact limited to the logical soundness and technical correctness of the cash flow model and that they did not consider the key variables. Of greater present significance, we were not satisfied that the 7.42 am draft news release was distributed and considered for approval as an announcement to be executed and sent to the ASX. Absent a finding that the draft news release was before the board for approval, the basis on which the judge found a flagrant breach by Mr Shafron and a fortiori a flagrant breach by Mr Morley goes, because there is no question of allowing to pass the statement concerning advice of PwC and Access Economics in the Draft ASX Announcement. 20That undermines the judge's refusal to find that Mr Morley acted honestly, and his Honour's exercise of what he regarded as the two discretions. However, other circumstances in which Mr Morley's conduct is to be assessed should be appreciated. 21Mr Morley knew that Mr Loosley had suggested verification of the cash flow model, and he had received Mr Shafron's e-mail saying that Mr Harman should get PwC and Access Economics "to bless your model". His description of their reviews as having found the cash flow model to be logically sound and technically correct was given in the course of his presentation of the cash flow model to the board. He knew that the blessing was part of JHIL's communication strategy, which was before the board. He said in his evidence that the limited review "was to be valuable because the PR people and the company, via Baxter, wanted to be able to say that the internal work that was done by the company had been reviewed or checked". He also knew, from an e-mail from Mr Baxter on 14 February 2001, that there was intended to be public reference "to people like Trowbridge, Access etc as having reviewed and verified the legitimacy of our modelling/projections on which we determine the quantum of assets transferred to the foundation [sic]." 22A draft news release may not have been before the board for approval as an ASX announcement, but there was going to be a public announcement to the effect that the PwC and Access Economics reviews supported JHIL's dealing with asbestos liabilities by establishment of the Foundation. And the communication strategy in relation to funding was undoubtedly a matter on which the board was being informed, even if the board was not being told that communication of full funding was essential in order to quell stakeholder opposition and was not being told that full funding could be communicated. 23Apart from the communication strategy, as we said at AJ [1098] the failure to advise the board of the limited nature of the reviews of the cash flow model by PwC and Access Economics "went to the decision to establish the Foundation (on the basis of sufficient funding) quite apart from any announcement concerning the establishment of the Foundation". The cash flow model was put forward in support of that decision, for the sufficiency of funding it demonstrated. 24The cash flow model was a significant matter in any decision to proceed with the separation proposal and establishment of the Foundation. Mr Morley agreed in cross-examination that "where you knew that the adequacy of funding was a critical consideration of [sic] the board ... it was incumbent on you to explain to the board in the clearest possible terms any limitations to the material which was presented to them". Thus there was good reason apart from the statement in the Draft ASX Announcement, appreciated by Mr Morley, for Mr Morley not allowing the board to be under any misapprehension as to the support given to the cash flow model, and to any decision and announcement, by the PwC and Access Economics reviews.

1.1.1 Acting honestly 25Mr Morley submitted that the finding in the last sentence of PJ [191], that he "must have known that to make the statement he did conveyed the impression that PwC and Access Economics had given their imprimatur to the Cash Flow Model", should be set aside. He submitted that the finding of knowledge was tantamount to a finding of dishonesty, but that dishonesty on his part had not been pleaded and had been disavowed by ASIC; further, that he had given evidence and it had not been put to him in cross-examination that he knew that the impression of imprimatur would be conveyed. He submitted that it did not follow from saying that PwC and Access Economics had found the cash flow model to be logically sound and technically correct that he knew, when he so said, that it would give a false impression. Rather, he said, the evidence which he gave in the penalty hearing and which was not challenged was that he did not intend to mislead and did not realise he was misleading. 26Mr Morley submitted also that our reference at AJ [1120] to his presentation as capable of giving the impression that an unlimited review had been conducted, and at AJ [1118] to his words being "not clearly restrictive of the nature of the review", supported rejection of knowingly conveying an incorrect impression. This submission is misconceived. Capacity to give a false impression is entirely consistent with knowledge that the false impression will be given, and that Mr Morley's words were not clearly restrictive of the nature of the review is a statement of their capacity to give a false impression. 27As we will explain, we do not think that the last sentence of PJ [191] is a finding that Mr Morley knowingly made a false statement to the board. But so far as Mr Morley's complaint rested on failure to plead dishonesty, it also is misconceived. ASIC did not plead dishonesty on Mr Morley's part, and it was not necessary that it do so. The question of honesty was nonetheless raised by Mr Morley's reliance on ss 1317S and 1318 of the Act. 28It would have been open to ASIC to submit that a finding of dishonesty should be made, destructive of the claim to relief from liability, see Adler v Australian Securities and Investments Commission [2003] NSWCA 131; (2003) 46 ACSR 504 at [748]. ASIC did not submit to the judge that he should find dishonesty on Mr Morley's part. It was necessary that the court reach a positive satisfaction that Mr Morley had acted honestly, and ASIC submitted to the judge that he should not reach that positive satisfaction; as recorded by the judge at PJ [188], it submitted that "while Mr Morley gave evidence, the court could not be positively persuaded that he acted honestly when contravening s 180(1) because he gave no evidence that he had acted honestly in do doing". As we have said, his Honour did not accept that evidence from Mr Morley that he had acted honestly was necessary. But he said at PJ [192] that he was not persuaded that he should make the positive finding of acting honestly. 29Particularly when it is understood in this context, we accept ASIC's submission that the last sentence of PJ [191] was not a finding that Mr Morley knowingly made a false statement to the board. "Given imprimatur to the Cash Flow Model" is not specific; it could be by verification of logical soundness and technical correctness, and plainly imprimatur to that extent was conveyed and must have been known by Mr Morley to have been conveyed to the board. There was no dishonesty in Mr Morley knowing that imprimatur to that extent was conveyed. The vice lay in his failure to say more, and to make known the limited nature of the reviews, and at PJ [191] the judge highlighted the key variable of the investment earning rates which was in fact outside the imprimatur. The judge declined to make the positive finding of honesty in the absence of explanation by Mr Morley of how he came not to make the limitations known, but we do not think he found dishonesty in failing to make known the limited nature of the reviews. 30Mr Morley then submitted that this Court should make the positive finding of acting honestly which the judge had declined to make. He referred to his evidence that he understood the phrase "logically sound and technically correct" to mean "that the spreadsheet was constituted properly, that the functions in the spreadsheet did what they said they could do, and that the addition, subtraction, and multiplication functions were correctly", and to the evidence he gave in an affidavit read in the penalty hearing, on which he was not cross-examined - "25. I have given careful consideration to his Honour's findings. I confirm that it was never my intention to mislead the board in any way, nor to hide anything from it. At no time did I intend to create the impression in board members' minds that PwC and Access Economics had conducted an unlimited review of the cashflow model, or that they had verified the key assumptions adopted by the cashflow model as identified [by] his Honour (being fixed investment earnings rates, litigation and management costs and future claims costs). 26. Had I appreciated at the time that any of the directors may be acting under any sort of misapprehension that PwC and Access Economics had verified these assumptions or had conducted an unlimited review I would certainly not have wished for that misunderstanding to continue and would have taken steps to correct it. 27. Having carefully considered the judge's reasoning and taking into account his conclusions that what I said was capable of giving a misleading impression, I regret that I did not elaborate further on the PwC and Access Economics reviews. I have always prided myself on my openness and thoroughness in ensuring that all relevant information is made available to those who require it in a professional context, whether that is to board members, investors, regulators and so on. Accordingly, I deeply regret that I conducted myself in a way that has been judged by a Justice of the New South Wales Supreme Court as falling short of the standards of care and diligence expected of a reasonable CFO in like position." 31Mr Morley submitted that the explanation for the cash flow analysis contravention was simply negligence, without any dishonesty, and that it should be seen as an honest mistake. 32ASIC submitted that it remained that Mr Morley had not explained how he came not to mention the limitation in the PwC and Access Economics reviews, and that no error had been shown in the judge declining to make the necessary positive finding that Mr Morley had acted honestly in failing to advise the board of the limitation in the reviews. It submitted also that our acceptance at AJ [963], in connection with Mr Shafron's knowledge of the limitation in the reviews, that at the meeting with proposed directors of the Foundation on 13 February 2001 Mr Morley said to the effect that PwC was to confirm the model and Access Economics was to comment on the reasonableness of the assumptions, made it - "... that much harder for [Mr Morley] to positively satisfy the onus he bears that he acted honestly when addressing the board on the same topic the next day [sic] without specifically advising them of the restrictions placed on the reviews by Access Economics and PwC." 33We go first to ASIC's reliance on AJ [963]. As explained elsewhere in the submissions, ASIC meant that it was harder for Mr Morley because he had made a misleading statement to the proposed directors of the Foundation. 34Mr Morley submitted that the finding at AJ [963] should not be used against him. He gave a number of reasons for this, including suggesting that other evidence cast doubt on the finding, to which reasons ASIC responded. This generated many pages in the submissions. We do not think it necessary to deal in detail with the reasons and the response. 35If Mr Morley made an honest mistake on 13 February 2001, that does not seem to us to make it materially harder for him to establish that he acted honestly on 15 February 2001. If he deliberately misled the proposed directors of the Foundation, as was the flavour of ASIC's submissions, it would less readily be found that he acted honestly two days later; but deliberately misleading the proposed directors would be dishonest, and to reason in that manner would be contrary to ASIC's disavowal of a case of dishonesty. ASIC pointed out that it was put to Mr Morley that on 13 February 2001 he was "happy to say something which wasn't true". That was followed, however, by putting to him that two days later he was "happy to say the very bare minimum about the PwC and Access Economics review [sic]", which on ASIC's stance was not an allegation of dishonesty. It would be unfair to Mr Morley to use the finding at AJ [963] in the manner for which ASIC contended. 36Mr Morley's evidence of what he understood by the phrase "logically sound and technically correct" does not explain why he confined himself to that phrase. He did not give an account of his thinking when he used it but did not go further to make known the limitation in the reviews, and in that sense did not explain how he came not to mention the limitation. But explanation of a negligent failure often can not be given beyond the fact of the failure, and that was the thrust of Mr Morley's evidence set out at [30] above. His para 26 amounted to saying that he did not appreciate that the directors may be acting under a misapprehension that PwC and Access Economics had verified the assumptions or conducted unlimited reviews. In our view, this was (if accepted) an explanation of how he came not to mention the limitation in the PwC and Access Economics reviews. 37The judge accepted Mr Morley's evidence in many respects, although not in relation to 13 February 2001. He did not comment on Mr Morley's paras 25 and 26, on which Mr Morley was not cross-examined, and plainly accepted para 27 as genuine contrition. We consider that paras 25 and 26 should be accepted. Mr Morley failed to exercise the degree of care and diligence required by s 180(1) of the Law but, in respectful disagreement with the judge, it appears to us that he acted honestly as that is found in ss 1317S and 1318.

