NRMA LTD & ORS v MORGAN & ORS

(1999) 31 ACSR 435 Reported Decision : (1999) Aust Torts Reports 81-505 (1999) 17 ACLC 1029

New South Wales Supreme Court CITATION : NRMA LTD & ORS v MORGAN & ORS [1999] NSWSC 407 CURRENT JURISDICTION : Commercial Divison FILE NUMBER(S) : 50257/95 HEARING DATE(S) : 25, 26, 27, 29 May; 1, 2, 3, 4, 5, 9, 15, 16, 17, 18, 19, 22, 23, 24, 25, 26, 29 June; 1, 3, 6, 7, 8, 9, 10, 13, 14, 15, 16, 17, 20, 21, 22, 23, 24, 27, 28, 29, 30, 31 July; 3, 4, 5, 6, 7, 10, 11, 12, 13, 14, 24, 25, 26, 27, 28 August; 1, 2, 3, 4, 7, 8, 9, 10, 14 September; 6, 7, 8, 9, 13, 14, 15, 16 October 1998 JUDGMENT DATE : 13 May 1999

PARTIES : NRMA LTD & ORS MORGAN & ORS JUDGMENT OF : Giles J

Plaintiffs - J L Sher QC & N J O'Bryan COUNSEL : First Defendant - B C Oslington QC & M R Speakman Second Defendant - R V Gyles QC, G K Burton & R C Beasley Third Defendant - A J Meagher SC & P R Whitford Plaintiffs - Norton Smith SOLICITORS : First Defendant - Blake Dawson Waldron Second Defendant - Ebsworth & Ebsworth Third Defendant - Corrs Chambers Westgarth CATCHWORDS : NEGLIGENCE - solicitors and barrister - extent of duties of care - standards of care that of experts in the relevant field - whether breach of duties of care; FAIR TRADING ACT 1987 - misleading conduct - solicitors and barrister - negligence in advising - whether misleading conduct or involvement in client's misleading conduct; CORPORATIONS LAW - issue of prospectus - causing or approving issue - solicitors and barrister - negligence in advising - misleading prospectus - whether causing or approving issue; DAMAGES - wasted expenditure - expenditure to demutualise company - injunction to restrain - if solicitors and barrister negligent - expenditure wasted - whether recoverable without regard to whether demutualisation would have failed anyway - McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 and Commonwealth of Australia v Amann Aviation Pty Limited (1991) 174 CLR 64 considered. DECISION : Reasons published; stood over for calculation of interest and submissions on costs.

IN THE SUPREME COURT OF NEW SOUTH WALES COMMERCIAL DIVISION

1 National Roads Association of New South Wales ("Association") was incorporated in 1920 as a company limited by guarantee. It was formed to promote the interests of motorists and other road users and to provide services to motorists, including an emergency or breakdown road service and insurance. With some intermediate changes of name involving expansion to National Roads and Motorists' Association and use of the acronym NRMA, on 17 November 1992 its name was changed to NRMA Ltd. By 1994 Association had over 1,800,000 members, it wholly owned or was the majority shareholder in eight subsidiary companies, and it had assets of approximately $457 million under its management. 2 NRMA Insurance Ltd ("Insurance") was incorporated in 1926, also as a company limited by guarantee. It was formed to provide insurance and financial services, without restriction to a motoring connection. Policy holders and recipients of financial services did not have to be members of Insurance: the members of Insurance were Association, any director of Insurance appointed by Association, and (in general terms) those policy holders who were also members of Association. By 1994 Insurance had approximately 1,300,000 members, it wholly owned or was the majority shareholder in eight subsidiary companies, and it had assets of approximately $4,401,000,000 under its management. 3 Association, Insurance, and their subsidiaries operated as an organisation generally known to the public as the NRMA, and where there is no point in distinguishing between the constituents of the organisation I will so refer to it. Association was the dominant constituent of the organisation. The directors of Association appointed the directors of Insurance, and the President of Association was ex officio the chairman of directors of Insurance. The articles of Association provided for the management of its affairs to be carried on by a Board of Management comprised of the President, the chief executive officer, and others elected by the directors being either directors or employees, with a majority of directors. The articles of Insurance provided for appointment by the directors of Association of members of the Board of Management as a committee to act "in liaison with" the directors of Insurance, and that the directors of Insurance might delegate their powers to the committee. These bodies were put in place, it seems with common membership, and acted jointly as the Board of Management and Insurance Liaison Committee. So the affairs of Association and Insurance received significantly common direction, but in practice with Association able to exercise overall control. 4 As is evident, the NRMA was successful and prosperous. It built up large reserves. Its success and prosperity did not mean the distribution of its profits. As companies limited by guarantee, Association and Insurance were operated for the mutual benefit of members. Profits could, and did, mean that the annual subscription for the provision of road service by Association was kept down, that other services were provided by Association to members at less than cost, and (for a time) that rebates were given to the holders of policies issued by Insurance. But the members were not shareholders, and as the articles stood could not receive dividends; on a winding-up of Insurance any surplus went to Association, and if Association were then wound up any surplus went not to members but to an institution with similar objects or for charitable purposes. 5 For this reason, amongst others, the senior management and a majority of directors of the NRMA did not regard its structure as satisfactory, the other reasons including what was regarded as an unsatisfactory basis for corporate governance and a perceived need to be able to raise capital in order to compete effectively and expand in the NRMA's commercial activities. So it was proposed that the NRMA be restructured by what was called "demutualisation", that is, a change from operation through companies limited by guarantee conducted for the mutual benefit of members to operation through a company with shareholders conducted with a view to making profits and distributing them to the shareholders. The proposal was described in a letter from the President to members, in the prospectus of which much will be said later in these reasons, as a proposal to "unlock the wealth" of the NRMA and "permit members to share in [its] wealth and future financial successes". The slogan "Share the Future" was adopted in connection with the proposal. 6 Consideration of restructuring began in 1992. The proposal was approved by the boards of Association and Insurance for further development with a view to ultimate listing of the NRMA on the Stock Exchange, and was announced, on 17 March 1994. Neither the new structure nor the steps to achieve it were finally determined at that time, although it was envisaged that a new company with share capital would be incorporated, that the new company would be admitted to membership of Association and Insurance, that resolutions would be passed at general meetings of members of Association and Insurance having the effect that the members of Association and Insurance other than the new company would cease to be members and would instead either become shareholders in the new company or receive a cash payment, and that the new company would then be listed on the Stock Exchange. In the result, the new company would be a listed holding company, the only member of Association and Insurance, and services previously enjoyed by virtue of membership (road service and otherwise) would be provided to the now shareholders in the new company under contracts with the service provider. 7 Development of the proposal continued after 17 March 1994. The new structure and the steps to achieve it were finally determined, still of the same nature. The new company NRMA Holdings Ltd ("Holdings") was incorporated (some of the directors of Association became its directors), and Holdings became a member of Association and Insurance. On 18 August 1994 the boards of Association and Insurance formally resolved to proceed with the proposal by putting it to general meetings of their members with their recommendations. 8 The crucial step in the proposal was the passing of the resolutions at the general meetings. Special resolutions of 75 per cent of those present, in person or by proxy, were required. It was necessary that notices of the general meetings be sent to members and that they be appropriately informed as to the proposal so that they could vote on the resolutions, and as well the offer of shares in Holdings to those members (and others) who chose to become shareholders called for the issue of a prospectus. Both tasks were addressed through a booklet, entitled a prospectus although more than that, issued on 23 August 1994. The prospectus was sent to members of Association and Insurance in a clear plastic cover accompanied by a separate two leaf document known as an onsert. The notices of meeting in the prospectus were for general meetings to be held on 19 October 1994, and the onsert included proxy voting papers for the general meetings. Mailing of the prospectus package began on 31 August 1994. 9 The approvals of the proposal by the boards of Association and Insurance, and the resolutions by those boards to proceed with it, were not unanimous. On 22 September 1994 two of the directors opposed to the proposal, Mr Richard Talbot and Miss Dawn Fraser, filed an application in the Federal Court of Australia seeking declaratory and injunctive relief in relation to the prospectus and onsert and the holding of the general meetings. Holdings, Association and Insurance were respondents to the application. 10 Gummow J ordered that there be heard separately from any other questions the applicants' claims for a declaration that the members of Association and Insurance were not fully, fairly and adequately informed of the proposal the subject of the resolutions to be put before them or of the offers made in the prospectus, for a declaration that the prospectus and the information in it were misleading in certain respects, and for injunctions restraining the relevant respondents from proceeding with the meetings except for the purpose of adjourning them and from proceeding in any way with the offers or the implementation of the restructuring and offers proposed in the prospectus. The hearing of those claims took place on 5, 6 and 7 October 1994, and Gummow J gave judgment on 13 October 1994 (Fraser v NRMA Holdings Ltd (1994) 52 FCR 1). 11 I will shortly return to the application and his Honour's reasons, and for the present it is sufficient that Gummow J held that the prospectus was misleading in what it said or did not say in certain respects, that by distributing the prospectus and onsert Holdings had engaged in misleading conduct in contravention of s 52 of the Trade Practices Act 1974 ("the TP Act"), and that by proceeding with the general meetings Association and Insurance would be parties to and knowingly concerned in that contravention. Injunctions were granted restraining further distribution of the prospectus and onsert and restraining Association and Insurance from proceeding with any business at the general meetings except as necessary or appropriate to adjourn them. 12 The general meetings convened for 19 October 1994 were opened, but in accordance with the orders of Gummow J no substantive business was transacted and they were adjourned. 13 Holdings, Association and Insurance sought leave to appeal from the decision of Gummow J to the Full Court of the Federal Court. Full argument on the merits of the appeal was heard on the application for leave on 6 and 7 December 1994. The Full Court (Black CJ, von Doussa and Cooper JJ) gave judgment on 27 January 1995 (NRMA Holdings Ltd v Fraser (1995) 55 FCR 452). 14 Leave to appeal was granted, but the appeal was dismissed with a variation in the orders of Gummow J. Again I will shortly return to the appeal and their Honours' reasons, and for the present it is sufficient that the Full Court did not uphold all the respects in which the prospectus had been found by Gummow J to be misleading, and held that it was misleading in a different respect. The respects in which the prospectus was found wanting were in connection with the description of the shares in Holdings to be issued to members as free shares and the disclosure of the disadvantages of the proposal. The position was unchanged: the general meetings could not transact any substantive business. 15 The judgment of Gummow J had left as a possibility the issuing of a supplementary prospectus to rectify matters held to bring about the misleading conduct, and the judgment of the Full Court left an enhanced possibility. The NRMA still wanted to proceed with the proposal, and was considering how best to do so: its consideration included by issuing a supplementary prospectus, and some work towards a supplementary prospectus was done. 16 Then on 8 March 1995 the High Court gave judgment in Gambotto v WCP Ltd (1995) 182 CLR 432 ("Gambotto's case"). It will be necessary to return to the course of Gambotto's case and the reasons of the High Court, but the broad effect of the reasons was that the articles of a company could not be changed by special resolution to empower the majority shareholders to expropriate the minority shareholders merely in order to secure a favourable corporate structure. 17 The NRMA took advice on the implications of this decision for the demutualisation by the steps then involved in the proposal, relevantly resolutions in general meetings affecting the continuation of the memberships of the members of Association and Insurance. After detailed consideration of the matter, in May 1995 the NRMA decided not to proceed with the proposal, whether with a supplementary prospectus or at all. 18 So the attempt at demutualisation failed. But the NRMA had spent a lot of money. In developing the proposal it had obtained advice and assistance from merchant banks, corporate advisers, underwriters, accountants, and lawyers. It had obtained marketing and public relations services from a number of providers of such services. The printing and postage of the prospectus package alone cost millions of dollars, and there was a host of other costs, large and small, associated with the formulation and implementation of the proposal. Then the NRMA had incurred the costs of the Federal Court proceedings, and after those proceedings had obtained further merchant banking, legal, and other advice and assistance. Putting forward also a large sum for its internal costs, the NRMA asserted a total expenditure of nearly $30 million. It said that, with the decision not to proceed with the proposal, the expenditure was all wasted. 19 The lawyers from whom the NRMA had obtained advice were the firms of solicitors Allen Allen & Hemsley ("AAH") and Abbott Tout ("AT") and, through those firms, the barrister Mr Dyson Heydon QC. The advice included advice to do with the new structure and the steps to achieve it and to do with the content of the prospectus and the onsert. In these proceedings the NRMA alleged that the lawyers were at fault in advice they gave and did not give in those areas, and consequently engaged in or were involved in the NRMA's misleading conduct, and that they were responsible in law for the waste of the expenditure. It claimed the amount of the wasted expenditure from them. II FOUNDATION MATERIAL 20 Central to these proceedings is an appreciation of the prospectus and the onsert, of the reasons of Gummow J and the Full Court, and of Gambotto's case and its progress through the courts. I will address those matters now, as a foundation for what follows. The prospectus and the onsert 21 The onsert was the first part of the prospectus package seen by the member, and a description of the onsert should precede the description of the prospectus. There were a number of different versions of the onsert, according to whether the member could vote at all, whether the member could vote as a member only of Association, whether the member could vote as a member of Association and also as a member of Insurance, or whether the member could vote as a member only of Insurance, and in the case of voting as a member of Insurance according to whether one or more vote could be exercised. By far the majority of members were what was called situation 3 members, voting as a member of Association and also as a member of Insurance. The next largest group was situation 2 members, voting as a member only of Association. The other groups were relatively insignificant. 22 The onsert took a more significant role in these proceedings than in the proceedings in the Federal Court, and seeing the majority version in its complete form will be of assistance. As may be expected, the onsert went through many drafts before reaching its final form. A copy of the onsert for situation 3 members is appendix 1 to these reasons. 23 The first page, the front of the first leaf, was intended to contain the name and address of the member next to the postage details, and came to be called the carrier. It was the topmost page in the prospectus package, visible within the clear plastic cover. The second page, the back of the first leaf, contained instructions to the member. The third page, the front of the second leaf, contained both the proxy voting paper for the general meeting of Association and the Acceptance of Free Shares form. The fourth page, the back of the second leaf, contained the proxy voting paper for the general meeting of Insurance. The features of the onsert particularly material to these proceedings were - (a) the words "How to vote!" and "How many shares you will be given!" in proximity across the first page; for a time in the drafting history of the carrier the latter words had been, "How many FREE shares you will get!", and the circumstances in which those words were used and were changed will be described in these reasons; (b) the reference to the onsert including an Acceptance of Free Shares in the bottom left hand corner of the first page; this was a relative constant in the drafts; (c) the asterisk against "Free Shares" in the first line of the instructions on the second page, and the marginal note to which it referred stating that "The Free Shares (or cash alternative) are in exchange for membership under the Articles of each of NRMA Ltd and NRMA Insurance Ltd …"; as will be described, the asterisk and marginal note were introduced in conjunction with the change in words in (a); and (d) the Acceptance of Free Shares form on the third page in proximity to the proxy voting paper for the general meeting of Association. 24 The onsert for the other situations where the member could vote had the same features. The onsert for the situation where the member could not vote did not have "How to vote!" or the proxy voting papers, and did not have that part of the instructions to do with voting, but did have "How many shares you will be given!" and, with appropriate changes, the references to Free Shares with the asterisk and marginal note and the Acceptance of Free Shares form. 25 The prospectus was a document of 100 pages, attractively presented and enhanced by photographs of NRMA personnel and operations. After some preliminary material, it was divided into nine Sections. It made frequent use of the phrase "Free Shares", a phrase defined in its Section 9 devoted to "Definitions and Technical Terms" as meaning "the NRMA shares offered to members under the Members Free Offer". This definition in turn took up the definitions of "NRMA shares" as meaning "some or all (depending on the context) of the fully paid ordinary shares of $1.00 par value each in NRMA Holdings offered under this prospectus" and of "Members Free Offer" as meaning "the offer of Free Shares to members as described in Section 2". 26 In the following description of the prospectus, it must be remembered that it was intended that it do at least two jobs. It was not just a prospectus providing information material to an offer of shares in Holdings. It also contained notices of the general meetings of Association and Insurance and information to inform members as to the proposal so that they could vote on the resolutions to be put forward at the meetings. The description concentrates upon features of the prospectus material to these proceedings. 27 It was stated on the inside of the cover of the prospectus that it was issued by Holdings and Perpetual Trustee Company Ltd ("Perpetual"). Perpetual was included because, under the proposal as finally determined, there was a second stage offer of shares in Holdings by Perpetual. The first stage offer of shares in Holdings was by Holdings to former members of Association and Insurance, being the Members Free Offer. Those shares not taken up pursuant to the offer under the Members Free Offer would go into the NRMA Offer Trust, of which Perpetual was trustee, and would be offered to institutions, to members and policy holders, and then to the public, under the "Sale Offer": the Sale Offer was the second stage offer. In the definitions, the offer to members and policy holders part of the Sale Offer was described as the "Members Extra Shares Offer", distinct from the Members Free Offer and defined as "the invitation made pursuant to this prospectus to members and non-member policyholders to apply to buy NRMA shares as described in Section 2". The shares under the Sale Offer were not described as Free Shares. 28 Page 1 of the prospectus was introductory. It was said that the prospectus provided information on the NRMA "which will help you decide whether you want NRMA shares", and that it "explains the proposal and its implications". Members were urged to vote, and it was said that the boards of Association and Insurance recommended that members of each vote in favour of the proposal and that members of Association "choose the Free Shares". It was said that the prospectus should be kept because "[A]s well as the proposal to issue the Free Shares, members may be able to buy extra NRMA shares during the Sale Offer". 29 Page 2 of the prospectus was a contents page, providing an index to the nine Sections which followed. Before those Sections, however, on pages 3 and 4 there was a "President's Letter" on a Holdings letterhead reading - "Dear Member,

As a member of the NRMA you are facing one of the most important decisions in the proud history of the organisation.

The NRMA, like many other mutual organisations, has reached a crossroads. It is time to decide: whether we continue to operate within our current structure - which has been successful but which does not permit the members to share in the wealth and financial successes of the organisation; or whether we adopt a new structure which will build on the current successes and permit members to share in the wealth and future financial successes of the organisation.

In short, the proposal is to unlock the wealth of the organisation by giving members Free Shares. The Proxy Voting Paper that came on the outside of this prospectus will have told you the number of Free Shares you will receive and an estimate of their value. The proposal and its implications for you are detailed in Section 1 of this prospectus. If the proposal is adopted, members' financial ownership of the NRMA will be formalised. The Boards of the Association and NRMA Insurance have each considered the options and have concluded that the share issue is in the best interests of members and policyholders.

The restructure will not affect the way we operate. The NRMA will continue to provide efficient Road Service and competitive insurance. There will be no change in the road patrols. The restructure will however give us greater flexibility in developing businesses for the benefit of all members and policyholders.

The Boards therefore strongly recommend that you vote in favour of the proposal and accept the Free Shares

In my 14 years as a member of the Board of the Association, I have seen the organisation grow and prosper. This proposed change in structure will place us in an even stronger position to maintain our high standard of service and our competitiveness.

The decision is yours. On Wednesday 19 October, there will be two general meetings at which you will make the decision. You can vote and accept your Free Shares by post using the Proxy Voting Paper and Acceptance of Free Shares form that came on the outside of this prospectus.

Only if 75% of members who vote are in favour can the shares be issued. Therefore don't leave it to others to vote. Your vote and the vote of your fellow members will determine the NRMA's future, so don't delay: consider the proposal using the details in this prospectus; complete and sign both the 'In Favour' sections of the Proxy Voting Paper and Acceptance of Free Shares form that came on the outside of this prospectus and encourage your family and friends to do likewise, so the proposal will receive the requisite 75% vote; mail the Proxy Voting Paper and the Acceptance of Free Shares form to us so that we receive it preferably by no later than 12 October 1994.

Act now and Share the Future with a great organisation - your NRMA.

Yours sincerely [signature] DON MACKAY President" 30 Section 1 of the prospectus was entitled "Information for Members", and occupied pp 5 to 20. The features of the prospectus in this Section particularly material to these proceedings (apart from the references to Free Shares) were the recommendations to vote in favour of the proposal, the references to consideration of advantages and disadvantages and the extent of discussion of advantages and disadvantages, and the express references to members giving up membership. The last-mentioned references are emphasised in their reproduction in these reasons, for ease of later identification. 31 The introduction within Section 1 read - " INTRODUCTION

This Section is provided by the Boards of NRMA Ltd ('the Association') and NRMA Insurance Ltd ('NRMA Insurance').

THE NRMA TODAY From its origins as a club with some 50 members formed in 1920, the NRMA has grown to become one of the world's leading motoring organis-ations with over 1.8 million members and assets under management of more than $6 billion at 31 March 1994. The tremendous loyalty of the NRMA's members and policyholders has come from the excellence of the services provided by the NRMA over many years.

BENEFITS OF CHANGE Under the NRMA's current structure the wealth that is the product of this success is locked away, inaccessible to members of each of the Association and NRMA Insurance. The challenge for the NRMA was to find a way of unlocking that wealth while ensuring that it continues to provide excellent service.

The NRMA is proposing to change its legal structure to enable its financial success to be shared with its members. At the same time, the new structure will allow the NRMA to remain a unique institution which continues to provide quality service.

The primary benefit of the proposal is that members of the Association will receive Free Shares allowing them to share in the future financial success of the NRMA.

THE BOARDS RECOMMEND The NRMA Boards have carefully considered the advantages and disadvantages of the proposal and have concluded that this proposal is in the best interests of members and the NRMA. Vote 'Yes' The Boards therefore recommend that: members of each of the Association and NRMA Insurance vote in favour of the proposal; Accept the Free Shares members of the Association choose the Free Shares."

32 There was then a description of the proposal. It began with the statement that members had the opportunity to become shareholders of Holdings, described as "a new company which will own the NRMA businesses". It was then said - "If you were a member of the Association on 16 March 1994, you are being offered Free Shares in NRMA Holdings Ltd. You may choose to take the free shares or to take the cash alternative. If you choose to take your free shares, you will become a shareholder of NRMA Holdings Ltd." 33 After a diagram representing the proposed new structure, in which Holdings was shown as wholly owning Association and Insurance, it was said that road service and other services would continue as they had in the past, and that as "an NRMA shareholder" the member would have valuable shares reflecting the market value of the NRMA's businesses and the rights to receive dividends, elect directors, and vote at annual general meetings. Against the marginal heading "Free Shares in the NRMA" appeared - "NRMA shares are now being offered free to all members of the Association as at 16 March 1994. You may choose to take the Free Shares or the cash alternative. If we do not receive a valid Acceptance of Free Shares form from you, you will get the cash alternative. Make your choice by filling out the Acceptance of Free Shares form which came on the outside of the prospectus and return it in the postage paid envelope.

Any NRMA shares which members have not accepted will then be offered for sale. Members and non-member policyholders will be the first to be given the opportunity to buy NRMA shares, except for some NRMA shares set aside to enable a fair price to be established." 34 Further descriptions of the cash alternative, and reiteration of the need for a 75 per cent vote in favour, followed, and there was then a description of the basis on which the Free Shares being offered to members of Association had been allocated. All members of Association as at 16 March 1994 were offered shares, an additional allocation was offered if the membership was "linked to an NRMA Insurance policy" at 16 March 1994, and "the longer the membership (using five year intervals) the greater the entitlement" with a 25 year maximum. The entitlements ranged from 250 Free Shares for a recent member with no policy to 1000 Free Shares for a long standing member with one or more policies. In addition, relatively small numbers of non-members were being offered Free Shares: members admitted on and after 17 March 1994, employees of the NRMA, some spouses and deceased members, and a miscellaneous group of members of Insurance who were not members of Association. 35 Some paragraphs then purported to answer the marginal note "How the Sharemarket Works", and then there appeared - " COSTS AS A The major additional cost of being a listed company LISTED will be the cost of maintaining a share register. COMPANY This is a necessary cost of enabling shareholders to receive dividends and to buy and to sell NRMA shares.

THE NRMA The NRMA's first priority is to keep our members' COMMITMENT loyalty which has been built up over many years and has contributed so much to our success.

Successful organisations know that meeting customers' needs in the key to long term success. The NRMA has been following this formula for decades.

The NRMA's commitment to promoting motorists' interests, providing efficient road service, other member services and insurance at reasonable prices will continue. The devotion to members' needs has seen the NRMA win the Australian Quality Award and other independent recognitions of service excellence.

Only the legal framework of the NRMA will change, not its culture.

The objectives of the Association presently include and will continue to include: to promote the interests of motorists and other road users throughout Australia in good roads, safety and consumer protection; to provide motorists and others with a range of services, including provision of emergency or breakdown road service and other services to vehicles.

NRMA Holdings' constitution will require that these objectives of the Association continue for the benefit of Service Members and all road users." 36 A heading "Other Options" followed, under which was -

" WHAT OTHER The NRMA has considered the advantages and OPTIONS disadvantages of a range of options and WERE concluded that the share issue and listing on the CONSIDERED? Stock Exchange is in the best interests of members and the NRMA.

Doing nothing : The NRMA could continue to operate under its present structure, but the Boards believe that, by becoming shareholders, members will be better off.

No organisation can rest on its laurels and assume that the way things have always been done will work in the future. The NRMA has made many changes to its operations in the past and has always looked for better ways to do business. That has made it a market leader.

This is another change which the Boards believe will significantly benefit members and make the NRMA stronger in the future. To do nothing means the wealth of the organisation remains locked up and inaccessible to members.

Reducing premiums and membership fees: Charging artificially low prices for our services means that current members subsidise the new customers who would undoubtedly rush to take advantage of artificially low prices. Reducing charges for NRMA services and products below their true cost will weaken the financial strength of the NRMA and increases pressure for large price rises in the future.

Continue insurance rebates: Many of the same problems mentioned above are also relevant to continuing insurance rebates. In addition, rebates only benefit policyholders - and not the some 30% of members who do not hold insurance policies. By giving members Free Shares, all members can benefit directly from the success of the NRMA.

Making a one-off major payment to Association or NRMA Insurance members: Such a major payment would deplete the NRMA's reserves, greatly reducing the NRMA's financial strength. Such a payment could also be liable to significant tax when received by members.

Sell off NRMA Insurance: Selling off NRMA Insurance would effectively split the NRMA apart. The NRMA's strength lies in the value of road service and insurance, with each benefiting the other. If they were to be separated, each would be weakened. The value of the combination is greater than its parts. Separating the two would mean splitting the staff of the NRMA, thereby destroying the very culture which has made the NRMA a success." 37 This was followed by the heading "The Next Steps" , under which was -

"MEMBERS' On Wednesday 19 October 1994 there will be GENERAL two general meetings at Sydney Convention and MEETINGS Exhibition Centre, Darling Harbour. Details of the meeting times and the resolutions to be considered are at the end of this Section. One meeting will be for the Association and the other for NRMA Insurance. These meetings will decide the future structure of the NRMA and members can participate either by attending the meetings in person or by filling in the Proxy Voting Paper which came on the outside of the prospectus.

Having carefully considered the implications of the proposal, the Boards believe that this proposal is in the best interests of members and the NRMA.

The Boards urge members to vote IN FAVOUR of the resolutions. If voting by post, members should return the Proxy Voting Paper which came on the outside of the prospectus, preferably by 12 October. There are legal time limits which are explained at the end of this Section but 12 October will meet all the deadlines.

All members whether voting in favour of or against the resolutions should also fill out the Acceptance of Free Shares section of the form.

LEGAL STEPS Members' approval will mean members of the INVOLVED IN Association and members of NRMA Insurance CHANGE will no longer be members of those companies . The Association presently controls NRMA Insurance by appointing its Board. For an NRMA Insurance policyholder to be eligible to have become a member of NRMA Insurance, the policyholder must have been a member of the Association. Members of the Association are, therefore, being offered an automatic entitlement to Free Shares, with an additional allocation if the membership was linked to an NRMA Insurance policy (other than Life or Travel). For these reasons the Boards consider that members of NRMA Insurance have interests similar to those of the members of the Association.

The legal elements of the approval by members of the Association and members of NRMA Insurance are: changing the legal status of the Association and NRMA Insurance from companies limited by guarantee to companies limited by shares and guarantee; adopting new Articles for each company, the central element of which means that members (other than NRMA Holdings) agree to give up their membership of the Association and NRMA Insurance on condition that Free Shares are offered by NRMA Holdings . This leaves NRMA Holdings as the only member of the Association, and NRMA Holdings and the Association as the only members of NRMA Insurance, and hence each is under the control of NRMA Holdings. By a resolution of the Boards, NRMA Holdings was admitted as a member of the Association on 4 August 1994 and as a member of NRMA Insurance on 16 August 1994. The special resolutions (if passed) constitute an agreement which binds all members of the Association and of NRMA Insurance, even if they voted against the proposal or did not vote at all; approving, first, the allocations of entitlements to Free Shares as described earlier (people who are being allocated entitlements to Free Shares are referred to as 'those entitled' in this paragraph), second, the allotment by NRMA Holdings of the Free Shares to those entitled who elect to take up the Free Shares and, third, the allotment to the NRMA Offer Trust of shares not so taken up. The Trust will sell the shares and distribute the net proceeds of sale to both those entitled who choose the cash alternative and those entitled from whom we do not receive a valid Acceptance of Free Shares form; in the case of the Association, approving changes to the Memorandum and Articles of NRMA Insurance so that the Association ceases to control NRMA Insurance with the result that NRMA Holdings controls NRMA Insurance; and approving the overall changes in the structure of the NRMA so that each of the Association and NRMA Insurance is owned and controlled by NRMA Holdings.

You will find the Notices of Meeting for the Association and NRMA Insurance at the end of this Section." [Emphasis added] 38 After a description of the beneficial taxation treatment to be extended to acceptance of Free Shares or the cash alternative, the Section continued - " MEMBERS' QUESTIONS

If either of the members of the Association or the members of NRMA Insurance do not pass the special resolutions to approve the proposed restructuring, the NRMA structure will remain the same as it is today. The Free Shares will not be issued.

The special resolutions (if passed) constitute an agreement which binds all members of the Association and of NRMA Insurance, even if you voted against the proposal or did not vote at all. Members should make sure they vote. Only if 75% of those members who vote are in favour can the Free Shares be issued. Therefore members should not presume that other people's votes will achieve the desired result. If a member deliberately abstains from voting, they [sic] should still fill in the Acceptance of Free Shares form that came on the outside of the prospectus.

What happens if I don't choose Free Shares or the cash alternative?

By law you cannot be given the Free Shares unless you validly choose them on the form supplied. If you don't choose to take the Free Shares, you will get the cash alternative.

No. The NRMA's commitment to Road Service and competitive insurance is a tremendously successful formula and will remain . What changes is the structure of the organisation so that members get Free Shares. Our emphasis on service quality, coupled with being able to adapt to new and better ways of doing business, will not change, as these are the keys to the NRMA's success.

With shareholders, will the NRMA pursue profit at the expense of service?

The NRMA's reputation for superior customer service is one of the main contributions to the organisation's success over the past 74 years.

It is fundamental to the success of a business to get and keep customers. Profit alone is not the mission of any well-run company, it is the result of serving customers better than your competitors.

The culture of the NRMA has always demanded, and will continue to demand, that we serve our customers better than our competitors. It is because we have been 'customer-focused' for so long that we have generated the profits that underpin the NRMA's financial strength. Put another way, service has always been at the core of the NRMA's winning formula.

The correct question, then, is not 'Will profits be pursued at the expense of service?', but 'What new ways will the NRMA find to improve its service so that customers will continue to choose us and profits can be maintained?'

The NRMA's culture encourages innovations in customer service and rewards individual service initiatives. This reflects the NRMA's strong belief that profits and superior service, rather than being incompatible objectives, go hand in hand.

NRMA Holdings will have three types of protection against takeover. The first operates for five years and the other two will last beyond that.

The first is a special protection against takeover which will last until 1 January 2000. The Articles of NRMA Holdings prohibit any person (or company) from owning 5% or more of the shares in NRMA.

This 5% limit will also apply to groups of people or companies (known as associates) acting together to control a block of NRMA shares which together is 5% or more. For some time now it has been a breach of company law if a person (and that person's associates) fail to notify a listed company when that 5% threshold is crossed. If NRMA Holdings were to receive such a notification (as required by the Corporations Law) that a person had gone over the 5% limit, then the Articles of NRMA Holdings provide that all voting and dividend rights of all the shares concerned (not just the surplus above 5%) are automatically suspended. Further, the directors of NRMA Holdings can then require that NRMA shares be sold to bring the number the person has below the 5% limit.

More details on those special protective provisions in the Articles of NRMA Holdings are set out in Section 8 of the prospectus.

A second protection against takeover is provided by the Insurance Acquisitions and Takeovers Act 1991 (Commonwealth). This legislation provides that no person or associated persons may acquire, without the prior approval of the Treasurer, shares in any insurance company which is authorised to carry on business in Australia, if those shares when aggregated with other shares applied for or held by that person or associated parties would amount to 15% or more of the shares. There are penalties for failure to comply and the Treasurer may order the disposal of shares acquired or issued in such contravention of the legislation. NRMA Holdings will be the holding company of NRMA Insurance and NRMA Life Ltd and the provisions of this legislation therefore apply to any acquisition of shares in NRMA Holdings.

The third form of protection lies with the shareholders themselves. Even if approval could be obtained from the Treasurer, a person or company attempting a takeover would face the very great problem of persuading loyal shareholders to give up their ownership of the NRMA.

There are 16 directors of the Association. Of these 13 are in favour of the proposal. The other 3 are against the proposal.

There are 11 directors of NRMA Insurance, 8 of whom are common to the Board of the Association. Only 1 director of NRMA Insurance is against the proposal, that director being 1 of the 3 Association directors who are against it.

Overall, therefore, there are 16 directors who are recommending the proposal to members.

The change in legal structure of the NRMA will not mean that the cost of Service Membership will go up. Any increases in Service Membership will only be dictated by the need to properly price this product, which is the same basis of setting the cost of Road Service membership as has been applied in the past.

Your current card will continue to entitle you to all services. We will send you a Service Membership card when it is time for you to pay your next annual subscription. This card will be much the same as your current card and will show the number of years you have been a member.

Gold Card members will continue to receive their special benefits.

How will the Free Shares affect my Social Security benefits?

For most people who receive Social Security benefits the proposal will be financially beneficial, although their payments and benefits may change slightly. Some, however, will be adversely affected.

When this issue was first raised, we commissioned an independent investigation of the position of people who receive Social Security benefits in the light of the proposal. A range of pensioner and other representative groups from the community sector were consulted in order to establish their views.

This issue is complex, as there are many different categories of Social Security beneficiaries.

Based on an extensive examination, it was found that only a relatively small number of pensioners would face unintended consequences. These people are already close to cut-off points and many already receive very small benefits, due to the size of their income and assets. A smaller number may be more seriously affected.

To ensure the best possible outcome for this small group (representing less than 1% of the NRMA membership), the NRMA has funded a free independent phone service, to be conducted by the Council on the Aging. If you think you might be amongst this small group, and need help to arrange your affairs, you can call 008 65 63 and have the options explained to you. This service will be available from 5 September, between the hours of 9am to 3pm.

If the proposal is approved by members of the Association and of NRMA Insurance, members who choose the Free Shares will get those shares and a statement will be sent by early December confirming how many NRMA shares you own.

THE BOARDS The NRMA Boards have carefully considered the RECOMMEND advantages and disadvantages of the proposal Vote 'Yes' and have concluded that this proposal is in the Accept the best interests of members and the NRMA. The Free Shares Boards therefore recommend that: members of each of the Association and NRMA Insurance vote in favour of the proposal; members of the Association choose the Free Shares.

75% of those members of each company who vote (either in person or by proxy) must vote 'yes' for the proposal to go ahead."

39 The next two pages, still within Section 1, contained the notices of meeting. The notice of meeting for Association read - "NOTICE is hereby given that a general meeting of members of NRMA Ltd will be held at Sydney Convention and Exhibition Centre, Darling Harbour, at 10am Wednesday 19 October 1994.

To consider and, if thought fit, to pass the following resolution as a special resolution:

'That the restructuring of the NRMA, as described in the Information for Members accompanying the Notice of this general meeting, be approved and that for that purpose:

(a) the status of NRMA Ltd be converted from a company limited by guarantee to a company limited both by shares and by guarantee;

(b) the Memorandum of Association of NRMA Ltd be amended by: (i) adding at the end of Clause 4 the words "in addition to the amount (if any) unpaid on any shares held by such member; and (ii) replacing Clause 5 with:

'5. The nominal capital of the Association is $10,000,000,000 divided into 10,000,000,000 shares of $1.00 each'; (c) the regulations contained in the document submitted to this meeting, and for the purpose of identification signed by the Chairman, be approved and adopted as the new Articles of Association of NRMA Ltd to replace all the existing Articles;

with each of (a), (b) and (c) above taking effect on the day the Australian Securities Commission issues to NRMA Ltd a certificate of registration as to its new status, but all on the condition that the members of NRMA Insurance Ltd prior to that time, have also approved the restructuring of the NRMA.'

Note: The Information for Members is important and should be read carefully. The purpose of the resolution is to make legal changes which would result in NRMA Holdings Ltd issuing shares to members of NRMA Ltd (and certain members of NRMA Insurance Ltd). Within three days of the issue of the prospectus NRMA Holdings Ltd will apply for listing on the Stock Exchange. As part of the legal changes all members of NRMA Ltd (other than NRMA Holdings Ltd) will no longer be members of NRMA Ltd and Road Service will be provided under the Service Membership contract on much the same terms as presently apply. This will be on condition that Free Shares in NRMA Holdings Ltd are offered by it. It is the new company which will control the NRMA. Further information on this is set out in the Information for Members. Copies of the proposed Memorandum and Articles of Association of NRMA Holdings Ltd and of NRMA Ltd are available on request from the Secretary at 151 Clarence Street, Sydney." [Emphasis added]

40 The notice of meeting for Insurance was similar in form and content, including as to the Note. The Note contained the sentences, in place of the emphasised sentences in the note in the notice of meeting for Association, "As part of the legal changes all members of NRMA Insurance Ltd (other than NRMA Ltd and NRMA Holdings Ltd) will no longer be members of NRMA Insurance Ltd. This will be on condition that Free Shares in NRMA Holdings are offered by it. It is the new company which will control the NRMA." 41 Section 2 of the prospectus was entitled "Details of the Members Free Offer and the Sale Offer". It occupied pp 22 to 34, and provided information of the kind indicated. A feature material to these proceedings was that Section 2 did not make express reference to members giving up membership - there was no equivalent to the parts of Section 1 emphasised in these reasons. So the definitions of Free Shares and thence the Members Free Offer took the reader to a description of the mechanics of the first stage offer, but did not direct the reader's attention to the information in Section 1 and to the emphasised parts so far as they might shed light on the references to Free Shares. 42 Section 2 included many references to Free Shares and entitlement to Free Shares, more instructions about completing the Acceptance of Free Shares form in order to "choose the Free Shares", and a recommendation by the directors of Holdings that members of Association and Insurance vote in favour of the proposal and members of Association choose the Free Shares. (The recommendations in Section 1 had been by the boards of Association and Insurance.) Most of the pages were concerned with the NRMA Offer Trust and the Sale Offer and its constituents, including the Members Extra Shares Offer. For present purposes it is sufficient to refer in more detail to two aspects of Section 2. 43 First, against the marginal note "The Members Free Offer" appeared: "Description Entitlement to participate in the Members Free Offer is based on membership of the Association. Section 1 also identifies an exceptional group of NRMA Insurance members who participate in the Members Free Offer. In this Section, including the diagram at the beginning of this Section, when we talk of 'members', it includes that group.

Your entitlement to Free Shares is shown on the Acceptance of Free Shares form which came on the outside of this prospectus.

Members can use their personalised Acceptance of Free Shares form to choose either: · Free Shares; or · the cash alternative.

When you choose to take Free Shares or the cash alternative, you will get one or the other. You cannot take some of each.

The directors of NRMA Holdings recommend that: · members of each of the Association and NRMA Insurance vote in favour of the proposal; · members of the Association choose the Free Shares." This was followed by the instructions about completing the Acceptance of Free Shares form. 44 Secondly, after a reference to the NRMA Offer Trust there appeared against the marginal note "What if I Want to Buy More Shares" - "After choosing to take Free Shares some members may want to buy extra NRMA shares. This may be possible, but of course you would have to pay for any extra NRMA shares you want which are in addition to your Free Shares. The Members Extra Shares Offer enables you to do this.

If you only want Free Shares or the cash alternative, you do not have to pay for any NRMA shares at all. No member has to buy any extra NRMA shares." There was an evident distinction between the Free Shares available under the Members Free Offer, for which the member did not have to pay, and the shares available under the Members Extra Shares Offer, for which the member did have to pay. 45 Section 3 of the prospectus was entitled "Guide for Investors". It occupied pp 36 to 38, and purported to explain the position of, and benefits falling to, a shareholder as an investor, and to outline taxation considerations for shareholders. There is no need to go further into this Section. 46 Section 4 of prospectus was entitled "The NRMA and its Business". It occupied pp 39 to 50, and was a generally laudatory description of the NRMA's history, present motoring and insurance services, and intentions and prospects for growth. 47 There followed in the prospectus pp A1 to A8 and application forms for shares in Holdings, all to do with applying for shares in the event of a Sale Offer. The application forms were described in the proceedings as generic application forms, in that they were appropriate for use by members or non-members, and the instructions in the pages were not specific to members: they included a request for membership number or policy number if the applicant was a member or a non-member policy holder of the NRMA, but said that "priority can only be assured by use of the personalised application for shares form" and referred to Section 2 of the prospectus. The personalised application was the Acceptance of Shares form part of the onsert. The application forms and instructions provided for application monies to accompany the application forms. On p A8 some information about applications for shares was placed under the heading "Further Information for Members", but it was still not specific to members. It underlined, however, that members were amongst those who could buy shares in Holdings under the Sale Offer. 48 Section 5 of the prospectus was entitled "Financial Information". It occupied pp 51 to 60. It is unnecessary to go into the detail of the financial information. That part of the financial information material to these proceedings was the profit and loss summary of historical performance for the four years to 1992/93, estimated actual results for 1993/94, and forecast results for 1994/95. The narrative stated that the forecasts for 1994/95 were based on budgets prepared by management and adopted by the directors of Holdings, and that they were subject to uncertainties and variation and there could be no guarantee or assurance they would be achieved; they had, however, been independently reviewed by Coopers & Lybrand (Securities) Ltd ("C&L"). Certain assumptions on which the forecasts were based were set out, and it was said that the forecast investment return was "sensitive to changes in the assumed return on fixed interest and equities investments except to the extent that fixed interest investments are held to meet insurance liabilities". 49 Specifically, the forecast consolidated after-tax profit for the NRMA Group as defined for 1994/95 was $215 million, significant components of which were an underwriting loss of $129 million and unrealised investment gains of $102 million. The defendants' cases included, in the manner I will later describe, that there were later adverse movements in these components, and so in the forecast profit, material to the NRMA's financial position and requiring the provision of supplementary information to members. 50 Section 6 of the prospectus was entitled "Independent Accountant's Report". It occupied pp 61 to 80, and was a report from C&L addressed to Holdings and Perpetual expressed to "provide financial information relevant to a decision to choose to take shares in NRMA Holdings or the cash alternative, and to provide potential investors with financial information relevant to their decision on whether to invest in NRMA Holdings." Annexures to the report presented a consolidated balance sheet of the NRMA Group as at 31 March 1994 and what were described as "restated" consolidated profit and loss accounts for the four years and nine months ended 31 March 1994. Copious notes were appended to these financial statements, and it was said in the report that "a pro forma balance sheet of Holdings to give effect to the proposed restructuring" had been prepared on a particular basis. Amongst other things, the report then described C&L's review of the directors' forecast financial information, making it clear that the review was less than an audit examination and that actual results might vary materially from the forecasts, and concluded - " Forecast Financial Information

Based on our review of the directors' Forecast: nothing has come to our attention which causes us to believe that the directors' assumptions do not provide a reasonable basis for the Forecast; and in our opinion the Forecast is properly compiled on the basis of the underlying assumptions and on a basis consistent with the accounting policies of the NRMA.

Since 31 March 1994 and up to the date of this report, significant movements have occurred in the market values of investments held by the NRMA. Furthermore, losses have been realised through the sale of a large portion of the fixed interest security portfolio in order to more closely align the maturity profile with that of the insurance provisions. The outcome of these movements, including the effect on the claims provisions, is reflected in the estimated result for the year to 30 June 1994 set out in Section 5 of this prospectus. Movements in value since 30 June 1994 to the date of this report have not been significant in terms of their effect on the results.

Other than the matters dealt with in this report, to the best of our knowledge and belief there have been no material transactions or events outside the ordinary course of business of the NRMA Group which require comment on, or adjustment to, the information contained in this report, or which would cause such information to be misleading." 51 Section 7 of the prospectus was entitled "Actuarial Reports". It occupied pp 81 to 84, and it is unnecessary in these reasons to go into its detail. 52 Section 8 of the prospectus was entitled "Additional Information". It occupied pp 85 to 96, and comprised a miscellany of information not calling for particular mention in these reasons. The Section concluded with the signatures to the prospectus of each director of Holdings and (by its common seal) Perpetual. At one point in this Section was the statement, "Neither NRMA Ltd nor NRMA Insurance Ltd has authorised or caused the issue of this prospectus but both companies have approved the inclusion in this prospectus of the material in Section 1 and the Proxy Voting Papers which came on the outside of this prospectus." 53 Section 9 of the prospectus contained definitions and technical terms, to some of which reference has earlier been made. 54 Inside the back cover of the prospectus was a "Directory", which amongst other things described AAH as "Solicitors to the Offer" and AT as "Solicitors to the NRMA". The Judgments in the Federal Court proceedings 55 Gummow J said (at 17) - "The complaint of the applicants is, broadly, that the prospectus, the notices of general meeting and the forms of proxy do not put members in possession of information appropriate to enable them to make an informed and critical assessment of the proposal, and to make an informed decision as to their response. They say that if proper regard is had to what is said and left unsaid this shows contravention of s 52 of the Act. The fundamental allegation is that by distribution to members of these documents there has been an engagement, in trade or commerce, in conduct that is misleading or deceptive or likely to mislead or deceive."

The Act to which his Honour referred was the TP Act. Section 52 of the TP Act provided that a corporation should not, in trade or commerce, engage in conduct that was misleading or deceptive or likely to mislead or deceive. By s 80 of the TP Act, an injunction could be granted to restrain the engaging in such conduct. The Australian Securities Commission ("ASC") appeared in the Federal Court proceedings as amicus curiae, and drew attention to s 995(2) of the Corporations Law ("the Law") which proscribed engaging in conduct that was misleading or deceptive or likely to mislead or deceive in or in connection with the allotment or issue of securities, any prospectus issued in relation to securities, or the doing of acts preparatory to or related to the allotment or issue of securities. His Honour observed (at 18) that it appeared that a finding of contravention of s 52 of the TP Act would have been accompanied by a finding of contravention of s 995 of the Law. 56 In detailed reasons, his Honour considered what was said and not said in the prospectus which in his opinion made distribution of the prospectus and onsert engaging in misleading conduct. In summary, his Honour found the misleading conduct because - (a) the statement in the prospectus that Association controlled Insurance by appointing its board (see the first paragraph against the marginal heading "Legal Steps Involved in the Change" in one of the extracts from the prospectus earlier set out) was in its context at best a half truth and, as such, apt to mislead or deceive (at 24); (b) the statement in the prospectus that the two bodies of members were considered to have similar interests (see the same paragraph as identified in (a)), without going on to make clear whether the respective boards considered that the similarity of interest extended to the purposes and effects of the proposed restructuring outlined in the prospectus, was likely to mislead (at 26); (c) the absence of disclosure, in connection with the basis on which the Free Shares being offered members of Association had been allocated (see the summary of that part of the description of the proposal earlier in these reasons), such as to enable members to make a properly informed judgment concerning the criteria for entitlement to Holdings' shares in relation to the relative values of the assets and undertakings of Association and Insurance, gave rise to a contravention of s 52 (at 27); (d) it was misleading repeatedly to describe in the prospectus, particularly in the passages most likely to be studied by the ordinary reader, that which was offered to members in connection with their consent to the restructuring as "Free Shares", because the relinquishment of membership involved the relinquishment of significant rights to the control of the affairs of Association and Insurance and demutualisation removed the possibility of further enjoyment of other benefits of membership (at 28); and (e) the treatment in the prospectus of whether the NRMA would change its culture and how the restructuring would affect the way it operated was not a full and fair disclosure of intentions as to future conduct of the undertaking to be acquired by Holdings after demutualisation, and left in half-light whether Holdings suggested that it would or would not conduct its business and undertaking so as not to affect in any substantial way the extent or cost of services presently provided to members, or whether Holdings chose to make no statement on the subject (at 31-2). 57 Only misleading conduct in the respect in (d) was upheld by the Full Court, and his Honour said in that respect (at 27-8) - "No doubt one adjectival use of 'free' is to describe that which is provided without, or not subject to, a charge or payment. Counsel for Holdings submits that that is what is meant in the prospectus with the use of the phrase 'free shares'. He pointed, in particular to the use, on p 21, the first page of section 2, of the heading:

Details of the Members Free Offer and the Sale Offer.

But, as I have indicated, the particular phrase is 'free shares' and this is used in the prospectus on many occasions. In particular, as counsel for the applicants pointed out, the first two sections of the prospectus are replete with use of 'free shares' which is not in any apposition to the 'sale offer'.

Rather, the phrase is used to identify and attract the reader by suggesting there are available for acquisition dividend yielding shares at no outgoing to the member. This accords with another adjectival use of 'free', to identify that which is given without consideration and as a gift.

It is true that in several places in Exs A, B and C, including the passage identified by the asterisk on the leaflet headed "Important Information Inside" and on p 12 of the prospectus, it is said that the 'free shares' are in exchange for membership or that membership is to be given up on condition of the offer of the 'free shares'.

Nevertheless, the effect of the persistent reiteration of the phrase 'free shares' is to engender in the reader the notion that the shares may be acquired without any significant loss or outgoing to the offeree who accepts them.

Counsel for the respondents pointed to the provisions in the memoranda of Insurance and the Association which would deny the members a distribution of assets on a winding-up. That, as I understood the submissions, was used to support the submission that, in truth, there could be no significant consideration moving from the members, so that the shares were 'free'.

I have referred earlier to what might be called the ultimate control of Insurance by the members, notwithstanding the manner in which the board is appointed. The board of the Association is in a different position, it being responsible for its election to the members. Furthermore, Art 26 of the present articles of the Association obliges the board on the written requisition of 200 or more members forthwith to convene a meeting of members to be held as soon as practicable and, in any case, not later than two months after the date of the requisition.

The relinquishment of membership thus, in a legal sense, involves the relinquishment of significant rights to the control of the affairs of the two corporations. Further, 'demutualisation' removes the possibility of further enjoyment of the advantages described earlier in these reasons.

A basic question for members to decide, as pointed out earlier in these reasons, is whether they will be better off remaining as members or becoming shareholders or recipients of the proposed cash distribution in lieu of shares. It is a matter of weighing the respective advantages and disadvantages of each course of action. In that setting, in my view it is likely to mislead or deceive to describe repeatedly in the prospectus, particularly in the passages moot [sic; most] likely to be studied by the ordinary reader, that which is offered to members in connection with their consent to the reorganisation as 'free shares'.

58 Gummow J concluded (at 32) - "The applicants have made out their case for declaratory relief as to contravention of s 52 of the Act. The declaration should be to the effect that by distributing to members of the second and third respondents, the Association and Insurance, documents, copies of which are Exhibits A, B and C, the first respondent, Holdings, in trade or commerce, has engaged in conduct that is misleading or deceptive, or likely to mislead or deceive. The nature of the contraventions is such that it is not practical to quarantine any particular portion of the prospectus. Nor, as the facts have unfolded and now stand, would there be efficacy in ordering, before the times appointed for the general meetings, the disclosure of information or the publication of corrective advertisements, by order under s 87 of the Act. I note that the particular power in that regard conferred by s 80A is exercisable only on the application of a Minister or the Trade Practices Commission.

Even without the present exigencies of time, it might not be practicable and might be unwise for the Court to undertake the supervision, with the suggestion of its imprimatur, of the dissemination of 'corrective' material.

What is appropriate is injunctive relief under s 80. There should be an injunction against the further distribution by the respondents of copies of Exhibits A, B and C to members of the Association and Insurance.

The Court having been satisfied that Holdings has engaged in conduct that constitutes contravention of s 52, it may grant an injunction in such terms as it determines to be appropriate (s 80(1)). The contraventions by Holdings are directed to encouraging a particular course of conduct by members of the Association and Insurance in relation to the general meetings called by the Association and Insurance for 19 October 1994. For the Association and Insurance to proceed with those meetings, as proposed, would be to become parties to and knowingly concerned in those contraventions. The injunctive relief should include a restraint upon the Association and Insurance from proceeding with any business at the general meetings of members, identified in the notices of general meeting in Ex C, other than by the taking of such steps as are necessary or appropriate to adjourn those meetings. These restraints upon the Association and Insurance should have the proviso 'without the leave of the Court': see ICI Australia Operations Pty Ltd v Trade Practices Commission (1992) 38 FCR 248 at 266-267."

Exhibits A, B and C were respectively the first leaf of the onsert, the second leaf of the onsert, and the prospectus. A declaration and orders were made accordingly. The injunction restraining further distribution of the prospectus and onsert, as distinct from the injunction restraining proceeding with the meetings, was not expressed to be subject to the leave of the Court. 59 As I have said, the Full Court did not uphold all the respects in which engaging in misleading conduct had been found by Gummow J, and it held that there was misleading conduct in a different respect. It upheld Gummow J only in relation to the use of the phrase "Free Shares", and it held that the failure to identify and inform members about disadvantages of which the directors making the recommendation that members vote in favour of the proposal were aware was "to leave the members in a half-light which had the potential to lead them to think that the unidentified disadvantages, whatever they might be, must be ones that they would not treat as significant in relation to the rights being given up and the new rights to be acquired in a public listed company". The two respects on which the decision of the Full Court was founded were, in the view of the Court, linked in the manner appearing at the ends of the two passages from the judgment which follow. I will refer to them as the free shares question and the disadvantages question. 60 As to the free shares question, the Full Court said (at 482-4) - "The trial judge found in the applicants' favour on the 'Free Shares' complaint essentially because he considered that the persistent repetition of the phrase in the context engendered or was likely to engender the notion that the shares might be acquired without significant loss or outgoing and to suggest that such rights of membership as were given up to participate in the affairs of Association and Insurance were of no value and were not material to a decision to vote for or against the proposal. We turn now to consider that issue.

His Honour noted that the proposal, by requiring the relinquishment of the rights of the members of Association to control Association, and through their power to appoint the Council of Association to control the appointment of the board of Insurance, involved 'the relinquishment of significant rights to the control of the affairs of the two corporations'. Further, his Honour held that 'demutualisation' would remove the possibility of further enjoyment of advantages of subsidised road services and other members' services of Association, and of insurance rebates given to policyholders on certain classes of policy available through Insurance. His Honour held that the relinquishment of these substantial rights was incompatible with the notion that the shares might be acquired without significant loss or outgoing.

In this connection, the respondents contended before this Court that his Honour erred as a matter of fact in his conclusion that the road services were subsidised. We think his Honour's finding in that regard was justified by the financial information on p 52 of the prospectus to which he referred. The respondents also pointed out that the prospectus at pp 53 and 70 recorded that the rebates on insurance which had been provided in the past were not expected to continue past 31 July 1995. His Honour did not overlook those statements. He referred expressly to them when considering a statement in the prospectus that the option of continuing insurance rebates had been examined and rejected for several reasons, one of which was that 'rebates only benefit policyholders and not the some 30% of members who do not hold insurance policies'. As this reason disclosed, the benefit of rebates had arisen in the past from being a policyholder rather than a member of Insurance, but rebates had been one of the traditional benefits of the mutual character of the organisations which would certainly disappear if the 'demutualisation' proceeded.

The respondents also contended that his Honour's criticism that the shares were not 'free' because valuable rights were being given up was unjustified because, it was submitted, it must have been crystal clear to even the least sophisticated reader of the prospectus that membership of the Association and Insurance was being given up in exchange for shares in Holdings or for the cash alternative. We agree that statements to that effect are made in the margin on the back of the first sheet of the onsert, in the notices of meeting, and on p 12 of the prospectus, but to the reader who was previously unfamiliar with the nature of a mutual organisation and the process of 'demutualisation' those statements, simple as they were, were liable in our view to be overwhelmed in their impact by the far more prominent and persistent reference to 'Free Shares'. This impact was enhanced by the packaging of the prospectus. Before opening the package the addressee would have been likely to be attracted by the messages 'Share the Future', 'How to Vote!', and especially, 'How many shares you will be given!' notwithstanding the additional words 'There is MORE information on the back of this page'. But in any event, these statements that membership will be relinquished do not answer the conclusion reached by the trial judge which was, in effect, that the description of the shares as 'free' was likely to mislead or deceive members into thinking that the rights that were to be given up by them were not rights which could be regarded by members as being of importance to them in making a properly informed judgment on the proposal.

Although it is no doubt true that in some contexts, such as in the expression 'buy one, get one free', the word 'free' may be understood as meaning 'without additional or marginal outlay over what is obviously being paid', this is not invariably so. 'Free' can easily be misleading or deceptive, depending on the context: Federal Trade Commission v Standard Education Society 302 US 112, 116-117 (1937); Book of the Month Club v Federal Trade Commission 202 F 2d 486, 488 (2nd Cir 1953). We agree with the trial judge that in the present context of a document that strongly argued in favour of voting for the proposed changes, the persistent use of the expression 'Free Shares' was in fact likely to engender the notion that the shares might be acquired without significant loss or outgoing and it was in this respect misleading or deceptive, or likely to mislead or deceive, to use that phrase.

This conclusion involved a finding that the rights to be given up were rights which would be material to members of the Association and Insurance in making a properly informed judgment on the proposal. The respondents argued that this has not been established by the evidence. In particular it was argued that membership of Insurance had no value; it was transitory, lasting only as long as the annual policies held by the member, there was no right of renewal; in the case of policies held by two or more people it was a matter of chance which policyholder was entered as a member; no consideration was paid for membership; membership was not transferable; and, most importantly, the true beneficiary of the wealth of Insurance was the Association. It was submitted that such powers of control of Insurance as existed in members of Insurance had no practical significance in the circumstances. In particular, the members had no power to confer on themselves any direct financial benefit by way of dividends or capital rights in the event of a winding up. There is force in these contentions in relation to membership of Insurance. But membership of the Association carried with it rights to participate in the control of Association, and through the appointment of the Council of Association, in the affairs of Insurance. The evidence did not attempt to place any monetary value on these rights, and it may be impossible to do so. But it does not follow that the rights would not be material to members of Association in making a properly informed decision: cf Re NFU Development Trust Ltd (1972) 1 WLR 1548 at 1554; (1973) 1 All ER 135 at 139. The rights of control if exercised by a sufficient body of members could be used to require that the benefits which have been enjoyed in the past by members arising from the mutual character of the NRMA organisation be continued in the future. The materiality and importance of the rights of control therefore depended in turn on the materiality and importance to members of the continuation of these benefits. It was in this context that the trial judge said that a basic question for members to decide was whether they would be better off remaining as members or becoming shareholders or recipients of the proposed cash distribution in lieu of shares, a question that involved weighing the respective advantages and disadvantages of each course of action." 61 As to the disadvantages question, the Full Court said (at 485-7) - "In our opinion the treatment of the topic of the future conduct of the undertaking has not been shown to be inadequate for failing to make a clear statement of Holdings' intentions. However we do consider that the treatment of the topic was inadequate, and involved a contravention of s 52, for reasons to which we now turn.

Before this Court counsel for the applicants submitted that there was a likelihood of change in the future conduct of the undertaking of the NRMA organisation for reasons of the following kinds which the prospectus failed to bring sufficiently to the members' notice: (i) whilst the present Boards intended 'business as usual' the proposed restructure involved a change in status and membership; (ii) shareholders in a listed company would have different rights and expectations as shareholders, particularly in relation to profit; (iii) the duties and obligations of directors or corporations limited by shares are, so it was submitted in relation to shareholders (who in time could become increasingly large and institutional) to look to profit and value of shares and to pay dividends out of profits available for that purpose, in contrast with the duties of directors of a mutual association; (iv) Holdings after reconstruction would have the capacity to change the operation by selling its assets or undertaking; (v) and in the long term the restructure opened prospects for a takeover, or for effective control of Holdings to pass to a small minority of large shareholders with strategic holdings. To these matters could be added the consideration that, with time, the composition of the Boards would in any event change and future boards would not be bound by statements of intentions by the present board made in the prospectus.

Counsel for the respondents contended that there are good commercial reasons why it is unlikely that Holdings would in the future abandon the 'culture' which has been instrumental to the success of the NRMA organisation in the past, and that the prospect of control of Holdings being seized by a minority of large shareholders or otherwise taken over or disposed of is fanciful for several reasons. Whether these contentions adequately answer the applicants' submission is largely a matter of opinion about which the members must make a judgment when deciding upon the proposal and weighing the respective advantages of continued membership of mutual associations against a shareholding in Holdings or the cash alternative. Unless the information available to the members brings to their attention matters of the kind identified by the applicants' submissions (along with any other disadvantages perceived by those members of the Boards whose decisions recommend the proposal), and the reasons why it is asserted that the disadvantages are outweighed by the advantages, the members are not fully and fairly informed why they will be 'better off' by voting to receive shares or the cash alternative in exchange for their membership of the Association and Insurance.

The prospectus as a whole, but particularly in the President's letter and the Information to Members, strongly encourages a favourable response to the proposed restructure and conveys the recommendation of the majority of each board that under it the members will be 'better off'. We agree with the trial judge that the prospectus does not explain or quantify why this will be the case beyond the statement that the wealth of the NRMA organisation will be unlocked by giving each member the share entitlement identified on that member's onsert.

On p 6 of the prospectus, when repeating the recommendation of the Boards which was stated on p 1, it is said 'The NRMA Boards have carefully considered the advantages and disadvantages of the proposal and have concluded that this proposal is in the best interests of members and the NRMA'. Here is a statement that there are disadvantages to be considered, yet nowhere in the prospectus are the disadvantages identified, explained or compared with the perceived advantages. On p 11 the prospectus says the NRMA has considered the advantages and disadvantages of a range of other options and concluded that the share issue and listing on the Stock Exchange is in the best interests of members of the NRMA. Five other options are discussed. This discussion fails to identify what the disadvantages of the recommended proposal might be.

The first of the other options discussed was 'Doing nothing'. The prospectus reads: '1. Doing nothing: The NRMA could continue to operate under its present structure, but the Boards believe that, by becoming shareholders, members will be better off.

No organisation can rest on its laurels and assume that the way things have always been done will work in the future. The NRMA has made many changes to its operations in the past and has always looked for better ways to do business. That has made it a market leader.

This is another change which the Boards believe will significantly benefit members and make the NRMA stronger in the future. To do nothing means the wealth of the organisation remains locked up and inaccessible to members.' This discussion fails to state, at least in any meaningful way, the disadvantages about the proposed restructure which the Boards had recommended, and fails to refer to the matters identified in the applicants' submissions. At p 15, where the prospectus for the first time discloses that three of the 16 directors of the Association and one of the 11 directors of Insurance are against the proposal, there is no statement of the dissenting directors' reasons which could serve to redress the failure of the prospectus otherwise to inform the members about the disadvantages of the proposal.

The prospectus asserts that under the proposed restructure members will be 'better off' and strongly recommends a 'yes' vote. In these circumstances the failure to identify and inform members about disadvantages of which the directors making the recommendation were aware was to leave the members in a half light which had the potential to lead them to think that the unidentified disadvantages, whatever they might be, must be ones that they would not treat as significant in relation to the rights being given up and the new rights to be acquired in a public listed company. This is more particularly so when it is remembered that, contrary to the notion engendered by the persistent use of the phrase 'Free Shares', the shares might be acquired without significant loss or outgoings, the rights that would be surrendered were significant ones which were material to the members of Association in making a properly informed judgment." 62 The NRMA's case that the lawyers were at fault, and engaged in or were involved in the NRMA's misleading conduct, was in the area of the content of the prospectus and the onsert tied back to the respects in which the Full Court found misleading conduct. The NRMA did not contend for any other respect in which the prospectus was misleading, or rely on the respects found by Gummow J but not upheld by the Full Court, and its case in this area was conducted on the basis that the reasons of the Full Court expounded the deficiencies in the prospectus to be laid at the lawyers' doors. Some analysis of the deficiencies as found is appropriate even at this point in these reasons. 63 For the free shares question, it can be seen that the reasoning of the Full Court was that the persistent use of the phrase "Free Shares" conveyed that the shares might be acquired without significant loss or outgoing, and that this was likely to mislead or deceive because there might be significant loss or outgoing if the rights lost when membership was given up "could be regarded by members as being of importance to them in making a properly informed judgment on the proposal" or could be "material to the members of Association in making a properly informed decision". 64 When I come to the facts in the present case, there will be much to do with describing the shares to be issued by Holdings as free shares provided members are informed that the shares are in return for their giving up membership, and in describing the prospectus I have emphasised the express references to members giving up membership. It was not an answer to the reasoning of the Full Court, or that of Gummow J, that there were statements in the onsert and the prospectus to the effect that membership was given up in exchange for the shares. Gummow J acknowledged those statements, but the deficiency remained that the persistent use of the phrase "Free Shares" conveyed that what was given up was not significant - it was really a failure in informing members what giving up membership involved, to be taken into account when weighing the advantages and disadvantages of demutualisation. The Full Court also acknowledged those statements, although their Honours observed that they "were liable to be overwhelmed in their impact by the far more prominent and persistent reference to 'Free Shares'", but the deficiency remained that the description of the shares as free conveyed that the rights to be given up might not be material to making a properly informed judgment on the proposal. 65 The reasoning of the Full Court directed attention to the nature and significance of the lost rights, and to why they would be material to the members' decision on the proposal. The Full Court said that there was force in the contention that the rights of membership in Insurance were not material, but that the rights of membership in Association might be material not because of a monetary value (which it may be impossible to establish) but because the combined exercise of the rights by a sufficient body of members could be used to preserve the existing benefits arising from the mutual character of the NRMA. The link with the disadvantages question was, then, that materiality and importance of the rights of control depended in turn on the materiality and importance of the existing benefits, and so on an understanding of the respective advantages and disadvantages of continuing as before or embracing demutualisation. 66 These things may be said of this analysis. First, and repeating what I have already said, at the heart of the misleading conduct in this respect was not that the prospectus and onsert failed adequately to inform members that membership would be given up in exchange for shares. Secondly, if that which brought the misleading conduct was that members might be misled into thinking that the membership rights were not rights which they could regard as important in making a properly informed judgment on the proposal, or could regard as material to a properly informed decision, at the heart of the misleading conduct in this respect must have been failure adequately to inform members of the possible importance or materiality of the membership rights. Thirdly, it must be asked what the members should have been told about the possible importance or materiality. 67 It is here that I respectfully have some difficulty with the reasons of the Full Court. The materiality and importance was not a monetary value of the membership rights, because it was accepted that it may be impossible to place a monetary value on them. What, then, should members have been told? 68 From the concluding sentences in the passage from the judgment of the Full Court first set out, the materiality and importance may have been that the rights gave control to members if, thinking the existing structure and whatever benefits it brought material and important, they wished to continue that structure and those benefits. Why was it misleading not to inform members of their right of control? The general meeting of Association was an exercise of the control, and members can not have been ignorant of it. 69 Alternatively, from the same concluding sentences the materiality and importance may have been that insufficient information was given for members to determine the materiality and importance of the continuation of the benefits, that is, insufficient information as to the respective advantages and disadvantages of the existing structure and a demutualised NRMA, so that they could value (although not in monetary terms) the membership rights. This view is supported by the concluding sentences of the passage from the judgment of the Full Court secondly set out (although the last sentence elevates the rights to be surrendered to significant and material rights, no longer rights of possible materiality and importance). If this be the correct view of their Honour's reasons, the free shares question merges in, and becomes a consequence of, the disadvantages question. In short, it was held that it was misleading to describe the shares to be issued by Holdings as free shares because there might have been disadvantages in the proposal not sufficiently identified and elaborated in the prospectus. 70 For the disadvantages question, it can be seen that the reasoning of the Full Court was that, although the prospectus conveyed the recommendations that members would be better off under the proposed restructure, it stated that there were disadvantages but did not identify and inform members about ("explain or compare with the perceived advantages") the disadvantages, and that this involved contravention of s 52 of the TP Act because the members might think that the unidentified disadvantages "must be ones that they would not treat as significant in relation to the rights being given up and the new rights to be acquired in a publicly listed company". 71 This reasoning directed attention to the unidentified disadvantages, and the judgment can be read in two ways. From the concluding paragraph in the passage from the judgment secondly set out, the disadvantages were the disadvantages of which the directors making the recommendation were aware - those which were said to exist but were not identified. If so, the disadvantages non-disclosure of which underpinned the misleading conduct were not, or not necessarily, those in the summary of the applicants' submission plus the consideration added by the Court (see the second paragraph of the passage). The Court considered that there must have been disadvantages, because the prospectus said so, but itself did not identify or make findings as to disadvantages which should have been identified, explained, and compared with advantages but were not so dealt with. 72 Alternatively, from earlier paragraphs in the passage the disadvantages were those in the summary of the applicants' submission plus the consideration added by the Court, and as well any other disadvantages of which the directors were aware. But even then the Court made no findings as to the existence of the disadvantages, saying only that the members should have brought to their attention matters of that kind and proceeding on the basis that there must have been disadvantages. 73 Again, I respectfully have some difficulty with the reasons of the Full Court. Disadvantages were identified and explained in the prospectus, sometimes indirectly (for example, describing the preservation of the NRMA's consumer and service activities involved recognising, and countering, a disadvantage) but also directly (especially under Members' Questions). If the judgment be read in the first way set out above, it involved an assumption, rather than a finding, that there were disadvantages of the kind in the summary of the applicants' submission plus the consideration added by the Court, and by reference to the "Doing nothing" option the conclusion that there was no meaningful statement of the disadvantages. So in the end the vice in relation to disadvantages on which the Full Court acted was not that particular disadvantages existed but were not identified, explained, and compared with perceived advantages, but that possible disadvantages might have been significant in relation to the exchange of rights, but members might have been led to think that they could not be significant: see the last paragraph in the passage secondly set out. 74 That the Full Court did not go beyond possible disadvantages is supported by regard to the disadvantages to which it referred. Their Honours seem to have taken the class as the likelihood of change in the future conduct of the undertaking of the NRMA: see the opening words of the passage secondly set out. Six disadvantages were then postulated, (i) to (v) from the applicants' submissions and a further consideration added by the Court. The part of the prospectus addressed for the statement of disadvantages was that part under the heading "Other Options". There were grounds for concluding that the disadvantages to which it referred were not disadvantages requiring identification, or were disadvantages sufficiently identified and explained in the prospectus. The grounds were as follows, but were not considered by the Court: so the disadvantages were left as possible disadvantages. 75 As to (i), that the proposed restructure involved a change in status and membership, the change was referred to more than once, particularly in the notices of meeting - it was, after all, what the general meetings were about. 76 As to (ii), that shareholders in a listed company would have different rights and expectations as shareholders, particularly in relation to profit, the substance of the disadvantage was recognised, and countered, in the fifth Members' Question asking whether, with shareholders, the NRMA would pursue profit at the expense of service. 77 As to (iii), to the effect that the directors of a company with shareholders would look to profits and payment of dividends when directors of a mutual organisation would not, the substance of the disadvantage was recognised, and countered, in the fourth Members' Question asking whether the NRMA would change its culture and in the fifth Members' Question. The Full Court observed, in relation to abandonment of the culture, that the commercial reasons why the culture of the NRMA would continue was a matter of opinion for the judgment of the members, but the possible disadvantage was there for the members to consider. 78 As to (iv), that Holdings would have the capacity to change the operation by selling its assets or undertaking, so also would Association and Insurance - that the restructuring would bring a change other than via a change in profit-seeking was not evident. 79 As to (v), that in the long term there might be a takeover or minority control via strategic holdings, the substance of the disadvantage was recognised, and partially countered, in the sixth Members' Question asking whether the NRMA could be taken over if it issued shares. The likely effectiveness of the protection against takeover - also in part protection against minority control - was a matter for members; the possible disadvantage was there for the members to consider. 80 As to the consideration added by the Court, that with time the composition of the boards would change and future boards would not be bound by statements of intention by the present boards, it would be the same for Association and Insurance too; the stress on continuation of the NRMA's culture flagged for members the possibility of a change in direction if future management so chose, but there could be the change anyway. 81 Regard to the disadvantages to which the Full Court referred does not establish that there was meaningful disclosure of disadvantages, but it underlines that information as to the proposal was held to be misleading not because there were, but because there might have been, disadvantages in the proposal not sufficiently identified and elaborated in the prospectus. The disadvantages question merged with the free shares question. And so my respectful difficulties with the reasons of the Full Court increase. How can it be said that a prospectus is misleading because it has the potential to lead members to think that unidentified disadvantages must be ones they would not treat as significant, unless the existence and significance of the postulated disadvantages is established? Assumption of the disadvantages is not enough, and assessment of their significance is required. 82 To return to the course of the Federal Court proceedings, at the conclusion of its reasons the Full Court observed that it might be that the respondents would wish to amend or supplement the prospectus, and that it "would endorse the observation of Gummow J that it might not be practicable and might be unwise for the Court to undertake the supervision, with the suggestion of its imprimatur, of the dissemination of 'corrective' material". As earlier noted, the order of Gummow J restraining distribution of the prospectus and the onsert was not expressed to be subject to the leave of the Court. On 30 January 1995 the Full Court heard argument on the terms of the orders it should make, the submissions and the result appearing from the following passage from the reasons then given (NRMA Holdings Ltd v Fraser (1995) 55 FCR 489 at 489-90) - "Mr Garnsey QC for the respondents to the appeal, submitted that for a number of reasons none of the orders should be disturbed and in particular that no order should be made that could result in any further distribution of the prospectus, whether accompanied by a supplementary prospectus, other explanatory or correcting matter, or otherwise. His primary contention was that no correction could possibly overcome the deficiencies in the prospectus.

Mr Bennett QC for the appellants, on the other hand, submitted that the deficiencies, as identified in our reasons for judgment, could be overcome by an appropriate document and he sought an order that would allow the original prospectus to be distributed if the ASC so required consequent upon a supplementary prospectus being lodged with it.

Although we have concluded that the distribution of Exs A, B and C did involve conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) we have reached that conclusion on a more limited basis than the trial judge. We are not persuaded that it would be impossible to correct the contravening effect of those documents, although this is not, of course, to be taken as a positive finding that correction is possible. If it were sought to correct the prospectus and the other documents and the matter came before the Court the question would have to be decided in the light of the evidence then before the Court, including the precise terms of the correcting material and all other relevant circumstances. Those circumstances might include the effect of past advertising and any proposed future advertising. We did not think it appropriate in these circumstances to deny to the appellants the opportunity of seeking to persuade the Court, should they wish to avail themselves of it, that it should grant leave to distribute Exs A, B and C or any of them, in conjunction with correcting material.

Mr Bennett submitted that there should be provisos to orders (1), (2) and (3) which would have the practical effect of allowing the appellants to proceed with the business of the general meeting once a supplementary prospectus had been lodged with the ASC subject only to the requirements of the ASC, and without further order of the Court. In our opinion, whilst this course might have attractions in other circumstances, we do not consider that it should be taken when there are other unresolved challenges to the validity of the decisions made by the boards of the second and third named appellants pending in relation to the proposal.

Mr Bennett submitted that we should only concern ourselves with the discrete Trade Practices Act issue but we consider that the resolution of the issues outstanding between the parties in this Court may affect the discretion to grant or not to grant leave to send out further material, if such leave were sought, or to proceed with the meetings. The Court should also take into account the desirability that all issues be resolved as expeditiously as possible, and in one forum." Hence the variation to the orders of Gummow J, whereby the restraint on distributing the prospectus and the onsert was subject to the leave of the Court. Gambotto's case 83 WCP Ltd had passed a special resolution for the amendment of its articles, adding article 20A the effect of which was to enable a shareholder entitled to hold 90 per cent or more of the issued shares to acquire compulsorily shares held by minority shareholders for a stated price per share. At least in the two lower courts, it was accepted that the stated price was independently arrived at and fair, and there would have been considerable taxation and administrative benefits for the company if it had become a wholly owned subsidiary of the holding company of the majority shareholders. The majority shareholders did not vote upon the special resolution, which was passed upon the votes of minority shareholders other than Mr Gambotto and Ms Sandri. Mr Gambotto and Ms Sandri contended that the amendment was invalid, arguing that it was oppressive to them in that it permitted their shares to be expropriated by the majority shareholders. 84 The invalidity was upheld at first instance (Gambotto v WCP Ltd (1992) 8 ACSR 141). McLelland J said (at 143) that the exercise of the power to alter articles was constrained by principles of equity, but that the commonly stated test of bona fide for the benefit of the company as a whole was ambiguous and often unhelpful, and that it "has not been found possible to define in any precise way the grounds upon which an ostensible exercise of the power should be considered invalid". He accepted that it would be advantageous to WCP Ltd if it were to become a wholly owned subsidiary of the holding company of the majority shareholders, and said that he would consider "the question of principle on the notional footing that the purpose of the amendment was to achieve the advantages to WCP indicated above". His Honour then said (at 144) - "The immediate purpose and effect of the amendment was to permit the shares of the minority shareholders to be expropriated by the majority shareholders. In my opinion such an amendment amounts to unjust oppression of those minority shareholders who object …. There are three reported English decisions in which the validity of an alteration of articles of association of a company to effect or permit expropriation of shares of a minority has been considered. [His Honour then referred to the decisions.] In each case the criterion sought to be applied was 'bona fide for the benefit of the company as a whole'. For the reasons already indicated, that is an inadequate criterion in a case of this kind, and its inadequacy is I think illustrated by a consideration of the judgments given in those three cases.

It is to be observed that if a majority holding or controlling 75% or more of the issued capital of a company could validly expropriate the shares of a minority by an alteration to the articles for reasons of the kind advanced in this case, it would be unnecessary to have such provisions for compulsory acquisition of shares of dissenting minorities as are to be found in ss 414 and 701 of the Corporations Law.

For the above reasons, the amendment to the articles of WCP purportedly made at the meeting of 11 May 1992 was in my opinion invalid and ineffective." 85 On appeal to the Court of Appeal it was held that the amendment was not oppressive and was effective (WCP Ltd v Gambotto (1993) 30 NSWLR 385). The appeal was heard on 4 March 1993 and the decision was given on 7 May 1993. 86 The principal judgment was that of Meagher JA, with whom Cripps JA agreed. His Honour observed that the words "bona fide and for the benefit of the company as a whole" had "beguiled and confused the courts" ever since they were first used in 1900, and his reasons for upholding the appeal were (at 389) - "In the present case the evidence demonstrated, and the judge accepted, that there would be enormous taxation advantages for the company if the minority shares were expropriated, and that there would be considerable administrative savings if such an expropriation took place. Nor was it alleged that the compensation provisions were inadequate. Just why the court should interfere and why his Honour in fact did so, I cannot see.

As I have pointed out, his Honour's view is consistent with, and only with, some notion that an expropriation of shares whether beneficial for the company or not is a malum in se and as such always enjoinable. His Honour could not have held that the resolution in question was 'so extravagant that no reasonable person could believe that it was for the benefit of the company' (to quote the test of Latham CJ in Peters' American Delicacy Co Ltd v Heath (at 482); indeed, he specifically held to the contrary.

It can hardly be contended that all powers of expropriation are repugnant to the Corporations Law . The legislation in terms permits expropriations in s 701 to s 702 (take over schemes), s 411 (compromises) and s 414 (schemes of arrangement). Nor, in my opinion, could it reasonably be contended that these provisions constitute some sort of code governing the expropriation of shares. If the company's articles had contained an art 20A when it was incorporated, it is difficult to see how anyone could object to it. Moreover, articles of association regularly provide for liens leading to forfeiture, and this involves an expropriation of property. Further, the decisions in cases like Allen v Gold Reefs of West Africa, Ltd and Sidebottom v Kershaw, Leese and Co, Ltd both involved expropriations which were sanctioned by the courts of England and those cases have been approved by the courts of Australia.

For these reasons I am of the view that the appeal must succeed in so far as it challenges his Honour's view, which I have set out, that the expropriation was invalid." 87 Priestley JA agreed in the result. His Honour's reasons were (at 386-7) - "Shares are a form of property, and, often, expropriation of property, that is, the divesting of property from an owner without that owner's consent, will attract community opinion that the divestment was oppressive and/or unjust. The present case does not strike me as one to which that opinion applies.

For one thing, that opinion is frequently not applicable where the divesting is accompanied by just compensation (as is undisputedly the case here). For another, a person acquiring the shares in question in the present case either knew, or should have known that the company (in the original sense) consisted of members who each agreed, by the fact of membership, to be bound by duly passed resolutions of members of the company at general meeting. Any divestment pursuant to, or dependent on, such a resolution, is, in a real sense, not a divestment against the shareholder's will; although the shareholder might vote against a particular resolution, and so not consent to its consequences at that point, the shareholder has nevertheless voluntarily become a member of a group of shareholders, binding themselves together by rules by which they agree to be bound by duly passed resolutions even if individual shareholders disagree with them. There are of course abuses of these rules from time to time by members with sufficient voting power; these abuses may be checked by the courts, if the statutory provisions are insufficient. I can see no sign of any such abuse in the present case. The property in the shares now in question does not seem to have, or to call for, the kind of inalienability against their holders' will which the respondents' claim involves." 88 The NRMA's allegations of fault on the part of the lawyers in the area of the new structure and the steps to achieve it make appropriate some observations about Gambotto's case to this point. 89 It was concerned with shares in a company limited by shares, and with compulsory acquisition ("expropriation") of shares by a change in articles. The power to change the articles was not in doubt, and the question was whether the exercise of the power was constrained. Both McLelland J and the Court of Appeal found unhelpful the test of constraint according to exercise of the power bona fide for the benefit of the company as a whole. 90 McLelland J did not provide an alternative test, going directly to the conclusion that there was oppression: it seems that the fact of expropriation was enough to constitute oppression. The Court of Appeal did not provide an alternative test, but considered that the fact of expropriation was not enough to constitute oppression. Because the stated price was fair and the expropriation was for the benefit of the company as a whole, greater exploration of what might constitute oppression (or an abuse of the power, as Priestley JA described it) in an expropriation of shares was unnecessary. 91 Gambotto's case stood for the proposition that the exercise of the power to change the articles of a company to provide for the majority shareholders to compulsorily acquire the shares of the minority was not oppressive because there was an expropriation of shares, at least provided that the acquisition was on fair terms. If the expropriation was fair, the fact of expropriation would not make the exercise of the power invalid. 92 On 10 December 1993 the High Court granted special leave to appeal from the decision of the Court of Appeal, and the appeal was heard on 21 April 1994. The dates are important in these proceedings, because they were during the development of the proposal. 93 In the decision delivered on 8 March 1995 the High Court upheld the appeal. The principal judgment was the joint judgment of Mason CJ and Brennan, Deane and Dawson JJ, and McHugh J delivered a separate judgment. 94 In the joint judgment the matter of principle was described (at 439) - "The fundamental issue in this case is whether, and if so in what circumstances, the taking of a power by majority shareholders by amendment to the articles to acquire compulsorily the shares of the minority shareholders will be held invalid on the basis that it is oppressive."

After discussion of the authorities, it was said (at 444-448) - " Striking a balance

The foregoing analysis of the authorities reveals that the courts have struggled to strike a balance between the interests of the majority and the minority. On the one hand, the courts have recognized that the proprietary rights attaching to shares are subject to modification, even destruction, by a special resolution altering the articles and that the power to vote is exercisable by a shareholder to his or her own advantage. On the other hand, the courts have acknowledged that the power to alter the articles should not be exercised simply for the purpose of securing some personal gain which does not arise out of the contemplated objects of the power. The problem of stating a workable criterion arises, as Dixon J said in Peters , 'in attempting to discover and fasten upon some element the presence of which will always vitiate a resolution for the alteration of articles of association'.

The test for determining whether an expropriation is valid

In the context of a special resolution altering the articles and giving rise to a conflict of interests and advantages, whether or not it involves an expropriation of shares, we would reject as inappropriate the 'bona fide for the benefit of the company as a whole' test of Lindley MR in Allen v Gold Reefs of West Africa Ltd . The application of the test in such a context has been criticised on grounds which, in our view, are unanswerable. It seems to us that, in such a case not involving an actual or effective expropriation of shares or of valuable proprietary rights attaching to shares, an alteration of the articles by special resolution regularly passed will be valid unless it is ultra vires, beyond any purpose contemplated by the articles or oppressive as that expression is understood in the law relating to corporations. Somewhat different considerations apply, however, in a case such as the present where what is involved is an alteration of the articles to allow an expropriation by the majority of the shares, or of valuable proprietary rights attaching to the shares, of a minority. In such a case, the immediate purpose of the resolution is to confer upon the majority shareholder or shareholders power to acquire compulsorily the property of the minority shareholder or shareholders. Of itself, the conferral of such a power does not lie within the 'contemplated objects of the power' to amend the articles.

The exercise of a power conferred by a company's constitution enabling the majority shareholders to expropriate the minority's shareholding for the purpose of aggrandizing the majority is valid if and only to the extent that the relevant provisions of the company's constitution so provide. The inclusion of such a power in a company's constitution at its incorporation is one thing. But it is another thing when a company's constitution is sought to be amended by an alteration of articles of association so as to confer upon the majority power to expropriate the shares of a minority. Such a power could not be taken or exercised simply for the purpose of aggrandizing the majority. In our view, such a power can be taken only if (i) it is exercisable for a proper purpose and (ii) its exercise will not operate oppressively in relation to minority shareholders. In other words, an expropriation may be justified where it is reasonably apprehended that the continued shareholding of the minority is detrimental to the company, its undertaking or the conduct of its affairs resulting in detriment to the interests of the existing shareholders generally and expropriation is a reasonable means of eliminating or mitigating that detriment.

Accordingly, if it appears that the substantial purpose of the alteration is to secure the company from significant detriment or harm, the alteration would be valid if it is not oppressive to the minority shareholders. So, expropriation would be justified in the case of a shareholder who is competing with the company as was the case in Sidebottom v Kershaw, Leese & Co , so long as the terms of expropriation are not oppressive. Again, expropriation of a minority shareholder could be justified if it were necessary in order to ensure that the company could continue to comply with a regulatory regime governing the principal business which it carried on. To take a hypothetical example: if the conduct of a television station were the undertaking of a company and a renewal of a television licence under a statute depended upon the licensee's entire share capital being held by Australian residents, the expropriation of foreign shareholders who are unwilling to sell their shares to Australian residents might be justified assuming it is fair in all the circumstances. But that is not to say that the majority can expropriate the minority merely in order to secure for themselves the benefit of a corporate structure that can derive some new commercial advantage by virtue of the expropriation.

Notwithstanding that a shareholder's membership of a company is subject to alterations of the articles which may affect the rights attaching to the shareholder's shares and the value of those shares, we do not consider that, in the case of an alteration to the articles authorizing the expropriation of shares, it is a sufficient justification of an expropriation that the expropriation, being fair, will advance the interests of the company as a legal and commercial entity or those of the majority, albeit the great majority, of corporators. This approach does not attach sufficient weight to the proprietary nature of a share and, to the extent that English authority might appear to support such an approach, we do not agree with it. It is only right that exceptional circumstances should be required to justify an amendment to the articles authorizing the compulsory expropriation by the majority of the minority's interests in a company. To allow expropriation where it would advance the interests of the company as a legal and commercial entity or those of the general body of corporators would, in our view, be tantamount to permitting expropriation by the majority for the purpose of some personal gain and thus be made for an improper purpose. It would open the way to circumventing the protection which the Corporations Law give to minorities who resist compromises, amalgamations and reconstructions, schemes of arrangement and takeover offers.

As noted in the preceding paragraphs, an alteration to the company's articles permitting the expropriation of shares will not be valid simply because it was made for a proper purpose; it must also be fair in the circumstances. Fairness in this context has both procedural and substantive elements. The first element, that the process used to expropriate must be fair, require the majority shareholders to disclose all relevant information leading up to the alteration and it presumably requires the shares to be valued by an independent expert. Whether it also requires the majority shareholders to refrain from voting on the proposed amendment is a question that is best left open at this stage.

The second element, that the expropriation itself must be fair, is largely concerned with the price offered for the shares. Thus, an expropriation at less than market value is prima facie unfair, and it would be unusual for a court to be satisfied that a price substantially above market value was not a fair value. That said, it is important to emphasize that a shareholder's interest cannot be valued solely by the current market value of the shares. Whether the price offered is fair depends on a variety of factors, including assets, market value, dividends, and the nature of the corporation and its likely future.

The respondents' submissions, which are based heavily on Peters , are premised on the proposition that an alteration allowing an expropriation is prima facie valid. It is conceded that the suggested presumption of validity will be rebutted if the minority shareholder proves either that the alteration was made for an improper purpose or that it is oppressive to that particular shareholder. Nonetheless, the respondents' approach, which forces the minority shareholder to shoulder a heavy onus of proof, tilts the balance too far in favour of commercial expediency and fails to attach sufficient weight to the proprietary nature of a share. A share is liable to modification or destruction in appropriate circumstances, but is more than a 'capitalized dividend stream': it is a form of investment that confers proprietary rights on the investor. Accordingly, in the case of expropriation, we consider that the onus lies on those supporting expropriation to show that the power is validly exercised.

It is for the majority to prove that the alteration is valid because it was made for a proper purpose and is fair in all the circumstances. This approach ensures that the application of the relevant principle does not unduly favour the majority and it largely alleviates the sting of practical difficulties, such as poor access to information, that would otherwise confront minority shareholders.

As the appellants did not contend that the expropriation was not fair in the sense explained above, the validity of art 20A hinges on whether the respondents have proved that the amendment was not made for a proper purpose [sic: was made for a proper purpose?] The immediate purpose of the amendment was to allow the expropriation by the majority shareholder of the shares held by the minority, including the shares held by the appellants. There is no suggestion that the appellants' continued presence as members puts WCP's business activities at risk or that the appellants have in some way acted to WCP's detriment. Nor is there any suggestion that WCP sought 100 per cent ownership in order to comply with a regulatory regime. All that is suggested is that taxation advantages and administrative benefits would flow to WCP if minority shareholdings were expropriated and WCP were to become a wholly-owned subsidiary of LEL. In our view, however, that cannot by itself constitute a proper purpose for a resolution altering the articles to allow for the expropriation of a minority shareholder's shares. In that regard, it is not irrelevant to note that it is difficult to conceive of circumstances in which financial and administrative benefits would not be a consequence of the expropriation of minority shareholdings by a majority shareholder.

Accordingly, we would hold art 20A invalid and ineffective on the basis that it was not made for a proper purpose."

95 McHugh J stated the question in the appeal (at 449) as whether the resolution adding the article "was invalid because its passing was oppressive of minority shareholders". After discussion of the test of benefit of the company as a whole, including observations to the effect that it is not always a satisfactory test for determining whether a proposed alteration of the articles of the company is valid, his Honour said (at 453) - "In my opinion, a company may alter its articles of association for the purpose of enabling a shareholder to acquire the shares of existing shareholders only when the acquisition is necessary to protect or promote the interests of the company and when the alteration will not be oppressive to those shareholders. In the absence of statutory authorization, a general contractual power to alter the articles of a company would not authorize an amendment empowering the compulsory acquisition of a member's shares. '[C]lear judicial authority, clear legislation or clear principle and necessity would seem to be required' before a general power to alter the articles of a company could be construed as authorizing such a far reaching alteration. The power to alter the articles of association of a company, however, does not depend upon contract. It is, and long has been, authorized by statute. But, wide though that power is, its application is, as I have indicated, subject to restrictions. One of them is that it does not extend to an alteration whose purpose is to expropriate the shares of an existing shareholder unless the expropriation is necessary for the protection or promotion of the company's interests."

96 After further consideration of the statutory power to alter articles and some authorities, his Honour said (at 455-7) - "Although, for the reasons that I have given, the generality of the power does not authorize an alteration providing for the expropriation of a member's shares by majority vote, no reason exists for holding that the power does not extend to those alterations that are necessary to protect or promote the company's interests. Thus, alteration for the purpose of expropriating a member's shares may be permissible if it is necessary to protect the company against direct competition from a member or from a company of which the member is a director. Similarly, alteration for the purpose of expropriation may be permissible if the character or status of a member will cause harm to the company or prevent it from pursuing a legitimate commercial interest.

No distinction should be drawn between an expropriation that will enable a company to pursue a beneficial course of action that would otherwise be denied to it and an expropriation that avoids a detriment to the existing interests of the company. I see no difference between an expropriation that will enable a company to renew an existing licence to do something and an expropriation that will allow the company to acquire that kind of licence. Nor in a case like the present, can I see a valid distinction in principle between an expropriation that would allow a company to escape the incidence of a particular tax and an expropriation that would allow the company to reduce its potential tax liability. In both cases, the proper conclusion is that the expropriation is commercially necessary to protect the assets of the company. That does not mean that an expropriation will be valid whenever the expropriation will financially benefit the company. Independently of any question of oppression, the alteration of articles for the purpose expropriating a member's shares will be valid only if it will enable the company to pursue some significant goal, or to protect itself from some action, that is external to the company. Administrative convenience or cost, for example, could never by itself justify an alteration for the purpose of expropriation.

Moreover, the fact that an expropriation is necessary for the protection or promotion of the company does not prevent it from being oppressive to the shareholders whose shares will be acquired. When the articles of association contain no power to expropriate the shares of a member of the company, any resolution granting such a power is prima facie oppressive to those shareholders who do not wish to sell their shares. In the absence of an article authorizing the expropriation of member's shares, members have a legitimate expectation that, unless some exceptional circumstance should arise they will be able to retain their shares until they wish to sell or until the company is wound up. Once the articles are altered to give the power of expropriation to the directors or the majority shareholders, a shareholder whose shares are liable to be expropriated is placed in the position where he or she can be forced to accept cash or debt in exchange for the shares while the majority retain their shareholding. Any benefits that will flow to the company from the acquisition will flow only to the remaining shareholders. Furthermore, those given the power to acquire are usually not bound to exercise their power. Often, the expropriators can time the acquisition to suit their own convenience and purposes. In periods such as that which followed the stock market 'crash' of October 1987, the price of shares may be artificially depressed giving the expropriators the chance to acquire the shares at a price below their 'fundamental value'. Usually, the expropriator is a person who controls the company and who often has access to information that is denied to other shareholders and to the stock market.

Under these circumstances, to require shareholders to sell their shares against their will is an infringement of their rights as autonomous beings to make their own decision and to carry out their own actions. In a society being free and equal agents any interference with the autonomy of any individual needs to be justified if it is not to be regarded as oppressive. Because those proposing an alteration for the purpose of expropriation must justify their action, the onus must be on them to establish that there has been no oppression.

To prevent an alteration for the purpose of an expropriation being oppressive the expropriators will need to act fairly. In a leading American case, Weinberger v UOP Inc , the Supreme Court of Delaware, in dealing with a statute that enabled a corporation that was a majority shareholder in another corporation to buy out the minority shareholders and merge the two corporations, pointed out that the 'concept of fairness has two basic aspects: fair dealing and fair price'." 97 After expanding on fair dealing and fair price, his Honour concluded (at 459-60) -

In the present case, the principal goal sought to be achieved by the alteration was in my view a legitimate business objective and one that would justify the expropriation of each appellant's shares provided that it was otherwise fair to that person. The alteration of the articles and the expropriation of the minority shares would enable the company to save over $4 million in taxes.

In my opinion, however, the company has failed to prove that the expropriation was not oppressive. It is true that upon the evidence before the Court and having regard to the concessions of the appellants the price of $1.365 per share may well have been a fair price for the shares, but the onus is on the company to prove that the price was fair, that the appellants have been dealt with fairly and that a full disclosure of all matters in relation to the alteration and expropriation has been made. The evidence falls far short of proving that the company and the majority shareholders have dealt with each appellant fairly. Almost no attempt was made to make the full disclosure that is required in this class of case.

It follows that the resolution adopting art 20A was invalid. The appeal should be allowed."

98 It will be necessary to return to the effect of the decision of the High Court, but this much can presently be said. The power to change the articles seems still to have been accepted, and the question was still whether the exercise of the power was constrained (although McHugh J seems rather to have read down the power). A new test was established for a change in articles to provide for expropriation of shares, with two limbs: that the expropriation be for a proper purpose, and that the expropriation not be oppressive to the minority. The first limb underlined that inquiry in terms of oppression, which was equated with fairness, was not sufficient, and that there was an additional requirement of proper purpose, and proper purpose was not satisfied by benefit to the company as a whole but called for something more by way of securing the company from significant detriment or harm. The fact of expropriation would make the exercise of power invalid, even if the expropriation was fair, unless the majority shareholders could prove the proper purpose.

III THE NRMA'S CLAIMS 99 The plaintiffs in the proceedings were Association, Insurance, and Holdings. The first defendants were the partners at the time of AAH. The second defendants were the partners at the time of AT. The third defendant was Mr Heydon. The allegations of fault on the part of the defendants centred upon the free shares question, the disadvantages question, and the impact of Gambotto's case on the proposal. In brief, it was alleged that the defendants were at fault in failing adequately to advise the NRMA in relation to risk to the proposal in connection with Gambotto's case, in relation to the free shares question, or in relation to the disadvantages question, and that if the NRMA had been adequately advised it would not have suffered loss of the wasted expenditure - as to risk in connection with Gambotto's case most of the wasted expenditure, and as to the free shares question and the disadvantages question the whole of the wasted expenditure. On the NRMA's case, had it been told of risk to the proposal in connection with Gambotto's case, it would have deferred the proposal until the decision of the High Court and following that decision would not have proceeded with it at all in the form then determined, so the expenditure from the time of deferral would not have been incurred; if it had proceeded with the proposal, then had it been adequately advised in relation to the free shares question and the disadvantages question it would have done so in a way not open to the successful challenge in the Federal Court, and the whole of the expenditure would not have been wasted. There was, of course, much more to the NRMA's case than in this brief summary, and the detail will come as these reasons unfold. 100 The claims against the defendants, as ultimately set out in points of claim filed on 25 May 1988, were framed on a number of different causes of action. They may be identified as claims for (a) breach of contract; (b) negligence; (c) contravention of s 52 of the TP Act or s 42 of the Fair Trading Act 1987 (NSW) ("the FT Act"); (d) involvement in Holdings' contravention of the TP Act or the FT Act; (e) contravention of s 995(2) of the Law; and (f) contravention of s 996(1) of the Law. Breach of contract 101 AAH and AT were retained by the NRMA, and it was common ground that under the contracts thereby formed they owed to the NRMA duties to exercise reasonable care, skill and diligence ("duties of care") in the matters for which they were retained. In the manner the proceedings were conducted, the parties said that it did not matter whether the solicitors were retained by Association, by Insurance, or by both, or whether the retainer extended to a retainer by Holdings when Holdings was incorporated. 102 Such letters as there were dealing with the retainers addressed fees, resources, and such like, and did not add to, cut down, or give content to the duties of care, and there was a degree of contention over the scope of the matters for which the solicitors were retained. In the result, in the respective submissions there was little issue over the existence of duties of care sufficient for the failures to exercise reasonable care, skill and diligence on which the NRMA relied. It is enough to record that the NRMA alleged in the points of claim, but AAH and AT did not accept in their defences, that the matters for which each of AAH and AT was retained were such that the duties of care included the exercise of reasonable care, skill and diligence in proffering timely and accurate advice to the NRMA generally in connection with all legal issues arising out of the proposal; in preparing, advising upon and settling the prospectus; in ensuring that the prospectus did not contain any misleading, incorrect or incomplete information, statement or representation; in ensuring that the prospectus disclosed all information which was necessary to make the prospectus true and not misleading; in ensuring that the prospectus contained information that was fair and balanced; in ensuring that the proposal was lawful and capable of implementation; and in proffering timely and accurate advice to the NRMA of any risk that the proposal could be rendered unlawful. 103 The points of claim could probably be read as including a claim for breach of contract (as distinct from negligence) against Mr Heydon. Such a claim was espoused even to and in submissions, but at a late stage was expressly abandoned. 104 It was alleged that AAH and AT breached the contracts in that they failed to exercise the reasonable care, skill and diligence, with lengthy particulars of the failures. In the hearing of the proceedings the prolixity of the particulars was not taken up, and more concise and confined submissions of failures to exercise the reasonable care, skill and diligence were made. The thrust of the failures alleged in submissions, to which I will come in due course, was that AAH and AT should have advised that there was a real risk that the proposal as then determined could be rendered unlawful by the decision of the High Court on a successful appeal in Gambotto's case, and should have advised against describing the shares as free shares at all, or at least of the risk of using that description as it was used. As the NRMA's case was put in submissions, inadequate advice in relation to the disadvantages question took a subsidiary role, being that the prospectus' failure to explain the disadvantages "compounded the misleading representation that the members were giving up nothing of value in exchange for free shares". 105 It was then alleged that in consequence of the breaches of contract the NRMA suffered loss in the amount of the wasted expenditure. In the points of claim the loss on this cause of action, and all others, was claimed globally, as the entire wasted expenditure. In its opening the NRMA made clear that the loss claimed for failure to advise of risk to the proposal in connection with Gambotto's case was only the expenditure after the date on which the advice should have been given and would have been acted on, putting forward alternative dates in March and April 1994. In the course of submissions it said that it was arguable that the prior expenditure "was lost as a result of the Gambotto negligence", but confirmed that it was content to start from the intermediate date. As to the loss claimed for failure to advise in relation to the free shares question and the disadvantages question, in submissions there was late modification by the NRMA to a claim that part of the wasted expenditure would be recoverable as such if it succeeded in establishing the defendants' liability and other of the wasted expenditure would be recoverable on a different basis. Until that time the NRMA's case on all causes of action going to free shares/disadvantages liability was that it either succeeded or failed in relation to the entire wasted expenditure, and I will further explain the shift from a global claim of loss in due course. Negligence 106 It was also common ground that the retainers of AAH and AT gave rise to duties of care under common law principles relating to negligence apart from under the contracts thereby formed (see for example Hawkins v Clayton (1964) 164 CLR 539 at 574-5 per Deane J; Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642), the duties of care having the same content as the duties of care under the contracts. In the points of claim the NRMA alleged breach of the duties of care and loss in the same respects as for the claims for breach of contract. No one submitted that the liability of AAH or AT, or the quantification of damages, differed according to whether the NRMA succeeded on a cause of action in contract or in tort, and it was accepted that if the NRMA succeeded on what might be called contractual negligence it would also succeed on what might be called tortious negligence. 107 At the time of the hearing it was also accepted that questions of contributory negligence and contribution (see later in these reasons) were in the circumstances of this case not affected by liability being in contract rather than in tort, and with one qualification in the manner the proceedings were conducted it was unnecessary to distinguish between the claims for breach of contract and for negligence. The qualification was that, although perhaps not recognised by it, the NRMA's reliance on the reasoning of the High Court in McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 for recovery of the wasted expenditure as damages for free shares/disadvantages liability may have required, or been assisted by, liability for breach of contract. 108 More point to distinguishing between the claims for breach of contract and the claims for negligence came with the decision of the High Court, after the hearing and while judgment was reserved, in Astley v Austrust Ltd (1999) HCA 6. To the potential disadvantage of the defendants, it was held that contributory negligence did not provide a defence to a claim for breach of contract even where the claim was also brought in tort. Since the duties of care had the same content, this meant that contributory negligence was of no value to AAH and AT as a defence to the claim for negligence (although both maintained that Astley v Austrust Ltd did not affect contributory negligence so far as it was an available defence to the statutory claims). 109 Mr Heydon was asked by AAH and AT, in briefs and letters, to advise the NRMA in relation to matters to do with the formulation and implementation of the proposal. The NRMA alleged in the points of claim, but Mr Heydon did not accept in his defence, that the circumstances in which he was asked to, and did, advise, and the matters in relation to which he was asked to advise, were such that he owed to it a duty of care under common law principles relating to negligence, being a duty of care to exercise reasonable care, skill and diligence - "(a) to give timely and accurate advice to the Plaintiffs in connection with all legal issues arising out of the Proposal in respect of which Heydon had been briefed; (b) to advise upon the lawfulness of the prospectus, (including but not limited to the use therein of the expressions 'free shares' and 'free offer') and the impact upon the Proposal of an adverse decision in Gambotto ; (c) to advise that the prospectus was misleading or deceptive and thereby in breach of the Trade Practices Act (1974) (Cth) and the Corporations Law ; (d) to advise that the 'onsert' was misleading or deceptive and thereby in breach of the Trade Practices Act (1974) (Cth) and the Corporations Law ; (e) to advise whether the prospectus disclosed all information which was necessary to make it true and not misleading; (f) to advise whether the accompanying documents (including the onsert) which had been briefed to him disclosed all information which was necessary to make them true and not misleading; (g) to advise whether the Proposal was lawful and capable of implementation; (h) to proffer timely and accurate advice to the Plaintiffs of any risk that any aspect of the Proposal (including any of the documents referred to above) might be or be rendered unlawful." 110 The full width of the alleged duty of care was not maintained in submissions, in that negligence in failure to advise in relation to the disadvantages question was not maintained against Mr Heydon, and the failures to exercise reasonable care, skill and diligence on which the NRMA relied to some extent confined the contest over the extent of Mr Heydon's duty of care. A significant contest remained. 111 It was alleged that Mr Heydon breached the duty of care in that he failed to exercise the reasonable care, skill and diligence, again with lengthy particulars of the failures. As in the case of the claims against AAH and AT, in the hearing of the proceedings the prolixity of the particulars was not taken up, and more concise and confined submissions of failure to exercise the reasonable care, skill and diligence were made. The thrust of the failures alleged in submissions, to which again I will come in due course, was that Mr Heydon should have advised that there was a real risk that the proposal as then determined could be rendered unlawful by the decision of the High Court on a successful appeal in Gambotto's case, and should have advised against describing the shares as free shares at all, or at least that the lawfulness of the description should be considered. As I have said, negligence in failure to advise in relation to the disadvantages question was not maintained against Mr Heydon, but it was submitted that lack of balance in the prospectus was "all the more reason for him to give cautious and careful advice about the use of the expression 'free'." 112 It was then alleged that in consequence of the breaches of the duties of care the NRMA suffered loss in the amount of the wasted expenditure. What I have earlier said applies. Since the claim against him was in tort alone, contributory negligence remained a defence available to Mr Heydon. Contravention of the TP Act and the FT Act 113 The statutory bases for the causes of action were ss 52 and 82 of the TP Act and the corresponding provisions of the FT Act. 114 Section 52 of the TP Act, the provision on which the applicants in the Federal Court proceedings relied in 1994 to the detriment of the NRMA, provided so far as relevant - "52 (1) A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive."

Section 52 was in Part V of the TP Act. Section 82 of the TP Act provided so far as relevant - "82 (1) A person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part IV or V may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention."

115 Section s 42 and 68 of the FT Act were in the same terms, save that s 42 referred to a "person" rather than a "corporation". 116 The NRMA alleged in the points of claim that by breaching their duties of care, further or alternatively by failing to correct "the prospectus, the accompanying documents and the promotional materials" so as to ensure that there were no misleading or deceptive representations contained within them, AAH and AT in trade or commerce engaged in misleading conduct in contravention of s 52 of the TP Act and s 42 of the FT Act. It alleged that by breaching his duty of care Mr Heydon in trade or commerce engaged in misleading conduct in contravention of s 42 of the FT Act. It then alleged that the NRMA suffered loss or damage by that contravening conduct, recoverable under s 82 of the TP Act and s 68 of the FT Act, in the amount of the wasted expenditure. 117 The "accompanying documents" were the onsert. The "promotional materials" were the materials such as media statements, letters or articles in the NRMA magazine The Open Road, letters to members, and scripts for responses on a telephone hotline, produced during 1994 and relevantly referring to free shares. The promotional materials had been taken up in the allegation of duties of care, although it has not been necessary to refer to that aspect of the allegation, and will be referred in some detail in these reasons, but their significance in the proceedings was only as part of the conduct of the parties illuminating the allegations of default in relation to the prospectus and onsert. The decisions of Gummow J and the Full Court were not founded on misleading or deceptive representations in the promotional materials. The NRMA's case in these proceedings as opened and conducted relevantly involved loss because the decision of the Full Court prevented the proposal from going to the general meetings, and any breach of duty or conduct in contravention of s 52 of the TP Act or s 42 of the FT Act affecting the promotional materials was not causative of the loss alleged. What the NRMA relied on was the deficiencies in the prospectus found by the Full Court, not (save as part of the illustrative conduct) any deficiencies in the promotional materials. 118 Neither AAH nor AT was a corporation. In its opening, and even in submissions, the NRMA said that s 52 of the TP Act nonetheless extended to them by the operation of s 6 of the TP Act. It did not seem to matter, because if AAH or AT contravened s 42 of the FT Act nothing more would flow to the NRMA if they also contravened s 52 of the TP Act, and reliance on the TP Act brought complications which need not be described. Therefore, but also at a late stage in submissions, the NRMA expressly abandoned its claims against AAH and AT for contravention of the TP Act, and confined its claims to claims for contravention of the FT Act. Again at a late stage in submissions, the NRMA expressly abandoned its claim against Mr Heydon for contravention of the FT Act. 119 The claims against AAH and AT for contravention of the FT Act, as they became, was concerned only with the free shares question and the disadvantages question: the case of failure adequately to advise in relation to risk to the proposal in connection with Gambotto's case was no part of the claims. What I have said about a global claim of loss applies. Involvement in contravention of the TP Act and the FT Act 120 The statutory basis for the cause of action were the provisions already described plus s 75B of the TP Act and the corresponding provision of the FT Act. 121 As has been seen, s 82 of the TP Act and s 68 of the FT Act extended to recovery against any person "involved in the contravention". Section 75B of the TP Act provided so far as relevant - "75B (1) A reference in this Part to a person involved in a contravention of provision of Part IV or V shall be read as a reference to a person who - (a) has aided, abetted, counselled or procured the contravention; (b) has induced, whether by threats or promises or otherwise, the contravention; (c) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention; or (d) has conspired with others to effect the contravention." 122 Section 61 of the FT Act was in materially the same terms as s 75B of the TP Act. 123 The NRMA alleged in the points of claim that Association and Insurance had suffered loss or damage by conduct of Holdings, namely the distribution of the prospectus and the onsert; that the conduct was in contravention of s 52 of the TP Act (Gummow J and the Full Court had so held) and also constituted contravention of s 42 of the FT Act; and that all of AAH, AT and Mr Heydon were persons involved in the contraventions because they aided, abetted, counselled and procured the contraventions, induced the contraventions by their own conduct, and were directly and indirectly knowingly concerned in or parties to the contraventions. The conduct of AAH, AT and Mr Heydon alleged as their involvement was their breaches of their duties of care, and in the case of AAH and AT failing to correct the prospectus, the accompanying documents and the promotional materials so as to ensure that there were no misleading or deceptive representations contained within them. The loss or damage alleged was again the amount of the wasted expenditure. 124 The abandonment of the claims against AAH and AT for contravention of the TP Act was matched by abandonment of the claims for involvement in contravention of the TP Act against all of AAH, AT and Mr Heydon. The claim against Mr Heydon for involvement in contravention of the FT Act was maintained. So in the end the claims were against all defendants for involvement in Holdings' contravention of s 42 of the FT Act. It was not in dispute that if Holdings had contravened s 52 of the TP Act it had also contravened s 42 of the FT Act. 125 Again, the claims for involvement in contravention of the FT Act, as they became, was concerned only with the free shares question and the disadvantages question: the case of failure adequately to advise in relation to risk to the proposal in connection with Gambotto's case was no part of the claims. What I have said about a global claim of loss applies. Contravention of s 995(2) of the Law 126 Section 995(2) of the Law, contained in Pt 7.11, provided - "995(2) A person shall not, in or in connection with: (a) any dealing in securities; or (b) without limiting the generality of paragraph (a): (i) the allotment or issue of securities; (ii) any prospectus issued, or notice published, in relation to securities; (iii) the making of takeover offers or a takeover announcement, or the making of an evaluation of, or of a recommendation in relation to, takeover offers or offers constituted by a takeover announcement; or (iv) the carrying on of any negotiations, the making of any arrangements or the doing of any other act preparatory to or in any other way related to any matter referred to in subparagraph (i), (ii) or (iii); engage in conduct that is misleading or deceptive or is likely to mislead or deceive."

Section 1005(1) of the Law, also contained in Pt 7.11, provided - "1005(1) Subject to the following sections of this Division, a person who suffers loss or damage by conduct of another person that was engaged in contravention of a provision of this Part or Part 7.12 may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention, whether or not that other person or any person involved in the contravention has been convicted of an offence in respect of the contravention."

127 The NRMA alleged in the points of claim that AAH, AT, and Mr Heydon engaged in misleading conduct in contravention of s 995(2) in or in connection with the making of arrangements and the doing of other acts preparatory to and in other ways related to the allotment or issue of securities in the capital of Holdings and the prospectus issued and the other documents published in relation to the securities of Holdings. The particulars of the allegation took up the matters alleged to give rise to the duties of care and breaches of the duties of care. It was then alleged that the NRMA suffered loss or damage by that contravening conduct, recoverable under s 1005(1), in the amount of the wasted expenditure. 128 At one of the late stages in submissions the NRMA abandoned this claim against Mr Heydon. Perhaps because, in the claims against AAH and AT, it was not necessary that the misleading conduct be in trade or commerce, the claims were maintained against AAH and AT. It was not suggested that anything else flowed to the NRMA from these claims which would not flow from the claims for contravention of the FT Act. 129 Again, the claims for contravention of s 995(2) of the Law were concerned only with the free shares question and the disadvantages question: the case of failure adequately to advise in relation to risk to the proposal in connection with Gambotto's case was no part of the claims. What I have said about a global claim of loss applies. Contravention of s 996(1) of the Law 130 Section 996(1) of the Law, also contained in Pt 7.11, provided - "996(1) A person must not authorise or cause the issue of a prospectus in relation to securities of a corporation if: (a) the prospectus has been, or is required to be, lodged under Part 7.12; and (b) either: (i) a material statement in the prospectus is false or misleading; or (ii) there is a material omission from the prospectus."

Section 1005(1) extended also to loss or damage by conduct engaged in in contravention of s 996(1). 131 The NRMA alleged in the points of claim that AAH, AT, and Mr Heydon contravened s 996(1) by authorising or causing the issue of a prospectus which was or was required to be lodged under Pt 7.12 of the Law, which contained material statements which were false or misleading, and which omitted material information. It was not in dispute that the prospectus was in relation to the securities of a corporation and was, and was required to be, lodged under Pt 7.12 of the Law. The allegation was not fully particularised, but in substance was that the authorising or causing was by their involvement in the preparation and distribution of the prospectus, and that the false or misleading statements and omissions in the prospectus were the matters with which the free shares question and the disadvantages question were concerned. In submissions the case for authorising or causing was not greatly elucidated, involving only broad reference to the respective involvements in the preparation and distribution of the prospectus. It was then alleged that the NRMA suffered loss or damage by the contravening conduct, recoverable under s 1005(1), in the amount of the wasted expenditure. 132 Again, the claims for contravention of s 996(1) of the Law were concerned only with the free shares question and the disadvantages question: the case of failure adequately to advise in relation to risk to the proposal in connection with Gambotto's case was no part of the claims. What I have said about a global claim of loss applies. 133 So the claims against the defendants came down to claims for - (i) contractual and tortious negligence, against AAH and AT, and tortious negligence, against Mr Heydon; (ii) contravention of the FT Act, against AAH and AT; (iii) involvement in Holdings' contravention of the FT Act, against AAH, AT and Mr Heydon; (iv) contravention of s 995(2) of the Law, against AAH and AT; and (v) contravention of s 996(1) of the Law, against AAH, AT and Mr Heydon. The claims in (i) were for all Gambotto liability and free shares disadvantages liability. The claims in (ii) to (v) were for free shares disadvantages liability alone. IV THE DEFENDANTS' DEFENCES 134 I will outline the defences as filed sufficiently to indicate significant areas of contention and provide some focus when addressing the facts. Allen Allen & Hemsley 135 AAH accepted in its defence, ultimately that filed on 15 June 1998, that it was retained by the NRMA, amongst other things, to advise on the possible alternative structures for what became the proposal, to advise on the compliance of the structure and its implementation with the Law and "the general law", and to comment on various drafts of the prospectus and accompanying documents and some promotional materials. 136 It accepted that it was retained "to advise in respect of the final form of the Prospectus as to whether any matter had come to their attention which caused them to believe" that the prospectus contained any material statement (excluding the financial material) that was false or misleading, that there was any material omission from the prospectus, and that the issue of the prospectus might involve the NRMA in misleading conduct. The words "had come to their attention which caused them to believe" should be noted. AAH denied "the absence of any advice that the Prospectus was or might be misleading, deceptive or in any other respect unlawful". 137 In relation to Gambotto's case, AAH admitted that it did not give what the NRMA had defined in the points of claim as "the Gambotto advice" which should have been given, namely, "that the prudent course after 10 December 1993, alternatively after 21 April 1994, was for the Plaintiffs not to proceed with the Proposal, alternatively to proceed with the Proposal only to the extent necessary to ensure that the Proposal was kept in a state in which it could be revived, altered or abandoned conveniently and economically once the decision of the High Court in Gambotto was delivered". (This Gambotto advice was rather different from the Gambotto advice taken up in the NRMA's evidence, but it was not in dispute that AAH did not give the latter Gambotto advice either.) 138 AAH admitted that it knew that the NRMA was relying on it to advise of any risk of which it (AAH) was aware based on the information provided to it and, subject to the qualifications contained in AAH's letter of 18 August 1994 (being the so-called sign-off letter in relation to the proposal), of any risk that rendered the proposal unlawful, but denied that the NRMA had suffered any loss or damage by reason of any act or omission of AAH. Indeed, in some parts of the defence AAH denied that the NRMA had suffered any loss at all. 139 Specifically as to ss 995(2) and 996(1) of the Law, AAH said that the NRMA could not rely on those provisions because the NRMA had itself contravened them, and because as a matter of construction the provisions were not available to a corporation issuing or involved in the issue of the prospectus or a corporation related to such a corporation. This was not taken up in submissions. 140 AAH specifically raised two issues of causation. The first was that any loss suffered by the NRMA was not caused by any act or omission on the part of AAH, but was caused by the supervening decision of the High Court in Gambotto's case "which declared the law in a way which made it impossible to implement, or which led to the Plaintiff's abandoning the implementation of, the Proposal by way of resolutions at members' meetings". The second had a number of elements rather confusingly thrown together, and was to the effect that any loss or damage suffered by the NRMA was not caused by any act or omission on the part of AAH because the proposal would have been rejected by the members for reasons to do with the financial forecasts in the prospectus and the financial position of Insurance. It was said that the prospectus contained financial forecasts which would have precluded the NRMA from continuing with the proposal, or alternatively would in any event have required a supplementary prospectus to have been issued, with particulars that by November 1994 the profit performance of the NRMA was such that it was likely that the profit for 1994-95 would be materially different from that forecast in the prospectus. It was also said that the financial position of Insurance was such that, had it been known to members at the general meetings "as it would have been as a result of the public announcement of the year's results", the proposal would have been rejected by members, or if the proposal had been initially approved was such that it would have led to the ultimate overturning of any decisions of the members made on the basis of the incorrect financial information. 141 Involved in these issues, at least as they were later explained, was that putting the proposal to the general meetings would have been delayed by the decision of Gummow J even if the defendants had not been at fault in relation to the free shares question or the disadvantages question, because his Honour's orders were founded in part on other deficiencies in the prospectus not now alleged against the defendants, and that during the delay the inhibiting financial position would have become known and would have brought defeat to the proposal; further, during the delay the decision of the High Court would have been given with the same result. More as to these issues should await the attention to the submissions on causation later in these reasons. There was no doubt during the hearing that AAH (and the other defendants) sought to defeat the NRMA on causation grounds which included the issues of causation specifically raised. 142 AAH relied on some exculpatory provisions of the Law. They were complex and difficult to summarise. AT and Mr Heydon also relied on some exculpatory provisions of the Law, with overlapping between the provisions relied on, and it is convenient to set out now the full spectrum of the provisions. 143 First, AAH relied on part of the combined operation of ss 1006 and 1009 of the Law in answer to the claims for contravention of ss 995(2) and 996(1). By s 1006(1), s 1006 applied - "… for the purposes of an action under section 1005 in respect of conduct being the issue of a prospectus in relation to securities of a corporation: (a) in which there is a material statement that is false or misleading; or (b) from which there is a material omission".

Then by s 1006(2) the reference in s 1005(1) to any person involved in the contravention included a reference to all or any of - "(e) if the prospectus includes a statement that purports to be, or to be based on, a statement made by an expert and the expert gave consent under section 1032 to the issue of the prospectus - that expert; … (g) a person named, with the consent of the person, in the prospectus as an auditor, banker or solicitor or the corporation or for or in relation to the issue or proposed issue of securities; (h) a person named, with the consent of the person, in the prospectus as having performed or performing any function in a professional, advisory or other capacity not mentioned in paragraph (e), (f) or (g) for the corporation or for or in relation to the issue or proposed issue of securities". Then by s 1009(2), (3) and (4) - "(2) A person referred to section 1006(2)(e)(g) or (h) is liable in an action under section 1005 only in respect of: (a) a false or misleading statement in the prospectus purporting to be made by the person as a person referred to in that paragraph, or to be based on a statement made by the person as a person referred to in that paragraph; or (ba) in the case of a person referred to in paragraph 1006(2)(e) - an omission of any material matter from a statement in the prospectus purporting to be made by the person as a person referred to in paragraph 1006(2)(e), or to be based on a statement made by the person as such a person; or (b) in the case of a person referred to in paragraph 1006(2)(g) or (h) - an omission from the prospectus of any material matter for which the person is responsible in the person's capacity or purported capacity as a person referred to in paragraph 1006(2)(g) or (h). (3) A person referred to in paragraph 1006(2)(e) is not liable in an action under section 1005 in respect of a false or misleading statement in, or an omission from, the prospectus if it is proved: … (c) that the person was competent to make the statement and, after making such inquiries (if any) as were reasonable, had reasonable grounds to believe, and did until the time of the allotment or issue of the securities believe that: (i) if the action is in respect of a false or misleading statement - the statement was true and not misleading; or (ii) if the action is in respect of an omission from a statement - there were no material omissions from the statement. (4) A person referred to in paragraph 1006(2)(g) or (h) is not liable in an action under section 1005 in respect of a false or misleading statement in, or an omission from, the prospectus if it is proved: … (b) in the case of a statement - that the person was competent to make the statement and, after making such inquiries (if any) as were reasonable, had reasonable grounds to believe, and did until the time of the allotment or issue of the securities believed, that the statement was true and not misleading; or (c) in the case of an omission - that the person, after making such inquiries (if any) as were reasonable, had reasonable grounds to believe, and did until the time of the allotment or issue of the securities believe, that there were no omissions from the prospectus of material matters for which the person was responsible in the person's capacity as a person referred to in paragraph 1006(2)(g) or (h), and that the person was competent to act in that capacity".

Very broadly, an adviser could gain protection under these provisions if his involvement was limited or he had acted reasonably. The reliance of AAH, as pleaded in its defence, was confined to the exculpation under s 1009(4), and in submissions it did not take it up at all. 144 Secondly, AAH relied on s 1011(1) of the Law in answer to the claims for contravention of ss 995(2) and 996(1): it provided - "1011(1) The corporation, a person referred to in paragraph 1006(2)(d) or (f) or a person who authorised or caused the issue of the prospectus is not liable in an action under section 1005 if it is proved that the false or misleading statement or the omission: (a) was due to a reasonable mistake; (b) was due to reasonable reliance on information supplied by another person; or (c) was due to the act or default of another person, to an accident or to some other cause beyond the defendant's control; and, in a case to which paragraph (c) of this subsection applies, that the defendant took reasonable precautions and exercised due diligence to ensure that all statements to be included in the prospectus were true and not misleading and that there were no material omissions from the prospectus."

Again very broadly, a person could escape liability if he had acted reasonably. This was taken up in submissions. 145 Thirdly, AAH relied on s 1318(1) of the Law together with s 1318(4) describing its application, in answer to all the claims against it. They provided - "1318(1) If, in any civil proceeding against a person to whom this section applies for negligence, default, breach of trust or breach of duty in a capacity as such a person, it appears to the court before which the proceedings are taken that the person is or may be liable in respect of the negligence, default of breach but that the person has acted honestly and that, having regard to all the circumstances of the case, including those connected with the person's appointment, the person ought fairly to be excused for the negligence, default or breach, the court may relieve the person either wholly or partly from liability on such terms as the court thinks fit."

"(4) This section applies to a person who is: (a) an officer of a corporation; (b) an auditor of a corporation, whether or not the person is an officer of the corporation; (c) an expert in relation to a matter: (i) relating to a corporation; and (ii) in relation to which the civil proceedings has been taken or the claim will or might arise; or (d) a receiver, receiver and manager, liquidator or other person appointed or directed by the court to carry out any duty under this Law in relation to a corporation."

Again very broadly, an expert could escape liability if he had acted honestly and should be excused. This was also taken up by AAH in submissions, although only in relation to the claims for contravention of ss 995(2) and 996(1) of the Law. 146 AAH then said that the NRMA had failed to mitigate its loss, because it could have rectified any misleading or deceptive statements in the prospectus by issuing a supplementary prospectus and did not do so, alternatively because after the decision of the High Court in Gambotto's case it was still open to the NRMA to implement the proposal by way of a court-approved scheme of arrangement but the NRMA did not do so. 147 Finally, AAH alleged that the NRMA contributed to its loss by its own negligence and that, if AAH was liable, the amount for which it was held liable should be reduced by such amount as was thought just and equitable in accordance with s 10 of the Law Reform (Miscellaneous Provisions) Act 1965. Detailed particulars of the contributory negligence were given, rivalling in prolixity the NRMA's particulars of breach, the thrust of which was that the NRMA was at fault in persisting with the description "Free Shares" knowing of the risk in doing so and that the NRMA was at fault in either inadequately identifying the disadvantages in the proposal or going ahead with the proposal knowing that the prospectus did not adequately address them. As I have indicated, following the decision in Astley v Austrust Ltd contributory negligence was not available to AAH as a defence to the claim for breach of contract, and so of no practical value as a defence to the claim for negligence. At least in submissions, the parties were at issue over whether contributory negligence was a defence to the statutory claims, and Astley v Austrust Ltd was said by the NRMA to support its position and by the defendants to support their positions. Abbott Tout 148 The position of AT was in many respects, but not all, the same as or similar to that of AAH. 149 AT accepted in its defence, ultimately that filed on 16 June 1998, that it was retained to assist in relation to the proposal, but said that its retainer was restricted to a list of particular matters This particularity - and the list was long - was apparently with a view to excluding any duty of care in relation to the free shares question, the disadvantages question, or the impact of Gambotto's case on the proposal, as the defence did not concede such a duty of care, and in the course of the evidence there was occasional reference to such a stance. As I have indicated, in the result there was little issue over the existence of a duty of care sufficient for the failures to exercise reasonable care, skill and diligence on which the NRMA relied. That the retainer included providing a "sign-off letter in relation to Section 1 of the prospectus" was admitted. 150 AT did not specifically deny the allegation of breach of the duty of care, but the proceedings were conducted on the basis that breach was in issue. It admitted that it did not give the Gambotto advice, while saying that it was not retained to advise in relation to Gambotto's case and that in any event the Gambotto advice would not have been appropriate. 151 Specifically as to ss 995(2) and 996(1) of the Law, AT also said that the NRMA was not entitled to rely on those provisions because the NRMA had itself contravened them, or in the alternative that the NRMA was "not within the category of persons to whom Sections 995, 996 and 1005 (in relation to a contravention of Sections 995 or 996) of the Corporations Law are available to be relied upon or used for relief". This was not taken up in submissions. 152 As to causation, AT raised the issues which AAH had raised concerning the supervening decision in Gambotto's case, the financial forecasts in the prospectus, and the financial position of Insurance. There were some differences in expression from the defence of AAH, but not such as to warrant further attention at this point. AT also relied upon exculpatory provisions of the Law, in its case the full range of provisions earlier set out (except s 1011(1)(a)). As to s 1318(1) its reliance also extended to all claims against it, and AT did take this up in submissions. 153 AT said that the NRMA had failed to mitigate its loss, because it failed to seek special leave to appeal to the High Court from the decision of the Full Court, failed to issue a supplementary prospectus, and failed to implement the proposal by way of a scheme of arrangement. In submissions, failure to seek special leave to appeal to the High Court was expressly abandoned. 154 Finally, AT also alleged contributory negligence on the part of the NRMA, with detailed particulars with a similar thrust to that earlier described but more directly asserting that the NRMA chose to rely on the advice of its directors, management, legal staff, consultants, and "other external lawyers" rather than the advice of AT. Mr Heydon 155 Mr Heydon's defence was ultimately that filed on 15 June 1998. He admitted that he owed to the NRMA a duty of care "in connection with the expression of his opinion on the matters in respect of which it was sought, but only to the extent that his advice was sought by any particular company on any particular occasion". He denied any wider duty of care. He said that he was not asked to express an opinion material to the free shares question, the disadvantages question, or the impact of Gambotto's case on the proposal, save to the extent of certain limited advice in relation to the onsert at the beginning of August 1994 as to which he said there was no breach of the duty of care. He denied that he was asked to advise or express an opinion on whether the prospectus was or might be misleading, deceptive, or in any other respect unlawful, and denied that there was any occasion for him to advise as to the materiality of Gambotto's case to the proposal. His position included, therefore, that he did not owe to the NRMA a duty of care within which fell the failures to advise alleged by the NRMA. 156 Specifically as to ss 995(2) and 996(1) of the Law, Mr Heydon said that as a matter of construction the NRMA was not within the category of persons who could rely on those provisions because each of Association, Insurance and Holdings was either responsible for conduct engaged in in contravention of the provisions or was involved in the contraventions. As I have said, the allegation of contravention of s 995(2) of the Law was abandoned as against Mr Heydon, but he did not take this response up in submissions in relation to s 996(1). 157 Mr Heydon's defence did not expressly raise the issues going to causation or mitigation (the supervening decision in Gambotto's case, failure to seek special leave to appeal to the High Court, failure to issue a supplementary prospectus, failure to proceed by way of a scheme of arrangement) which had been raised by AAH and AT. Mr Heydon did not rely on the exculpatory provisions of the Law, save that he relied on s 1318(1) in relation to all the claims against him. Mr Heydon alleged contributory negligence on the part of the NRMA, again with extensive particulars the thrust of which was similar to the thrust of those in the defence of AT. 158 The additional matter in Mr Heydon's defence was that the claims under the TP Act and the FT Act were said to be statute barred because they accrued more than three years before action was commenced against him (see TP Act s 82(2), FT Act s 68(2)). With the abandonment of the claims under the TP Act, only the FT Act was relevant. It was acknowledged in submissions that the matter was likely to be academic. If Mr Heydon was liable for negligence, there was no limitation defence. If he was not liable for negligence, at least at one point the NRMA agreed that it was unlikely that he would be found liable for involvement in Holdings' contravention of s 42 of the FT Act, although that does not automatically follow.

V OTHER CLAIMS IN THE PROCEEDINGS 159 Each of AAH, AT, and Mr Heydon cross-claimed against the others of them for indemnity or contribution. The cross-claim of AAH repeated the NRMA's allegations against AT and Mr Heydon, alleged that AT and Mr Heydon "caused or contributed to" the NRMA's loss or damage, and said that AT and Mr Heydon were "liable to pay contribution" to AAH. The nature and source of the liability were not stated. The cross-claim of AT alleged that if AT was liable to the NRMA then AAH and Mr Heydon were also liable to the NRMA, and said that AT was "entitled to contribution" from AAH and Mr Heydon. The entitlement was said to be as an action for contribution under s 5 of the Law Reform (Miscellaneous Provisions) Act 1946 ("the LR Act") "or in equity". The cross-claim of Mr Heydon was similar to that of AT, save that it claimed a declaration "as to the apportionment of liability, either pursuant to section 5 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) or in equity" and judgment to give effect to the apportionment of liability, and a specific order as to costs incurred by Mr Heydon. 160 Each of AAH, AT, and Mr Heydon also cross-claimed against the NRMA. Subject to a qualification, to which I will come, the cross-claims took the same form. They were expressed to be for contribution under s 5 of the LR Act "or otherwise", which had the virtue of comprehensiveness but called for explanation. 161 Section 5 of the LR Act provides, so far as relevant - "5(1) Where damage is suffered by any person as a result of a tort (whether a crime or not) -

… (c) any tort-feasor liable in respect of that damage may recover contribution from any other tort-feasor who is, or would if sued have been, liable in respect of the same damage, whether as a joint tort-feasor or otherwise, so, however, that no person shall be entitled to recover contribution under this section from any person entitled to be indemnified by him in respect of the liability in respect of which the contribution is sought. (2) In any proceedings for contribution under this section the amount of the contribution recoverable from any person shall be such as may be found by the court to be just and equitable having regard to the extent of that person's responsibility for the damage; and the court shall have power to exempt any person from liability to make contribution, or to direct that the contribution to be recovered from any person shall amount to a complete indemnity." 162 The "or otherwise" in the cross-claims against the NRMA was explained as involving the principle of contribution for which Albion Insurance Company Ltd v Government Insurance Office of New South Wales (1969) 121 CLR 342 is commonly cited ("the Albion principle"), that persons who are under co-ordinate liabilities to make good the one loss must share the burden pro rata (see in particular per Kitto J at 349-50). 163 When the cross-claims were brought, by amendment early in the hearing, the NRMA suggested that they raised claims unknown to the law, and were the product of misplaced ingenuity and without substance. The amendment was nonetheless consented to, on the basis that the merits of the cross-claims would be addressed together with all other issues in the proceedings (and according to the NRMA would be found to be nil). The description of the cross-claims against the NRMA should include their "or otherwise" basis, although it must be accepted that in those and other respects the cross-claims may be novel and a proper description is therefore not short. 164 I will first describe the cross-claims by reference to the cross-claim by AAH, and then describe the qualification arising in the cross-claim by AT. 165 The first way in which the cross-claim was put was to the following effect. If the distribution of the prospectus and accompanying documents was misleading conduct, as found in the Federal Court, then each of Association, Insurance, and Holdings had engaged in misleading conduct in contravention of s 52 of the TP Act and s 995(2) of the Law, and each of Association, Insurance, and Holdings had authorised or caused the issue of an erroneous prospectus in contravention of s 996(1) of the Law. Where Association engaged in the misleading conduct, or authorised or caused the issue of the prospectus, then Insurance and Holdings were both involved in the contraventions (I use the word "involved" to encompass aiding, abetting, counselling, procuring, inducing, and being knowingly concerned in or a party to the contraventions). Where Insurance engaged in the misleading conduct, or authorised or caused the issue of the prospectus, then Association and Holdings were both involved in the contraventions. Where Holdings engaged in the misleading conduct, or authorised or caused the issue of the prospectus, then Association and Insurance were both involved in the contraventions. Therefore - (a) if AAH was a tortfeasor liable to Association or Insurance, Holdings was a tortfeasor liable to Association or Insurance and there could be contribution from Holdings to AAH under s 5 of the LR Act; if AAH was a tortfeasor liable to Insurance or Holdings, Association was a tortfeasor liable to Insurance or Holdings and there could be contribution from Association to AAH under s 5 of the LR Act; and if AAH was a tortfeasor liable to Association or Holdings, Insurance was a tortfeasor liable to Association or Holdings and there could be contribution from Insurance to AAH under s 5 of the LR Act; and (b) Holdings was under a co-ordinate liability with AAH in respect of any liability of AAH to Association or Insurance; Association was under a co-ordinate liability with AAH in respect of any liability of AAH to Insurance or Holdings; Insurance was under a co-ordinate liability with AAH in respect of any liability of AAH to Association and Holdings; and if AAH was liable to Association, Insurance, or Holdings it was entitled to contribution whereby the burdens were shared pro rata under the Albion principle. 166 The second way in which the cross-claim was put was to the following effect. Association and Insurance were promoters of Holdings. Where by the issue of the prospectus Association, Insurance, and Holdings engaged in misleading conduct in contravention of s 995(2) of the Law, or authorised or caused the issue of an erroneous prospectus in contravention of s 996(1) of the Law, then, because they were promoters, by force of s 1006 of the Law Association was involved in the contraventions by Insurance and Holdings and Insurance was involved in the contraventions by Association and Holdings. Therefore - (a) if AAH was a tortfeasor liable to Insurance or Holdings, Association was a tortfeasor liable to Insurance or Holdings and there could be contribution from Association to AAH under s 5 of the LR Act; if AAH was a tortfeasor liable to Association or Holdings, Insurance was a tortfeasor liable to Association or Holdings and there could be contribution from Insurance to AAH under s 5 of the LR Act; and (b) Association was under a co-ordinate liability with AAH in respect of any liability of AAH to Insurance or Holdings; Insurance was under a co-ordinate liability with AAH in respect of any liability of AAH to Association or Holdings; and if AAH was liable to Association, Insurance, and Holdings it was entitled to contribution whereby the burdens were shared pro rata under the Albion principle. 167 The third way in which the cross-claim was put was to the following effect. Association and Insurance were promoters of the proposal. They prepared drafts of the prospectus and considered whether it was misleading. To their knowledge, Holdings relied on them in that respect. Association and Insurance therefore owed duties of care to Holdings in relation to the preparation and content of the prospectus. They breached those duties of care (presumably in that the distribution of the prospectus was found to be misleading conduct), whereby Holdings suffered loss. Therefore - (a) if AAH was a tortfeasor liable to Holdings, Association and Insurance were tortfeasors liable to Holdings and there could be contribution from Association and Insurance to AAH under s 5 of the LR Act; and (b) Association and Insurance were under co-ordinate liabilities with AAH in respect of any liability of AAH to Holdings, and if AAH was liable to Holdings it was entitled to contribution whereby the burden was shared pro rata under the Albion principle. 168 The fourth way in which the cross-claim was put was to the following effect. Association and Insurance were funding the proposal. Holdings was issuing the prospectus and offering shares thereunder. Holdings therefore owed duties of care to Association and Insurance in relation to the preparation and content of the prospectus. It breached the duties of care (again presumably in that distribution of the prospectus was found to be misleading conduct), whereby Association and Insurance suffered loss. Therefore - (a) if AAH was a tortfeasor liable to Association or Insurance, Holdings was a tortfeasor liable to Association and Insurance and there could be contribution from Holdings to AAH under s 5 of the LR Act; and (b) Holdings was under a co-ordinate liability with AAH in respect of any liability of AAH to Association and Insurance, and if AAH was liable to Association and Insurance it was entitled to contribution whereby the burden was shared pro rata under the Albion principle. 169 The qualification earlier mentioned was that the cross-claim by AT was put in three further ways. 170 First, it was alleged that there were implied terms of the contract arising pursuant to AT's retainer that Association, Insurance and Holdings "would provide complete and proper instructions to enable AT properly and fully to advise on and assist in preparing" the prospectus and other documents, to the extent to which AT did so, and "would properly use advice, drafts and other material in respect of" the prospectus and other documents provided by AT to any of them. It was alleged that the implied terms were breached, taking up the matters particularised for the contributory negligence put forward in AT's defence, and it was said that AT thereby suffered loss being "such losses, damages, costs and expenses as AT has incurred in respect of these proceedings and is alleged or found liable (if any) to pay in these proceedings". 171 Secondly, it was alleged that Association, Insurance, and Holdings owed a duty of care to AT "by implied term in the relevant retainer and, further and in the alternative under the general law" to exercise reasonable care in a number of respects, that they failed to do so (again taking up the particulars of contributory negligence), and that AT thereby suffered the same loss as just described. The exercise of reasonable care was said to have been required - "(a) in providing complete and proper instructions to enable AT properly and fully to advise on and assist in preparing the Prospectus, the Accompanying Documents and the Promotional Materials (to the extent it is found that such documents were advised on and their preparation assisted by AT);

(b) in using advice, drafts and other materials in respect of the Prospectus, the Accompanying Documents and the Materials provided by AT to any of Association, Insurance and Holdings;

(c) in preparing, considering and commenting upon drafts of the Prospectus, the Accompanying Documents and the Promotional Materials;

(d) to ensure that the Prospectus, the Accompanying Documents and the Promotional Materials did not contain any misleading, incorrect or incomplete information, statement or representation;

(e) to ensure that the Prospectus, the Accompanying Documents and the Promotional Materials disclosed all information which was necessary to make each of them true and not misleading; and

(f) to ensure that the Prospectus, the Accompanying Documents and the Promotional Materials contained information that was fair and balanced." 172 Thirdly, it was alleged that Association, Insurance, and Holdings in trade or commerce "represented, gave the impression, or created in AT a reasonable expectation" as to a number of matters, that the representation, impression or reasonable expectation was incorrect (again the particulars of contributory negligence were taken up), that by reason of that incorrectness Association, Insurance, and Holdings had contravened s 52 of the TP Act, and that AT had thereby suffered the same loss as earlier described. The matters were connected with the areas for exercise of reasonable care just set out, and were said to be - "(a) they and each of them had provided complete and proper instructions to enable AT properly and fully to advise on and assist in preparing the Prospectus, the Accompanying Documents and the Promotional Materials (to the extent it is found that such documents were advised on and their preparation assisted by AT) or had taken reasonable care so to do;

(b) they and each of them had completely and properly used advice, drafts and other material in respect of Documents and the Promotional Materials provided by AT to any of Association, Insurance and Holdings or had taken reasonable care so to do;

(c) they and each of them had taken reasonable care in preparing, considering and commenting upon drafts of the Prospectus, the Accompanying Documents and the Promotional Materials;

(d) the Prospectus, the Accompanying Documents and the Promotional Materials did not contain any misleading, incorrect or incomplete information, statement or representation or that they had taken reasonable care so to ensure;

(e) the Prospectus, the Accompanying Documents and the Promotional Materials disclosed all information which was necessary to make each of them true and not misleading or that they had taken reasonable care so to ensure; and

(f) the Prospectus, the Accompanying Documents and the Promotional Materials contained information that was fair and balanced or that they had taken reasonable care so to ensure." 173 In submissions the cross-claims against the NRMA were touched on, but only briefly, and as to some of the ways they were not taken up at all. Now is not the time to explore them further. The allegations of contributory negligence and the cross-claims are two reasons why a deal of attention was given in the hearing to the origins and development of the proposal, and to the parts played not only by the defendants but also by directors and officers of the NRMA. VI FACTS Preface 174 It should be appreciated that the facts which follow are of necessity selective from all that occurred in relation to the proposal. A vast amount of work went into the proposal, much of it of no relevance or of only peripheral relevance to these proceedings, and it should not be thought that what I will describe adequately reflects all that was done. 175 Events material to advice in relation to the free shares question, the disadvantages question, and risk to the proposal in connection with Gambotto's case, and otherwise to the defences and cross-claims, were interwoven, with each other and with all else that occurred, and must be seen in the context of the overall development and implementation of the proposal. Some aspects of the defences called for a description of the development of the proposal from early times. Further, the submissions involved close attention to what was said in many documents, and so I have set out many extracts in order that the events and the submissions may better be understood; as well, exposing sometimes extensive extracts assists in understanding how the defendants, the directors and officers of the NRMA, and others acted and thought at the time. It is important to avoid the improper influence of hindsight in deciding these proceedings, and to endeavour to get back to the position some years ago. 176 The facts which follow are therefore lengthy and detailed, although I repeat necessarily selective. To the reader dismayed by the length and detail, be content: you have been spared the sixty-eight lever-arch files of documents, the nine lever-arch files of witness statements, a few more files of miscellaneous exhibits, and about five thousand pages of transcript of oral evidence. 177 Recollections of witnesses were variable, but often poor or only in general terms. That is not surprising, nor is it surprising that on some matters recollections differed. I have no doubt that most of those who gave evidence were doing their best to recall and recount, honestly and as carefully as they could, their thoughts and deeds in the period 1992-95, which is not to deny the effect of plain bad memory and the more subtle effect of associations, outside influences, and self-interest on the most honest and careful witness. The capacity of the human mind to delude itself is great. Poor and only general recollections, and differing recollections, make it all the more important when making findings as to what occurred to endeavour to get back to the position some years ago, the better to make inferences when proper to do so and to resolve differences in recollection. 178 Not all the facts described, and in particular not all the resolutions of differences in recollection, are of moment in my decision of these proceedings, but I have taken the view that my findings should be reasonably comprehensive for the benefit of any appellate court which may be invited to see the claims otherwise than as I see them. Further, to assist in understanding I have at times provided some narrative or explanation as I set out what occurred. The origins of the proposal 179 The President of Association and chairman of Insurance from 1991 was Mr Donald Mackay. The senior management of the NRMA comprised a chief executive officer and a number of general managers. The chief executive officer held that position in both Association and Insurance. The general managers included a general manager of Association and a general manager of Insurance, together with general managers in various areas such as financial services, finance and administration, and community and customer relations. In the period to September 1992 the chief executive officer was Mr John Lamble. Mr Ray Willing was the general manager of Insurance. 180 In late 1991 Insurance embarked on a review of its corporate structure, it seems because it was thought that it might be inappropriate for such a major financial entity to be controlled by Association. Its board established a committee of Mr Mackay, Mr Lamble, and Mr Willing to make a preliminary investigation. A number of merchant banks were approached, and Macquarie Corporate Finance Ltd ("Macquarie") was commissioned to provide a report. The report was provided in February 1992. In its covering letter Macquarie suggested that, because it contained a number of statements and conclusions "of a very sensitive nature", the distribution of the report should be confined to Messrs Mackay, Lamble and Willing. Even at this time it was recognised that a restructuring was likely to meet what were called "opposition arguments", and Macquarie set out "the potential responses of Opposition groups". These were delay, a counter-proposal with "fairer" distribution of benefits, and a counter-proposal proposing across the board premium reductions for NRMA members. As to delay, it was said, "one tactic would be to stall the implementation process for the recommended proposal through legal objections. Arguments about definition of member or the proposed entitlements to benefits could be possible". 181 In Macquarie's opinion, and for reasons it gave in detail, Insurance should demutualise by converting to a company with a share capital, offering its shares to existing members, and listing on the Stock Exchange. The reasons were, in summary, that the mutual structure was no longer appropriate to Insurance's business and financial position because it restricted members' access to Insurance's wealth and did not provide an efficient method for raising capital; that Insurance had a large and increasing capital surplus; and that demutualisation and listing would provide members with "a mechanism which enables them to realise the value inherent in the business" and would give Insurance "a more efficient and flexible structure, particularly in terms of its capitalisation, the provision of owner discipline and overall fairness". 182 The report also briefly referred to alternatives, including "an integral demutualisation and listing" of both Insurance and Association very broadly of the nature of the later proposal. This alternative was thought unacceptable because, it was said, investors in the new holding company "might query its commercial focus if a motor club (which includes public service activities) is integrated with a commercial insurance operation", and because the listed public company structure might not be an appropriate structure for Association "as it may inhibit public service activities". 183 Notwithstanding Macquarie's suggestion of confidentiality, the Macquarie report was the subject of a presentation to the board of Insurance on 20 February 1992. The presentation was to Mr Mackay, Mr Lamble, and Mr Willing, plus other directors who were also directors of Association, Mr Mark Burrows, Mr Holden, Mr Peter Jack, Dame Leonie Kramer, and Ms Lynn Ralph. Two general managers within Insurance, Mr Richard Cox and Mr Adrian Rees, were also present. The minutes recorded that the board "discussed the work to date by Macquarie and noted that it concentrated on one possible course of action". 184 A special board meeting was appointed for 12 March 1992 to discuss what was called "a range of strategic options" for Insurance, including its relationship with Association and its structure and management. The NRMA management was asked to prepare a "report on options … with pros and cons". 185 The Macquarie report was before the board on 12 March 1992, and there was a presentation by Mr Lamble, presumably of management's report. The board then comprised Mr Mackay, Mr Burrows, Mr Graham Douglass, Mr Jack, Mr Holden, Ms Ralph, Ms Jane Singleton, Mr Lamble and Mr Willing, and Mr Peter Corrigan, Mr Rees, and Mr Daniel Wilkie were also in attendance. Messrs Corrigan and Wilkie were also general managers within Insurance. It seems that the management report was not favourable, and other evidence indicated that Mr Willing thought that Macquarie did good work "but the objective was totally unrealistic as spinning off the insurance operation would have split the group asunder, in terms of people, culture and marketing". 186 It was resolved that management carry out further work on issues to do with Insurance's long-term future, and that "any change in capital structure" was contingent on completion of that work. The resolution included that a report to "Council", that is, the board of Association, should be prepared, and it is easy to see that the matters raised had a significance going beyond Insurance and relevant to Association - as a practical matter, of course, Association knew all that Insurance knew through the common directors and overlapping management. 187 The resolution also included that there should be another special board meeting in April 1992 "to consider some of the above issues further". So far as the evidence shows, that did not occur. It seems that there was media speculation of floating Insurance, and perhaps this moved the NRMA to kill off any talk of demutualisation in whole or part, as it did in a public announcement in June 1992. The restructuring recommended by Macquarie was not take up, but the issues which had been raised did not go away. Insurance's review had opened up restructuring the NRMA in general, and from the review, it seems, came consideration of wider restructuring. The Christmas Project is established 188 It was known that Mr Lamble was to retire, and at least by mid-1992 Mr Willing was known as his successor. Mr Willing officially took over as chief executive officer on 1 October 1992, being replaced as general manager of Insurance by Mr Corrigan. In July 1992 the NRMA established the Future Structure Consultative Group ("the Group"), which provided a report dated 13 August 1992 to Mr Willing as chief executive officer designate. The senior members of the Group were Ms Helen Conway, the NRMA's secretary and general counsel, and Mr Neville King, its general manager - strategic planning. There were six other members, all it seems from within NRMA management, and the list of acknowledgments in the report showed that they consulted widely within the organisation. 189 The report described the Group's responsibility as considering the strategic direction of the NRMA and recommending several alternative organisational structures consistent with that strategic direction. The recommendations favoured what was called a customer-based structure, referring to internal organisation of management and support functions, and the report did not directly consider restructuring in the sense of demutualisation. It was said, however, that a number of "strategic imperatives" would be enhanced by changes to the organisational structure as considered in the report, amongst which was "Consolidation of the NRMA and NRMA Insurance". 190 It is tolerably clear that the report of the Group then flowed on to consideration of demutualisation, as is understandable in the light of the board resolution of 12 March 1992 and the consolidation identified as a strategic imperative. The evidence gave no detail, but demutualisation was a topic at a meeting between Mr Corrigan and a merchant bank in August 1992; a stockbroker wrote to Mr Willing in early November 1992 offering its services in a float of the NRMA (this may have been unsolicited); and at the end of November 1992 Mr Willing was debating which of a number of merchant banks to use for what his memorandum to Mr King dated 30 November 1992 called "restructure of group companies". The memorandum asked that he and Mr King "get together to begin to scope this project". 191 By a memorandum dated 3 December 1992 Mr King called a meeting for 9 December 1992 to discuss "the corporate restructure project". Those attending were to be Mr Willing, Mr King, Ms Conway, and two members of Mr King's strategic planning department or Ms Conway's secretariat, Mrs Thomasin Graham and Ms Prudence Godwin. Mrs Graham and Ms Godwin had legal qualifications. A so-called agenda for the meeting, more a list of topics for consideration, asked why undertake a restructure, what were the options, why the preferred option was preferred, how to proceed, and who to involve and when (instancing solicitors and a merchant bank). Attached to the memorandum was a list of possible options, the first of which was "Group unified under one ultimate holding company which is:- (a) company limited by shares; (b) company limited by guarantee; (c) company limited by shares and guarantee". The other options were that one only of Association or Insurance become subject to a holding company, that Association and Insurance stay the same but their subsidiaries change, or something indicated by "joint venture options?" 192 So began the Christmas Project, the title in the minutes of the meeting of 9 December 1992, it seems chosen for no reason other than the time of year. The Christmas Project report 193 The minutes of the meeting of 9 December 1992 generally covered the topics in the agenda. 194 The reasons for restructuring were to do with capitalisation and governance. It was said that the NRMA was over capitalised and largely confined to a New South Wales membership, and that the mutual structure precluded return of capital and inhibited expansion beyond New South Wales: figures were given. It was said that although members "owned" Association and Insurance respectively they did not have "a direct financial stake" in the companies, so that "governance issues are cumbersome" and members did not see the management of the companies as a matter with which they should concern themselves, and that any restructure should have the aim of "aligning the interests of owners, that is the members at present, more closely with the management and control of the company". 195 Four options were described, the first and preferred option and some comments being recorded in the minutes - " The creation of a holding company which could be either public and listed or public and unlisted.

Money would be 'released' from the present NRMA Limited and NRMA Insurance Limited in the form of shares in the new company (or cash if a member did not want shares).

This of course raises a host of issues, most importantly the issue of equity. In other words, what rules would be used to decide who gets what shares or cash.

In this option the mutuality of NRMA Limited and NRMA Insurance Limited would be 'exchanged' for shares in the holding company and the two existing companies would become companies limited by shares which would be held by the holding company."

The other three options were that Association and Insurance become "separately owned", either as mutuals or with one becoming a company limited by shares; that Association itself become the holding company of Insurance and a company limited by shares; and that one of the subsidiaries, or a new subsidiary, become a vehicle for expansion. 196 As to progress and who to involve, it was noted that there should be market research to determine whether there was "members' permission to embark on such a restructure", but it was then said, "If we do not have such permission Marketing will determine what we need to do so as to change the climate or attitude of our members in order to obtain that permission". It was said that Mr King was "the owner of the Christmas Project", but that "in view of the high level of legal content, Helen Conway is to be involved with all legal aspects of the project". A steering committee was proposed, comprising Mr Willing, Mr King, Ms Conway, and Messrs Corrigan and Mackay "as necessary", and a project team was proposed comprising Mr King, Mrs Graham, Ms Godwin, a "financial person" to be named, Mr Rowan Ross, and Mr John Morgan. Mr Ross was from BT Corporate Finance Ltd ("BT"), it seems selected as the merchant bank envisaged in the agenda. Mr Morgan was from AAH, according to the minutes selected as the solicitor envisaged in the agenda "in view of his knowledge of the insurance industry; work for NSW Treasury in relation to the privatisation of the NSW GIO; and his familiarity with the operation of the NRMA Group". 197 The minutes of the meeting of 9 December 1992 included - "Persons who are to know of the project - all those present together with the President, Mr D G Mackay, Mr Peter Corrigan, General Manager, Insurance and in the near future Mr Adrian Rees, General Manager, Financial Services.

Neville King will put together a list of financially skilled staff who would be suitable for use on the Christmas Project.

March is the first staging post. There will be a meeting in March at which a project plan will be presented. At that time it would be likely that the project will be presented to Dame Leonie Kramer, Ray Kirby, Mark Burrows (who shall probably have had earlier involvement) and Ms Lynn Ralph." 198 The persons last named were long-standing NRMA directors. Mr Ray Kirby had been a director of Association since 1981 and a director of Insurance since 1986, and was Deputy President of Association. Dame Leonie Kramer had been a director of Association since 1984 and a director of Insurance since 1991. Mr Burrows had been a director of Association since 1985 and a director of Insurance since 1986: he was a merchant banker. Ms Ralph had been a director of Association since 1986 and a director of Insurance since 1990. All but Mr Kirby had been at the board meeting in 1992 concerning Insurance's review of its corporate structure, and Mr Kirby must have been aware of that matter. 199 Mr Willing approached Mr Ross and Mr Morgan. By mid-February 1993 both had been engaged and the bases of their engagements had been settled. 200 As to BT, in an engagement letter its role was said to be to act as financial adviser to the NRMA "in relation to the restructuring of the NRMA and NRMA Insurance", and it was said that it was envisaged that it would first advise on the most appropriate future corporate and financial structure for the companies which would allow them to best satisfy their aims and objectives, and then if there were a restructuring would advise on implementing the desired restructuring. In relation to the first stage, it was said that it was expected that BT's role "may include assisting the NRMA in reviewing the options available, assessing the likelihood of being able to successfully implement those options and in preparing the project plan for presentation in March". In relation to the second stage, it was said that BT's role "would be likely to include providing advice to the NRMA on appropriate strategies and approvals required to implement the restructuring, member and press relations and valuation considerations". 201 The role of AAH was not recorded in a similar engagement letter, and the letter to do with its remuneration noted only that it was retained "in relation to … the NRMA Group project known as 'Project Christmas'". The unnamed financial person was not followed through, and no additional person joined the project team. 202 It does not seem that the steering committee proposed on 9 December 1992 was formally constituted, and it did not act as such. No doubt the persons proposed as its members were kept informed and were consulted from time to time, but so far as the evidence showed they did not have much to do with the preparation of the Christmas Project report. 203 At the meeting of 9 December 1992 the most important issue seen in the preferred option was the issue of equity, "what rules would be used to decide who gets what shares or cash". This involved what came to be called the windfall and later the question of entitlements. There was also raised at once the question of how to change Association or Insurance to companies limited by shares under a holding company. A little later there was consideration of the nature of a member's interest in Association or Insurance, and of what the member would be giving up if there was an "exchange" for shares in the holding company. The consideration of all these matters in the course of preparation of the report provided background to the free shares question and of advice in relation to the risk to the proposal in connection with Gambotto's case. 204 The project team met on 16 February 1993. The meeting operated as a kind of briefing for BT and AAH, present by Mr Ross and Mr Morgan. 205 Mr Morgan wrote to Mr King in anticipation of the meeting, recording the areas which he considered the briefing should cover and providing a paper on "legal issues relating to Project Christmas". The paper contained some general observations on a possible restructuring, not a restructuring in the form later adopted but with Insurance as the centrepiece. 206 The paper raised in different terms the issue of equity. After brief reference to the current structure of the NRMA, Mr Morgan noted that on a winding-up of Insurance any surplus went to Association, and said - "This leads to an interesting question as to who owns the 'Estate'. On one hand the Estate or surplus has been produced by the business activities of Insurance with its policy holders and the past and present policy holders have largely contributed to the Estate. However on winding up the Estate is notionally owned by the Association. The sharing of the Estate in any proposal may become a critical issued [sic]. However it may be made easier by the fact that the association members and the insurance members have a high decree of overlap. However the Association's members do not own the Estate of the Association because on a winding up of that entity the surplus or Estate is returned to an entity with similar objects."

The areas for the briefing set out by Mr Morgan included areas reflecting this issue, namely - "8. Who do you believe owns the 'estate', policy holders or the Association?

9. Is the 'estate' to be distributed in anyway [sic]?" 207 The paper also raised the question of how to change from a company limited by guarantee, and part of what was said under the heading "Corporations law issues" was - "A company limited by guarantee may only change its status under Section 167 and the change of status permitted is a conversion to a company limited by both shares and by guarantee. It would appear that the better view is that a company limited by guarantee cannot convert wholly to a company limited by shares through a scheme of arrangement. It may well be necessary for legislative intervention to permit this.

The change of status is achieved effectively by a special resolution of members agreeing to a reconstruction of the entity. There may however be an issue if policy holder members voted to amend the Memorandum & Articles of Insurance so as to change the distribution of the Estate without the approval of the Association. This may either give rise to class rights issues and the need for the consent of Association or alternatively may give rights to the Association to seek relief from oppression." 208 Present at the meeting were Mr Willing, Mr King, Ms Conway, Mrs Graham, Ms Godwin, Mr Ross, and Mr Morgan. According to Ms Godwin's notes of the meeting, there was general discussion of "ownership and issues which might arise", the major issues being - " Who will get the windfall gain? How is any windfall meaningfully returned. What should the ultimate structure be. Implementation issues particularly political exposures."

Still according to the notes, it was agreed that Mr Ross and Mr Morgan "would prepare an outline of the subject headings for a report on the Christmas project for the next meeting", the next meeting being appointed for 23 February 1993. 209 An outline for a report was prepared for the meeting of 23 February 1993. It included eight headings and numerous sub-headings. The heading "Aims and Objectives" had subheadings concerned with surplus capital, governance, access to capital, and a national insurer; the heading "Alternative Structures" had subheadings concerned with a holding company and transfer of business to a new company, and within the first subheading alternatives of Association, Insurance and a new company; the heading "Critical Issues" had subheadings "Windfall gain" and "Asymmetry between voting rights and economic interest and winding up"; the heading "Implementation Issues" had many subheadings including subheadings concerning legal, taxation, accounting, financial, operational, and public relations matters, each with further sub-division; and the heading "Risk Analysis" had amongst its sub-headings "Approval of members/policyholders" and "Possible spoiling tactics". 210 Present at the meeting on 23 February 1993 were Mr Willing, Ms Conway, Mr King, Mrs Graham, Mr Ross, Ms Marianne Birch, Mr Peter Barry, and Mr Morgan. Ms Birch and Mr Barry were also from BT. The minutes of the meeting noted who was to prepare what section of the report, for example, the aims and objectives by Mr King, Ms Conway and Mrs Graham and the critical issues and alternative structures by BT with input from Ms Conway and Ms Godwin. The record of discussion against "Critical Issues" included, "Windfall gain - entitlement discussed - need to be careful on who is required to contribute on a winding up - system to decide who is entitled to the windfall". 211 The next meeting of the project team was on 2 March 1993. Present were Mr King, Mrs Graham, Mr Ross, Ms Birch, Mr Barry, Mr Morgan, and Mr Mark Schultz. Mr Schultz was a solicitor from AAH with taxation expertise. Prior to the meeting there had been circulated by BT a revised outline for the report, amended in accordance with the discussion on 23 February 1993 (the amendments were mainly to do with the order in which subjects would be dealt with), together with BT's draft of the critical issues and alternative structures sections of the report. A draft paper on matters to do with companies limited by guarantee had also been circulated by Mr Morgan. 212 In BT's draft of the critical issues section of the report there was considerable discussion under the sub-heading "Windfall Gain". Earlier in that section it had been said that the economic interest in the NRMA did not match ownership, and that it was proposed to "align the ownership of NRMA and NRMA Insurance with the holders of the economic interest in each, such that owners are able to participate in the economic interest of the entities during the course of carrying on business and upon winding up". It was then said - "Based on the proposal to match the ownership of both the NRMA and NRMA Insurance with the holders of the economic interest, a windfall gain is likely to arise for those parties entitled to participate. This windfall gain will reflect the total value of each of the businesses including the surplus reserves. It is proposed that parties would be provided with the opportunity to participate in the ownership of the entities at no cost or receive a cash equivalent, or alternatively they would be required to provide a nominal contribution compared to the value of the security acquired."