1.1.2 Ought fairly to be excused and relief from liability 38The judge's exercise of what he regarded as the two discretions had regard to flagrancy, derived from Mr Shafron's flagrancy, and to his Honour's non-acceptance of "the submission of aberration". We understand his Honour to have meant by this his refusal at PJ [191] to reach the conclusions that Mr Morley had acted carelessly and in an isolated error of judgment falling short of a failure to act honestly. 39The judge's basis for flagrancy cannot be sustained, although there are the other circumstances in which Mr Morley's conduct is to be assessed, and we have differed from his Honour as to acting honestly. Whether Mr Morley ought fairly to be excused, and whether he should be relieved from liability, should be determined afresh. 40Mr Morley submitted that the judge's rejection of the submission of aberration should be set aside. He submitted that in the light of the unchallenged paras 25, 26 and 27 of his affidavit read in the penalty hearing and the character evidence called on his behalf, it should be found that his contravention was indeed an aberration and that he ought to be excused and should be relieved from liability. He distinguished his position from that of Mr Shafron, on the bases that he had committed only one contravention and had given the evidence abovementioned including the apology in para 27 of the affidavit. 41The character evidence was not detailed by the judge. Four affidavits were read, attesting to Mr Morley's integrity, skill and diligence and to the contravention being out of character and inconsistent with the deponents' experience and opinions of Mr Morley. The deponents were not cross-examined. The character evidence provides support for Mr Morley's submissions. 42ASIC submitted that the submission of aberration should be rejected, and that the judge's characterisation of Mr Morley's breach of duty as flagrant remained appropriate. 43For reasons earlier given, we put aside ASIC's submission at this point, referring to AJ [963], that Mr Morley "made an even more misleading statement concerning the Access Economics and PwC reviews" to the proposed directors of the Foundation on 13 February 2001. ASIC otherwise submitted that the submission of aberration should not be accepted given the significance to the decision to establish the Foundation of the sufficiency of funding for asbestos claims, and the importance of the cash flow model to that matter and of the assumptions used to the validity of the model. It pointed to Mr Morley's high qualifications, and to the senior position he held as JHIL's chief financial officer with responsibility for all the finance, audit, tax and treasury aspects of the James Hardie Group's affairs. It said that he oversaw the development of the cash flow model and took the board through it at the February meeting. ASIC submitted - "Given the seniority of Mr Morley ... a decision to exonerate him would significantly undermine the need for general deterrence. The potentially adverse consequences for JHIL resulting from his conduct were severe. The adequacy of the funding was a critical matter for the pursuit of the separation proposal and the cash flow model was critical to an assessment of that adequacy ... . Any misunderstanding in that regard had the potential to hinder or later unravel the successful completion of the separation proposal or result in the separated body having inadequate funds to meet claims. Either of those eventualities had the potential to cause severe reputational damage to JHIL." 44It may be that general deterrence does not arise at the stage of fairly excusing, and that at that stage the evaluation is of the person's conduct. It is a relevant consideration in the subsequent exercise of the discretion. Any disqualification or pecuniary penalty seeks to achieve general deterrence (see for example re HIH Insurance (in provisional liquidation; Australian Securities and Investments Commission v Adler at [56]; Australian Securities and Investments Commission v Adler [2002] NSWCA 483; (2002) 42 ACSR 80 at [126]; Rich v Australian Securities and Investments Commission [2004] HCA 42; (2004) 220 CLR 129 at [178]; Australian Competition and Consumer Commission v High Adventure Pty Ltd [2005] FCAFC 247 at [11]; Australian Securities and Investments Commission v Beekink [2007] FCAFC 7; (2007) 238 ALR 595 at [80]-[87], [115]). It would be contrary to that object of ss 206C and 206E to give relief under s 1317S or s 1318 without regard to general deterrence. 45The stage at which general deterrence arose was not explored in submissions. Mr Morley submitted only that general deterrence "should not be given undue weight". 46ASIC also relied on evidence suggesting that Mr Morley had received a bonus in 2001 in recognition of "the strategic progress made in creating the Foundation and other strategic initiatives in FY '01". This had not been relied on before the judge. We do not think that it materially helps or hinders on the matter of relief from liability. 47Mr Morley responded that the importance of the sufficiency of funding was less when, according to the board papers, a low degree of sufficiency of funding was to be conveyed to the market. That may not be an entirely accurate submission, but we accepted at AJ [297] that as the separation proposal was presented in the board papers and the slides sufficiency of funding was not going to be communicated. Sufficiency of funding nonetheless was very important to the decision to proceed with the separation proposal and establishment of the Foundation, which this submission rather passed over. 48Mr Morley responded also that his explanation for the contravention had more force if the Draft ASX Announcement was not approved at the February meeting. We take him to have meant the explanation of negligent mistake, in accordance with the submission of aberration. As we have said, however, there was good reason apart from the statement in the Draft ASX Announcement for Mr Morley not allowing the board to be under any misapprehension as to the support given to the cash flow model, and any decision and announcement, by the PwC and Access Economics reviews. 49That a person acted honestly does not mean that he or she ought fairly to be excused. These are successive elements in ss 1317S and 1318. More may arise than whether the person acted acting honestly in persuading the court in the evaluative judgment, and then in the exercise of the discretion. 50Relevant considerations at both stages are the degree to which the person's conduct fell short of the statutory standard of care and diligence; the seriousness of the contravention and its potential or actual consequences; impropriety such as deceptiveness or personal gain (which may not survive acting honestly); and contrition. This is by no means exhaustive, and all the circumstances of the case are to be taken into account. 51For reasons which will be apparent, we consider that Mr Morley's conduct giving rise to the cash flow analysis contravention, even if explained as negligence and an honest mistake, involved a high degree of departure from the care and diligence required by s 180(1) of the Act. It had potentially serious consequences for JHIL. Proceeding with the separation proposal and establishment of the Foundation was a major step for JHIL, and one of great importance to investors and to asbestos claimants. 52Mr Morley was a senior executive in JHIL, a major public company. Although we have found that he acted honestly, it does not appear to us that he ought fairly to be excused, or that he should be relieved from liability for the contravention. Proper corporate governance and business activity depend on business leaders adhering to standards not only of honesty but also of care and diligence, and a failure of the nature and seriousness of that of Mr Morley is not in our view one which can properly be excused. It should be subject to whatever may be an appropriate penalty, by disqualification order or pecuniary penalty, in fulfilment of the protective purpose (including personal and general deterrence) of exercise of the powers under s 206C of the Act.