There were then identified "issues in relation to the windfall gain", including who was entitled, the basis of entitlement, the timing of entitlement, the treatment of surplus reserves, and the treatment of income on surplus reserves. Each of these was considered. 213 In the draft alternative structures section of the report BT put forward three options. One involved changing Association into a company limited by shares and by guarantee, Association acquiring Insurance, and members of both companies being offered shares in Association. Another involved the reverse, with Insurance becoming the holding company of Association. The third involved a new company acquiring both Association and Insurance, with members becoming shareholders in the new company. A number of issues were to be addressed for each alternative. 214 To interpolate, the draft included that members might get whatever they got from the restructuring "at no cost" or receive a cash equivalent: this can be seen, with hindsight, as the beginning of the free shares question. What members could get from the restructuring was left in general terms, described in the passage set out above as "the opportunity to participate in the ownership of the entities", and how they would participate was not stated but involved them being offered shares in a company or cash. Hence the notion of a windfall, in the sense that the shareholders would have "rights" to the NRMA's assets which they did not have as members. As members they did not receive dividends, and could not receive a return of capital; the members of Insurance could not receive any surplus on a winding-up of Insurance, since any surplus went to Association, and the members of Association could not receive any surplus on a winding-up of Association, since any surplus went to an institution with similar objects or for charitable purposes. And in another sense, there would be a windfall to some members in comparison to others, for example, in that persons who were members of Association but not of Insurance would end up sharing the wealth of Insurance with members of Insurance: thus the windfall involved the question of entitlements. 215 All this had been foreseen earlier, including by Mr Morgan in his reference to the "Estate". It was now being brought into focus. The windfall, and the question of entitlements to which it led, then threw up fairness between members as a potential source of complaint of oppression, and as will be seen brought attention to Gambotto's case. 216 Much of Mr Morgan's draft paper is not of significance in these proceedings. It was a collection of corporations law topics with reference to the position of companies limited by guarantee, and had no other theme or particular conclusion. It included references to oppression and to changing the status of a company by special resolution on the one hand or by a scheme of arrangement on the other hand. 217 As to oppression, it was said in the draft paper - "Remedy under the Corporations Law (section 260) in cases of oppression is available within a company limited by guarantee. In establishing oppression, the members have to establish an unfair abuse of powers and an impairment of confidence in the probity with which the company's affairs are being conducted, rather than resentment on the part of a minority at being outvoted on some issue of domestic policy: Re Ingleburn Horse and Pony Club Limited (1973) 1 NSWLR 641".

There is no doubt that the NRMA was made aware of the potential for complaint of oppression, and there will be further instances of it being informed on that subject. 218 What was said in the draft paper about change of status followed on from the paper for the meeting of 9 December 1993. There was first a description of the steps involved in a change of status by special resolution pursuant to s 167(1) of the Law. Section 167(1) specifically referred to change of status where a company limited by guarantee converted to a company limited both by shares and by guarantee, but did not refer to change of status where a company limited by guarantee converted to a company limited by shares alone. Mr Morgan had suggested in the earlier paper that a company limited by guarantee could not convert to a company limited by shares alone by special resolution pursuant to s 167(1). Could it convert by a scheme of arrangement? In the earlier paper Mr Morgan had suggested that it could not. 219 In the draft paper for the meeting of 2 March 1993 it was said that s 411 of the Law "deals with schemes of arrangement, and there is some judicial disagreement as to whether changes of status not referred to in section 167 may nevertheless be carried out under a scheme approved by a court under section 411". This was followed by consideration of cases evidencing the judicial disagreement, the last of which was Australian Securities Commission v Marlborough Goldmines Ltd (1993) 11 ACLC 101 in which, in a judgment of the Full Court of the Supreme Court of Western Australia delivered on 14 December 1992, it had been held that s 167 did not cover the field and that s 411 gave power to sanction a scheme of arrangement to convert a limited company to a no liability company. Mr Morgan's summary of the holding included that - "… the difference between section 167 and section 411 is that section 411 involves close control by a court, and section 167 does not require close supervision. The reason that section 167 provides for only five out a larger number of possible changes of status is that the other possible changes involve potential prejudice to creditors or members. Accordingly, those changes of status which may be potentially prejudicial should not occur other than under the supervision of the court (under section 411)." 220 Again to interpolate, at one point it was suggested by the NRMA in these proceedings that this thinking should have brought attention to Gambotto's case in a different connection, not that of oppression but that of whether Association and Insurance could change their status from companies limited by guarantee by members' resolutions as distinct from by a scheme of arrangement. It showed that Mr Morgan was alive to whether the status of Association and Insurance could be changed from that of companies limited by guarantee by members' resolutions, as distinct from by a scheme of arrangement. But at this time Mr Morgan was saying that the status of a company could be changed by members' resolution to that of a company limited by shares and by guarantee, but not to that of a company limited by shares alone. The question was whether status could be changed to that of a company limited by shares alone by a scheme of arrangement. The question was not one to which Gambotto's case, then about to be heard in the Court of Appeal, was material, and I do not think it should have directed attention to Gambotto's case. The thinking did assume that change of status to that of a company limited by shares and by guarantee could be achieved by members' resolution. The assumption was later expressly questioned, and that was the time for attention to Gambotto's case, in a connection beyond oppression, if such attention was called for. 221 The discussion at the meeting of 2 March 1993 included that tax implications of the alternative structures could be a major issue in determining which option to adopt: that seems to have explained the attendance of Mr Schultz. A particular matter recorded in the minutes of the meeting was "that a fundamental objective would be that the shares vesting in the hands of new shareholders must be free of tax so those new shareholders don't have to sell shares in order to pay after tax (Capital Gains Tax Issue)." According to the minutes, it was thought that the most likely holding companies were Association or the new company, but it was said that it was necessary to consider "the implementation issues" of each course. It was decided to approach the Corporate Law Reform Committee to seek an amendment to the Law "to allow a company limited by guarantee to change status to a company limited by shares only", that is, to seek an expansion of the scope of s 167 dealing with change of status by members' resolution. 222 The next meeting of the project team was appointed for 9 March 1993, and Mr Schultz prepared a preliminary discussion paper for the meeting. I earlier noted, in an interpolation, that what the members could get from the restructuring was left in general terms, but Mr Schultz's perspective brought attention to what members had and would give up in the restructuring. He asked whether, with the issue of shares on the conversion of Association or Insurance to a company limited both by shares and by guarantee or the interposition of the new company, there was a disposal of an interest by a member. The tentative answer was that there was not, because "a member does not have any fractional interest in a company limited by guarantee unless and until it converts and issues share capital". It followed that the value of the shares received was not consideration upon disposal of an asset for income tax or capital gains tax purposes. The paper said, "At most, a member has only contractual rights to vote, and to obtain defined services. These rights might even be left in place after the issue of shares to avoid any suggestion of a disposal". So there was raised what can be seen, again with hindsight, as an element in the free shares question. 223 The meeting of 9 March 1993 was attended by Mr King, Mrs Graham, Ms Godwin, Mr Ross, Ms Birch, Mr Barry, Mr Morgan and Mr Schultz. According to the minutes of the meeting, in the preparation of the report (which seems not to have progressed to a further or more extensive draft, presumably because awaiting the taxation input) Mr Barry was to prepare a draft paper "fleshing out the aims and objectives of the proposed alteration to status and structure", and Mr Morgan was to "provide comments on the aims and objectives of the restructure and change of status together with an outline of the mechanism for doing so for the two most probable of the proposed structures". Mr Morgan was also to approach the ASC "on a no-names basis" to discuss change to the Law to make it easier for a company limited by guarantee to convert to a company limited by shares. The minutes described the draft paper as for presentation to a "Board Committee", I think meaning the group comprising Mr Kirby, Dame Leonie Kramer, Mr Burrows and Ms Ralph foreshadowed on 9 December 1992 - no formal committee had been or was established by the board of either Association or Insurance. 224 The next meeting of the project team was on 16 March 1993. It was attended by Mrs Graham, Ms Godwin, Mr Ross, Ms Birch, Mr Barry, and Mr Morgan. Prior to the meeting BT circulated a further and more extensive partial draft of the report, and Mr Morgan circulated a paper on the aims and objectives of the restructuring and a paper on the legal steps necessary for the restructuring. The expanded draft report included the aims and objectives, and this material was generally as contemplated on 9 March 1993. 225 The draft report followed the earlier outline, and was expressed to set out the issues associated with each key point detailed in the outline and to be preliminary to a more detailed report on the issues and an overall proposal. It incorporated, with slight changes, what had been said about critical issues and a windfall gain in BT's earlier document, saying that the basis of entitlement should be both simple and equitable and "parties entitled to the windfall gain should be able to understand the basis of entitlement and it should be seen to be fair". A number of possible bases of entitlement were suggested. As to alternative structures, the same possibilities as before were set out, but the draft simply noted the issues to be addressed in making a choice and the draft report did not yet canvass those issues. 226 Mr Morgan's paper on aims and objectives included that Association and Insurance had excess capital "and there is no simple solution to its distribution to its members now and in the future without a restructuring of the organisations". His paper on legal steps took as its basis "that a new holding company ('Newco') is established which becomes the direct shareholder in Association and Insurance and Newco issues shares to the members and policyholders of Association and Insurance". He outlined a procedure for changing the status of Association and Insurance to that of companies limited by shares and by guarantee by special resolutions in general meeting, pursuant to s 167 of the Law. The procedure was general, it was said that as the proposal developed other steps might be identified and greater detail would be provided, and so far as presently relevant the "principal steps" were said to be "the change of corporate status and restructuring of membership and membership rights of Association and Insurance", "the issue of shares by Association and Insurance to Newco", and "the offer by Newco of shares to members, policyholders and the public". 227 When briefly addressing each of these steps in his paper, Mr Morgan said as to the first step that what was required was a general meeting of each of Association and Insurance to approve the change of status to a company limited by shares and by guarantee and appropriate alterations to the memoranda and articles, and that this could be done pursuant to s 167 of the Law. He observed that there were "legal doubts as to whether a change to a company limited by shares is possible" and "Depending on the outcome of current litigation before the High Court, a change of status to a company limited by shares may be possible by way of a Court approved scheme of arrangement", and referred also to "exploring possibility of legislative change to s 167". Although not identified, this was a reference to an appeal from the decision of the Full Court of the Supreme Court of Western Australia in Australian Securities Commission v Marlborough Goldmines Ltd: it was not a reference to Gambotto's case, in which the judgment of the Court of Appeal was then pending. 228 As to the third step, there was no further description of the issue of shares to members, which seemed to be treated as part of the one offering to members, policyholders and the public all governed by a prospectus. In this paper, that members might get whatever they got from the restructuring "at no cost" was not evident, and (perhaps influenced by Mr Schultz's paper) members would not necessarily give up their membership rights: see the passage - "The amendment of the Articles of Association will involve an alteration of rights between the existing members of the companies and the shareholder members. Consideration will need to be given to whether existing members should continue to have membership rights at all and, if so, in what form. Whatever is done will require a special resolution of members and would be incorporated into the resolutions for change of status." 229 It seems that the meeting of 16 March 1993 saw the new holding company as the preferred option, and it may be that Mr Morgan's reference to continuation of membership was taken up. A note of the meeting included - "Preferred route is · list a new Holding corporation · retain NRMA with membership … This proposition may be most palatable as we can say to members that nothing will change as far as members are concerned." 230 There followed development of the draft report to a further draft without, so far as appears from the evidence, further formal meetings of the project team. 231 The NRMA, through Ms Godwin, prepared and circulated a draft introduction to the report intended to explain why a restructuring was thought necessary, and BT incorporated it with amendments into the further draft. Some aspects of the draft introduction may be noted now, as they were said to be material in these proceedings to the disadvantages question. 232 It identified as the major factors "which propel us towards changing the structure of the Group" the evolution of the NRMA's role and the growth of surplus capital within the group, and then described problems in the distribution of capital (profits), administrative inefficiency, and what was described as misalignment between ownership and control. It continued - " SOLUTION - RESTRUCTURE OF THE NRMA GROUP

By listing a holding company which would own NRMA Limited and NRMA Insurance Limited, many of these problems are resolved.

Such structure would have the advantage of not requiring any major alteration to the present structure. As far as our members would be concerned there would be little change in the manner of delivering services.

The use of a listed company limited by shares would make the return of capital to members in the form of shares very simple. Furthermore such a structure would provide a means for the equitable distribution of future profits.

The other benefit of using this method for returning capital and future profits is that it can be done without stripping the Group of its assets.

Ownership and control of the Group would become much more aligned. Takeover becomes a far more difficult and expensive exercise. Hence greater stability for the Group is achieved.

As a listed company with a need to pay dividends there would be an increased emphasis on the making of profits. This could lead to conflict with some of the Group's current activities which can be categorised as social or representative in nature and which are not directly profit making.

On the other hand, as the Group's present strength is due both to financial acumen and the taking of an active role in the community, possible conflict between profit making and non-profit making activities can be viewed as unlikely.

The Group at present has a strong service-based culture. Members feel as though they belong to the organisation. It would be necessary therefore to ensure that any restructure of the Group did not result in members losing this sense of belonging.

At the moment the Group does not pay dividends. Profits are therefore retained and can be built upon. As a listed company we would have to pay dividends. However, as our major aim is to return capital and future profits to our owners, the payment of dividends ought not to be viewed as a disadvantage.

The Trade Practices Commission currently does not prevent us from requiring persons who take out insurance with NRMA Insurance to also be or become members of NRMA Limited. If there is a restructure of the type being considered, it is likely that the Trade Practices Commission would no longer permit us to do this. This would possibly mean a loss of sales of some of our services but need not necessarily do so. Even without a restructure it is quite possible that the Trade Practices Commission may reconsider its view on our current practice and decide that it ought not to continue.

The strategic intent of the Group has widened in both a geographic sense and in the range and types of assistance which the Group wishes to provide. A listed company structure is more appropriate for a company which aims to be a national assistance organisation;

Over-capitalisation in a mutual organisation can lead to: - mis-alignment of ownership and control - and inefficiency;

The present structure does not easily permit the equitable return of capital or distribution of future profits to the owners of the Group;

The listing of the holding company for the Group solves these problems." 233 BT also incorporated into the further draft report the substance of Mr Morgan's paper in relation to legal steps and Mr Schultz's paper on taxation issues. The existing references to windfall gain were retained, with some modifications, and it was emphasised that the classes of people who would be entitled to participate in the windfall gain would need to be determined and that the basis of entitlement should be both simple and equitable. 234 There were a number of other changes and additions to the further draft report, which was a more complete document than its predecessors, although often noting matters for consideration and decision and listing whole sections to be "addressed in detail following discussion with members of the NRMA Council" (ie directors). An addition of possible significance in these proceedings was Section 4.5, headed "Membership Status". 235 The section began with the bald statement - "Under the proposed structure members of the Association and Insurance would give up their current membership rights in exchange for shares in the holding company, as set out in the table below."

236 A table then set out a comparison between current (membership) rights and obligations and proposed (shareholder) rights and obligations, and comments were made including that the proposed rights and obligations "were more favourable than" the current rights and obligations and - "d. As both Insurance and the Association will still exist, consideration should be given as to the advantages and disadvantages of having existing members retain some membership rights/obligations of the Association and Insurance, in addition to their rights and obligations as shareholders of the new holding company.

Retention of Some Membership Rights/Obligations Advantages Disadvantages

1. May facilitate restructure and obligations of existing guarantors. 1. Administration of notice of meetings, maintenance of the membership register

2. Maintain sense of membership of a legal entity. 2. Inconsistency between voting rights and ownership. e. An alternative to members retaining membership of Association and Insurance, is for a contractual relationship to be established between Association and its members. Upon payment of an annual membership fee, members would be entitled to receive the services of the Association in the form currently provided. The distinction being that contractually they are titled 'members' and are entitled to receive services, whereas, under the existing membership, the rights and obligations of members are specified in the Memorandum and Articles, and arguably the member has an interest in the economic benefits of the NRMA Group."

237 The evidence did not reveal the source of the description of giving up membership rights in exchange for shares in the holding company. The comments showed that retention of membership was still a live alternative, and the part of the draft report incorporating the substance of Mr Morgan's paper in relation to legal steps retained what he had said about existing members continuing to have membership rights. But the notion of giving up membership rights in exchange for shares, previously implicit in Mr Schultz's paper, had been made express. It later became dominant, and is material to the free shares question. 238 Those involved were working towards a presentation of the report to NRMA management on 1 April 1993, and a further draft was produced. The draft report in its 30 March 1993 version, now entitled the Christmas Report and incorporating comments received from Ms Godwin, Mr Morgan, and Mr Schultz, was presented to and discussed at a meeting attended by Mr Willing, Mr Rees, Mr Corrigan, Mr King, Ms Conway, Mr Doug Pearce, Mrs Graham, Ms Godwin, Mr Ross, Ms Birch, Mr Barry, Mr Morgan, and Mr Schultz. The presentation was described in a memorandum to Ms Conway as a "run through" prior to the presentation to "some members of the Board of NRMA Limited". Mr Rees was then general manager, financial services, and Mr Pearce was general manager, finance and administration. 239 The draft report as at 30 March 1993 had some changes from the draft which had followed the meeting of 16 March 1993. They included that while the previous Section 4.5 entitled "Membership Status", now Section 4.2 with the same title, retained the description of giving up membership rights in exchange for shares in the holding company, it now omitted the comments showing that retention of membership was still a live alternative (although the part of the draft report incorporating the substance of Mr Morgan's paper in relation to legal steps stayed the same). 240 Further, there was now some emphasis on protection from minority groups as an aspect of the asymmetry between voting control and economic interest. This can be seen in particular in two passages in the draft report - "The lack of ownership interest leaves open the opportunity for minority interest groups to secure control of the Board and management of the Association and Insurance, and to apply the significant financial resources of these organisations for their objectives. Provided such minority groups do not purport to adversely affect members rights to road service or other services provided by the Association, any move to acquire control of the NRMA Group is likely to generate little resistance from members, whether or not it is supported by the existing Board." "Under the current company structure, control of the surplus capital rests with the NRMA Board. While the extensive membership of NRMA of 2.2 million provides a natural takeover defence, the proportion of members who vote is significantly smaller. It may not prove to be too difficult for a group to achieve control of the NRMA Board and thereby obtain control of the NRMA Group's resources." Indeed, an agenda for the meeting of 1 April 1993 - the authorship was probably BT - baldly answered the question , why restructure?, with the word "control", and the explanation, "The current structure is easily susceptible to minority interest groups taking control of the NRMA's resources". 241 The minutes of the meeting of 1 April 1983, prepared by Ms Godwin, included - "Issues arising from the presentation which could be given greater prominence or dealt with in more detail in the report are noted below.

1. The 'swap' of the inchoate rights which members presently have in the NRMA Group for the very definite rights which a shareholder in a company which owned the resources would have, results in members having the flexibility and discretion in timing their receipt of financial resources from the company. Currently distribution of those resources to members is totally at the discretion of the Board and Management of the Group. Hence one could say there is a devolution of power from Board and Management to members (ie Shareholders).

6. Other issues which will require attention at an early stage are public relations both internally and externally; possible attacks on the proposal and information which the company needs to be in a position to provide to counter those attacks; the accounting issues relating to taxation and ASX scrutiny."

242 The notion of exchange of membership rights for shares seems to have become accepted, although as a general description rather than a legal analysis, and again it was recognised that there could be opposition to the restructuring. As to that, in the incomplete part of the draft report dealing with implementation issues there was an outline - "d. Implications of defeat In the event that the proposed restructure was to fail, the current Board of Directors of NRMA would be associated with the unsuccessful proposal, and as such their future positions on the Board may be jeopardised. Further the restructuring process invites interest from other action groups as it highlights the value of the NRMA Group and its governance. e. Possible spoiling tactics

Possible spoiling tactics include: i. services will be diminished as a result of the restructure;

ii. the NRMA Group will focus on profit making and as a result prices charged will be excessive.

iv. there are other ways to distribute the surplus capital; and

v. the NRMA Group has been successful to date, thus there is no reason to change." 243 The minutes of the meeting of 1 April 1993 also recorded things to be done before "going to sub-group of directors of the Board". They included that BT would provide a timetable of events leading up to the proposed restructuring, in particular showing the sequence of events, and a paper setting out options, commenting on the timing, providing a brief "risk analysis" of each option, and giving a budget and internal resource requirements for each option. The options identified were doing nothing, return of capital under the present structure, full listing, and "others". It was agreed that Mr Morgan should "go to Government on an anonymous basis" with a view to legislative change to s 167 of the Law. 244 There was then further work on the draft report, with a meeting of the project team on 16 April 1993. Present at the meeting were Mr King, Ms Godwin, Mr Ross, Ms Birch, Mr Barry, and Mr Morgan. Prior to the meeting BT circulated a paper described as "setting out the risks, timing, budget and internal resource requirements of the alternatives". The paper was a substantial document, later developed in its own right, and I will refer to it as the alternatives paper. Mr Morgan circulated a paper on the payment of dividends by Association and Insurance, and Mr Schultz circulated an expanded paper on taxation issues. 245 The BT alternatives paper covered the options of doing nothing, return of capital under the present structure, and full listing, in the case of full listing saying that the option was described in the draft Christmas Project report. Benefits of each, risks of each, timetables, and budgetary and resource requirements, were stated. The benefits and risks in the case of full listing were broadly the matters already to be found in the draft Christmas Project report. The risks included that non-members might claim that they had not been treated equitably in the allocation of entitlements. That it would be an expensive exercise was clear: BT estimated the costs to float the NRMA Group, based on an average of other public offerings, at $29,100,000 (simple average) or $24,200,000 (weighted average) excluding broker fees, and described the annual costs associated with a public company, including listing fees, the maintenance of a share register, the preparation of annual reports and annual returns, and compliance with the Stock Exchange Listing Rules. 246 Mr Morgan's paper on the payment of dividends, it seems brought about by speculation at the meeting of 1 April 1993 about whether dividends could be paid under the present structure as a way of distributing surplus capital, came to the conclusion that if the memorandum and articles of a company limited by guarantee so permitted the company could pay a dividend or distribute its profits. But amendments to the NRMA memoranda and articles would be required, and Mr Morgan identified a number of practical difficulties if the NRMA wished to follow that course. 247 Mr Schultz's expanded paper on taxation issues was consistent with his earlier paper, but did include that it was arguable that "the rights of members to vote, receive free service etc are capital gains tax assets" and that if those rights were disposed of in consideration for shares in Newco "there is a prospect that a capital gains tax liability may arise". In developing the question whether there would be a taxable disposal of an asset by members, it was said that the main issue was whether members of Association and Insurance had any form of "proprietorial interest" in the company and, if so, whether that interest was a capital gains tax asset, and a preliminary answer in the negative was given. But it was repeated that it was arguable that some part of the consideration for the receipt of shares by members would relate to the disposal of the right to vote, a contractual chose in action. 248 From Ms Godwin's notes, the alternatives paper was the focus of the meeting of 16 April 1993. It seems that the option of doing nothing was rejected, that Mr Morgan was asked to provide more on "problems with dividends under present structure", and that there was particular reference to "problems with 'rearranging' membership of Insurance to achieve equity of distribution". There was discussion of the timing of any restructuring, in particular its relationship with the then contemplated expansion of the NRMA's operations into Victoria. That was further considered after the meeting, and was the subject of a memorandum from Mr King to Mr Willing dated 19 April 1993 in which it was suggested that the expansion should proceed before any disclosure in the public domain of the Christmas Project, in order to keep the NRMA's resources and attention on the expansion and to reduce uncertainty. 249 Further drafts of the alternatives paper were prepared, still containing the substance of the parts of the earlier draft described above. After the benefits of the third option were now added disadvantages, being that the restructuring process was very complex, that significant management time would be diverted from the day to day management of the organisation and the expansion program to the restructuring process, and that the costs involved in the process would be significantly greater than under the second option. 250 On 22 April 1993 the final alternatives paper was provided to Mr Willing. It was said that while working on the alternatives paper it had been concluded "that the issue of surplus capital was not as important as it had seemed earlier in view of the demands which expansion will place on capital": presumably this was connected with the expansion into Victoria. It was suggested that less emphasis be placed on the issue of surplus capital in "the major report" (ie the Christmas Project report), and Mr Willing was asked whether he would like a further meeting with BT "to discuss the final slant of the major report". 251 It seems that Mr Willing let the matter rest for the next month. Mr Morgan was asked to advise on interim steps which could be taken towards a float while the expansion into Victoria proceeded, and provided a paper on the subject of a "staged process"; he was also asked for advice upon whether Insurance could pay a dividend to members without any amendment to its current articles, and advised that the directors could not, but the company in general meeting could, declare a dividend. 252 In mid-May 1993 Mr Willing was reminded of the draft report and paper and the possible staged process, and was asked whether there should be a presentation on the work done so far or further investigation of the staged process and delay of "the larger project". From what follows, it must have been decided to continue with the larger project. 253 A final draft dated 28 May 1993 of what was described as the Christmas Project report, but entitled "Christmas Project - Analysis of Alternative Options", was circulated. The evidence did not go into any further meetings of the project team at which it was considered. The report seems to have been a synthesis of the draft Christmas Project report and the draft alternatives paper, but with the possibilities for restructuring limited to the options from the alternatives paper. It still placed emphasis on voting rights and economic interest, and on governance, amongst other matters, and referred to the windfall and the critical issue of entitlements. It now referred under the heading "Membership Status" to members giving up "their indirect ownership interest in exchange for the right to receive shares in the holding company", two changes in expression which were not explained in the evidence but demonstrate that the way the restructuring might be brought about was still imprecise and fluid. 254 Before going to presentation of the Christmas Project report, I should briefly refer to what was done about legislative change to s 167 of the Law: it was said to be material to what the defendants should have advised in relation to Gambotto's case. It will be recalled that Mr Morgan's paper on companies limited by guarantee referred to the possibility of seeking an amendment to s 167 of the Law to permit a company limited by guarantee to change its status to a company limited by shares alone, and that there had been agreement thereafter on anonymous approaches to various authorities or the government. 255 It must have been decided to consider a more forthright approach. On 29 March 1993 Mr Morgan sent to the NRMA, with a copy to Mr Ross, a draft letter to the Attorney General seeking an amendment. The draft letter said that while a company limited by guarantee could convert to a company limited both by shares and by guarantee under the procedure contained in s 167, it was "unclear whether a company limited by guarantee could convert to another type of company under a Section 411 scheme of arrangement". The draft letter suggested that "It may be that a change of status of a company limited by guarantee to, for example, a company limited by shares, could not be carried out under Section 411 because of the guarantee company's absence of share capital", and included - "Given the uncertain state of the law in relation to Section 411, we believe that the provisions of Section 167 should be amended to permit changes of status not currently expressly permitted, in circumstances where there can be no possible prejudice to creditors. The High Court may determine in the appeal against the Marlborough Gold Mines decision that changes of status not contemplated under Section 167 of the Corporations Law may nevertheless be carried out under Court supervision, under Section 411. Notwithstanding this possibility, we believe that it would be preferable for the scope of Section 167 to be broadened to include other changes of status which could be achieved without prejudice to creditors. The procedure specified in Section 167 is much simpler than that involved in a scheme of arrangement carried out under Section 411." 256 However, a letter in the form of the draft was not sent at that time. On 6 May 1993 the High Court gave judgment in Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485. It was held, reversing the decision appealed from, that the Law did not permit the conversion of a limited company into a no liability company, and that s 411 of the Law did not authorise approval of an arrangement which effected such a conversion. The possibility envisaged in the draft letter did not come to pass. 257 Presumably on the instructions of the NRMA, Mr Morgan then sent to the Attorney General a letter dated 8 June 1993, in the form of the earlier draft altered to take account of the decision of the High Court. The letter now said, "It is doubtful whether a company limited by guarantee could convert to another type of company under a Section 411 scheme of arrangement although the High Court did not go this far in its Marlborough judgment". It went on to suggest the amendment. 258 A letter from the Attorney-General's Department acknowledged Mr Morgan's letter, and said that it would be taken into account in the Department's consideration of the High Court's decision. This was not encouraging, and it seems that change of the status of Association and Insurance to companies limited by shares alone passed out of consideration. So the scheme of arrangement route instead of the members' resolution route, as a possible answer to the perceived difficulty where the change was to the status of companies limited by shares alone, fell away. The materiality to what the defendants should have done about Gambotto's case was, on the NRMA's case, that Mr Morgan had paid regard to the possible impact on what the NRMA wanted to do of the pending appeal to the High Court from the decision of the Full Court of the Supreme Court of Western Australia, and that a step in connection with the proposal had apparently been deferred to await the result of the appeal. 259 The Christmas Project report was presented to the "Board Committee" on 26 July 1993. In the course of the hearing some of the defendants attributed particular significance to the occasion, suggesting that it was rather clandestine with calculated exclusion of potential opponents to the restructuring. I do not accept that it had that character. 260 The presentation on 26 July 1993 was attended by Mr Mackay, Mr Kirby, Mr Burrows, Dame Leonie Kramer, Ms Ralph (by telephone), Mr Willing, Mr Corrigan, Mr King, Mr Rees, Ms Godwin, Mr Ross and Mr Morgan. It was held not at the offices of the NRMA, but at the offices of the firm of solicitors of which Mr Mackay was a partner. Earlier in July Ms Godwin had prepared an agenda for the meeting, according to which there were to be opening remarks by Mr Willing, a presentation by Mr Ross, and then discussion. There were no minutes of the occasion. 261 The report dated 30 January 1995 of the NRMA's corporate process review committee ("the Booth report"), established after the Federal Court proceedings to investigate suggested excessive conduct by management, described the meeting - "Triggered by the BT report and timed ahead of the imminent departure of Mr Willing overseas, a meeting was held on 26 July 1993 with the Executive group of the Boards of NRMA Limited and NRMA Insurance Limited. At this meeting, a presentation was given by Rowan Ross of BT. Mr Mark Burrows and members of NRMA management also attended the meeting. Prior to the meeting, Mr Willing consulted with the Chairman, Mr Don Mackay about whether the organisation should continue to develop the proposal. Mr Mackay replied that he would like the Executive group of the Boards to determine this. The meeting held on 26 July 1993 provided management with supportive feedback for the continued development of the proposal". 262 The recollections of those at the meeting were not good, and did not add much to this summation in the Booth report. The summation is itself not necessarily reliable, because the result of enquiries eighteen months later and based on informants and information not now identifiable. 263 Mr Kirby had the most concrete recollection, to the extent that he gave evidence that he was "offended" by the proposal, said he was not interested, and left the meeting; he could not recall anything of what was explained at the meeting because he rejected the proposal. I think the firmness evident in Mr Kirby's evidence may have increased with the passage of time. While he did not favour what was presented, the occasion extended over something like an hour, and I doubt that his reaction at the time was as abrupt as might have been thought from his evidence. Mr Rees recalled what he described as very broad discussion around the purpose of a potential restructure, the alternatives of the form it might take, and that no decisions were taken. Mr Ross recalled giving a presentation on alternative structures, but had no detailed recollection: in general, he recalled some of those present expressing a view that full consideration had not been given to other alternatives, and he did recall that Mr Kirby had a concern which he (Mr Ross) could not specify. Mr Morgan's entries in his notebook did not enable reconstruction of what occurred at the meeting, but supported that Mr Kirby and Ms Ralph were not receptive to what was presented. There were no other worthwhile recollections. 264 Why was the particular group at the presentation? It was not a last-minute selection, but gave effect to what had been proposed (although the date was later) by the Group in December 1992 and had been reiterated, by the reference to presentation to the "Board Committee", thereafter. 265 In a chronology prepared by Mr Pearce for the review resulting in the Booth report he said - "It is my understanding that this group was selected as they are the senior office bearers of Boards, and from the Executive Committee of the Boards with the one director who has had significant experience in such a proposal. As stated earlier, the aim was to test the acceptability of the proposal before expanding resources. The group was restricted in order to maintain absolute confidentiality over the proposal. It was clear at that stage, any public discussion of the issue could have caused a 'run' on memberships to get a 'piece of the action'. This could have had legal consequences along the lines of insider trading and perhaps more importantly could have significantly diluted the potential entitlement of existing members of both mutuals." 266 Mr Pearce did not give evidence, and this recitation of his understanding is not necessarily weighty. But the reasons in his understanding made sense, and it can readily be accepted that the Group thought that a directorial reaction to its work from the senior directors would suffice and that undue dissemination of what became the Christmas Project report should be avoided. It would be unrealistic to think that the general question of restructuring was not known within the NRMA, given the number of people (including some not on the project team) who must have had involvement in the Christmas Project, and the reference to a "Board Committee" does not gain a sinister connotation because there was no formally constituted committee - it could be simply a way of referring to the group. Mr Mackay, who as President would have been central to any illicit limitation in the membership of the group, firmly rejected such a suggestion, and I accept this. 267 I do not think there was anything more to the particular group at the presentation than I have indicated, and do not accept that there was calculated exclusion of potential opponents to the restructuring. Change from the Christmas Project to the Legal Status Project 268 The immediate progress on the Christmas Project after 26 July 1993 was slow. Perhaps this simply continued the lesser attention to restructuring than to the expansion into Victoria; perhaps the so-called "supportive feedback" from the presentation of 26 July 1993 included critical comment calling for a fresh approach, as Mr Kirby's evidence and what next happened might suggest. 269 BT prepared a different, shorter, report dated 20 August 1993 entitled "Project Christmas - Alternative Structures". I will call this the alternative structures report, to be distinguished from the alternatives paper. 270 In its introduction the alternative structures report said that the current structure of the NRMA gave rise to a number of problems, including that being a mutual organisation with a membership base restricted to New South Wales was "not consistent with the vision to become a national assistance organisation"; that it had capital in excess of its current and expected future requirements; that its ownership should be aligned with "the economic interest in the NRMA Group's earnings and its capital base"; and that its governance should "match the interest of those who participate in the economic benefits of the NRMA Group". It was specifically noted that under the alternative structures the primary objective of the NRMA would be to maximise the return to shareholders, as a matter material to the future funding requirements of Association if Insurance were no longer to subsidise its activities, including its activities of a community nature. 271 There were then canvassed in point form and with diagrams a number of alternative structures, the points setting out advantages and disadvantages for each. One so-called alternative structure was to retain the existing structure but distribute surplus capital; another was to list the NRMA Group; another was to list Insurance; another was to list Association; another was to merge Association and Insurance. The alternative of listing the NRMA Group was said to involve the creation of a holding company of Association and Insurance, the conversion of those companies to companies limited by shares and by guarantee, and the offering to members and policy holders of an interest in the holding company. This was said to have the advantages of addressing the current structure problems; facilitating access to new capital; maintaining the existing relationship between Association and Insurance; and providing a stable shareholders' register. It was said to have the disadvantages of being more complex; of being "timely" (presumably time-consuming) and costly compared to alternatives not involving a structural alteration; of the possible need to discontinue "tied selling" between Association and Insurance; that community services provided by Association might need to be specifically enshrined in the holding company's charter; and that there was a risk of disrupting "the existing 'mutual' culture, thus jeopardising the NRMA Group's comparative advantage". 272 The alternative structures report did not have the detail of its predecessor, although the work that had gone into the Christmas Project report could be seen. It is evident that there had been a fresh approach, a return to the reasons for restructuring, to more alternatives, and to broader assessment of the pros and cons of the alternatives, and that the focus was on what should be done rather than how it should be done. In a memorandum to Mr King dated 30 August 1993 Mr Willing expressed thanks for the work on the Christmas Project to that time, and said, amongst other things, that it was worthwhile to look at some of the alternatives, including the current structure, in greater detail and that more research was needed to ensure that any decision relating to the NRMA's structure was in the long term best interests of members and policyholders. He said that it was important to "look hard at the question of entitlements which our members may have". It is not clear whether Mr Willing had the alternative structures report at this time, but what he said reflected the fresh approach. 273 Consistently with this, Ms Godwin's reaction to the alternative structures report, as conveyed in a memorandum to Mr Morgan, was that more detailed analysis was required "if we are to succeed in persuading others that these alternatives are unattractive". More work was done, and the alternative structures report passed through a number of further drafts, principally under the direction of BT but with comments and input from Ms Godwin and Mr Morgan. As well, Ms Godwin and Mr Morgan spent some time discussing the question of entitlements with a view to recommendations for the basis of entitlement. Mr Willing was kept generally informed. 274 By the second half of September 1993 the alternative structures report was in developed form. The Christmas Project had come to be called the Legal Status Project (although some continued to use the old name), and it was proposed that there be a meeting of NRMA management in relation to the project on 8 October 1993. 275 The meeting proposed for 8 October 1993 seems to have been held on 6 October 1993. It was attended by Mr Willing, Mr Rees, Mr Corrigan, Mr King, Mr Pearce, Mr Stuart Salvage, and Ms Godwin. Mr Salvage was in the communications area within the NRMA, and became the initial so-called project manager for the project, in due course with the role of coordinating the activities of all those involved in it. His presence suggests that it was thought that the project would be taken up, and from Ms Godwin's notes of the meeting the same appears. It seems that there was a wide ranging discussion, preliminary but as if on the assumption that a restructuring proposal of some kind would go forward, touching on questions of market research, public relations, when to "go public", the timing for any listing, engaging accounting and actuarial assistance, and establishing a steering committee and project management group. 276 Ms Godwin's notes of the meeting of 6 October 1993 included, "Discussion of project at Terrigal". On 25 October 1993 the question of restructuring was presented to a wider group of NRMA management as part of their periodical retreat at Terrigal. All general managers attended. There was little detail of the meeting in the evidence, and it seems that the occasion was more one of informing the general mangers than of inviting their contributions; however, no doubt there was discussion. There was no suggestion in the evidence that the Terrigal retreat caused reconsideration of the Legal Status Project at management level. The proposal in late 1993 277 After all the time and detailed consideration leading to the Christmas Project report, the Legal Status Project was in place with comparative ease: the earlier work, of course, underlay the alternative structures report and its acceptance at management level. The basis of the proposal was now becoming clearer. 278 Perhaps to fulfil the desire for a more detailed analysis to which Ms Godwin had referred, BT provided an updated version of the Christmas Project report dated 27 October 1993, said to be for the NRMA's comments. It appears to have been a combination of elements of the earlier Christmas Project report and the alternative structures report, resulting in a more detailed version of the latter report. This report identified future growth, surplus capital, and governance as the principal issues raised by the current structure, and while it listed and considered a great number of alternatives as before (even more alternatives, but still including retaining the current structure), it expressed a preference, with reasons, for converting the NRMA's mutual structure into one of shareholding listed on the Stock Exchange. 279 Aspects of the developing proposal material to these proceedings should be brought out. 280 The process for the conversion was described in the executive summary in the report - "• Converting the Association (NRMA Limited) and Insurance (NRMA Insurance Limited) into companies limited by shares and guarantee.

• Establishing a holding company (HOLD Co) which is limited by shares only. HOLD Co would hold all of the issued shares in the Association and Insurance.

• Offering to members and other parties deemed to be entitled, shares in HOLD Co on a predetermined equitable basis.

• Those parties who are entitled to participate could be given the choice of subscribing for shares in HOLD Co or renouncing the offer and receiving a cash sum based on the net market value of their entitlement.

• Shares renounced, could be pooled together and offered to institutions though a tender process or underwriting mechanism.

• HOLD Co would be listed on the Australian Stock Exchange.

• A special distribution of the capital surplus to the NRMA Group's operations and the planned expansion program could be made to shareholders following the allotment of shares in HOLD Co.

• This distribution may either be in the form of a franked dividend, to minimise the amount of tax payable on the distribution, or a capital return.

• Payment of a special distribution should eliminate any discount the market would be likely to attribute to the surplus capital if it were retained in the NRMA Group following listing.

• Members in their capacity as shareholders in HOLD Co, would have the right to: - vote - receive dividends; - realise the market value of their shareholding at any time; and - participate in any surplus on winding up. • Members would have the right to receive services from the Association and Insurance on a contractual basis, following the payment of fees for service.

• The Association 'membership' culture could be preserved through the corporate structure of the Association. The Association could be converted into a company limited by shares and guarantee. HOLD Co would own 100% of the shares of the Association and would hold all the voting rights. Members would have no voting rights, but would contribute in the event of a deficiency upon winding up for a sum guaranteed at the time of payment of membership fees. In addition, the provision of community and non-profit services could be specifically provided for as part of the structure." 281 In the body of the report the same matters were described - "The way in which the preferred structure could be implemented is set out below.

• Members and other parties who are deemed to have an entitlement, could be offered, in proportion to a pre-determined basis of entitlement, the right to either subscribe for shares in HOLD Co or to receive a cash payment.

• Those that accept the offer of shares would be allotted shares in HOLD Co following the payment of a subscription price. The subscription price is likely to be small relative to the market value of the shares.

• Those who elect to take the cash alternative and renounce the offer to subscribe for shares would receive an amount of cash based on the market value of the shares.

• Shares renounced by members/policyholders could be pooled together and offered to institutions through a tender process or underwriting mechanism. For example, institutions could be asked to tender for the available shares (price and volume). Upon the close of the offer period, the price at which all shares would be allocated would be determined and the shares allotted accordingly.

• Upon allotment, moneys subscribed by institutions (less costs associated with the tender/underwriting process) would be distributed to the members/policyholders who renounced their entitlement to subscribe for shares, in proportion to their entitlement to subscribe for shares, in proportion to their entitlement.

• HOLD Co would be listed on the Australian Stock Exchange.

It is proposed HOLD Co could make a distribution of surplus capital (either through a special dividend or capital distribution), to all shareholders immediately following the allotment of shares. The reasons for distributing surplus capital include:

• the market is likely to discount the value of the surplus capital if it perceives that these funds are not required for the NRMA Group's core business or to finance the planned expansion program; and

• as a listed company, the NRMA Group will be able to access new capital from the equity market as required. This gives the company the ability to operate on a lower capital base than as a mutual organisation.

Shareholders in HOLD Co would be able to exercise all the rights attaching to a shareholding in a listed company, including the entitlement to:

• participate in any surplus capital on winding up; and

• dispose of their shareholding on market at any time. The value of the shareholding could be readily ascertained by reference to the price at which the NRMA Group is trading on the Australian Stock Exchange.

• The Association and Insurance would be converted to companies limited by both shares and guarantee.

• HOLD Co would own 100% of the issued shares in the Association and Insurance. The Board of Directors of HOLD Co (appointed by the shareholders) would be responsible for both the Association and Insurance.

• The Association's 'membership' culture could be preserved through the corporate structure of the Association. Members would have no voting rights in the Association, but would contribute in the event of a deficiency upon winding up for a sum guaranteed at the time of payment of membership fees. In addition, the provision of community and non-profit services could be specifically provided for as part of the structure.

• Insurance would provide insurance services to policyholders in accordance with the policy of insurance."

282 As to the critical issue of the basis of entitlement, the report later said - "Under the proposed restructuring of the NRMA Group, a windfall gain arises for those parties who are deemed to be entitled to participate. This windfall gain is reflected in the value of the direct ownership interest acquired in exchange for the current indirect interest.

The windfall gain gives rise to the following critical issues:

The parties who are most likely to be entitled to participate in the allocation of shares in the NRMA Group include:

• current members of the Association and Insurance;

Preliminary legal advice suggests that the initial offer to subscribe for shares in the NRMA Group must be made to members (reflecting their ownership in a legal sense), unless otherwise agreed by the members. This would exclude policyholders and employees who are not members.

As a consequence, if certain classes of customers are to be treated as members, it will be necessary to ensure they either become members, or alternatively, approval is sought from the members to authorise the participation of non-members in the entitlement process.

The prime criteria for determining the basis of allocation of entitlements should be, in our view:

• simple for members to understand and for the NRMA Group to administer.

A cumulative basis of entitlement has been proposed, which effectively rewards loyalty.

The entitlements may be based on a number of criteria, for example:

Members • Current member of the Association. • Member for more than a predetermined period (eg. 10 or 25 years).

Policyholders • Current policyholder. • Holding more than a predetermined number of policies (eg. 3 or 4 policies).

Employees: • Employee of the NRMA Group. • Number of years service.

Once the preferred structure is agreed, the legal position on who is entitled to participate and market research would be carried out with a view to finalising the appropriate basis of allocation of entitlements." 283 Nothing was said about giving up membership in exchange for shares, and there was no equivalent to the "Membership Status" material of earlier reports. It was said, however, when dealing with taxation issues, and referring to AAH's earlier papers - "A preliminary assessment concluded that the receipt of shares, by members would be a 'gift' or 'windfall' gain and would not be assessable in the hands of members upon receipt. The preferred view is that a member of the Association or Insurance has no significant 'proprietary' interest in the Association or Insurance for capital gains tax purposes. Accordingly, when a member receives newly issued shares in effective substitution for his previous interest, the member should not be regarded as having disposed of an asset for capital gains tax purposes. This opinion, however, should be made the subject of an application for a binding private tax ruling to remove any doubt. The rights of members to vote and to receive vehicle service may possibly be regarded as assets for the purposes of capital gains tax." 284 The report referred to risks of the preferred restructuring in the words - "The risks associated with changing the structure of the NRMA Group from a mutual organisation to an organisation limited by shares and listed on the Australian Stock Exchange may include:

• minority interest groups may identify the restructure as a threat to their ability to control the NRMA Group and propose an alternative short term solution;

• some members/policyholders may claim that they have not been treated equitably in the allocation of entitlements;

• the restructuring process invites interest from other action groups as it highlights the lack of proprietorship of the NRMA Group's substantial financial resources; and

• in the event that the proposed restructure was to fail, the current Board of Directors would be associated with the unsuccessful proposal.

Possible spoiling tactics that may be used by those opposing the restructuring proposal may include claiming that:

• services will be diminished as a result of the restructure;

• the NRMA Group will focus on profit making and as a result the membership fees of the Association and the premiums of Insurance will increase, community programs will be abandoned and the position of many non-profit services will be curtailed;

• there are other ways to distribute surplus capital; and

• the NRMA Group has been a success to date, therefore there is no reason to change." 285 Some observations on these aspects, in the light of what I have earlier said, may be made. 286 First, and material to the free shares question, in general terms the member was seen as receiving shares in exchange for his "previous interest", but at least for capital gains tax purposes the member's interest was not regarded as a significant proprietary interest. This still left recognition that the member had rights, in law choses in action, to vote and receive road service, as Mr Schultz had earlier suggested. And although for capital gains tax purposes the receipt of shares might be a gift or windfall gain, members were to pay a subscription price for their shares in HoldCo, and were then to receive a distribution of surplus capital, either as a dividend or as a return of capital. Mr Morgan's earlier letter to Ms Godwin of 1 October 1993, which I will shortly set out in part, had envisaged that members would subscribe for their shares and pay the par value, and it may be that Mr Morgan and the BT author of the report had spoken on the subject. That the subscription price was "likely to be small relative to the value of the shares" threw up the possible problem of issue of shares at a discount, and Mr Morgan had foreseen this in his letter. The nature of a members' rights was further addressed by Mr Morgan in early November 1994. 287 Secondly, at this time the implementation of the proposal - the change in status by members' resolutions - was left up in the air. The earlier consideration of the members' resolution route and the scheme of arrangement route did not come up, probably because the conversion of Association and Insurance was to be to companies limited by shares and by guarantee, not by shares alone, and the context of the earlier consideration no longer obtained. The two routes came up, in a different context, in early December 1993. 288 Thirdly, entitlements was now considered in more detail, and the risk of complaint that entitlements had not been allocated equitably was more specifically recognised. As will shortly be seen, apart from the report the NRMA had been giving more thought to entitlements, and they were the subject of detailed advice from Mr Morgan in early November 1994. The advice directly linked entitlements and the potential for complaint of oppression. 289 Fourthly, possible disadvantages in the proposal were identified, specifically as matters which might be alleged by those using "spoiling tactics". They were diminished service, focus on profit making with consequent increase in fees for road service and premiums, and loss of community programmes and non-profit services, plus general change in "membership culture". More advisers are engaged 290 The involvement of AAH in the proposal flowed from the engagement of Mr Morgan for the Christmas Project at the end of 1992 or early in 1993. At the end of October 1993 Mr Gregory Bateman of Abbott Tout was brought in to the Legal Status Project. 291 The NRMA had been obtaining advice from and through Mr Bateman about the requisitioning and conduct of general meetings, it seems for reasons unconnected with the consideration of restructuring. A memorandum from Ms Godwin to Mr Willing dated 27 October 1993 included, "At the moment, Greg is unaware of the Legal Status Project. I would like to bring him in to it very soon because I think he could contribute a lot, especially as far as the question of possible structure of the Group". Mr Willing agreed. 292 Mr Bateman was "put into the picture" (the words are taken from another memorandum of Ms Godwin) on 4 November 1993. Within the NRMA Ms Godwin proposed that AAH should "have control of the legal work for the float process" but that AT should advise on structural issues and possibly be engaged for "other aspects of the project". According to Ms Godwin's notes of the meeting of 4 November 1993, Mr Bateman was asked "to look at possible structures which would be useful for company to consider. Especially to keep in mind how Association activities of community advocate and community service nature could be funded in such a structure whilst maintaining independence of Association". 293 Also at this time the NRMA engaged Port Jackson Partners Ltd ("PJP"), in the nature of a merchant bank. Mr Terry Arcus of that company acted as adviser. In due course Mr Ross and Mr Arcus acted in cooperation, but Mr Arcus at times took a more leading role. His initial involvement, not greatly explored in the evidence, was the production in late October 1993 of a document summarising in headings the comparative "risks" of the NRMA changing its structure or doing nothing and some issues to be addressed. What this led to at the time was unclear from the evidence, but the engagement of PJP, as well as the retention of AT, indicated how seriously the NRMA was furthering the Legal Status Project. Advice on entitlements 294 With the increasing activity in developing the proposal, the question of entitlements became prominent. It had long been recognised as a crucial issue, and was now addressed more fully. It involved considering in more depth the nature of a member's interest. 295 With the alternative structures report, Ms Godwin and Mr Morgan spent some time discussing the question of entitlements with a view to recommendations for the basis of entitlement. In September 1993 Ms Godwin prepared an analysis of factors according to which entitlements could be determined (membership, former membership, policyholder, former policyholder, length of membership or time of holding policy, number of policies held, number of subscriptions, total amount paid in subscriptions, total amount paid in premiums, employment, and many other factors). She asked for advice from Mr Morgan. 296 Mr Morgan provided "draft initial views" by a letter to Ms Godwin dated 1 October 1993. The letter stated that Mr Morgan's main theme was "a concern about the fact that it may not be appropriate to recognise the customer relationship because what we are really doing is to change 'ownership' from being a member to that of a shareholder so that the member can realise either now or in the future the value of your ownership". His views included - "Here existing 'owners' are to be allocated the economic value of the entity. Shares cannot be issued at a discount and, from this point of view, the likely approach is to offer two options to the 'owners';

(a) subscribe the par value for shares and receive a share with a market value greater than par;

(b) renounce right and receive cash equal to amount share sold for (its full value).

Therefore, entitlement issues arise regarding the initial option and, secondly, as to whom the 'renounced' shares are offered. Unless the 'members' otherwise agree, the first leg must be an offer to members - it reflects ownership in a legal sense." 297 By a letter dated 11 October 1993 Ms Godwin asked Mr Morgan for specific advice. She identified the general question as "whether membership equals ownership", and the specific questions included - "1. Do members of the Association and the Insurance company have any proprietorial interest in those companies respectively?

5. I assume that members' approval for basis of allocation must be obtained, is this correct? If 'yes' must that approval be of a very specific plan or can it be an approval 'in principle'?" Ms Godwin observed that it seemed from the paper on taxation issues that members may have no proprietary interest, and that if this were so it was necessary to explore the benefits and disadvantages of making any allocation on a wider basis. In the memorandum to Mr Willing of 27 October 1993 she linked that with advice on "possible means by which either NRMA Limited or NRMA Insurance could be attacked", and it is clear that she saw that complaint over the basis of entitlement could be used to claim relief from oppression. 298 Mr Morgan's advice was by a lengthy letter dated 4 November 1993. Some importance was attached to the letter in these proceedings, and a number of passages should be noted. 299 Mr Morgan began by addressing the nature of the interest of a member of Association or Insurance generally, saying that the focus was on the type of interest or "property" which the member held by reason of membership. He said - "In our view the member's rights are actually described as a 'chose in action', a well known of [sic] form of personal property. This form of property is the same form of property that a person has as a party to a contract and it arises essentially by reason of the fact that by becoming a member the member thereby becomes contractually bound to the company and to other members in accordance with the contract set forth in Section 180 of the Corporations Law. The member has a bundle of rights under this contract. The member also has obligations under the contract. Under the Corporations Law the member also has other rights and obligations. However, these rights and obligations arise from statute and are not strictly part of the property of the member.

Membership of a company limited by guarantee may be compared to a shareholding of a company limited by shares. The Courts have found it extraordinarily difficult to define the legal nature of shares despite their familiarity and the Courts have usually described shares as a 'chose in action' or as a 'bundle of rights'. A share is not a form of tangible property but, because a share is usually transferable [sic], is it loosely described as 'property' in a more general sense so as to equate it with other types of tangible or transferable property. In reality the type of property held by a member of a company limited by guarantee is essentially the same as the type of property held by a shareholder in a company limited by shares. The real difference between the two arrangements is in the rights and obligations that attach to them." 300 So Mr Morgan answered the first question asked by Ms Godwin on 11 October 1993 in the terms, "that members of both the Association and Insurance have a form of personal property arising from the contract constituted by the Memorandum and Articles of Association of both companies". 301 Mr Morgan then went to the rights and obligations of a member. He began - "The members' rights are essentially the right to vote and the principal obligation is to contribute on winding up and to pay membership fees and charges. However, in critical matters, some members have different rights or no rights at all. The power to vary these rights by members is also a critical issue for consideration." In connection with variation of the rights, he adverted to s 260 of the Law "which prohibits oppressive conduct, this protects a member against the companies' affairs being conducted oppressively, unjustly or in a discriminatory way and similarly protects class rights"; he adverted also to s 167 of the Law. 302 After a brief description of the Christmas Project (as he still called it) structure as one likely to involve the use of a holding company issuing shares, Mr Morgan continued - " The Windfall

The position of Project Christmas does not easily fit into any of the normal situations. It is an issue but it is also a 'sale' in a sense. This is because the essence of the offering is not a capital raising but rather the transfer of economic ownership to shareholders.

However, shares may not be issued at a discount and for a number of reasons, including tax and doubt as to whether the members have anything in the nature of transferable property to sell, it is proposed that each member 'transfer' (or more properly give up) their existing rights for shares.

Shares will be issued at par, say $1.00. Those entitled may take them up or renounce the right and receive the cash consideration received on disposition of the renounced shares. Once issued, the shares would be worth considerably more than $1.00 and this difference is the 'windfall' or equivalence of the economic interest in the NRMA Group.

Is passing part of the Windfall to non-members valid?

If we assume the requisite majority of members and each relevant class approves a proposal to issue shares on a windfall basis to non-members being policyholders, can dissenting members complain and what is the likelihood of success?

Secondly, could Association members complain if shares are issued on a windfall basis to members of Insurance by reference to their membership of Insurance or to persons who are not members of Association. This could arise, for example, where the number of shares reflected membership of Insurance in some way (eg premiums paid).

In essence, the grounds of complaint would be either: (a) a fraud on the minority; or (b) oppression either at general law or under section 260 of the Corporations Law.

The argument would be that the majority of members or directors in so acting either misused their power to the detriment of the minority or acted oppressively or in a manner that was unfairly prejudicial to, or unfairly discriminatory against, a member or class of members or contrary to the interests of members as a whole.

If the action involves a fraud on the minority in accordance with the common law principles, it is more than likely that action would also be available under Section 260 of the Corporations Law. That section has a number of advantages for a member pursuing the matter, being procedural advantages and advantages in the scope of the orders that a Court may be able to make in the event that the conduct is found to fall within that section.

Likely legal consequences of allocating, or attempting to allocate, shares to non-members

We conclude that there is a danger that, if, as part of the process, shares are allocated to non-members (that is policyholders) on the basis that those members become entitled to the windfall, persons who are members may well have a claim against the companies on the basis of there being a fraud on the minority or, alternatively, a breach of Section 260 of the Corporations Law. The risk of this is far less if the non-members to whom this right is extended come within a class of policyholder who would have been a member but for matters of inadvertence, error or like matter.

Is members' approval for the allocation required and is that approval required specifically or can it be obtained in principle?

The answer to this question depends in part as to exactly what structure is adopted and how the process of approval is carried out. However, regardless of the structure, it appears to us inevitable that the background to the detailed resolutions required to effect a change of status of Association and of Insurance or the acquisition of shares by a Holding Company and the issue of shares by that Holding Company will require detailed explanation to members as to the basis on which the shares will be issued and the way in which they will be allocated. As we have noted, the actual allocation of shares is normally a matter for Directors or Owners but the situation here is different from the norm. We do not believe that members will approve the proposal unless the Directors' proposals in respect of this matter are made clear at any relevant meeting and, unless that is done fully and frankly, members may truly have a basis for a legal remedy under Section 260.

One of the real concerns of extending the windfall to non-members is the opportunities it provides for 'spoilers'. If an action is commenced under Section 260 that cannot be quickly disposed of or about which we have a high level of confidence that it will not be successful, it has the real likelihood of catastrophically upsetting the issue and listing process." 303 Mr Morgan did not in terms answer the second question asked by Ms Godwin on 11 October 1993, but clearly conveyed a yes and that there had to be a specific plan. In doing so, however, he acted on the notion of giving up membership rights for shares, at least in relation to the windfall element of the shares and even though there was payment of par value for the shares, and (consistently with the paper on taxation issues) described the membership rights as essentially the right to vote. He made plain that complaint over entitlements could be used to claim relief from oppression, even as a "spoiling" claim. The postulated complaint was not only of giving entitlements to non-members, but of giving entitlements to members of Insurance of which members of Association might complain, and other complaints of unfairness between members would readily have been envisaged. Further, Mr Morgan noted as relevant to oppression that full and frank disclosure of the proposal was required. 304 Ms Godwin sent a copy of Mr Morgan's letter of 4 November 1993 to Mr Bateman. Her concern at the time seems to have been Mr Morgan's suggestion that the directors of Insurance might have been a class of members. Ms Godwin said that if the board of Insurance remained as it was "there is likely to be 25% of the Board voting against proposals connected with this project", and that if a director in favour retired "the proposals would be in jeopardy". She had already asked Mr Bateman to obtain the opinion of senior counsel on "class rights issues", specifically whether Association was a class of member in Insurance, and she said the position of the directors of Insurance should be included. Mr Bateman briefed Mr David Bennett QC in early December 1993. Later in the month Mr Bennett provided an advice that the directors were not a class of members, although he said that it was remotely arguable that they were and for more abundant caution their consent should be obtained. 305 By a letter to Ms Godwin dated 9 November 1993 Mr Morgan provided a summary of his advice as to entitlements, so far as relevant being - "1. The members of both Association and Insurance hold a form of personal property in the relevant company the rights and interests (and, of course, the obligations) arising from the terms of the contract between each other and with the company constituted by the Memorandum and Articles of Association. The members also have, in their capacity as members, common law rights and rights under statute to protect their interest. The principal rights are those to take action in the event of fraud on the minority or in the event of oppression.

2. A policyholder of Insurance who is not a member of Association or Insurance has no such rights or interest.

3. In order to effect an allocation of shares to non-members and to make the offer contemplated by Project Christmas, the Memorandum and Articles of Association of both Association and Insurance need to be changed and these changes will of necessity change the rights of members. Project Christmas involves a transfer of economic ownership and therefore, a windfall to those who are granted 'entitlements'. The entitlements can be taken in the form of a share or cash if the share right is renounced. This raises two questions: (a) whether or not different classes of members exist and whether particular consent is required from those classes if the amendments particularly affect them; and

(b) whether dissentient members may have a cause of action if the windfall is passed to non-members.

On the second question we conclude that, if the windfall is passed to non-members, that [sic] dissentient members may have a right of action for fraud on the minority or for oppression under Section 260 of the Corporations Law…...

5. Although allocation is essentially a matter for Directors, in our view, to obtain approval for the Project, the proposed methods of allocation will need to be explained in detail in order to obtain a relatively informed consent." Project organisation 306 On 9 November 1993 BT provided a draft timetable for the restructuring, according to which the proposal would go to the members of the NRMA in the first week of July 1994 and would conclude with listing in the second week of October 1994. The establishment of working groups in the first week of March 1994, with particular responsibilities for offer structure, prospectus/due diligence, and logistics, was suggested. Steps were put in train to "clean up" the data base from which membership of Association and Insurance was taken and to enable various factors for entitlements to be ascertained. Within the NRMA Mr Rees was detailed to head the project, and The Rowland Company Pty Limited ("Rowland") was engaged to advise on public relations and advertising matters. The market research group often used by the NRMA, Woolcott Research Pty Limited ("Woolcott"), was brought into the project a little later. Confidentiality agreements were prepared, and presumably entered into as necessary. 307 A meeting was held on 25 November 1993, attended by NRMA management and representatives of BT, PJP, and Rowland, at which there were discussed various strategic and operational issues, including a project management structure, communications, the roles of the outside advisers, the resources to be brought in by the NRMA, and a timetable and budget. Mr Rees recommended a steering committee comprising Mr Willing and himself, with a project management organisation under his direction. In fact the steering committee was informal at best, and the project management organisation changed as the project continued. 308 An all day "strategic planning conference" was held on 1 December 1993, attended by Mr King, Mr Rees, Ms Conway, Mrs Graham, Ms Godwin, Mr Arcus, and Mr Philip Stern also of PJP. It had been preceded by meetings on 26 and 29 November 1993, at which had been variously present Mr Willing, Mr Ross, Mr Barrett of Rowland, and others additional to those present on 1 December 1993. The meetings had been concerned amongst other things with a detailed timetable from taking the proposal to the boards in the first week of February 1994 to listing in October 1994; with entitlements (the need for a recommended basis of entitlement by the time of the board meetings and board decisions at the March meeting); and with alternative structures. 309 It seems that PJP's contribution was now being received, and PJP prepared discussion topics for the strategic planning conference calling for a "recap of thinking" in connection with entitlements and the new structure and setting out considerations material to each (the absence of anyone from BT at the meeting may have been intentional). The discussion at the meeting, of which there was not detailed evidence, seems to have brought a number of questions for Mr Morgan and Mr Bateman. 310 At a meeting on 2 December 1993, at which Mr Rees, Ms Conway, Ms Godwin, Mr Morgan, and Mr Bateman were present, Mr Morgan and Mr Bateman were brought up to date on the project (the wording reflects that of Ms Godwin's file note). Amongst other things, there was discussion of the project management organisation and of the roles Messrs Morgan and Bateman were to play. In general, Mr Morgan was to deal with the prospectus and most of the legal matters, Mr Bateman with specific matters. The immediate attention was to be to the issue of entitlements. A matter particularly mentioned, as recorded in Mr Bateman's note of the meeting, was "Spoiling tactics are the issue eg, injunction, proceedings on foot", and Mr Bateman was asked by Ms Conway to "think through what spoiling tactics might be adopted by those opposed to the proposal so that we can understand what they may be, how they should be counteracted and dealt with". 311 To follow through this request, Mr Bateman responded to it at a meeting with Ms Conway, Mr Barrett, and Mr Ian Cropper also of Rowland on 3 December 1993. It is unnecessary to go in detail into what was said. The tactics forecast by Mr Bateman included allegations that the directors were misleading the members in their notices of meeting, and the bringing of court proceedings, the court proceedings being founded on allegations of oppression, of misleading the members, and of breach of duty on the part of directors. Mr Bateman explained that oppression was "a wide-sweeping concept", not always capable of precise definition but essentially when actions were taken by a majority to act in their interests at the expense of the minority of shareholders; he said that going to court arguing for oppression would be "a key weapon", because the very fact of the proceedings would generate publicity, suspicion, and concern. He referred specifically to a spoiling tactic of bringing court proceedings upon the publication of the notice of meeting and its explanatory memorandum, alleging that the documents were misleading, and explained that what was required was that the documents fully and fairly inform the members of everything material to their decision in relation to the matter, of all they needed to know to understand the issues to be voted on. 312 There developed as part of the project management organisation regular meetings known as communications meetings, attended by many of those concerned with the project and intended to ensure that those concerned with one aspect of it knew what was happening in the other aspects. The first meeting of this kind, although at the time more of a general planning meeting, was held also on 3 December 1993. It was attended by Mr King, Mr Rees, Mr Ron Burnstein (general manager, community and customer relations), Mr Pearce, Ms Melanie O'Connor (general manager, human resources), Ms Conway, Ms Godwin, Mr Ross, Mr Barry, Mr Stern, Mr Barrett, Mr Morgan, and Mr Bateman. Ms Godwin's notes of the meeting recorded a tentative programme for presentation of the proposal to the Board of Management of Association and the board of Insurance on the first Thursday in February, and to the board of Association two weeks later, and 6 December 1993 was appointed for the next meeting with a programme of communications meetings thereafter. The question of scheme or meeting 313 Prominent in this period was further attention to entitlements, particularly with an eye to the "spoiling" to which Mr Morgan had referred in his advice of 4 November 1993. 314 In a letter to Ms Godwin dated 17 November 1993, Mr Morgan recorded a request to consider steps open to persons seeking to obtain control of the NRMA and what difficulties and hurdles that person might face. Although at first sight not entirely responsively to the request, Mr Morgan said that "In the context of Project Christmas" it was necessary to consider potential action that might be taken by a person seeking to gain control of the NRMA or "actions that may be taken by persons seeking to "spoil" proposals supported by the Board or by the members in general meeting". As to spoiling, Mr Morgan's observations included, "The defensive opportunities for the Board in an attack upon Association are relatively limited although a dissentient group of members may perhaps be able to bring an action alleging fraud on the minority or oppression if they could demonstrate that in some way they were adversely affected and that the proposal was not able to be justified as in the best interest of the company as a whole". 315 A basis of entitlement was set out in a memorandum from Mrs Graham and Mr Peter Worland (assistant general manager, external relations) to Mr Rees dated 19 November 1993. The basis was simple, perhaps simplistic, and was that "any entitlement be offered to all members of NRMA Limited in equal shares". The basis later adopted was more sophisticated. The notion of oppression must have gained currency, because the reasons for the suggested basis included, under the heading "Oppression Suit" - "The greatest risk of failure is that a body of opinion develops which opposes the float and the vote is lost. The second greatest risk of failure is that someone decides to bring an action alleging oppression or fraud on the minority which, regardless of the ultimate outcome of the case, would be sufficient to effectively extinguish any chance of success". 316 A meeting was held on the morning of 6 December 1993, attended by Mr Rees, Mr King, Ms Conway, Ms Godwin, Mr Ross, Mr Barry, Mr Arcus, Mr Stern, Mr Morgan, and Mr Bateman. It examined a structure involving a holding company with Association, Insurance, and other NRMA companies as subsidiaries, and the attention seems to have been on providing for a "Foundation" as the vehicle for the NRMA's advocacy and community services. 317 In the climate of attention to entitlements and spoiling, oppression must have been in the minds of those present. There was consideration of removing the voting rights of members of Association while leaving them as members, and according to the record of the meeting the objections to that course included that there might be an oppression action and/or an action under section 260 of the Law. 318 The question of scheme or meeting now specifically arose. The record of the meeting at a later point read - " 1.13 Scheme or Meeting

Under the proposal we would be extinguishing the rights of members in Association and Insurance, albeit in return for other benefits, namely, shares in a holding company and/or a cash benefit.

It is possible that of the 1.8 million (approximate) members of Association only a fairly small proportion will vote. Assume, for example, that 200,000 members vote on the proposal. If 75% of those 200,000 voting are in favour this will mean that 150,000 members of the Association have determined the future of the organisation. A possible way of dealing with this issue is to have the proposal embodied as a scheme of arrangement which is then approved by court. The difficulty with that is that opponents of the proposal have the right then to attack the proposal in court. This provides a very public and formal forum for opposition.

It was suggested that the determination of the acceptance or rejection of the proposal by a vote at a meeting is no different from the compulsory acquisition of a minority holding (other than the size of that holding).

A scheme forces us to go to court and virtually seeks opposition to the proposal. (This is not to suggest that there would be no opposition if the proposal were to be dealt with by way of voting at a meeting but it is far less attractive for an opponent to actively bring a case against those putting forward the proposal than to respond to an action which has already been initiated in court by those proposing.)

Benefits of embarking on a scheme approach are the:-

• openness of handling the matter in this way * the guaranteed success of the proposal if the scheme is approved * a formal forum for airing the proposal

against which must be offset the problem of giving a very attractive forum to one's opposition.

• Openness of proposal * Democracy at work * Less attractive forum for opponents JM to obtain Sydney Council's [sic] advice by 31 December, 1993."

319 On the NRMA's case, this question of scheme or meeting provided the first and principal occasion for advice of risk to the proposal from the appeal to the High court in Gambotto's case. It is important to see how the question arose. There were differing recollections. 320 Mr Morgan had earlier advised to the effect that the status of the mutual companies could be changed to that of companies limited by shares and by guarantee under s 167 of the Law, that is, by resolutions in general meeting, but that oppression would have to be avoided. Only if there was to be a change in status to that of companies limited by shares alone did Mr Morgan see a difficulty, and he had also said that there was doubt whether the difficulty could be overcome by a scheme of arrangement - hence the request for legislative change to s 167. Although the proposed restructuring was not settled in detail, it seems to have been regarded as acceptable that Association and Insurance should become companies limited by shares and by guarantee. For Mr Morgan, therefore, there was no occasion to go to a scheme of arrangement, and no point in doing so. 321 According to Mr Morgan, at the meeting of 3 December 1993 someone, probably Mr Ross, asked whether it was necessary to have a scheme of arrangement in order to implement the proposal, and he (Mr Morgan) replied that it could be done by having the members agree to amendments to the memoranda and articles of the companies. In his witness statement dated 28 April 1997 Mr Morgan said that Mr Bateman expressed agreement, and that at the meeting of 6 December 1993 there was a similar exchange and agreement. Mr Morgan gave evidence of his consideration of the matter and his reasoning. In short, he considered that there was power in accordance with the articles of Association and Insurance and the provisions of the Law to amend the articles to provide for extinguishment of membership in a way binding on all members, provided that there was no oppression either under common law principles or within s 260 of the Law: hence Mr Morgan was concerned that the entitlements should be determined in a manner which was fair. Mr Morgan said that he took into account the decision of the Court of Appeal in Gambotto's case, which he thought stood for the proposition that the cessation of membership rights could be effected so long as any unfairness of a type which could justify complaint of oppression was avoided. 322 According to Mr Bateman, however, he did not agree at the meetings with Mr Morgan's reply to the enquiry, but said that he thought a scheme of arrangement was necessary in order to "force out everybody from membership of Association and Insurance". His reasoning, reflected in the extract from the record of the meeting set out above, was that if only a small proportion of members voted (as historically had been the case at annual general meetings) a minority of members could deprive the majority of their membership, and he felt that might take the matter out of the normal situation of effective resolutions. 323 According to Mr Bateman, when he voiced his doubt Mr Morgan replied that Gambotto's case said that shareholders could vote to adopt new articles with compulsory acquisition provisions, thereby forcing out dissenting members. That Mr Morgan said something to this effect is supported by the part of the extract from the record of the meeting referring to the compulsory acquisition of a minority holding. Mr Bateman maintained his doubt and his opinion that a scheme of arrangement was necessary; Mr Morgan said that a scheme of arrangement was undesirable because it provided a platform for opponents of the proposal; Mr Bateman said he was unhappy with that approach and "I really think this should be looked at"; and Ms Conway said that Mr Morgan would have to "advise on how members' rights are crunched out" and that a QC's opinion might be necessary. Still according to Mr Bateman, there was a brief return to the subject later in the meeting, when Mr Bateman said, "If only 120,000 people vote for the new articles and 75% are in favour, that is 90,000 can we impose the results on the entire 1.8 million members? It just seems wrong, and I think we need a scheme to be able to implement that." Mr Rees then reiterated that Mr Morgan would be determining whether to proceed by members' resolution or scheme of arrangement. 324 Others present at the meeting were either not asked for their recollections or had no significant recollections on this matter. Mr Bateman's recollection is broadly supported by the extract from the record of the meeting, in particular in his denial that he agreed with Mr Morgan's opinion that members' resolutions were sufficient: it is unlikely that the record would have said what it did had there not been an exchange of the kind of which Mr Bateman gave evidence. Further, in his witness statement dated 8 August 1997, responding to the witness statement in which Mr Bateman set out his recollection, although Mr Morgan said he did not recollect much of what Mr Bateman had set out he acknowledged that on 3 December 1993 Mr Bateman had expressed the view that a scheme of arrangement would be necessary (but he also said that Mr Bateman added that it might be possible to "do it" by way of members' resolution). As well, Mr Morgan said that he recalled Mr Bateman querying on 6 December 1993 whether the result could be imposed on all members if only a particular number voted for the new articles and 75 per cent of them were in favour. Mr Bateman's recollection is also broadly supported by Mr Rees, and by Ms Conway save as to the expression "crunch out members rights". On any view, the question of scheme or meeting was raised, and I consider that it arose and was dealt with in the manner recounted by Mr Bateman. 325 That included reference to Gambotto's case, which was clearly mentioned as a relevant case. Its relevance in the then context was in connection with compulsory extinguishment of membership, on one view a kind of expropriation no different from compulsory acquisition of a minority shareholding. There was a fairly obvious preference for avoiding a scheme of arrangement if that route was not necessary. Despite the background of entitlements and oppression to which I have referred, the advice which Mr Morgan was instructed to obtain amounted to advice as to whether the fact of something like expropriation might make the exercise of the power to amend the articles invalid, not as to whether the basis of entitlement (which was still unresolved) or any other matter provided grounds for a claim of invalidating oppression. 326 On the afternoon of 6 December 1993 there was a further meeting directed to legal issues, attended by Ms Conway, Ms Godwin, Mr Morgan and Mr Bateman. The record of the meeting noted a great many matters for attention and the person or persons responsible. It included, under the heading "Scheme or Meeting?", that Mr Morgan was to "prepare brief and obtain Senior Counsel's opinion on the issue of whether the organisation would be obliged to deal with any proposal relating to structure by way of a scheme or whether this could be done by meeting". Mr Bateman's note of the meeting included, clearly referable to this item, that "Mr Morgan will prepare opinion on whether scheme is required or whether res of members to crunch out members is sufficient". Some other elements in the proposal 327 The morning meeting on 6 December 1993 also considered the basis of entitlement, and valuation material to entitlements, and according to the record of the meeting the issue "How will people get their entitlement and what will they get". It was asked who was entitled, how the net worth of the organisation was to be divided, and how the groups entitled were to divide their portions, and there was discussion of how Association's "rights in Insurance" might be valued. 328 As to how people would get their entitlements, the record of the meeting included - "2.5 Is there a way to subscribe for shares without the requirement for a payment to be made by the person subscribing? It is possible although messy and difficult. One suggestion was the issue of bonus shares by Insurance after it had converted to a company limited by shares and guarantee and that there would be some conversion of shares between the holding company and Insurance.

However on analysis there would be no difference in the allocation results if such a method were used and there was no intrinsic benefit in doing so (apart from the avoidance of the need to front with cash for the shares)." 329 There was later reference under the heading "Mechanics" to cash alone, to a choice of shares or cash with members having "to find cash to pay the par value of the shares", to shares with what was called a savings plan, and to allocation of shares not taken up by members in the first instance. 330 Later again the record included - "3.3 Do people who are buying shares actually have to hand over cash? There needs to be payment of the par value (tax advice previously given on this point and will be confirmed) and any other way is extremely difficult. Reasons for these difficulties should be noted by JM. JM There is the question of financial assistance should the Group pay for the shares on the basis that it sets aside the money pre-float to which members are said to be entitled and which is then held "in trust" (very loose terminology) and that money is then used to pay for shares which members take up. JM to advise and obtain Counsel's advice on issue of financial assistance

We need a recommendation on capitalisation of structure, market value of shares and par value of shares and related matters. This issue raised by the question of how much would we be asking a member to pay? If for example shares had a par value of $1 this could be prohibitively high for members to take up the shares. BT" 331 There can be seen development of the previous thinking, perhaps rather unclear thinking, that members wishing to take shares in the holding company rather than cash would subscribe for the shares and pay par value. It was questioned whether actual payment was necessary, although at the time it was thought it was difficult to avoid the necessity, and Mr Morgan was to advise on the difficulties of any other course. It seems that one other course was raised, some kind of trust of NRMA money to be used to pay for the shares, and that a problem of the NRMa providing unlawful financial assistance was foreseen. Mr Morgan was to brief counsel. It is evident that at this time members were still seen as paying cash for the shares in some way. The relationship between the par value and the market value of the shares was raised, and although not specifically noted in the record would have thrown up its own problems. The development of the thinking was in its early stages, and not entirely precise. 332 And the matter of spoiling continued to receive attention. Apart from the reference at the morning meeting on 6 December 1993 to oppression in connection with removing the voting rights of members of Association while leaving them as members, the record of the afternoon meeting on the day included a note to the effect that Mr Bateman was to advise on "Legal Spoiling and Tactics". Mr Bateman's note of that matter was "Spoiling tactics/war games". The reference to war games was to a suggestion by Mr Barrett that there should be an exercise, described as a war gaming session, at which two "teams" would present cases for and against the restructuring. The case for the restructuring would assist Rowland to devise easily understood and appealing messages to sway the emotions of members in favour of the proposal. The case against restructuring would expose what opponents of the restructuring might do and the arguments or appeals to emotion they might use. The war gaming session was conducted on 14 December 1993. 333 Following the afternoon meeting on 6 December 1993 each of Mr Morgan and Mr Bateman provided Ms Godwin with a list of legal issues. 334 Mr Morgan's list identified "the areas in which I believe you will require advice from us", and the first two items were "the entitlements proposal and legal risks associated with it" and "whether a scheme of arrangement is necessary"; other issues were broad, including the steps required for restructuring and "identification at this stage at a relatively high level of matters which will need to be dealt with in the proposal to members and offer documents including initial drafting of our client prospectus". 335 Mr Bateman's list was more detailed and addressed more particular matters, and seems to have been a list of legal issues generally rather than those falling to AT. It included "Can a resolution of members of each of Association and Insurance resolve to adopt new Articles or other procedures which will effectively cause every member, bar Holdings, to cease to be a member from the Changeover Date. Alternatively, will a scheme of arrangement be required". It also had a number of matters to do with arriving at entitlements, and under the heading "Litigation" included "Who will defend court challenges based on: (a) oppression; (b) breach of directors duties; (c) misleading information in material sent to members; (d) refusal of access to information". 336 Neither Mr Morgan's list nor Mr Bateman's list specifically identified how members would get their entitlements as a legal issue. Ms Godwin provided her own list of legal issues to Ms Conway. It included "tax issues connected with paying dividend", "nature of entity used if no cash to be paid by company", and "financial assistance question if we try to avoid requirement that our members have to pay 'up front' for shares" - an eclectic collection demonstrating the uncertainty at this time. Mr Heydon is briefed on scheme or meeting 337 The question of scheme or meeting came up at another meeting on legal issues on 9 December, attended by Ms Godwin, Mr Morgan, Mr David Simpson, and Mr Bateman. Mr Simpson was a solicitor at AAH working with Mr Morgan on the Legal Status Project; he became a partner of AAH on 1 July 1994. 338 The discussion at the meeting included what Ms Godwin's record of the meeting described as "Analysis of whether a meeting or scheme needed to carry out any proposed restructure", and that Mr Morgan would prepare a brief for Mr Heydon "for Monday, 13 December" to obtain an oral opinion. Ms Godwin's record later said, under the heading "Entitlement" - "Following the initial conference on this matter which [sic] Heydon QC it is proposed that there be a conference with him at which Ray is present. It is intended that we have a very strong indicative view on this issue no later than 17 December". The oral evidence did not clarify this. Mr Simpson's notes of the meeting had "Entitlements issues" followed by an arrow pointing to "get counsel sign-off", the names of Mr Heydon and Mr Willing, and another arrow to the words "place this material in brief". The oral evidence did not clarify this either. 339 According to Mr Bateman, in the course of the discussion Mr Morgan made a reference to Gambotto's case which he could not recall, and he (Mr Bateman) said - "I just think you need a scheme to do the proposal. First, you need legal certainty if you are going to take away 1.8 million memberships, particularly where only a small number of people will vote. Second, the proposal will involve giving benefits to policy holders, as opposed to members. Third, you are also going to force membership of the new Foundation on people." Ms Godwin said, "We understand your view, let's just wait to see what Heydon says". 340 Mr Morgan did not recall Mr Bateman saying any of these things. Mr Simpson gave evidence that at no time did Mr Bateman say what appears in the first two sentences, and that he did not recall Mr Bateman ever saying what appears in the third sentence. More generally, according to Mr Simpson Mr Bateman did not ever say anything to the effect that the proposal could not be implemented by resolutions of members alone. Mr Simpson's recollection was that he, and in his belief Mr Morgan, were of the tentative view that the proposal could be implemented by resolutions of members, but that the matter needed research, and that it was possible that Mr Morgan said as much. 341 It is clear enough, from the record of the meeting and Mr Simpson's notes and from the letter and brief next mentioned, that a connection was perceived between entitlements and whether a scheme of arrangement was necessary. This was an extension of the contention over scheme or meeting on 3 and 6 December 1993, because it introduced as a matter material to proceeding by members' resolutions what members, and perhaps others, would get in lieu of their memberships. It was but a short step to whether the fairness of the basis of entitlement impacted on proceeding by members' resolutions, and the step was taken in the brief to Mr Heydon. But the original contention remained. Mr Bateman's recollection of the meeting of 9 December 1993 is consistent with what I have accepted occurred on 3 and 6 December 1993, and broadly supported by the objective material, and I accept it. 342 Mr Morgan telephoned Mr Heydon, and told him that the NRMA was "thinking of restructuring" and that he expected "a number of specific legal questions to arise in the coming months on which we would wish to seek your advice". He asked whether Mr Heydon was reasonably available, and Mr Heydon said that he was. Mr Morgan said that there was one brief to be considered in the very near future, that an urgent written opinion was needed, and that he would like to explain it in conference before Mr Heydon advised in writing. Mr Heydon said he would try, but pointed out that he was in a current court case and that his last working day would be 20 December 1993. A conference was fixed for 14 December 1993. 343 On 10 December 1993 Mr Morgan wrote to Mr Heydon confirming the conference for 14 December 1993 and, in advance of the formal brief, providing some background information and describing "the main questions we are asking". 344 Mr Morgan said that the final proposal had not been determined, but that in broad terms the proposal being examined was "that members would be given an entitlement to subscribe for shares in the holding company at par with an option to renounce that right", with the renounced shares then being sold to institutions and the net proceeds distributed to the members who had renounced their rights. He said that the members who had subscribed for shares would receive shares much higher in value than the subscription monies they had paid. The letter continued - "One of the most significant matters causing concern is the manner in which the entitlement to shares is distributed between the members of the Association and the members of Insurance and the extent to which any benefits may be provided to policyholders of Insurance who are not members. We have set out our views in relation to class rights and entitlement issues in our letter of 4 November 1993, a copy of which is attached.

The immediate question which we have for you focuses upon the amendments which will need to be approved in general meeting to the Memorandum and Articles of Association of Association and Insurance. Those amendments, when given effect to, will remove the existing members as members of those companies on the basis that those members are given an allocation of shares in the new holding company.

It has been suggested that, if this was approached by way of a scheme of arrangement and the scheme was approved by the Court, then certainty would be achieved as to the binding effect of the resolution of members upon all members. We, however, believe that a scheme of arrangement carries with it significant risks and, in particular, provides a greater opportunity for opponents to the proposal to express their views and to have them heard in the forum of the Court.

We also believe that, on the basis of current authority, if the members duly approve the reconstruction of the companies and the shares in the holding company are duly issued in accordance with that reconstruction proposal, that that is of itself sufficient to bind the members. Of course, members may seek to bring action on the basis that there is a fraud upon the minority or that there is an oppression but we believe that, so long as the allocation of entitlements is fair, the likelihood of the success of such action is extremely low. You should note that based on past experience the voters turnout at the meeting to approve the proposal may be quite low. In the past, voter turnout has been about 5% of Association members and less than 1% of Insurance members.

The question we therefore ask you to consider is whether a scheme is necessary to achieve the ends sought.

For the purposes of considering this narrow question as to whether or not a member's resolution approving the proposal will effectively bind members, you should assume that the allocation adopted will meet the requirements of fairness as between members.

The only particular group of members who will be treated differently will be those persons who become members after the date of the announcement of the proposal. The current proposal would involve a closing of the books of each company at the date of announcement with a clear statement then being made to any person who became a new member thereafter that their membership would not entitle them to participate in the share issue by the holding company and that the membership would terminate on the reconstruction being approved.

There are some other matters which we would like you to examine and, in particular, we would be looking to you for any comment you might have in relation to our analysis of the entitlements issue. We will deal with these more fully in our formal brief and in the conference". 345 A draft brief to Mr Heydon was prepared by Mr Simpson, at the request of Mr Morgan and to deal with issues identified by Mr Morgan. Mr Simpson had a note of a discussion with Morgan on 9 December 1993, which included "scheme of arrangement/necessary? Gambotto - Meagher J and fairness", and his research for the brief included reading the decisions of McLelland J and the Court of Appeal in Gambotto's case. As will be seen, Gambotto's case was referred to at some length in the brief, although it will be necessary to consider in what connection. 346 According to Mr Simpson, he formed the view that Gambotto's case, and in particular the judgment of Meagher JA, stood for the proposition that if the compensation for expropriation was fair and benefits flowed to the company from the expropriation, then it was possible to expropriate proprietary rights of minority shareholders in a company pursuant to majority shareholder resolution, although what was fair compensation depended upon the particular proposal. He thought that this was consistent with other English and Australian cases to which he had recourse. So he thought that a scheme of arrangement was not necessary in order to implement a proposal whereby membership rights in Association and Insurance were extinguished in exchange for shares in a holding company, and that the proposal could be implemented through members' resolutions if it could be said that no classes of members of Association and Insurance were being treated unfairly or oppressively. In his witness statement Mr Simpson said that he may have asked a solicitor at AAH to look into any progress of Gambotto's case after the decision of the Court of Appeal, but in his oral evidence he said that this was not based on recollection but on speculation. 247 The draft brief was provided to Mr Morgan, who approved it. It was provided to Ms Godwin and Mr Bateman for their comments, and was amended to take account of the comments. The brief in its final form was delivered to Mr Heydon on the afternoon of 13 December 1993, the covering letter confirming the conference appointed for 7.30am on the next day. 348 The brief began by describing the NRMA's existing structure and membership, and then said - "2. Proposed Structure

At this stage the structure of the proposed flotation being considered is somewhat fluid although Counsel can assume for present purposes that the structure of the proposed flotation will be as follows:

(a) a new holding company ('HoldCo'), being a company limited by shares, will be created;

(b) the status of each of Association and Insurance would be altered from companies limited by guarantee to companies limited by shares and guarantee so as to permit the issue of shares by each of them to HoldCo;

(c) members of each of Association and Insurance will be offered, in proportion to predetermined entitlement, the right to either subscribe for shares in HoldCo or to renounce the right to make such subscription;

(d) those members that accept the offer of shares in HoldCo will be allotted shares in HoldCo following the payment by them of a subscription price which, we anticipate, would equal the par value of the shares in HoldCo;

(e) those members of Association and Insurance who renounce their rights to subscribe for shares in HoldCo will receive an amount of cash as further explained in (g) below;

(f) shares renounced by members of Association and Insurance will be pooled and offered to institutions through a tender process or some other underwriting mechanism (for example, institutions could be asked to tender for the available shares and, at the close of the tender period, the price at which all shares would be allocated to the institutions would be determined and the shares allotted accordingly);

(g) upon allotment of the shares in HoldCo moneys subscribed by the institutions (less costs associated with the tender/ underwriting process) shall be distributed to the members of Association and Insurance who renounce their right to subscribe for shares in HoldCo, in proportion to their entitlement;

(h) HoldCo will be listed on Australian Stock Exchange Limited;

(i) at the end of this process HoldCo will own 100% of the issued capital of Association and Insurance.

Shares in HoldCo will be issued at par and Counsel may assume that, once issued, the shares will be worth considerably more than their par value and that this difference will be, as it were, a 'windfall' for members of Association and Insurance who participate in the flotation scheme. We shall return to the 'windfall' later." 349 After reference to class rights under the memoranda and articles of the companies, the brief continued - " 4. The Windfall

As referred to above once issued it is likely that the shares in HoldCo will be worth considerably more than the subscription price (that is, the par value).

One issue is whether the members of Association and Insurance may approve, or could the directors approve, the issue of shares in HoldCo carrying the windfall to non-members including policyholders of Insurance who do not qualify for membership of Insurance?

In the process of amending the Memorandum and Articles of Association of each of Association and Insurance it will be necessary, inter alia, to disclose details of the windfall and the proposed recipients who will be entitled to the windfall. Without full disclosure, the proposal could clearly be vulnerable to attack.

If the windfall goes to a wider class than members of both Association and Insurance, then it follows that the amount of the windfall available to those members is reduced.

In the case of Insurance, the consent of Association, and probably the directors appointed by the Council of the Association who are members, is required. The Council of Association presently has the power to give or withhold that consent at a general meeting of Insurance, but in doing so, the Councillors must act in the best interests of Association and therefore its members.

On the assumption the requisite majority of members in each relevant class approves a proposal to issue shares on a windfall basis to non-members being policyholders, can dissenting members complain and what is the likelihood of success? Secondly, could Association members complain if shares are issued on a windfall basis to members of Insurance by reference to their membership of Insurance or to persons who are not members of Association? This could arise, for example, where the number of shares reflected membership of Insurance in some way eg premiums paid.

In essence the grounds of complaint would be either:

(a) a fraud on the minority; (b) oppression either at general law or under Section 260 of the Corporations Law.

5. The Winding up Provisions - Association's Share of Insurance's Net Worth

The extent to which Association is entitled to a share of Insurance's net worth is likely to be a contentious issue.

As a guide, Insurance has a net worth of approximately $2.3 billion and Association has a net worth of approximately $200 million. The quantum of return to the members of Association and Insurance will be quite dramatically affected depending upon the allocation of Association's share of Insurance's net worth. This is demonstrated in the two pages briefed herewith referred to in paragraph 9(d) of this brief.

As you will see from the attached pages, if Association is not given any right to participate in the net worth of Insurance then the allocation to Association members would be approximately $100 per member, whereas if it were given a right to participate to a level of 50% of Insurance's net worth the allocation to the members of Association would be $710 per member and, if Association were given a right to participate as to 100% of Insurance's net worth, the allocation to Association members would be $1,320 per member.

An issue which needs to be investigated and upon which Counsel's advice is sought is whether, and to what extent, the winding up provision contained in clause 5 of the Memorandum of Association of Insurance entitles Association to participate in the assets of Insurance.

A concomitant issue with both commercial and legal ramifications is how Association's special rights under the Memorandum and Articles of Association of Insurance can be valued and how this affects the allocation of Insurance's net worth to the members of Association.

In any process of valuation, allocation and determining the level or quantum of the rights of Association to the net worth of Insurance the members of Association and/or Insurance may seek to resort to legal action if they feel there is justification for doing so.

As with our discussion above concerning the 'windfall' the relevant grounds of complaint would be either:

(a) a fraud on the minority; or (b) oppression either at general law or under section 260 of the Corporations Law.

6 Major Issue - Scheme of Arrangement or General Meeting

The major issue that needs to be considered and on which Counsel's advice is sought is whether the resolutions which will need to be passed by Association and Insurance to facilitate the flotation is best achieved by: (a) a scheme of arrangement under Section 411 of the Corporations Law; or (b) extraordinary general meetings of the members of Association and Insurance.

Historically, meetings of members of Association have a voter turnout of approximately 5% of members (as mentioned in 3 above, the total membership of Association is approximately 1.9 million members) and meetings of Insurance have a voter turnout of approximately 1% of members (the total membership of Insurance is approximately 1.6 million members).

The obvious advantage of a scheme of arrangement for each of Association and Insurance is that the schemes would be binding on the members of each assuming the schemes were approved by the Court. If it was desired to provide benefits to non-member policyholders a scheme would be advantageous but perhaps not absolutely necessary.

A disadvantage of proceeding by the scheme of arrangement route is that in doing so a forum is readily provided for opponents of the proposals to express their opposition and generally put their views on the matter.

In determining whether to sanction a scheme the classic formulation of the test which the court will apply is whether 'an intelligent and honest man, a member of the class concerned, acting in respect of his interests, might approve', the scheme: In re Dorman Long & Co Ltd [1934] Ch 635. This test is sometimes re-stated as whether 'the arrangement can reasonably be supposed by sensible business people to be for the financial benefit of the classes of persons concerned': In re H Stanke & Sons Pty Ltd [1968] SASR 156.

Although courts have power to withhold approval because a scheme is unreasonable, they are reluctant to make commercial judgments. According to Bowen, LJ, in re Alabama, New Orleans Texas and Pacific Junction Railway Co [1891] 1 Ch 213 at 243: 'A reasonable compromise must be a compromise which can, by reasonable people conversant with the subject, be regarded as beneficial to those on both sides who are making it'. Lindley, LJ, in the same case, said that the matter was to be looked at from a commercial, rather than legal, viewpoint.

In our view, the relevant resolutions may be passed by members of Association and Insurance in general meeting without recourse to a court approved scheme of arrangement. In either case, however, we need to consider the issue of oppression both at general law and under Section 260 of the Corporations Law.

Broadly, the argument would be that the majority of members or directors either misused their power to the detriment to the minority or acted oppressively or in a manner that was unfairly prejudicial to, or unfairly discriminatory against, a member or class of members or contrary to the interests of members as a whole.

If the action involves a fraud on the minority in accordance with common law principles, it is in our view more than likely that action would also be available under Section 260. The courts have pointed out that Section 260 and its predecessors are intended to provide a greater measure of curial protection to members of the company and have been drafted in wide form in order to accommodate the almost limitless varieties of oppressive behaviour possible and the need for the court to have an appropriately extensive discretionary power to effect justice in the particular circumstances of individual cases see Jenkins v Enterprise Goldmines NL (1992) 6 ACSR 539 and Re Bodaibo Pty Limited (1992) 6 ACSR 509).

There have been a large number of cases on what conduct is 'oppressive or unfairly prejudicial' and, in summary, the cases reveal the following:

[Here were set out lettered sub-paragraphs a number of propositions and case references.]

Courts have traditionally been reluctant to claim intervention as a role in relation to commercial judgments and whilst Wayde's case may suggest that this traditional reluctance may be overborne by the section, it does not alter the position that the court will not second guess commercial decisions, although there is nothing preventing a court from doing so.

The recent decision of the NSW Court of Appeal in WCP Limited v Gambotto (1993) 30 NSWLR 385 involved an amendment to the articles of association of a company to enable the major shareholder, which held approximately 99.7% of the issued capital of the company, to acquire compulsorily the 0.3% not already held by it at fair value.

In his judgment, Meagher JA points out that the leading case in the doctrine of majority oppression is the decision of the English Court of Appeal in Allen v Gold Reefs of West Africa, Limited [1900] 1 Ch 656. In that case the court held a new article extending a company lien over partly paid shares to fully paid shares was valid. Lindley MR, when dealing with the majority's power to change the articles (at 671) said: '… it must be exercised, not only in the manner required by law, but also bona fide for the benefit of the company as a whole, and it must not be exceeded.' Meagher JA points that initially these words of Lindley MR were taken as setting two requirements, namely: (i) that the alteration should be made in good faith; and (ii) that it should intend to benefit the company as a whole. The test propounded by Lindley MR in Allen v Gold Reefs of West Africa, Limited was discussed in some detail by Latham CJ and Dixon J in Peters' American Delicacy Company Limited v Heath (1939) 61 CLR 457. Their Honours in that case pointed out, amongst other things that: (i) Lindley MR's test, although constantly invoked, was almost meaningless; (ii) in many cases, the proposal was so obviously beneficial to the company that the amendment to the articles in question must necessarily be valid; (iii) in every case the proposed amendment would be ex facie invalid, for example, if it involved misappropriating shares without compensation, depriving the minority of voting rights, allowing the majority to acquire the company's property at an undervalue; (iv) the test of Lindley MR was wider than was necessary for the purposes of that case. There would have been less confusion in later cases if Lindley MR's words were taken as merely laying down a negative test rather than a positive test which must be complied with in all cases; and (v) where it was arguable whether a test was beneficial for the company, the court would not substitute its views for those of the shareholder. In such cases it will simply decline to interfere.

In the Gambotto case Meagher JA pointed out that the evidence demonstrated that there would be taxation advantages for the company if minority shares were appropriated and there would be considerable administrative savings if such an appropriation took place. As referred to above, there was no allegation that the compensation provisions were inadequate. In those circumstances the Court of Appeal could see no reason to interfere.

Turning to the question of the NRMA, the issue is whether if shares are issued to persons who are not members, such issue having been approved by the requisite majorities of Association and Insurance in general meeting, or if the flotation proceeded by way of scheme of arrangement, the minority could challenge the resolution or the scheme on the basis of the principles outlined above.

It is, at this stage, possible to divide non-member policyholders into various groups as follows:

(a) those policyholders who have been disenfranchised from membership by administrative error (eg omitting from proposal forms accidentally the agreement to be bound by the Memorandum and Articles of Association);

(b) policyholders disenfranchised by operation of law (eg trade practices legislation) or by other means not within the control of the policyholder;

(c) in other cases, policyholders may have unwittingly ordered their affairs so as to deny themselves membership (eg the fact that only the first-named holder of a policy is qualified for membership).

Beyond these groups is a wider group of policyholders who have been offered policies on the basis that no membership is offered. There are also those policyholders who could not in any circumstances be members by reason of merely holding a policy (eg policyholders with NRMA Life Limited).

In our view a court would treat the NRMA Group's position sympathetically in relation to those policyholders who were unwittingly disenfranchised but we would not be prepared to rule out the possibility of members being able to bring a successful action under Section 260 or on the basis of fraud on the minority in the event that a wider group of policyholders who were not members were provided with the windfall. The likely success of such an action increases as the class of non-members is expanded and the expansion is not the correction of past errors, but the true expansion of the class of members.

A further issue is whether or not the members of the Association could complain if the windfall was offered to members of Insurance. In our view, such a complaint would have little prospects of success. In the first place, most members of Insurance would be members of Association or, alternatively, employees or members of other organisations approved by the Association. Secondly, it is Insurance which has provided the economic wealth. Association as a member of Insurance, could, in our view, agree to this as being a matter properly in the best interests of Association as the Association requires the approval of the ordinary members of Insurance to unlock the wealth of Insurance for the benefit of the members of the Association.

The concerns raised by Section 260 that the class of members be expanded to include people who are presently non-members of Insurance can be alleviated in part by taking, for example, the following step:

(a) as part of the resolutions dealing with the change of status and the issue of shares, the Articles of Insurance could be amended so as to make some policyholders members, provided that those policyholders who thereby become members do so on a properly explicable basis, eg administrative error, legal constraints or some other similar basis;

(b) rather than providing to these policyholders the 'windfall', it may be proper to provide them with some preference in the allocation of shares not taken up by members at a price which gave them some recognition of their contribution as policyholders.

In our view the prospects of a successful action under Section 260 of the Corporations Law would increase if, for example, the class of members of Insurance was expanded to include, say, policyholders of the NRMA Life Company who presently have no entitlement on any basis to membership. The group that lies between these two classes presents a more difficult problem: these are those policyholders who are not qualified members because they are not the first-named in the policy. This would require an amendment to Article 4 and, on balance, we believe that a change in the basis of this class of benefits as a participant in the windfall, may well be successfully challenged under Section 260.

A further issue is whether or not the members of Association and/or Insurance could complain about any allocation to Association of a share of the net worth of Insurance.

Counsel is briefed to advise generally in relation to the above matters and specifically on whether Counsel can confirm our view that we believe that it is not necessary for the NRMA Group to proceed by way of scheme of arrangement under Section 411 of the Corporations Law to realise the successful adoption of the relevant resolutions.

We also seek Counsel's advice as to whether, if a person brought an oppression action challenging the proposals, steps would be available to NRMA to conclude the oppression action expeditiously.

Our view is that the relevant resolutions may be passed by the members of Association and Insurance in general meeting and that, despite the difficulty in dealing with persons who are presently non-members, those difficulties may be overcome in a manner which brings some non-members into the membership fold without exposing the Association and Insurance to successful claims under Section 260 under common law." 350 Before going to the conference of 14 December 1993, some matters may be noted. 351 First, the proposal was essentially the same as earlier stated, and in particular involved payment of the par value of the shares to be issued by the holding company. 352 Secondly, the brief sought specific advice about whether it is "necessary for the NRMA Group to proceed by way of scheme of arrangement … to realise the successful adoption of the relevant resolutions", that being the "major issue" identified in the brief. Although when earlier identified the issue had been whether "the resolutions … is best achieved" by scheme or meeting (an infelicitous phrasing but clear enough), this question for specific advice was one of ability to bind members and not one of possible oppressive conduct. The specific advice sought was by way of confirmation of AAH's view, and AAH's view as expressed put aside as a separate matter the issue of oppression. 353 Thirdly, the brief also sought specific advice about whether "if a person brought an oppression action challenging the proposals, steps would be available to NRMA to conclude the oppression action expeditiously". In terms, this was procedural - not whether the oppression action was likely to succeed, but how it could be quickly dealt with. In the body of the brief complaint and success in complaint of oppression were raised as issues, but not as matters for substantive advice. It was as if an oppression action was seen as likely, if not inevitable, whether the members' resolution route or the scheme of arrangement route was taken. 354 Fourthly, the brief also sought advice generally, but it was not clear what that meant. It could have meant advice as to anything touched on in the brief, for example, whether and to what extent the winding-up provision in the memorandum of Association entitled it to participate in the assets of Insurance (described as something on which advice was sought when mentioned) or the likelihood of success of a complaint of oppression in relation to shares issued to non-member policyholders (not so described when mentioned). The generality was underlined by the brief's closing reference to AAH's view concerning difficulties in dealing with non-members, as if only such dealings might bring complaint of oppression, when the brief had referred also to complaint by members of Association if the windfall were offered to members of Insurance and, in one sentence, to complaint by members of Association and Insurance if a share in the net worth were offered to members of Association. 355 Fifthly, the reference to Gambotto's case was not in connection with the "major issue", but in connection with oppressive conduct and whatever may have been asked of Mr Heydon in that respect. It was in the part of the brief to do with oppressive conduct, it followed a summary of what, on the cases, was oppressive or unfairly prejudicial conduct, and it was plainly enough cited as a recent illustration of no unfairness in the majority's exercise of its power to change the articles. The brief did not treat Gambotto's case as going to whether the fact of something like expropriation would make an exercise of the power to amend articles invalid - indeed, oppression was seen as a constraint on both proceeding by scheme of arrangement and proceeding by members' resolution (see "In either case, however, we need to consider the issue of oppression …" ). This is not surprising, given the views held by Mr Morgan and Mr Simpson: in their view, the issue was whether there was fair compensation and no oppression. 356 Sixthly, and following from the last observation, what might be thought surprising is that Mr Bateman's grounds for doubting the members' resolution route were not exposed in the brief, and that Gambotto's case was not cited in the brief in that connection. There seemed to have been a shift from concern over crunching out members' rights (I use the vivid phrase even if it was not used at the time) to concern about fairness of entitlements. The latter was a valid concern, but the former remained. As I have indicated, the advice which Mr Morgan was instructed to obtain on 6 December 1993 amounted to advice as to whether the fact of something like expropriation might make the exercise of the power to amend the articles invalid. He did not identifiably ask for hat advice, and it is curious that Mr Bateman did not suggest that the brief clearly extend to it. 357 Seventhly and finally, given the obscurity in some respects of the brief, and its late delivery, it could not reasonably have been expected that Mr Heydon could advise early on 14 December 1993, without further information or at all. It is no wonder that the conference on 14 December 1993 was only exploratory, and that a revised brief was then provided to Mr Heydon on 15 or 16 December 1993. The conference of 14 December 1993 and Mr Heydon's advice 358 For what follows, it should be recalled that the decision of the Court of Appeal in Gambotto's case had been given on 7 May 1993, and the brief of 13 December 1993 cited that decision: it must also have been the decision referred to on 6 December 1993. The decision had been reported in the New South Wales Law Reports, and the citation in the brief shows that the report was available prior to December 1993 and was known to AAH. 359 The report contained at the foot of the first page, as was customary when it was so, an editorial note, "An application for special leave to appeal to the High Court has been filed". The application for special leave to appeal had been heard, and granted, on 10 December 1993. The defendants' knowledge of the application for special leave to appeal, of the grant of leave to appeal, and in due course of the hearing of the appeal on 21 April 1994, was to some extent in question in these proceedings. 360 Present at the conference on 14 December 1993 were Mr Heydon, Ms Godwin, Mr Morgan, Mr Simpson, and Mr Bateman. There was quite a divergence in the recollection of what occurred. It is best exposed by describing their recollections in a different order. 361 Mr Morgan's note of the conference recorded those present and simply, "Discussed Brief". Despite the brevity of the note, in a witness statement Mr Morgan said that he recalled that there was a detailed discussion about provisions of the Law, and that Mr Heydon said "Gambotto must be right. It must be right that you can go by way of members' meetings rather than by scheme of arrangement". According to Mr Morgan, no one else present expressed disagreement. 362 Mr Morgan's oral evidence concerning the reference to Gambotto's case was slightly different. He said that he drew the case to Mr Heydon's attention, that Mr Heydon then picked up a report of the case and read it or part of it, and that there was some discussion about the decision and in particular its facts and Mr Heydon made a comment - " … I believe after some interchange with me, to the effect - on the issue of whether a members' resolution could be used to bind members in terms of - I don't think the word 'expropriated' was used, I don't recollect that, but the effect of expropriation or taking away members' rights. He said words to the effect that, following his reading of Gambotto, 'well, that must be right', meaning that that must be right that you can do it by members' resolution". Mr Morgan's recollection in his oral evidence was that the case was not discussed in the context of oppression, and his evidence was that while he thought it was "substantially an oppression case" there was also "an underlying issue as to whether or not members could resolve to take away membership at all". He had no recollection of reference to Gambotto's case being on appeal to the High Court, while saying that it was possible that someone at the conference did so refer to it. It was Mr Morgan's vague recollection that he first became aware of the appeal, at the time awareness that the High Court had heard the appeal, at some time during the proceedings before Gummow J. 363 Mr Bateman's note of the conference said only "discuss the issues of (a) res of members vs scheme; (b) entitlements". According to Mr Bateman, Mr Morgan went through the matters and issues referred to in the brief, with occasional comments from Mr Heydon and himself. His recollection was not that Mr Heydon said that Gambotto's case must be right and it must be right that the members' resolution route rather than the scheme of arrangement route could be used, although his understanding from the conference was that it was Mr Heydon's tentative view that the members' resolution route could be used. He was unsure whether in the course of the conference he explained the doubts which he had voiced on 3 and 6 December 1993. 364 But, still according to Mr Bateman, there was reference to Gambotto's case being on appeal to the High Court (but not more specifically to the matter of special leave to appeal), and Mr Morgan said that he had spoken to Mr Arthur Emmett QC, who had appeared for the successful party in the Court of Appeal, and that Mr Emmett considered that the appeal to the High Court would not be successful. And in the course of the conference Mr Morgan outlined timing for the restructuring involving meetings of the members of Association and Insurance in September or October 1994 and listing of the holding company in about November 1994, and Mr Heydon said, "Whatever significance the Gambotto case may have, by the time the High Court hears the appeal, reserves its decision and then hands down its judgment, it will be well after all of the milestones and steps have been taken to list the new NRMA company on the stock exchange". 365 Mr Heydon had no real note of the conference. In preparing for the conference he jotted a few words on a piece of paper, "no spec resn needed of Assn (?), only of Insurance", plus the word "Gambotto", and in the conference he made a few notes on the briefed material recording explanations given by Mr Morgan. His evidence in his witness statement was general, to the effect that there was detailed discussion about provisions of the Law, mainly an analysis of them by Mr Morgan in the course of a lengthy exposition of the NRMA demutualisation as then planned and whether it could be effected by members' resolution or by scheme of arrangement. 366 In his oral evidence Mr Heydon gave a more detailed recollection of the conference. It was quite extensive, and involved Mr Morgan inquiring into the possibility of joint opinions with Mr Emmett, explaining matters concerning the NRMA and its activities and the proposal as it then stood, referring to the articles of Association and Insurance and provisions of the Law, and asking whether Mr Heydon thought there was any obstacle to proceeding by way of special resolutions carried through general meetings of the two companies. Mr Heydon could not remember his answer at that point. He recalled Mr Morgan asking for a written opinion in the next few days, there was discussion of the end time of 20 December 1994 and the commitment to the current case, and Mr Heydon said that subject to that commitment he would endeavour to do the opinion by 20 December 1994. 367 According to Mr Heydon, when Mr Morgan was explaining the proposal he said that it was preferred to proceed by having general meetings and special resolutions of the companies in general meeting, rather than using s 411 of the Law, because the scheme of arrangement route "gives dissidents a platform, as it were, to express their opposition, which they might not necessarily - which is a course they might not necessarily adopt if the procedure was simply by way of attempting to get special resolutions passed by general meetings". Mr Morgan talked of the windfall and how it should be distributed amongst the new shareholders in the holding company, and of whether it would be possible to give the windfall to people who were not members of Insurance but nonetheless had a policy with Insurance and of problems of whether non-members of Association and Insurance should get any part of the companies' wealth. He adverted to class rights and, still according to Mr Heydon - "He said, as I said earlier, 'We have to consider the questions of class rights, questions of oppression and s 260. We have set out in the brief some of the cases on 260 and that area of law. The most recent case is a decision of the Court of Appeal in Gambotto this year. Have you been able to look at that?' I said, 'Yes, I have looked at that' and I think I had the volume on the desk. He said, 'What do you think of that?' I can't remember precisely what I said, but I said words to the effect that it seems reasonable or it seems okay." 368 Mr Heydon thought he had read the judgment of the Court of Appeal in Gambotto's case before the conference, as his note might suggest, but his recollection was that oppression and the decision of the Court of Appeal in Gambotto's case were mentioned only briefly and at the end of the conference. While he may have said that he though that Gambotto's case was correct, and he did think it was correct, he did not recall anything being said about it being subject to a High Court appeal, and he did not recall reference to Mr Emmett or Mr Emmett's views. He did not recall being told about timing or milestones, and was not shown any timetables, and did not recall saying what Mr Bateman attributed to him. He doubted that he was aware that special leave to appeal had been granted, since that had been only two days before the conference and he had not been in the High Court on that day, and he was sufficiently doubtful that he would deny that he was aware; further, while he may have become aware that the application for special leave had been filed, he could not remember whether he was conscious of it at the conference, and he did not know that an appeal had been heard until after the High Court's judgment in March 1995. 369 Mr Heydon doubted that he had said that it must be right that you could go by way of members' meeting rather than by scheme of arrangement, as it was the question to be advised on in writing after more detail consideration of the brief, and did not recall the words attributed to him by Mr Simpson, to which I will shortly refer, but accepted that he may have said "something more tentative or provisional about the possibility of proceeding by way of members' meetings". Mr Heydon's general recollection was that the conference was preliminary to his detailed consideration of the brief, which had only arrived a short time before, and that whatever he said was in provisional terms. 370 According to Mr Simpson, in the course of the conference Mr Heydon said words to the effect, "My preliminary view is that a scheme of arrangement is not necessary. I'll consider it further. I've read Gambotto. I think Meagher's judgment is quite strong. I think fairness is the key." Mr Simpson acknowledged that he (Mr Simpson) might have known at some time of an application for special leave to appeal and an appeal, but could not remember knowing: at one point he said that he had a recollection of asking a solicitor at AAH to check what had happened or was happening in Gambotto's case after the decision of the Court of Appeal, but was not sure of this or when, if at all, it occurred, and as I have said he later described it as speculation. 371 Mr Morgan denied saying anything about Mr Emmett and his views, and Mr Simpson did not recall any such thing. Mr Morgan did not specifically confirm, deny, or express lack of recollection of the statement attributed to Mr Heydon concerning significance and milestones, but such a statement could not stand with Mr Morgan's evidence that he was unaware of the appeal. Mr Simpson said that Mr Heydon might have said words to the effect recounted by Mr Bateman, but that he could not recall them. While he recalled Mr Heydon's reference to Gambotto's case during the conference, he could not recall whether anyone said that it was on appeal to the High Court or any reference to special leave to appeal; Mr Simpson's recollection of the conference was quite limited. 372 Ms Godwin seems normally to have taken reasonable notes of meetings, but her note of the conference recorded only the participants and time, with nothing thereafter. (There was a doodle in the margin: it can not have been a momentous occasion for her.) She had no real recollection of the conference. She recalled that the proposal was discussed in general, and that Mr Heydon said it seemed "alright", adding that he "wasn't really advising at that point" and that he "wanted to look at his end". She had no recollection of anything said about a scheme of arrangement being necessary or unnecessary. She said that she thought the name Gambotto came up at the meeting, and she said that after the meeting she asked Mr Bateman "what Gambotto was about"; her best recollection of the answer was that it was something to do with oppression. At the time Ms Godwin had the general understanding that oppression was where a majority of members were trying to do something which was unfair to a minority of members of the company. Ms Godwin recalled that this exchange with Mr Bateman was when she, Mr Morgan and Mr Bateman were in a coffee shop, and that in the course of it reference was made to Gambotto's case being on appeal to the High Court. 373 In the end I do not think much will turn on the divergences in recollections of what occurred at the conference. The recollections were incomplete and imperfect, and the divergences were quite marked. Guidance as to what was said at the conference is to be found in what followed the conference. 374 I do not think that Mr Heydon said definitely that "it must be right that you can go by way of members' resolution", although it is likely that he expressed a provisional view to that effect: as will appear, within a short time he gave firm advice to that effect. That was the "major issue" in the brief, and was isolated for Mr Heydon's advice in the next few days. Nor do I accept that, if Mr Morgan intended by his evidence so to convey, Mr Heydon referred to Gambotto's case as the reason why proceeding by resolutions in general meetings must be right. Gambotto's case was not mentioned in the firm advice which was shortly given, and while there was reference to Gambotto's case in the conference and Mr Heydon probably expressed the view that the decision of the Court of Appeal was correct I consider that was, as Mr Heydon recalled, in connection with oppression as the broad separate matter raised in the brief. In these respects I prefer the evidence, essentially, of Mr Heydon to that of Mr Morgan. 375 Of more difficulty is whether there was reference to Gambotto's case being on appeal to the High Court. 376 Where the editorial note in the report disclosed an application for special leave to appeal, that Mr Simpson's researches would have led him to note that fact, to Mr Morgan also knowing of it, and to Mr Morgan speaking of it to Mr Emmett, is understandable. Mr Emmett was in the wings as an additional or alternative counsel to Mr Heydon, having been identified as possible counsel at the meeting of 6 December 1993. His involvement was raised with Mr Heydon at the conference, and he was in fact briefed with the same brief as the revised brief delivered to Mr Heydon on 15 or 16 December 1993. Mr Morgan may well have telephoned Mr Emmett to enquire as to his availability, and the appeal may then have been mentioned. Reference at the conference to Gambotto's case being on appeal to the High Court would have been unexceptional, and if Ms Godwin's evidence is to be accepted there was like reference in the coffee shop. 377 A number of matters may be said to go against this. 378 First, if the appeal was mentioned it might be thought that there would be a record of further enquiry into the fate of the appeal. There was not, but rather there were the recollections of becoming aware of the appeal much later. As to Mr Morgan's recollection, that he became aware of the appeal at some time during the proceedings before Gummow J received some small support from a note made by Mr Simpson on 22 September 1994 in relation to the Federal Court proceedings, which included "Gambotto issue" and according to Mr Simpson recorded something Mr Morgan had told him about the claim of the applicants. The support is small, because the Federal Court proceedings commenced on 22 September 1994 were not founded on Gambotto's case and there was no particular evidence of an occasion on which Gambotto's case might have been referred to in connection with the proceedings, but it is possible that some communication, even an informal one, between the lawyers for the respective parties brought a reference to it. 379 On the other hand, Mr Morgan's vague recollection could have been of a reawakened knowledge of the appeal, and later enquiry into the fate of the appeal depended on the perception at the time of the significance of the case and the possible appellate result. Rightly or wrongly, at the time of the brief and the conference it does not seem to have been perceived as significant to proceeding by members' resolutions, and while significance to oppression was recognised that was not the "major issue" and the fundamental test of fairness for which the case was taken was not thought to be in doubt. It is quite possible, then, that reference to the appeal at the conference would not have remained in the minds of all the participants. 380 Secondly, the response attributed to Mr Heydon may be thought unlikely. The then anticipated timing was not as Mr Bateman recalled was outlined, but was to a shorter time-scale, and there could not have been confidence in the passage of time before a decision in the appeal. 381 On the other hand, a passing comment about the relative times of the decision and the float, where the possible appellate outcome was not perceived as particularly significant, may have been made, its detail wrongly recalled by Mr Bateman. 382 Thirdly, there were reasons to doubt Ms Godwin's evidence about the like reference in the coffee shop. As will later appear, there was another conference with Mr Heydon on 2 February 1994, and Mr Bateman had a file note showing that he, Mr Morgan, and Ms Godwin then repaired to a coffee shop. According to Mr Bateman, this was the only coffee shop occasion following a conference with Mr Heydon. Ms Godwin agreed that she could not say that the Gambotto case occasion was not on 2 February 1994. 383 On the other hand, there was nothing to explain why Gambotto's case should have excited Ms Godwin's interest on 2 February 1994, and when the case was undoubtedly discussed, however briefly, on 14 December 1993 one would expect Ms Godwin to have asked what it was about at that time rather than on the later occasion. Since the draft brief had been provided to Ms Godwin, she may well have known of Gambotto's case and been moved to know more about it by the reference to it in the conference. If Ms Godwin was in error in placing the exchange in a coffee shop, but it did occur after the conference of 14 December 1993, her evidence is of some value, because reference in the exchange to Gambotto's case being on appeal would show that there was knowledge of the appeal as at 14 December 1993. 384 These and other indicators can not all be reconciled, and some of them involve little more than speculation. In my opinion the more likely position is that Mr Morgan did refer to Gambotto's case being on appeal, and those at the conference were thereby made aware of the appeal if they were not independently aware of it. That does not necessarily mean knowledge of the grant of special leave to appeal on 10 December 1993, and the reference may have been to an appeal in a loose sense which could have conveyed either an application for special leave to appeal or the grant of special leave to appeal. After all, the law report disclosed the application for special leave to appeal, and at least four of the lawyers present should have read the law report. I accept the substance of the evidence of Mr Bateman on this matter, broadly supported as it is by the evidence of Ms Godwin, without accepting the precise outlining of timing and response. 385 To return to what otherwise occurred at the conference, whatever was said by Mr Heydon did not on any account extend to advice that no problem of oppression could arise in the demutualisation proposal. It is entirely understandable that, with such recent delivery of the brief, that matter would not have been gone into beyond an observation, with reference to Gambotto's case, to the effect that fairness was the key in considering oppression. That nothing more significant was said in relation to oppression is supported by Mr Morgan's later acceptance that Mr Heydon should not then advise on "oppression or the other questions". 386 At the conclusion of the conference Mr Morgan asked when the written opinion would be available, and Mr Heydon said he would try to provide it on or before 20 December 1993 but it would depend on the then current case. He asked that Mr Morgan contact him in the next few days to check on progress. 387 Later on 14 December 1993 Mr Bateman sent to Ms Godwin an extract from another document setting out passages from Hennessy v National Agricultural and Industrial Development Association (1947) IR 159, saying in his covering letter that it was relevant to the "'mass elimination' of members of each of the Association and Insurance", and should be drawn to Mr Morgan's attention "so that Dyson Heydon can consider the Hennessy case as part of the overall issue of whether there should be a scheme of arrangement rather than simply special resolutions of members of each of the Association and Insurance". This tends to support that Mr Heydon did not express a definitive view in the conference. 388 Mr Simpson prepared a revised brief, and sent it to Mr Heydon on 15 or 16 December 1993. It had some relatively formal changes, including a different division into sections, and some changed and additional observations and questions in the body of the brief. The additional matters included a sub-section addressing Association's rights to Insurance's net worth. 389 The "major issue" was described in different terms, terms which more clearly directed attention to the ability to proceed by members' resolutions and put aside any issue of oppression - " 10. Major Issue - Scheme of Arrangement or General Meeting

The major issue that needs to be considered and on which Counsel's advice is sought is whether the resolutions which will need to be passed by Association and Insurance to facilitate the proposal must, as a matter of law, be achieved by: (a) a scheme of arrangement under Section 411 of the Corporations Law, or whether, in the absence of a legal requirement that the matters proceed by way of scheme of arrangement, the proposals can be realised by: (b) extraordinary general meetings of the members of Association and Insurance."

390 There was a passage dealing with Hennessy v National Agricultural and Industrial Development Association. In the section concerned with oppressive conduct there were added as examples of the reasons for an oppression action a member of Association and Insurance objecting to Association members participating in the net worth of Insurance, a member of Association or Insurance "objecting to the broadening of the class of members who participate in the scheme', and a person "objecting to disenfranchisement as a result of the timing of the record date". (The record date was to be the date from which members would no longer be accepted in the lead-up to the meeting.) 391 And the questions at the end of the brief were substantially reframed into more precise questions - " 12. Questions (a) Main Issue

On an urgent basis we seek Counsel's advice as to whether there is a legal requirement to proceed by way of scheme of arrangement under Section 411 of the Corporations Law or whether it is sufficient if the necessary resolutions are passed by members in general meeting?

Also, and by way of summary of the above, we seek Counsel's advice on, and/or confirmation of, the following matters: (a) where certain provisions of the Articles of Insurance are expressed as giving the council of Association the relevant right or power, that such right or power is a right or power of Association, not of the councillors in their capacity as councillors;

(b) that the existing directors of Insurance (as opposed to all those persons who have never been a director) constitute a separate class;

(c) the prospects of success of an action against Association and/or Insurance based on any of the following reasons: (i) expansion of the class of members who are eligible to participate in the flotation; (ii) the establishment of the record date.

Would your answer to (c)(i) be different if the expansion of members resulted from correcting past administrative errors rather than for substantive reasons?

(d) do the directors of Insurance have power to declare and pay a dividend?

(e) Can some of the net worth of Insurance be allocated to Association? On the assumption that some of Insurance's net worth is allocated to members of Association, what is the prospect of a member of Insurance or Association successfully challenging the allocation?

(f) if a person brought an oppression action challenging the proposals, what steps (if any) would be available to NRMA to conclude the action expeditiously?"

392 Again, the delivery of the revised brief indicates that Mr Heydon had not expressed a definite view in the conference, on the "main issue" let alone on the "other issues". The question in the "main issue" was now clearly separate from the questions to do with oppression in the "other issues", which later questions were now much more precise. Gambotto's case was still referred to in connection with oppressive conduct, not the "main issue". 393 As things then stood, Mr Heydon was to provide a written opinion by 20 December 1993, subject to his commitment to the current case. According to Mr Heydon, on 16 or 17 December 1993 Mr Morgan asked him how the opinion was going, and he said that he could deal with the "structural and machinery aspects under the Corporations Law and the issue of which articles must be amended" within the time frame, but would not have time to consider and advise on "oppression issues or the other questions" before the vacation. Still according to Mr Heydon, Mr Morgan replied that it was not necessary for him to deal with oppression or the other questions, and that "What I need to know is whether it is legally possible to effect the restructuring by members' resolutions or whether a scheme of arrangement is legally necessary". There was then some discussion of Hennessy c National Agricultural and Industrial Development Association. 394 Mr Morgan had a note of a conversation with Mr Heydon on 16 December 1993, uninformative as to content. He did not recall the terms of the conversation, but said that it was possible that it was to the effect stated by Mr Heydon. 395 According to Mr Morgan, at the time he saw Gambotto's case as contemplating that an expropriation of members' property could be oppressive because of unfairness on the particular facts; he did not think that Mr Heydon would be giving an opinion on whether the particular details of any proposal would be oppressive or unfair to members, because the details had not yet been developed; he thought that Mr Heydon would advise on whether there was any objection as a matter of principle to proceeding by way of members' resolutions; and while he thought that expropriation of members' property in the absence of a scheme of arrangement could be oppressive because of unfairness on the particular facts, he did not think that there was any issue as to whether expropriation of members' property in the absence of a scheme of arrangement could as a matter of principle be oppressive. That Mr Morgan would have replied as Mr Heydon stated is therefore quite understandable, and I accept that there was the conversation as recounted by Mr Heydon. Mr Morgan's view of Gambotto's case, as he recalled it, was consistent with his stance on 3 and 6 December 1993, and with the brief, including that he did not see the case as going to whether the fact of expropriation would exclude the members' resolutions route. Fairness, or oppression, was his concern, and he saw Gambotto's case as a case on oppression in the sense of fairness. 396 Mr Heydon provided a written opinion dated 20 December 1993. He recorded the steps set out in the description of the proposed structure in the revised brief. He then said, in language reflecting the "major issue" in the body of the brief - "I am asked whether the resolution which will need to be passed by Association and Insurance to effectuate the proposal must, as a matter of law, be achieved by a scheme of arrangement under s 411 of the Corporations Law, or whether, in the absence of a legal requirement that the matters proceed by way of scheme of arrangement, the proposals can be realised by extraordinary general meetings of the members of Association and Insurance."

397 After immediately recording his conclusion that the proposals could be realised by extraordinary general meetings of the members of Association and Insurance, Mr Heydon set out and discussed parts of s 167 and certain other provisions of the Law and parts of the memoranda and articles of Association and Insurance. 398 He identified the necessary changes to the articles of Insurance, and said that in his opinion all necessary changes could be made by special resolution under the provisions of the Law. In his discussion he said that the validity of the alterations was conditional on compliance with other provisions of the Law, including s 260 " … which prohibits oppressive or unfairly prejudicial or unfairly discriminatory conduct. (This issue will be dealt with in a separate opinion.)" 399 He went through the same process with the articles of Association, and said that there was no bar to effecting the changes by special resolution: the same conditions must have applied. 400 Finally, Mr Heydon referred to Hennessy v National Agricultural and Industrial Development Association, saying that there were dicta "to the effect that a company limited by guarantee could not reduce its membership (and the projected proposals will have that outcome)". After setting out the relevant passages from that case, he concluded his opinion - "These observations were made against a framework of legislation containing much less extensive powers to amend the Memorandum of Association than those existing under the Corporations Law. No such limitations are to be found in the language of the Corporations Law. Further, the analogy between a reduction of capital and a reduction of members who have given their guarantees is in my opinion weak; the central point of a company limited by guarantee is that it has no capital, and hence rules against reduction of capital can scarcely apply, particularly in a context where the company is moving to the new status of a company limited by shares and by guarantee. Capital is being introduced, not reduced. In my opinion Hennessey's case is no bar to what is proposed.

It follows that in my opinion the proposals can be realised by appropriate special resolutions passed at extraordinary general meetings of the members of Association and Insurance, and that a scheme of arrangement is not legally necessary." 401 The opinion did not provide advice on the "other issues" in the brief, and made no mention of Gambotto's case. Mr Heydon had been told that it was not necessary for him to deal with the other issues in the brief, and the opinion included that the issue of oppression would be dealt with in a separate opinion. As will appear when I come to Gambotto liability, this perceived division between legal necessity and oppression was important in the failure to advert to risk to the proposal from the appeal in Gambotto's case. The decision of the High Court could be seen as concerned with oppression, but with necessary oppression because of the expropriatory nature of the resolutions, and in truth it affected legal necessity. 402 Mr Morgan gave evidence that he took the opinion of 20 December 1993 to confirm his view that a scheme of arrangement was unnecessary in order to implement the proposal. Development of the proposal 403 The form of the restructuring was further considered at a meeting on the morning of 4 January 1994. Present at the meeting were Mr Willing, Mr Rees, Mr King, Mr Bernstein, Mr Pearce, Mr Conway, Ms Godwin, Mr Barry, Ms Birch, Mr Arcus, Mr Stern, Mr Barrett, Mr Morgan, Mr Bateman, and some others. According to the record of the meeting, there was "in principle approval" of a structure involving an entity called "InvestCo", it seems in addition to the new holding company and in some manner the means by which members would be "given" (the word in the record of the meeting) the NRMA's excess funds. The form of InvestCo and various other matters were discussed, including the need to "examine the mix cash/or shares in holding and/or InvestCo and the implications of that mixture". There was also discussion of the use of the Foundation to ensure the continuation of the NRMA's advocacy and community activities. 404 The role of InvestCo was a new matter, or at least new in its prominence, and it is plain enough that there was much to be resolved about the form of the restructuring. There was later discussion of the role of InvestCo, in which it was proposed that it would be the holding company of the holding company and that members would be "offered an entitlement to receive a predetermined number of shares in Holding Company and a predetermined number of shares in InvestCo": the members could take up their entitlement "or they may renounce their rights and receive a cash amount based on the price paid by institutions and others who will be offered the renounced Holding Company and InvestCo shares". The shares in Association and Insurance would be issued to the holding company for a nominal sum, dividends would be declared up the line to InvestCo, and the holding company (but apparently not InvestCo) would make a bonus issue to shareholders. In another version, dividends would be paid by Association and Insurance to members and applied to meet the subscription moneys. Many complicated diagrams and lists of steps were prepared. Taxation complications were foreseen. As will appear, in early February 1994 the use of InvestCo seems to have been abandoned. 405 There was continued discussion on entitlements, with recognition of the significance of the basis of entitlement to complaint of oppression. On 4 January 1994 Mr Morgan provided a paper describing "Major legal issues which will need to be discussed in relation to Project Christmas", and the legal issues included "The oppression remedy - How can it be used to upset the proposals? Allocation of entitlements" and "Entitlement of members of Association to share in the net worth of Insurance - How are Association's rights to be 'valued'?". More attention was being given to value as part of arriving at the basis for entitlement, and on occasions the question of entitlements was referred to as a question of value. 406 Entitlements was the subject of a meeting on the afternoon of 4 January 1994, attended by the same persons as attended the meeting on the morning of that day, and according to the record of the meeting there was "in principle approval" upon variation in entitlement according to membership length and possibly according to number of policies and membership of Insurance, and there was considered and noted for further thought setting a cut-off date for new membership. Again, it is evident that much more was to be done to finalise a basis of entitlement. 407 On 5 January 1994 Ms Conway, Ms Godwin and Mr Bateman met to consider establishing the cut-off date. It was proposed that there be a cut-off at midnight on the day before the planned public announcement of the restructuring, at that time 24 February 1994, but subject to board decision and with many details to be worked out. 408 It had long been recognised that members must be fully informed as to the proposal (I have referred to a number of instances of Mr Morgan so advising), and it had also long been recognised that the proposal would require a prospectus because of the issue of shares, including to members of the public. As early as the meeting of 3 December 1993 there had apparently been some discussion of what was involved in fully informing members. Someone asked at the meeting whether the notice of meeting or prospectus going to members had to set out a "no" case, that is, a or the case against the proposal in whatever form it took. It may have been on this occasion that there was reference to a "yes" case and a "no" case as on a referendum. 409 The answer, according to Mr Morgan given by Mr Bateman, was recorded by Ms Conway in the note, "notices must be fair but don't have to specifically include 'no' case", and Ms Godwin's notes of the meeting included "no obligation to canvass for a No vote (ie put a No case) but if you are recommending a decision then the info accompanying it must be balanced". Mr Morgan expressed agreement, and told those present that, if the notice of meeting was part of a prospectus, it had to comply with the prospectus requirements of the Law as well, and so could not be misleading or deceptive and had to contain all information which investors and their advisers would reasonably require and reasonably expect to find in the prospectus for the purpose of making an informed assessment of the financial position of the company and the rights attaching to the shares. According to Mr Morgan, he said that the NRMA would have to provide an explanatory statement which fairly and reasonably set out the information necessary for a member to make an informed decision as to whether to vote in favour of or against the proposal. 410 It appears from Ms Godwin's notes that the idea of combining the notices of meeting with the prospectus arose at this meeting: she recorded, "Information memorandum accompanying the meeting notice must be as detailed as the prospectus anyway, so why not send prospectus with notice of meeting". 411 Specific attention to the prospectus came much later, but Mr Morgan's legal issues paper of 4 January 1994 identified prospectus and due diligence requirements as issues. Mr Morgan provided a paper on the due diligence process and a draft due diligence check list on 4 January 1994. 412 Amongst other things, the paper recommended the appointment of a due diligence committee comprising representatives of the board of the issuer, the issuers' legal and financial advisers, the underwriter, and the underwriter's legal advisers, and outlined a programme for a due diligence exercise. It included - "Briefly, a due diligence and verification programme must generally be conducted in relation to a prospectus to ensure that the content requirements imposed on the prospectus by Division 2 of Part 7.12 of the Corporations Law are not breached and, if they are breached, that the issuer and its directors and advisers and the Underwriter ('Persons Liable') will have the benefit of the defences available to Persons Liable in relation to such liability to the maximum extent possible.

If there is a material statement in the prospectus that is false or misleading, or a material omission from the prospectus, then those involved with the authorisation or issue of the prospectus potentially face criminal and civil liability.

Persons Liable can avoid potential liability by acting in such a way that a defence to criminal and civil liability is available to them. This, the 'due diligence defence', is substantially contained in sections 996(2) (criminal) and 1011 (civil)." More will be said of the due diligence process, but the paper made clear, if it was not already understood, that the prospectus (and by inclusion or extension the information to members) should not contain a material statement that was false or misleading or a material omission. 413 There was a revision of the project management organisation. An organisational structure was circulated in January 1994. At the apex was the steering committee comprising Mr Willing and Mr Rees. At the next level was Mr Rees as project manager, with the assistance at that level of Mr Stern as "timetable co-ordinator" and BT, PJP, Rowland, and the firm Hogan Marketing Services ("Hogan"): the role of Hogan was indicated by its name. At the working level were four groups, described as "structure" headed by Mr King, "members' authorisation and logistics" headed by Ms Conway, "communications" headed by Mr Rees, and "offer process" headed by Mr Pearce. 414 Although it seems to have received general approval, after some time this project management organisation fell by the wayside. Amongst other matters, the steering committee really did not function as such; Mr King left the NRMA; in early April 1994, perhaps when the magnitude of the task was better appreciated, Mr Phil Hosking was brought in to manage the project in a timetabling and co-ordination sense; and a number of the activities allocated to the four groups were reallocated and redistributed amongst different working groups. Logistically the project underwent change, and in this as in many other respects the Legal Status Project was far from fully formed, even for presentation to the boards, in early 1994. 415 It was foreseen that the proposal would receive publicity, and on 5 January 1994 Mr Morgan wrote to Ms Godwin advising on pre-prospectus advertising and discussion of the proposal. He suggested that the ASC be approached for an exemption and other accommodation by which the NRMA could participate in public debate over the proposal prior to the issue of a prospectus. In due course an exemption was obtained. But the prospect of publicity, and the ability to engage in public debate over the proposal, led to attention even in January 1994 to what I have earlier described as external communications. 416 Mr Barrett drafted a media release of 18 January 1994 and sent it to Mr Morgan. He said that there were many details still to settle and that the text was far from accurate in all areas, but that it gave "some idea of the sort of things we would like to be able to say … but I would appreciate your reaction". 417 The draft, using a nom de plume, attributed to the person in fact Mr Willing - "Mr Smith said: 'The Board has instructed management to evaluate the possibilities, and the most likely scenario is a public listing. The details are to be investigated but this would involve giving each member, policy holder and staff member shares or cash to the value of at least $500 and possibly as much as $2,000 based on length of membership and number of policies held".

The use of the word "giving" should be noted. It was matched in a memorandum on "advertising issues" dated 24 January 1994, which included the observation that the corporatisation of the NRMA "will be achieved by a share allocation (at no cost) to the existing member/policyholder owners of NRMA Limited and NRMA Insurance Limited". 418 At this stage in the development of the proposal it was not clear that the shares would be at no cost. The current thinking was that members would subscribe for shares at par value, lest there be the issuing of shares at a discount, and someone noted "nominal cost (eg 0.50) req'd" on a copy of the memorandum last mentioned, adjacent to the words "at no cost". However, from the first involvement of the marketing and public relations advisers the message of shares at no cost was seen by them as important, and that was plain in later events. 419 Starting in January 1994 BT prepared a series of timetables showing a "critical path" for the Legal Status Project to its completion. So far as they were historical the timetables were not accurate, either as to the steps taken or when each was taken. The first timetable included that the step of "recommend preferred structure" was completed by 4 January 1994, which was accurate in the general sense of consensus on a holding company structure but not accurate in that the structure was otherwise still being discussed and formulated. It said that the step of determining whether a scheme of arrangement was required from a legal perspective was completed by 4 January 1994, distinguishing that from whether a scheme of arrangement was required from a commercial perspective as a step to be taken by 15 April 1994. The meaning of requirement from a commercial perspective was not clear, but the first step was completed by 4 January 1994 to the extent that Mr Heydon's opinion of 20 December 1993 dealt with it. 420 The timetable was soon changed. In a letter dated 19 January 1994 BT commented on a proposed change whereby board approval would be postponed from 24 February 1994 to 24 March 1994, spelling out some consequential changes with the likelihood that the overall timetable would be extended by four weeks. At a meeting on 19 January 1994, 17 March 1994 was selected as the likely day for announcement of the proposal (and so for board approval). On 24 January 1994 BT distributed an amended timetable in which there was approval by the board of Insurance on 17 March 1994 and approval by the board of Association on 24 March 1994. Why the different times for the boards was not explained. Mr Heydon is briefed on oppression 421 The agenda for the communications meeting held on 16 December 1993 included "scheme or meeting?", but so far as appears there was no report on that issue: this adds support to the view that Mr Heydon had not given definite advice at the conference on 14 December 1993. At a meeting on 20 December 1993 attended by Mr Pearce, Ms Godwin, Mr Barry, Ms Birch, Mr Stern, and Mr Morgan, the principal discussion concerned when a prospectus could and should be issued, but the record of the meeting included under the heading "Comparison of Scheme or Meeting" - "Whilst a scheme is not the preferred route it is possible that we could be forced to use it if there are otherwise insuperable reconstruction problems (eg taxation issues) comparison will include estimated length of court process or description of that process John Morgan to prepare by 4 January 1994"

It is not clear whether Mr Morgan had received Mr Heydon's opinion of 20 December 1993 before attending this meeting, although probably he had not. Nor is it clear what lay behind the possible forced use of a scheme of arrangement or what Mr Morgan was to prepare. 422 At a communications meeting on 31 December 1993, attended by Mr Willing, Mr King, Mr Burnstein, Mr Pearce, Ms Conway, Ms Godwin, Mr Ross, Mr Arcus, Mr Stern, Mr Morgan, and Mr Bateman, Mr Morgan said that Mr Heydon considered that the restructuring could be done by vote of members and a scheme of arrangement was not necessary. This left outstanding the "other issues" in the revised brief of 15 or 16 December 1993, and possibly the note in Ms Godwin's record of the meeting, "Heydon's advise [sic] on value week starting 24 January, 1994", contemplated further advice from Mr Heydon on the "other issues". As I have said, it seems that value was a way of referring to entitlements. 423 So far as the evidence disclosed, the question of forced use of a scheme for taxation or other reasons fell away. Whether Mr Morgan prepared something by 4 January 1994 was unclear, but if he did it did not bring further consideration of a scheme of arrangement. That may explain the date in BT's timetable. 424 But to the outstanding "other issues" was added a capital gains tax question. At the communications meeting held on 14 January 1994 Mr Morgan was asked to reconsider the taxation implications of the restructuring, and on 18 January 1994 he attended a meeting with Mr Pearce, Mr Paul Baker (also of the NRMA) and Ms Birch, in company with Mr Larry Magid and Mr Adrian Chek of AAH, principally to do with taxation issues. Mr Magid and Mr Chek were taxation specialists. The immediate issue was how to effect the restructuring "tax effectively" without realising a capital gains tax liability under s 160ZZS of the Income Tax Assessment Act. According to the record of the meeting, an opinion from Mr Heydon was expected in the next week, and it was determined that the brief would "then be expanded to ownership from the context of section 160 ZZS (AAH to do)". 425 As contemplated, although perhaps a little later than contemplated, on 25 January 1994 Mr Morgan delivered to Mr Heydon a brief following on from the revised brief of 15 or 16 December 1993. The brief was prepared by Mr Simpson. As had Mr Morgan, he took Mr Heydon's opinion of 20 December 1993 to confirm that the proposal could be implemented by members' resolutions if fair, that is, not oppressive, but he was concerned about challenges to particular aspects of the proposal - especially offering shares to non-members and allocating part of Insurances' net worth to Association - on the ground of oppression. 426 The brief took up much of what had been said in the earlier brief. It repeated the description of the NRMA's then structure and membership, adding a reference to the provisions of the memoranda of each of Association and Insurance in relation to distribution of assets on a winding up. It noted an issue of the claim which Association may have to the assets to Insurance and the allocation of those assets to members of both Association and Insurance. It repeated the description of the proposed structure, with the addition of InvestCo as a company, additional to HoldCo, shares in which would be allotted to members on the payment of a subscription price anticipated to equal the "buyer value" of the shares. As had been done in December, it was said that the shares would be worth considerably more than their par value, and that the difference would be a windfall for members of Association and Insurance. A section of the brief repeated the substance of the section of the earlier brief to do with the windfall, and an expanded section of the brief dealt with Association's share of Insurance's net worth and concluded, in the same manner as had the section in the earlier brief, with the observation that there could be complaint and legal action over the valuation and allocation of the net worth of Insurance to the members of Association founded on fraud on the minority or oppression either at general law or under section 260 of the Law. 427 But the brief omitted the section headed "Major Issue - Scheme of Arrangement or General Meeting" from the earlier brief, and went straight to repeating, under the same heading, the substance of the section of the earlier brief under the heading "Oppressive Conduct". In the body of that section there were noted as "the issues for the NRMA", in slightly different terms from the issue for the NRMA in the earlier brief, whether members could mount a challenge on the basis of the principles concerning oppression if shares in HoldCo and InvestCo were offered to non-members with the approval of the requisite majorities of Association and Insurance in general meeting, or if part of Insurance's net worth was allocated to Association. 428 The brief concluded with specific questions - " 9. Questions

(a) We seek Counsel's advice on the prospects of success of an action commenced by members of Association and/or Insurance based on any of the following reasons: (i) expansion of the class of members who are eligible to participate in the flotation; and (ii) the allocation of some of the net worth of Insurance to Association. (b) If a person brought an oppression action challenging the proposals, what steps (if any) would be available to NRMA to conclude the action expeditiously?"

429 The brief was delivered under cover of a letter confirming a conference for 27 January 1994. As envisaged at the meeting of 18 January 1994, on 27 January 1994 Mr Morgan sent to Mr Heydon an addendum, described in the covering letter as focusing upon "a capital gains tax issue in relation to which the correct analysis of NRMA Limited and NRMA Insurance Limited is critical". 430 The addendum did not put a particular question or questions to Mr Heydon, but described the issue as whether the natural persons who immediately before 20 September 1985 held a majority underlying interest in the assets of Association ceased, and when they first ceased, to hold that interest. Amongst the questions said to arise were whether the members of Association held a majority underlying interest in its assets and whether the policy holders had any interest in the property of Insurance. 431 Mr Morgan attended a conference with Mr Heydon on 27 January 1994. The conference appears to have been of a preliminary nature, and Mr Heydon was not asked to express, and did not express, any opinion to do with oppression or in answer to the specific questions in the brief. A further conference was appointed for 2 February 1994. 432 A letter dated 31 January 1994 confirming the further conference, a copy of which was sent to Mr Bateman, restated the questions for Mr Heydon. It included - "At our conference last week I indicated that I would provide some further information relating to the proposal for entitlements and the particular questions which we need to address at the conference this week which I confirm at 7.30 am on Wednesday, 2 February 1994.

Broadly, the recommendations for entitlements are summarised in the attached document. In essence, the holding company will allocate shares to members of the Association by reference to years of membership and also by reference to whether or not the member holds a policy with Insurance. Membership of Insurance is not proposed to be a criteria of eligibility for the proposed entitlements. The reasons for this proposed approach is that a number of members of Association may well hold policies with Insurance (eg green slips) which would not qualify them for membership of Insurance. The general proposal is for a $500 minimum allocation up to an allocation of $2,000. At this stage, these are indicative numbers and would require adjustment once final figures are known but, hopefully, will generally reflect the position.

Does Senior Counsel essentially agree with the view we have taken as to the nature of the existing entitlements of members of Association and Insurance in the Observations to Brief?

What is the correct way, or preferable way, to approach the allocation of the interest of Association in Insurance as between the members of Insurance and Association? Is it an interest of valuation or is it an interest, the nature of which is not capable of valuation but which is nevertheless real and that, as a consequence, any allocation that is made must be perceived to be fair and reasonable having regard to that interest?

Are there any steps which Senior Counsel believes should be taken to protect against legal attack on the method of allocation, eg an oppression suit?

Does Senior Counsel believe that an allocation of entitlements in HoldCo of the type outlined in the attachment could be successfully made the basis of an oppression suit?

Could the Board of either Association or Insurance declare a dividend to members and, if so, need it be an equal amount for each member or could it differentiate between members?

Could Insurance and/or Association in general meeting (without amending the Articles of Association) declare a dividend and could that dividend be of a different amount for different categories of member?

Do members of Association hold an underlying interest in the assets of Association in terms of Section 160ZZS of the Income Tax Assessment Act and did they hold such an interest prior to the amendment of the Memorandum of Association of on 11 November 1992?

Does a policyholder/member of Insurance hold an underlying interest in Insurance?

Does Senior Counsel have any other thoughts in relation to the application of Section 160ZZS to Association and the change in its Memorandum and Articles on 11 November 1992?"

433 The attachment to do with entitlements was diagrammatic, indicating a primary entitlement according to length of membership of Association, and the lengths, but that only those members of Association who held one or more policies with Insurance should share in what was called the Insurance pool and that there might be special cases such as NRMA employees without Association membership. 434 A short comment on the brief is appropriate. It was a mixed bag, particularly as expanded by the questions in the letter of 31 January 1994. The area of discourse was entitlements, but the questions were concerned with aspects of existing rights of members as well as fair allocation between members, plus the rather separate matter of an interest for capital gains tax purposes. The brief did ask for advice, going beyond the procedural advice, on the prospects of successful complaint of oppression (in the end, questions 3 and 4 in the letter of 31 January 1994). Gambotto's case was still referred to in the observations as relevant to oppressive conduct. With the addition of the capital gains tax questions, the brief was taking up with modifications the "other issues" from the December brief because they had not then been the subject of advice. The conference of 2 February 1994 435 Present with Mr Heydon were Mr Morgan, Mr Bateman, and Ms Godwin. Again, there were divergent recollections of what occurred. 436 Mr Heydon's note of the conference read - "Rights of member are bundle of rights - chose in action - under Mem + Arts.

• right to vote to change Articles so as to give right to take assets on w.up - right to transfer membership

But no rights to underlying assets subject to change of arts re w.up.

Amend articles to permit dividends to be declared - differently for different classes, + difft depending on length of membership" According to Mr Heydon, the conference was taken up with discussion of the nature of rights of members of Association and Insurance, he was not asked to deal systematically with the questions in the letter of 31 January 1994, and he was not asked to answer, and did not answer, the particular questions including questions 3 and 4 dealing with oppression. 437 Mr Morgan had a more full note of the conference, but no significant recollection beyond his note. His note indicated that the conference covered more than Mr Heydon recalled: it recorded four subjects, namely - "1. Dividend - No authority for company to do it Better for Articles to be changed to declare dividend Directors query [?] Therefore dividend ought be dealt with at general meeting 2. Give benefits to members not non-members. 3. Pure parity no problem. Greater disparity gives greater risk But rewarding loyalty relevant. 4. Looks okay on distribution but query non-members. Non-members offer to HoldCo." 438 Mr Morgan gave evidence that one form of the proposal at the time involved declaration of a dividend and the use of the dividend to pay for shares in the holding company. He said that an issue was whether the boards of Association and Insurance, or the companies in general meetings without amendment of the articles, could declare dividends, and in particular could declare dividends in different amounts for different categories of members, or whether amendments to the articles were necessary for this to be done. This gave rise to questions 5 and 6 in the letter of 31 January 1994. Based on his notes, he said that Mr Heydon gave advice favouring amendment to the articles (note 1). Differential dividends led on to entitlements, and again based on his notes Mr Morgan gave evidence to the effect that there was discussion of giving entitlements to non members and advice against it (notes 2 and 4). 439 From note 3, particularly the reference to risk, it would seem that there was reference to oppression, that being a relevant risk and no other risk being suggested, and from note 4 it might be thought that Mr Heydon advised that, provided the entitlements were confined to members, there could be a differential allocation of entitlements of the kind then contemplated provided the disparity was not too great. But even if so, and it is speculation from the notes, oppression may have been dealt with generally, and without particular attention to the allocation of entitlements outlined in the attachment to the letter or more specific advice or particular attention to questions 3 and 4 in the letter. 440 Mr Bateman's note recorded that the conference occupied an hour and twelve minutes, but as to content said only "discussed: (a) dividend; (b) entitlement". Mr Bateman's recollection was that Mr Morgan talked about the possibility of paying for the shares to be issued by the holding company by a dividend out of each of Association and Insurance, with members applying the dividends in paying up the shares to be issued, and that Mr Morgan also talked about the nature of the framework for entitlements; he had no other recollection. 441 Ms Godwin had no note and no recollection of what occurred at the conference. 442 On any view Mr Heydon did not advise on the capital gains tax questions, and if he had addressed the questions in the letter of 31 January 1994 a reflection of that in a later document or meeting would be expected. There was no such reflection. When Mr Morgan reported to a meeting on 4 February 1994 concerning capital gains tax, he made no mention of advice by Mr Heydon on that matter. More particularly, in the continuing consideration of entitlements it was not suggested that Mr Heydon had advised on a particular approach to allocation of the interest of Association in Insurance as between the members of Insurance and Association, advised on any steps to protect against legal attack on the method of allocation, or approved any kind of allocation as oppression-free. According to Mr Morgan, no one said to Mr Heydon that he could or should disregard any of the questions in the letter of 31 January 1994. But Mr Morgan agreed that the questions were not gone through, and while he said that "the substantive matter being discussed was whether the proposal for entitlements was one we could proceed with", the conference was conducted without Mr Morgan seeking answers to the questions. 443 Mr Morgan said that he expected that, if there were any matters which affected the legal acceptability of the proposed entitlements, Mr Heydon would raise them in the conference, but such an expectation went beyond even the questions in the letter of 31 January 1994 and was not warranted. The conference proceeded in a manner whereby Mr Heydon was not required to answer the particular questions in the letter of 31 January 1994 (or the particular questions in the brief). Mr Heydon's task and advice in relation to entitlements and oppression was general. So far as can be found, the advice was to the effect that giving entitlements to non-members involved risk (and they should have to make an offer to HoldCo); that disparity between members brought risk but rewarding loyalty was relevant to parity; and that an allocation of entitlements of the type outlined in the attachment to the letter (which was itself broadly expressed and with the figures subject to adjustment) was unlikely successfully to be made the basis of an oppression suit. Mr Heydon's advice in this last respect was less than definite, as the imprecise phrase "looks okay" indicated. 444 No one suggested that Gambotto's case was referred to at the conference. In one sense that is curious, since it was cited in the brief and was a recent case to do with oppression, and this conference, unlike the conference on 14 December 1993, was concerned more with oppression in the sense of fairness than with the legality of proceeding by members' resolutions. In another sense it is not curious, since the advice was general and it is probable that, as earlier explained, the fundamental test of fairness was not thought to be in doubt. Again rightly or wrongly, an appeal in Gambotto's case was not seen at this conference as significant, and if, as I have found, an appeal was mentioned on 13 December 1993, the minds of those at the conference did not turn to it. 445 Mr Bateman's note also recorded that after the conference he, Mr Morgan and Ms Godwin had a discussion over coffee: I referred to this when considering the conference on 14 December 1993. Mr Morgan had no recollection of such a discussion. As I have already said, Ms Godwin had a recollection of a discussion at a coffee shop after a conference with Mr Heydon, which she originally placed as following the conference of 14 December 1993. 446 It is, of course, possible that Ms Godwin asked about Gambotto's case on 2 February 1994 because the brief cited it, even if it had not been referred to at the conference. But I remain of the view that the occasion when Ms Godwin asked about Gambotto's case, and there was mention of an appeal, was more likely in connection with the conference on 14 December 1993. If it was not, of course, but was following the conference on 2 February 1994, the solicitors were aware of the appeal by or at that time. Further development of the proposal 447 The taxation implications of the proposal remained prominent. On 3 February 1994 Mr Morgan provided to Mr Rees and Ms Godwin a memorandum to the effect that, for capital gains tax reasons, a dividend in favour of members was thought necessary. On the same day BT provided a paper to the effect that taxation and other issues made InvestCo unattractive, and an alternative involving targeted shares was discussed. At a meeting on 4 February 1994 it was decided that the preferred approach was to seek legislative change to overcome the perceived capital gains tax impact, and Mr Morgan and Mr Magid were asked to prepare a paper setting out the argument and detailed proposal for the legislative change and another paper on the fallback "worst case" position. 448 All this was material to the form of the restructuring, and in particular to the question whether payment by members of the par value of shares to be issued to them, as was then intended, could be funded by declaration of a dividend. One of the matters noted in the record of a communications meeting on 11 February 1994 was: "Issue: Payment of par value decision dependent on tax position?", which according to Ms Godwin's more detailed note involved whether members would have to "pay the par value". 449 Discussion of entitlements continued, and there was proposed what was at first called the confirmation letter and later became known as the entitlements letter, letters intended to tell members of entitlements and their own entitlements and invite any disagreement as to length of membership or other criterion. Mr Bateman was asked to work on the entitlements letters. 450 Mr Morgan and Mr Bateman were also asked to work on the nature and form of the resolutions which the boards would be asked to approve. Within the NRMA there was discussion of when and how to inform staff, and more attention to external communications (including the beginning of steps towards a hot line to deal with members' questions). There was also discussion of the format of the prospectus, and Mr Bateman prepared drafts (later radically changed) of proxy forms and a form for acceptance of shares in the holding company. This last form called for the member to "accept in full the shares offered and lodge Application Monies", and to attach a cheque. Marketing research was conducted, and in the latter part of February 1994 the "Share the Future" slogan and a logo taking it up were devised and approved. 451 It was a time for getting into the detail of the Legal Status Project, in these and a myriad of other respects, but progress in settling the form of, and in particular the method of implementing, the restructuring was dependent on outstanding taxation questions. The restructuring alternatives were considered at a meeting on 16 February 1994. Present were Mr Willing, Mr Rees, Mr Pearce, Mr Baker, Ms Godwin, Mr Ross, Mr Barry, Mr Stern, Mr Morgan, and Mr Magid. 452 Mr Morgan had prepared a number of papers for the meeting. The "base structure" then under consideration involved establishment of what was called HoldCo, offering to members of Association and Insurance predetermined entitlements to shares in HoldCo, approval by members of changes in the status of Association and Insurance, and payment of dividends to members by Association and Insurance to be applied to meet subscription monies when the shares were taken up: if the entitlements were renounced, they would be taken up by a trustee and offered to institutions or the public, and the proceeds would be distributed to members. An alternative, thought possibly to overcome a capital gains tax difficulty, had Association issuing shares to members which they then exchanged for shares in HoldCo, with Insurance becoming a subsidiary of Association rather than of HoldCo. Alternatively again, legislative relief to overcome the perceived capital gains tax difficulty could be sought. The taxation consequences, particularly as to capital gains tax, with and without legislative amendment, were detailed. 453 The evidence did not go into the discussion at the meeting, but Mr Bateman's note of the meeting recorded a query about how the dividend could be used to pay up the capital. Mr Bateman's note of a meeting on 23 February 1994 included, it seems as a then envisaged way of issuing shares in HoldCo, that the par value of the shares would be paid for by differential dividends to members of Association, and that there would immediately be a bonus issue. 454 At least to this point, there was no question of the shares being free, as was reflected in a memorandum from Ms Godwin to Mr Rees dated 23 February 1994 commenting on the proposed announcement of the proposal by Mr Willing. Ms Godwin said that a reference to no payment for the shares should be deleted because "Unfortunately as I understand it we cannot totally eliminate the need for at least some of the recipients of shares to pay the par value (or part of the par value)." The question of non-responding members 455 The consideration of the proposal, in particular the preparation of the form for acceptance of shares in the holding company, threw up the position of members who did not respond by indicating acceptance of shares. If they neither indicated acceptance nor renounced their entitlements (as the proposal then contemplated they might), but were silent - were non-responding members - could they be made shareholders in the holding company by force of the special resolutions, or would they be sent the cash flowing from the trustee taking up their entitlements? 456 According to Mr Bateman, at the communications meeting on 11 February 1994 he and Mr Morgan had an exchange in connection with non-responding members. Mr Morgan said that those who did not respond would be allotted and issued shares by the holding company. Mr Bateman said that he did not think that he could force the shares on people, they had to agree to become members and some positive step had to be taken. Mr Morgan said that he could declare that he held something in trust, and it was the beneficiary's until disclaimed, and the same could apply with the holding company and the shares for those who did not respond. Mr Bateman said that that might be so in the case of a declaration of trust, but not in relation to membership of a company where there had to be agreement to become a member. Mr Morgan said that he would look into it, but thought that shares could be allotted to a person who did not respond. 457 Mr Morgan did not recall the exchange on 11 February 1994, but agreed that there might have been such an exchange, and I accept that the two views on the question of non-responding members were voiced as recounted by Mr Bateman. 458 The question was identified in Mr Bateman's notes of a meeting of 15 February 1994, "can you make people members of HoldCo if they have not responded (difficult position)". In an AAH internal memorandum dated 23 February 1994 Mr Morgan said, "We are looking at the issue of whether or not shares can be issued, in effect, by way of gift and we are preparing a Brief for delivery to Dyson Heydon on that issue and will see him next week". The expression "by way of gift" could mislead. Mr Morgan did not mean without payment, but without indication of acceptance. The relevance of the question to these proceedings was not in relation to the free shares question, but in relation to Gambotto's case. In the course of the hearing the NRMA suggested that their advice on the non-responding members' question was another occasion on which the solicitors, and Mr Heydon, could have been moved to give the Gambotto advice. As will be seen, in the brief to Mr Heydon there was reference to a possible analogy between compulsorily making people shareholders (the non-responding members question) and compulsorily taking their shares away (Gambotto's case). Mr Heydon is briefed on the non-responding members question 459 The initial brief from AAH was dated 25 February 1994, and was sent to Mr Heydon on that day. The covering letter said - "What is being considered is whether, in the case of those members who do not respond to the HoldCo offer, we can impose a requirement that non-responding members will have shares allotted to them (as opposed to cash).

In other words, is it possible to 'force' the allotment of shares onto non-responding members? The shares would be fully paid up and the manner in which that payment would be made is not a matter for the Brief." 460 The brief was replaced by a brief dated 7 March 1994, the day of the conference at which Mr Heydon advised. The difference between the briefs was the description of the proposal. The brief of 25 February 1994 began - "Senior Counsel has already been briefed in relation to certain proposals involving NRMA Limited ('Association') and NRMA Insurance Limited ('Insurance'). The purpose of this brief is to seek Senior Counsel's opinion on one specific aspect of the proposals.

The proposals envisage that a new holding company ('HoldCo') of the NRMA Group will be established with 5 interim shareholders. Association and Insurance will each undergo a change of status from companies limited by guarantee to companies limited by shares and guarantee and each of their respective memorandum [sic] and articles will be amended accordingly.

Members of Association and Insurance will be allotted shares in Association and Insurance which recognises their 'interest' in each company. Senior Counsel can assume for the purposes of the advice that the members of Association and Insurance in general meeting will approve the resolutions necessary to change the status of each company.

Included in the resolutions will be a resolution approving the payment of a dividend by each of Association and Insurance to their members, which dividend would be applied by each company to pay up fully the shares to be allotted to members. Senior Counsel may assume that if any Corporations Law approvals are required for this purpose, such approvals will be obtained. Senior Counsel may also assume that the resolutions amending the articles of each of Association and Insurance will provide for the transfer of shares in Association and Insurance from members to HoldCo referred to below.