2. DISQUALIFICATION 53We set out s 206C and relevant parts of s 206E, concerning disqualification orders, at AJ [46]-[48]. Section 206E is available only if the person has at least twice contravened the Act, and is not available in relation to Mr Morley. Where there has been contravention of a civil penalty provision, the elements of the provisions are otherwise relevantly identical. The court must be satisfied that the disqualification for the period it considers appropriate is justified, and in determining whether the disqualification is justified it may have regard to the person's conduct in relation to the management, business or property of any corporation and any other matters that the court considers appropriate. 54The judge considered the approach to civil penalty orders and the exercise of the powers under ss 206C and 206E at PJ [265], [268]-[276]. His Honour accepted that the purpose of a disqualification order is not only protective, but also punitive, and that general deterrence is a factor to be taken into account. Again, there was no dispute over the principles on which his Honour acted and we do not repeat what he said or give a separate exposition.

2.1 Mr Shafron 55The judge found against Mr Shafron the three contraventions that he had failed to advise the board of JHIL that the draft news release was expressed in too emphatic terms as to the adequacy of the Foundation's funding ("the Draft ASX Announcement contravention"); a like cash flow analysis contravention to that of Mr Morley; and the DOCI contravention. In accord with Vines v Australian Securities and Investments Commission , by analogy with Pearce v The Queen (1989) 194 CLR 610 as to criminal offences his Honour arrived at separate periods of disqualification for each contravention before taking into account cumulation, concurrence and totality. He arrived at disqualifications for periods of 5 years for each of the Draft ASX Announcement contravention and the like cash flow analysis contravention, and disqualification for a period of 7 years for the DOCI contravention. He said at PJ [331], "Whether I treat the disqualifications as concurrent or discount them under the totality principle as consecutive disqualifications, I will make a disqualification order against Mr Shafron for 7 years". 56The contraventions found against Mr Shafron have changed. We allowed Mr Shafron's appeal against the Draft ASX Announcement contravention and the like cash flow analysis contravention. We allowed ASIC's cross-appeal to the extent of the superimposed inflation contravention. 57The DOCI contravention is a constant. We should consider whether error has been shown in the judge's disqualification for 7 years for the DOCI contravention and whether it otherwise should be displaced; and if so, we should arrive for ourselves at any period of disqualification. We should arrive for ourselves at any period of disqualification for the superimposed inflation contravention. We should then address cumulation, concurrency and totality. 58In sentencing for criminal offences there is now an option to impose an aggregate sentence with respect to all or any two or more offences, although the court must still indicate and make a record of the sentence that would have been imposed for each offence had separate sentences been imposed: Crimes (Sentencing Procedure) Act 1999, s 53A, inserted by Crimes (Sentencing Procedure) Amendment Act 2010. Section 53A came into effect on 14 March 2011. By the transitional provisions, the amendments do not apply where the person being sentenced has been convicted prior to the commencement of the amendment concerned. If the analogy with Pearce v The Queen extends to taking up this modification of its sentencing principles and imposing an aggregate period of disqualification, the analogous declarations of contravention were made prior to 14 March 2011 and that course is not available. 59Mr Shafron submitted that no disqualification order should be made, and that the declarations of contravention were sufficient; alternatively, that if a disqualification order was made, the period of disqualification should be no longer than 18 months commencing on 27 August 2009, the date on which the judge's disqualification commenced. His submissions did not well recognise the necessity to displace, for error or otherwise, the judge's disqualification for a period of 7 years for the DOCI contravention. 60ASIC submitted that the judge's period of disqualification for 7 years for the DOCI contravention was not erroneous or otherwise to be displaced, but that in any event it should be adopted in this Court. It submitted that the appropriate period of disqualification for the superimposed inflation contravention was 5 years. It said that, having regard to cumulation, concurrency and totality, this Court should impose a period of disqualification of 7 years.

2.1.1 The DOCI contravention 61The DOCI contravention is more complex than the summary description of it at [2] above. The declaration of contravention is set out at AJ [879] as declaration (3). 62The judge imposed the same period of disqualification as he had imposed on Mr Macdonald for a similar contravention in failing to advise the board in relation to the need for disclosure of the DOCI to the ASX. Mr Macdonald's contravention was again more complex than this summary. It is found at PJ [237] as declaration (8), and differs in some respects from the DOCI contravention but not in the essence of failure to raise for consideration disclosure of the DOCI Information to the ASX. 63His Honour acted on the parity principle. After referring for that principle to Postiglione v The Queen [1997] HCA 26; (1997) 189 CLR 295, Lowe v The Queen (1984) 154 CLR 606 and Australian Competition and Consumer Commission v ABB Transmission and Distribution Limited (No 2) [2002] FCA 559; (2002) 190 ALR 169, he said in the penalty judgment - "322 Other things being equal, there must be, as Austin J said in Vines 58 ACSR at 316 [45], a persuasive rationale for any difference in the disqualification periods for each of the defendants. 323 Mr Shafron gave no evidence and read no testimonial evidence. There is, therefore, no third party evidence of his fitness to manage a company and no evidence for it not being necessary to consider personal deterrence. 324 It was submitted that Mr Shafron's contraventions were related to his conduct as general counsel and as a legal adviser and demonstrated no deficiency in the management of a corporation. The contraventions were of inadequate legal advice rather than company management. 325 That puts Mr Shafron in the same position as Mr Macdonald who through testimonials established his fitness to manage a company. 326 Mr Shafron is in his late forties. It was submitted he should not be debarred from managing a corporation for the better part of the prime of his professional life. 327 It was submitted that general deterrence was satisfied by the making of the declarations of contravention, that Mr Shafron's reputation and standing had been seriously adversely affected by the high level of publicity surrounding the Special Commission, these proceedings and the Court's findings. 328 Mr Macdonald also suffered from the publicity surrounding the Special Commission and these proceedings and the Court's findings. 329 I do not regard these matters as sufficient to justify a discriminatory order of disqualification of Mr Shafron. Mr Shafron's personal position is not greatly different from that of Mr Macdonald and their delinquency was essentially the same. Each had a duty to warn the board of JHIL of the over emphatic language of the Draft ASX Announcement and the limited nature of the PwC and Access Economics reviews. Each had a duty to ensure that JHIL gave consideration to the disclosure of the DOCI Information. ... 331 I would impose the same periods of disqualification on Mr Shafron as I did with respect to Mr Macdonald. ... " 64Although what he had said was not specifically taken up at this point, his Honour's determination was no doubt in the light of what he had said at PJ [164]-[181] in relation to relief of Mr Shafron from liability for the DOCI contravention. His Honour had said at PJ [178] that "the evidence does not establish a basis upon which it appears to the court that Mr Shafron acted honestly in failing to advise on disclosure of the DOCI Information at the 15 February 2001 Meeting", and - "179 If it were appropriate to consider the second limb of those provisions, 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]. 180 The failure of JHIL to disclose the DOCI Information was flagrant. So was Mr Shafron's failure to bring the matter to the attention of Mr Macdonald or the board. The legislation requires disclosure of fresh information in a timely fashion. Accurate and timely information is an essential requisite of an informed share market." 65In James Hardie Industries NV v Australian Securities and Investments Commission [2010] NSWCA 332; (2010) 274 ALR 85 at [572]-[573] we endorsed this recognition of the importance of the continuous disclosure provisions. 66The judge's consideration of disqualification for the DOCI contravention, in the case of both Mr Macdonald or Mr Shafron, did not involve that the Draft ASX Announcement was before the board for approval at the February meeting. The DOCI was entered into as part of the separation proposal. Whether or not it was entered into and its disclosure to the ASX were not affected by any consideration and approval of a draft news release. 67Mr Shafron's submissions implicitly included that our view that ASIC had not established that the Draft ASX Announcement was before the board, see in particular AJ [1092], brought a difference from the basis on which the judge arrived at the period of disqualification. He submitted that the Draft ASX Announcement was "the primary vehicle for disclosure", and that Mr Shafron had been "left out of the loop" as to the terms of the Draft ASX Announcement and so "could not have known that the DOCI Information had not been disclosed and therefore would not have known that there was an occasion to obtain/provide advice to the CEO or Board". He submitted that his failure to advise Mr Macdonald or the board, as more fully stated in the declaration of contravention, was because the Draft ASX Announcement was not before the board and so he did not know whether or not the DOCI would be disclosed by an ASX announcement. 68This was close to canvassing the finding of contravention, and in our view is fanciful. We are reminded of what we said at AJ [986] concerning Mr Shafron's unattractive submission asserting obviousness of the need to disclose the DOCI Information. The submission was at odds with his contention at trial that in some respects there was no obligation to make any disclosure and his primary submission at trial and in this Court that he was entitled to rely on the silence of Allens for the proposition that they implicitly advised that no disclosure was necessary. The present submission is also unattractive. 69The submission goes nowhere. If Mr Shafron did not know whether or not the DOCI would be disclosed by an ASX announcement, it was incumbent on him to raise for consideration whether it should be disclosed. And it is factually not well-founded. If Mr Baxter sent the 7.28 pm draft news release to Mr Shafron, see AJ [200]-[201], Mr Shafron would have known that it did not disclose the DOCI Information. Even if Mr Baxter did not send the draft news release to Mr Shafron, when he attended the February meeting Mr Shafron knew that there was to be a news release the next day if the separation proposal proceeded. As we said at AJ [942], on 14 February 2001 he had e-mailed to Mr Baxter that "we really should get express permission from our experts before mentioning them publicly" and had said that if Trowbridge was to be mentioned he wanted to know what was to be said and he would "try to clear it with" Trowbridge. The news release was within Mr Baxter's domain. Mr Shafron had been dealing with the DOCI, not Mr Baxter, and the question of disclosure of the DOCI Information was not one of a news release but of disclosure to the ASX in compliance with JHIL's obligations under Listing Rule 3.1, which was within Mr Shafron's domain. 70In our opinion, our difference from the judge as to the Draft ASX Announcement at the February meeting does not detract from the basis on which the judge arrived at the period of disqualification for the DOCI contravention. 71Mr Shafron's submissions sought to distinguish his position from that of Mr Macdonald "in light of the fact that he was a junior executive to Mr Macdonald, and worked at his direction and under his supervision ... ". He submitted that Mr Macdonald had an independent ability to release information to the ASX, and that Mr Macdonald and Mr Baxter were the two senior executives primarily responsible for questions of disclosure to the ASX and that "[s]ome consideration should be given to the fact that Mr Macdonald did not raise the issue of disclosure of the DOCI Information for the Board's consideration, given that this judgment was made by the most senior executive officer of the Company". He said that Mr Macdonald was the chief executive and the driving force of Project Green, and that the judge's descriptions of Mr Macdonald's conduct as gross departure from the requisite standard of care and diligence and serious incompetence and irresponsibility could not be applied to his own conduct. 72However, as we said at AJ [1032] Mr Shafron was a senior executive with undoubted responsibilities to ensure compliance with regulatory requirements such as Listing Rule 3.1, and did in fact give advice on such issues from time to time. He was aware of the requirements of continuous disclosure, and of the fact that if JHIL failed to comply with Listing Rule 3.1 it would be harmful to JHIL both as a contravention of s 1001A(2) of the Act and as damaging to its reputation. A matter such as disclosure in accordance with ASX listing requirements was well within the scope of his responsibilities as company secretary. We do not think that he is relevantly to be distinguished from Mr Macdonald in relation to attention to disclosure of the DOCI Information, and we do not accept that Mr Baxter had a primary responsibility for that disclosure. It should not be overlooked that the contravention found against Mr Shafron included that he failed to advise Mr Macdonald concerning disclosure of the DOCI information to the ASX or to obtain advice for Mr Macdonald, quite apart from advice to the board. 73The description of Mr Macdonald's conduct as gross departure was in relation to voting in favour of the Draft ASX Announcement Resolution, at PJ [286], and the description of serious incompetence and irresponsibility was as to "some of" his contraventions, at PJ [307]. Mr Shafron is not assisted in relation to the DOCI contravention by taking these descriptions out of their context. We do not think that the nature and seriousness of the respective DOCI contraventions materially differed as between Mr Macdonald and Mr Shafron. 74Mr Shafron's submissions then came down to the contention that the disqualification for 7 years for the DOCI contravention was manifestly excessive, or was unreasonable or plainly unjust in the sense discussed in House v The King (1936) 55 CLR 499 at 505. He made submissions directed specifically to the DOCI contravention, and other submissions directed to both the DOCI contravention and the superimposed inflation convention. 75We summarise the former submissions as follows.