Members of Association and Insurance will then be offered to swap their shares for shares in HoldCo (and HoldCo will become the only member of each of Association and Insurance). The offer by HoldCo to members of Association and Insurance will enable members to either:

(a) be allotted shares in HoldCo; or (b) renounce their right to take the shares and receive cash instead (this cash coming from the institutional tender referred to in our previous Brief).

There will be a number of members who do not respond to the HoldCo offer and it is obviously necessary to make provision for what will occur if a member doesn't respond, ie; does the member obtain shares or cash?

Consideration is being given to providing that all members who do not respond to the HoldCo offer shall be allotted shares in HoldCo."

461 It will be seen that the description of the proposal was of a variant in which Association and Insurance issued shares to members which they then exchanged for shares in HoldCo. 462 In the replacement brief the description, in substitution for the third, fourth, and fifth paragraphs in the extract just set out, was - "There are then two options under consideration.

1. Members of Association and Insurance will be allotted shares in Association and Insurance which recognises their 'interest' in each company. Senior Counsel can assume for the purposes of the advice that the members of Association and Insurance in general meeting will approve the resolutions necessary to change the status of each company.

Members of Association and Insurance will then be offered to swap their shares for shares in HoldCo (and HoldCo will become the only member of each of Association and Insurance). The offer by HoldCo to members of Association and Insurance will enable members to either: (a) be allotted shares in HoldCo; or (b) renounce their right to take the shares and receive cash instead (this cash coming from the institutional tender referred to in our previous Brief).

2. Members of Association and Insurance will be allotted shares in HoldCo and on allotment (or some other date) shall cease to be members of Association and Insurance. The other possible dates may be: (a) the date on which shares are issued by Association and Insurance to HoldCo; or (b) some other date such as the date the resolutions of members takes effect.

In both cases the resolutions may include a resolution approving the payment of a dividend by each of Association and Insurance to their members, which dividend would be applied by each company to pay up fully the shares to be allotted to members. Senior Counsel may assume that if any Corporations Law approvals are required for this purpose, such approvals will be obtained. Senior Counsel may also assume that the resolutions amending the articles of each of Association and Insurance will provide for the transfer of shares in Association and Insurance from members to HoldCo referred to below."

463 The replacement brief more closely reflected the alternatives still under consideration. 464 Going only to the replacement brief, although in these respects there was no material difference, after the description of the proposal it immediately stated - " 1. THE SPECIFIC QUESTION

The question is therefore whether HoldCo can, in effect, force an allotment of shares by providing that all members of Association and Insurance who do not respond to the HoldCo offer shall have HoldCo shares allotted to them."

465 The observations in the brief then dealt with "Relevant legal considerations" and "Application of the above considerations to the NRMA case". The legal considerations were of contractual matters to do with consensus and silence as acceptance. The discussion of application of the considerations included - " (b) Schemes of arrangement and compulsory acquisition - can we draw an analogy?

We have given consideration as to whether an analogy can be drawn between 'forcing' shares in HoldCo on members and cases where a scheme of arrangement is undertaken whereby shareholders in one company become shareholders in a new company or where shareholders in a company have their shares acquired compulsorily under stipulated procedures.

A recent example of the latter was the decision of the New South Wales Court of Appeal in WCP Ltd v Gambotto (1993) 30 NSWLR 385 which, in essence, emphasised that the terms upon which the shares in that case were being acquired compulsorily must be 'fair'.

The difficulty in drawing any analogy between these cases and our situation it [sic] that, of course, both a scheme of arrangement and the compulsory acquisition provisions are specifically blessed by statute. The analogy is therefore not a strong one.

The reason for raising the issue is that whether or not it is possible to draw together various streams of authority which would enable the conclusion to be reached that the 'package' being offered to members is fair and that there is no valid reason to disallow, in the special circumstances that the NRMA case, a provision which requires non-responding members to be allotted shares [sic]. It is integral to the proposals that each member receives something."

466 After a summary of arguments, the brief asked Mr Heydon "to advise on the question referred to in paragraph 1 above". There was an addendum to the replacement brief, on a separate page, which suggested a mechanism for the "default" position being shares rather than cash. The conference of 7 March 1994 467 A conference with Mr Heydon was appointed for 7 March 1994. Mr Bateman and Ms Godwin were informed. Present with Mr Heydon at the conference were Mr Morgan, Mr Simpson and Mr Bateman. Again the evidence of what occurred at the conference was incomplete, and there were divergent recollections. There was a particular conflict over whether something was said at the conference about free shares. 468 Mr Heydon had little recollection of the conference. His notes, partly of preparation for the conference, were of Delphic obscurity, it seems even to Mr Heydon by the time these proceedings brought resort to them. They did indicate concentration on s 180(3) of the Law, a provision by which a member of a company was not bound by certain alterations to the constitution of a company made after he became a member unless he agreed to it in writing. One of Mr Heydon's notes for or of the conference, a note of a matter which he did not recall being discussed but which "occurred to his mind", was "why can't he say I just want to stay a member of Association and Insurance". According to Mr Heydon, he was not asked for and did not express any opinion concerning oppression on the occasion, and there was no request for a written opinion on the question in the brief. 469 Mr Morgan's notes of the conference, beyond which he had no real recollection, were also rather obscure, but indicated that there was fairly extensive discussion involving s 180(3) of the Law, the use of a trustee, changing articles, and a scheme of arrangement. Mr Morgan agreed that no advice was given by Mr Heydon in relation to oppression, and to the best of his recollection there was no reference in the conference to Gambotto's case. In his evidence Mr Morgan said that he thought that his view at the time was that it was not possible to make a member a shareholder in the holding company without the member's agreement, that Mr Heydon agreed, and that there was some discussion of using a trust or a scheme of arrangement to overcome that difficulty. He had no other significant recollection. If Mr Morgan did think at the time that it was not possible to make a member a shareholder in the holding company without the members' agreement, his view had been modified since early in February 1994. Maybe it had - the arguments described in the brief went in both directions, and the brief did not put forward an AAH view. 470 Putting aside the free shares matter, Mr Simpson also had no recollection of the conference beyond his notes, but he had the most extensive notes. They indicated discussion of s 180(3) of the Law, and that a scheme of arrangement came up as one of three possible ways of forcing an allotment of shares on a non responding member, the other ways being amendment of the articles and use of a trust. The notes tended to confirm that Mr Heydon advised that compulsory shareholding could not be achieved simply by amendment of the articles, but that the other ways could be available. They did not suggest any reference to oppression, and Mr Simpson did not recall any such reference. At the close of the notes was "Brief Dyson on options we've discussed", suggesting that the opinions expressed were subject to further consideration. Mr Simpson had no recollection of reference to Gambotto's case. 471 According to Mr Bateman, Mr Heydon "substantially agreed with the viewpoint I expressed on 11 February 1994". Mr Bateman's recollection was that there was a discussion about conferring shares in the holding company upon people who were not members of either Association or Insurance, the matter being raised by Mr Morgan, and that Mr Heydon expressed the view that a scheme of arrangement was a possible way of doing so but that it would be desirable that the conferral of the shares be restricted to those people who were members of either Association or Insurance. Prior agreement to becoming a shareholder was unnecessary where a scheme of arrangement was used. This was supported by Mr Bateman's notes of the conference. They recorded a time for the conference and - "- s 180(3) discussed - scheme of arrangement is a possibility - fallback cannot be allotment of shares - " of allotment to trustee who holds shares in trust pending instruction is OK" To the best of Mr Bateman's recollection there was no reference to oppression or Gambotto's case during the conference. 472 Some guidance from what happened after the conference might be expected, but there was little guidance from the evidence. A BT file note of 8 March 1994, author unclear, apparently recording what was said at a meeting with Messrs Morgan and Simpson, included "Haydon [sic] bottom line can't just force shares on members", that "other ways of doing it" were discussed, and that "putting a trust on top" was acceptable. The meaning of other things in the file note is obscure. File notes apparently written by Ms Birch of meetings on 10 March 1994, one with Mr Morgan, refer to relinquishment of entitlement to get shares, scheme of arrangement, and the need to see Mr Heydon again "with firm proposal and specific steps", but the notes were not explained or investigated in the evidence and I do not think any significance could safely be attributed to them. Mr Bateman's notes of a meeting on 15 March 1994, it seems a meeting of substance because attended by Mr Willing, Mr Rees, Mr Burnstein, Mr Pearce, Ms Conway, Mr Ross, Mr Barry, Mr Stern, and Mr Morgan, included, "Share default is preferred position. Those shares should be held by a trust. After 6-12 months those shares are sold and cash distributed. Peter Barry will do share trust concept." There was otherwise no highlighting of the question of non-responding members in the period after 7 March 1994. 473 With further development of the proposal, the shares in Holdings offered to non-responding members fell into the NRMA Offer Trust. The share default was a default to the Trust, and it may be that there was discussion of a trust on 7 March 1994 as a means of forcing shares on members in the sense that the shares would be held for a time but then, if the member did not make a late choice, would be sold, so that the member would receive cash. This may have been the point of the last of Mr Bateman's notes, with the trust there referred to becoming the NRMA Offer Trust. It must have been accepted that the allotment of shares could not be forced on non-responding members, and that they would in due course receive cash. 474 I see no reason to conclude, as the NRMA seemed to suggest should be concluded, that the undoubted reference to a scheme of arrangement in the conference was in the context of scheme or meeting of December 1993, or involved revisiting Mr Heydon's opinion of 20 December 1993. There was clearly enough quite extensive discussion of the particular question on which Mr Heydon had been asked to advise. That question was whether HoldCo could force its shares on non-responding members, more precisely whether the offer by HoldCo to members or allotments to members could result in allotment to the non-responding members. It was not whether resolutions of Association or Insurance could have that result. 475 From the notes of the conference it may be that the discussion ranged more widely, and included using a scheme of arrangement to bind non-responding members, but the context was quite different from that of changing the status of Association and Insurance by turning members of a company limited by guarantee into shareholders in the holding company. If it was implicit in Mr Heydon's advice that non-responding members could not be obliged to become shareholders in HoldCo pursuant to resolutions of Association or Insurance, but that they could be so obliged pursuant to a scheme of arrangement (although it is not easy to come to this conclusion on the state of the evidence), that was not expropriation of shares but the reverse, and Gambotto's case was not relevant. There was no reason to give advice about Gambotto's case or oppression, and it was not given. 476 The particular conflict over whether something was said at the conference about free shares was distinct from the question of non-responding members. 477 In his witness statement dated 28 April 1997 Mr Simpson said that in early March 1994 he had a conversation with Mr Morgan, in which Mr Morgan said, "We need to look at whether the shares can be called 'free'. I think it's probably okay because although members are giving up their rights in Association and Insurance, they won't have to pay for the shares." Mr Simpson agreed. He said that he had given consideration at this time to whether the shares could be called free shares if there was to be no cash payment for them, seeing an issue of whether this would contravene s 52 of the TP Act and s 995 of the Law as being misleading because, even though members would not be paying for the shares, the fact that they were giving up a right, namely membership of Association or Insurance, meant that the shares in the holding company could not be described a free. He formed the view that the description could be used and was not misleading. 478 In the same witness statement Mr Simpson said that he recalled attending a meeting in Mr Heydon's chambers with Mr Heydon, Mr Morgan, and Mr Bateman, which on his best recollection was prior to 17 March 1994 but possibly not until around June 1994, and that there was an exchange concerning free shares. Either Mr Morgan or Mr Bateman, probably Mr Morgan, said, "We would like to use the expression 'free' to describe the shares because members are not paying for the shares. Do you think that's all right, given that although they are not paying for them the members are also giving up a right? Can we say the shares are free even though members are giving something up?" Mr Heydon replied, "I think it is all right. Even though members are giving up something, they are still not paying for the shares. I think that's okay". 479 In his oral evidence Mr Simpson fixed the exchange at 7 March 1994, saying that he had residual doubt but "felt at the meeting on 7 March we discussed the use of the word 'free' because at that time what I call the communications people had said that they were getting positive feedback from the use of that word". 480 Mr Morgan neither supported nor denied this exchange. He gave evidence of his consideration of whether the proposed shares in the holding company could be described as free, and of his conclusion that they could. The primary reason for his conclusion was that the everyday meaning of 'free' was 'at no cost', in the sense that there was no need to pay any money, and that that was how the word would be understood by members receiving material sent to them. A secondary reason, he said, was that, provided there was separate provision for continued road service and other membership services, minimal if any value could be ascribed to membership of Association and Insurance, so that very little if anything of value was to be exchanged for the shares - exchanged by the individual members, although the memberships might have value together in the hands of the one entity. The rights given by membership were not saleable, and it was highly doubtful that a dividend could be declared. 481 According to Mr Morgan, he discussed his conclusion with Mr Ian Tonking, a partner at AAH specialising in trade practices matters, and Mr Tonking agreed with him; he also discussed it with Mr Simpson, and he and Mr Simpson were in agreement. If this be so, it is understandable that Mr Morgan might have asked Mr Heydon for his view at the conference on 7 March 1994, but if he had done so some recollection of the occasion would be expected when Mr Morgan had a recollection of discussing his view with Mr Tonking and Mr Simpson. 482 Mr Bateman said that to his recollection no one at the conference asked about the use of the expression "free shares". He later said that he thought any such exchange as Mr Simpson recalled would have stuck in his mind, because it would have been inconsistent with the proposal as it then stood involving payment of dividends. 483 Mr Heydon denied the exchange, saying that apart from advice concerning the onsert in early August 1994 (see later in these reasons) he was never asked whether it was all right to use the expression "free shares", and that he never said that it was. 484 In resolving this conflict, some further matters should be taken into account. 485 First, according to Mr Morgan, at a meeting which he initially put in late January/early February 1994 but later said was more probably in March 1994, probably a communications meeting, Mr Barrett asked him whether there were any difficulties with the use of the word 'free' to describe the shares, saying that the message conveyed to members had to be simple and that one reason it was necessary to use the word 'free' was so that members understood that they did not have to send any money in to obtain the shares. Mr Morgan said that he replied that it was acceptable to use the word 'free' so long as it was explained in the prospectus that members were giving up their rights in Association and Insurance in return for the shares, and that Mr Bateman, also at the meeting, expressed his agreement. This is consistent with Mr Morgan's evidence, but difficult to reconcile with the stance of AAH in the first quarter of 1994, described when I come to external communications a little later in these reasons, by which the "no cost" message was acceptable only if in terms of intention that the shares be free. Explanation of giving up rights was no part of AAH's then stance. The AAH stance casts doubt on Mr Morgan's recollection not only of the exchange with Mr Barrett, but also of his raising free shares with Mr Heydon. 486 Secondly, as at 7 March 1994 members were paying for the shares, at least by swap of shares in Association or Insurance or by payment of par value, and even though a dividend might have been declared which could be applied to pay the shares up in full there was in a real sense payment. There was no payment in the sense of no large cash outlay, but if there was concern over giving up membership rights there would have to have been concern over the swap, the payment of par value, or the dividends. It would be odd if Mr Morgan had not said that members were in a way paying for the shares, and odd if Mr Heydon, with the knowledge of the proposal from the replacement brief, had in his reply not adverted to the swap or to payment of par value, and to the dividends. 487 In short, an exchange as recalled by Mr Simpson is out of step with the circumstances at the time. Mr Simpson's recollection was not firm, and he agreed that the extent of his recollection was that Mr Heydon had said that the shares were capable of being described as free, but no more, and that whether that description was misleading or inaccurate depended on the context. That is quite a different thing from the exchange as first recounted by Mr Simpson, and consistent with AAH's concern at the time (in the context of the external communications) over the "no cost" message. It meant little, and because it meant little may have been the effect of a passing remark at the conference which no one else remembered. When Mr Morgan did not support it, Mr Bateman was rather against it, and Mr Heydon denied it, I am not satisfied that there was an exchange of the more positive kind first recounted by Mr Simpson. Development of the proposal to presentation to the boards 488 On 8 March 1994 Mr Morgan faxed to Mr Rees a summary of the proposal as it then stood. The heading to the fax was simply "Structure". 489 The first paragraph recorded the principal objectives to be achieved in the restructuring, said to be in no particular order - "(a) A new holding company with a flat structure beneath it. (b) Entitlements as defined by Phil Stern. (c) No cash to be required from members; share subscriptions to be funded by dividend or other means.

(d) Shares in the hands of members to be post CGT assets with cost base equal to the net asset value per share of Association and Insurance.

(e) Shareholding preferred as the outcome in default of member election, rather than cash.

(g) Completion within contemplated timetable (which suggests a need to avoid putting to Government request which raised general policy issues requiring wide consultation)." 490 It is to be noted that these were objectives: it did not follow that the proposal met them. Objective (c), no cash to be required from members, still contemplated payment for the shares, although funded in some way. Objective (e), addressing non-responding members, was a preferred outcome, but what followed showed that, presumably as a result of the conference with Mr Heydon, it was in doubt. 491 The fax suggested three alternative structures. 492 The first structure was described as the "Base HoldCo Structure". Members would be invited to subscribe, according to entitlements, for shares in HoldCo "which will be paid to a relatively nominal amount". HoldCo would take up shares in each of Association and Insurance. Members of Association and Insurance would cease to be members. If the subscription for HoldCo shares could be funded by dividend, that met all the objectives, subject to two matters. One was that "the extent to which shares can be achieved as a default option is limited; the use of a trust can extend the time within which the elections can be solicited from members": this was clearly enough a reference to forcing shares on non-responding members. 493 The second was that legislative relief was necessary in order to have a satisfactory tax outcome. The other structure was described as the "HoldCo Takeover Structure". Association and Insurance would issue shares to members in a demutualising transaction, with legislation to produce the desired tax outcome. Those shares would then be exchanged for shares to be issued by HoldCo as consideration for HoldCo's acquisition of the shares. 494 The third structure was described as the "Association as HoldCo Structure". Association would issue shares to members according to entitlements. It would take up shares in Insurance, and the other members of Insurance would cease to be members. There would be no allotment or acquisition of shares by a new holding company, and Association would be the holding company. 495 A number of disadvantages in the second and third alternatives were set out, and it was recommended that the first alternative put to government, no doubt in connection with legislation for taxation relief, be the Base HoldCo Structure. 496 There was then a new development, for the purposes of these proceedings and with hindsight a significant development in relation to the free shares question. 497 Following a discussion between Mr Rees, Mr Barry, and Mr Morgan on 9 March 1994, on that day Mr Barry sent to Mr Morgan a note of a "model" according to which there would be no need for a dividend. The model expressly assumed that members "have an existing entitlement in Association and Insurance". It proceeded by the steps of establishment of HoldCo, agreement by members to transfer their entitlement in Association and Insurance to HoldCo in consideration for the issue of HoldCo shares and conditionally on the conversion of Association and Insurance to companies limited by shares and guarantee, and the allotment of the shares in HoldCo. The features of the model were said to include that, since the consideration for the issue of shares in HoldCo was the transfer of members' existing entitlements, a cash payment by members equal to the par value of the shares in HoldCo would not be required. Therefore no cash distribution to members would be required from Association and Insurance to fund the par value payment, no bonus issue to increase shareholdings would be required, and a number of taxation difficulties would be overcome. It was noted that the capital structure of HoldCo would comprise shares issued at an optimal par level and a premium, in aggregate equal to the value of members' entitlements. 498 This model was also taken up by Mr Morgan in a fax dated 9 March 1994 to Messrs Willing and Rees, copied to Ms Godwin and Mr Barry. The fax included - "This morning, we discussed with Peter Barry a variation on the 'HoldCo Takeover Structure' outlined in paragraph 4 of yesterday's facsimile. The variation is that Association and Insurance do not issue shares to their respective members but rather, following the approval of members in General Meeting, the members agree to swap their entitlement to take up shares in Association and Insurance for shares in the Holding Company. The shares in the Holding Company would be issued in consideration of members giving up their rights and would therefore be fully paid up. There would be no need for a dividend to fund the par value of the shares. This makes this option very attractive from the point-of-view of providing a simpler proposal to members.

The value of the rights of a member to take up shares following a members' meeting ought not be different from the value of the shares which would otherwise have been listed by Insurance or Association.

To satisfy its obligation, HoldCo would issue shares with a par value of say $1 and with a premium in respect of that part of the value which exceeds $1. The premium would be transferred to a share premium account and would be subject to the restrictions applied to the use of moneys in a share premium account. Further, this appears to be a small penalty to pay for the added simplicity."

499 The key development was that no payment of subscription moneys for the shares in the holding company would be required of members, even payment funded by a dividend or in some other manner from the NRMA's wealth. The shares in the holding company would be free in the sense that not even funded cash would be paid, although they would not be free in the sense that the members would give something up, their entitlements, in exchange for the shares. There was a difference between Mr Barry and Mr Morgan upon what would be given up. Mr Barry referred simply to members' existing entitlements, it seems having in mind some kind of rights to share in the NRMA's wealth. Mr Morgan referred to members' entitlements to take up shares in Association and Insurance, a different thing and something which would not exist until Association and Insurance became companies limited by shares and by guarantee and the members were given entitlements to take up shares in them. Neither Mr Barry nor Mr Morgan seems to have had in mind members' rights as identified in the Federal Court proceedings, although Mr Barry was closer to that than Mr Morgan. 500 Returning briefly to the conference of 7 March 1994, if Mr Morgan were thinking of members' rights, would he not have taken them as or as part of the rights the members were giving up? And as earlier noted, not until 9 March 1994 could it really be said that there might be no payment for the shares. 501 This development in the way the proposal was to be put into effect does not seem to have further progressed prior to the boards approving the proposal on 17 March 1994, perhaps because time did not permit. Further consideration had been given to entitlements, but as the board meetings came closer the intended basis of entitlement was much as had been set out in the attachment to the letter of 31 January 1994. Some very preliminary work had been done in relation to the prospectus, to which I will come. There is no doubt, however, that what was to go to the boards was still a restructuring in concept, subject to further development of its detail. External communications 502 Considerable attention was given to the external communications in the hearing of these proceedings, purportedly for the assistance they gave on the free shares question. Particularly when there were the events of early August 1994 to which I will come, they may not have all the significance attributed to them. 503 I have referred to Mr Barrett's memorandum of 24 January 1994 referring to "share allocation at no cost", and to the correction indicating that there would be a cost. Mr Barrett still wanted the message of shares at no cost, as appears for example in a memorandum from Mr Barrett to Mr Barry dated 22 February 1994 including, as a possible way of expressing "the entitlement proposition", that the shareholder would "receive an issue of NRMA shares at no cost". 504 The matter came up directly when, on 25 February 1994, Ms Suzanne Parker of Rowland sent to AAH a draft media statement and a draft of material for the March/April issue of the Open Road, to be distributed after the announcement of the proposal. 505 The draft media statement included- "Mr Don Mackay, President of the NRMA, said: 'Members already own the organisation. However, currently we are unable to distribute the wealth of the NRMA to these people.

'By giving shares to members, they would be able to participate in our current and future financial success. The shares would cost members nothing. We are returning wealth to people, not raising money. …'" The draft media statement also had Mr Willing saying that "in order to issue shares, the NRMA would have to become a public company listed on the Australian Stock Exchange. This would allow the creation of shares which could be distributed to members". A little later it attributed to Mr Mackay the statement, "The issuing of shares at no cost to members on this scale would be unprecedented in Australian corporate history". 506 The draft material for The Open Road was in Mr Willing's column, and included - "The option being investigated is to make members into shareholders. In this way, each individual member would receive shares valued at hundreds of dollars.

Members already own the NRMA. However, they do not benefit in a direct financial way from our tremendous success. By giving shares at no cost to all members, they would be able to participate in our current and future financial success. The shares would have an immediate capital value. They would also entitle the shareholders, that is you the members, to receive as dividends part of any future profits the organisation may make." 507 Either Mr Simpson or Mr James Wood, another solicitor at AAH working on the proposal with Mr Morgan, suggested a number of changes. They included changing "giving" to "issuing" and deleting the sentence "The shares would cost members nothing" in the first passage from the draft media statement, changing "distributed" to "allocated" in the second passage, and deleting the third passage, and in the draft material for The Open Road changing "receive" to "be allocated" and deleting the following words, changing "giving" to "issuing", and deleting the words "at no cost". In a letter to Ms Parker dated 28 February 1994, Mr Simpson or Mr Wood made the general comments - "1. It is not possible to adopt terms such as 'giving away' of shares, 'at no cost' or 'will cost members nothing'. As mentioned, the precise details of the allocation of shares to members have not been finalised.

2. The estimated 'value' of the shares to be distributed has not yet been agreed. We do not think it is possible to include references to those amounts in this document. This includes references to 'hundreds of dollars'."

508 This attention to giving shares to members at no cost in the media statement and the Open Road was matched by attention to the same language in a question and answer script being prepared by Hogan, intended to be used by telephone operators responding to enquiries to a "NRMA share information centre" operating from the announcement of the proposal. 509 The Hogan draft as at 28 February 1994 included in the answer to the question, "What is it all about?", that the NRMA had accumulated wealth which belonged to members but in which they could not share and, "By giving shares to current members, with the shares costing nothing, but having a capital value, we would be returning the wealth to members. The shares created would enable everybody to gain access to their share of the organisation's profits." The word "giving" was changed to a word which is indistinct in the copy in evidence but may have been "providing", the words "with the shares costing nothing" were deleted, and there was written against this part of the draft, "not technically correct". A number of other places in this script at which there was reference to shares "at no cost" had those words deleted. 510 It is convenient to follow through each of these external communications. 511 The draft media statement seems to have been abandoned, and on 9 March 1994 Mr Greg Crowther of Rowland sent to Mr Morgan a draft media release, clearly enough based on the Open Road copy in its first draft form and attributing to Mr Mackay reference to "giving shares to all members". Someone in AAH marked the draft up by substituting "issuing" or "distribute" for "giving", and a fax from Mr Simpson to Mr Crowther dated 11 March 1994 (copied to Mr Rees and Ms Godwin) containing AAH's comments included, "the phrase 'by giving shares' goes too far. It should either read 'by issuing shares' or 'by distributing shares'." 512 The fax was sent at 2.14 pm, but the subject must have come up at a meeting at 2pm that day attended by NRMA personnel concerned with public relations and representatives of the marketing and public relations advisers, including Ms Parker and Mr Crowther. The minutes of that meeting included - "There is legal resistance to the 'no cost' message being in the announcement press release, although this question may be addressed in questions following the announcement. The 'no cost' message will be communicated in the advertising. It was subsequently agreed with Allens that the following wording is acceptable: ' It is our intention that these shares be free .'"

513 The legal resistance was exemplified by, and the subsequent agreement was foreshadowed in, a discussion of which Mr Barrett gave evidence at some time before the 3.30 meeting on 11 March 1994 to which I next refer. The discussion was with Mr Morgan and perhaps Mr Simpson. Mr Morgan explained that at that time it was not certain that the shares could be issued at no cost or free, because it might be necessary to require a dividend to be declared and for members to apply the dividend in payment for the shares. The discussion turned to other words which could be used, and Mr Morgan said that it would be all right to use a phrase such as "It is our intention that these shares be free". 514 The subsequent agreement was reached at the communications meeting at 3.30 pm on 11 March 1994. Present at the meeting were Ms Conway, Ms Godwin, Mr Ross, Mr Barrett, Mr Morgan, Mr Bateman, and numerous others. 515 Mr Bateman's note of the meeting included, apparently in connection with announcement of the value of the shares members would receive - " Intending that members do not have to pay anything.

516 Mr Bateman gave evidence of discussion at the meeting concerning reference to the value of shares, and also concerning free shares. His evidence included that Mr Morgan said - "One of the issues we are still grappling with is how the shares are going to be paid up. As you know, we have been looking at the possibility of dividends being paid out by each of Association and Insurance, and the like. We have been discussing these matters with Dyson Heydon. At this stage we can't guarantee that members will not have to pay anything. We have to use the word 'intending'. In other words, we will be saying that 'it is our intention that members do not have to pay anything for the shares'. That's as far as we can go at the moment." Mr Bateman said that Mr Barrett asked why it couldn't just be said that the shares were going to be free, and that Mr Morgan replied that until it was sorted out "we can really only say that we are intending that members don't have to pay anything. If a follow up question comes from a journalist as to what this means, the appropriate answer that Don Mackay should give is that the shares will be given at nominal cost". This was then changed at Mr Barrett's suggestion to "minimal cost". 517 Mr Morgan did not recall saying these things, but he agreed that they reflected his state of mind at the time, his notebook for this meeting included "Is our intention that the share be free", and I accept that he did say them. 518 The final version of the media statement was approved by AAH on 15 March 1994. In that version, Mr Mackay referred to issuing shares to members and to members getting shares, Mr Willing referred to shares being distributed among members, and there was attributed to Mr Willing the statement "It is our intention that these shares be free to members". 519 Going to the question and answer script, the next draft dated 3 March 1994 referred to "issuing shares" or "receiving shares" rather than "giving" shares to members, although it still had one reference to the shares being at no cost. The next draft dated 7 March 1994, apparently following a meeting between Ms Godwin and Ms Vicki Hogan of Hogan, had no reference to shares at no cost, and was accompanied by a note from Ms Hogan stating "While we cannot say 'no cost' I draw your attention to page twenty and our scripted answer". The answer at that page to the question "Will we have to pay for these shares?" included "No. If you were a current member on 16 March 1994 you will be eligible to receive shares" and "Details are still being worked out, but the net affect [sic] is expected to be that you would not have to send any money". 520 In another draft dated 9 March 1994 these answers to the question "Will we have to pay for these shares?" remained. The same question and this part of the answer appeared elsewhere in the script. The draft went to AAH, and was marked up with queries against the two negative answers, in relation to the first with the marginal note "Can't say shares are free". The next draft dated 11 March 1994 reflected this, omitting the two words "No" but in both places containing the words "It is expected that you will not have to send any money for the shares". The final draft, dated 15 March 1994 and "signed off" by AAH on that day, dealt with the first question in the same way, but the question at page 20 included in the answer "It is our intension [sic] that you will not have to send any money for the shares". 521 As to The Open Road, the next draft of the Open Road copy was sent to Mr Wood on 2 March 1994. It reflected the changes he had suggested. The copy went through further drafts with comments which it is unnecessary to detail. The Open Road copy was "signed off" by AAH prior to publication. 522 Other external communications, such as the script for a media conference to be held on the announcement of the proposal and the text of the President's message in the Open Road, referred to issuing shares to members and to the intention that the shares be free to members. It is unnecessary to detail them. What is quite plain is that, as I have said, the marketing and public relations advisers wanted to convey the message of shares at no cost, but AAH advised against that bald description although eventually considering acceptable a description to the effect that the NRMA intended that members would not have to send any money or intended that the shares would be free to members. Mr Bateman acquiesced in that course. 523 The "legal resistance to the 'no cost' message" was, however, not because it was perceived that the shares would be issued in return for giving up membership rights. The reason for the resistance was initially that, as the proposal was seen, members would have to pay at least subscription moneys of the par value of the shares, and later more, although the payments might be funded in some way out of the NRMA's wealth. The modification to an intention that the shares be free was because, with the new way of giving effect to the issue of the shares suggested on 9 March 1994, members might not have to pay the subscription moneys or other moneys, and so the NRMA's undoubted objective that no cash be required from members (see Mr Morgan's fax of 8 March 1994) could be reflected in a statement of its intention. 524 An intention that the shares be free, qualified as an intention because it was then not certain that members would not have to pay anything, carried with it that the shares could be described as free once it was established that members would not have to pay anything. Mr Morgan and Mr Simpson may well have given thought to whether the fact that members would be giving up membership rights would preclude or endanger this, even though I am not satisfied that it was raised with Mr Heydon on 7 March 1994. That thought was given to the matter is found not only in their evidence to which I have already referred, but also in other evidence including that of Mr Rees to which I next refer, that of an exchange to which Mr Mackay was a party early in July 1994 to which I refer much later, and more generally the fact that in the drafting of the prospectus there was reference to members giving up their membership rights. 525 There was, however, divergence between Mr Bateman and others over whether the possible significance of loss of membership rights to describing the shares as free was made known to the NRMA, with advice to the effect that the share could be so described provided there was disclosure of what the members were giving up. 526 An occasion for the divergence was at about this time, although not necessarily in connection with external communications. According to Mr Rees, at what he described as a planning meeting shortly before 17 March 1994 Mr Morgan said words to the effect, "The word 'free' implies that members are not giving anything up to get the shares. The fact is they are giving up their rights as members and we must be careful that we describe the position accurately". Still according to Mr Rees, Mr Bateman replied, "John, I think you are being overly technical. As I understand the proposal at present NRMA is contemplating a issue of shares to members that involves no payment of money. The commonly understood meaning of the term 'free' is that there is no payment, and it seems reasonable to me that in that situation NRMA can use the word 'free'. In any case the rights of members are quite narrow. They receive no financial benefit in the event of a winding up. Their rights comprise things like voting, attendance at meetings and so on. Even these rights are limited in the sense that if a member fails to pay their annual membership fee then these rights disappear. Provided these matters are properly disclosed in the prospectus I think its okay to use the word 'free'." 527 Mr Morgan had no recollection of such an occasion. Mr Bateman denied saying what was attributed to him, and according to his evidence apart from the meeting on 11 March 1994 (he must have meant what was said about an intention that the shares be free) Mr Morgan did not in his presence say that the description of free shares could be used. 528 I do not see why I should put aside the evidence of Mr Morgan and Mr Simpson of giving thought to the possible impact of loss of membership rights on describing the shares as free, though dependent on the resistance for other reasons to the "no cost" message being overcome. Once there was a real prospect that the members would not have to pay anything, it is understandable that the matter would emerge. The response attributed to Mr Bateman by Mr Rees was consistent with Mr Bateman's evidence of the view he took of members' rights. Taking account also of, for example, the exchange to which Mr Mackay was a party early in July 1994, there was a body of evidence from different sources supporting that there was raised with the NRMA the use of the description of free shares in conjunction with disclosure of what the members were giving up, that the use was approved, and that Mr Bateman was a party to what was said. I accept the evidence of Mr Rees to which I have referred. The proposal is approved by the boards 529 At some time in early March 1994 it was decided to put the proposal before the boards on the one day, 17 March 1994. Mr Rees attempted a draft of resolutions for the boards, and Mr Bateman returned to his own draft and revised it. Mr Rees had also prepared a draft of a report for the boards, and circulated it to Mr Willing, Ms Conway, Mr Pearce, Ms Godwin and Mr Stern. The decision to put the proposal before the boards on 17 March 1994 was not without some wavering by Mr Willing, on the ground that the proposal was insufficiently firm because of uncertainty of the capital gains tax position. 530 By this time, as might be expected, word of a possible demutualisation had leaked out. There were newspaper articles on 19 February 1994 to the effect that the NRMA was considering demutualisation and listing. The newspaper reports included that the Motorists Action Group ("MAG") (as to which see later) was opposed to any such action. 531 Mr Rees finalised his report to the boards in a document dated 8 March 1994. The report addressed reasons for restructuring, and did not go into detail concerning alternative structures; it did not deal at all with the steps required to achieve a new structure, and in particular with how shares in the new holding company would be issued. 532 The report recommended that the "Board of the NRMA Group approve further detailed investigation into the implementation of a restructuring of the NRMA into a company limited by both shares and guarantee and listed on the Australian Stock Exchange", the restructuring to be conducted "in a way that guarantees the unique features and traditions of the NRMA are preserved". The description of the proposal was limited to "key aspects", being - "2.1.2 Establishment of a listed holding company to control the major existing operating companies (Association, Insurance, and Life) as subsidiaries (Appendix 2).

2.1.3 Offer members shares in the new company so that members can become directly entitled to the wealth of the NRMA. Entitlements to shares would be based on a formula reflecting length of membership (see Appendix 3).

2.1.4 A special provision would be enshrined in the Articles to provide for continued advocacy and mutual type service activities.

2.1.5 The key concept of NRMA membership will continue, by allowing people to join a 'club' for the purposes of receiving the member services currently available.

2.1.6 The restructuring proposed would require changes in the Memorandum and Articles of both the Association and the Insurance company. Thus the restructuring would be implemented only upon approval by 75 per cent of the members voting at a general meeting of members to authorise the restructuring." The appendices did not materially flesh out the steps to achieve the new structure. Towards the end of the report there was reference to other solutions and options which had been considered, but at the level of overall structure rather than in detail. 533 On 9 March 1994 Mr Rees circulated to all general managers of the NRMA a copy of his proposed report to the boards, together with other information concerning the proposals, and at some time in the following week there was what was referred to as an executive conference at which the proposal was presented at management level. It is plain that at this time the proposal to demutualise became common knowledge, if it had not already been such, amongst the senior executives of the NRMA, and it was probably widely spoken of. Indeed, a large newspaper article on 12 March 1994 reported the demutualisation as a watershed in the NRMA's history, putting arguments for and against. 534 The directors of Association were Mr Mackay, Mr Kirby, Ms Ralph, Ms Anna Booth, Mr Mark Burrows, Mrs Maree Callaghan, Mr Douglass, Mr Nicholas Farr-Jones, Miss Fraser, Mr Jack, Dame Leonie Kramer, Mr Geoff Lawson, Ms Singleton, Mr R Talbot, Dr Roger Vanderfield, and Dr Ron Werner. The directors of Insurance were Mr Mackay, Mr Burrows, Mr Jack, Mr Kirby, Mrs Callaghan, Mr Corrigan, Mr Douglass, Mr Michael Easson, Mr Farr-Jones, Ms Singleton, and Mr Willing. There were five directors of Association who were not directors of Insurance (Ms Ralph, Miss Fraser, Mr Talbot, Dr Vanderfield and Dr Werner), and three directors of Insurance who were not directors of Association (Mr Corrigan, Mr Easson, and Mr Willing). The Board of Management and Insurance Liaison Committee comprised Mr Mackay, Mr Kirby, Ms Ralph, Ms Booth, Mr Cox, Mr Jack, Dame Leonie Kramer, Dr Vanderfield, Dr Werner, and Mr Willing. Not all the directors gave evidence in these proceedings - those not called were Miss Fraser, Ms Singleton, Mr Talbot, Dr Vanderfield, and Mr Willing. 535 The directors of Association were elected by members, until 1993 annually and thereafter biennially. For some years there had been "tickets" in the elections, and Mrs Callaghan, Miss Fraser, Mr Lawson, Ms Singleton, and Mr Talbot had been elected on the MAG ticket. Mrs Callaghan had ceased to be a MAG adherent, but there remained two broad groupings on the NRMA boards, the MAG directors and the other directors (which is not to say that the MAG directors were unified or that other directors had been on the one ticket or were unified). Mr Talbot was the most active in the MAG cause. 536 In the week prior to and on 17 March 1994 the members of the boards were given "pre-briefings" on the proposal intended to be put before the boards on that day. Recollections of the occasions were varied. The pre-briefings seem to have been given by Mr Willing, with some involvement of Mr Mackay, but the detail into which they went was not clear. 537 Particular reference was made in the proceedings to the pre-briefing given to Mr Talbot. 538 A letter to Mr Talbot from Mr Mackay dated 11 March 1994 told him of a meeting of Association convened for 1 pm on 17 March 1994, described the meeting as "called to discuss a confidential matter", and informed him that a pre-briefing had been arranged for him at 12 noon on the same day. Mr Talbot telephoned Mr Mackay to ask why the meeting had been called, but Mr Mackay declined to say more on the ground that he did not want the matter discussed in the media before the meeting. On the evidence before me, there were grounds for Mr Mackay to fear that Mr Talbot would not respect the confidentiality of the matter but would engage with the media if he were told more. 539 There was then a response from Mr Talbot dated 14 March 1994, written in a manner which could be described as confrontational, complaining of refusal to inform him of the subject of the meeting. It is difficult to accept that Mr Talbot was unaware of the proposal, or unaware that the meeting convened for 17 March 1994 would address the proposal, and in the conversation with Mr Mackay Mr Talbot asked if the meeting was about the floating of Insurance - there had earlier been media reports on that subject. The defendants nonetheless placed some significance on the time appointed for the pre-briefing. 540 The significance last mentioned, which I will describe later in these reasons, requires regard to the positions of Miss Fraser, Mr Lawson, and Ms Singleton. 541 There was no evidence as to the pre-briefing afforded to Miss Fraser. A letter dated 11 March 1994 from Mr Mackay to Ms Singleton invited her to a pre-briefing arranged for 9.00am on 17 March 1994, prior to the meeting of the board of Association at 1.00pm on that day called "to discuss a confidential matter". Mr Lawson was overseas at the time, and Mr Mackay spoke to him and then sent a fax on 16 March 1994 telling him of the meeting, very broadly of the proposal, and that the board would be asked "to approve management in investigating the proposal with a view to it being discussed at a board retreat in May and the final discussion as to whether or not to proceed being made not later than August". Mr Lawson indicated that he was in favour of the resolution to investigate the proposal. 542 There were three relevant meetings on 17 March 1994, one of the Board of Management and Insurance Liaison Committee, one of the board of Insurance , and one of the board of Association. The first two meetings were held concurrently. 543 The Board of Management and Insurance Liaison Committee and the board of Insurance met at 11.20am. Present in their respective capacities were Mr Mackay, Mr Kirby, Ms Ralph, Ms Booth, Mr Corrigan, Mr Cox, Mr Douglass, Mr Easson, Mr Farr-Jones, Mr Jack, Dame Leonie Kramer, Ms Singleton, Dr Werner, and Mr Willing, and in attendance were members of management including Mr Pearce, Mr Rees, and Ms Conway. Mr Willing presented a report on the proposal, it seems Mr Rees' document of 8 March 1994 together with further materials by way of overhead slides and charts. 544 The Board of Management and Insurance Liaison Committee resolved - " Proposal for Listing

That the Board of Management recommends to the Board of NRMA Limited that approval is given for management to proceed with the further development of the proposal for listing of the NRMA Group on the Australian Stock Exchange (subject to members' approval) and that management is authorised to do all things necessary to progress that process.

That the Board of Management recommends to the Board of NRMA Limited that approval be given for the formation of a company to be called 'NRMA Holdings Limited' with the President, Deputy President, Chief Executive Officer, Group Secretary and General Counsel and Greg Bateman of Abbott Tout, Solicitors, being the five (5) subscribers as to $1.00 each. Such approval would be given on the basis that:

(a) subject to members' approval, NRMA Holdings Ltd is to be the vehicle whereby the NRMA Group is listed on the Australian Stock Exchange;

(b) prior to such listing the subscribers undertake to procure that NRMA Holdings Ltd will not trade without the prior approval of the Board of Directors of NRMA Ltd;

(c) each of the subscribers will remain the only shareholders until such listing is to be implemented; and

(d) if such listing has not been implemented within 12 months, those subscribers undertake to transfer the issued share capital of NRMA Holdings Ltd to the Association or as the Board of Directors of NRMA Ltd may direct.

That the Board of Management recommends to the Board of NRMA Limited that the advisers listed below be retained in connection with the proposal for listing. Each would be retained on the following basis:

(a) each is to advise the Association, NRMA Insurance Ltd and NRMA Holdings Ltd;

(b) pending such listing, the fees of such advisers shall be borne by the Association and NRMA Insurance Ltd as to 10% and 90% respectively;

(c) upon a successful listing of NRMA Holdings Ltd, it shall reimburse the Association and NRMA Insurance Ltd all such fees and other costs associated with such listing.

The advisers, their roles and basis of their fees are:

[Here the advisers and other information was set out.]

That the Board of Management recommends to the Board of Directors of NRMA Limited that:

(a) a Due Diligence Committee be established to plan and carry out the due diligence necessary for the proposal;

(vii) an Executive Director of BT Corporate Finance Limited; (viii) such other persons as the President or the Chief Executive Officer may approve from time to time; (a) the President and the Chief Executive Officer may appoint alternates to attend meetings of the Due Diligence Committee on their behalf and may approve other persons to attend such meetings as observers.

That the Board of Management recommends to the Board of Directors of NRMA Limited that, as from midnight on 17 March 1994, the handling of membership (new members, renewals of current memberships) be dealt with in the manner set out in the document headed 'Rules Relating to Membership from midnight on 17 March 1994' tabled at the meeting.

That the Board of Management recommends to the Board of NRMA Limited that approval is given for a press statement to be made in the form of that tabled at the meeting and that the President and the Chief Executive Officer (and persons specifically authorised by either of them) deal with the media in relation to the proposal."

545 The board of Insurance resolved in like terms, save that it resolved for itself to give approval to management to proceed with the further development of the proposal, conveyed to the board of Association that it agreed that approval should be given to the formation of Holdings, and resolved for itself to give approvals in relation to advisers, the due diligence committee and the press statement. 546 The resolutions of the Board of Management and Insurance Liaison Committee were unanimous; the resolutions of the board of Insurance were unanimous save that Ms Singleton abstained. It was noted that the directors would hold a retreat on 7 and 8 May 1994 "to discuss further developments of the investigations into the proposal". The meetings concluded at 12.50 pm. 547 The board of Association met at 1.09pm. Present were Mr Mackay, Mr Kirby, Ms Ralph, Ms Booth, Mrs Callaghan, Mr Douglass, Mr Farr-Jones, Miss Fraser, Mr Jack, Dame Leonie Kramer, Ms Singleton, Mr Talbot, and Dr Werner, and in attendance were Mr Willing and other members of management as before. Mr Willing again presented a report on the proposal and further materials. 548 Motions for resolutions in like terms to those of the morning meetings, save that Association would resolve for itself to give approvals to management to proceed with the further development of the proposal and to form Holdings and would resolve for itself to give approval in relation to advisers, the due diligence committee, and the press statement, were proposed. Mr Talbot moved and Miss Fraser seconded that the motions be deferred until the next meeting. The latter motion was put and declared lost. Association then resolved in terms of the substantive motions. Those in favour were Mr Mackay, Mr Kirby, Mr Jack, Ms Booth, Dame Leonie Kramer, Dr Werner, Mr Douglass, Mr Farr-Jones, Ms Ralph, and Mrs Callaghan. Ms Singleton and Miss Fraser abstained. Mr Talbot dissented, and requested that his dissent be noted on the ground that he wanted more time to consider the proposal. It was noted that Mr Burrows, Mr Lawson and Dr Vanderfield had been contacted and had indicated to the President that they supported the proposal. The same note concerning a retreat was made. The meeting concluded at 1.50pm. 549 To return to the significance of the time appointed for Mr Talbot's pre-briefing, it will be seen that it was after the meetings of the Board of Management and Insurance Liaison Committee and of Insurance, and only a short time before the meeting of Association. The elapsed time of the former meetings was more than the elapsed time of the later meeting. The case of some of the defendants included that the majority of the boards, led by or in sympathy with Mr Mackay, had such antipathy towards MAG and in particular towards Mr Talbot, or at the least were sufficiently concerned to impede the opposition to the demutualisation which was expected from MAG and Mr Talbot, that the conclusion was enhanced that they would have proceeded with the proposal even if they had received the Gambotto advice which the NRMA said should have been given. Elements in this case, to which I will return later in these reasons, were that there was a deliberate withholding from Mr Talbot of information concerning the proposal until just before the meeting of Association; that the holding of a joint meeting of the Board of Management and Insurance Liaison Committee and the board of Insurance was unusual, if not unprecedented, which it was; that there was a calculated plan to have a commitment of Association to the proposal to the extent that the members of Board of Management and Insurance Liaison Committee and the board of Insurance had already assented to it before the meeting of Association; that the duration of the meeting of Association was insufficient for proper assimilation of the proposal; and that the rejection of Mr Talbot's request for deferral was inappropriate. I note these matters now to explain why I have referred to events concerning the meetings on 17 March 1994 in the way I have, and without comment. I will be recording in these reasons further events the defendants said went to the same case. 550 The proposal was officially announced at a media conference at 3 pm on 17 March 1994. The media statement released at this time, in the form previously approved, relevantly referred to "issuing" and "distributing" shares, and attributed to Mr Willing (amongst other things) the statement "It is our intention that these shares be free to members". A new project organisation 551 Mr Hosking was brought in at about this time. He established contact persons for various areas, such as members, media, and government. He also established "groupings of key personnel" which by and large remained in place for the rest of the Legal Status Project. Knowing the groups will assist in what follows. 552 One was the core group, said to be responsible for the entire project. The members were to be Mr Willing, Mr Rees, Mr Pearce, Ms Conway, Ms Godwin, Mr Jacob Mamutil (a senior manager with the NRMA, legally qualified), Mr Stern, and Mr Hosking. It could be seen as a successor to the steering committee. Rather like the steering committee, it does not seem to have operated as intended, and at times coalesced with the general communications group. 553 Another was the general communications group, readily enough seen as taking up the earlier communications meetings. Its members were Mr Willing, Mr Rees, Mr Pearce, Ms Conway, Ms O'Connor, Ms Godwin, Mr Mamutil, Ms Elizabeth Shaw (in the communications area within the NRMA), Mr Peter Worland (assistant general manager, external relations), Mr Tony Hoban (a senior manager with the NRMA, in the communications area), Mr Hosking, Mr Ross, Mr Barry, Mr Stern, Mr Barrett, Ms Hogan, Mr Morgan, and Mr Bateman. 554 Another was the due diligence working group. Its members were Mr Rees, Mr Pearce, Ms Conway, and Mr Baker (in the taxation area within the NRMA). 555 Another was the prospectus working group. Its members were Ms Godwin, Mr Hosking, Mr Barry, Mr Morgan and Mr Bateman. 556 Another was the accounting working group, the members of which need not be stated. 557 Finally, there was the logistics working group. Its members included Mr Mamutil, Ms Karen Scroope (a project manager with the NRMA, experienced in computer-aided technology), Mrs Lisa Storrs (a corporate adviser, legally qualified, within the NRMA's secretariat), and Mr Hosking. 558 At the same time, that is, in early April 1994, Mr Rees decided that each adviser to the NRMA should have a member of NRMA management "responsible for tracking the advisor's [sic] activities". His designations included himself for PJP and Rowland, Mr Pearce for BT and the investigating accountant, and Ms Conway for AAH and AT. The due diligence committee 559 On 17 March 1994 the boards had resolved to establish a due diligence committee, and the due diligence working group just mentioned was concerned with its functioning. The due diligence committee itself first met on 22 April 1994. Its members were Mr Mackay, Mr Kirby, Dr Werner, Mr Willing, Mr Rees, Mr Morgan, Mr Bateman, Mr Robert Lynn of C&L, Mr Rick Hullah of Deloitte Touche Tohmatsu ("DTT"), and Mr Barry. Mr Hullah was to act, and acted, as returning officer for the general meetings. In June 1994, following the appointment of J B Were Stockbroking Ltd ("Were") as stockbrokers for the proposal, Mr Brad Rees of that organisation was appointed to the committee. On 18 July 1994, following the incorporation of Holdings, Mrs Callaghan and Mr Jack were appointed to the committee. 560 The due diligence committee operated under the legal guidance of Mr Morgan, and other solicitors from AAH played a significant part in the conduct of the due diligence process. At an early time Mr Morgan provided a planning memorandum and verification programme for a due diligence process, a draft (almost pro forma) due diligence report to go from the committee to the proposed holding company, and materiality guidelines. 561 The materiality guidelines were intended to provide criteria for what was material or not material to the due diligence process, and were both quantitative and qualitative. They said that the legal concept of materiality was "really driven by a consideration of what may affect a decision of a potential investor", and the qualitative guidelines included regard to breach of legislative or other requirements, to matters it would ordinarily be assumed the readers of the prospectus would require inclusion of or comment on, and generally anything management "considered to be material in terms of the future operations of the business". As will be seen, the NRMA's case in these proceedings included that the materiality guidelines encompassed risk to the implementation of the proposal from the use of the notion of free shares. 562 For the purposes of these proceedings it is unnecessary to go into the due diligence process in detail. There was implemented a procedure of interviews and presentations by NRMA management to identify material matters, and a careful procedure for verifying the correctness of statements of fact, including intention, in the prospectus. The process included in the provision of the so-called sign-off letter from AAH and, as it happened, another sign-off letter from AT, going to the legal integrity of the report of the due diligence committee to Holdings and of the prospectus. There will be reference in what follows to the prospectus and the onsert going before the due diligence committee as they were drafted, and there will be particular reference to the sign-off letters from AAH and AT material to the report of the due diligence committee in August 1994 and to the prospectus itself. Further development of the proposal 563 The further work on the form of the restructuring seems to have been led by Mr Morgan. It took up the approach which had been suggested on 9 March 1994 by which no payment was required for the shares to be issued by the holding company. 564 The early development can be seen in an AAH memorandum, probably internal, of 24 March 1994. It outlined three approaches and opted for a preferred approach - " THE THREE APPROACHES

This approach merely involves HoldCo making an issue and upon that issue being made the status of Association and Insurance changes, members cease to be members and Association and Insurance issue shares to HoldCo. There is no explicit link between the expiry or giving up of membership rights in Insurance and Association with the issue of the shares.

The base structure satisfies all significant requirements other than the requirement in relation to the paid up capital in that a dividend would have to be provided to the members for the purposes of paying up capital. This statement assumes the tax relief sought is granted.

As originally proposed this involved a swap of shares issued in Association and Insurance for shares in HoldCo. This has been developed to be a swap of an entitlement for shares in Association and Insurance for shares in HoldCo just to avoid the necessity of issuing shares out of Association and Insurance. In this case the paid value for the shares for HoldCo would be in effect the value of the group which is transferred to HoldCo in consideration of the issue of the shares out of HoldCo. Subject to the relevant tax relief being granted, this solves the problems other than the problem of locking in members to the arrangement by a resolution. It may be necessary also to re-visit the way in which entitlements are dealt with having regard to whether or not as part of step 1 members entitlements in Insurance are swapped to HoldCo or whether, in effect, initially Insurance becomes a subsidiary of Association and then is subsequently transferred to HoldCo.

This proposal involves Association being the holding company and aims at overcoming the Corporations Law problem of agreement being required for a person to become a member of a company. As all persons who will be entitled to entitlements are members of Association, in effect the shares can be allotted to them without any further agreement. The only issue is how are the shares paid up and for that purpose a dividend would need to be paid which would create a tax liability for some members.

The approach which seems to provide the best solution and is most consistent with the announcements which have been made is the second approach, the HoldCo takeover approach. The question then arises, how is that to be achieved. To answer that question we need to analyse carefully the formula to be used for the proposed resolutions to be put to members at the meetings of Association and Insurance and to analyse the nature of the HoldCo offer/invitation. We suggest the resolutions should be as follows:

(a) the members resolve that each company change status to companies limited by shares and guarantee;

(b) the members resolve that in consideration of HoldCo making the invitation contained in the prospectus (invitation is used advisedly) the members agree that the articles be amended so that each member ceases to be a member and that a share or shares in Association and Insurance are transferred to HoldCo and in consideration of the issue of that share to HoldCo the value of that share over the subscription monies subscribed by HoldCo be applied to pay up the shares issued by HoldCo pursuant to its offer. In consideration of the foregoing Association and Insurance agree to issue a share paid up to $1 for $1 to HoldCo. That resolution of Association/Insurance would bind all members if passed by the requisite 75% majority."

565 The Base HoldCo structure had earlier been preferred, but was now supplanted by a modified version of the earlier HoldCo Takeover Structure - modified to reflect the ideas of 9 March 1994, in that the members' entitlements to shares in Association and Insurance were exchanged for shares in the holding company. This was not quite the same as the idea of 9 March 1994, but did avoid subscription moneys and payment of a dividend. According to the second suggested resolution, although not clearly, the member's entitlements to shares became something rather different, indeed rather fell away, and the shares to be issued by HoldCo would be issued fully paid in return for the members ceasing to be members and agreeing to the issue by Association and Insurance of shares to the holding company. Mr Morgan seems to have thought that this resolution would solve what he described as "the problem of locking in members to the arrangement by a resolution", that is, the question of non-responding members, but there was something of a shift from the HoldCo takeover structure as described. 566 In early April 1994 Mr Morgan prepared a more detailed paper, clearly enough based on this memorandum, which went to the NRMA and Mr Bateman. Its purpose was to identify the key requirements of the proposed restructuring and to test those requirements against alternative structures. 567 One of the key requirements was that the paid up capital for the shares in the holding company was not subscribed directly by members or provided by way of dividend; another was that the members of Association and Insurance were bound to the restructuring by the resolutions passed at their general meetings, and that neither some other agreement nor a scheme of arrangement was required. Two models were proposed, one being the HoldCo takeover structure and the other being the Association as HoldCo structure from the earlier memorandum. The first was preferred as meeting more of the key requirements, but subject to legislated tax relief to avoid adverse capital gains tax. The second was rejected because, amongst other reasons, it was not clear that the allotment of shares could be achieved without a dividend to members of Association. 568 The steps in the HoldCo takeover structure were described in the summary of the model - "(a) HoldCo offers shares to members of Association capable of acceptance by return of an acceptance form; the shares of members who reject the offer or do not respond are allotted to a default trust which makes a secondary issue.

(b) The offer is conditional on HoldCo becoming a member of Association and Insurance and on the members of Association and Insurance resolving to change status to companies limited by shares and by guarantee and otherwise alter the memorandum and articles to provide that on a winding-up the property is distributed to members and that on allotment of the shares offered by HoldCo all members other than HoldCo cease to be members of Association or Insurance.

(c) Members of Association and Insurance approve in general meeting resolutions as in (b)." 569 In the commentary on the model Mr Morgan wrote - "If the resolutions are structured as set out above, there should be no dividend to members because the HoldCo shares they receive are not distributed to them (or procured to be distributed to them) by Association or Insurance; rather they receive those shares as a consequence of their ceasing to be members of Association and Insurance. In other words, they receive the shares in exchange for something they relinquish (hence the need for legislative exclusion of that disposal from the normal CGT provisions)."

570 The former idea of exchange of the members' entitlements to shares in Association and Insurance, difficult to find in the resolutions in the earlier memorandum, has now gone, and the consideration for the HoldCo shares is expressly members giving up their memberships. In a practical sense, of course, giving up membership so that HoldCo is the only (shareholding) member means that HoldCo through its shareholding has all the NRMA's wealth. Mr Bateman concisely summarised the matter in a file note dated 7 April 1994 - " idea he presently favours is

(a) HoldCo becomes member of each of Association and Insurance (b) insert Articles in each of Ass & Ins' Articles expelling members, except for HoldCo (c) this is in consideration of HoldCo issuing shares to expelled members".

571 It will be seen that there was still room for the doubts expressed by Mr Bateman in December 1993 giving rise to the question of scheme or meeting. The articles of Association and Insurance would be changed by members' resolutions inter alia to provide that all members other than HoldCo would cease to be members. This may have been behind Mr Bateman's use of the words "expelling" and "expelled" in his file note. What the developed proposal brought more to the fore, however, was the nature of the consideration for the HoldCo shares. No longer was it money, even if funded to members. It was something more abstract, not of fixed value, possibly not capable of valuation. That was seen as raising a capital gains tax problem (harking back to the earlier papers of Mr Magid), whether termination of membership was giving up property and what the value of the property was. 572 It was also seen as raising a corporations law problem, expressed (perhaps obscurely) in Mr Morgan's paper as - "Conceptual difficulty in providing that the HoldCo shares are paid-up from the value of the NRMA Group transferred to HoldCo (as a result of HoldCo being the only member of Association and Insurance). Consideration must be a consideration recognised by the law. This appears to be satisfied but is to be verified with Senior Counsel." This second matter led to a further brief to Mr Heydon. 573 That the members were seen as giving something up in return for their shares was, however, not in doubt by this time. Three illustrations from the period after 7 April 1994 are sufficient. 574 One is a letter from Mr Bateman to Mr Pearce dated 28 April 1994 concerning the treatment of goodwill when valuing the NRMA. Mr Bateman's recital of the background included - " Restructuring

1.2 The proposed restructuring of the NRMA Group, if approved by the members of each of the Association and Insurance would, in effect, involve the following steps:

(a) NRMA Holdings Limited would become a member of each of the Association and Insurance;

(b) each of the Association and Insurance would convert to a company limited by guarantee and shares;

(c) all members, other than NRMA Holdings Limited, would give up their membership of each of the Association and Insurance in return for the issue of fully paid shares in NRMA Holdings Limited; and

(d) this would result in NRMA Holdings Limited being the only shareholder of each of the Association and Insurance.

1.3 The restructuring of the NRMA Group may not follow the steps outlined in the preceding paragraph but, essentially, whatever those steps are, the practical effect is that:

(a) NRMA Holdings Limited will have become the sole shareholder of each of the Association and Insurance; and (b) the former members of each of the Association and Insurance will have given up their membership of each of the Association and Insurance in return for the right to receive fully paid shares in NRMA Holdings Limited."

575 Another is the summary of the basis of entitlement, drawn together as the "Entitlement Rules" by Mr Bateman and sent to Ms Godwin on 2 May 1994. In at least two places it gave as the reason for entitlements that "members of the Association have legal rights and it is in return for giving up those rights that an entitlement to shares in NRMA Holdings Limited will be offered to that member". When Mr Morgan prepared some amended Entitlement Rules, provided to Ms Godwin on 19 May 1994, he said that the members of Association and the members of Insurance (other than Association and its directors) "give up their entitlement to membership in consideration of receiving shares in NRMA Holdings Limited or an interest in the Default Trust". 576 A third illustration, from a memorandum of 5 May 1995 by Mr Morgan, is his "summary of restructuring steps" - "1. HoldCo becomes a member of Association and Insurance. 2. Prospectus registered incorporating Notice of Meeting. 3. Members meetings. At members meetings the following resolutions are passed. (a) Articles affecting [sic] change of status are approved including change in winding up provisions providing for assets to be distributed to members on winding up;

(b) new Article to be inserted providing that on condition that HoldCo completes offer, the members agree to the cancellation of their membership in consideration of HoldCo issuing shares to members in accordance with the entitlements proposal on the basis that the value thereby transferred to HoldCo be applied to pay up the shares with the balance being paid to a share premium account. 4. Offer to members to take shares closes at date of meeting or later date - query.

5. Shares allotted to accepting members but not issued and balance of shares issued to default trust.

6. Default trust opens secondary offer - pricing mechanism to be determined and allocation rules to be determined.

7. secondary offer closes and shares issued to accepting members and transferred by default trust to persons provided with allocation under secondary offer.

577 Further tracing of the development of the proposal in these reasons will be minimal. The proposal was now essentially in the form in due course adopted. Mr Heydon is briefed on paid-up shares 578 The advice of senior counsel foreshadowed by Mr Morgan in the paper of 7 April 1994 was sought by a brief to Mr Heydon dated 19 April 1994. 579 The brief set out the alternative structures then under consideration, while saying that the HoldCo takeover structure was favoured and that the advice was sought in relation to it. The brief then stated - "The Specific Issue upon which we seek advice

We seek Counsel's advice upon one specific issue relevant to the first structure.

That structure provides that the shares to be issued by HoldCo will be paid up from the value of the NRMA Group transferred to HoldCo as a result of HoldCo becoming the only member of Association and Insurance after the existing members have given up their rights of membership. That is, members give up their rights as members in consideration of HoldCo using the consideration that flows from this retirement (the value of the NRMA Group which is owned solely by HoldCo) to pay-up the shares issued by HoldCo to members.

In other words, the paid up capital for the HoldCo shares is not subscribed directly by members or provided by way of dividend.

The question is whether the shares to be issued by HoldCo may be paid up in this way?"

580 It will be seen that this was a more precise statement of the corporations law problem. Two sides of a bargain were identified, on one side the members giving up their rights of membership, so that a practical matter the wealth of the NRMA went to HoldCo as the remaining (shareholder) member, and on the other side HoldCo issuing shares fully paid, as a practical matter using that wealth. The perceived problem was whether HoldCo could issue shares fully paid when they were paid up not by shareholders' subscriptions, in cash or by application of a dividend, but by HoldCo acquiring the wealth of the NRMA as a practical consequence of the members giving up their rights of membership. 581 The observations in the brief then discussed consideration other than cash consideration, with reference to certain provisions of the Law and cases supporting the proposition that the courts will generally not examine the value of non-cash consideration provided it is not illusory. The brief concluded, perhaps mis-stating the perceived problem - "In the case of the NRMA, the consideration for the relinquishment of membership is the allotment of shares by HoldCo to the (former) members of Association and Insurance the value for which derives from the value of the NRMA Group of which HoldCo is the sole member (prior to the allotment being made).

We do not see a difficulty with this consideration being recognised by the law but we seek Senior Counsel's confirmation."

582 A copy of the brief was sent to Ms Godwin and Mr Bateman. A conference with Mr Heydon was arranged for 29 April 1994. 583 The conference was attended by Mr Morgan, Mr Simpson, and Mr Bateman. Again recollections of what was said at the conference were not good. Mr Heydon had no note of the conference. Mr Morgan, Mr Simpson, and Mr Bateman did have notes of the conference, of variable clarity. 584 According to Mr Bateman, during the conference there was discussion of the difficulty of attributing any value to an individual membership of Association, and of the even greater difficulty of attributing any value to an individual membership of Insurance. Mr Heydon referred to provisions of the memoranda and articles of Association and Insurance, and made a number of comments to the effect that the memberships were for practical purposes not transferable, that it was doubtful if dividends could be paid, that on a winding-up of Insurance the surplus assets went to Association and on a winding-up of Association the surplus assets went to an organisation with similar objects, and that membership of Association ended if not paid for each year and membership of Insurance ended if no policy was held. Still according to Mr Bateman, Mr Heydon said that a member of Association had "a bundle of very weak rights conferred by equity and the Corporations Law", and that they did not amount to much, and later said - "Yes, there is a real difficulty putting any value on an individual membership of the Association. It is even harder in the case of a membership of the Insurance company. That being the case, I agree with your analysis, John [Morgan].

It does seem to me that HoldCo will receive valuable consideration, not from an individual member giving up his membership, but from the overall value that HoldCo receives as a result of it becoming the only member of each of the Association and the Insurance company. That seems to be quite a proper form of valuable consideration and would enable HoldCo to issue the shares credited as paid up to their par value.

It's one of those strange situations where HoldCo receives a lot in value by getting control of the two companies by virtue of all the members collectively giving up their memberships. Something of value is only received because they all give up their memberships together and they do so at the one time. The parts only become worth something when given up as a whole.

I think the consideration that HoldCo receives by getting control of the two companies, in the way you've put it in the brief, is fine. That can pay up the shares that HoldCo issues." 585 Mr Heydon did not dispute that he confirmed Mr Morgan's views in the brief, but did not recall the relatively detailed matters recounted by Mr Bateman. He did dispute that he described the rights of members of Association and Insurance as very weak rights. Nor did Mr Morgan and Mr Simpson dispute that Mr Heydon confirmed Mr Morgan's views in the brief, and Mr Morgan's note said "paid up value OK": neither had any real recollection of this aspect of the conference. 586 Towards the end of the conference there was raised the intention, recently brought out on further consideration of entitlements, that employees of the NRMA should be issued with shares even if they were not members. It may be that the perceived relevance to the question in the brief was that the employees would not be relinquishing membership and so would not be fulfilling one side of the bargain. According to Mr Bateman, Mr Heydon suggested that employees should be made members "so that when the members collectively give up their membership HoldCo is receiving valuable consideration which enables it to pay up the shares". Mr Heydon recalled the topic being discussed. Mr Morgan recalled a question of giving entitlements to shares to staff of the NRMA who were not members, and that whatever the problem was could be resolved by the board admitting the staff as members. This was no doubt the reason for Mr Morgan's note "staff members? Admit as new members? FBT", and it was probably the source of that part of Mr Simpson's note reading "Empees will be 'given' shares in HoldCo but they are not members at moment". Mr Bateman's note referred to what must have been the same matter in different words, "preferable that all those offered an entitlement be made members. This will allow clear view on [word scratched out] consideration". 587 The word scratched out may have been "oppression", and Mr Bateman said that the discussion concerning the conferring of benefits in the form of shares to be issued by the holding company to persons who were not members of either Association or Insurance threw up whether there was some form of oppression, and that there was some discussion of that. According to Mr Bateman, Mr Heydon expressed the view that you could justify giving non-members the benefit of shares in the holding company if members understood that they were doing it, and that if they understood that would avoid oppression - if members chose to confer the benefits, there would be no oppression. But Mr Heydon said that it would be more prudent to make those persons members, as it would make clear the whole matter of consideration, and for that reason employees in particular should, if possible, be made members so as to be entitled to the shares, and that would deal with both issues. 588 This is unexceptional, and I do not think the others present at the conference really disputed that the discussion led on to a fairly passing reference to oppression. I accept Mr Bateman's account of the conference, although I do not think it matters whether members' rights were described as very weak rights - in one sense they were weak, in another sense they had the strength of any equitable or statutory rights, and Mr Bateman and Mr Heydon may have had different perspectives which have now influenced their recollections. But the occasion was not one for detailed advice about oppression, still less (as the NRMA seemed to suggest) for attention to Gambotto's case. The point was a short one - employees should be made members for reasons to do with consideration, and that would also remove any possible complaint about giving benefits to non-members. Early attention to the drafting of the prospectus 589 By a letter to Ms Godwin dated 22 February 1994, Mr Barry and Ms Birch had provided an outline of the document intended to contain the notices of meeting and prospectus. The letter recorded that they had had a preliminary discussion of the outline with Mr Morgan, and suggested that there be a meeting early in the next week to discuss it in more detail. By a letter to Ms Conway dated 24 February 1994, Mr Bateman had provided slightly amended versions of the proxy and acceptance forms plus a draft notice of meeting for Association. The letter recorded that the acceptance form wording "proceeds on certain assumptions which, depending on how the offer is structured, may prove not to be correct." At this time the proposal was not fully settled, but attention was being given to what became the prospectus and the onsert. 590 In early March 1994 BT suggested that a prospectus working group should be established to manage the preparation of the prospectus. The first meeting of what later became the prospectus working group was held on 4 March 1994. It was attended by Mr Pearce, Ms Godwin, Mr Barry, Ms Birch, Mr Morgan, and Mr Bateman. The principal matter discussed seems to have been whether a so-called "short form" prospectus could be used, but that depended amongst other things on progress towards the final form of the proposal. The prospectus working group was, or became, distinct from a separate group concerned with the onsert. The group concerned with the onsert was eventually the logistics working group, it seems amongst other reasons because the onsert involved the technology of bar-coding to keep track of proxies and acceptances. 591 It was, of course, important that the prospectus contain all necessary information for members to make an informed decision: the NRMA had been made well aware of that. At board level, it will be recalled that at the meeting of the board of Association on 17 March 1994 Mr Talbot asked that his dissent be noted on the grounds that he wanted more time to consider the proposal. Within a short time it was apparent that, as expected, Mr Talbot was opposed to the proposal, and that his opposition had some support from Miss Fraser and Ms Singleton. The recognition that there were disadvantages in the proposal to be weighed against the advantages seen by management, and now, if not before, seen by the majority on the boards of Association and Insurance, proceeded against the background of advice that the prospectus should not be misleading and should contain all such information as the members would reasonably require in order to make an informed decision upon the proposal. Knowledge in that respect of the obligations of Association and Insurance, in due course of Holdings, and of their directors, was not in issue in the proceedings. 592 It was also not in issue that the matter proceeded against the background of advice that it was not necessary to put a specific 'no' case in the prospectus. I have already referred to the 'no' case, and will refer to it again. Mr Simpson gave evidence of research at the request of Mr Morgan to determine whether there was an obligation to put a 'no' case in the prospectus, and of his conclusion and Mr Morgan's agreement that it was not. Mr Morgan replied to a question from Mr Mackay or Mr Willing at a meeting, possibly of the due diligence committee, saying it was not necessary to put a 'no' case in the prospectus, but that the law required that sufficient information be given to members to enable them to make an informed decision on the proposal that was being put to them. 593 The description of shares to be issued by the holding company came to be referred to as free shares came to be used in connection with the prospectus. 594 An early illustration is a letter dated 23 March 1994 from Mr Bateman to Ms Godwin outlining a possible staged listing of the holding company. He stated some assumptions as - "2.1 The net worth of the NRMA Group is $2.2b.

2.2 The 1.8m members are to receive that net worth in the form of shares in HoldCo, with average of $1,222 worth of shares per member.

2.3 The members will be offered those shares at nil cost. They are 'free' shares. The offer period will be 5 September to 5 October (' the first offer ').

2.4 An average member is to receive 244 shares, each worth $5 (total value $1,222). The range of free shares to be offered to each member will be 100 to 400 depending on years of membership and holding of a policy." Then in para 4.4 of the letter Mr Bateman said - The first offer (to members) is of free shares. The prospectus need not, therefore, be very lengthy. Rather than printing financials and other expert reports in full, the conclusions only should be published. This will satisfy both the Corporations Law and the Stock Exchange's need for a prospectus …". 595 This use was initially qualified. Mr Morgan provided comments on the letter. They included - "In paragraph 4.4, the underlying reason for the short form prospectus is unclear. Is it:

(a) because the offer or invitation is 'of free shares' that the offer or invitation is an 'excluded offer or invitation' being one for which: 'No consideration is paid or provided in respect of the contract resulting from acceptance of the offer or from acceptance of an offer made pursuant to the invitation'. We do not agree with this analysis. Consideration is provided: (i) by the members in giving up their current rights as members of Association and Insurance;

(ii) by HoldCo in the manner of funding of the par value of the shares. It is not possible for no consideration to be provided 'in respect of the contract resulting from acceptance of the offer' because the shares that are allotted to members by HoldCo must be paid up;" Someone underlined in a copy of Mr Bateman's letter of 23 March 1994 the word "free" in para 2.3, and wrote "not so" against it. 596 So the contrast was evident. The shares were free in the sense that no cash was to be paid by the members to whom they were to be issued. They were not free in the sense that the members gave up their rights as members in return for the shares. But they could be called free shares in the prospectus. 597 Mr Bateman's note of a meeting held with Ms Godwin, Mr Hosking, Mr Morgan, and Mr Barry on 28 March 1994 included that he should draft notices of meeting, proxy forms, and an explanatory memorandum - "… on basis that:

(a) HoldCo will be listed coy (b) shares will be issued for free because right to take up shares in A & Ins will pass to HoldCo & that valuable consideration received by HoldCo with enable HoldCo to issue HoldCo shares fully paid".

That is, the shares would be issued fully paid, and there would be no payment by the members to whom the shares were issued. 598 According to Mr Bateman, at the meeting he asked on what basis he should proceed, saying that the structure, and in particular how people got their shares, was still unclear; Ms Godwin said that "it looks like HoldCo will issue its shares for free to members on the basis that the right to take up the shares in each of Association and Insurance will pass to HoldCo"; Mr Morgan said that that was the present thinking, and that he had put the matter before Mr Heydon to make sure there were no problems with paying up the shares to be issued by HoldCo; and Ms Godwin said to go ahead on the basis which Mr Bateman then noted. There is some obscurity in this, because at this time members' rights, rather than rights to take up shares in Association and Insurance, were becoming the consideration: maybe the thinking was in transition. Further, as at 28 March 1994 Mr Morgan had not briefed Mr Heydon on paid-up shares, and Mr Bateman's recollection may be astray. 599 At a logistics planning session on 29 March 1994 NRMA representatives and Mr Bateman considered the holding of information meetings prior to the general meetings. Those present decided to recommend the holding of information meetings, and in the course of discussion the question arose whether it was necessary that there be separate "yes" and "no" cases in the prospectus in the manner sometimes adopted for referenda. The minutes of the meeting recorded the advice given by Mr Bateman - "In theory directors could not actively campaign for the yes vote at the information meetings. This would mean that they would have to make sure they only gave information that did not lead to a yes or no conclusion.

Alternatively, as long as the directors did not spend an unreasonable amount campaigning for the 'yes' vote and didn't mislead the members, they could put the balanced view specified in the prospectus. (NB Directors not obliged to put in separate yes and no arguments in prospectus as long as explanatory material contains reference to the negative opinion.)" 600 A meeting of various members of NRMA management plus communications advisers plus Mr Bateman on 12 April 1994 sought to establish the format of the prospectus. According to Mr Bateman's file note, it was decided that there should be "Shortest Possible Full Prospectus", so the idea of a short form prospectus was abandoned. This file note contained the first clear reference to the onsert in the words "Forms (Proxy & Acceptance) as 'Onsert'". 601 The description of free shares was now current. In connection with acceptance or otherwise of shares in the holding company, Mr Bateman's file note of the meeting of 12 April 1994 referred to "Entitlement (free shares)", and his file note of a further meeting on 13 April 1994, attended by members of NRMA management, communications advisers, and Messrs Morgan and Bateman, at which there was further considered the framing of the prospectus, included - "Message must be vote & free shares are on offer (with tick box for cash). Only say cash is so much, by then [?], & not from NRMA.

Vote & get free shares/cash" 602 Mr Bateman prepared a draft outline of the prospectus dated 19 April 1994. Although only an outline, in most places simply indicating the nature of the information to be included, it took fifty-four pages. It did not refer to free shares, but did not describe the shares to be issued in any particular way. The draft foreshadowed a fairly complex document. 603 The prospectus working group had become established by early April 1994. It had not got to the detail of the prospectus by the end of April 1994, but there was some canvassing of the advantages and disadvantages of the proposal in the media. Further, The Open Road for April/May 1994 contained a President's message generally in favour of the proposal, although saying that members had the choice, and gave details of the proposal in a question and answer manner also generally in favour of the proposal. At the meeting of the board of Association held on 28 April 1994 Mr Talbot moved a motion, which was seconded by Miss Fraser, that "Those Directors who hold a view other than that expressed by the President in the Open Road magazine be given equal opportunity to express such opinion in the Open Road". The motion was defeated. 604 According to Mr Bateman's notes, at a meeting on 2 May 1994 attended by Ms Godwin, Mr Hosking, Mr Barry, Ms Birch, Mr Morgan, and Mr Bateman it was decided (referring what the notes described as the explanatory memorandum, which became Section 1 of the prospectus) that Mr Bateman should "now draft it from go to woe [prophetically, sic]". This decision broadly coincided with the adoption by the due diligence committee of the materiality guidelines, which as has been seen included amongst the qualitative factors to be taken into account "matters that we would ordinarily assume the readers of the Prospectus would reasonably require or expect inclusion or comment upon". Mr Bateman must have been aware of this, and in any event was familiar with the relevant principles. According to a file note dated 5 May 1994, he told Mr Stern that the duties of directors were to provide all information reasonably necessary to enable a person to determine how to vote, and that this was "based on a person on the run who scans the Ex St quickly" 605 There was further consideration of how to deal with the disadvantages of the proposal, or the so-called "no" case. That there was something to be said against the proposal was clearly recognised, and it is sufficient to refer to the briefing book prepared for the board retreat held on 7 May 1994 as envisaged at the time of the board approvals on 17 March 1994. It included a section reading - "CONCERNS RAISED BY DIRECTORS

The Association will be The activities and 'feel' of the changed and members Association are central to the services will inevitably success of the NRMA as whole - to decline jeopardise this would be foolhardy in a commercial sense

Members view of the Similar to the first issue; member Association as 'not for services must be viewed as part of a profit' - can it continue successful package of services to to operate that way? Members, not just as stand-alone business

If the organisation is The proposed listing is a means to financially strong, why achieve a range of benefits related bother to list to strategic flexibility, improved governance, and an efficient financial structure for the long haul giving members access to their wealth Listing is best accomplished when an organisation is financially strong

Why can't reduced prices Restructuring is intended to address be used to give back the more than just the capital surplus surplus to members issue (see above) and, in any event … … reduced prices are not the preferred method for resolving the surplus issue:

• risk of destroying the insurance market for some time
• no flexibility to raise capital if needed at a later date

Once listed, won't the Seeking limitation on ownership from NRMA be taken over - how the ASX can we ensure Australian In any event, new owners (foreign ownership? or domestic) can only buy shares from existing owners at a fair price Good performance defends acquisition at low price

How will a balanced view Case law requires Directors to of the issues be presented 'include all information reasonably to members necessary to enable a person to determine how to vote' in explanatory materials; NRMA will comply with both letter and spirit of the law

What are the tax and Issues being addressed with pension implications relevant authorities" for members? 606 The further consideration included, according to the record of a communications meeting on 6 May 1994, that amongst the key opposition issues was "impact on the cost of policy/membership", a matter which was reflected in Mr Bateman's note of the meeting as "the NO case". 607 At the communications meeting on 11 May 1994 it was decided, according to the record of the meeting, "Open Road/Prospectus 'for and against' article: SB and Greg B to draft". SB was Mr Barrett. A similar note was made in the record of the meeting on 16 May 1994, and on both occasions the article was recorded as due by 23 May 1994. But the notes from the meeting on 18 May 1994 had the item "For & Against. When, if & how do we discuss it publicly? SB to advise", with a due date of 27 May 1994, and the notes for the meeting of 23 May 1994 said nothing about the for and against article but retained the item asking about public discussion. What happened in relation to the for and against article is not clear, but the explanation probably lies in a file note of Mr Bateman dated 24 May 1994 recording a communication with Mr Barrett, "He agrees that the 'yes'/'no' case should not be published except in the Explanatory Statement". In the result, therefore, the disadvantages were to be dealt with in the prospectus. 608 It should not be thought that this was seen as lessening the need for full and fair information. It was clear that, in the context of the known agitation for a "no" case, the NRMA was advised that the prospectus should deal with disadvantages as well as advantages. So much is apparent from a file note of Mr Bateman dated 15 May 1994, recording a conversation with Mr Rees and Mr Barrett - " - confirming that the 'no' arguments must be canvassed in the Ex Statement

• if they are canvassed in the Open Road this reduces but does not exclude the obligation to address them in [indecipherable] Ex St." 609 Mr Bateman gave evidence that at meetings variously with Mr Willing, Mr Rees, Ms Conway, Ms Godwin, Mr Barry, Ms Birch, Mr Stern, and Mr Morgan in the period March to May 1994 he said that the arguments for and against would have to be canvassed as part of providing all information reasonably necessary; that what was material included reasons for and against; and that there would be difficulty in separating out a "yes" case and a "no" case because it was difficult to classify some matters as either for or against, it was difficult to rate the importance of issues, the importance of issues varied from member to member, and there were a great many members and so great diversity of, and conflicting views on, issues. Mr Morgan did not recall this, but said that his own view at the time was that the prospectus had to identify for members what material changes would be brought by the proposal and that it was a matter for each member to decide whether he or she thought any such change was an advantage or a disadvantage. None of the NRMA personnel who gave evidence asserted that they were unaware of the need for full and fair information, or were unaware that the arguments for and against would have to be canvassed. 610 Mr Bateman provided a first draft of the explanatory statement to Ms Godwin under cover of a letter of 30 May 1994. It should be described at a little length: what will be seen is that it referred to giving up membership, used the language of free shares, and included material specifically directed to the arguments for and against the proposal. Mr Bateman's covering letter said that the draft was "designed for severe editing", and that there was repetition "with a view to others determining the best way to present certain arguments and the style in which those arguments should be presented". 611 Early in the draft was - "2. SOME IMMEDIATE ANSWERS YOU MAY BE SEEKING

Below are some of the questions to which you may be seeking immediate answers.

(a) 'In essence, what is the change I am being asked to vote on?' You are being asked to swap your membership (which is a type of part-ownership) of the NRMA for some free shares (which is a better type of part-ownership) in the NRMA. It is a better form of part-ownership.

(b) 'How can the NRMA give away free shares?' Because your membership of the Association and NRMA Insurance are of value, when you give your membership up, control of the Association and NRMA Insurance (and thereby all the companies in the NRMA) will be given wholly to a new company, NRMA Holdings. NRMA Holdings will then give you shares in return for what you have just given up. The NRMA Holdings shares don't cost you anything because they've already been paid for by you giving up your membership so that NRMA Holdings can be the head company in the NRMA.

(c) 'Why is the NRMA doing this?' The type of part-ownership you presently hold does not enable you to share in the wealth of the NRMA. Your new form of part-ownership is in the form of shares which means that you will be able to receive income from the NRMA in the form of dividends.

(d) 'Why not simply reduce road service fees?' It is the Association which provides members with road service. The Association only ever makes a relatively small profit. The more substantial profits made by NRMA Insurance cannot, because of the unusual legal structure of the NRMA, be passed across to the Association. Hence, while the NRMA overall has good profit it can't be made available to the Association to enable it to reduce membership fees.

(e) 'Then why not benefit members by reducing insurance premiums?' For a start, 30% of all members of the Association do not even have insurance policies with NRMA Insurance. Hence that 30% would not be benefited by reducing premiums. Also, there is a large and increasing number of policyholders who are not members of either the Association or NRMA Insurance. Why should they, as valued customers, get reductions at the expense of those policyholders who are members? If these problems could be overcome there is still the serious problem that a significant reduction in premiums would destabilise the insurance market as some of our less financially strong competitors tried to keep up by price cutting. This would create risk for the community at large and would, therefore, be wrong.

(f) 'If you have shares, how will you stop some bigger company taking over the NRMA?' The constitution of NRMA Holdings prevents anyone having more than 4% of the shares. These special rules have been drawn very tightly to stop people getting round them. This will ensure that the NRMA will continue to be owned by a vast number of people each owning shares in NRMA Holdings.

(g) 'Won't the NRMA be forced to raise prices to satisfy the new shareholders?' Hopefully every member will accept the offer of free shares. In this way the NRMA will be quite unique in that its customers (those who have insurance policies and those who want road service) will also be its shareholders. In reality, it is more likely that some members will prefer to take the cash value of the shares being offered and so they would not end up being shareholders. Their protection against price rises is simply what happens throughout Australia for any company - competition.

If, for example, you are a customer of Woolworths, prices in its stores are kept competitive by its many competitors, regardless of whether Woolworths is listed on the Stock Exchange or not. So it is with the NRMA, except that in the case of the NRMA there is the unique opportunity to be both customer and shareholder and, by holding shares, receive a share in the profit that you cannot get access to at the moment.

Please note that because the above is a 'potted summary' of some of the questions and answers, you really must read the fuller explanation of the issues in what follows.

3. WHAT ARE THE ARGUMENTS 'FOR' AND 'AGAINST' THE PROPOSAL?

In what follows you will find background information and a discussion of the issues which may be significant for members to consider. The importance of any issue will vary from member to member. Some aspects of an issue will be seen as positive by some members, negative by others and quite unimportant to others again. The arguments 'for' and 'against' the proposal must, therefore, depend on each member's view of the issues raised by the proposal. All members are encouraged to read this Explanatory Statement.

Your directors, having considered all the issues, believe that a vote in favour of the proposal is in the interests of all members.

The NRMA has been concerned for some time that its financial success has not been shared adequately with the members, who own the NRMA.

The practical problems that face the NRMA in giving its members access to the wealth of the NRMA are primarily caused by the unusual features of the key legal relationship in the present structure of the NRMA. This is explained below, initially under the heading 'Present Structure of the NRMA', and later under the heading 'Guarantee Companies'.

Over the past 2 years NRMA Insurance has given back $180 million in the form of insurance rebates. However, this provides only a short term solution, and only benefits policyholders and does not benefit the 30% or so of members who are not policyholders. We have also considered reducing insurance premiums but, because of the dominance of NRMA Insurance in the NSW market, this would have a de-stabilising effect on the insurance market. Once again, only policyholders would benefit - not all members.

After much thought we see the issuing of shares as the best long-term solution. The 2 principal benefits which arise from a member owning shares in the NRMA are: income in the form of dividends on the shares; and capital growth from a rise in the share price on the Stock Exchange.

In this way members of the NRMA would, for the first time, have access to the wealth of the NRMA." 612 There was then a description of the structure of the NRMA, of the weaknesses in that structure, and of the proposed structure, and some discussion of the nature of companies limited by guarantee. The draft continued - "8. WHAT OTHER ALTERNATIVES ARE THERE?

Your directors have put before members the proposal which was felt would best meet the needs of current and future members.

It is inappropriate, therefore, to put forward other proposals which your directors feel would be inferior. As evidenced by the size of this NRMA Float Pack it is a complex and exacting task putting any proposal of such magnitude into action. Confusion would reign if, for example, 2 or more alternative proposals (for restructuring the NRMA) were to be put to the members to vote on.

Set out below is a short description of some alternatives that might be thought relevant to the discussion. The most obvious one is that nothing should change. All the others must involve some change and, as noted above, they are not being pursued because they are viewed as inferior to the proposal now before the members.

It is not essential that the proposal before members be implemented. Life could go on under the present structure without much difficulty. Why do it then?

The answer is that things could be so much better for members if they became shareholders in the NRMA listed on the Stock Exchange. If there is a better way of doing things for members it should be investigated and, if appropriate, implemented. That is the fundamental viewpoint that derives the proposal now before the members.

A natural response to the statement that the members can't get access to the wealth of the NRMA might be 'give it back to the members in lower prices for road service and lower insurance premiums.'

Such a response does not offer a solution because it fails to recognise a number of realities which are discussed below.

Why a reduction in road service fees is not the answer

Taking first the question of 'returning the wealth' by reducing road service fees, the realities are: NRMA Insurance makes very substantial profits, whilst the Association only makes a relatively small profit. The profits of NRMA Insurance cannot, by law, be given to the Association. The profits of NRMA Insurance are for the benefit of NRMA Insurance (because it is a company limited by guarantee) and if its profits could be distributed, they would go to their 1.3 million policyholder members, not the Association. Accordingly, the Association has no capacity to reduce annual subscription for road service. It does not have sufficient profits of its own to safely do this and it cannot get access to the more substantial profits of NRMA Insurance to help do this either.

It is a number of different problems that prevents NRMA Insurance from benefiting members by reducing premiums. Here the realities are: 30% of all members of the Association do not even have insurance policies with NRMA Insurance. Hence, that 30% would not be benefited by reducing premiums. #% of all policyholders are not members of NRMA Insurance. Hence, reduction in premiums for them is not benefiting true members of NRMA Insurance. Effectively those policyholders, who are of course greatly valued customers, are simply being given a reduction in price, which would be at the expense of those policyholders who are members. If reductions in premiums were only given to those policyholders who were also members of the Association, this would most likely fall foul of provisions of the Trade Practices Act. Even if some scheme could be devised which would allow for a reduction in premiums in a way designed to benefit policyholder members, because of the dominance of NRMA Insurance in the NSW market, it would have a de-stabilising effect on the insurance market. Our competitors would be forced to reduce their premiums in order to compete and, because some are not as financially strong as others, there is increased risk for such companies. Exposing the community at large to such risk would be wrong.

The solution to the problems described above is to be found in the proposal now before the members. Under the proposed structure: The profits of each of the Association and NRMA Insurance will be fully available to NRMA Holdings - both 'profit pools' will then be brought together, which is not possible in the present structure. That profit can be distributed to the shareholders of NRMA Holdings who, if members have accepted the offer of free shares, will be the former members of the Association. The profit that is distributed to the shareholders of NRMA Holdings (in the form of a dividend) is likely to be 'franked' which means that the shareholders will be given a credit, to some degree, against their tax liability on the dividend. NRMA Insurance will continue to be competitive in the setting of insurance premiums for policyholders. The Association will continue to provide road service as part of an annual subscription which is reasonable. The owners of the NRMA, being the shareholders of NRMA Holdings, will have a greater interest in voting on matters put to shareholders (including the election of directors of NRMA Holdings) as they will have a direct financial interest in the NRMA.

As already noted, once a decision to change the structure of the NRMA is made, it is then a question of what is the best structure. Other structures, which are viewed by your directors as not as good as that upon which members are asked to vote, include the following: Why not do the same as what is proposed, except do not list NRMA Holdings on the Stock Exchange? It might be thought this would offer the advantage of not exposing NRMA Holdings to takeovers. That view would be misplaced on 2 counts. First, the Articles of NRMA Holdings have takeover protections in them in the form of a limit on any shareholder having more than 5% of the shares. This is discussed later under the heading 'Can the NRMA be Taken Over?'. Second, a company with a significant number of shareholders is subject to the rules in the law concerning takeovers, whether it is listed on the Stock Exchange or not. Why not sever the link between the Association and NRMA Insurance? This approach may be coupled with suggestions that either, or both of them, remain as companies limited by guarantee or that they issue shares. Such an approach suffers from a number of basic problems. The first is that the strength of the NRMA has been the existence of those 2 companies in tandem, each benefiting from the other. If they were to go their separate ways, each would be weaker. The value of the combination is greater than its parts. Second, each uses assets owned by the other and there would be significant financial consequences for each company to effect such a separation. Third, a separation of the 2 would mean splitting the management and staff of the NRMA on some basis between the 2, with the likely fracturing of that culture of the NRMA which has made it a pre-eminent quality service provider. There are other concepts, combinations of ideas, and so on. In the final analysis each of the alternatives usually suffers from a number of problems which are like the above or there is some other significant legal or commercial barrier which make such alternative unacceptable.

Under the proposed structure shares are offered, free of charge, to the members. It is hoped that all members will elect to accept the free shares rather than ending up with the cash equivalent.

For those who accept the free shares they, as shareholders in NRMA Holdings, will be entitled to: income in the form of dividends on the shares; capital growth from a rise in the share price; and if the shareholder ever needed to, some or all of those shares could be sold.

10.WILL PROFIT FOR SHAREHOLDERS MEAN PRICES WILL GO UP?

Some members may be wondering whether the listing of the NRMA on the Stock Exchange will mean that there will be continual pressure on the directors to make profit and that, to achieve that, the premiums for policies and the annual subscriptions for road service will go up.

The answer is that it is competition which determines prices, not whether the supplier is listed on the Stock Exchange or not. If you are a customer of Woolworths you will know that in their stores prices are kept competitive by its many competitors, regardless of whether Woolworths is listed on the Stock Exchange or not. The NRMA has many competitors large and small in the insurance market. Some of these competitors are, by the way, listed and some are not. That competition is the guarantee that the premium the NRMA charges will be competitive.

It is true that the NRMA does not have a great deal of competition in the area of road service. This could change if the NRMA was foolish enough to increase annual fees unreasonably.

There is also another factor to bear in mind. If, as your directors hope, you do accept the offer of free shares, you will be in the special position of being both a customer of the NRMA (by holding insurance policies and your Service Membership) and a shareholder. There are not many companies in the world who would be listed on the Stock Exchange who have as its shareholders its valued customers!" 613 As will appear, this first draft was later significantly changed, and the drafting passed from Mr Bateman. To concentrate for the moment on the free shares problem, the use of the language of free shares is plain in the extracts I have set out, and there were other references to free shares in the draft. In describing the procedure for listing it was said that the "offer of free shares to the 1.8 million members" closed on a particular date, that a member might by returning the acceptance form "elect to take either the free shares or the cash value of those shares", and that all of the "free shares" not accepted by members by a later date would be offered for sale; as well, in describing how many shares would be issued and who was entitled to shares there were a number of references to free shares or the free shares. 614 The use of this language is consistent with Mr Bateman's evidence that, at a logistics meeting or a meeting of the prospectus working group at about the end of May 1994, either Ms Godwin or Mrs Storrs asked, "We can use 'free shares' now can't we?", and Mr Simpson replied, "Yes, we have already signed off on 'free shares' as acceptable to use." Mr Simpson denied any such question and answer, and said that he did not recall being at any logistics meeting or meeting of the prospectus working group in late May 1994. There may have been some imprecision in dating. What is quite clear is that, to the knowledge of all concerned, the description "free shares" was used, and continued to be used, and by the end of May 1994 AAH had in a sense signed off on "free shares" as acceptable to use in the entitlements letters to which I will shortly refer. Its reservation in relation to the entitlements letters did not apply to the prospectus, since the prospectus would be issued only when the means of implementing the proposal was firm. I accept that something to the effect recalled by Mr Bateman was said at about the end of May 1994. 615 While Mr Bateman's draft used "free shares", it did not use the capitalised "Free Shares" found in the final version of the prospectus. The use of Free Shares seems to have come about in a number of steps. 616 A draft of the then Section 5 of the prospectus, which ultimately became Section 2, had already been prepared by BT. It referred to the Members Primary Offer and the Secondary Offer, saying in relation to the first of these that members "may elect to receive their entitlement to Shares in NRMA Holdings at no cost or to receive the Cash Equivalent". The descriptions "Members Free Offer" and "Sale Offer" were not used. 617 At a meeting of the prospectus working group on 1 June 1994 Mr Rees expressed dissatisfaction with the descriptive phrases in the BT draft, amongst other things saying that he did not want members thinking that they had to pay for shares in the primary offer and that the best way to make that clear was the call it the Members Free Offer instead of the Members Primary Offer. Someone else suggested calling the second stage the Sale Offer, and Mr Rees said that those would be the descriptions used. Ms Godwin's note of the meeting included - "2 Terminology (1) Can we call - members offer - free offer - secondary offer - sale offer" Ticks appeared next to each query. The evidence included a version of the BT draft printed out by AAH on 1 June 1994 - presumably AAH had obtained a computer disc - amended in the writing of Mr Morgan to change "Members Primary Offer" to "Free Offer" and "Secondary Offer" to "Sale Offer", and another version printed out on the same day with those changes. 618 Mr Rees also said, at the same meeting, that the phrase Free Offer or Members Free Offer would be used throughout the prospectus, not just in Section 5, in Section 1 and wherever else it was relevant to tell members about the free offer of shares. Mr Bateman's note of the meeting included - " - Closing Date of Free Offer is 5 October - All references to Free Offer goes into the Explanatory Statement" So it must have been agreed that the descriptions would be used generally, as would be expected. The drafting of the onsert took up the descriptions, see later in these reasons. 619 The final step to Free Shares was not spelled out in the evidence, but it can be seen how the use of Free Offer would bring change from "free shares" to "Free Shares". This had happened by 16 June 1994, as is evident from a further draft of Section 1 of the prospectus of that date. By this time, as will be explained, Mr Bateman had been displaced as the draftsman. The final step was probably taken by Ms Godwin or Mr Barrett, but of course Mr Morgan and Mr Bateman knew of it from their consideration of the draft and its successors. The entitlements letters 620 A major external communication after 17 March 1994 was the entitlements letters, and they came to use the language of free shares. I have already described their nature. 621 A meeting on 29 March 1994, attended by Mr Bateman but not by Mr Morgan, discussed the form and content of the entitlementS letters. Amongst other things, it was decided that a "question and answer sheet" explaining the proposal should accompany the letters. 622 Mr Bateman drafted the letters. His drafts of 5 April 1994, four different letters according to the entitlements, had headings referring to "entitlement to NRMA shares", included that the members could be asked to vote later in the year to become "shareholders in the organisation", and also included, "It is our intention that the NRMA shares be free". The drafts seem to have been accompanied by a draft brochure giving some explanation of the proposal, the basis of entitlement, and the procedure for resolving disputes over entitlements, although it is not entirely clear that the brochure was then in draft: I will pass over it for the present. 623 The drafts of the entitlements letters were revised by Mr Bateman over the next few days, without any substantial changes. A further draft of the main entitlements letter was prepared, it seems by Mr Mamutil or at least not by Mr Bateman, on or about 21 April 1994. The heading now referred to news "about your shares (worth at least $500) in NRMA", and the letter now included, "The proposal is that shares in NRMA (worth at least $500 per member) will be given to NRMA's members absolutely free of charge", and near the end referred to the "issue of free shares". A copy went to Mr Bateman. He made comments upon it, but not in relation to these words. 624 A committee of NRMA management and communications advisers met a little later in April 1994, amongst other things to settle the wording for this entitlements letter, and decided that it should be redrafted. No one attended from the solicitors. The minutes of the meeting included - "* The intention of the entitlement letter is for it to be as much a selling documents [sic] as it is to confirm details.

• The entitlement letter will be 2 pages, but in duplex form (ie back and front of both sheets)

• Whether we say 'free' shares was also discussed. It was decided that we will consult with David Simpson regarding this.

• Stuart will re-draft these letters based on what has been discussed in this meeting …

• Regarding the brochure, Stuart has sent it to an agency to have it rewritten …".

Stuart was Mr Stuart Salvage. Ms O'Connell's notes of the same meeting reveal the question about free shares: they said "shares won't be funded by mbr - > thro' dividend re-invest - do we say free". 625 The new drafts were provided to Mr Simpson on 28 April 1994. They retained the sentence concerning shares absolutely free of charge, and followed it with the sentence, "This letter confirms that you [John A Citizen], will receive free shares if the proposal goes ahead". There were added references to the receipt of shares being "All at no cost" and to receipt of the member's "entitlement to free shares" if the proposal was approved. The language of free shares was by now thoroughly entrenched in the redrafting by the NRMA, no doubt in aid of the entitlements letters being "selling documents". 626 Mr Simpson wrote on one of the new drafts, apparently as a substituted sentence, "This letter confirms that you will receive free shares if the proposal goes ahead". He did not record any other dissent from the wording. 627 Further drafts of the entitlements letters were sent to Mr Simpson on 29 April 1994. He wrote a number of alterations on one of the drafts, those of present particular significance being underlined - "This letter confirms that it is our intn that you will be entitled to receive shares in NRMA (of at least $500 per member) free of charge if the proposal goes ahead.

Long standing members will receive even more shares (up to twice as many). And members who have an insurance policy with NRMA Insurance will also receive additional shares. All at no cost to you .

In the meantime it's important that we check our records to ensure that you will receive your full entitlement to free shares if the proposal is approved by members."

In the last of the paragraphs just set out the word "free" was circled with an arrow of uncertain significance, and at the foot of the page Mr Simpson wrote within quotation marks "it is our intn that the shares be issued free." In two later references in the letter to the issue of free shares Mr Simpson circled the word "free". 628 The next drafts of the entitlements letters, as at 5 May 1994, were sent to Mr Morgan for his comments. They seem to have been redrafted by Mr Salvage. The heading now proclaimed "Important news about your free shares (of at least $ - ) in NRMA", and the part of one of the drafts corresponding to that just set out now read - "The purpose of this letter is to confirm that you will receive at least $1,000 of free NRMA shares if the proposal goes ahead.

The proposal is that shares in NRMA, from a minimum of $500, will be given to NRMA members.

Long standing members will receive even more shares (up to twice as many). And members, such a [sic] yourself, who also had an insurance policy with NRMA Insurance at the cut-off date will also receive twice as many shares again . All at no cost.

Please check the following details to ensure that you do receive your full entitlement of shares. Or, if you don't agree with the details below, be sure to let us know so that we can check the facts thoroughly before the share issue takes place towards the end of the year."

The two references later in the letter to the issue of free shares remained, and there was a third. The drafts were accompanied by a draft of the brochure, although the evidence did not include that draft. 629 Mr Morgan responded on 5 May 1994 with comments which included - " (a) Paragraph 2

Further, in relation to this section and also the heading to the letter, the statement made is that the person will be receiving 'free NRMA shares'. Previous statements had indicated that it was NRMA's intention that they be free. Whether or not they are free depends essentially upon the acceptance of the current structure that is being discussed with the Australian Tax Office. Although we are more confident today that what is said here will be correct, there is always the possibility that that will not be correct and that we may have to fall back to other methodologies to pay the shares up. A better approach might be to use the word 'free' in the following sentence which describes the proposal so it would in effect say, 'The proposal is that shares … will be given free to NRMA members'.

In this paragraph and consequential upon the comments above, the statements that members will 'receive' shares should read in both instances 'will be entitled to receive'.

Should the last sentence here be qualified by words to the effect 'if the proposal is approved by members' or 'if the proposal is approved by the Board'.

Each time the word 'receive' is used, the words 'will be entitled to' should be inserted and again the references to the word 'free' where they appear should be reconsidered.

Again, the references to the word 'free' need to be reconsidered.

Again, generally speaking, the terms 'free' and 'at no cost' should perhaps be reconsidered. We note in the brochure that a new phrase 'free of charge' tends also to be used, sometimes prefixed by the adverb 'absolutely'.

Secondly, the approach in drafting should be to emphasise entitlements rather than making an absolute promise that parties will be given shares or receive shares." 630 The next drafts of the entitlements letters were sent to Mr Morgan on 6 May 1994. The heading now referred to important news "about the proposal to give you free shares (of at least $ - ) in NRMA". The drafts now read, so far as material - "In March it was announced that NRMA was considering a proposal to allow you and others who were NRMA members as at the cut-off date of March 16 1994 to become shareholders, at no cost, in NRMA.

The purpose of this letter is to confirm that you will be entitled to receive at least $ - of NRMA shares if the proposal goes ahead.

Long standing members will be entitled to receive more shares (up to twice as many). And members who also had an insurance policy with NRMA Insurance at the cut-off date will also be entitled to additional shares.

The enclosed brochure explains more about this plan and about the members' ballot to vote on the proposal later this year. (For the proposal to go ahead, 75% of the members who vote will have to vote 'Yes'.)

In the meantime it's important that we check our records to ensure that you will receive your full entitlement to free shares if the proposal is approved by members." 631 The latest versions of the entitlements letters were sent to Mr Morgan on 16 May 1994. They showed substantial redrafting. They retained the heading "Important news about the proposal to give you free shares (of at least $ - ) in NRMA". With one exception, nothing in the body of the letters referred to free shares or giving shares, and the notion of entitlement to shares was used. The exception was that at the end of the letter there was a reference, in connection with what would happen next, to future details of "the proposal to issue free NRMA shares". The latest draft of the accompanying brochure was sent to Mr Morgan at the same time. It referred to a proposal to "offer shares free to members", and to a proposal that members would "be given free" a minimum of $500 in shares. In the section answering members' questions appeared the question and answer, "Will I have to pay for shares?" and "The intention is that shares will be given to each member free of charge". Mr Morgan changed the words in the draft "offer shares free to members" to "offer free shares", and changed the answer to the question to read "… will be given free of charge". 632 The entitlements letters in their final form were approved by Mr Simpson for AAH on 25 and 26 May 1994. The heading remained. One of the letters, intended for employees, had a first sentence referring to the announcement in March that the NRMA "was investigating issuing free shares to employee members". There were otherwise no references to free shares until the reference to future details of "the proposal to issue these free shares in NRMA to you". 633 The NRMA placed some emphasis on the entitlements letters in these proceedings, although I do not think they are critical to my decision: for that reason, I have spent some time describing their drafting history. There were many changes in the course of the drafting, and an emphasis on free shares can be seen, apparently under the influence of Mr Mamutil or Mr Salvage. It is evident that AAH accepted with a reservation the description of the shares to be issued to members as free shares. The reservation was not that the shares were not free because the members were giving up their rights. It was that the shares might not be free because there was a possibility that an unsatisfactory solution to the perceived capital gains tax difficulty meant, in the words of Mr Morgan's comment of 5 May 1994, that the NRMA "may have to fall back to other methodologies to pay the shares up" - that is, maybe members would have to pay some money. So expressions involving entitlement to receive shares, proposal that the shares be free, or intention that the shares be free, were preferred, although far from consistently and not in strong terms. The reservation was not fully implemented. 634 The same approach can be seen in other external communications at this time. It is sufficient to give examples. One is a letter dated 9 May 1994 to Ms Parker, by which Mr Simpson conveyed AAH's approval to a message from Mr Mackay to be printed in The Open Road for June/July 1994. The message included, "The NRMA belongs to the membership and the proposed issuing of shares free is our way of formalising that ownership and giving you access to the financial wealth of the organisation". Another is a draft letter to be sent to NRMA "colleagues", approved by Mr Simpson on 1 June 1994. It read - "We are currently writing to all employees and members advising of their eligibility for free shares in NRMA.

The proposal to list the NRMA on the Australian Stock Exchange and to issue free shares will only proceed if it is approved by the Board in August and subsequently by members in October this year.

To be eligible for free shares as an employee or member, you need to have been an NRMA employee or an NRMA member as at the cut-off date of March 16, 1994.

Since you were employed after March 16, you will not be eligible for free shares as an employee. However, if either you or your spouse was an NRMA member as at that date, you will receive a separate letter of eligibility shortly.

If there are any opportunities in the future to extend share ownership to all employees, I will let you know.

In the meantime, if you do receive enquiries from customers about the proposal to issue free shares, I would ask that you direct them to contact the Members' Share Information Hotline : 008 64 90 90, 8am to 8pm, Monday to Friday.

Thank you for your efforts during this busy period." It is plain that the NRMA wanted to convey to its members and employees the message of free shares, in order to gain their support for the proposal, and much was left of that message in the entitlements letters and the brochure. 635 The entitlements letters, accompanied by brochures, were sent out on and after 1 June 1994. The perceived capital gains tax difficulty had not then been resolved. It was not formally resolved until mid-August 1994, although by late July 1994 communications with the Taxation Office and the Treasurer had brought confidence approaching certainty that an outcome satisfactory to the NRMA would be achieved. So in the final drafting and settling of the prospectus and the onsert there was not the same reservation as in relation to the entitlements letters. Indeed, the prospectus and onsert would be speaking of the final proposal, so the reservation was not appropriate - if the capital gains tax difficulty was not resolved, the proposal and so the prospectus and onsert would have to be changed. Mr Heydon is briefed on the nature of a member's interest 636 Mention of the capital gains tax difficulty brings attention back to the development of the proposal in early April 1994, in which the consideration for the HoldCo shares was no longer money but was something more abstract. The corporations law problem, that of paid-up shares, had been addressed by the brief to Mr Heydon and the conference of 29 April 1994, but the perceived capital gains tax problem had not been addressed. 637 If the consideration for the issue of the shares was giving up membership rights, what was being given up? More specifically, was what was being given up proprietary in nature so that the taxation legislation would catch it? The question of the nature of the member's interest in a company limited by guarantee had been raised in Mr Shultz's papers on taxation issues, and had been behind the addendum to the brief to Mr Heydon of 25 January 1994. While the question of paid-up shares had involved Mr Heydon considering whether members' rights could be consideration, he was now asked to consider whether a member had a proprietary interest in a company limited by guarantee. 638 The framing of the question in that way seems to have flowed from discussions with the Taxation Office. An AAH memorandum dated 5 May 1994 recorded that the Taxation Office was concerned to identify "what do members now have (is it an asset as defined in Section 160A?)", and Mr Morgan sent to the Taxation Office a letter which included - "We refer to our meeting on 3 May 1994 and set out below are our views on the nature of a members interest in a company limited by guarantee specifically, in this case, NRMA Ltd ('Association') and NRMA Insurance Ltd ('Insurance').

These views have been confirmed by Dyson Heydon QC in conference.

The focus is on the type of interest or 'property' which the member holds by reason of membership. Both companies are constituted as 'limited liability' companies and as such a member has no interest in the property or assets of the company. That of course is the same as the position for a shareholder. But what 'property' does the member have in the company itself?

In our view, the member's rights are accurately described as a 'chose in action', a well known form of personal property. This form of property is the same form of property that a person has as a party to a contract and it arises essentially by reason of the fact that by becoming a member the member thereby becomes contractually bound to the company and to other members in accordance with the contract set forth in Section 180 of the Corporations Law. The member has a bundle of rights under this contract. The member also has obligations under the contract. Under the Corporations Law the member also has other rights and obligations. However, these rights and obligations arise from statute and are not strictly part of the property of the member." The views were consistent with the AAH position from 1993, although the last sentence in this extract is unclear. The reference to Mr Heydon's confirmation of the views in conference must have been to discussion on 29 April 194 in the context of paid-up shares. 639 Mr Morgan was nonetheless moved specifically to brief Mr Heydon. He did so by a brief dated 12 May 1994. 640 The brief annexed a copy of AAH's letter to the NRMA of 4 November 1993, which had earlier been part of the brief to Mr Heydon for the conference of 14 December 1993. The observations expressed Mr Morgan's view that the nature of the member's interest was that of a chose in action, setting out reasons for that view. The reasons included - "9.6 I do not agree that members are merely agreeing to a variation of their rights. They are clearly giving up one right (being their membership) and acquiring a new right (being a contract for the provision of services). This is not a variation, it is a new right and a new agreement.

9.12 I do not agree that a member has merely lost a right to vote unless it is intended by this to suggest that a member has given up one right (ie membership) for another right (ie shares) and that, in an economic sense, perhaps more accurately a layman's sense, the rights are not similar under each. There certainly is no reinstatement or enhancement of the existing right of membership. More pertinently, the voting right which is part of the bundle of rights which forms the membership are not the only element of the property held by the member and therefore I believe that it is inappropriate to single out the voting rights for the purposes of determining whether that is an asset on the basis that, if it is determined it is not an asset, then the membership is not an asset. It is also again important to carefully note the point of time at which the analysis is being made. The membership immediately prior to the changeover date is at that point truly an enhanced right, that is, the existing right of membership has been altered by the change of status and the change in the Articles of Association of the companies." 641 Mr Heydon was asked for his opinion "on the nature of the interest of a member in a company limited by a guarantee". It should be noted that the question addressed a company limited by guarantee in the abstract, not Association or Insurance in particular, and that Mr Heydon was not provided with the memoranda and articles of Association and Insurance. Copies of the brief were sent to Ms Conway, Ms Godwin and Mr Bateman. 642 The brief brought a written opinion from Mr Heydon dated 14 June 1994. In substance Mr Heydon agreed with Mr Morgan. He considered that although a member did not have a share, he did have a chose in action under the contract found in the company's memorandum and articles, and that the terms of the contract could be enforced by injunction and declaration, possibly by an action for damages, and by relief from oppression. The rights under the contract were to attend meetings and vote, to a return of capital on a winding-up, and possibly to receive profits from the company's activities (it should be remembered that Mr Heydon was advising as to companies limited by guarantee in the abstract). He said that the worth of the members' rights was preserved by s 180(3) of the Law, by which the member could not be exposed by a change in the company's constitution to increased liability to pay money to the company. The opinion concluded - "In short, the nature of the interest of a member in a company limited by guarantee is that he has a chose in action the content of which depends (apart from the statutory rights he has under the Corporations Law) on the terms of the memorandum and articles of association of the company in question: the memorandum and articles and the Corporations Law define his rights, and also qualify them by the duties they create." The onsert to late July 1994 643 Mr Bateman had the principal concern with the onsert, it seems because the onsert included the proxy forms and a particular area for Mr Bateman was the meetings. In the period to late July 1994 he twice obtained Mr Heydon's advice. The group to which fell the detailed consideration of the onsert was the logistics working group. 644 I have referred to drafts of the proxy forms and acceptance of shares form provided to Ms Godwin in February 1994. Questions arose in relation to the wording of the proxy forms. On 13 April 1994 Mrs Storrs wrote to Mr Bateman asking him to "brief Queen's Counsel on an urgent basis to provide advice as to whether the form of proxy currently prescribed under Article 24 of the Articles of Association of the Insurance company can be varied so as to conform with the format currently used for NRMA Limited proxies". The articles of Association did not provide for a form, but the articles of Insurance did, and one question was whether the relevant article was mandatory or directory. Another question was whether Insurance could issue a form of proxy making the chairman of the meeting the residual proxy holder, providing in a particular way for how the proxy holder was to vote, encouraging the appointment of proxies, and giving instructions as to completion. 645 By a brief dated 22 April 1994 Mr Bateman asked Mr Heydon to advise on those questions, and on the further question whether the form of proxy in the brief was "valid in the sense that if it were duly completed and lodged within time it is not open to challenge". The form of proxy in the brief was for a meeting of Insurance, and did not have an acceptance of shares form at its foot or in any way refer to free shares. In a letter to Mr Heydon dated 28 April 1994 Mr Bateman added reference to and discussion of a case thought to be relevant, and provided the then current forms, being forms of proxy for meetings of Association and Insurance and another page providing for acceptance of shares or cash. The acceptance was quite different from the later acceptance of shares at the foot of the third page of the onsert, and did not refer to the shares as free shares. 646 In an opinion dated 3 May 1994 Mr Heydon advised that the article was directory, that the other questions should be answered in the affirmative provided there was not inconsistency with the proxy form in the articles, and that the form of proxy briefed was valid. 647 In late April 1994 Mrs Storrs raised a concern over giving notice of meeting to a member of Insurance if the prospectus and onsert package was addressed to that person and another person as joint members of Association. She consulted Ms Conway, who said that Mr Bateman should be instructed to brief Mr Heydon to advise in conference, with a written advice if it was then thought desirable. A brief dated 11 May 1994 was delivered to Mr Heydon. 648 A conference with Mr Heydon was held on 2 June 1994, those attending being Mrs Storrs, Mr Simpson, and Mr Bateman; it seems that it had been intended that Ms Conway would attend, but she did not. Ways of overcoming the concern were considered, one of which was then adopted: it is unnecessary to go into the matter. Written advice was not required. 649 Drafts of the onsert were prepared and considered, essentially limited to proxies and whether the member wanted shares or cash. It will be recalled that the terminology of Members Free Offer and Sale Offer was adopted for the prospectus at the meeting of the prospectus working group on 1 June 1994, and the use of the language of free shares was taken up at a meeting of the logistics working group on the same day. Mr Bateman said that the forms in the onsert would need names. Mrs Storrs said that the acceptance of shares form could be titled "Acceptance of Free Shares" and the proxies could be called "Voting Papers". She added that AAH had already said it was all right to use "free shares", and a little later Mr Stern said the same and that where the onsert referred to shares it would be free shares. 650 As later described in relation to the prospectus, from early in June 1994 the input of Mr Barrett increased. On 9 June 1994 Mr Hosking sent a memorandum to those involved in the drafting of the onsert, including Mr Barrett, Mr Morgan, and Mr Bateman, with copies to Mr Rees, Ms Conway, Mr Mamutil, Ms Godwin, and others within the NRMA, reading - " Subject: Onsert Forms Decision Making Process The onsert forms are in a nearly complete state from the legal, technical and design perspective. The communications of the total prospectus package should now be considered.

Adrian Rees requested that Sean Barrett now have overall responsibility for the onsert forms. Lisa Storrs is the NRMA representative liaising with Sean. Sean reports to Adrian Rees. Day-to-Day responsibility for the forms will be via Lisa." 651 The use of the title "Acceptance of Free Shares" seems to have been confirmed at a meeting on 7 June 1994, with Mr Barrett's imprimatur, and Mr Barrett prepared a new draft of the onsert: this must have been a product of "overall responsibility for the onsert forms" going to Mr Barrett, as conveyed in the memorandum of 9 June 1994. Mr Bateman's initial role in drafting both the prospectus and the onsert had now been taken away. 652 Mr Barrett's draft of the onsert had a window for the particulars of the addressee on a title page, the title being "Your personalised voting pack for the proposal to issue free shares in NRMA". It then had a section stating that it was proposed that NRMA "issue free shares to members", drawing attention to the proposed meetings and to the prospectus, and inviting completion of the proxy form and acceptance of free shares form if the member could not attend the meetings and the acceptance of free shares form if the member could attend. The top of the next page provided for the member being told of entitlement to a particular number of free shares. There followed a proxy form and an acceptance of free shares form, in the latter case now entitled as such and providing for the member to say whether the free shares or the cash equivalent was desired. The language of free shares was thoroughly part of the onsert. 653 The draft onsert was discussed at a meeting on 10 June 1994, attended amongst others by Mr Rees, Ms Conway, Mrs Storrs, Mr Barrett, Mr Morgan, and Mr Bateman. Mrs Storrs was now in a more prominent role in relation to the onsert in the logistics working group. According to her note of the meeting - "Lisa Storrs raised the issue of legal challenge to this format on the following bases:

1. The term voting form or voting paper gives the impression that this is a ballot form when in fact it's a document appointing a proxy.

2. We are going out on a limb anyway in changing the insurance proxy to further change it by placing the chairman as the first option as proxy (when in fact the articles do not mention the chairman as a choice of proxy at all) could be risky.

3. She acknowledged that the members do not have to be given a proxy form at all but since the articles do allow for it consideration should be given to provide a form favourable to members expectations.

Greg Bateman considered that the document was legally valid and that although there could be a challenge it would only be of a true risk if there was a series of challenges on the meetings procedure and documentation format as a whole.

He pointed out that the voting form in the "Sean" version should also have reference to the proxy voting as he sees fit, if other resolutions arise. The Association can put a form of proxy as it likes but there is still the problem for the Insurance proxy which is basically question 6 on the "Sean" version. Greg Bateman to obtain QC's verbal advice on the risks associated with altering the form as per question 6." It will be seen that the possible legal challenges were not concerned with the references to free shares. 654 By a letter to Mr Heydon dated 10 June 1994 Mr Bateman asked for Mr Heydon's opinion in conference. He referred to the brief of 22 April 1994 and the opinion of 3 May 1994. He enclosed Mr Barrett's version of the onsert, saying that it would accompany the prospectus to be despatched to members. He sought Mr Heydon's verbal assurance that the proxy forms, particularly that for Insurance, were "valid as to form". In the discussion in the letter, Mr Bateman expressed the view that the proxy forms "comply with elements raised in Counsel's written opinion", but drew to Mr Heydon's attention as areas which might require consideration the description of the forms, expressly or impliedly, as voting forms; the appointment of the chairman before the appointor's choice; and the different format from that normally used for proxies. 655 The opinion was given in a conference with Mr Heydon on 16 June 1994. Mr Morgan, Mr Simpson, and Mr Bateman were present, the occasion for the conference being Mr Morgan's brief of 10 June 1994 concerning goodwill later mentioned. Although the conference had been arranged in connection with the question of goodwill, Mr Bateman being present, it extended to the question of the proxy forms. 656 Restricting present attention to the advice concerning the proxy forms, only Mr Bateman had a meaningful note of the conference. Recollections were limited. 657 Mr Bateman's note indicated that Mr Heydon considered that the proxy forms would be marginally improved by adding to the description of "voting paper" words such as "for proxy voting", and that Mr Heydon was not concerned about what was noted as "appt of chairman first" and "format". Mr Bateman's evidence included that Mr Heydon did not express any concern about the references to free shares, and no one else present suggested that he did. According to Mr Heydon, nothing was asked of him or said by him about free shares, he was asked specific matters about the proxy forms none of which related to the use of that expression, and he did not turn his mind to it. None of Mr Morgan, Mr Simpson and Mr Bateman suggested that there was reference at all to free shares, and I accept that there was not. 658 Mr Bateman telephoned Ms Godwin, who must have been made aware of the matters raised by Mrs Storrs, and passed on the advice about the proxy forms. After the conference Mr Heydon telephoned Mr Bateman and said that, on further reflection, his opinion of 3 May 1994 was incorrect in so far as he had said that the appointor did not have to be given a possible proxy other than the chairman, and that the appointor should be given the option of appointing the chairman or someone else: Mr Bateman's note included, "This could also be achieved by some asterisk or note". Mr Heydon had really not said that the appointor did not have to be given a possible proxy other than the chairman, and this seems to have been an excess of caution. The overall result was recorded by Mrs Storrs in a file note - " Attending Greg Bateman on the phone . He advised Dyson Hayden [sic] concerning the NRMA Insurance proxy form as follows:

3. Marginal risk with having a reference to a voting paper rather than a proxy. This could be overcome by calling it a proxy voting paper or having in brackets under voting the words 'for proxy voting'.

The main problem is that the Insurance proxy has to provide for two open appointments. At this stage we have taken up one of those appointments by naming the Chairman. It would be preferable to have two open appointments if we are also going to name the Chairman." 659 Amendments to the onsert to give effect to the advice were agreed at a meeting of the logistics working group on 16 June 1994. 660 Mrs Storrs raised with Mr Bateman on 17 June 1994 whether Mr Heydon should "put his changed thinking on the proxy form in writing", and Mr Bateman replied (according to Mrs Storrs' file note) that "he didn't think it would be worthwhile instead we should get a final sign-off on the package of forms, prospectus, notice of meeting etc". The NRMA placed some reliance on the undoubted fact that, if it was intended at this time, no "final sign-off on the package of forms, prospectus, notice of meeting etc" was obtained from Mr Heydon. As will be seen, however, circumstances changed, and the defendants said that Ms Conway in substance determined that Mr Heydon should not have this final involvement. Instead, there were the sign-offs by AAH and AT. 661 According to a file note made by Mrs Storrs, in a telephone conversation with Mr Bateman on 28 June 1994 dealing with various aspects of the onsert, Mr Bateman said he thought there should be "extra wording in the instruction sheet saying that the resolution to issue free shares should actually be elaborated upon by reference to the prospectus or notice of meeting". The instruction sheet must have been the second page of the onsert. Its then form is not clear on the evidence, and the note is not entirely clear, but Mr Bateman seems to have wanted the reader of the onsert to be referred specifically to the resolutions in the prospectus. Mrs Storrs' note recorded her reply that "the issue of referring to the resolutions in the prospectus had been included in a test format and that I would ring him and give him the wording as changed by Sean Barrett". This indicates Mr Barrett's significant role in the drafting. The onsert in its final form did say that "details about the proposed resolutions and the reason for the Boards' recommendations are explained in the enclosed prospectus". 662 As what I have just recounted reflects, the onsert had been tested in market research, for comprehension and proper completion, and had been altered from its earlier form. A detailed "customer research report" was prepared in early July 1994, indicating that the first version tested had many problems, that a second version was developed, and that while the second version had problems they could be overcome by applying some form design standards previously neglected. By 6 July 1994 the onsert had reached what was thought to be its final form. 663 The following description of the onsert for situation 3 members may be compared with the copy of the onsert in appendix 1. Later in these reasons the changes after 6 July 1994 will be traced through. 664 The first page had the window for the particulars of the member and the "Share the Future" logo. Towards the top it said prominently, "Important Information Inside". Beneath that and to the right of the logo were the words "How to vote!" and beneath them the words "How many FREE shares you will get!". In the bottom right hand corner, with a symbolic turning page, was said, "There is more information on the back of this page". 665 On the second page, the back of the first leaf, was the same logo and the text - " What the enclosed form is and why you should fill it in

It is proposed that NRMA change its current status and issue free shares to members. The NRMA Board are recommending that you vote in favour of this and take shares rather than cash. Details about the proposed resolution and the reasons for the Board's recommendations are explained in the enclosed Prospectus.

There are two meetings one for NRMA Limited starting at 10:00 am and the other for NRMA Insurance Limited starting at 3.30 pm to be held on Wednesday, October 12, 1994 at the Royal Agricultural Society Showground, Sydney.

The enclosed form is very important. It allows you to appoint someone to vote for you if you are not going to the meetings. This person is called a proxy. The form also allows you to tell us now if you want to take the free shares or a cash alternative.

Please note that you can still attend the meetings and cast your votes personally.

If you are IN FAVOUR of the proposed change, complete the left hand column.

If you are AGAINST the proposed change, complete the right hand column.

Tell us if you want the free shares or the cash equivalent by completing the bottom of the form.

Post the completed form back in the enclosed postage paid envelope.

Regardless whether you vote IN FAVOUR or AGAINST, you should fill in the Acceptance of Free Shares at sections 4 and 5 since the votes of other members may mean that the proposal goes ahead.

Post this form back to us in the postage paid envelope by October 1994 . There are legal time limits which are explained in the Prospectus but October 5 will meet the deadlines."

666 The top two-thirds of the third page provided alternative proxy voting forms for voting in favour of or against the proposed changes for Association, and beneath them was a section - " Acceptance of Free Shares

You need to complete this section even if you are going to the meeting or if you have voted NO. If at least 75% of the votes cast are YES votes free shares will be issued.

Cross a box to tell us if you want the shares or the cash equivalent.

4 [ ] I want the OR [ ] I want the You are entitled to [ ] free shares cash with an [ ] equivalent approximate value* of [ ]

5 Sign here Date [ ] [ / / ] * as disclosed on the pro forma balance sheet as at 31/3/94 refer to Section 4 of the Prospectus" 667 The fourth page contained proxy voting forms for Insurance. 668 Mr Bateman returned to Mr Heydon with this version of the onsert. On 6 July 1994 he went through the changes to the onsert with Mrs Storrs, and it must be that either he suggested or she instructed the return. 669 On that day Mr Bateman wrote to Mr Heydon - "We refer to:

(a) our Brief of 22 April 1994; (b) Counsel's written opinion in response dated 3 May 1994 a copy of which is enclosed for your reference; and (c) our telephone call of 16 June 1994 (following our conference with you).

Enclosed is the final version of the 'onsert' which is the loose material which would accompany the Prospectus to be despatched to each member of NRMA Limited.

This onsert addresses the most common situation where the member of NRMA Limited is also a member of NRMA Insurance Limited. The personalised information of the membership name and address will appear at the top of the relevant Proxy Paper.

As a matter of information, the Proxy Paper and instruction sheet will be adapted to meet the circumstances of each member's situation with, for example, multiple Proxy Papers for NRMA Insurance Limited where multiple membership exist. We believe that the enclosed forms of 'Voting Paper' meets all the concerns previously canvassed.

Our client is about to commence production of these and would, therefore, like your written confirmation that the proposed Voting Paper for each of NRMA Limited and NRMA Insurance Limited is valid as to form." 670 The enclosure was the full onsert in the 8 July 1994 version, which does not sit well with a letter of 6 July 1994, but for present purposes the differences from the 6 July 1994 version do not matter. From the history, in his reference to the "Voting Paper" Mr Bateman must have meant the proxy forms, both because the earlier briefs to and conferences with Mr Heydon had been concerned only with the proxy forms and because the balance of the onsert was not appropriately described in that manner. 671 The onsert was given some further attention, mainly in matters of detail, over the next few days. Mrs Storrs had the immediate responsibility for its finalisation within the NRMA. In a file note dated 8 July 1994 she recorded, "There is to be no other changes [sic] to the onsert forms other than those forced by legal circumstances. All changes are only to be done by Lisa Storrs with legal sign-off by Greg Bateman. Lisa Storrs is still awaiting QC's advice on sign-off." 672 It is apparent that Mr Morgan also considered what was thought to be the final form of the onsert, since on 8 July 1994 he recorded some questions and suggested amendments as to the detail. One of his suggestions was that onsert should include a statement that it was issued with the prospectus and "Before completing these forms, you should read the prospectus carefully"; this has links with Mr Bateman's earlier desire that the reader be referred to the resolutions, and was taken up by the addition of a marginal note at the bottom left-hand corner of the first page reading, "This document, the Proxy Voting Papers and Acceptance of Free Shares, is issued with the prospectus by NRMA Holdings Limited and Perpetual Trustee Company Limited dated XX August 1994. Before completing these forms, you should read the Prospectus carefully." With minor changes, this carried forward to the onsert in its final form, see Appendix 1. 673 Mr Heydon responded to the letter of 6 July 1994 in an opinion dated 20 July 1994. He recorded that he was "asked to comment on the formal validity of two voting papers headed Form C and Form D and dated 8 July 1994", they being the proxy voting forms in the onsert. As to the form for Association, he said it appeared to comply with the articles, which provided that the form could be determined by the directors. Identifying what he described as two particular points, he expressed the view that it was consistent with that to make the chairman proxy if the members accidentally chose two proxies and that a member could amend the form to deal with the impact of other votes. As to the form for Insurance, he said that it also appeared to comply with the articles and that, as earlier advised, the form set out in the articles of Insurance was directory not mandatory and did not preclude the additional, but not inconsistent, material in the form: that material was permissible, and if the member did not like it he could amend or delete it. 674 So as at 20 July 1994 the onsert appeared to be acceptable. Under the impetus of Mr Barrett, but without adverse comment by Mr Morgan or Mr Bateman, it contained the emphasis and attraction of free shares on the first page and a number of references to free shares thereafter. Although there had been reference to a sign-off by Mr Heydon, he had only been asked about the proxy voting forms and about their validity as to form. He had not been asked for an opinion about the references to free shares, and had not given any such opinion. 675 The restricted scope of the inquiry into the formal validity of the proxy voting forms must have been emphasised when, on 20 July 1994, Mr Bateman wrote to Mrs Storrs noting that there were different versions of the onsert according to entitlements and asking that the other versions be made available: he also said that the NRMA "must check with John Morgan of Allen Allen & Hemsley that he is also satisfied with the document as he must deal with the matter from a prospectus, lodgment and compliance point of view". 676 But on 21 July 1994 there was a complication - see below as to Ms Singleton's query. The goodwill question 677 The goodwill question had two aspects. Mr Heydon advised on one of the aspects. The goodwill question itself, in either of its aspects, was far from central to these proceedings. It seems to have been gone into because it showed consideration and appreciation, quite close to August 1994, of membership rights being legal property; of giving up membership rights; and of membership rights having value to the holding company in the sense that giving them up increased the value of its shares in Association and Insurance. And it was said that Mr Heydon's further attention to the value of membership rights underlay his important advice about free shares in early August 1994, to which I will shortly come. 678 The starting point of the first aspect was for present purposes a matter raised by C& L in March 1994. The holding company would acquire the NRMA. C&L said that application of Accounting Standard AASB1015, dealing with acquisitions accounting, had the effect that the goodwill represented by the excess of the value of the NRMA over the fair value of its identifiable net assets should be reflected in the balance sheet and amortised by a charge against profits on a systematic basis over a period of years. In April 1994 Mr Bateman was asked whether he agreed, and "whether there are any other avenues of dealing with the problem". 679 In the letter of 28 April 1994, earlier referred to as the source of a description of the proposal in its then form, Mr Bateman said that he agreed with C&L, and canvassed possible ways of reducing or eliminating the goodwill element. One way, which he rejected, was a technical argument that there was no acquisition. Another was bringing to account and/or revaluing intangible assets. Another involved reducing the share premium account. Finally, relief from AASB1015 could be sought. 680 Mr Bateman and Mr Pearce discussed this on 5 May 1994. A copy of Mr Bateman's letter of 28 April 1994 was provided to C&L, and C&L prepared a paper on whether AASB1015 applied to the restructuring and sent it to Mr Bateman on 10 May 1994. The conclusion in the paper was that it was a very complex question and required further research. 681 A meeting took place between Mr Pearce, Mr Lynn, Mr Tony Wehby also of C&L, and Mr Bateman on 11 May 1994, and another meeting took place between Mr Pearce, a Ms Bridget Curran (probably of C&L), Mr Barry, Ms Birch, Mr Lynn, Mr Morgan, and Mr Bateman on 31 May 1994, both considering the treatment of goodwill. 682 C&L prepared a draft paper for submission to the ASC seeking relief from AASB1015. It was necessary to address what the holding company would acquire, and the draft said that it would acquire "voting rights rather than shares". 683 Mr Morgan commented on the paper, suggesting that it needed more work, and his comments included - "In paragraph 16, the reference to voting rights is technically too narrow and I am not sure in any case that it ought to be said that the membership rights, which include the voting rights, are being acquired. Rather, as a technical matter, Members are agreeing to give up their membership rights with the consequence that the membership of the Holding Company is increased in value. I would suggest that this point is, in fact, important and we should be suggesting that this fact of itself may render the standard inapplicable. This needs also to be reflected in paragraph 19. There is no doubt that the value of the voting right and the value of the membership of Holding Company is enhanced by the Members giving up their interest." So the argument previously rejected, that there was no acquisition within AASB1015, was revived. 684 It was then decided, at a meeting on 10 June 1994 between Mr Pearce, Mr Wehby, Ms Curran, and Mr Bateman, that "a QC's opinion should be obtained", and that the application to the ASC would not be pursued if the opinion made it unnecessary. 685 On 14 June 1994 Mr Bateman prepared a draft brief to Mr Heydon requesting a written opinion - " … as to - (a) whether HoldCo acquires an asset, within the terms of AASB1015, on the Changeover Date;

(c) whether AASB1015.20 applies to HoldCo in relation to the events proposed for HoldCo in relation to each of the Association and Insurance on the Changeover Date." The observations in the draft brief contained a detailed consideration of the matters for opinion, and AT's view that AASB1015 did not apply to the proposed restructuring because the holding company would not acquire Association or Insurance in any of the ways to which it referred. Mr Bateman had modified his earlier view. 686 Mr Bateman sent the draft to Mr Morgan. Looking ahead for a moment, in the result Mr Heydon was not briefed to advise on this aspect of the goodwill question. 687 The second aspect of the goodwill question was of later origin than the first, and came to a head at this time. 688 As attention was given to drafting, amongst other articles, the so-called "change-over article" whereby members of Association and Insurance would cease to be members on condition that the new holding company issued shares to them, further thought was given to s 191 of the Law requiring transfer to a share premium account of a premium on the issue of shares. The draft change-over article took what was called the "Transfer Value" of each of Association and Insurance, meaning the value of each company and its subsidiaries, and the condition included that Holdings would apply the Transfer Value to pay up the par value of the shares to be issued and then credit the balance to a share premium account. 689 It was thought necessary to explore the application of s 191 to this situation. Mr Morgan prepared a brief for Mr Heydon to advise on the impact of s 191. 690 Early in the observations in the brief Mr Morgan said - "Senior Counsel has previously advised that the proposed restructuring would allow NRMA Holdings Limited to issue shares fully paid up by reason of the consideration or transfer of value from members to the holding company. To the extent that the transfer of value was greater than the amount required to pay up the shares the balance would be credited to a share premium account. We had not previously fully examined the implications of Section 191 and the matters now raised are a pre-cursor to issues arising in relation to the application of the accounting standards relating to goodwill." 691 It was then said that the proposed restructuring was "outlined in section of the draft prospectus which is briefed", and in a few sentences a summary was given. The section of the draft prospectus was the then draft of what became Section 2, dealing with the Members Free Offer and the Sale Offer and referring to receipt of shares at no cost, but not referring to free shares or using the capitalised phrase Free Shares. 692 There was reference to the proposed change-over article. It was proposed that the Transfer Value be an agreed value, but the observations raised whether the amount to be credited to the share premium account after allowing for the amount required to pay up the shares to be issued had to reflect the difference between the net tangible assets of the NRMA and a fair market value, that is, a goodwill amount. There was reference to an opinion of Mr Bryan Beaumont QC in a different corporate transaction. 693 Mr Heydon was asked to advise - "(a) in the case contemplated does Section 191 require the benefit transferred to NRMA Holdings Limited to be brought to account as share premium to the extent that it is not applied to pay up the shares issued by the company; and

(b) if the answer to that question is yes, what is the basis of the valuation which directors should apply for the purposes of determining the amount of share premium to be brought to account." 694 The brief was ultimately dated 16 June 1994, and seems to have been delivered at a conference on that day arranged by Mr Morgan, being the conference earlier mentioned at which there was advice concerning the proxy forms. Mr Bateman had not seen the brief before the conference. 695 Mr Morgan's note of the conference simply said "191 applic", and Mr Morgan's recollection was that the only matter discussed was the application of s 191 of the Law. Mr Bateman's note of the conference included, after a reference to s 191, "Beaumont is wrong. Any form of valuable consideration will suffice. The Henry Head case was not to be taken to be restricted to physical assets. Goodwill is part of what is rec'ed." In short, Mr Heydon advised that s 191 applied. Nothing was said about oppression or the use of the label Members Free Offer. 696 The perceived precursor to the application of AASB1015 therefore left alive the first aspect of the goodwill question: s 191 required that the goodwill be brought to account. So attention returned to Mr Bateman's draft brief of 14 June 1994, but Mr Morgan continued to focus on the effect of s 191 and the two aspects continued in tandem. 697 Mr Morgan wrote to Mr Bateman on 23 June, suggesting additions and alterations to Mr Bateman's draft brief of 14 June 1994 and in part reagitating the issue of a share premium account. 698 He took a rather different view from Mr Bateman's recent view on whether AASB1015 would apply, this time a modification in Mr Morgan's view. Mr Morgan suggested an additional paragraph concerning previous advice, clearly referable to the advice of 16 June 1994 and evidencing what Mr Heydon had advised - "Senior Counsel has previously advised that for the purposes of Section 191 of the Corporations Law HoldCo will receive valuable consideration by way of an increase in the value of its membership, but that valuable consideration may be applied to pay up shares to be issued by HoldCo and to the extent that the valuable consideration exceeds the amount applied to pay up the shares that consideration represents a premium and the premium must be applied to the share premium account. Therefore, the capital of the company will consist of paid-up capital together with a share premium which will be represented by assets in HoldCo being that company's assets including the investments in the subsidiaries of which HoldCo is now the member." 699 A number of changes to the observations were then suggested, including deleting parts of the draft because Mr Heydon had already advised "that a membership constitutes a chose in action which is legal property" and that the holding company "does receive valuable consideration for the purposes of section 191". Notwithstanding this, Mr Morgan suggested that a question be added which seemed to reagitate the earlier advice, namely - "If Senior Counsel concludes that HoldCo does not acquire an asset does Senior Counsel confirm that nevertheless HoldCo receives valuable consideration that can be applied in paying up the shares to be issued by HoldCo and that in so doing HoldCo receives a premium constituted by that valuable consideration for the purposes of section 191." 700 On the first aspect of the goodwill question, Mr Morgan concluded his letter - "As you can see the principal problem we have turns on the operation of a change over article and whether or not at the change over date the members have acquired the valuable rights constituted by the right to receive dividends and the right to receive the assets on the winding up. In our initial consideration of the tax law position we believed it was important that that be done and it remains important depending upon the way in which the tax relief which is being sought is granted. We understand we will receive from the ATO a paper on Friday this week setting out their approach and this may give us some better guidance as to whether or not this concern remains. One possible approach to deal with the matter would be to put to Senior Counsel two alternative change over articles. One operating in the way that you have suggested that is, it operates contemporaneously with the change in the articles so that membership in effect ceases at the same time as the articles change and secondly in the way which we have drafted the current change over article.

However whichever way it is approached we have a fundamental concern with the suggestion contained in the brief that the existing rights of members do not constitute legal property. This is clearly the advice previously given by Senior Counsel and therefore we suggest the only real argument which is open is whether or not as a matter of construction those rights constitute an asset solely for the purposes of the accounting standards. Looking at the matter from the point of view of the member surely this means the member's membership in either case has no service potential or future economic benefit which is controlled by the member as a result of the acquisition of the membership. Although the service potential or future economic benefit may be small it is nevertheless present in our view and we find great difficulty with the argument that it is not present.

Quite frankly I believe the arguments are not persuasive in this regard and I believe the arguments based on the fact that notwithstanding it is an asset in the above sense it is not an asset that possesses a cost or other value that can be measured reliably and the arguments in paragraphs 11 and following are far more persuasive." 701 Mr Morgan summarised his thinking in another letter to Mr Bateman, copied to Mr Wehby, dated 23 June 1994. The letter included - "I also think it is important if we go to Heydon that we do not confuse any of the issues by raising unnecessary matters but rather try to focus on what our argument really is. My suggestion is that our argument is this:

There is a transfer of a benefit from members to the Holding Company in the form of valuable consideration.

For the purposes of Section 191, the Holding Company receives valuable consideration through its existing membership and that consideration is received by way of the increase in the value of its membership.

The members give up their membership. The membership is legal property in the form of a chose in action. The legal property is dealt with in two parts. Firstly, the right to road service is compensated by a payment to the member of the unexpired portion of the road service fee and that is applied to create the new contract between the company and the member and the balance of the chose in action is in effect cancelled. Most importantly, the chose in action, ie the legal asset, is not transferred to the Holding Company.

Since the member is not transferring any legal property to the Holding Company, there is no acquisition of legal property by the Holding Company.

The question then is, is the receipt of the consideration nevertheless an acquisition of an asset for accounting purposes? That gives rise to two questions: (i) is the valuable consideration received an accounting asset; and (ii) is the receipt an acquisition in accounting terms?" 702 There was a discussion on 23 June 1994 attended by Mr Pearce, Ms Birch, Mr Lynn, Mr Wehby, Mr Morgan, and Mr Bateman. On 29 June 1994 Mr Bateman prepared a revised draft of his brief to Mr Heydon, a draft which did not take up the matters in Mr Morgan's letter of 23 June 1994. In sending a copy of the draft to Mr Pearce, Mr Bateman said he was awaiting material from Mr Morgan to add to the brief. 703 However, the brief was never delivered. The matters seen as requiring advice seem to have been worked out at a meeting between Mr Pearce, Mr Lynn and Mr Bateman on 30 June 1994, or at least Mr Bateman was then instructed not to proceed with the brief, to accept that AASB1015 applied, and to seek relief from the ASC. 704 Mr Morgan then returned to Mr Heydon in connection with the share premium account. In a brief to Mr Heydon dated 24 July 1994 he referred to the brief of 16 June 1994 and subsequent conference, said that there had been raised the question of the basis on which the value of the premium would be determined, and stated that he wished "to pursue that matter further". In the observations he suggested different approaches to valuation, considered case law, and expressed the tentative view that it was a matter for the directors to determine a valuation and that, so long as the directors were able to make the determination honestly and on a proper basis, it ordinarily could not be attacked. He ended, "We wish to discuss with you in conference the matters pertinent to this valuation issue". 705 Mr Morgan conferred with Mr Heydon on 26 July 1994. Mr Pearce and Mr Barry were present, but Mr Bateman was not present. Mr Heydon had a note of the conference, obscure but consistent with what Mr Morgan later conveyed as the advice. Mr Morgan had a more extensive note of the conference, showing that there was lengthy discussion but difficult to translate to an account of the discussion. Neither had significant independent recollection of the conference. 706 The essence of Mr Heydon's advice can be found in what Mr Morgan passed on to others after the conference. Later on 26 July 1994, at a meeting attended amongst others by Mr Pearce and Mr Bateman, Mr Morgan said that Mr Heydon had advised that s 191 "operates on the basis that you look down, that is, you look at the value of what is being received, rather than what is being given up". The effect was that any goodwill, after the directors' valuation, had to be brought to account. Still later on the same day, a meeting was held with the ASC, and the NRMA applied to the ASC for relief from AASB1015. There was no reference in the conference to free shares. 707 To return to why the goodwill question was gone into in these proceedings, some of the defendants seemed to say that it supported that membership rights were seen as not being of value, in the sense that the rights of individual members were in reality valueless although giving up the collective membership rights increased the value of the holding company's share or shares in Association and Insurance. Mr Bateman gave evidence of telling a meeting at the ASC why membership of Association and Insurance was not worth anything, and it was suggested that the distinction between looking at the value of what is received, rather than what is being given up, was here significant. Mr Bateman's evidence took this up when addressing whether the shares in the holding company could properly be described as free shares. Further drafting of the prospectus 708 The prospectus working group met on 31 May 1994. Shortly before the meeting Mr Rees told Mr Bateman that he was not happy with Mr Bateman's draft of the explanatory statement, saying that it was too long and too complicated and members would not understand it. According to Mr Bateman, Mr Rees told him not to do any more work on it, and said that he had asked Mr Barrett to provide a fresh draft; when Mr Bateman explained that he had made his draft appropriate for editing, Mr Rees said that he wanted a new approach. According to Mr Rees it was put slightly differently, in that he said that he would ask Mr Barrett to put the draft into more simple language, that Mr Barrett was ideal for the job because he was an expert in the use of plain English to convey complex or legal concepts, and that once Mr Barrett had done a redraft the prospectus working group could consider it again. The meeting which followed dealt with other sections of the draft prospectus. 709 At the meeting of the prospectus working group on 1 June 1994 Mr Bateman provided notes of a number of issues which he thought should be considered for inclusion in Section 1, and he read them out. Mr Rees said that they were taken on board and would be looked at, and repeated that he thought that Section 1 needed a new approach and that he had asked Mr Barrett to take it over. 710 The then draft of the prospectus, designated version 3, was distributed to the members of the due diligence committee on 3 June 1994. Its preliminary nature was emphasised. Some comments were received for consideration at a meeting of the prospectus working group on 8 June 1994. 711 By the meeting of 8 June 1994 Mr Barrett had not produced a fresh draft of Section 1, but BT had provided its own outline of Section 1 for discussion. Present at the meeting were Mr Rees, Mr Hosking, Ms Godwin, Mr Barry, Ms Birch, Mr Stern, Mr Morgan, and Mr Bateman. 712 The record of the meeting reflected considerable discussion of the drafting of the prospectus. It read - " Comments: Members need to know what they are being asked to do. Require informed consent - fair view of the issues. Set out the steps of the consequences of voting yes. The Boards of Association and Insurance are presenting the Information for Members section. Care with cross referencing between the Information for Members and the Prospectus from the perspective of which company is making the statement. There are 2 meetings. Are there issues relevant to one that are not relevant to the other meetings? Members approval sought in relation to the major sections which are necessary for inclusion in the Information for Members. In particular paragraph 12 - Outline of Resolutions, paragraph 15 - Entitlements and paragraph 6 - Proposed Structure of the draft dated 1 June 1994 require members approval. Focus on the positives of the new structure and its benefits. Don't focus on the negatives of the old structure. Diagram to be included in the front section detailing 'relationships'. Look to Sean Barrett of Rowlands for input. The Service Membership rights for Road Service are available upon request by members. The context in which Section 1 Information for Members is written is to be discussed with Sean Barrett (eg personal vs third party). Topics to be dealt with in Section 1 include: - gold card members; - years of membership; - advocacy role; - one vote per share; - dividends; - capital growth; - premiums and membership fees won't be reduced; and guarantee company structure (one sentence only). Pooling of profits between Association and Insurance are to be addressed. Pru Godwin to redraft Section 1 for circulation and review at the meeting on Tuesday, 14 June 1994." 713 Mr Bateman's note of the meeting (the evidence did not include a note by Mr Morgan) included, "What other alternatives are there: scale back to we looked at others, & say no more". 714 According to Mr Morgan, Mr Rees said that the draft of Section 1 prepared by Mr Bateman was not what was wanted, it was too long and too legalistic and not the sort of thing that the members would understand, and "I'll go away and we'll redraft it and present a new document". From the record of the meeting, the situation had now been arrived at that Ms Godwin was to prepare a fresh draft with input from Mr Barrett. 715 The input from Mr Barrett, however, was to be considerable. According to Mr Barrett, at about this time Mr Rees told him that the AT draft was too long and complicated and asked him (Mr Barrett) to consider it and see if it could be simplified and turned into plain language. Mr Rees did say that he should "liaise with Greg Bateman on the legal aspect of this part of the prospectus because it has many legal ramifications". Mr Rees gave the blunt evidence that he "asked Mr Barrett to go away and try to translate the complex legal and technical matters in there into simpler English". Mr Hosking wrote a note to Mr Rees stating that the then introductory section generally describing the prospectus and the proposed meetings needed a lot of work "and should be driven by Sean", and this was in line with Mr Rees' actions. 716 The next version of Section 1 of the prospectus, a draft dated 16 June 1994, differed quite considerably from Mr Bateman's draft. It must have been prepared by Ms Godwin or Mr Barrett. Its early parts were under the headings "What are members being asked to do?", "The proposed structure", "Time of change-over from present structure to proposed structure", "How are the Free Shares being allocated", "How does the Share Offer work and where does the cash come from?", and "When will members receive their Free Shares?". It made frequent but inconsistent use of the capitalised phrase Free Shares to denote the shares to be issued to members. As I have said, the final step to use of this phrase was unclear. 717 The part of the draft most directly dealing with advantages and disadvantages should be compared with Mr Bateman's draft. It now read - " WHAT ARE THE ARGUMENTS FOR AND AGAINST THE PROPOSAL?

Members will have a direct ownership stake in the NRMA and the opportunity to share directly in what Directors believe will be the future success of the NRMA.

it is the Member (who is now the shareholder) who will receive dividends which the Company pays. Dividends come from profits and under the present structure it is extremely difficult to distribute profits directly to Members. as the value of the NRMA increases so does the value of the Member's (who is now the shareholder) Shares. In other words the Member's asset increases in value. the Member can increase his or her level of ownership in the NRMA, something which is not possible under the current structure. if the Member (who is now the shareholder) chooses he or she can convert their ownership of the NRMA into cash. Again this is not possible under the current structure. the tax paid by NRMA on its profits can be used to make any dividends paid tax free to some extent, through the 'franking' of the dividends. Members will have more incentive to participate in the governance of the NRMA.

The problems which the NRMA faces because of its present structure are:

Members do not have direct access to the financial success of the NRMA. Sharing that success is solely in the hands of the management of the NRMA not in the hands of Members. Members have little incentive to participate in the governance of the NRMA. This is shown by the very low number of members who vote in NRMA elections. In 1993 only ___ of 1.8 million Members voted. There is no protection against a takeover. A takeover under the present structure may take slightly longer but the person wishing to takeover the NRMA would not even have to pay Members for it. Continued rebates (or price cuts are destabilising. First, they encourage rapid growth in market share as people seek to benefit from the reductions. Then when the reductions can no longer be maintained and prices rise, the NRMA would be vulnerable to consumer reaction (criticism and loss of business) and possibly government intervention.

3. What other alternatives were considered and why can't we vote on them too?

The Directors considered a number of alternatives which can be summarised as: do nothing reduce premiums and membership fees only convert part of the NRMA to a company limited by shares and list that part on the Stock Exchange.

The disadvantages connected with the first two of these alternatives are examined under the headings What's Wrong with the Present Structure and Why not charge less for insurance and Road Service?

The third alternative has the following disadvantages:

control of the NRMA name becomes more difficult fragmentation of the NRMA into parts could destroy the value of the NRMA over time the possibility of disunity of the public face of the NRMA and creation of internal tensions

The Directors of the NRMA and NRMA Insurance believe that the proposal which Members are being asked to vote on, is the best alternative. They considered that it would not be helpful to put forward inferior proposals. The possibility of confusion would be greatly increased if members had to absorb even more information than is presently before them. The quantity of material needed to cover just this one proposal is already very large.

4. Are all the Directors in favour of the proposal?

There are 16 directors of the Association. [ Additional comments if required ]

There are 11 directors of NRMA Insurance, 8 of whom are common to the board of the Association. [ Additional comments if required ]

If either the members of the Association or NRMA Insurance do not pass the special resolution to approve the proposed restructuring, the NRMA structure will remain the same as it is today. Shares will not be issued and the NRMA will not list on the Stock Exchange.

It is a matter for the members as to whether the structure proposed by your directors should be implemented. The decision of the members is final.

Can't the NRMA be taken over if it issues shares? Will there be any protection from this?

The Articles of NRMA Holdings have a built-in protection against takeover. This is a limit of 5% on the number of Shares which any person or company may own. This limit will also apply to groups of people or companies (known as associates) acting together to control a block of shares which together is more than 5%. If someone does acquire more than 5% of the Shares then Directors of NRMA Holdings can take away the voting and dividend rights which those Shares have. The Directors can also force the owner of the Shares to reduce the number of Shares which he or she owns so that he or she is then within the 5% limit.

The Articles which give this protection can only be changed if the shareholders agree to the change by a special resolution. A special resolution requires 75% of those voting to be in favour.

As well as the protection given by the Articles, the Directors expect that the Shares of NRMA Holdings will be held by many present NRMA Members. So a takeover could only occur if the people who are not Members decided to sell their Shares after they became shareholders.

On the other hand the NRMA's present structure gives no protection against takeover.

With shareholders, NRMA will become profit hungry. Services will go down and prices will go up.

NRMA under its present structure already makes profits. It's [sic] aim has been, and will continue to be, to provide Road Service, Insurance and other products and services at the lowest possible cost consistent with sound financial management.

In other words even while selling its insurance and Road Service at very competitive prices the NRMA has been making profits.

It is this prudent management of NRMA over the years that has helped make the organisation so strong and enables it to provide excellent value for money services and products for Members.

So, changing the NRMA's structure does not create any greater pressure to make profits.

The Board and management of the NRMA recognise that the success of the NRMA is built on the trust and loyalty of Members and other customers. This exists because we provide an efficient Road Service and other services at a reasonable price. That positive image which the NRMA has is a commercial advantage of enormous value. Whatever the structure of the NRMA, this is something which any financially responsible organisation would conserve.

This proposal is too complicated - why not just reduce Insurance premiums and/or Road Service fees?

If we simply reduced prices for our services and products below their true cost, there would be serious long term consequences for the NRMA and ultimately Members.

Price cuts would encourage other persons to join NRMA simply to get the lower prices. This means that present Members are giving away the NRMA's wealth to these new customers for no benefit. This is very unfair to existing Members.

Charging less than the real cost of insurance or Road Service ultimately damages the NRMA because it weakens its reserves. NRMA's assets would have to be sold to subsidise the artificially low prices and this would mean that there would be more pressure to increase prices in future years.

Carried to the extreme, a program of reduced charges and premiums would lead to very low charges for a couple of years followed by dramatic price increases when the reserves (used to subsidise the artificial price) had run out.

By giving Shares to Members there is no need to take money out of the NRMA and give it to Members. This preserves the strength of the NRMA, while also giving all Members (not just policyholders) a substantial stake in NRMA and the chance to directly benefit from any future success.

Finally an average Member with $1200 worth of free shares is forecast to get yearly dividends of $60 (see Directors forecast on page xx). This is enough to cover the cost of Service Membership and leave some over for other purposes.

Will the NRMA change if it becomes a shareholder company?

Some members are worried that this proposal will mean that the NRMA will no longer look after the interests of its Members and of motorists.

The NRMA is committed to promoting the interests of its members and of motorists and this commitment will be maintained under the proposed structure. Only the legal framework of the NRMA is changing, not its culture. The NRMA will have the same management, the same people and the same goals as it has always had.

There is also a legal commitment as well as an emotional commitment to these goals, as the constitution of NRMA Holdings ensures that the Association's constitution must include the following objectives: (a) 'To promote the interest of motorists and other road users, throughout Australia, in good roads, safety and consumer protection.

(b) To provide motorists and others with a range of services including provision of emergency or breakdown road service and other services to vehicles.'

Is the NRMA's Expansion into Victoria the reason behind the Proposal?

No, although the new structure would make it much easier for the profits from expansion to go directly to Members. The NRMA's expansion was motivated by:

the need to gain access to new markets for the NRMA's major insurance products the need to maintain its leading position as one of Australia's largest general insurers the need to spread the NRMA Insurance's risk over a greater geographic area. It is more difficult and more expensive for the NRMA to protect itself against a narrow geographic spread of risk." 718 At the communications meeting on 17 June 1994 Ms Godwin said that Mr Barrett would "look at sections 1 and 4" of the prospectus, with the comment that the prospectus was "now time critical". The then draft of the prospectus was discussed at the meeting of the due diligence committee on 20 June 1994, but the evidence did not reveal any detail of the discussion. 719 The next draft of Section 1 of the prospectus was different again. This must have particularly reflected Mr Barrett's input, although not without reference to Mr Bateman, as appears from what has already been said and from a memorandum from Mr Barrett to Ms Godwin dated 24 June 1994 which included - "The thinking behind the changes in Section 1 were:

NRMA members and policyholders will have already received answers to some of the questions the share issue raises in the marketing communications. I therefore think the beginning of the section should remain as Prue had it. Potential shareholders will want to know, first off, what the change means and how the share offer will work.

For those doubters who still need to be persuaded after reading this, we then explain why the change is being proposed, why it's the best alternative and what other alternatives were considered. Considering alternatives rather than attempting to answer pros and cons communicates the message more positively and avoids the problem of inadequate responses.

I have included all the points Greg felt needed to be inserted from his paper." 720 The version of section 1 of the prospectus dated 24 June 1994 was broadly the same as the draft of 16 June 1994 in its early parts (although for some reason the capitalised phrase Free Shares was less used), but now had as the part most directly dealing with advantages and disadvantages - " WHY IS THE NRMA PROPOSING THIS CHANGE?

The days when NRMA was regarded as a 'club' or 'non-profit organisation' are long gone.

its sheer size, whether judged by assets or membership numbers; the continued growth in net assets; the substantial profits earned; and the inability to effectively distribute the profit

The Association, which provides members with road service, only ever makes a relatively small profit. Even though the Association appoints the board of NRMA insurance, it doesn't have any access to the substantial profits made by the insurance company. Because of the NRMA's structure, the small profits made by the Association cannot be 'pooled' with the larger profits of NRMA Insurance, so the financial success cannot be shared adequately with the members, who own the NRMA.

Under the new structure the 'profit pools' of the Association and NRMA Insurance will be brought together and be fully available to NRMA Holdings.

Members will have a direct ownership stake in the NRMA and the opportunity to share directly in what directors believe will be the future success of the NRMA.

it is the member (who is now the shareholder) who will receive dividends which the company pays. Dividends come from profits and under the present structure it is extremely difficult to distribute profits directly to members. as the value of the NRMA increases so does the value of the member's shares. In other words the member's asset increases in value. the member can increase his or her level of ownership in the NRMA, something which is not possible under the current structure. if the member/shareholder chooses, he or she can convert their ownership of the NRMA into cash. Again this is not possible under the current structure. the tax paid by the NRMA on its profits can be used to make any dividends tax effective, through the 'franking' of the dividends. members will have a greater interest in voting on matters put to shareholders (including the annual election of directors of NRMA Holdings) as they will have a direct financial interest in the NRMA.

The Directors considered a number of alternatives. These included:

1. doing nothing; 2. reducing premiums and membership fees; 3. one-off or continuous payment of rebates; 4. only converting part of the NRMA to a company limited by shares and listing that part on the Stock Exchange.

It is not essential that the proposal before members be implemented. Life could go on under the present structure without much difficulty. Why do it then? The first answer is that things could be so much better for members if they became shareholders in the NRMA listed on the Stock Exchange. If there is a better way of doing things for members it should be investigated and, if appropriate, implemented. This is the fundamental viewpoint that drives the proposal.

Secondly, there are a number of problems which the NRMA faces because of its present structure. These are: Members do not have direct access to the financial success of the NRMA. Members have little incentive to participate in the governance of the NRMA. This is shown by the very low number of members who vote in NRMA elections. In 1993 only ___ of 1.8 million members voted. There is no protection against a takeover. A takeover under the present structure may take slightly longer but the person wishing to takeover the NRMA would not even have to pay members for it.