2.1.2 The superimposed inflation contravention 104In addition to the submissions as to general matters to which we have referred, Mr Shafron submitted that the following matters, which again we summarise, were relevant to the superimposed inflation contravention. 105First, Mr Shafron submitted that the failure to advise the board of the absence of superimposed inflation in Trowbridge's 2001 estimates was "more easily understood" because "it may be assumed" that he was aware of Trowbridge's reason for not including superimposed inflation in its estimates. That reason, he submitted, appeared from Trowbridge's October 1996 and September 1998 estimates, and was that the upward pressure on damages awards was offset by the increase in average age of claimants whereby the amount of compensation for future economic loss was reduced. 106There are difficulties with this submission, apart from the fact that Trowbridge referred to and made allowances for superimposed inflation in its sensitivity analyses. In the October 1996 and September 1998 estimates Trowbridge noted a tendency for claims to increase above the level of inflation and that there was an offset to this upward pressure by reason of the average age of claimants becoming older, but this was not given as the explanation for the future inflation rate of 4 per cent per annum in line with forecasts for wage inflation. Further, as recorded at AJ [1065]-[1066], since 1998 it had been suggested to Mr Shafron that the 4 per cent rate of inflation was too low, and he had told the August 2000 board meeting that JHIL's costs were increasing at rates much greater than Trowbridge's assumed "claim payout inflation of 4% compound PA". Again, the submission was made without the benefit of evidence from Mr Shafron. We are not prepared to assume (or find) that Mr Shafron understood that at earlier times Trowbridge had made no allowance for superimposed inflation because of the increasing age of claimants, let alone to assume (or find) that as at 2001 he regarded that as holding good and as a reason why it was not necessary to advise the board of the absence of superimposed inflation in Trowbridge's 2001 estimates. 107Mr Shafron then submitted that "the significance of a detail such as superimposed inflation is diminished" when in the appeal judgment we had not been satisfied that the Draft ASX Announcement was tabled or discussed at the February meeting, because "[t]hat document's overly emphatic claims concerning sufficiency of funding would have made the basis upon which the Trowbridge Material had been prepared of greater importance"; and further, because the cash flow model was otherwise sensitive to matters such as Trowbridge's "high scenario" rather than the best estimate and an earnings rate of 11.7 per cent rather than (say) 10.7 per cent. 108The logic of this escapes us. Superimposed inflation was not a detail; it made a difference of hundreds of millions. It was not made a detail because other changes in the assumptions made for the cash flow model could significantly impact on the modelling. And the sufficiency of funding to which the cash flow model was addressed was important to proceeding with the separation proposal, including establishing the Foundation, whether or not a draft news release was before the February meeting for approval. 109Mr Shafron submitted to the effect that the members of the board were well aware of the uncertainty associated with the Trowbridge estimates. As a general proposition that may be accepted, but we do not see that it diminishes failure to draw to the board's attention, as a matter highly significant to the reliance to be placed on the cash flow modelling, that no allowance had been made for superimposed inflation and that prudence dictated that an allowance should be made. 110Mr Shafron then submitted that the absence of any reference to superimposed inflation in the Trowbridge 2001 estimates "should ... not be regarded as automatically indicating that it had not been taken into account in the underlying report the subject of [the estimates]". We found at AJ [1068] that Mr Shafron knew that the cash flow projection in the February 2001 Trowbridge Report did not allow for superimposed inflation, and that if that was not properly to be inferred a reasonable person in Mr Shafron's position would have inquired in order to ascertain whether or not the cash flow projections allowed for superimposed inflation. The submission either canvassed our finding or was irrelevant. 111Mr Shafron submitted that the failure to advise that superimposed inflation was not taken into account "may ... be seen as less serious, and explicable as a lapse of judgment on a marginal or difficult question", because it had not been taken into account in the prior Trowbridge estimates. It had been raised in sensitivity analyses, and we refer again to AJ [1065]-[1066]. Once more, the submission is made without the benefit of evidence from Mr Shafron. Given the significance of the cash flow modelling to the decision-making at the February meeting, we do not accept that drawing to the board's attention that superimposed inflation had not been taken into account was a marginal or difficult question. 112Mr Shafron then submitted that, when he was not actuarially trained, his blameworthiness in failing to advise the board "about a matter falling clearly within the purview of an independent expert's retainer should be low". This overlooks what we said at AJ [1073]. In particular, Mr Shafron was familiar with the concept of superimposed inflation and had requested reduction in the sensitivity analysis in a draft 2000 report, and had made the slide presentation concerning Trowbridge's estimates at the February meeting. It was not something to be left for an independent expert who was not at the February meeting. 113Mr Shafron finally submitted that his failure to give the necessary advice "can not be shown to have had any, or any real, negative consequences", because of Mr Taylor's evidence to which we referred at AJ [1071] that the appropriate rate of superimposed inflation could conceivably have been zero. We accept that it is not clear what would have happened had Mr Shafron advised the board that the Trowbridge estimates had not taken into account superimposed inflation and a prudent estimate would have. That is different from acceptance that there were no adverse consequences of his failure, and the potential consequences were considerable had the board been told that the estimates on which the cash flow model had been produced should in prudence be increased by perhaps hundreds of millions. The importance of the failure was that the board was left to its decision-making without having had drawn to its attention a matter important to the reliance to be placed on the cash flow modelling. 114We do not think that these submissions on behalf of Mr Shafron carry significant weight in coming to any disqualification order in relation to the superimposed inflation contravention. 115ASIC submitted that Mr Shafron's involvement in dealing with Trowbridge and his understanding of superimposed inflation and its importance in estimating asbestos liabilities, and the significance of the matter to the reliance to be placed on the cash flow modelling, made Mr Shafron's failure to advise the board of equal seriousness to Mr Morley's failure to inform it of the limitations on the PwC and Access Economics reviews. It said that the 5 years disqualification imposed by the judge on Mr Morley should also be imposed on Mr Shafron. 116We agree that there is some similarity between the nature and seriousness of Mr Shafron's failure to act with due care and diligence in the superimposed inflation contravention and that of Mr Morley in the cash flow analysis contravention. For reasons yet to come, we will displace the judge's 5 years disqualification of Mr Morley and instead will disqualify him from managing corporations for 2 years. However, in relation to Mr Shafron protection of the public and personal deterrence are more weighty considerations. In our opinion, for his contravention Mr Shafron should be disqualified from managing corporations for 3 years.

2.1.3 Cumulation, concurrency and totality 117The judge effectively subsumed the two other periods of disqualification within the period of disqualification for the DOCI contravention. The substance of ASIC's submissions on appeal was that we should do the same with the period of disqualification for the superimposed inflation contravention. It could be argued that some accumulation was appropriate for a distinct contravention, but we will make the periods of disqualification concurrent. Accordingly, the disqualification order made by the judge will stand.

2.2 Mr Morley 118The judge's reasons in the penalty judgment for the disqualification order against Mr Morley were brief; relevantly - "337 The testimonial evidence tendered on Mr Morley's behalf establishes his competence as a director in highly complimentary terms. The need for personal deterrence in his case is low. But that does not establish a need for a discriminatory order as against the disqualification I imposed on Mr Macdonald because the need for personal deterrence arose with respect to Mr Macdonald's deliberate breaches and not with respect to the breach of which Mr Morley is convicted. 338 Mr Morley expressed contrition. But I have said that I place little store on this element. 339 Mr Morley has also been affected by the allegations the subject of these proceedings having being first ventilated in the Special Commission. His prospects of holding directorships or senior management positions is severely limited. 340 I do not regard these factors as sufficiently different from those that apply to Mr Macdonald to justify a discriminatory order against Mr Morley. I will make a disqualification order against Mr Morley for 5 years. The totality principle does not apply to his single contravention." 119The reference at PJ [338] to earlier saying that little store was placed on contrition appears to be to PJ [197], which we have set out at [17] above. We have taken a different view of the submission of aberration, whereby the counterweight to setting store on contrition is less. 120ASIC accepted that the judge had arrived at the order against Mr Macdonald for a like cash flow analysis contravention on the basis that the board had approved the Draft ASX Announcement. This was correct, see PJ [288]. ASIC accepted that the parity approach taken by his Honour in PJ [337]-[340] could no longer be sustained. 121Mr Morley submitted that the judge's disqualification order should be set aside and no disqualification order should be made. ASIC submitted that this Court should make a disqualification order for the same period as that of the judge's order. 122Mr Morley submitted, in line with the submissions to which we have referred in relation to relief from liability, that his contravention lay in negligence in failing to appreciate that a misleading impression would be conveyed to the board, in circumstances where he did not intend this outcome. He submitted that the judge's findings at LJ [276]-[302] showed that he attempted to address the cash flow model in a detailed manner, endeavouring to carry out his duty as chief financial officer. He submitted that while the contravention was relevant to the decision to establish the Foundation, it was not alleged or found that establishing the Foundation or the inadequacy of the Foundation's funding was a contravention by JHIL or any other person and his contravention was not connected with misleading the public through board approval of the Draft ASX Announcement. 123Mr Morley submitted that, in these circumstances, there was no significant need for general deterrence through a disqualification order. He submitted that no disqualification order should be made for that reason and because, as accepted by the judge at PJ [337], his competence as a director was established by testimonial evidence and the need for personal deterrence was low; he had expressed contrition; and he had already suffered as accepted at PJ [339]. (We note that Mr Morley expressly did not rely on any financial hardship.) He said, correctly, that there was no question of personal benefit or advantage for himself or another person. 124We do not think that Mr Morley's contravention can be so readily divorced from establishing the Foundation and its funding. The cash flow model was important to the decision to establish the Foundation so far as it indicated sufficiency of funding, a matter to which the board was acutely alive. The impression of an unlimited review by PwC and Access Economics was at the least apt to give comfort to the board that they could act upon the cash flow modelling in deciding that the separation proposal should go ahead and the Foundation should be established. Further, as we have earlier described Mr Morley was aware that the limited review was to be valuable in publicly saying that JHIL's work had been reviewed and checked. In our opinion, the failure to exercise the degree of care and diligence required by s 180(1) of the Law was a significant departure from due care and diligence, and did not lack seriousness. 125Accepting that the need for personal deterrence is low, nonetheless general deterrence is in our view an important consideration given the nature and significance of the cash flow analysis contravention. As well, it is necessary that relief be granted appropriate to mark significant failure in performance of the duties of a senior executive of a large public corporation and to maintain public confidence in the law's upholding of corporate standards. 126In a picturesque phrase, in Re One.Tel (In liquidation); Australian Securities and Investments Commission v Rich [2003] NSWSC 186; (2003) 44 ACSR 682 at [26] Bryson J observed that '[n]o-one should be sacrificed to the public interest". That was taken up in Australian Securities and Investments Commission v Beekink at [113]. Protection of the public, including by general deterrence, is at the heart of disqualification orders, and a delinquent officer against whom a disqualification order is made is not sacrificed. The phrase is a reminder that the public interest and the need to protect the public from repeated conduct or like conduct of others is balanced against the hardship to the officer. In our view, the balance requires a period of disqualification. 127Mr Morley drew attention to the warning by Santow JA, in Vines v Australian Securities and Investments Commission at [202]-[203], that excessive pecuniary penalties could lead to "self-protective defensive postures" by officers, deleterious to undertaking measured commercial risk. In the context of his submissions, Mr Morley transposed the warning also to disqualification. We see no question of measured commercial risk in Mr Morley's contravention. 128In our opinion, a disqualification order should be made, but not for the period of the judge's order. The judge's order should be set aside, and Mr Morley should be disqualified from managing corporations for a period of 2 years. That period should date from 27 August 2009, when the judge's order came into effect.

3. PECUNIARY PENALTY 129We have set out the relevant part of s 1317G of the Act at AJ [39]. By s 1317G(1)(b), the person's contravention must bring material prejudice (sub-paras (i) and (ii)) or be serious (sub-para (iii)). ASIC relied on seriousness. 130The parties' submissions generally dealt with pecuniary penalty together with disqualification. In the light of what we have said concerning disqualification orders, we can be brief. 131In Rich v Australian Securities and Investments Commission at [178] McHugh J said that it was "expected that the courts would consider imposing a pecuniary penalty only if it considered that a civil penalty disqualification provided an inadequate or inappropriate remedy". In our opinion, pecuniary penalties should be imposed in addition to the disqualification orders.