If we simply reduced prices for our services and products below their true cost, there would be serious long term consequences for the NRMA and its members. Price cuts would encourage people to join the NRMA simply to get lower prices. This would result in present members giving away the NRMA's wealth to these new customers for no benefit. This would be very unfair to existing members. Charging less than the real cost of insurance or road service would ultimately damage the NRMA because it would weaken its reserves. NRMA's assets would have to be sold to subsidise the artificially low prices and this would mean that there would be more pressure to increase prices in future years. Carried to the extreme, a program of reduced charges and premiums would lead to very low charges for a couple of years followed by dramatic price increases when the reserves (used to subsidise the artificial price) had run out. Significant reduction in premiums would also destabilise the insurance market as some of our less financially strong competitors tried to keep up by price cutting. This would create risk for the community at large. Finally an average member with $1200 worth of free shares is forecast to get yearly dividends of $60 (see Directors forecast on page xx). This is enough to cover the cost of service membership and leave some over for other purposes.

Over the past two years NRMA Insurance has given back $197 million in the form of insurance rebates.

However, this provides only a short term solution and only benefits policyholders, not the 30% or so of members who are not policyholders. Continued rebates are destabilising. Initially they encourage rapid growth in market share as people seek to benefit from the reductions but if these reductions could no longer be maintained and prices rose, the NRMA would be vulnerable to consumer reaction (criticism and loss of business) and possibly government intervention.

By giving shares to members there is no need to take money out of the NRMA and give it to members. This preserves the strength of the NRMA, while also giving all members (not just policyholders) a substantial stake in NRMA and the chance to directly benefit from any future success.

4. Converting part of the NRMA to a company limited by shares and listing that part on the Stock Exchange

control of the NRMA name becomes more difficult; fragmentation of the NRMA into parts could destroy the value of the NRMA over time; and the possibility of disunity of the NRMA's public face and creation of internal tensions

The Directors of the NRMA and NRMA Insurance believe that the proposal which members are being asked to vote on, is the best alternative. They considered that it would not be helpful to put forward inferior proposals. The possibility of confusion would be greatly increased if members had to absorb even more information that is presently before them. The quantity of material needed to cover just this one proposal is already very large." 721 There was then revived at board level what Mr Talbot had earlier raised concerning a 'no' case. 722 There was to be a meeting of the board of Association on 30 June 1994. On 29 June 1994 Ms Singleton wrote to Mr Mackay saying that she could not be at the meeting and seeking leave of absence. Her letter continued - "Also I wish to commend the following motion to the meeting. Geoff Lawson is the mover and Dawn Fraser the seconder.

Both you and Ray know of my firm belief that it is our duty as directors to ensure all sides of the debate are put to members and policy holders.

Members have a right to exercise their vote in the fullest possible knowledge of what the changes may mean for them, for the future of the organisation and the insurance industry … to say nothing of the long term future of their road service organisation. I ask that you to table this letter in support of the motion and supply copies to all directors before the motion is put.

' To enable members to be clearly informed about the issues to be put before them re the "share the future project" that an amount equal to that spent on publicity, advertising and promotion for the share the future project be expended on explaining the no case to the members in direct mail, free-media, promotion and advertising. ' " 723 Someone added "Jane's letter" to the agenda for the board steering committee meeting of 29 June 1994. The minutes of the meeting of the board steering committee said nothing on that subject. However, on 29 June 1994 Ms Conway had sent a copy of Miss Singleton's letter to Mr Bateman with a note, "I would like to discuss with you as soon as possible an amendment to the proposed motion to which she refers", and a file note of Mr Bateman dated that day and recording communication with Ms Conway included "resl to be left on the table until 28/7/94". According to Mr Bateman, Ms Conway told him that "Don's told me that Jane Singleton's resolution is to be left on the table until the next meeting on 28 July 1994". It is plain enough that there was advance discussion between Mr Mackay and Ms Conway, and possibly between Mr Mackay and other board members, of what in fact happened, a resolution of the board of Association whereby the motion would lie on the table. 724 Also on 29 June 1994, Mr Barrett faxed to Ms Conway a document reading - " CONSIDERATIONS ON PRESENTING A BALANCED CASE TO MEMBERS

Consideration has been given as to how best to present a balanced case to Members.

Funding a 'Yes' and "No' case was considered but rejected as being potentially too damaging to the organisation.

Funding two rival groups would result in a bitter war of words by two marketing teams trying to best each other rather than present information for consideration in a stable atmosphere.

Damage to staff morale; Damage to the public standing of the organisation and undermining of its advocacy role; and Commercial damage as product marketing was drowned out by the media clutter and acrimony of a divisive campaign.

The alternative is a reasonable process of education based on Corporations Law and supervised by the ASC, the objective of which is to present all information reasonably necessary for a member to determine how to vote.

The Corporations Law and ASC have been and are sensitive to the needs of the public for fair and accurate information.

The experience so far indicates that information provided to Members has been balanced in content and restrained in its magnitude. There have been three editions of Open Road, including the one currently in production, since March 16. They have carried reference to Members' concerns. Indeed the current edition's reference to the proposal is entirely based on letters from Members expressing concerns and brief responses to those concerns.

A brochure to Gold Card Members which emphasised that there was a special hotline for them to raise their concerns; A personalised letter on entitlement along with a brochure which included the concerns of Members.

In March to alert Members to the existence of a telephone information service to record their concerns and get more information; In June to inform Members that an important letter was being sent and detailing the deadline for a response where necessary.

In both cases the amount of advertising used was sufficient only to ensure the majority of Members received what was important information.

Since March, the organisation has conducted only one media conference on this subject.

Details of the education campaign necessary should the Board decide to pursue the proposal and put it to a vote of Members have not been finalised. However, the same considerations exercised so far in terms of balanced content and magnitude would be used.

The motion presumes that communication on this subject is intended to put a pro case and this is not so. The intention of the organisation, and requirement of the Corporations Law, is for balance." From the last paragraph, the document must have been a response to the proposed motion of which Ms Singleton had given notice. It is not clear whether Ms Conway put the document before the board or conveyed its content to the board. 725 At the board meeting on 30 June 1994 the letter from Ms Singleton to Mr Mackay was tabled, and Mr Lawson moved and Miss Fraser seconded the motion to which it referred. Mr Mackay urged by Mr Lawson to wait until he saw the final version of Section 1 of the prospectus, saying that he thought it would contain sufficient information to meet his concerns. There was discussion. Mr Mackay moved and Mr Kirby seconded that the motion lie on the table, and Mr Mackay's motion was carried with the dissent of Mr Talbot, Miss Fraser and Mr Lawson noted. 726 Mr Barrett told the communications meeting on 1 July 1994 that the draft of Section 1 of the prospectus and the onsert would be available the following week. The prospectus working group had a number of intensive sessions going through drafts, there being of course other Sections the drafting of which these reasons do not consider. A new draft of Section 1, it seems produced by Mr Barrett, was considered and amended. 727 The resulting draft dated 2 July 1994 referred frequently to free shares and Free Shares, and can readily enough be recognised as a lineal ancestor in layout, language, and content to the Section in the prospectus in its final form. It included - " ALTERNATIVE SCHEMES

The NRMA has considered carefully the advantages and disadvantages of a range of options and concluded that the share issue and listing is in the best interest of the organisation and its members.

Alternative options which the Boards have examined include:

Doing nothing : While the NRMA could continue to operate under its present structure, the Boards decided that the NRMA would function more effectively and its members would be better off if the publicly listed company proposal were adopted. To do nothing means the wealth of the organisation remains locked up and inaccessible to members. The successful momentum built up over the years would not be channelled as productively as might be.

Reducing premiums and membership fees : Reducing charges for NRMA services and products below their true cost would weaken the financial strength of the NRMA and increase the pressure for higher prices in the future. Unrealistic pricing would disadvantage current members since the accumulated wealth they helped build would in effect be subsidising the new customers who would undoubtedly rush to take advantage of cheaper premiums.

Continuing payment of insurance rebates : Over the past three years NRMA Insurance has given back $291 million to policy-holders in the form of rebates. Rebates in their present form are only a short-term solution and only benefit policyholders - and not the 30 percent of members who do not hold insurance policies. By giving members free shares they can benefit directly from the future success of the NRMA by way of dividends.

Making a one-off major payment to members : Such a major payment would denude the organisation of its capital, restrict its ability to fund opportunities and be liable to heavy taxation.

Sell off NRMA Insurance : Such an approach suffers from a number of problems. Firstly, the strength of the NRMA has been the existence of road service and insurance working in tandem, each benefiting from the other. If they were to separate each would be weakened. The value of the combination is greater than its parts. Second, each uses assets owned by the other and there would be significant financial consequences for each company. Third, a separation of the two would mean splitting the management and staff of NRMA with a likely fracturing of that culture which has made the NRMA a success.

On [date] there will be two general meetings at [venue]. Details of the meeting times and the resolution to be considered are on pages >>> and >>> of this prospectus. One meeting will be for NRMA Ltd (the Association) and the other for NRMA Insurance Ltd. These meetings will decide the future structure of the NRMA and members can participate either by attending the meetings in person or by filling in the proxy voting form on the front of this prospectus.

Having carefully considered the implications, the boards believe that conversion and flotation on the Australian Stock Exchange are in the best interests of the NRMA and its members.

The Boards urge members to vote in favour of the resolutions. If voting by post members should return the form on the front of this document by [date]. Members who are voting against the resolution should also fill out the Acceptance of Free Shares section of the accompanying form.

Members approval will mean a change from being members of the Association and members of NRMA Insurance to shareholders in NRMA Holdings, the company which will be listed on the Stock Exchange.

The legal steps involved are: · Changing the legal status of the Association and NRMA Insurance from companies limited by guarantee to companies limited by shares and guarantee; · adopting new articles for each company, the central element of which means that members (other than NRMA Holdings) agree to swap membership of the Association and NRMA Insurance for an offer of free shares in NRMA Holdings. This agreement binds all members even if they voted against the proposal or did not vote at all; · approving how the free shares in NRMA Holdings will be allocated; · in the case of the Association, approving changes to the Memorandum and Articles of NRMA Insurance so that NRMA Holdings controls NRMA Insurance; and · approving the overall changes in the structure of the NRMA so that each of the Association and NRMA Insurance is owned and controlled by NRMA Holdings which will be listed on the Australian Stock Exchange. You will find the Notices of Meeting for the Association and NRMA Insurance on pages [?] at the end of this Section.

If either the members of the Association or NRMA Insurance do not pass the special resolution to approve the proposed restructuring, the NRMA structure will remain the same as it is today. Free shares will not be issued and the NRMA will not list on the Stock Exchange.

No. The commitment to road service and competitive insurance will remain. What changes is the structure of the organisation so that members get free shares. The culture and philosophy that have made the NRMA so successful will not change.

Special protection against takeover has been given to the NRMA.

Because of the unusual nature of the NRMA and the size of its membership, the Stock Exchange has agreed to prohibit any person (of company) from owning more that [sic] 5% of the shares. This limit will also apply to groups of people or companies (known as associates) acting together to control a block of shares which together is more than 5%.

This protection can only be changed if the shareholders agree to the change by a special resolution.

The Board's recommendation that members accept shares will limit the number of shares available to 'outsiders'.

WITH SHAREHOLDERS, WILL THE NRMA PURSUE PROFIT AT THE EXPENSE OF SERVICE?

Just the opposite. The NRMA, like any other business, must deliver good products at reasonable cost if it is to be successful. The NRMA has been able to do this to members' and policyholders' satisfaction that is why it has be [sic] successful. It would be silly to change such a winning formula.

No increase is planned, or necessary, at this stage. In addition, an average shareholder with a $1,200 parcel of shares is forecast to receive $60 a year in dividends (see Directors' forecast on page ). This is enough to cover the cost of service membership and leave some over for other purposes.

You will be issued with a service membership card which will be similar to your current card. The card will show the number of years you have been a member, and will be sent out when it is time to pay your annual subscription.

All the special benefits offered to Gold Card members (those with 25 years' or more continuous membership) will continue.

It [sic] the proposal is approved by members, share certificates will be sent to members who have chosen to accept the offer of free shares starting on .

The NRMA Boards have carefully considered the advantages and disadvantages of the proposed share offer and concluded that the proposal is in the best interests of the Association and its members. The Boards therefore recommend that:

members of the NRMA Limited ('The Association') and NRMA Insurance Limited ('NRMA Insurance') vote in favour of the proposal; and elect to take free shares.

75% of members of each company who vote (either in person or by proxy) must vote 'yes' for the change to go ahead.

TO CAST YOUR VOTE, EITHER COMPLETE THE FORM AT THE FRONT OF THIS PROSPECTUS, OR ATTEND THE MEETING IN PERSON, DETAILS OF THE MEETINGS ARE SET OUT ON PAGE [?]" 728 This version of the prospectus was considered at length by the prospectus working group on 2 July 1994. The participants included Mr Willing, Ms Godwin, Mr Barry, Mr Barrett, Mr Morgan, and Mr Bateman. Many amendments were made, mainly in matters of detail rather than the scope of the Section. 729 On 4 July 1994 Mr Bateman spent some time going through the changes with Ms Godwin. As on other such occasions, some of his suggestions were taken up, others were not, and changes other than those discussed with him were made. 730 The then draft of the prospectus came before the due diligence committee late on 4 July 1994, and was discussed. Again the minutes of the meeting do not recall any detail. It may have been at this meeting, or if not it was at a similar meeting at about this time, that there was an exchange between Mr Mackay and Mr Morgan concerning the use of the expression 'free shares'. I have earlier referred to this in connection with Mr Rees' evidence of discussion of free shares at a planning meeting shortly before 17 March 1994. 731 According to Mr Mackay, when he opened the meeting he said words to the effect, "It is important that the prospectus be kept as simple as possible. One reservation that I have relates to the use of the word 'free'. It may not be correct to use the term 'free' as members are in effect giving up their rights as members in return for the shares." Mr Morgan said, "We have already considered that. You need have no fears in that regard. The term 'free' means that the shares are being issued without payment and in the circumstances it is quite appropriate." 732 Mr Morgan's recollection was rather different. According to Mr Morgan, the exchange was not in the open meeting, but before or after the meeting and between Mr Mackay and him alone. Mr Mackay asked, "Are you happy with the use of the expression 'free shares' in the prospectus?" Mr Morgan replied, "I believe that it is proper to use the term in the sense that we are not asking people to pay any money for the shares and so I think we are able to use that term in the prospectus to describe the shares. The structure of the proposal is that the members will give up their membership and that will allow Holdings to pay up the shares and issue them to members without any payment by them. The members will be compensated for the loss of road service and other membership services by a contract. In the sense that the members are not required to pay anything for the shares which are issued to them, I believe that it is correct to say that the shares are 'free'. It seems to me that is a proper use of the term so long as members are made aware of the fact that they are giving up their membership and receiving shares or cash in place of membership." 733 The essence of the exchange is much the same on both accounts, and the precise terms and whether it was part of the conduct of the business of the meeting may not matter. Mr Bateman denied that an exchange of this nature occurred in his presence, and as has been seen there were other occasions to which such an exchange concerning free shares might be relevant. I should therefore attempt to go further. 734 If the exchange occurred in the manner described by Mr Mackay, rather than in the manner described by Mr Morgan, one would expect recollection of it by persons such as Mr Kirby, Dr Werner, Mr Willing, Mr Rees, Ms Godwin, and Mr Gonzales, all of whom were at the due diligence committee meeting of 4 July 1994 and gave evidence. 735 Mr Kirby gave no evidence on the matter. Dr Werner recalled Mr Mackay saying, probably prior to the meeting's formal deliberations, words to the effect, "Is everyone satisfied about the use of the expression 'free shares' in the prospectus", and that there was some discussion as part of which Mr Morgan said something indicating that he thought the expression was appropriate and lawful and could be used in the prospectus. When there was put to him the account given by Mr Morgan, he agreed that Mr Morgan did speak at length and could well have said what Mr Morgan had recounted. Indeed, Dr Werner's recollection was rather against Mr Mackay having said that it may not be correct to use the term "free" as members were in effect giving up their rights as members in return for the shares, because Dr Werner thought he would have recalled that matter; according to Dr Werner, Mr Mackay simply asked whether everyone was happy with the use of the word. 736 Ms Godwin had no recollection of such an exchange, but her recollection beyond her notes was generally not good. At one point Mr Gonzalez gave evidence that he recalled at a meeting of the due diligence committee in 1994 Mr Mackay, or possibly Mr Willing, saying words to the effect "Is everybody satisfied that it is appropriate to use the word 'free' in the prospectus?", and that Mr Morgan replied to the effect, "I am satisfied that the use of that word is appropriate and it is not an issue"; this was during the formal proceedings of the meeting. Mr Gonzalez could not say that this was at the meeting of 4 July 1994, and it may have been at some other meeting. In other evidence Mr Gonzales gave his recollection as simply that when asked about the prospectus and the word "free", Mr Morgan answered that there was no problem with using that word; that, he said, was his best recollection, and when Mr Morgan's account of the exchange was put to him he said he did not remember the words but it was "the inference of the whole - the whole process" and, rather strangely, that he could not remember whether it was consistent with his recollection of the exchange. 737 There can be taken into account also the evidence of Mr Rees of the planning meeting earlier described, and of two other occasions on which he recalled discussion of free shares. The first was a luncheon in 1994, and the second was a meeting of the due diligence committee which he could not place in time. 738 The luncheon was shortly after Mr Mackay returned from overseas, as an occasion for Mr Mackay to find out about the progress of the proposal, and must have been very close to the meeting of 4 July 1994 - it is possible that imperfect recollections are of the same occasion, some treating it as a meeting, some as an event prior to a meeting, and Mr Rees as an informal meeting. According to Mr Rees, Mr Mackay asked about the word "free" being used in the then current draft of the prospectus, and Mr Morgan said, "Provided the expression 'Free Shares' is defined properly in the prospectus and we make it clear that the members are giving up their legal rights, it is appropriate to use the expression. The due diligence committee has already seen drafts with this terminology and will have the opportunity later to fully consider the issue and satisfy itself that it is a proper term to use in the prospectus". 739 As to the other occasion, Mr Rees recalled someone raising at the due diligence committee meeting whether "it was okay from a legal point of view to use the word 'free'", and he said that both Mr Morgan and Mr Bateman replied that it was. The recollection was that Mr Morgan said, "In my opinion, provided we define the expression 'Free Shares' and make it clear in the prospectus that the members are required to give up their membership to obtain the shares then it is okay legally to use the expression". Mr Bateman said words to the effect, "The meaning of the word 'free' in the prospectus is that the members will not being paying any cash out of their own pockets to acquire the shares and therefore it is okay to use the word 'free' to describe the shares provided the prospectus makes it clear that the members will be giving up certain rights". 740 There were many differences in recollection, but on balance I think that there was an exchange at a meeting early in July 1994 in which Mr Mackay questioned whether the language of free shares could be used, and Mr Morgan said it could, the others at the meeting hearing what was said even though it may not have been part of the formal business of the meeting. I think, however, that Mr Morgan explained that the language of free shares could be used provided members were made aware of the fact that they were giving up membership and receiving shares or cash instead. That is consistent with Mr Morgan's state of mind and with some other occasions on which the matter came up. Further, it is probable that Mr Bateman was present on the occasion of which Mr Mackay gave evidence, and I accept that on one or more of the occasions on which the matter came up he took a similar position to that of Mr Morgan, either tacitly, by express agreement, or by his own explanation as recalled by Mr Rees. I do not think any more detailed finding can reliably be made. 741 Another version of the prospectus, a draft of 5 July 1994, was produced. On 6 July 1994 Mr Morgan wrote to Ms Godwin suggesting expansion of the description of the legal steps involved to refer to members giving up their membership on condition that Free Shares were offered by Holdings, leaving Holdings as the only member of Association and Insurance. This expansion, further expanded again, was in the prospectus in its final form. That Mr Morgan suggested it at this time lends some support to what I have said about the meeting early in July 1994 - if Mr Mackay questioned the language of free shares on 4 July 1994, Mr Morgan may well have been moved to ensure that the prospectus contained the explanation he then gave. 742 The intensive consideration by the prospectus working group continued, with more changes. The then version of the prospectus came before due diligence committee on 11 July 1994, and was discussed: again the minutes do not include any detail. A copy of the prospectus in its then form was tabled and noted at a joint meeting of the boards of Association and Insurance on 14 July 1994, and members of the boards were asked to provide their comments by 18 July 1994. By this time there was some urgency. Ms Godwin told Mr Bateman on 14 July 1994 that corrections for all Sections of the prospectus were needed on 15 July 1994 in order to meet printing deadlines. 743 The prospectus working group went through the prospectus on 15 July 1994, and the due diligence committee went through it on 18 July 1994. The printing deadlines seem to have been overcome. Although the minutes of the due diligence committee meeting did not (as usual) contain any detail, they recorded that it was resolved that a further draft of the prospectus would be distributed to members of the committee by 21 July 1994 for discussion at the meeting on 25 July 1994. 744 The current versions of the prospectus and the onsert were before the board steering committee on 21 July 1994, and it was said that approval should be sought from the relevant boards on 28 July 1994. At the joint board meeting of Association and Insurance later on 21 July 1994 the draft prospectus and the onsert were tabled and noted, and members of the boards were asked to provide their comments in relation to the prospectus by Monday, 25 July 1994. (This was the occasion for Ms Singleton's query, already mentioned and shortly to be dealt with in more detail.) 745 Comments and changes were still being made, including comments on Section 1 by Mr Morgan, Mr Bateman and members of the boards, and the next version of the prospectus was discussed at the meeting of the due diligence committee on 25 July 1994. It was noted that a further draft would be available on 1 August 1994, and that 8 August 1994 was the deadline for amendments to the document. So finality in the prospectus was coming closer, and earlier concentration of work at the level of the prospectus working group had moved to consideration and comments by the due diligence committee and the boards. 746 The question of a "no" case then re-emerged. 747 At a meeting on 26 July 1994 attended by Mr Mackay, Mr Kirby, Ms Ralph by telephone, Mr Burrows, Mr Willing, Mr Corrigan, Mr Rees, Ms Conway, Ms Godwin, Mr Barrett, Mr Morgan, Mr Bateman, and perhaps others, there was reference to the prospectus reflected in Mr Bateman's note of the "no" case as one of a number of issues that would emerge. He made a further note "NO case so far as is known is canvassed in Prospectus + other NRMA publications" 748 The question of a "no" case was also highlighted by a letter to Mr Mackay dated 26 July 1994 from the Labour Council of New South Wales, reading - "The Labour Council of NSW recently considered the NRMA Boards' current proposal to alter the ownership structure of the NRMA. The Labour Council is concerned that prior to any election to determine this matter, a proper flow of information is provided to NRMA members detailing both the advantages and disadvantages of any new ownership structure. It is Labour Council's understanding that currently the NRMA Board is only proposing to highlight the case for changing the current structure. It has been brought to our attention that a number of NRMA's directors are not supportive of the proposed changes; clearly if there is not unanimity at director level about the merits of change, it is even more incumbent on the Board to ensure all the arguments are put in an even handed manner. Labour Council, I stress, has not at this stage, taken a view for or against the proposed changes, our concerns relate to the fairness of the process being proposed.

Accordingly, I would appreciate your response to this matter outlining how the NRMA Board proposes to ensure that both sides of this important issue are conveyed to the membership." 749 The question was brought up at board level, at a joint meeting of the boards of Association and Insurance on 28 July 1994. Present as the Association board were Mr Kirby, Ms Ralph, Ms Booth, Mr Burrows, Mrs Callaghan, Mr Douglass, Mr Farr-Jones, Miss Fraser, Dame Leonie Kramer, Mr Lawson, Ms Singleton, Mr Talbot, Dr Vanderfield, and Dr Werner. Present as the Insurance board were Mr Kirby, Mr Burrows, Mrs Callaghan, Mr Corrigan, Mr Douglass, Mr Easson, Mr Farr-Jones, Ms Singleton, and Mr Willing. Those in attendance included Mr Rees and Ms Conway, but not Mr Morgan or Mr Bateman. 750 At least according to the minutes, the draft prospectus was not before the boards or considered. But Ms Singleton proposed a motion, which was seconded by Miss Fraser, in the terms of the motion which had been moved by Mr Lawson on 30 June 1994 and was then lying on the table. The minutes of Association recorded, after the terms of the motion - "During discussion, when asked what the 'no' case was, Ms F J Singleton said she had no 'no' case to outline.

The Chairman ruled that the motion was out of order, as the Board had previously resolved it was to lie on the table and the intent was that it be dealt with when a final decision is to be made by the Board in relation to putting the proposal to list the NRMA Group on the Australian Stock Exchange to the members.

Ms F J Singleton then moved a motion dissenting from the Chairman's ruling that her original motion lay on the table. This motion was seconded by Miss D Fraser.

Miss D Fraser, Ms F J Singleton, Mr R Talbot and Mr G Lawson voted for the motion." 751 By 28 July 1994 the prospectus had reached printer's proof stage. Comments were still being received, including from Mr Morgan and Mr Bateman. The topic of disadvantages in relation to the proposal can have been no less in the minds of all concerned than previously. The Open Road for August/September contained a number of letters to the editor in which correspondents expressed concerns, followed by the editor's comments generally directed to allaying the concerns. The concerns found in the letters selected were that the NRMA would be open for takeover; that mutuality would be affected and there would be a conflict between the interests of shareholders and NRMA users; that entitlements had not been appropriately allocated; that the standard and cost of road service would be adversely affected; that membership cost and premium rates would increase because of the profit motive; and that in various ways of the future control of the NRMA would be compromised, including that it might become "just another insurance company". One of the letters suggested a kind of private listing, and another suggested that the wealth should be used to reduce subscriptions and widen activities. 752 According to Mr Rees, at a due diligence committee meeting prior to August 1994, when discussing a draft of Section 1 of the prospectus, Mr Bateman said words to the effect - "There is no obligation in law to insert into the prospectus a 'no' case like one would find in the documents for a constitutional referendum. What is required is to set out the advantages and disadvantages of the proposal and provide sufficient information so that members can make an informed decision. In my opinion we are adequately setting out the advantages and disadvantages of the proposal in Section 1 of the prospectus and that is all that is required in law to provide a balanced view of the arguments for and against the proposal." 753 The description of what was required is consistent with the other evidence of what Mr Morgan and Mr Bateman told the NRMA. The particular matter in this evidence was that, according to Mr Rees, Mr Bateman expressed the opinion that the advantages and disadvantages were adequately set out. While Mr Bateman might have believed that the "no" case so far as was known was canvassed in the prospectus (see the notes of 26 July 1994), his opinion that the advantages and disadvantages of the proposal were adequately set out had to depend in large measure on the NRMA's judgment of what the advantages and disadvantages were. Mr Rees' evidence was difficult to place in time, and if Mr Bateman had expressed the particular opinion evidence from others to similar effect would have been expected. It was inconsistent with Mr Bateman's then position that he would have baldly said that the advantages and disadvantages were adequately set out, and inconsistent with the probabilities on the evidence as a whole. I am not satisfied that Mr Bateman did express that opinion. 754 There is no doubt, however, that the consideration of the prospectus at board and due diligence committee level as it neared the final version was with knowledge that it did not contain a "no" case as such, that it had to be balanced, that it had to provide members with all information reasonably necessary to enable them to decide how to vote, that there were disadvantages in the proposal to be weighed against advantages, and that dissent from MAG and others could be expected to take up the disadvantages. As an illustration, the reply over the signature of Mr Willing to the letter from the Labour Council of New South Wales included that "[u]nder corporate law, if the directors of NRMA decide to put the proposal to the members, they have a fiduciary duty to address all concerns", and that "[w]e will deal with [members'] concerns - not purely out of fiduciary responsibility - but because we believe that loyalty deserves returns not only in dividends, but in a fair and honest assessment of the share proposal". The members of the boards and the due diligence committee must have been asking themselves whether the advantages and disadvantages were adequately set out in the prospectus. The directors had to identify the advantages and disadvantages so that they could properly resolve, as they in due course did, that the proposal should go to members with their recommendation. The adequacy of disclosure was then a matter of judgment. Holdings is incorporated 755 Mr Bateman took the primary role in preparing the documents for and otherwise attending to the incorporation of Holdings. The necessary documents were sent to Ms Conway on 12 July 1994, and were before the meeting of the board of Association on 14 July 1994. The subscribers signed an undertaking that Holdings would not trade without the prior approval of Association until it had been listed, that they would be the only shareholders until the listing was to be implemented, and that if there was no listing within a year their shares would be transferred to Association or as its board directed. 756 Holdings was incorporated on 15 July 1994. Its first board meeting was held on 18 July 1994, the approved directors took office, and the subscribers' shares were allotted. The existing due diligence committee was appointed to carry out on Holdings' behalf the due diligence necessary for the proposal, and it was resolved that advisers be retained in the same manner as Association and Insurance had resolved. In due course Holdings bought a vehicle, contracted with Association for road service and became a member of Association, and insured the vehicle with Insurance so that it also became a member of Insurance. Thus Holdings could be left as the sole member of Association and Insurance if all other memberships were extinguished. Mr Heydon is briefed for confirmatory advice 757 On 15 July 1994 Mr Morgan delivered another brief to Mr Heydon, seeking his "written confirmation" on two issues. The covering letter noted that both issues had been discussed in conference previously "but because of their importance we require a written opinion". 758 The brief began by outlining the proposal and the framing of the changeover articles. The description was in now familiar form - "2.1 Holdings is incorporated and becomes a member of Association and Insurance.

2.2 A trust to be known as the NRMA Offer Trust will be established with Perpetual Trustees Australia Limited as trustee ("the Trustee").

2.3 A prospectus will be issued and will include notices of meeting and an explanatory statement for the meetings of members of each of Association and Insurance.

2.4 The members of each of Association and Insurance in general meeting will be asked to vote on a resolution to change the status of each of the Association and Insurance from companies limited by guarantee to companies limited by shares and guarantee. The Articles of each of Association and Insurance will be amended to include standard provisions concerning the payment of dividends to members and the distribution of assets on a winding up to members.

2.5 The Articles of each of Association and Insurance will include a special article (the "Changeover Article") which, in effect, provides that on a specified date, assuming the vote of members of each of Association and Insurance is in favour of the proposals, all members other than Holdings will cease to be members of Association and Insurance and Holdings will issue shares to those members or, if the members elect not to take shares or do not respond, the member will be provided with an interest in the 'NRMA Offer Trust'." 759 It was then said that it was proposed that there be two offers, namely the Members Free Offer and the Sale Offer. Further detail of each were given, with repetitions of the descriptions Members Free Offer and Sale Offer. 760 One of the issues for confirmation was put forward under the heading "The First Question". It was said - "The structure provides for the shares to be issued by Holdings to be paid up from the value of the NRMA Group transferred to Holdings as a result of Holdings becoming the only member of Association and Insurance after the existing members have given up their rights of membership. That is, members give up their rights as members in consideration of Holdings using the consideration that flows from this retirement (the value of the NRMA Group which is owned solely by Holdings) to pay up the shares issued by Holdings to members.

In other words, the paid up capital for the Holdings shares is not subscribed directly by members or provided by way of dividend.

Senior Counsel is briefed to advise that the shares to be issued by Holdings to members may be fully paid up by reason of the consideration or transfer of value from members to Holdings by the members agreeing to give up their membership."

After some analysis and reference to cases on what constituted consideration, the AAH view was stated - "In the case of the NRMA, the consideration for the relinquishment of membership is the allotment of shares by Holdings to the (former) members of Association and Insurance the value for which derives from the value of the NRMA Group of which Holdings is the sole member (prior to the allotment being made). We do not see a difficulty with this consideration being recognised by the law." 761 The other of the issues for confirmation was then put forward under the heading "The Second Question". It was said - "As you can see from the above it is intended that members of Association and Insurance will be bound by the proposals through the contract constituted by the Articles of each of Association and Insurance (Section 180 of the Corporations Law).

We do not see any difficulty in this, assuming of course that the resolutions are passed by the requisite majority, and seek Senior Counsel's confirmation of this." 762 The first question was the paid-up shares question on which Mr Heydon had advised in conference on 29 April 1994. On one view he second question encompassed the question of non-responding members on which Mr Heydon had advised in conference on 7 March 1994, but in reality it was wider and extended to whether all members would be bound by the proposals if the resolutions were passed by the requisite majority, not just non-responding members. Mr Heydon had not advised in conference, without written confirmation, on that wider aspect of the question. 763 The NRMA suggested that the second question had the wider scope, and was a further occasion for attention to Gambotto's case. Its case did not, however, include that the Gambotto advice should have been given at this time - the case in this respect was that the advice should have been given earlier, so as to affect the NRMA's conduct on 17 March 1994 or at the very latest at the first board meeting after the hearing of the appeal in Gambotto's case on 21 April 1994, in that the proposal would then have been put on hold. The point of the NRMA's suggestion was not entirely clear, and this occasion for a written opinion should be seen as part of the overall course of events for the light it sheds on the defendants' conduct. 764 Why did Mr Morgan brief Mr Heydon for the written opinion? Mr Morgan said that he wanted the questions "finally answered by Mr Heydon, particularly the one regarding the method of members' resolution", but that only takes the question one remove: why did Mr Morgan want the questions finally answered by Mr Heydon, and why particularly the second question? It is necessary, I think, to go back in time, to the setting up of the due diligence committee in late March 1994. 765 Mr Rees asked the advisers (BT, C&L, AAH, AT, and DTT) to prepare a short list of the major issues for consideration in the due diligence process, describing them as those matters which were material and had not yet been resolved. Mr Bateman prepared a list, one item on which was - "3. Procedure to Achieve Listing Residual doubts about the proposed process have to be removed. Major doubt for areas to be satisfied are:

(a) each of Association and Insurance ceases to have any members by virtue of the passing of a special resolution at the 12 October meeting of members;

(c) shares to be issued by HoldCo to former members (of each of Association and Insurance) are credited as fully paid (no expenditure by them)." He presented the document to the meeting of the due diligence committee on 30 March 1994. 766 According to Mr Bateman, the item reflected his continued concern that the members' resolutions route was appropriate, relevantly in two respects: that the resolutions would be effective to determine memberships, and that no oppression would occur. He considered that the due diligence process should include reaching satisfaction that neither presented a material issue. 767 Still according to Mr Bateman, at the meeting of the due diligence committee on 11 July 1994, prompted by review of the Interim Due Diligence Report - Legal, he raised what the minutes of the meeting recorded as his statement "that the change in membership status of members of the Association should be noted as a material matter". He said that the due diligence process was to remove doubts about the procedure for achieving listing, and - "In particular, doubtful areas which had to be covered include how each of Association and Insurance ceases to have any members by virtue of the passing of a special resolution, as opposed to a scheme of arrangement. In other words, can the change of status of a member of Association be achieved by a resolution of members adopting a new set of articles, as distinct from a court approved scheme of arrangement. This is not referred to in the interim report on due diligence on legal matters. It is a material matter that has to be addressed. Another matter is how Holdings is able to pay up its shares when it issues them to those former members of Association and Insurance." Mr Morgan then said that those were matters upon which he had briefed Mr Heydon and "we will be getting him to sign-off on them". 768 Mr Morgan did not recall Mr Bateman saying these things, or anything to the effect that there was doubt that the proposal could be implemented by way of special resolutions of members as distinct from a scheme of arrangement. According to Mr Morgan, he wanted confirmation that Mr Heydon's earlier opinion that the proposal could be implemented by resolutions in general meetings still applied to the proposal in its final form, and the operative consideration was not doubt as to the procedure or putting a material matter at rest, but that final form of the proposal had now been arrived at. He did say that it was possible, although he did not recall it, that at the meeting of 11 July 1994 there was discussion about obtaining a further opinion from Mr Heydon to confirm that the proposal in its final form could be implemented by resolutions in general meeting so that a scheme of arrangement was unnecessary. 769 No one else at the meeting of 11 July 1994 could add to these recollections. The list and the minutes of the meeting support Mr Bateman's evidence, and I accept it. In my view, Mr Morgan wanted the questions finally answered by Mr Heydon so that, in the due diligence process, it could be said that there was no occasion for reserving or expressing doubt about proceeding by the members' resolutions route rather than the scheme of arrangement route or about the question of paid up shares. That does not mean that Mr Morgan doubted either matter, although he may also have had in mind that, with the development of the proposal since late 1993 and early 1994, it would be as well to obtain the confirmation to which the brief referred. That he had no doubt about proceeding by the members' resolutions route is perhaps indicated by its truncated treatment in the brief. Mr Bateman, on the other hand, still had doubt about the members' resolutions route, although he did not elaborate his doubt. 770 Mr Heydon provided an opinion dated 28 July 1994. He framed two questions as the effect of the questions asked in the brief of 15 July 1994. 771 The first question framed by Mr Heydon was - 1. May the shares to be issued be issued by Holdings to members of Association and Insurance fully paid up by reason of consideration in the form of the members agreeing to give up their membership of those companies? " 772 Mr Heydon answered the question in the affirmative. He began his answer - "Ford, Principles of Corporations Law (6th edition), paragraph 821, says: 'The Corporations Law implicitly requires that a limited company will not issue shares gratuitously but only in return for something of value to the company; something which will help to constitute the fund to which the creditors give credit.'

In short, the point of issuing shares is to obtain share capital, and the expression 'share capital' implies something of value. Whether or not Ford's statement is true (and I am not questioning it), there is no doubt that under the proposal the shares in Holdings are not being issued gratuitously, but are issued in return for something of value to Holdings, namely the ability to obtain access to the underlying wealth of Insurance and Association which will flow from the other members of those companies ceasing to be members." 773 After discussion of the cases, Mr Heydon concluded - "In my opinion consideration 'money's worth' equal to the par value, or par value plus premium, of the shares in Holdings allotted to the members of Association and Insurance can be found in principle in the relinquishment by those members of their membership rights, thereby rendering the membership of Holdings in those two companies much more valuable. It must be of 'some value in the eye of the law' for Holdings to become sole controller of the economic value on any view worth many millions of dollars locked in Association and Insurance. The difficult task will be to ensure that an appropriate relationship between the value to Holdings represented by the members' relinquishment of rights and the money value of the shares in Holdings issued to the members for which they pay no cash. On the traditional law apart from s 232 bona fides will suffice; s 232 will require as well diligence and care; Lord Greene MR may require not merely an attempt in good faith to achieve success using diligence and care, but actual success, though it is thought this goes too far." Echoes of Mr Heydon's advice on the goodwill question can be seen in the explanation of the difficult task. The second question framed by Mr Heydon was - " 2. Will the members of Association and Insurance be bound by the proposals through the contract constituted by the respective Articles of each company under s 180 of the Corporations Law? " 774 This also was answered in the affirmative, in a brief paragraph. Mr Heydon said - "The statutory contract created by s 180(1) to which a member is party is an unusual one in that in certain respects, unlike normal contracts, it can be varied without the consent of the member. Section 180(3) indicates certain respects in which the contract may not be varied. Section 180(3)(a) and (c) do not apply, and part of s 180(3)(b) does not apply, because the companies are not companies in which the liability of members is limited by shares. And the changes do not increase the liability of members to pay money, hence the other part of s 180(3)(b) does not apply. the contract constituted by the Articles can thus be varied by amending the Articles. That requires a special resolution (s 176(1)) and it requires the majority to avoid oppression of the minority. Subject to those requirements, the answer is 'yes'." 775 According to Mr Morgan, the answer to the second question confirmed Mr Heydon's previous advice that the proposal could be implemented by the approvals in extraordinary general meetings of members of Association and Insurance of amendments to the articles of those companies. Mr Morgan agreed, however, that he understood at the time that Mr Heydon was not expressing an opinion about oppression: that is clear from the penultimate sentence. According to Mr Simpson, this answer confirmed his views that a members' resolution could bind non-voting or dissenting members to the proposal and that a scheme of arrangement was unnecessary, so long as it could not be said that there was any "unfairness" to members. The Perpetual brief 776 To this time Mr Heydon had not been provided with a copy of the prospectus in any of its draft versions. He had been provided with drafts of the onsert, and with an early draft of Section 2 of the prospectus. The drafts of the onsert had referred to free shares in three or four places, but nothing asked of Mr Heydon drew or required attention to the use of that phrase. The draft of Section 2 of the prospectus had referred to Members Free Offer, but not to free shares. In the course of the more recent conferences with Mr Heydon the expression "free shares" had been used, as would be expected, and Mr Heydon did not say that the use of the expression was inappropriate. Again, nothing asked of Mr Heydon drew or required attention to its use. As part of its case the NRMA wished to establish that Mr Heydon was made aware of the use of the expression in the prospectus itself. 777 In July 1994 Mr Heydon was briefed by Mallesons Stephen Jaques on behalf of Perpetual, the proposed trustee of the NRMA Offer Trust, to advise on the protection available to it under s 1011(1)(b) of the Law and otherwise. The brief dated 14 July 1994 included a copy of the draft prospectus. In its then form the draft made frequent reference in Section 1 to Free Shares, although nothing in the observations in the brief drew attention to that. The observations put forward the view that Perpetual could place reasonable reliance on the report of the due diligence committee without being involved in the entire due diligence process itself, and in substance asked Mr Heydon whether he agreed. Mr Heydon advised in conference and provided a written opinion, but the details were not given in evidence for reasons of client legal privilege. 778 The frequent reference to Free Shares in the prospectus was there to be seen; however, hindsight must be put aside and it does not follow that it should have been taken in. Mr Heydon said, and I accept, that the use of the expression "free shares" in the onsert (meaning other than as later recounted) had not been noticed by him, in the sense that while he must have read the whole of the document it did not impinge on his consciousness. The position was similar with respect to the references to free shares in the conferences, as in both cases it was unnecessary for Mr Heydon to give consideration to the use of the expression. According to Mr Heydon, it was the same with respect to the draft prospectus in the brief from Mallesons Stephen Jaques. He explained that the subject matter for his advice caused him to go through the prospectus quickly, to identify areas in which Perpetual was committing itself directly and areas in which it was relying on the knowledge of others. He said that it was unnecessary for him to do more, and that he did not do more. I accept Mr Heydon's evidence in this respect, and that he did not become aware of the frequent references to Free Shares in the draft prospectus. Ms Singleton's query 779 I have already referred to the joint meeting of the boards of Association and Insurance held on 21 July 1994. Present as the Association board were Mr Mackay, Mr Kirby, Ms Ralph, Mrs Callaghan, Mr Douglas, Mr Farr-Jones, Mr Jack, Dame Leonie Kramer, Mr Lawson, Ms Singleton, Mr Talbot, Dr Vanderfield, and Dr Werner. Present as the Insurance board were Mr Mackay, Mr Jack, Mr Kirby, Mrs Callaghan, Mr Corrigan, Mr Douglas, Mr Easson, Mr Farr-Jones, Ms Singleton, and Mr Willing. Those in attendance included Ms Conway and Mrs Storrs. Neither Mr Morgan nor Mr Bateman was in attendance. 780 Although the minutes did not record it, in discussion at the meeting Dame Leonie Kramer, Ms Singleton, and Mr Easson raised queries in relation to the onsert. 781 Dame Leonie's query seems to have been to do with appointing a member as a proxy. Mrs Storrs raised it with Mr Bateman after the meeting, and Mr Bateman said the proxy form should stay as it was. Mrs Storrs raised it also with Ms Conway after the meeting, and Ms Conway was of the same view. That matter did not go further. 782 Ms Singleton's query did go further. It was recalled differently by those present at the meeting, as I will shortly indicate, but the file notes of Mrs Storrs and Mr Bateman seem to me to provide the best guidance as to what it was. 783 Following on from noting her enquiry of Ms Conway just mentioned, Mrs Storrs recorded - "She [Ms Conway] asked that I get advice from Greg Bateman and John Morgan as to Jane Singleton's issue as to the legality of placing the acceptance form and proxy on the same page in relation to inducement to vote.

Attending Greg Bateman . I advised that we require written advice concerning Jane Singleton's concerns. He said he would speak to Dyson Heyden [sic] to get written advice. He did not see any problem with it." 784 Mr Bateman's file note of what must have been the same communication read - "- opinion 'Are there any legal issues arising from place of Acceptance & Proxy on the one form' ie attempting to induce people to vote 'yes'. Its a carrot. + wording on front of carrier - any legal issues in same way". It will be seen that Mr Bateman's note referred to "wording on front of carrier" as well as to the placement of the proxy and acceptance form, where Mrs Storrs' note referred only to the placement of proxy and acceptance form. From what follows, Ms Singleton's query had the wider scope, but was still to do with the placement of the wording on the first page of the onsert. 785 As I have said, Ms Singleton's query was recalled differently by those present at the meeting, and many of the recollections were little more than impressions. As on other matters, that is not unexpected. Not everyone present at the meeting who gave evidence provided a recollection. 786 Mr Kirby remembered Ms Singleton asking whether the word 'free' could be construed as an enticement, saying he assumed that it was in connection with the prospectus, and that the answer from Mr Mackay was that an opinion would be obtained; he thought the matter was dealt with by the changes to the onsert including the qualification with the asterisk, to which I will come, and he recalled Ms Conway saying that the word had to be qualified to avoid any possible ambiguity in understanding it. At another point Mr Kirby said that he construed Ms Singleton's query as referring to the whole prospectus and onsert, not just the onsert, and that Ms Singleton was questioning the use of the word 'free' in the prospectus and the onsert, and that he thought the QC's opinions which were being obtained were all concerned with the use of the word 'free'. 787 Mr Jack remembered Ms Singleton raising a query about the onsert, could not remember what it was, but thought "it was in the context of the proxy form and whether or not you wanted the shares". He did not recall discussion about the use of the word "free" on the onsert, but recalled discussion about the use of the word "free" and did not recall it as focussing on the onsert. His recollection was that the use of the word "free" was queried, that they were advised that it was acceptable, and that it was used frequently within the prospectus to differentiate the free shares from the other shares because there were several other classes of shares. 788 Ms Ralph recalled Ms Singleton expressing concerns about the word "free", although it is not clear that Ms Ralph had in mind the meeting of 21 July 1994. Her recollection was that the thrust of Ms Singleton's concern was that the word had "run into difficulties in other contexts … for example, 'buy one get one free', that sort of thing". No one else recalled Ms Singleton raising this concern, and from Ms Ralph's later evidence it seems that she thought Ms Singleton's query was to do with the onsert, and that she simply linked it with the later disappearance of the word 'free' and therefore thought that the query was about the word 'free'. 789 Mrs Callaghan said that the query was probably about whether the word free was appropriate. Mrs Callaghan was not a particularly satisfactory witness, in many areas her evidence was influenced by reconstruction, and I am satisfied that this recollection is unreliable. 790 In my view all these recollections were, and were expressed in ways demonstrating that they were, of egregious uncertainly. They ran together Ms Singleton's query and other events to do with use of the word "free", including events only later ascertained, and should not be accepted as correct recollections. 791 Mr Rees' description was that Ms Singleton "had an issue with the juxtaposition of some words on I think it was the proxy form". Mr Corrigan's recollection was that the broad issue was whether having the combination of the voting paper and the free shares acceptance together might influence people to vote in a particular way. 792 Ms Conway recalled the query as concern about the possibility of there being an inducement to vote by reason of the wording on the onsert, accepting that in that context Ms Singleton referred to the word "free" and that her query included a query as to whether the use of the word "free" amounted to an inducement because of the juxtaposition of the two phrases. Ms Conway said that "she [Ms Singleton] was concerned, as I recall it, that there was - the form had the voting aspect as well as the acceptance of shares aspect combined and she was concerned whether or not the formulation, which I can't recall, 'How many free shares you will get' or something of that nature would induce because of the two forms being together - would induce a member to vote yes for the proposal." Mrs Storrs, whose file note I have set out, said that two issues were raised. One was whether or not the use of the word "free" on the carrier was an inducement for people to vote, and the second was that the placing of the acceptance of free shares form and the proxy form on the same page could be seen as misleading in that people might think they had to vote in order to get the shares. The recollections of Ms Conway and Mrs Storrs differed in relation to whether the use of the word "free" on the carrier, in itself as distinct from because of its juxtaposition with voting, was a matter of concern. 793 Assistance may be gained from what was said by Mrs Storrs to Mr Bateman on 21 July 1994, and from later conversations between Mr Bateman and Ms Conway. 794 I have set out both file notes of the conversation between Mrs Storrs and Mr Bateman. According to Mr Bateman, Mrs Storrs said to him, "I have been asked to have you brief Dyson Heydon on the question 'Are there any legal issues arising from the placement of the acceptance of shares and the proxy on the one form'"; Mr Bateman asked, 'What sort of legal issues do you mean?'; and Mrs Storrs replied, "I'm not entirely clear on this, but I think the question 'Are there any legal issues arising from the placement of the acceptance of shares and the proxy on the one form' is asking, is it attempting to induce people to vote yes. In other words, is it a carrot? We also want an opinion on the wording on the front of the carrier. Do any legal issues arise in the same way? Is it an attempt to induce people to vote yes?" Mr Bateman read these questions back to her as recorded in his file note. Mrs Storrs evidence of the conversation was less precise, but seemed to give the wider scope to her instructions to Mr Bateman, referring to instructions to obtain advice "about the questions which Jane Singleton had raised at the board meeting as to whether there were any legal implications of the use of the words 'Free Shares' on the cover of the onsert". 795 The opinion in response to Ms Singleton's query had not been obtained by the meeting of the board steering committee on 25 July 1994. Present as the members of the committee were Mr Mackay, Mr Kirby, Mr Burrows, Mrs Callaghan, Mr Jack, Dr Werner, and Mr Willing. Those in attendance included Ms Conway. The minutes recorded reference to proposed 8 August 1994 meetings of the boards for final prospectus approval, and shortly thereafter, "Ray Kirby commented on the onsert form design. Helen Conway is seeking legal advice from a QC." What was said about the onsert form design was unclear from the evidence, and I am not satisfied that it went beyond Ms Singleton's query. 796 But this seems to have led to Ms Conway herself raising Ms Singleton's query with Mr Bateman at a meeting attended by both of them (but not Mr Morgan) on 26 July 1994: it was the meeting mentioned in connection with the "no" case. At the beginning of the meeting Ms Conway said to Mr Bateman that Ms Singleton had asked a question "about the wording on the front of the form" and the fact that the acceptance of shares was on the proxy, and said that an answer was needed from Mr Heydon by 3 August for the board meeting on 4 August. Mr Bateman's file note of the meeting recorded this as - "Jane Singleton question: need answer by Front of form wording + Fact that Acceptance is on Proxy"

It then noted a number of matters to do with the proposal as "Issues that will emerge", including the issue "Forms: inducement to vote". 797 Later on 26 July 1994 Mr Bateman had a telephone conversation with Ms Conway. Mr Bateman said that Mrs Storrs had not been entirely clear about the two questions, and asked for clarification. He stated the questions on which Mr Heydon's opinion was required, and Ms Conway agreed that they were the questions. The questions he stated were recorded in his file note of the conversation - "Lisa away: Jane Singleton's question includes the front cover … Are there any legal issues arising from the placing of the Acceptance of Free Shares [and] the Proxy on the one form eg by attempting to induce people to vote 'yes' + Are there any legal issues arising from front of carrier which says 'Free Shares' & 'vote'. Ms Conway agreed that she had a later discussion with Mr Bateman to "check the formulation of the questions", and did not dispute what Mr Bateman said in this respect. 798 With the assistance of these later events, I think that Mrs Storrs' recollection should not be accepted so far as it was that Ms Singleton questioned in itself the use of the word "free" on the first page of the onsert. I consider that the query was directed to the conjunctions of voting and acceptance of free shares on the third page of the onsert and of free shares and voting on the first page of the onsert, in both instances the concern being that the conjunction could be seen as an inducement to vote yes. It may be added that this is confirmed by what appears to be a note of the meeting made by Mr Talbot, it seems a habitual note-taker, relevantly stating "Jane asked to be supplied with legal advice on closeness of share offer and vote". 799 Mr Easson gave evidence that, as a separate matter from Ms Singleton's query, at the meeting of 21 July 1994 he queried whether the conjunction of words on the first page of the onsert "might have been leading members to a conclusion that they were getting something no matter what, no matter how they voted", and that he asked for an opinion on that also. There was no other evidence of such a query by Mr Easson, although there is some support for his having raised a concern separate from, but related to, Ms Singleton's query in the events at the joint board meeting of Association and Insurance on 18 August 1994 to which I will come. Mr Easson also recalled Ms Singleton's query as referring to the prospectus and the onsert as a whole, which I do not think is correct. His own concern was only as to the words on the first page of the onsert. 800 Possibly Mr Easson did raise his own query, but it was not seen by Ms Conway as something materially different from Ms Singleton's query and was not separately taken up when Mr Bateman was instructed to get advice. It is likely, I think, that Mr Easson's query was raised a little later, see as to the notations on the 27 July 1994 version of the onsert mentioned a little later in these reasons. 801 A 22 July 1994 version of the onsert differed in some respects from that which had gone to Mr Heydon on 6 July 1994, and was the subject of his opinion of 20 July 1994. The differences included as to the layout of the logo and words on the first page, the marginal note on the first page added after 6 July 1994, the layout of the second page, and reference to "Free Shares" rather than "free shares" or "the free shares" on the second page. A later version of 27 July 1994 differed, although slightly, even from the version as at 22 July 1994. 802 The 27 July 1994 version was before a meeting of the board of Holdings held on 28 July 1994. Those present as the board were Mr Mackay, Mr Kirby, Mrs Callaghan, Mr Jack and Mr Willing, and those in attendance included Dr Werner, Ms Godwin, and Mr Bateman. The minutes recorded - "A copy of the most recent edition of the proposed onsert forms was circulated and discussed.

The Board resolved, subject to the amendments discussed at the meeting, to approve the wording, layout and form of:

(a) the carrier page; (b) the reverse side of the carrier page outlining instructions; and (c) the form entitled 'Acceptance of Free Shares'

The Board further resolved to authorise management to make any minor amendments of form (rather than substance) which may be required arising out of the printing process." 803 At the joint board meeting later the same day, according to the minutes and immediately before the minutes concerning the "no" case - "The most recent edition of the proposed onsert forms was tabled.

The forms were discussed and changes were suggested to management for its further consideration."

The only indication of what suggestions for management might have been made is that some copies in evidence of the onsert as at 27 July 1994 had notations to the line on the first page, "How many FREE shares you will get!", suggesting that the word "will" had come under consideration, that Mr Easson had proposed "can", and that Ms Singleton had proposed "may". It does not seem that Ms Singleton repeated her query, or that there was any express reference to counsel's advice in relation to that query: perhaps it was understood that the advice was coming and there was no point in reiteration. The notations are consistent with Mr Easson's separate query, and this is likely to have been the occasion on which Mr Easson raised it rather than 21 July 1994. If so, it is perhaps understandable that no one else gave evidence of Mr Easson's separate query. Mr Heydon is briefed on Ms Singleton's query 804 Mr Bateman asked Mr Heydon for his advice by a letter dated 28 July 1994. It read - "We refer to previous discussions.

We need Counsel's short written opinion on a matter by no later than Wednesday, 3 August 1994.

As you know, it is intended that the prospectus to be issued by NRMA Holdings Limited will be sent in package [sic] to members of NRMA Limited (' the Association ') and NRMA Insurance Limited (' NRMA Insurance ') and that this package will comprise: (a) a 100 page (or so) bound document;

(b) section 1 of that bound document will contain the Notice of general meeting for the Association, the Notice of general meeting for NRMA Insurance and a 10 page 'Information for Members' which relates directly to the resolution to be considered by each of those meetings;

(c) the prospectus will be sent through the post in plastic wrap and inside the plastic wrap will also be an 'onsert'. That onsert will be customised and personalised to show the name and address of the member of the Association or member of NRMA Insurance, as the case may be. The most common form of onsert is enclosed. It is the latest version of the onsert upon which Counsel has been asked to advise on previous occasions.

One of the directors of the Association has asked that a written opinion be obtained on the following: (a) Counsel is asked to confirm that there are no legal issues arising from the placement of the Acceptance of Free Shares form on the Proxy Voting Papers.

Could it be suggested, for example, that that [sic] if this was regarded as an attempt to induce people to vote 'yes', that it was an unfair inducement with legal ramifications?

(b) Counsel is asked to confirm that there are no legal issues arising from having on the first page 'How to vote!' in combination with 'How many FREE shares you will get!'.

Could it be suggested, for example, that if this was regarded as an attempt to induce people to vote 'yes', that is an unfair inducement with legal ramifications?

We do not believe that there is any such inducement.

The Proxy Voting Papers make it very clear that there is a choice as to whether you vote 'yes' or 'no'. The Acceptance of Free Shares form, under its heading, clearly states that even if the person has voted 'no', they should complete the Acceptance of Free Shares form. Again, the instruction sheet, at the first dot point against 'remember to check' emphasises that regardless of whether the person votes they should fill in the Acceptance of Free Shares form.

The issuing of the onsert is subject to a range of controls, including: (a) the general law, including the law relating to the holding of meetings and providing fair information to members;

(b) the Corporations Law, including Chapter 7 dealing with prospectuses;

(c) the Trade Practices Act, including its comprehensive provision in section 52.

Having considered these issues, we do not believe that there are any legal implications arising from the placing of the Acceptance of Free Shares form on the Proxy Voting Papers. Nor do we believe that there are any legal implications arising from the major wording on the front of the onsert.

We would be pleased if Counsel would consider the matter and provide a short written opinion on the matter.

As the matter is to be considered by the relevant board of directors on Thursday, 4 August 1994, we would appreciate Counsel's written opinion by the close of business on Wednesday, 3 August 1994 ." 805 The version of the onsert enclosed with the letter was not entirely clear, but seems to have been the situation 3 onsert in its 22 July 1994 version. Mr Heydon's opinion of 2 August 1994 806 Mr Heydon responded to the letter of 28 July 1994 on 2 August 1994. He prepared and dictated his opinion on 1 August 1994 and possibly the morning of 2 August 1994. 807 Early on 2 August 1994 he telephoned Mr Bateman. Mr Bateman's file note of the conversation read, "FREE shares is a problem. 'How to choose Shares or Cash!'". 808 The written opinion became available during the morning. It occupied five pages, but only part of it need be set out. 809 After introductory reference to the onsert, Mr Heydon set out as a question the matter in para 2(a) of the letter of 28 July 1994; he then set out para 3 of the letter down to "Proxy Voting Papers" in the fourth-last line, the part of the letter in which Mr Bateman had expressed his view on that matter. 810 Mr Heydon said that he agreed. He observed that the benefit of receiving shares in Holdings or cash was no doubt a strong inducement to vote yes, but that that would be so whether the Acceptance of Free Shares form appeared on the same page as the Proxy Voting Paper or not, and that it was difficult to see why any greater incentive in favour of a yes vote flowed from the proposed placement. After reference to authority, he said - "Even if the documents were read quickly, and by a non-specialist, they do not mislead, and they contain adequate information to convey the point that the member has two choices - to indicate how, if a proxy is to be employed, the proxy is to vote for or against the changes, and to indicate, even if the proxy vote is negative, whether the member is to get shares or cash in the event that there is a sufficiently large positive majority. I do not see how that point could be put more clearly. I certainly do not think that the form could create 'some serious misapprehension of the position'." 811 Mr Heydon then set out as a question the matter in para 2(b) of the letter of 28 July 1994, and in his answer to that question was the problem noted by Mr Bateman from the telephone conversation early on 2 August 1994. The question and what followed it were - "'2. Are there any legal issues arising from having on the first page 'How to vote' in combination with 'How many FREE shares you will get!'? Could it be suggested, for example, that if this were regarded as an attempt to induce members to vote 'yes', that is an unfair inducement with legal ramifications?' While I do not think this will necessarily be held to be an attempt to induce members to vote 'yes', it may be; and in any event there are two other reasons why I think that the words should be changed.

The first reason concerns their inaccuracy as an indication of what the member must do; the second concerns the ambiguity or worse of the word 'FREE'.

The essential activities to which the onsert is directed are

(a) voting on the proposals; (b) choice between shares and cash in the event that 75% of the votes are affirmative.

The present words do not indicate accurately that the member must choose between shares and cash. A better expression might be 'How to choose shares or cash!'.

The word "FREE" has been removed from that formulation. There is an important sense in which the shares are not 'free': they are not free because the members are giving up rights and Holdings is gaining greater power in the Association and NRMA Insurance. Indeed if the shares were free the entire transaction would be at risk, because the shares will have a par value, and perhaps a premium; under the general law to issue the shares free would be to issue them at a discount, which is unlawful. Hence it is technically quite wrong to call the shares 'FREE' even though it is true that no money need be paid for them; so that in that sense it is true to call them free. If the words 'How many FREE shares you will get!' became 'How to choose shares or cash!', or words to that effect, I do not believe that any legal issue would arise likely to be decided adversely to NRMA. As indicated in answer to question 1, any tendency of the proposed words to operate as an inducement to vote 'yes' would not operate to any greater extent than the inherent tendency of the proposal; and the form makes it plain at two points that while it is possible to vote 'no', it is desirable for a person voting no to choose between shares and cash, since a 75% majority may vote yes." 812 The link with Mr Bateman's note of his early morning telephone conversation with Mr Heydon is plain. On one view Mr Heydon went beyond the question asked of him, as the question addressed the combination of the two phrases "How to vote" and "How many FREE shares you will get!". 813 Mr Heydon explained, however, that he considered that the letter of 28 July 1994 in substance raised two questions. One turned on the fear that members might think they could only obtain the shares if they voted in favour of the resolutions, that is, that they might think that even if the requisite majority were received they would not get any shares unless they voted in favour. He saw that question as related to the placement of the Acceptance of Free Shares form on the proxy form, that is, at the bottom of the third page of the onsert. The other question was that of legal issues arising from having on the first page the phrase "How to vote!" in combination with the phrase "How many FREE Shares you will get!", and to answer that question he had to consider what each phrase meant. This, Mr Heydon said, was the first occasion on which a request had been made to him directing his attention to the description of the shares as free shares, and the recent advice to Mr Morgan, Mr Pearce and Mr Barry on 26 July 1994 turned his mind to the senses in which the shares were or were not free. The advice had been on an aspect of the goodwill question, involved in which was the value of what Holdings got in return for issuing the shares, and that can be seen in the opinion of 2 August 1994. 814 There was some attention in these proceedings to how Mr Heydon's opinion should be read. That will be better understood with knowledge of further events, and can be addressed together with Mr Heydon's opinion of 3 August 1994: see later in these reasons. The events of 2 August 1994 815 Mr Heydon's opinion of 2 August 1994 caused quite a stir. The extent of divergence in recollection of what happened was quite remarkable. For more intelligible exposition, I will break the events of 2 August 1994 into the three areas of (a) the morning conversations; (b) before the afternoon meeting; (c) the afternoon meeting until Mr Heydon was telephoned; and (d) the telephone call to Mr Heydon, but the events and their outcome should be seen as a whole. (a) The morning conversations 816 Mr Bateman's note of his early morning telephone conversation with Mr Heydon placed it at 8.50am, and it is probable that Mr Heydon telephoned Mr Bateman to tell him that the opinion had been completed and would shortly be available. 817 According to Mr Heydon, he said to Mr Bateman - "I have done the opinion you wanted on the onsert. It will be available in the course of the morning. The use of the term 'free shares' is a problem on the front page of the onsert. In one sense the shares aren't free; if they were, they would be being issued at a discount and that would be unlawful." Something was probably said about clarifying the need for members to indicate a choice between shares or cash, and about arranging for the opinion to get to Mr Bateman. 818 According to Mr Bateman, there was more in the conversation. His recollection was that Mr Heydon said - "I have done the opinion on the onserts and I am sending it to you. The use of the term 'free shares' is a problem on the front of the onserts. I have suggested that the wording should be 'How to choose shares or cash". You will see what I've suggested in the opinion. One of the problems is that the cash alternative is not referred to on the front cover. The other problem is that, technically, the shares aren't free. Otherwise, as you know, we have the problem we have discussed concerning paying up the shares." Mr Bateman asked whether there were other ways of addressing the problem, and Mr Heydon said - "I'm not a draftsman, and I'm sure there are other ways of covering the issue. There must be people down at the NRMA who can come up with the right thing. The alternative wording in my written opinion is just a suggestion. The important thing is to qualify 'free shares' in some way where it first appears. You could use an asterisk, or some other device next to 'free', for example, and note that members are giving up their rights. I'll leave that to the designers." 819 The first part of the conversation as recalled by Mr Bateman was much the same as the conversation recalled by Mr Heydon, but it seems clear enough from Mr Bateman's note that there was reference to a suggested alternative wording. Mr Heydon did not think that he said anything about paying up the shares, as he had not discussed that problem with Mr Bateman and did not know the extent to which Messrs Morgan and Bateman were informing each other of their separate communications with him. He did not remember the second part of the conversation as recalled by Mr Bateman, but did not deny that Mr Bateman may have asked if there was another way of addressing the problem. 820 In these proceedings the NRMA placed some reliance on Mr Heydon saying that "free shares" should be qualified where it first appeared. Its point was, as I understand it, that if he said that then Mr Heydon must have appreciated that "free shares" was used later in the onsert and, although this was disclaimed at one stage, was used in the prospectus. Mr Heydon probably did appreciate at the time that "free shares" was used later in the onsert - after all, it was used for the Acceptance of Free Shares form also the subject of his advice. There was other evidence of reference on the phrase when it first appeared, and supporting Mr Heydon referring to possible alternatives and qualification with an asterisk. It would have been natural for Mr Heydon to have said what Mr Bateman recalled, and I accept that he did. I do not think, however, that Mr Heydon thereby revealed an appreciation of the use of "free shares" in the prospectus. 821 Mr Bateman spoke to Ms Conway on some other matters to do with the proposal at 9.20 am. Mr Bateman had no recollection of whether or not he passed on to her what Mr Heydon had told him, saying only that it was likely that he did; Ms Conway's evidence was to the contrary. Some forewarning to Ms Conway of Mr Heydon's problem with free shares would probably have been reflected in the accounts - even the conflicting accounts - of what thereafter happened, but was not, and on the probabilities I consider that Mr Bateman did not say anything to Ms Conway. 822 The NRMA suggested that this bore a sinister connotation, in that Mr Bateman was conscious of his own neglect in not seeing a problem with free shares and was reluctant to disclose it. I reject the suggestion. Mr Bateman knew he would soon receive the written opinion, and it is understandable that he should wait until he had it so that he could pass it on, and assist in assessing it and following it through, in an informed way. When he received it, he promptly faxed a copy of the opinion to Ms Conway. The suggestion was part of a wider suggestion that Mr Bateman delayed in asking for Mr Heydon's advice, from 21 July 1994 to 28 July 1994, because of a similar consciousness of neglect. I reject that also. I accept that Mr Bateman wished to clarify with Ms Conway the matters on which there should be advice, which he did on 26 July 1994. He did not act with alacrity, but there was much else to attend to and, while time was short, it was not critical - changes in the onsert were still being made, and Ms Singleton's query went to placement rather than full-scale drafting. 823 After it became available, Mr Heydon's opinion was faxed by Mr Bateman to Ms Conway, Mr Barrett and Mr Morgan between 12.00 noon and 12.15 pm. When and how the opinion became available was not established. The faxes provide some focus for the conflicting recollections in relation to another morning conversation. 824 According to Mr Morgan, on the morning of 2 August 1994 he was at the NRMA offices attending a meeting. On leaving the meeting he saw Ms Conway, Mr Barrett, and Mr Bateman. Mr Bateman was holding a fax in his hand. He said, "We have just got a fax of Dyson's opinion", and Ms Conway said, "Look at this. We have got a problem with the use of the word 'free'. This is not what Heydon said in conference. Bloody Dyson's reneged". Mr Morgan read the last few pages of the copy of Mr Heydon's opinion, and said that there should be a meeting about it. He asked for a copy of the opinion to be faxed to his office, to which he was going. Ms Conway said that she would arrange for the meeting at 2.00 pm. 825 Ms Conway did not agree with this. Her recollection was that Mrs Storrs told her that Mr Heydon had given an opinion "in which he has been critical of the use of the expression 'free shares' on the onsert", that this was a matter of concern, and that Mrs Storrs said that there was a forms design meeting proposed for 2.00 pm that day and asked if Ms Conway could attend. Ms Conway said she could. Ms Conway denied meeting others or saying Mr Heydon had reneged, asserting that she did not know of any earlier opinion that Mr Heydon may have expressed. She denied that she appointed the meeting for 2.00 pm. Indeed, Ms Conway said that she had not read Mr Heydon's opinion before that meeting, and read it or parts of it during the course of the meeting. 826 Nor did Mr Bateman agree with this. He was unsure about whether he had spoken to Ms Conway before the meeting at 2.00 pm, but denied the occasion in the morning at the NRMA offices and said that Ms Conway's secretary told him that the meeting was being held. 827 Mr Simpson's evidence included that in early August 1994 he saw Mr Bateman in the NRMA building, and Mr Bateman said to him, "Heydon's changed his mind and got nervous about 'free shares'." Mr Simpson asked what Mr Heydon had said, but he could not recall Mr Bateman's answer. This was not necessarily on the morning of 2 August 1994. It is to be contrasted with a later conversation of which Mr Simpson gave evidence, referring to events on the afternoon of 3 August 1994, but that leaves room for other occasions when the paths of Mr Bateman and Mr Simpson crossed. Mr Bateman denied telling Mr Simpson about a change of mind and nervousness of Mr Heydon. 828 I do not think Mr Simpson's evidence, even if there were a conversation about a change of mind and nervousness of Mr Heydon, is particularly helpful in resolving the conflict between Mr Morgan and Ms Conway and Mr Bateman. There may have been a conversation at some time, and Mr Bateman may have seen a change of mind from what I earlier concluded may have been a passing remark at the conference of 7 March 1994 that the shares were capable of being described as free, but it is quite uncertain that the conversation was on the morning of 2 August 1994. 829 There are difficulties with all of the recollections. One difficulty is that, on the timing of his movements elicited from Mr Morgan, the conversation in the morning must have been before 12.00 noon, which is not consistent with Mr Bateman faxing a copy of the opinion to Ms Conway at or after that time. Another difficulty is that Mr Morgan must have learnt of the free shares problem before the copy of the opinion was faxed to him, as the evidence of Mrs Castle to which I will shortly refer demonstrates. If he did not learn of it in the manner he recalled there was no other evidence of how he learnt of it. Another difficulty is that Ms Conway's recollection does not sit well with the fax to her, and Mrs Storrs was unable to support it - indeed, Mr Bateman did not say that he conveyed the free shares problem through Mrs Storrs. Mrs Storrs' evidence was to the contrary of Ms Conway's recollection, in that she recalled Ms Conway talking to her about the 2.00 pm meeting and who would need to be present, and I am satisfied that it was not a regular forms design meeting to which Ms Conway was invited. Finally (although many other difficulties could be identified), it would be curious if Ms Conway had spoken of Mr Heydon reneging from something said in conference. She had not been at a conference with him. The only occasion, on the evidence, on which Mr Heydon might have said something about free shares was the conference of 2 March 1994, but there was no evidence of anyone telling Ms Conway of such an occasion, and Ms Conway denied that she had been told of it. 830 The evidence material to this other morning conversation can not be reconciled. I am not satisfied that Mr Morgan's account of the conversation is correct, or that Ms Conway's account of involvement only via Mrs Storrs is correct. I do not think any conclusion can reliably be reached beyond that in some manner Ms Conway and Mr Morgan were made aware of the free shares problem raised by Mr Heydon, and were provided with faxed copies of the opinion, and that a meeting was appointed for 2.00 pm on 2 August 1994. I do not feel able to find what happened in any greater detail. Nor do I think it matters to my decision. (b) Before the afternoon meeting 831 Mr Morgan went to Mrs Louise Castle, then a senior associate at AAH whom he believed was experienced in trade practices matters. According to Mr Morgan, he told her that an opinion had been received from Mr Heydon which said there might be a problem with the use of the expression 'free shares', and asked her to get the opinion and "have a look at it" and go with him to the meeting at 2.00 pm "to advise NRMA on our view as to what the consequences of the opinion are". He then went to another meeting. According to Mrs Castle, late in the morning of 2 August 1994 Mr Morgan asked if she was free to go to a meeting at the NRMA at 2.00 pm, and said that he wanted her to review and comment on an opinion given by Mr Heydon on the use of the expression "free shares". Mr Morgan outlined the proposal and answered Mrs Castle's questions, and said that the opinion would be faxed through; according to Mrs Castle, he said that Ms Conway "is pretty mad as apparently Dyson has changed his mind on the meaning of the word 'free'". A draft of the onsert was provided, and Mrs Castle obtained a faxed copy of Mr Heydon's opinion. 832 Mrs Castle read the draft onsert and parts of Section 1 of the prospectus, carried out legal research, and also spoke to Mr Tonking. She showed Mr Tonking the onsert and the opinion, and said that Mr Heydon was right in that there were two views as to the meaning of the word 'free' but that the better view was that 'free' meant at no dollar cost to the consumer. She gave her reasons, and asked what Mr Tonking thought. According to Mrs Castle, Mr Tonking said that he agreed. 833 Later in the day, according to Mr Morgan, he read the opinion in more detail. He said that he understood Mr Heydon to be expressing a concern solely about the onsert. Mr Morgan considered the onsert separable from the prospectus, although technically part of it, and said that he thought that because members might read the onsert without referring to the prospectus and seeing the explanation in the prospectus that they would give up their membership in return for the shares, it was necessary to explain in the onsert that members would be giving up their rights. In his view, reference to free shares in the prospectus, where there was the explanation, was not objectionable because in substance the use of the expression "free shares" in the prospectus was already qualified in the way he understood Mr Heydon suggested the onsert had to be qualified. 834 From this evidence, Mr Morgan gave thought at the time to whether the free shares problem extended to the prospectus, and concluded that it did not. I do not think I can accept this without reservation. Mr Heydon had not in his opinion suggested qualification by explanation that members would be giving up their rights. That had been an alternative in the conversation with Mr Bateman, but the opinion did away with free shares altogether and there was no evidence that Mr Morgan had been told of the alternative by this time. 835 Mr Bateman met Mr Morgan and Mrs Castle in the street on the way to the meeting at 2.00 pm. Mr Morgan did not recall this, but accepted that it may have happened; Mr Bateman and Mrs Castle agreed that it happened, but differed in their recollections of what was said. 836 According to Mr Bateman, Mr Morgan said - "Greg, this is my partner, Louise Castle, she's our Trade Practices Act expert. She's coming down with me to the NRMA to sort out Dyson Heydon. Heydon's just plain wrong when he says the shares are not free. He had no right to say what he said in the opinion. He wasn't asked that question. I tell you mate, Dyson's just wrong". Mr Bateman replied - "We asked for the opinion. Surely, it's fair that he draws our attention to something. Anyway, when I spoke to him this morning, when he told me the written opinion was on its way, he did say that there could be alternatives to his wording. For instance he said that we could qualify the word 'free' with an asterisk or some other device and tell the members they are giving up their rights". Mr Morgan made comments about the meaning of 'free' which Mr Bateman could not recall, and as they walked along Mrs Castle said, with an illustration which he could not recall, "the Trade Practices Act, and the cases under it, say that there can be situations when you can use 'free' and I think it is correct to say that these shares are 'free'." Mr Morgan said words to the same effect. 837 Mrs Castle did not recall some of the matters recounted by Mr Bateman, and denied that Mr Morgan said that she was accompanying him to "sort out" Mr Heydon. She did recall Mr Bateman saying that Mr Heydon had said that there could be alternatives. She denied saying that there were situations under the Trade Practices Act when "free" could be used and that she thought it correct to say that the shares were "free". According to Mrs Castle, the conversation included her stating, "What I will be saying at the meeting is that Heydon's view is open (or technically right, or right), but in the context I think the better meaning of the word 'free' is at no dollar cost to the consumer. This view is supported by the approach of the TPC in its advertising booklet where it focuses on the meaning of the word 'free' as referring to dollars paid by the consumer". 838 Mr Morgan recalled Mr Bateman saying something to the effect that Mr Heydon had said that there could be alternatives, and that there could be qualification with an asterisk and telling the members that they were giving up their rights, but he placed that at the commencement of the meeting rather than in the street. He denied that at any time he asserted in the language attributed to him that Mr Heydon was wrong, or said that the Trade Practices Act, and the cases under it, said that there could be situations where you could use 'free', and he did not recall Mrs Castle saying that. 839 The differing recollections were more in the emphasis than the substance. It is not unlikely that Mr Bateman would have relayed the content of his early morning telephone conversation with Mr Heydon, Mrs Castle recalled that he did, and I think Mr Morgan's recollection is faulty on that matter. If Mrs Castle thought that the better view was that "free" meant at no dollar cost to the consumer, it is likely that she said that it was correct to describe the shares as free, and Mr Morgan does not at any time seem to have dissented from Mrs Castle's view - he was using her as a person with Trade Practices Act expertise who had done some research. Whether Mr Morgan was emphatic in disagreement with Mr Heydon and thought he had answered a question he was not asked (which from what I have set out he may well have thought) does not much matter. There was other evidence supporting that Mr Morgan was fairly blunt in saying that Mr Heydon was wrong, and without commitment to the precise words recalled by Mr Bateman I accept that the thrust of the conversation in the street was as recounted by Mr Bateman. (c) The afternoon meeting until Mr Heydon was telephoned 840 Present at the meeting at 2.00 pm were Ms Conway, Mrs Storrs, Mr Mamutil, Ms Scroope, Mr Barrett, Mr Morgan, Mrs Castle, and Mr Bateman. There was dispute over what was said and done. During the meeting Mr Heydon was telephoned, and there was also dispute over the telephone conversation: it is dealt with in the next part of these reasons. 841 File notes of Mrs Storrs and Mr Bateman were in evidence, and it is convenient to set out what they relevantly record as a framework for the other evidence. 842 Mrs Storrs' file note included - "Discussion as to the issue of Dyson Haydons [sic] advice on the word 'free'. Greg Bateman obtained advice on the phone from Dyson Haydon [sic] that it would be acceptable to have a rider in the front of the carrier with words to the following effect -

The Free Shares (or cash alternative) are in return for your existing membership. Road Service and policies continue as usual.

Greg Bateman to send revised carrier to Dyson Haydon [sic] for his sign-off and amended advice." 843 Mr Bateman's file note indicated communication with Mr Heydon followed by (the punctuation and other anomalies are as in the original) - "'The Free shares (or cash alternative) are in return for your existing membership. [rights, other than road service which continues Road services & policies continue as usual. 232 6657

'The Free shares (or cash alternative) are in return for your existing membership. Road service and policies continue as usual.'

This goes on front cover, 2 lines above 'If undeliverable return to & horizontal.

Second opinion from Heydon req by." The telephone number was Mr Heydon's telephone number. 844 The two file notes indicated that the meeting had arrived at alternative forms of words for a rider to go on the first page of the onsert, that Mr Bateman had telephoned Mr Heydon, that the form of words common to the notes was thought acceptable, and that Mr Heydon was to provide another opinion. 845 According to Mr Bateman, the meeting began with him saying - "Dyson Heydon rang me this morning to let me know that his written opinion was on the way and to tell me that the use of the term "FREE shares" on the front of the Carrier was a problem. He told me that he was suggesting an alternative phrase, which is set out in the opinion, namely, 'How to choose shares or cash!'. He did go on to say that he was not a draftsman and that it was up to others to come up with alternative wording. He said the important thing was to qualify "Free Shares" in some way, where it first appears. He said you could, for example, use an asterisk or some other device next to "Free Shares" and then tell the member that he is giving up his rights'. 846 Mr Morgan then said, with some anger, "Heydon is now becoming a draftsman. He wants to change 'how many free shares you'll get' into 'how to choose shares or cash'. He's got no right to do that." Ms Conway said, also with some anger, "I agree. Dyson was not asked that question." Mr Morgan said, "Heydon's becoming a draftsman", and Ms Conway said, "Yes, he has no right to do that." 847 Still according to Mr Bateman, both Mr Morgan and Mrs Castle "spoke to the meeting to similar effect as they had spoken to me when we walked down Martin Place to the NRMA", that is, that they spoke of Mr Heydon being wrong, of Mr Heydon having no right to say what he said, of situations when "free" could be used, and of it being correct that the shares were free. Mr Barrett then said that he understood that Mr Heydon accepted that they should look at alternatives, and that they should do so, and there was discussion of what should be done to the onsert in the light of Mr Heydon's opinion and in particular what alternatives might be acceptable to Mr Heydon. 848 Mr Bateman said that he (Mr Bateman) did not express a view on the effect of the TP Act or how the problem which had been identified should be overcome, and that Mr Morgan and Mrs Castle were "expressing legal views in that area". When an alternative form of wording was arrived at, Mr Bateman wrote it in his file note and telephoned Mr Heydon. 849 Mr Morgan's recollection was less complete. According to Mr Morgan, he introduced Mrs Castle as a senior associate specialising in trade practices. Mrs Castle said that Mr Heydon had referred to two views as to the meaning of the word 'free', the shares being free in one sense in that they were issued at no cost to members but not free in the other sense because members were giving up their rights as members in consideration for the shares. She said, "Dyson has expressed this view in relation to the onsert and it may be that we need to do something about it. Heydon's view is fairly technical". She referred to a publication concerning trade practices. Ms Conway then said, "How do we fix the problem? This is not what Dyson said in conference". Mr Bateman said, "Well, maybe we can qualify it in some way". Ms Conway said, "Well let's ring Dyson", and there was then a telephone call to Mr Heydon. 850 Mr Morgan denied that he said anything to the effect that Mr Heydon was now becoming a draftsman, or wanted to change to the wording, and had no right to do that. His recollection was that Ms Conway said that Mr Heydon was becoming a draftsman and had no right to do that. He said that Mr Barrett took the lead in looking at alternatives as a course which Mr Heydon said was open, although he could not recall the discussion about what alternatives might be acceptable to Mr Heydon. He acknowledged a recollection that someone at the meeting asked whether there was a need to address the problem raised by Mr Heydon in relation to the prospectus, just that someone asked, "Does it have any implications for the prospectus?", and that he replied that the prospectus was different from the onsert because it described the transaction and what members were giving up. 851 According to Mrs Castle, the meeting had already started when Mr Morgan and she arrived. Mr Morgan introduced her and said that he had asked her to review Mr Heydon's opinion. He said that she had also raised another s 52 issue as to whether consumers might be misled into thinking that road service in the future would be free. Mrs Castle said that she was concerned that people may think that because they were getting shares in the company free, road service and the other advantages of membership would be free, and Ms Conway said that the prospectus made it clear that people had to pay for road service so she did not see how that problem could arise. 852 After some brief comments on highlighting the future road service cost, and still according to Mrs Castle, the conversation went - "Mrs Castle: 'Well, will we deal with the free shares question now? I was asked late this morning to review only that part of the Heydon opinion which deals with the question of free shares. I have considered the opinion with reference to the onsert and the first few pages of the prospectus. I have not seen the full prospectus.