3.1 Mr Shafron 132The judge assessed a pecuniary penalty of $40,000 for Mr Macdonald in relation to his equivalent (although different) DOCI contravention, saying at PJ [376] that he did so "for the same reasons expressed with respect to disqualification". In imposing pecuniary penalties on Mr Shafron he acted on the parity principle. He said in the penalty judgment as to the DOCI contravention - "381 It was submitted on Mr Shafron's behalf that with respect to the contravention in declaration 3, I should impose a penalty substantially less than that imposed upon Mr Macdonald. 382 I reject that submission. As the secretary and general counsel of JHIL, he had responsibility for the company's performance of its continuous disclosure obligations. His contravention is not of less seriousness than that of Mr Macdonald. In my view there is no basis for a discriminatory order with respect to Mr Shafron." 133The judge thus came to a pecuniary penalty of $40,000 for the DOCI contravention. He then discounted the total of Mr Shafron's pecuniary penalties, which was $110,000, in imposing an overall pecuniary penalty of $75,000. 134In Vines v Australian Securities and Investments Commission Ipp JA said of seriousness as required by s 1317G(1)(b)(iii) of the Act - " [229] In my opinion, in this context, the seriousness of the contravention is to be determined by reference to: (a) the degree by which the officer of the corporation concerned has departed from the requisite standard of care and diligence (the standard being that explained by Spigelman CJ in the Contraventions Appeal Reasons at [138] to [151]); and (b) the consequences, potential or actual, of the contraventions." 135Mr Shafron submitted that his default was the product of a lapse of judgment, and "could not be characterised as 'serious' within the meaning of ASIC v Vines ". We do not agree. In our view, his failure to exercise due care and diligence was serious. 136Mr Shafron submitted that no pecuniary penalty should be imposed, alternatively that a "significantly smaller penalty" should be imposed. He submitted that his "culpability" was substantially less than that of Mr Macdonald; that declarations of contravention were more than adequate punishment for the contraventions; and that a table of civil penalty cases showed that in only two had a pecuniary penalty larger than that "sought against Mr Shafron" been imposed and lesser penalties had been imposed in more serious cases. 137ASIC submitted that there should be pecuniary penalties of $40,000 for the DOCI contravention and $35,000 for the superimposed inflation contravention, discounted for totality to an overall pecuniary penalty of $60,000. It emphasised the seriousness of the contraventions and the need for deterrence. 138Mr Shafron's lawyers appear to have misread the table of cases, but in any event the assistance gained from cases on other facts is limited and any pecuniary penalty in Mr Shafron's case requires its own assessment. We do not think that error has been shown in the judge's assessment of the pecuniary penalty for the DOCI contravention or that $40,000 was outside the available range of pecuniary penalty. We would assess a pecuniary penalty of the same order for ourselves. 139In our opinion, an appropriate pecuniary penalty for the superimposed inflation contravention is $25,000. This is a little more than the pecuniary penalty which we will impose on Mr Morley for the cash flow analysis contravention, despite what we have accepted is in some similarity between the failures to act with due care and diligence, for reasons of personal deterrence and thereby protection of the public. 140The judge's order should be set aside, and having regard to totality it should be ordered that Mr Shafron pay a pecuniary penalty of $50,000.

3.2 Mr Morley 141The judge relevantly said only, at PJ [385], that "[a]pplying the parity principle, I would order Mr Morley to pay a pecuniary penalty of $35,000". The parity was plainly enough with the same penalty imposed on Mr Macdonald for his equivalent cash flow analysis contravention. 142Mr Morley submitted that the judge's order imposing a pecuniary penalty should be set aside, and that no pecuniary penalty should be imposed. ASIC accepted that the judge's order could no longer be sustained, but submitted that this Court should impose the same pecuniary penalty of $35,000. 143Mr Morley submitted that the cash flow analysis contravention was not serious, as required by s 1317G(1)(b)(iii) of the Act. In our opinion, the degree to which Mr Morley departed from the requisite standard of care and diligence and the potential consequences were such that the contravention was serious. 144Mr Morley and ASIC otherwise relied on their submissions in relation to a disqualification order. In our opinion, the judge's order should be set aside and it should be ordered that Mr Morley pay a pecuniary penalty of $20,000.

4. MR MORLEY'S COSTS APPEAL 145At PJ [424]-[425] the judge referred to his earlier identification of 10 issues in the proceedings, and to ASIC's identification of 13 issues. He accepted at PJ [426] that these were issues or groups of issues that were separable or discrete, relating to different fact situations and differing participants, and that the defendants against whom the issues were raised were not uniform across the issues. Two of the issues were named the Draft ASX Announcement issue and the DOCI Execution issue. 146The contraventions alleged by ASIC against Mr Morley were the cash flow analysis contravention; contraventions concerning superimposed inflation and 50 per cent probability the subject of ASIC's cross-appeal and a related contravention concerning uncertainty of the Trowbridge 2001 estimates; and a contravention in failing to obtain legal advice concerning the put option in the DOCI before executing the DOCI. Mr Morley had executed the DOCI as a director of Coy and Jsekarb. The last-mentioned alleged contravention was the DOCI Execution issue. 147ASIC failed on the DOCI Execution issue, and did not appeal. The judge did not specifically refer in the reasons he gave for his costs orders to the other contraventions alleged against Mr Morley. We consider it clear enough that he included them within the Draft ASX Announcement issue, the common element being the February meeting. 148The judge said at PJ [459] that he would make no order as to the costs of a group of issues which included the Draft ASX Announcement issue. His Honour said - "461 With respect to the DOCI Execution issue, Mr Morley having succeeded on it but failed on the Draft ASX Announcement issue sought an order that ASIC pay him 80% of his costs. 462 Since the DOCI Execution issue involved far less evidence than the Draft ASX Announcement issue and my order with respect to it has relieved Mr Morley from paying substantial costs, I will follow the same approach and make no order to costs of the DOCI Execution issue such that Mr Morley and ASIC will bear their own costs of that issue." 149There appears to have been some looseness in his Honour's reference to the Draft ASX Announcement issue. If we correctly understand that it included the contraventions alleged against Mr Morley other than the DOCI Execution issue, Mr Morley had not failed on the contraventions concerning superimposed inflation, 50 per cent probability and uncertainty of the estimates. Mr Morley did not point to this as an error, save so far as, as noted below at [151], he submitted that ASIC had failed with the exception of the cash flow analysis contravention. 150We do not think there was material error. The allegations of the cash flow analysis contravention and the other contraventions were factually closely related, all concerned with informing the board in relation to the reliance which could be placed on the cash flow modelling. As apparently accepted by Mr Morley, ASIC's success within the group of related allegations appears to have been regarded as carrying with it all costs in connection with the allegations, such that the judge referred at PJ [462] to relief from payment of substantial costs: that is, from the costs of what he had described as failure on the Draft ASX Announcement issue. 151Mr Morley submitted that the judge erred in failing to order that ASIC pay him 80 per cent of his costs of the proceedings. He said that the costs order should reflect his substantial measure of success in that, although ASIC established one contravention, it otherwise wholly failed, and that a large amount of time in the case was taken up with the failed claims. He did not go into detail. He said that making no order as to the costs of the Draft ASX Announcement issue was not a reason to decline to make the costs order he sought, because he had succeeded on the DOCI Execution issue. 152As ASIC correctly submitted, Mr Morley did not identify an error in the exercise of the judge's discretion of the kind referred to in House v The King , save so far as it was implicitly submitted that the exercise of the discretion was wholly unreasonable. When the judge's reasoning is appreciated, it was not. By making no order as to the costs of the Draft ASX Announcement issue, the judge benefited Mr Morley because that order relieved Mr Morley from paying substantial costs. The costs of the DOCI Execution issue would reflect that far less evidence was involved than for the Draft ASX Announcement issue. Costs were complex, given the differing participants and issues and the overlap of evidence between issues, and the judge correctly said at PJ [442] that the disposition of costs would rely very much on impression and that mathematical accuracy was impossible. On the broad-brush approach, the costs from which Mr Morley was relieved off-set the costs of the DOCI Execution issue which he otherwise might have been awarded. Hence no order as to costs. 153This exercise of discretion was well open to the judge. In our opinion, no error has been shown in declining to order that ASIC pay 80 per cent of Mr Morley's costs.

5 COSTS 154Mr Shafron's contraventions now differing from those found at trial, there may be occasion to revisit the trial costs as between ASIC and Mr Shafron. There is no occasion to revisit the trial costs as between ASIC and Mr Morley. We must make orders as to the costs of the appeals and cross-appeals.

5.1 Mr Shafron 155As we understand the effect of the orders made by the judge, his Honour made no order as to the costs of the trial as between ASIC and Mr Shafron save that Mr Shafron was ordered to pay one third of ASIC's costs of what was described as the DOCI Disclosure issue. This was the subject matter of the DOCI contravention. 156Without regard to the judge's orders or the reasons for them, Mr Shafron submitted that this Court should order that ASIC pay one third of Mr Shafron's trial costs and that there should otherwise be no order as to those costs; alternatively, that there should be no order as to the costs of the trial. His submissions were brief. He said that he had had greater success than ASIC, in that ASIC had established the DOCI contravention and the superimposed inflation contravention but otherwise had failed as against him; and, further, that the matters upon which ASIC failed included those occupying a high proportion of preparation and court time, being those "concerning approval of the press release, and the sufficiency of the funding of the Foundation". He did not go into further detail. 157ASIC submitted, with effectively no elaboration, that "bearing in mind the relative successes and failures" it should "maintain its costs order below". 158We allowed Mr Shafron's appeal against the Draft ASX Announcement contravention and his equivalent cash flow analysis contravention, but allowed ASIC's appeal in relation to the superimposed inflation contravention. Mr Shafron remains subject to the disqualification order made by the judge, and to an order for payment of a pecuniary penalty little varied from the order made by the judge. This is not very different, on an appropriately broad approach, from the position at trial. However, we think that there is some force in the consideration that Mr Shafron should have some relief from the costs occasioned by the significant factual dispute over approval of the draft news release at the February meeting, because we have displaced the Draft ASX Announcement contravention. 159It may be that, as was suggested by ASIC in relation to the appeal, other parties "had the principal running" of that factual matter, but Mr Shafron incurred costs even with limited participation. The judge must have regarded the alleviation of Mr Shafron's costs of the DOCI Disclosure issue as a broad set-off against some of the costs of the trial to which he would otherwise have been entitled (although he would not have been entitled to all other costs of the trial, including because of his failure at trial on the Draft ASX Announcement issue). We consider it appropriate that there be some further alleviation, and that the judge's order that Mr Shafron pay one third of the costs of the DOCI Disclosure issue be set aside and be replaced by an order that he pay one quarter of the costs of that issue. 160Mr Shafron submitted that ASIC should be ordered to pay one third of his costs on appeal and that there should otherwise be no order as to costs; alternatively, that there should be no order as to costs on appeal. He gave the same reasons, although we observe that success or failure on appeal is not properly considered by regard to the greater range of issues at trial and should be considered by regard to the issues on appeal. 161ASIC submitted that, again bearing in mind the relative successes and failures, there should be no order as to the costs of the appeal and the cross-appeal. We need not repeat the catalogue of success and failure. ASIC said that the other appellants had the principal running of the appeal in relation to the Draft ASX Announcement contravention, and that Mr Shafron had abandoned his appeal against the judge's refusal to grant relief from liability. 162Each of ASIC and Mr Shafron has succeeded in part and failed in part, although in the result Mr Shafron remains subject to a disqualification order and an order for payment of a pecuniary penalty. There is no variation in the period of disqualification and little variation in the pecuniary penalty. In our opinion, it should be ordered that there be no order as to the costs of the appeal and cross-appeal.

5.2 Mr Morley 163Mr Morley's submissions were also brief. He submitted that if he was relieved from liability or "had the penalty imposed on him reduced", ASIC should pay his costs of the appeal from the date of the appeal judgment, 17 December 2010; otherwise, that there should be no order as to the costs of the appeal and cross-appeal. The only reason given was "in the light of ASIC's failure to establish its cross-appeal". 164ASIC agreed that, apart from costs since 17 December 2010, there should be no order as to costs, on the basis that Mr Morley's appeal against liability and its cross-appeal had both failed and "the resources devoted to each was approximately equal". It submitted that relief from liability or reduction in penalty should not bring an order against it for the costs since 17 December 2010, because the later submissions were relatively brief and in many respects canvassed matters addressed in the first round of submissions, and because "any such exoneration or reduction would come from the exercise of a discretionary judgment". 165As a further matter, Mr Morley's costs appeal is also dismissed. He achieved reduction in both the period of disqualification and pecuniary penalty, not wholly in the exercise of a discretion but by obtaining a finding that he acted honestly, and our consideration of whether he ought fairly be excused and our exercise of discretion were required by a different factual context from that on which the judge had acted arising from success on appeal by others. However, Mr Morley failed to obtain relief from liability. In our opinion, there was broadly equal success and failure after 17 December 2010, such that notwithstanding an outcome more favourable to Mr Morley the later costs should fall within an overall position of no order as to the costs of the appeal and cross-appeal.

6. ORDERS 166The parties should be able to agree upon part repayment of the pecuniary penalties imposed by the judge, but we will reserve liberty to apply in that respect. We make the following orders - (1)In 2009/298408 (Mr Morley) - (a)Appeal against the costs order made on 27 August 2009 dismissed. (b)Set aside the order made on 27 August 2009 that the appellant be disqualified from managing a corporation for a period of 5 years, and in lieu thereof order that the appellant be disqualified from managing corporations for 2 years from 27 August 2009. (c)Set aside the order made on 27 August 2009 that the appellant pay to the Commonwealth of Australia a pecuniary penalty of $35,000, and in lieu thereof order that the appellant pay to the Commonwealth of Australia a pecuniary penalty of $20,000. (d)Make no order as to the costs of the appeal and cross-appeal. (e)Reserve liberty to apply in relation to part repayment of the pecuniary penalty of $35,000. (2)In 2009/298416 (Mr Shafron) - (a)Set aside the order made on 27 August 2009 that the appellant pay to the Commonwealth of Australia a pecuniary penalty of $75,000, and in lieu thereof order that the appellant pay to the Commonwealth of Australia a pecuniary penalty of $50,000, (b)Set aside the order made on 27 August 2009 that the appellant pay one third of the respondent's costs of the DOCI Disclosure issue, and in lieu thereof order that the appellant pay one quarter of the costs of that issue. (c)Make no order as to the costs of the appeal and cross-appeal. (d)Reserve liberty to apply in relation to part repayment of the pecuniary penalty of $75,000.

Amendments 09 May 2011 - Pursuant to leave granted by his Honour in Chambers under the slip rule, the final figure in Order 2(a) re Mr Shafron is amended from "$25,000" to $50,000". Amended paragraphs: Cover sheet and paragraph 166(2)(a) DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 09 May 2011