Dyson Heydon is correct in saying that 'free' as used in the NRMA documents is capable of two meanings. In one sense the shares are not free since members are giving up their right of membership in the Association and Insurance companies. In another sense the shares are free as no money is being paid for them. There are, however, no trade practices cases on the meaning of the word 'free'. Both views are open and the court could go either way but I think the better view is that 'free' should be interpreted to mean 'at no dollar cost to the consumer'. This is consistent with the decision in Nelson v Concrete Constructions which says that s 52 of the Trade Practices Act should be understood in a consumer context - indeed it is in the part of the act entitled 'Consumer Protection'. This is the same approach adopted by the Trade Practices Commission which is concerned to ensure that consumers are not ripped off. For example in the TPC's advertising guidelines there is an example of 'Buy one get one free' offers where the Commission is particularly concerned about shop owners inflating the price of one product above its original price. I think Dyson Heydon's other view on the meaning of 'free' is legally correct but it is very technical as consumers simply wouldn't take into consideration the kind of legal rights he is referring to, and many of them in fact would not even realise they had existing legal rights to give up. However, Mr Heydon's view, whilst conservative, is clearly tenable, and it would be open for a court to find what Dyson Heydon has said." 853 There was then some discussion flowing from what Mrs Castle had said, which she did not recall, and the conversation continued - "Mrs Castle: 'It really doesn't matter which is the better view. The real issue is - what are you going to do about Dyson Heydon's opinion? You couldn't expect that Dyson Heydon would change his views, when we have no authorities to refer him to. I don't have any great arguments to run with him. Dyson Heydon suggests that the word "free" should not be used at all.' Advertising person: "That's not possible. "Free" is the basis of the whole advertising campaign.' Ms Conway: 'Fuck that. Dyson will just have to be reasonable. What he has said is unacceptable. He can't say that free is OK one day then change his mind the next. The campaign has been signed off on by the Board sub-committee.' Mrs Castle:

'The best that can be done is to try to negotiate with Dyson Heydon for an appropriate qualification to the meaning of the term 'free' in order for him to sign-off. In the context of section 52, the representation has to be considered at the time it is made and it is not sufficient for the misleading impression to be corrected in a later part or a separate document. The qualification would therefore have to be in large enough print to qualify the word "free". It can't be so small that it just looks like an ant has crawled across the page.' Advertising person: 'Well we can't put a disclaimer each time the word "free" appears in the prospectus. The typesetting for the prospectus is virtually complete - it would be much easier if we only had to qualify the onsert.' 854 There was some general discussion about font size, colour and angle, and where the disclaimer should go. The conversation then continued to the following effect - Mrs Castle: 'The purpose of the disclaimer is so members know that they are giving up their rights.' Ms Conway: 'Yes, well we can probably live with something but where would it go?' Mrs Castle: 'It would have to go on the onsert - probably in big font and on an angle like the words "free shares" and also on the prospectus as that is a separate document.'

Ms Conway: 'Shit. Dyson will just have to be realistic. Let's get him on the line.' 855 Mrs Castle agreed that Mr Bateman said words passing on what Mr Heydon had said in the telephone conversation early in the morning, as recounted by Mr Bateman, but said that they were not at the commencement of the meeting but were after she had explained her views. She did not recall reference to Mr Heydon having become a draftsman, and denied that Mr Morgan said that Mr Heydon was wrong or had no right to say what he said and that either Mr Morgan or she said that under the Trade Practices Act there were situations when you could use "free" and it was correct to say that the shares were free. 856 Mr Barrett recalled going through alternative forms of words, and Mr Bateman having a telephone conversation with Mr Heydon. He did not recall matters as Mrs Castle had recounted them, and denied that he, if the "advertising person" referred to, had said what she attributed to him. Rather, according to Mr Barrett, he said - "We have used the word 'free' through the onsert and throughout the prospectus. If there is a legal problem with the use of the word 'free' in the onsert then there will be the same problem in relation to the prospectus. Accordingly we will need to address this problem not only in the onsert but also in the prospectus. Legal sign-off will be required for both documents." Still according to Mr Barrett, Mr Morgan replied, "No, there is no problem in the prospectus because 'Free Shares' is a defined term in the prospectus". 857 At another point in his evidence Mr Barrett recalled that he said something to Mr Morgan inquiring whether there were difficulties with the use of the word "free" to describe the shares, saying that the message had to be simple and that members had to understand they did not have to send any money in to obtain the shares. He said that Mr Morgan replied to the effect that it was acceptable to use the word "free" so long as it was explained in the prospectus that the members were giving up their rights in Association and Insurance in return for the shares. Some reformulations of the onsert were proposed, led by Mr Barrett. At one point Mr Barrett said that he preferred that an asterisk not be used, "Let's see if Heydon will accept a formulation which does not have an asterisk. I could live with an asterisk if we have to have one." Mr Barrett also said, "If you take away the existing membership, people will want to know what is being retained. You have to give both the negative message and the positive message." 858 Mr Barrett accepted that the meeting had proceeded for about half an hour before the telephone call to Mr Heydon, and also that he had no real recollection of what was said during that time. He did have some recollection of a possible problem that members might think they were getting their road service free of charge, and accepted that he said words to the effect that "free" was the basis of the whole advertising campaign. He also accepted that he said something to the effect that a disclaimer could not be put in every time the word "free" appeared in the prospectus, because the typesetting was virtually complete and it would be much easier if the only qualification was to the onsert. Having been taken through matters, Mr Barrett also accepted that there was discussion about qualifying words before the telephone call, and he recalled Ms Conway saying something to the effect that Mr Heydon would have to be realistic and suggesting that he be telephoned. 859 As I have already indicated, Ms Conway said that she first read Mr Heydon's opinion of 2 August 1994 at the 2.00 pm meeting. According to Ms Conway, when she got to the meeting someone said that there was an opinion from Mr Heydon and she read at least that part of it dealing with free shares. Mr Morgan said that Mr Heydon was wrong. Ms Conway was surprised "because I knew from the communication meetings that this was a phrase that was being used in the prospectus and I assumed that it had been signed-off by everybody". She said at the meeting, "If Heydon has an objection to the use of the term 'free shares' on the onsert then this will also have an impact on the use of that term in the prospectus and we will need to address the drafting of the prospectus as well". Mr Morgan immediately replied, "In my opinion Heydon's advice does not affect the prospectus but only the onsert because in the prospectus the term 'Free Shares' has been defined. Accordingly we do not need to change the prospectus". He also said words to the effect that Mr Heydon's opinion was wrong. 860 At another point in her evidence Ms Conway said that she recalled Mr Morgan saying something the effect of which was that it was acceptable to use the word "free" as long as it was explained in the prospectus that members were giving up their rights in Association and Insurance in return for their shares. Then Mr Barrett said that there was no point in arguing about whether Mr Heydon was wrong, and started a discussion about how to deal with it. Still according to Ms Conway, Mrs Castle then talked about trade practices, saying on the one hand that Mr Heydon was technically correct and on the other hand that the shares were free because no money was being paid, and then the telephone call was made to Mr Heydon. 861 Ms Conway agreed that she was irritated and not entirely calm during the meeting, although she denied the explicit language attributed to her by others and denied that before the telephone conversation with Mr Heydon there was some discussion about a form of qualification which might cure the problem identified by Mr Heydon, a qualification of what "free shares" meant. She denied the expanded account of the meeting given by Mrs Castle, saying that Mrs Castle said very little during the meeting, and also denied saying that Mr Heydon was not asked the question or had no right to do what he had done. She pointed out that she was not on first name terms with Mr Heydon, and had no objection to his contribution to drafting. 862 Mrs Storrs summarised the meeting prior to the telephone call to Mr Heydon as follows - "Helen Conway and - Helen Conway basically stated that Heydon appeared to have changed his advice about the use of the word 'free' and she was angry about that and that we had to - we were meeting to solve the problem of what we were going to do about the carriers, bearing in mind the deadline we had with the printers and the board. John Morgan expressed concern and basically said that he thought Dyson Heydon's advice was not right and that he had brought Louise Castle up, who was a trade practices lawyer at Allens, to give her opinion to the meeting. The discussion got heated because basically it was considered that we couldn't solve the problem. I mean, there was obviously a division of opinions between what Dyson Heydon had said and what Allens considered to be the correct interpretation of the word 'free'. Greg Bateman was more concerned - he was saying that its not so much the use of the word 'free' but the fact that we had to qualify the use of the word 'free'. So I can't remember who suggested to ring Dyson Heydon then and there, whether it was Helen or Greg himself, but Greg Bateman then got on the phone at the far end of the room and spoke to Dyson Heydon while we all sat there and listened to his end of the conversation." 863 Mrs Storrs did recall that Mr Barrett "did not want to lose the use of the word "free" as it would "water down the power of the carrier as being something that they'd open up and look at the proxy forms". In saying that Ms Conway was angry, she recalled that she swore. She later added that she remembered Mrs Castle talking about the different uses of the word "free", "free in a commercial sense, meaning you don't pay any money, and free in the sense of giving up rights as Dyson was now raising as an issue", and saying that she considered that in the circumstances it was acceptable to use the word "free" in the commercial sense, that is, that members did not have to pay any money for the shares. 864 Mrs Storrs recalled it being raised that there might be another problem with the word "free" on the onsert, that members might think they would get their road service free of charge. She recalled Mrs Castle saying that Mr Heydon's view was technical, and she recalled someone saying that it was no use debating whether or not Mr Heydon could be prevailed on to change his mind and the problem had to be solved. She recalled Ms Conway early in the meeting saying something to the effect that Mr Heydon could not change his mind "because it will affect the entire set of documents that we have already put in motion to get printed", and saying something to the effect that Mr Heydon would just have to be reasonable. She also recalled Mr Barrett saying something to the effect that a disclaimer couldn't be put in every time the word free appeared in the prospectus, because the typesetting for the prospectus was virtually complete, and that it would be much easier if only the onsert had to be changed. Apart from supporting the accuracy of her file note, Mrs Storrs gave evidence that she recalled Mr Morgan saying, "It is lawful and appropriate to use the word 'free' in the prospectus and on the onsert and Heydon is wrong when he says that the shares are not free". 865 Mrs Storrs went some way to supporting Mrs Castle's account of this part of the meeting, as where she was unable to recall she did not deny that matters might have been said as recounted by Mrs Castle. Mrs Storrs did remember Mrs Castle saying something to the effect that both views were open and the court could go either way and the better view was that "free" should be interpreted to mean at no dollar cost to the consumer. She also recalled discussion about the possibility of changing the prospectus in relation to the word "free", in that Mr Barrett said that it would be a mammoth effort to change it, but her recollection was "it was primarily an issue of trying to solve the issue of the onsert because it was seen that we could qualify it easily on the four bits of paper as opposed to the typed prospectus". 866 Resolution of these differing recollections is not easy. Many of the differences do not matter, and in the following paragraphs I will make findings only so far as necessary or desirable for reaching my decision in these proceedings. To indicate detailing of what was said in the meeting would be unrealistic. In making my findings I obtain assistance from an earlier statement and voicemail record prepared by Mrs Castle without setting out the process of comparison. 867 It would have been natural for Mr Bateman to tell those present of his early morning conversation with Mr Heydon in which qualification of "free shares", as an alternative to doing away with the phrase, was raised, and that was probably done early in the meeting. Comments on Mr Heydon's role are not of much significance, but I accept that Mr Morgan said that he thought Mr Heydon was wrong, and that Mrs Castle said that there were two available views and that Mr Heydon's view was a technical one but she thought the better view was that "free" meant at no dollar cost. 868 It remained, however, that senior counsel eminent in the field had advised that describing the shares to be issued by Holdings as free shares was ambiguous or worse, and that was seen at the meeting as providing potential for misleading conduct contrary to s 52 of the TP Act. As would also have been natural, someone - whether it was Mrs Castle, Mr Barrett, Ms Conway, or someone else is immaterial - raised whether his advice affected the use of the description in the prospectus. I accept that Mr Morgan responded to the effect that it did not, and Mr Bateman did not say anything to the contrary. 869 If Mr Morgan gave as his reasoning that "Free Shares" was defined in the prospectus, he was in error, because tracing through the definition did not remove the vice seen by Mr Heydon. It is not easy to see how he could have so reasoned given his familiarity with the prospectus. On the other hand, a number of witnesses recalled him relying on the definition, including on earlier and later occasions than this meeting. The probable explanation is that Mr Morgan believed that it was made clear in the prospectus that the shares were being issued in return for giving up membership rights, and his references to the description of this were taken by some of those he addressed to be references to definitions. I accept the substance of Mr Morgan's evidence that the expressed reason for his response was to the effect that the prospectus described the transaction and what members were giving up. 870 The attention thus focussed on the onsert, and abandonment of the phrase "free shares" being unacceptable for marketing reasons, led to consideration of a qualification which would be acceptable to Mr Heydon. It was made plain that significant change to the prospectus was logistically unacceptable, but I do not accept that Mrs Castle spoke in favour of a qualification on the prospectus as well as the onsert, as that would have been inconsistent with Mr Morgan's expressed view that Mr Heydon's advice did not affect the use of the description in the prospectus. Mr Barrett preferred to avoid an asterisk. There was discussion and arrival at a qualification. Ms Conway was not happy with the turn of events, and to move things along said that Mr Heydon should be telephoned to see whether he considered it acceptable. (d) The telephone call to Mr Heydon 871 The telephone call was made by Mr Bateman. The participation of those at the meeting in Mr Bateman's end of the conversation, what was said to and by Mr Heydon, whether Mr Morgan was present for the whole conversation, and even whether Ms Conway took over the telephone from Mr Bateman, were in dispute. 872 Mr Bateman did not recall whether a conference telephone was used or whether he reported Mr Heydon's comments to the meeting, but his evidence was that all present were silent while he was speaking to Mr Heydon. According to Mr Bateman, the conversation went - Mr Bateman: "I'm in a meeting down here at the NRMA with Helen Conway, John Morgan and others. We've got your opinion on the onsert. Thank you for the suggested wording change for the front cover of the onsert. Have you got the onsert handy?"

Mr Heydon: "Yes, I've got that in front of me."

Mr Bateman: "Now, you told me this morning that there might be other ways of addressing the problem of the wording on the front. We've talked about it down here. The NRMA would prefer to retain 'Free Shares' on the front. You said that would be OK, if where it first appeared, it was qualified and the reader was told that the member was giving up his rights." Mr Heydon: "Yes. If you want to use "Free Shares" then, where it first appears, the member should be told that he is giving up his rights as a member."

Mr Bateman: "That's fine. Now, the proposal is that "Free Shares" and the other wording on the front is retained but insert the qualification that it's in return for membership. At the same time we want to assert the positive side that Road Service and insurance policies continue as usual."

Mr Heydon: "My concern is only where 'free" first appears. It should be qualified there. Once you've told members about it, then it does not have to be qualified again."

Mr Bateman: The other issue you raised was the choice between shares and cash. We felt that this was made pretty clear in the "Acceptance of Free Shares" part which is inside, plus on the instructions part." Mr Heydon: "Yes, I see that."

Mr Bateman: "In any event I think the proposed wording will address any residual concern you might have on the cash aspect as well."

Mr Bateman: "The existing large lettering on the front stays as is. Then underneath that goes: 'The Free Shares (or cash alternative) are in return for your existing membership. Road service and policies continue as usual.'

This goes on the front cover, two lines above the words 'If undeliverable return to etc" and is printed on the horizontal." (Mr Heydon appeared to write down the wording, and read it back; Mr Bateman confirmed it.) Mr Heydon then said: "Yes, that seems fine. That answers the problem. I'm sure there are other ways of answering the problem. That suggestion seems fine."

Mr Bateman: "If you're happy with that then we would like you to revise your written opinion so that it addresses this new wording. I'll get a redraft of the onsert to you this afternoon. Could we have your revised opinion by midday tomorrow?"

Mr Heydon: "Yes." 873 Mr Bateman said that he did not think Ms Conway took the telephone and spoke to Mr Heydon, and in general did not agree with the account given by Mrs Castle to which I will shortly come. 874 Mr Heydon's recollection was of a less extensive telephone conversation. He was in conference on another matter, and he would not normally have engaged in such a long telephone conversation as an interruption to a conference. His recollection of the conversation was - Mr Bateman: "I am ringing about your opinion on the onsert. I have received it. Thank you for your suggested wording change for the front cover of the onsert. I want to ask you about another possible way of overcoming the problem about "free shares" on the front of the onsert. It involves keeping the words "free shares" and the other wording on the front, but putting the following wording near "free shares" on the front - "The Free Shares(or cash alternative) are in return for your existing membership. Road Service and policies continue as usual." Would that overcome the problem you set out in the opinion?"

Mr Heydon: "Could you dictate that for me slowly so that I can take it down?"

(The wording was dictated, and may have been read back and confirmed)

Mr Bateman: "I'll send you a letter confirming that wording today. If it is satisfactory could you amend your opinion to incorporate a view on the extra wording. As you know, we need it tomorrow." 875 Mr Heydon did not recall reference to a meeting at the NRMA, to earlier approval of qualification when the words "free shares" first appeared, or to the reader being told that the member was giving up his rights. Nor did he remember saying that his concern was only where "free" first appeared, and that it should be qualified there and need not be qualified again. According to Mr Heydon, he did not approve the form of words suggested by Mr Bateman over the telephone, and said that he would consider it, but he accepted that he may have said that he saw no problem with the form of words. 876 It was Mr Morgan's recollection that Mr Bateman telephoned Mr Heydon, although he accepted the possibility that it was Ms Conway. At one point he said that he did not hear the conversation because he left the meeting at that time, but he also said that he left the meeting "at the end of the conversation or before it actually concluded". Mr Morgan said that when he left the meeting he had the impression that some sort of qualification was acceptable to Mr Heydon, so he must have been present for a reasonable part of the conversation, a part during which something of substance was said. That Mr Morgan left at least before the end of the telephone conversation is supported by Mrs Castle's evidence that she left a voice mail for him afterwards telling him the result of the phone call: there is no particular reason to disbelieve this. Probably Mr Morgan was at the meeting for a good deal of the conversation but not until its end. Whatever the position, he did not provide evidence of what he heard as Mr Bateman's end of the conversation. 877 According to Mrs Castle, when Ms Conway suggested that Mr Heydon be telephoned Mr Bateman made the call from a telephone at the far end of the meeting room. She heard Mr Bateman say that he was in a meeting at the NRMA discussing the opinion, and that there were "some ideas which we would like to put to you about a disclaimer". After something said by Mr Heydon, Mr Bateman said, "No, they want to try and keep the word 'free' and build something around that". Ms Conway said to Mr Bateman, "Put the disclaimer to him", and Mr Bateman said to Mr Heydon, "What do you think about 'this is in exchange for your existing membership?" After a pause, Ms Conway took the telephone and said, "Hello Dyson. It's Helen Conway. We need to get a sign-off on free shares today as the whole thing is tipped to go to the printers". There was another pause, and Ms Conway told the meeting that Mr Heydon "wants a form of qualification used every time the word 'free' appears". 878 Still according to Mrs Castle, the advertising person shook his head and said, "It is not possible to alter the layout of the prospectus as there is not enough time and the most that can be done is to fiddle with the onsert", and Ms Conway then said into the telephone, "The term 'free' cannot really be qualified each time it is used in the prospectus. The onsert is the main thing which consumers will be focussing on so it should be enough if it is qualified." There was then a conversation at the meeting in which Mrs Castle said, "You will have to offer to qualify the front page of the prospectus. Dyson will insist as it's a separate document". Ms Conway said, "He wants to use 'this is in extinguishment of existing membership rights'." The advertising person said "We can't use extinguishment. That's too legal.", and Mrs Castle said, "This is in exchange for your existing membership?". Ms Conway then said into the telephone, "Dyson, what about 'this is in exchange for your existing membership'?" 879 In one of her witness statements Mrs Castle said that while the conversation was being conducted other people present at the meeting continued their own conversations in groups of two or three, although those conversations stopped from time to time. 880 Mrs Castle's evidence did not include an end to the telephone conversation. She accepted that it was possible that Ms Conway had not taken up the telephone conversation, saying that that was "not my best recollection", which casts doubt on her recollection if such a basic matter be unclear. She also accepted that Ms Conway may have said things in discussion prior to the telephone call which she (Mrs Castle) now attributed to the telephone conversation. This would, of course, require that Mrs Castle's recollection had moulded what was said in prior discussion to the terms of a conversation with Mr Heydon, but the capacity of the human mind to self-deception would extend to that. 881 According to Mr Barrett, Ms Conway asked Mr Bateman to telephone Mr Heydon, and Mr Bateman did so with those present at the meeting listening to his end of the conversation. Mr Barrett could not recall what he heard. He thought that the telephone conversation took about ten minutes, but his recollection of 2 August 1994 was vague; he also said that after the telephone call concluded he "proposed some wordings and sought some consensus", and there was discussion. Mr Barrett had no recollection of Ms Conway taking the telephone, but did not dispute that it may have happened. He also recalled someone saying words to the effect that the term "free" cannot really be qualified each time it is used in the prospectus, and that the onsert was the main thing which consumers would be focussing on so it should be enough if it were qualified, and he also recalled that he said that the word "extinguishment" could not be used because it was too legal and that someone then suggested the phrase "This is in exchange for your existing membership". It is not clear that these recollections were related to the telephone conversation with Mr Heydon rather than preceding or subsequent events at the meeting. 882 Ms Conway recalled that Mr Bateman telephoned Mr Heydon, and denied that she joined in the conversation. She said that she did not overhear much of the conversation, and that it was short and there was "still a deal of activity in the room" while Mr Bateman was speaking to Mr Heydon. According to Ms Conway, when Mr Bateman finished the telephone call he "indicated the substance of the conversation with Dyson Heydon and by that I mean he talked about a qualification and there was discussion around the room about that." However, she said that she agreed to the proposal that Mr Heydon should be asked to give a fresh opinion based on the new version of the onsert, because she thought that the onsert as it had been amended following the discussion with Mr Heydon and others on 2 August 1994 was a different document from that which had been the subject of his opinion. 883 Mrs Storrs said that Ms Conway did not speak to Mr Heydon. Her evidence was that Mr Morgan was present while Mr Bateman spoke to Mr Heydon, that those present sat quietly listening to Mr Bateman as he spoke, and that Mr Bateman did not seek or receive views of others at the meeting while he spoke. She said that the conversation was not a short one, and "was basically putting up the words of the rider that everyone had decided on within the meeting to him and asking him whether or not that would be appropriate to solve the problem". 884 Mr Heydon denied that Ms Conway spoke to him during the telephone conversation. He denied that he was told about the need for a sign-off on free shares that day, or anything about qualification of the term "free" each time it was used in the prospectus or the sufficiency of qualification in the onsert: he said that nothing was said to him about the prospectus. He denied saying anything about using "This is in extinguishment of existing membership rights". His reasons for his denials included that he had never been provided with the whole prospectus in draft or final form; that he had never been asked for his opinion about the use of the expression 'free shares' in the prospectus as distinct from the first page of the onsert; that in the briefs which did provide him with parts of the prospectus in draft there was reference to the Members Free Offer but not to 'free shares'; and that he had no recollection even as to the Perpetual brief of noticing the use of the expression 'free shares'. 885 In these recollections of the telephone call to Mr Heydon, Mrs Castle is rather at odds with the participants and other observers. Her earlier statement and voicemail record were broadly consistent with her evidence, but were not created in circumstances commanding reliability. The file notes are against acceptance of her evidence, both as to Mr Bateman's participation and as to the presentation to Mr Heydon of a suggested qualification rather than a process of negotiation, and a process of negotiation is unlikely. Further, it is unlikely given his earlier conversation with Mr Bateman that Mr Heydon would have said that there should be the rather unrealistic course of a qualification every time the word "free" appeared. I do not accept Mrs Castle's evidence to do with the telephone call, and in particular do not think that she suggested that the front page of the prospectus be qualified or that Ms Conway (or Mr Bateman) spoke to Mr Heydon about a qualification in the prospectus. 886 There is again difficulty in resolving the differing recollections, at least in attempting precision in the finding. Without commitment to the precise words, in my view the probability is that the conversation was to the effect recalled by Mr Bateman, with no real input from others at the meeting because a form of qualification had already been discussed and was being put to Mr Heydon. 887 I have not overlooked other recollections of the afternoon meeting. Ms Scroope had only a general recollection of the meeting, but she did recall Mrs Castle saying something to the effect that "free" was capable of two meanings, and that Mr Heydon's view was legally correct but very technical and a court might find the way he had advised. She recalled discussion about a disclaimer so members knew they were giving up their rights, and Mr Bateman making a telephone call and relaying comments back (as she understood it) from Mr Heydon. She had no recollection of Ms Conway speaking on the telephone to Mr Heydon, although she acknowledged that she might have, and did recall some discussion at the meeting about a proposed form of words being too legal. Mr Mamutil had no significant recollection of the meeting of 2 August 1994, save that he remembered Mr Bateman speaking on the telephone to Mr Heydon and from time to time relaying what Mr Heydon was saying back to the others at the meeting. He was certain that Ms Conway did not speak to Mr Heydon. At one point in his evidence Mr Mamutil said that there was discussion around the room during the telephone conversation; at another point he said that those at the meeting listened quietly. His recollection did not go beyond that the meeting was about the onsert and the wording on the onsert, and to do with free shares. Mr Mamutil did not really recall Mrs Castle being at the meeting. There was more; my conclusions remain the same. Mr Heydon's opinion of 3 August 1994 888 Ms Scroope could readily produce amended versions of the onsert, and a version of the onsert was printed out with the addition on the first page, towards the bottom and below "How many FREE shares you will get!", of the words, "The Free Shares (or cash alternative) are in return for your existing membership. Road Service and policies continue as usual". 889 Mr Bateman sent a letter dated 2 August 1994 to Mr Heydon reading - "We refer to our letter of 28 July and your written opinion dated today, for which we thank you.

As discussed on the telephone this afternoon, the wording on the front of the onsert has been amended to make it clear the extent to which the shares are in fact 'free'.

You will note that wording is: 'The Free Shares (or cash equivalent) are in return for your existing membership. Road Service and policies continue as usual'.

We believe that this meets the matters raised on pages 4 and 5 of your opinion.

(a) a letter dated today in identical terms to that of 28 July 1994;

(b) the complete onsert, with its additional wording.

In the circumstances we would be pleased if you would re-cast your opinion so that it is directed to the enclosed document, rather than the one previously supplied. In other words, the written opinion should not refer to our 28 July letter, the previous onsert nor your previous opinion. The opinion now sought will be 'stand alone'.

We trust that this will result in your confirmation that there are no legal issues arising from having on the first page 'How to vote!' in combination with 'How may FREE shares will you get!'

We look forward to receipt of your written opinion as soon as possible." 890 The enclosures were as stated, the onsert being the reprinted version with the additional wording on the first page. A copy of the letter was sent to Ms Conway. 891 Why did Mr Bateman ask for a stand-alone opinion? On both their accounts of the telephone conversation between Mr Bateman and Mr Heydon, Mr Bateman asked for a revised or amended opinion. It may be reading too much into this to infer that Mr Bateman had in mind a stand-alone opinion rather than a supplementary opinion, even without reference to Ms Conway. 892 According to Ms Conway, at the end of the meeting there was talk of obtaining a second opinion from Mr Heydon. She thought that the suggestion came from Mr Bateman, and that the purpose was to give Mr Heydon a new onsert with the qualification in it and get his advice on it, because it was Mr Bateman's understanding that that would be acceptable to Mr Heydon. The opinion was to be a stand-alone opinion because the relevant document was a new document. It was suggested to Mr Bateman that he had wanted a stand-alone opinion so that it could be provided to the boards without disclosure that Mr Heydon had raised the free shares problem, and that he was reluctant to disclose the free shares problem because it would reflect on him and would provide ammunition for those opposed to the proposal. 893 Mr Bateman denied this, and I do not accept the suggested motivation. It would have been unrealistic to expect Mr Heydon's concern over free shares would not become known, or that the stand-alone opinion would not refer to it even if expressing satisfaction that the revised onsert was acceptable. As will appear, the free shares problem was not hidden, but was made known to the boards. It was understandable to ask for an opinion addressing the revised onsert, in that sense a stand-alone opinion, and I do not think there was anything more to it than that. 894 Mr Heydon provided an opinion dated 3 August 1994 in response to the letter of 2 August 1994. 895 The introduction and the opinion so far as it related to the first question were unchanged from the opinion of 2 August 1994. 896 The answer to the second question read - "While I do not think this will necessarily be held to be an attempt to induce members to vote 'yes', it may be. But as indicated in answer to question 1, any tendency of the proposed words to operate as an inducement to vote 'yes' would not operate to any greater extent than the inherent tendency of the proposal; and the form makes it plain at two points that while it is possible to vote 'no', it is desirable for a person voting no to choose between shares and cash, since a 75% majority may vote 'yes'.

There are two aspects of the words which require reconsideration.

The first aspect concerns their role as an indication of what the member must do; the second concerns the meaning of the word 'FREE'.

The essential activities to which the onsert is directed are

(b) choice between shares and cash in the event that 75% of the votes are affirmative.

The present words by themselves do not indicate accurately that the member must choose between shares and cash. However, it is proposed to place below them, though in much smaller type, the words: 'The Free Shares (or cash alternative) are in return for your existing membership. Road Service and policies continue as usual.'

Those words (subject to two changes discussed below), when read with the words at the top of the page 'Important Information Inside', in the light of the obvious fact that the actual instructions are inside, are sufficient to point the reader towards the place where full information on what the member must do will be found.

There is an important sense in which the shares are not 'free': they are not free because the members are giving up rights (admittedly of a somewhat intangible character) and Holdings is gaining greater power in the Association and NRMA Insurance. Indeed if the shares were free the entire transaction would be at risk, because the shares will have a par value, and perhaps a premium; under the general law to issue the shares free would be to issue them at a discount, which is unlawful. Hence in one somewhat technical sense the shares are not free, though in a more popular sense they are free because no money need be paid for them. In my opinion the ambiguity in the word 'FREE' appearing in the statement 'How many FREE shares will you get!', considered by itself, is cured by the additional words appearing below it. They highlight that something must be given up to get the shares even though it is not money, namely membership (but not the benefits of Road Service and insurance policies). They also afford a more complete disclosure of the fact, which may be critical to some readers, that if the proposals enjoy enough support, members can obtain an immediate cash payment in lieu of shares.

In my opinion, as foreshadowed above, it would be prudent to make two changes, however. One is to place an asterisk after 'FREE' and a corresponding asterisk at the start of the text in smaller type below it. The other is to make that text which is in smaller type into significantly larger type. Accepting that there are physical and perhaps aesthetic limits to what can be done, it must be remembered that the larger the type, the less likely it is to be overlooked, the less risk there is of readers being led into a misapprehension and the less risk there is of successful challenge to the document.

Again, then, while legal issues arise from the form of the first page, in my opinion they will be resolved favourably if the two changes mentioned are made." 897 It will be seen that, as might have been expected, Mr Heydon identified his concern over free shares, but went on to express satisfaction that the revised onsert was acceptable. He did not say that no legal issues arose. Rather, he said that legal issues arose, one obviously being the free shares problem, but that he thought they would be "resolved favourably". The NRMA said that this left a material issue for the purposes of the due diligence process, a matter to which I will return. 898 In its submissions the NRMA was critical of Mr Heydon for providing a second stand-alone opinion, although without directly asserting an unacceptable motivation as had been asserted against Mr Bateman, and it said that this and his abandonment of the phrase "ambiguity or worse" was "inexplicable". The criticism in both respects should be soundly rejected - I see nothing inexplicable or untoward in what Mr Heydon did. 899 Mr Morgan recalled being told by Ms Conway that Mr Heydon had agreed to "free shares" as long as it was qualified, and that he was revising his opinion and a copy would be sent to him. He also said that at a meeting on 3 August 1994 he was told, probably by Ms Conway, but perhaps by someone else, that the problem raised by Mr Heydon had been resolved "but we will have to put an asterisk against the word 'free' where it is first used, with a note that members are giving up their membership. He will be issuing a new opinion which will be faxed through later in the day". 900 A copy of the opinion of 3 August 1994 was faxed by Mr Bateman to Mr Mamutil at 12.30 pm on that day. Mr Mamutil passed it on to Ms Conway with a note, "Arrangements are currently being made to arrange an onserts meeting regarding the Heydon advise [sic] attached. They have requested a * insert to 'Free' and additional words to be enlarged". A copy of the opinion was faxed to Mr Morgan by the NRMA at about the same time. 901 Mr Morgan said that he considered from both opinions that Mr Heydon was saying that use of the expression "free shares" was justified as long as it was made clear to members that they were giving up their membership rights in return for shares. He said that he considered that this was made clear by the then current draft of the prospectus, especially the material describing the legal steps involved in the change. Mr Simpson's understanding was that the problem was resolved by qualifying the words "free shares" when first used to make it clear that the shares were received in exchange for membership, and that the resolution was satisfactory to Mr Morgan. Mr Simpson thought that Mr Heydon was overly cautious, and in some external communications after early August 1994 did not insist on a similar qualification because he thought it would lead to confusion. 902 I said earlier that there was some attention in these proceedings to how Mr Heydon's opinion of 2 August 1994 should be read. The defendants, or at least AT, said that Mr Heydon was not raising a problem of misleading conduct, but a corporations law problem to do with the prohibition on the issue of shares for no consideration. Focussing on what Mr Heydon said about the entire transaction being at risk, in the course of evidence and to a lesser extent in submissions AT's stance was to the effect that Mr Heydon was advising that the greater power gained by Holdings from members giving up their collective rights was good consideration for the issue of the shares by Holdings, and so the entire transaction was not at risk through contravention of the prohibition. Mr Bateman gave evidence that he considered that Mr Heydon was not talking about "free" being misleading, but about the corporations law problem if the shares were free because they would be issued for no consideration, and so that he did not see the free shares problem as having any impact on the prospectus. Indeed, Mr Bateman said that he thought that the shares were free to a member even if membership rights were being given up, because from the viewpoint of the individual member the membership rights were of little value. Collectively, looked at from the viewpoint of Holdings, the membership rights were of value, and so there could be consideration for the issue of the shares. 903 The AT stance flowed from the evidence of Mr Bateman, but if Mr Bateman did understand Mr Heydon's opinion in the manner he described (and his evidence was not entirely uniform on the point) I consider that he was in error. Mr Heydon had intended to raise a problem of misleading conduct, and that is the way the problem was seen at the meeting on the afternoon of 2 August 1994 and thereafter. The opinion of 2 August 1994 on an ordinary reading refers to ambiguity of "free" and to it being wrong to describe the shares as free. Whether the shares in Holdings were issued for no consideration depended on the facts, not on the description of the shares, and Mr Heydon's reference to the entire transaction being at risk if the shares were free was really an aside that, had the shares truly been free, which they were not, they would be issued for no consideration and the transaction would for that reason be at risk. 904 I have difficulty in accepting that Mr Bateman did not recognise that the free shares problem raised by Mr Heydon was a problem of misleading conduct, or misleading information for members, and at times in his evidence he agreed that one of the things Mr Heydon was saying, although a subsidiary matter, was that members should be told that they were giving up their membership in order to avoid the misapprehension that they were not giving up anything. His explanations of what he understood from Mr Heydon's opinions were not easy to follow, and if he had the understanding put forward in his evidence he did not adequately convey it to those with whom he was dealing in August 1994. 905 Nonetheless Mr Bateman also thought that use of the expression "free shares" was justified if it was made clear to members that they were giving up their membership rights. He may have thought that it was unnecessary to make it clear, because he thought shares were free to a member even if membership rights were being given up, or he may have thought that it was desirable to make it clear in connection with a perceived corporations law problem. But he addressed the free shares problem raised by Mr Heydon, and I accept that he also thought it was made clear by the then current draft of the prospectus that members were giving up their membership rights in return for shares. More changes to the onsert 906 Ms Conway, Mr Barrett, and Mr Bateman met at 3.50 pm on 3 August 1994, and it was decided to place an asterisk after "FREE" in the words on the first page of the onsert "How many FREE shares you will get!", with the corresponding asterisk directing attention to the newly added words, and to move those words to the margin of the first page and enlarge the print. 907 Mr Bateman's evidence was that Ms Conway said that they had considered Mr Heydon's opinion and proposed to put the asterisk after the word "FREE" and the explanatory words in the margin; Mr Bateman asked why they wanted to put the explanatory words in the margin; Mr Barrett said because it gave an uncluttered message; Mr Bateman observed that the margin was shaded blue and if the words were put there they may not sufficiently have attention drawn to them; Mr Barrett said that the blue was not very dark and the text size would be increased so it would stand out; Ms Conway said, "It fits in with what Dyson Heydon was saying"; and Mr Bateman said that it seemed okay, it did fit in with what Mr Heydon was saying. Ms Conway had no recollection of this meeting, and it is perhaps difficult to fit in with her later insistence on removing "free" from the first page of the onsert. I nonetheless accept that something to the effect recounted by Mr Bateman occurred - it is the explanation for the changes to the onsert in fact made. Probably Ms Conway's thinking was changing, and the reiteration of Ms Singleton's query on 4 August 1994 (see below) later led her to a more cautious approach which she thought more fully met the problem raised by Mr Heydon. 908 The due diligence committee met at 4.00 pm on 3 August 1994. Those present included Mr Morgan and Mr Bateman. The minutes recorded discussion of the prospectus, but did not record any reference to the onsert or a free shares problem. Mr Morgan's best memory was that it was not referred to. 909 The prospectus working group met at 7.00 pm on 3 August 1994, and spent three hours going through the prospectus. The evidence did not suggest that a free shares problem was raised. 910 The board of Holdings met at 10.00 am on 4 August 1994, those in attendance including Ms Conway and Mr Bateman, and amongst other things discussed the prospectus. So far as the minutes showed there was no reference to a free shares problem. Mr Bateman's notes of the meeting included, however, under a heading referring to Section I of the prospectus, "Jane concern re Recom [?] implies you must vote 'yes' to get the share". 911 The boards of Association and Insurance met jointly at 11.00 am on 4 August 1994, those in attendance again including Ms Conway and Mr Bateman. The minutes recorded "Section 1 of the prospectus as amended was tabled and noted", but again so far as the minutes showed there was no reference to a free shares problem. Mr Bateman's notes of the joint meeting included "Jane concerned re vote 'yes' is req to get Free Shares". Ms Singleton was present at the meeting, and said that she was concerned that voting yes was a requirement to get the free shares. Ms Conway replied, "We are getting an opinion on that. We will be able to give it to you at the next meeting". 912 Mr Heydon had been briefed to advise concerning Ms Singleton's query. According to Ms Conway, she thought it inappropriate to table either of Mr Heydon's opinions at the meetings, because Mr Barrett and Mr Simon Fitch (of Saatchi and Saatchi ("S&S"), an advertising agency working on the proposal) were still not entirely happy with the layout and wording of the onsert, and she anticipated that there might be further developments in the next couple of days. Still according to Ms Conway, she anticipated that an opinion would be obtained from AT on the final form of the onsert. A suggestion of keeping the free shares problem from the boards, similar to that earlier mentioned, was made, but again I reject it. There were indeed further developments in the next couple of days, and it made sense to wait until the final position was known. The problem was not hidden, an opinion was obtained from AT on the final form of the onsert, and it was provided to Ms Singleton and the boards. 913 A further print of the onsert as at 4 August 1994 was produced, with the asterisk and relocation as decided on 3 August 1994. A copy in evidence had notations by Mr Mamutil indicating deletion of the asterisk and the addition, below "How many FREE shares you will get!", of "Why the shares are FREE!" with an arrow pointing to the margin; the marginal words were crossed out and "new words" was noted. When the notations were made was unclear, but even on 4 August 1994 there must have been reconsideration of how to meet the free shares problem with the onsert. Via another NRMA employee, on 4 August 1994 Mrs Storrs told Ms Parker that the "cover wording needs to be changed", and the communications meeting on 4 August 1994 was told by Ms Parker that the wording was "still being worked on". The force for reconsideration seems to have been the marketing and public relations advisers. This appears not just from Ms Conway's evidence and Ms Parker's involvement, but from the fact that on 4 August 1994 a meeting was arranged for 5 August 1994 to be attended by those advisers and Mr Bateman. 914 Early on 5 August 1994 Mrs Storrs had a meeting with Ms Conway and Mr Morgan. Her file note read, "Advised problems with the carrier form due to the wording 'free'. … Lisa Storrs to liaise with Greg Bateman on the wording of carrier so as to avoid the use of the word 'free' on the front of the page." 915 Mrs Storrs could not add much to the file note, but said that Ms Conway was referring to the front page of the onsert. The file note is rather obscure. Ms Conway already knew of Mr Heydon's opinions, and the best reading is that Ms Conway told Mrs Storrs her view of the problems it generated and instructed her that the use of the word "free" was to be avoided on the first page of the onsert. One inference is that the problems were simply that, on consideration, Ms Conway thought that any use of the word "free", even qualified in some way, was unacceptable. Another inference is that the problems were that using "free" without the asterisk and marginal note was unacceptable to Mr Heydon but, from what she had been told of the unhappiness of Mr Barrett and Mr Fitch, having an asterisk referring to a note was unacceptable to the marketing and public relations advisers, so Ms Conway came to the view that the word "free" should not be used at all. 916 The former inference is supported by the evidence of Ms Conway to which I will shortly refer. The latter inference is supported by what occurred at the 10.30 am meeting next mentioned. Mr Morgan shed no light on the matter. 917 At 10.30 am on 5 August 1994 there was a meeting attended by Mrs Storrs, Mr Robert Farmer and Mr Ron Payne (senior managers in the NRMA in the public relations area), Ms Scroope, Mr Bateman, and Mr Fitch. There was dissent from changing the onsert so as to avoid the use of the word "free" on the first page. Mrs Storrs' file note read - "Discussion as to the rewording of the carrier. Agreed that the use of the word 'free' was the most effective for getting members to open up the package. It was agreed that the use of the words 'How many shares you will be given' was acceptable but not as effective. The following wording was agreed as appearing as the rider.

The Free Shares (or cash alternative) are in exchange for membership under the Articles of each of NRMA Limited and NRMA Insurance Limited. Whether you accept the Free Shares or the cash alternative, road service and policies continue as usual. Greg Bateman was of the opinion that we would not attempt to put the rider in the paragraphs on the inside of the carrier as this would 'cannibalise' the entire instruction sheet. Instead it was suggested that we retain the use of the word free on the front of the carrier, not put an asterisk but instead have the words 'why these shares are free' in 9.5 point with an arrow pointing to the margin and the qualifying paragraph placed in 9.5 point type."

Mr Bateman's file note of the meeting was consistent with this, in particular recording the same wording for the rider, and included a rough layout of the first page of the onsert reflecting the outcome. 918 According to Mr Bateman, Mr Fitch said that when people saw an asterisk it meant to beware, and "we have to present this in a way that doesn't frighten them". Some formulations of words for the first page of the onsert were discussed, and Mr Fitch said that the page was now getting very cluttered and suggested putting something like "Why are the shares Free!" with an arrow pointing to the left hand margin where the reader could see why the shares were free. Mr Bateman commented that the arrow would have to be significant enough to draw the reader's attention to the text in the margin. There was discussion of size and shape and the wording of the text for the margin, and ultimately Mr Bateman said that it seemed okay, "It still meets the concerns that Dyson Heydon expressed". Mrs Storrs agreed with Mr Bateman's evidence in this respect. 919 Mr Bateman denied that he used the word "cannibalise", while Mrs Storrs said that she distinctly remembered him using it, but I do not think it matters, and Ms Scroope's imperfect recollection of the meeting included Mr Fitch expressing concern about an asterisk frightening people and a different form of words being suggested not using the word "free". Mr Fitch had only a vague recollection of what could have been this occasion, so far as it went consistent with Mr Bateman's account. Mr Mamutil's notations earlier mentioned may have been made when he was told of what the meeting had decided. 920 Mrs Storrs told Ms Conway what the meeting had decided Ms Conway said that she did not want the word "free" used on the cover of the onsert any longer. That and what followed was recorded in Mrs Storrs' file note - "Advised results of the meeting, she said she was not happy because it involved the use of the word 'free' and even if Greg Bateman gave his advice this would lead to conflicting advice from Dyson Hayden [sic] and would have to put up to the Board. Discussed the issue with Greg Bateman. He agreed that the use of the words 'how many share you will be given' would be more suitable and that an asterisk should be put after the first appearance of the word 'free share' on the carrier with the qualifying paragraph placed in the margin on the inside of the carrier. (By telephone conference)

Attending Sean Barrett Advised of the changes. He is happy with these (but has reservations about losing the use of the word 'free')." 921 In describing these meetings I have placed them in the order in which Mrs Storrs, the common participant, placed them in her witness statement. In her oral evidence Mrs Storrs said that, on further consideration, she thought the 10.30 am meeting was the first in time, and could not be certain of the order of the two meetings involving Ms Conway. Her reasoning was that the 10.30 am meeting had exposed that an asterisk was not desirable, and so any abandonment of the word "free" came afterwards. 922 One difficulty with this is that what I have treated as the first meeting and the last meeting both involved Ms Conway instructing Mrs Storrs that use of the word "free" was to be avoided, and the repetition after the 10.30am meeting is unlikely. The order of the meetings as I have placed them is supported by the evidence of Ms Conway. According to Ms Conway, at the first meeting she said that she wanted the words "How many shares you will be given!" on the front of the onsert because she thought it met the requirements of Mr Heydon's opinion. As to the later meeting, she said that Mrs Storrs told her that the public relations people wanted to retain the phrase "free shares" on the front of the onsert, but that she thought it was unacceptable and should not appear because Mr Heydon had expressed reservations about it; although Mr Heydon had given advice on overcoming the problem, she "personally wanted to take a more cautious course and not refer to 'free shares' at all on the front of the onsert". I think the order of the meetings as I have placed them is the more likely. 923 Mr Bateman was then contacted, and as her note shows Mrs Storrs also spoke to Mr Barrett. The discussion with Mr Bateman was initiated by Mrs Storrs, but then Ms Conway took the telephone or joined in the conversation by a speaker phone. 924 According to Mr Bateman, Ms Conway said that Mrs Storrs had spoken to her about the proposed wording discussed at the meeting, and that Mr Barrett and she "have an alternative wording which we think is fine and we want to know whether you agree with it". Mr Bateman asked what it was. Ms Conway said, "On the front cover of the carrier we want to put the words 'How many shares you'll be given'. This omits any reference to 'free'. On the inside where the instruction sheet is we'll put an asterisk where the words 'Free Shares" first appear. That's in the first line of the instruction sheet. Then the wording you agreed this morning would be placed in the margin on that page in the same type face as the main text." Mr Bateman asked why it was being changed, and Ms Conway said that Mr Barrett did not like the asterisk on the front cover and "If Heydon is so concerned at the last minute about 'free' on the front cover then he won't object if we take it off the front cover". 925 Still according to Mr Bateman, he replied, "That's true. His concern was only as to where 'free' was first used". Ms Conway commented that the reader was more likely to read the footnote if it was on the instructions page of the carrier. There was talk about the colours on the onsert, Ms Conway's suggestion was repeated, and the conversation concluded - Mr Bateman : "Yes. That seems to satisfy Dyson Heydon's concern. As you know, he was emphasising that where "free" first appeared, there should be an indication of the extent to which the shares are free and that something is being given up to get the shares, namely the membership. If "free shares" is not used on the front cover but the asterisk is used where "free shares" is first used on the instructions side of the carrier and the text is highlighted by a different colour in the margin, that should be okay. It would be best to put it back in front of Dyson Heydon to make sure it's okay." Ms Conway: "I've had enough of Dyson Heydon. I think the proposal is fine and you seem happy with it too. You can give me an advice which incorporates Dyson Heydon's opinion."

Mr Bateman: "How do you mean?" Ms Conway: "Just repeat what Heydon said. Just regurgitate his written opinion, but only in relation to the question "Are there any legal issues arising from placing the Acceptance of Free Shares form on the Proxy Voting Papers". Don't deal with the other question about the front cover." 926 This conversation was briefly recorded in a file note of Mr Bateman dated 5 August 1994, reading - "'How many shares you will be given' on front In first line on inside put * where FREE first appears & then put this morning's agreed wording in the margin - same type face as [indecipherable] text". 927 Ms Conway did not agree entirely with this. According to Ms Conway, she said that she was not happy with "free shares" on the front of the onsert, and that the phrase "How many shares you will be given" had previously been formulated and she preferred it. She asked for Mr Bateman's opinion, and he said it would be "fine" and agreed that it should be on the front of the onsert. Ms Conway did not recall the suggestion that the matter be "put … back in front of" Mr Heydon, and denied that she said that she had had enough of Mr Heydon. She may have said that she did not think it necessary for Mr Bateman to further brief Mr Heydon, because two opinions had been received and she was confident that all the issues Mr Heydon had raised had been addressed. Further, according to Ms Conway she said to Mr Bateman words to the effect, "There is no need to brief Heydon QC again because Abbott Tout should be able now to give a final sign-off on the documents incorporating the advices which Heydon QC had supplied within the last few days and referring to the final form of the onsert which you have agreed". 928 Inherent in Mr Bateman's account of the discussion is that Ms Conway had earlier talked to Mr Barrett about the alternative involving "How many shares you'll be given!". That she had done so was part of a possible inference earlier outlined. Mrs Storrs' file note of telling Mr Barrett of the changes is consistent with this, in that Mr Barrett might have been told of the decision. Mr Barrett's evidence added another layer of confusion. He recalled an occasion with Ms Conway and Mrs Storrs in Ms Conway's office at which the use of the asterisk and the arrow and the word "free" on the first page of the onsert was discussed. His recollection was not clear, as he thought that the use of an asterisk had been agreed on 2 August 1994, and he also recalled that in the course of the meeting in Ms Conway's office a telephone call was made to Mr Bateman, which is not consistent with the file note. Mr Barrett said that he was not happy with the use of the arrow, but was "comfortable with the use of the asterisk", and that he preferred that "free" not be used on the front page with a qualification as it might deter recipients of the prospectus from going further. Mr Barrett may have run events together. 929 The result was clear, even if there were differences in the recollections of how it came about. What I think occurred may be sufficiently summarised in this way. Following Mr Heydon's opinion of 3 August 1994, it was agreed that "How many FREE shares you will get!" would be left on the first page of the onsert, with an asterisk after FREE and the explanatory words in the margin. Mr Barrett, Mr Fitch and others on the marketing and public relations side were unhappy, even though Mr Barrett had been party to the agreement, because an asterisk and qualification on the first page was regarded as undesirable. On reflection Ms Conway preferred what she saw as the more cautious course of not referring to free shares at all on the first page. Ms Conway and Mr Barrett discussed the different course of changing the words on the first page to "How many shares you will be given!" and putting the asterisk when "Free Shares" first appeared on the second page with the explanatory words on that page. Mr Barrett was content, although he would have preferred to keep free shares on the first page. Ms Conway told Mrs Storrs that she wanted to avoid the use of free shares on the first page, ahead of the 10.30 am meeting on 5 August 1994. The meeting did not, however, take the more cautious course, because Mr Fitch and others wanted to keep free shares on the first page, and arrived at a different course which did not involve an asterisk. When Ms Conway was told of this, she put her foot down. She consulted Mr Bateman, and obtained his agreement that what she wanted would meet Mr Heydon's concern. Mr Barrett was told of the decision. Mr Bateman suggested returning to Mr Heydon, but Ms Conway did not want that and asked for an AT advice. 930 It is necessary to consider further what I have referred to as asking for an AT advice. 931 The first page of the onsert now had "How to vote! How many shares you will be given!" instead of "How to vote! How many FREE shares you will get!". On the second page, the first sentence reading "It is proposed that NRMA change its status and issue Free Shares* to members" now had the asterisk, which directed the reader to the note in the bottom left-hand corner of that page, "The Free Shares (or cash alternative) are in exchange for membership under the Articles of each of NRMA Ltd and NRMA Insurance Ltd. Whether you accept the Free Shares or the cash alternative, Road Service and policies continue as usual." 932 The explanatory words were different from those in the version of the onsert the subject of Mr Heydon's opinion of 3 August 1994, but not in a way which detracted from the explanation. So far as the now first reference to free shares in the onsert was qualified by the explanation, in a way (asterisk plus note) found acceptable by Mr Heydon, his concern about the ambiguity of "free" could reasonably be regarded as met. But the original exercise of dealing with Ms Singleton's query had changed. The first question asked of Mr Heydon remained as it had been. The second question, whether there were any legal issues arising from having on the first page "How to vote!" in combination with "How many FREE shares you will get!", had changed because the second of the phrases had been replaced by the different phrase "How many shares you will be given!" 933 One consequence might have been that Ms Conway asked for advice only on the first question, and according to Mr Bateman he was told to "regurgitate [Mr Heydon's] written opinion" in relation to the first question and not to deal with "the other question about the front cover". This would have been an unlikely consequence. There could still have been a question in the conjunction of "How to vote!" with "How many shares you will be given!", and it could have been expected that Ms Singleton would still see such a question: so a modified second question was appropriate. More importantly, Mr Heydon had raised the free shares problem, he had expressed the view in relation to a previous version of the onsert that there was a legal issue but it would be resolved favourably, and the onsert had then been changed, so Ms Conway would have wanted a similar opinion in relation to the changed version of the onsert. That Ms Conway would have asked for a "final sign-off" on the onsert "incorporating the advices which Heydon QC had supplied" was only natural. 934 I accept up to a point Mr Bateman's evidence of the conversation with Ms Conway on 5 August 1994. I accept that he understood Ms Conway as saying that she only wanted advice on the first question, because the draft advice provided by Mr Bateman on 9 August 1994 dealt only with that question. But in the circumstances I have described I think Mr Bateman misunderstood what Ms Conway wanted, and his recollection of the conversation in this respect has gone astray. I consider that Ms Conway said words more of the nature she recalled. 935 As will appear, Ms Conway asked that the draft letter of advice be expanded, Mr Bateman agreed, and the final letter of advice was expanded accordingly. It is quite possible that Ms Conway did not make herself clear on 5 August 1994, and that when Mr Bateman turned to the advice he thought that the second question had fallen away and erroneously came to remember a confining of Ms Conway's request. In any event, Mr Batman was asked for the wider advice on 9 August 1994, and must have understood that request against the background of Mr Heydon's opinions of 2 and 3 August 1994 and the changes to the onsert. 936 Although concern over the free shares problem identified by Mr Heydon had not been conveyed to the boards on 4 August 1994, and although the advice in due course provided, in response to Ms Singleton's query, on the final form of the onsert did not explain the events of 2-5 August 1994, the free shares problem was not hidden. The evidence of this was mainly, but not exclusively, from Mr Mackay. 937 Mr Mackay recalled either Ms Conway or Mr Bateman telling him that a concern had been expressed that the use of the word "free" on the onsert, unqualified, might mislead members into thinking they were giving nothing away, and that the onsert had therefore been amended. He did not recall that Mr Heydon was identified as the person raising the concern, although it might have been so. 938 At another point in his evidence Mr Mackay said that "We were told by Helen Conway at either the meeting early in August or 18 August of advice from Mr Heydon which related to the use of the word 'free' on the onsert and the fact that it was necessary to refer to the fact that members were giving up their rights as members of the Association in return for the shares", and this would suggest that one or more of the boards was told of the free shares problem. Later in his evidence Mr Mackay agreed that this occasion was probably the meeting of the board of Holdings on 8 August 1994, when the version of the onsert without the reference to free shares on the first page came before the board. Although he clearly enough did not have a good recollection, he agreed that Ms Conway said that an opinion had been received from Mr Heydon dealing with Ms Singleton's query, and that Mr Heydon said that the use of the word "free" was ambiguous and needed to be clarified. The gist of the conversation, according to Mr Mackay, was that the onsert had to be amended to make reference to the fact that the members were giving up their rights. Indeed, Mr Mackay agreed that Ms Conway said that the effect of Mr Heydon's opinion was either that the word "free" was not used or the ambiguity was cured by adding additional words so as to highlight that people were giving something up in return for the shares, although not money, and that for that reason they had taken the word "free" off the front of the onsert and used the asterisk inside the onsert. 939 As well, Mr Mackay's recollection was that there was discussion at the other boards, though the other boards had not been informed that the onsert had to be amended, because Mr Heydon had indicated that he had some doubts about its effectiveness if the word "free" appeared without reference to the members giving up their rights. Mr Mackay's evidence may not have been entirely consistent, and his recollection was not precise, but the fact that the free shares problem identified by Mr Heydon was not hidden is another reason for rejecting the suggested consciousness of neglect to which I have earlier referred. 940 Mr Kirby said that the "qualification" in the onsert, that is, the asterisk and marginal note, were on his understanding used to make clear the sense in which the word "free" was being used, and that it was unnecessary to address a similar qualification of the word used in the prospectus because the onsert was at the beginning of the prospectus and covered the whole of the prospectus. His recollection was that questioning the use of the word "free" arose in connection with the notice of meeting in the prospectus, and that Ms Conway said that it was necessary to include in the notice of meeting that as part of the legal changes the members of Association and Insurance would no longer be members in order to make clear the sense in which the members were giving something up in return for free shares. Mr Kirby's recollection of this matter is not reliable, but suggests some reference by Ms Conway to a problem with "free" and to overcoming the problem by express reference to giving up membership rights. Again, the free shares problem was not hidden. 941 Mr Douglass gave evidence that his understanding of the changes to the onsert to its form as at 18 August 1994 were made in accordance with advice, but he could not recall more or whether it was in connection with Ms Singleton's query. He recalled that he was told, probably by Ms Conway, that the change in the onsert by way of asterisk and additional words was to clarify the position concerning free shares on the onsert in accordance with advice received. 942 Ms Godwin recalled being told, she thought by Mr Bateman, that Mr Heydon "had difficulty with the word 'free'" on the onsert, and being told by either Ms Conway or Mr Bateman that "free" was not going to be on the onsert, all prior to 18 August 1994. The extent of her recollection was that the problem was that "free" was on the front of the onsert without any qualification. Final advice on the onsert 943 The onsert was now in its final form. A meeting of the board of Holdings was held on the afternoon of 8 August 1994. Present were Mr Mackay, Mr Kirby, Mrs Callaghan, Mr Jack and Mr Willing, and those in attendance included Ms Conway, Ms Godwin, Dr Werner, and Mr Morgan. The minutes recorded a resolution "to approve the wording, layout and design of the 4/8/94 version of the onsert forms which had been previously distributed with the draft Prospectus". The most recent version of the onsert was the 5 August 1994 version. Why the board was presented with the earlier version was unclear. When the onsert next attracted attention at board level, on 18 August 1994, it must have been put forward in its final form. 944 On 9 August 1994 Mr Bateman provided to Ms Conway a "draft letter of opinion in relation to the onserts", asking if she wished him to consider any changes. A change was requested, and is best understood with reference to the draft letter. 945 The draft letter began with language similar to that in the letters to Mr Heydon, referring to the package containing the prospectus and onsert. It said, "The form of onsert which will apply to the circumstances of most members (situation 3 - C) is enclosed. It is the 4 August version." Why Mr Bateman referred to the 4 August 1994 version of the onsert, and not the 5 August 1994 version, is also unclear. 946 The draft letter then set out a question, an answer, and reasons - " 2. YOUR QUESTION You have asked the following question: 'Are there any legal issues arising from the placement of the Acceptance of Free Shares form on the Proxy Voting Papers? Could it be suggested, for example, that if this were regarded as an attempt to induce members to vote "Yes", that it was an unfair inducement with legal ramifications?'

3.1 We do not believe that there is any such inducement.

3.2 Any legal issues that might be said to arise from such placement have been properly and fairly addressed.

4.1 The Proxy Voting Papers make it very clear that there is a choice as to whether you vote 'yes' or 'no'. The Acceptance of Free Shares form, under its heading, clearly states that even if the person has voted 'no', they should complete the Acceptance of Free Shares form. Again, the instruction sheet, at the first dot point against 'remember to check', emphasises that regardless of whether the person votes they should fill in the Acceptance of Free Shares form.

4.2 The issuing of the onsert is subject to a range of controls, including: (a) the general law, including the law relating to the holding of meetings and providing fair information to members;

(b) the Corporations Law, including Chapter 7 dealing with prospectuses;

(c) the Trade Practices Act, including its comprehensive provision in section 52. 4.3 Having considered these issues, we do not believe that there are any legal implications arising from the placement of the Acceptance of Free Shares form on the Proxy Voting Papers.

4.4 If at least 75% of the votes are cast in the affirmative, members will obtain a valuable benefit, either shares in Holdings or cash. No doubt that benefit is a strong inducement to each member to vote 'yes'. But that would be so whether the 'Acceptance of Free Shares' form appeared on the same page as the 'Proxy Voting Paper' or not. It is difficult to see why any greater incentive in favour of a 'yes' vote flows from the proposed placement.

4.5 The relevant principles of law were summarised thus …

4.8 Even if the documents were read quickly, and by a non-specialist, they do not mislead, and they contain adequate information to convey the point that the member has 2 choices: to indicate how, if a proxy is to be employed, the proxy is to vote for or against the changes, and to indicate, even if the proxy vote is negative, whether the member is to get shares or cash in the event that there is sufficiently large positive majority. We do not see how that point could be put more clearly. We certainly do not think that the form could create 'some serious misapprehension of the position'.

4.9 We conclude, therefore, that any legal issues that might be said to arise from the placement of the Acceptance of Free Shares form on the Proxy Voting Papers have been properly and fairly addressed." 947 It will be seen that the draft letter addressed only the first question asked of Mr Heydon. It could fairly be said to have regurgitated his opinion in that respect. 948 Ms Conway telephoned Mr Bateman, whose file note recorded that she asked him to "state view that onsert otherwise complies". According to Mr Bateman, he asked what Ms Conway meant, and Ms Conway said, "I want you to state that its form and content also complies with the general law. Just add it as a paragraph at the end of the letter. Your letter will have to be for the final version of the onsert. I'll send you up the latest version so that it can form part of your letter." According to Ms Conway, there was consciously a request for advice going beyond Ms Singleton's query. She said that Mr Bateman "was to sign off the onsert in any event and I asked him to do that in this letter, so we had one letter that addressed Jane Singleton's query, plus a general sign-off on the onsert". I accept that this was Ms Conway's intention, an intention consistent with what I think she meant to convey on 5 August 1994. It was stated broadly to Mr Bateman, who does not seem to have inquired further. 949 In due course Mr Bateman provided to Ms Conway the final advice in relation to the onsert, a letter dated 15 August 1994. It followed the draft of 9 August 1994, save that it referred to the (then most recent) 10 August 1994 version of the onsert and, consistently with Ms Conway's request that it "state view that onsert otherwise complies", the concluding paragraph now read in place of the previous para 4.9 (which was reproduced as sub-para 5.1) - " 5. CONCLUSION 5.1 We conclude that any legal issues that might be said to arise from the placement of the Acceptance of Free Shares form on the Proxy Voting Papers have been properly and fairly addressed.

5.2 We have also considered the form and content of the onsert as a whole and consider that it satisfies the general law requirements for such a document in the context in which it is to be used." 950 It was not particularly satisfactory to tack para 5.2 on to a letter written with original regard to the question asked in para 2 and answered in para 5.1. Nonetheless, through para 5.2 the letter did provide a sign-off on the onsert, with a reservation of some imprecision, "such a document in the context in which it is to be used". The sub-paragraph was consistent with the opinion then held by Mr Bateman, and indeed by Ms Conway, that the problem in describing the shares as free shares seen by Mr Heydon still existed in the words "Free Shares" on the second page of the onsert even though the words on the first page "How many FREE shares you will get!" were no longer used, but that the problem was cured by the asterisk and explanatory note. The cure was such that, while an issue remained, it would be resolved favourably to the NRMA, and so the satisfaction in para 5.2 could be stated. 951 In his evidence Mr Bateman said that he intended in his reference to general law requirements to exclude (relevantly) s 52 of the TP Act. This was criticised by the NRMA as either evidence which should not be accepted or, if the evidence was accepted, a subterfuge practised on the NRMA. 952 That Mr Bateman did so intend finds some support in the distinction in para 4.2 of the draft and final letters between the general law, the Law, and the TP Act, and in Mr Bateman's recollection of Ms Conway's request to state that the form and content of the onsert complied with the general law. But it is improbable that, even if Ms Conway referred to compliance with the general law, she meant to exclude compliance with the Law and the TP Act. She wanted a general sign-off on the onsert. It is also improbable that Mr Bateman would have understood Ms Conway to want a restricted sign-off, and if the reference to free shares was misleading for the purposes of s 52 of the TP Act it would probably cause the onsert to infringe the general law relating to providing fair information to members. 953 I think it likely that Ms Conway did use language such as compliance with the general law, meaning compliance otherwise than in respect of the specific first question asked of Mr Heydon, and that Mr Bateman used the same language in the letter intending to encompass compliance with the Law and the TP Act. Had he done otherwise, without explanation, he would not have been acting in the interests of the NRMA. I do not accept that the letter of 15 August 1994 excluded compliance with (relevantly) s 52 of the TP Act, or was intended to do so. The prospectus reaches its final form 954 The current version of the prospectus was considered by the due diligence committee at a meeting on 3 August 1994. There was particular attention to disclosure of disadvantages. 955 There had been a number of changes over the preceding weeks to the statements in the prospectus to the effect that the boards recommended the proposal, and Ms Godwin drew attention to that part of the prospectus. Mr Mackay asked what happened if the recommendation was by a majority of directors and was not unanimous - was it necessary to disclose that the recommendation was a majority decision? 956 Mr Bateman reiterated that the obligation was to disclose all information reasonably necessary to enable the members to understand the issues and determine whether to vote and, if so, whether to vote for or against. He said that as part of the obligation it would be material for a member to know whether the recommendation of the directors was by a majority vote as opposed to an unanimous vote, and indeed to know the numbers. Mr Bateman said, "Of course the reasons for the minority voting against would also be material and have to be included in Section 1. Even if a director is in favour of the proposal he or she must give all material information and not just material that is favourable." 957 There were then comments to the effect that it was not clear whether directors would vote against, that Ms Singleton might in the end abstain, that the only thing Mr Talbot had "come up with" was that the listed company would be subject to takeover by big companies, that Miss Fraser would probably go along with Mr Talbot and Ms Singleton, and that Mr Lawson would probably support the proposal. Dr Werner observed, "They just haven't come up with any reasons really. They have been asked several times and they have come up with nothing which is not in Section 1." 958 According to Mr Bateman, the discussion then continued - Mr Bateman: "Well Section 1 is the directors' document. It's their statement to the members of all that is material for a member to know. If there is a minority who votes against, that fact, the numbers voting, and their reasons insofar as they are known, will have to be included." Mr Mackay: "I think Section 1 is good. It canvasses the issues fairly. The issues of tax, takeovers, and the like, we've gone to a lot of trouble to resolve favourably. I think Section 1 has all material information in it and presents it fairly. John, what's your view on the prospectus? Do you feel that there has been adequate disclosure?" Mr Morgan: "Chairman, Section 1 is the document that the directors of Association and Insurance have to satisfy themselves on. They have to provide all material information in there. The other Sections of the prospectus are more particularly the responsibility of the directors of Holdings. The DDC and the prospectus working group have, over quite some time, reviewed and drafted all parts of the prospectus and factored in all the comments from the directors. There is nothing that has come to my attention in that process that is material that has been omitted.

Under Section 1022 of the Corporations Law the prospectus must contain all such information as investors and their professional advisers would reasonably require, and reasonably expect to find in the prospectus, for the purpose of making an informed assessment of the financial position of the Group. Under Section 995 the prospectus must not mislead or deceive by what it says or omits to say. Where representations are made as to the future, the directors must under Section 765 have a reasonable basis for doing so.

Chairman, from the review undertaken the disclosure in the prospectus is adequate to comply with Section 1022 and the other relevant sections of the Corporations Law'." 959 This was minuted as a note that "advice was provided to the Committee that the disclosure in the draft Prospectus was adequate to comply with Section 1022 of the Corporations Law as well as all other relevant sections". That something to this effect was said was not disputed. 960 The prospectus was still being changed, including a change flowing from the recent approval by the Stock Exchange of a 5 per cent shareholding cap. This led to Mr Bateman providing to Ms Godwin on 4 August 1994 the part of Section 1 as it finally appeared posing and answering the question, "Can the NRMA be taken over if it issues shares?" 961 A joint meeting of the boards of Association and Insurance was held on 4 August 1994. One of the items on the agenda was "Prospectus - Section 1". There was discussion of Section 1, the detail of which was not disclosed in the evidence, but as earlier noted Ms Singleton did say that she was concerned that voting yes was a requirement to get the free shares and Ms Conway said, "We're getting an opinion on that. We'll be able to give it to you at the next meeting." No other matters of concern in relation to the prospectus, or the onsert, were mentioned. 962 It was suggested to Ms Conway that she deliberately did not tell the boards more, at this meeting or later, and deliberately did not provide to them Mr Heydon's opinions of 2 and 3 August 1994, because she did not want the attention of the boards drawn to a possible problem with the language of free shares; further, it was suggested that that was why she asked Mr Bateman to provide an AT letter of advice in relation to the onsert. As part of this, it seemed to be suggested that Ms Conway had earlier requested that Mr Heydon's second opinion be a stand-alone opinion because it might have been suitable for presentation to the boards without disclosure of any problem concerning free shares. Ms Conway denied this, and I accept her denial. As I have already said, it made sense for Ms Singleton's query to be dealt with by legal advice addressing the onsert in its final form, and the free shares problem was not hidden and was made known to various members of the boards. 963 A version of the prospectus as at 5 August 1994 was distributed on that day. It included the material relating to "Can the NRMA be taken over if it issues shares?" The question of a "no" case was still alive; for example, Mr Mackay received a news service report that the Labour Council had resolved "to request presentations for and against the float from the NRMA management and board member, Jane Singleton". A file note made by Mr Simpson recording a meeting of Mr Mackay, Mr Willing, (someone else indecipherable), Ms Conway and Mr Bateman on 5 August 1994 included "Why no 'no' case", with an arrow pointing to a box containing the word "strong". What lay behind this was unclear, but clearly enough there was questioning of a "no" case. 964 The prospectus working group spent seven hours going through the prospectus on 7 August 1994. It was a large group, and on this occasion Mr Willing was in attendance. Ms Godwin, Mr Morgan, and Mr Bateman were amongst the usual participants. A particular matter connected with that day attracted some attention in the hearing. 965 Mr Jörgen Nielsen was a partner of AAH who, at Mr Morgan's request, had read and commented on the various drafts of the prospectus. The draft as at 7 August 1994 included in the Section containing definitions and technical terms the definition of "Free Shares" noted much earlier in these reasons, meaning "the NRMA shares offered to members under the Members Free Offer". The definition had been in the draft for some time. Mr Nielsen's annotations on this draft included, next to the definition, "? In return for their existing membership. ? Road Service and policies continue as usual". The annotation reflected the words recently added to the second page of the onsert, and Mr Morgan's copy of the same version of the prospectus included an annotation against the definition of Free Shares, "As per onsert". 966 It was suggested that Mr Nielsen, and separately or with him Mr Morgan, had considered whether the prospectus should be amended by adding something to the definition of Free Shares to describe the shares as in return for membership. That would have required some further amendments, since the definition of Free Shares took up the definition of Members Free Offer and was not amenable to such a simple alteration. 967 Mr Nielsen said that he did not recall why he made his annotation, but that it was not because he considered that by reason of the expression Free Shares the prospectus was misleading. He said he had no such concern, and that if he had had such a concern he would not have suggested a change only to the definition of Free Shares. His belief was that he made the annotation so that the definition of Free Shares would be consistent with the explanation given to that expression on the onsert (according to Mr Nielsen he had the 4 August 1994 version of the onsert in which the qualifying words appeared on the first page), and he said that while he had been told that those words had been added as a result of a QC's advice he did not recall being told the QC's reasons for the advice and was not shown a copy of the advice. 968 Mr Morgan agreed that his note was to record at least a suggestion that the definition of "Free Shares" contain a qualification similar to that which had been made on the onsert, although he did not recall a discussion with Mr Neilsen or anyone else on that matter. He agreed that he raised the amendment at the meeting on 7 August 1994, and said that the suggestion was not taken up. His recollection was that Mr Bateman said that he (Mr Bateman) did not believe the change was necessary, and that he (Mr Morgan) "didn't object to the fact that the definition was not changed, the meeting having decided that they didn't want to change it". Mr Morgan did not think it necessary to raise the same matter at a due diligence committee meeting. 969 Mr Bateman said that he had no recollection of Mr Morgan proposing a change to the definition of Free Shares in the prospectus, and no recollection of expressing a view that any such amendment would be unnecessary. He agreed that, if such a matter had been raised at the prospectus working group meeting, he would have been happy to adopt the change, but would not have considered it necessary to make it. 970 The annotation made by Mr Morgan would probably have led to him raising a possible change for consideration by others in the prospectus working group, and Ms Godwin had a very vague recollection, possibly with some connection with being told about Mr Heydon's difficulty with the word "free" in the onsert, of discussion about the use of the word "free" in the prospectus and "what qualification needed to be used for that". I do not think her recollection can really be regarded as reliable, but it is consistent with the matter coming up on 7 August 1994. Mr Barrett had a recollection, although he could not fix it in time or place, of a discussion in connection with settling the final form of the prospectus in which consideration was given as to whether it was necessary to qualify the definition of Free Shares having regard to the additional words used in the onsert. Again I do not think this is a reliable recollection, but it is consistent with something such as was said to have occurred on 7 August 1994 even if, as seems to have been the case, Mr Barrett was not present at the meeting on 7 August 1994. I accept the substance of Mr Morgan's evidence in this respect. 971 Clearly enough, therefore, Mr Morgan and Mr Bateman both gave some thought after the events of 2-3 August 1994 to whether the description of the shares as free shares in the prospectus was misleading because of the ambiguity to which Mr Heydon had referred. They both concluded that it was not. It does not follow from his suggestion that Mr Morgan saw a real concern, and I do not think he did. I am satisfied that he thought Mr Heydon was over-cautious in relation to the onsert, and in any event thought the prospectus sufficiently disclosed that the members would be giving up their rights in return for their shares in Holdings. Mr Bateman, for his part, did not think there was a problem with the description of the shares as free shares, and saw a statement or statements to the effect that members were giving up membership rights in return for the shares as part of the general obligation to inform members rather than a clarification to remove ambiguity; he thought the members were sufficiently informed in the prospectus as it stood. Perceived neatness and consistency between the onsert and the prospectus could adequately explain what happened, and I do not think there was anything more than that. 972 A further matter from this meeting should be noted. Flowing from the meeting of the joint boards on 3 August 1994, Mr Bateman had drafted material for inclusion in the prospectus posing and answering the question, "Are all the directors in favour of the proposal?". The draft provided for numbers for and against the proposal, and for a summary- "Overall, therefore, there are ………. directors who are recommending the proposal to members. Their reasons are incorporated in Section 1 - Information for Members. The reasons the other ………. directors are against it, so far as those reasons have been expressed, are raised and answered in this section of the prospectus." Ms Godwin asked at the meeting of 7 August 1994 whether it was necessary to include the last sentence in this extract. According to Mr Bateman, the conversation went - Ms Godwin: "Greg, is it really necessary to make that last statement? If Talbot or others are going to vote against the proposal that's one thing that will have been disclosed. Their reasons for doing so is another matter altogether. As I understand it, none of the directors, let alone Talbot or Singleton, has put forward any reason as to why the proposal should not go ahead beyond any of the matters which have already been covered in Section 1. I understand that Richard Talbot has only talked about takeovers and we have gone as far as we can in trying to protect against takeovers and that has been identified in Section 1 already. That being the case, is there any need for that last sentence?" Mr Bateman: "As you know, the obligation is to put before members all material information to enable them to decide on the issue. What is material includes reasons for, and against, so, even if a director is in favour of the proposal he or she must give all material information and not just material that is favourable. If the only issues that have come up which are against the proposal are already canvassed in Section 1, then there is no need to make that last statement.' Ms Godwin:

'There is nothing else which is material that I know of. Section 1 covers all issues which are material. That being the case, we can omit the last sentence." I accept that something to this effect was said. 973 The prospectus working group met again on 8 and 9 August 1994, making changes including changes flowing from comments received from persons verifying the prospectus as part of the due diligence process. Ms Godwin stated that 9 August 1994 was the last date for changes. 974 That was not so, and some more changes were made, but for present purposes they do not matter. The final version of the prospectus was that dated 15 August 1994, although even it went to the boards on 18 August 1994 with a separate paper gathering together a number of amendments and corrections. The sign-off letters 975 The board approvals on 18 August 1994 included regard, in the manner I will describe, to the sign-off letters of AAH and AT. The sign-off letters were part of the due diligence process. I have referred to the establishment of the due diligence committee, and to a number of occasions on which the prospectus or the onsert came before it. There was, of course, much more to which the due diligence committee was attending, and what I have said to this point is far from exhaustive. It is enough, for present purposes, to take up a little more detail in August 1994. 976 At the meeting of the due diligence committee on 8 August 1994 Mr Morgan tabled what were called drafts of due diligence materials, namely, a report from the due diligence committee to the board of Holdings, an opinion from AAH, a verification report, and a final legal due diligence report. 977 The report to the board of Holdings was intended to convey that, after due enquiry, the members of the board could properly sign the prospectus, and the other materials were intended to underpin it. The underpinning by the verification report was by its description of the work done to verify the statements in the prospectus. The underpinning by the legal due diligence report was by its description of legal issues perceived as arising and the action taken, and it was matched by an accounting due diligence report which had already been received. The underpinning by the opinion from AAH was by its statements, subject to qualifications and assumptions, of satisfaction as to the due diligence process and its result. The opinion from AAH was its sign-off letter, the 8 August 1994 draft of which was later amended: I will come to the final sign-off letter shortly. 978 Apart from the AAH sign-off letter, which in its draft form as at 8 August 1994 was directed to the prospectus in general, a sign-off letter was provided by AT directed to Section 1 of the prospectus. 979 In April 1994 Mr Bateman had written to Mr Rees outlining AT's role in relation to the due diligence process. AT was to participate in the process, but "would not provide an opinion letter or sign-off to either the DDC or the Board of NRMA Holdings Limited, as these matters would be covered by the opinion letter of Allens". If this was then accepted as part of AT's role, the position changed. 980 According to Mr Morgan, he asked Mr Bateman for "an opinion on Section 1 of the prospectus" some time in July 1994. According to Mr Bateman, he was not asked until 8 August 1994. On Mr Bateman's account, after the meeting of the due diligence committee on that day Mr Morgan said that he (Mr Bateman) should give an opinion on Section 1 of the prospectus, as he had been more involved in that Section, and Ms Conway concurred. Mr Bateman asked what he should cover, and Ms Conway said, "Just that it complies with what the general law requires for disclosure, something like that. Don't worry about anything beyond that. John is signing off overall on both the general law and the legislation". Mr Bateman said, "You know that in relation to the question about the acceptance of free shares being on the proxy voting paper you asked me to just regurgitate Dyson Heydon's opinion. It deals with the general law in this area. If I regurgitated Dyson Heydon's opinion in relation to Section 1 would that be acceptable?". Ms Conway said that it "would be fine". 981 Ms Conway denied saying anything about regurgitating Mr Heydon's opinion in relation to Section 1, but otherwise seemed to accept that there was an exchange on 8 August 1994 about an AT sign-off letter. There may have been earlier mention of AT providing the legal assurance in relation to Section 1 of the prospectus, but I accept that the effective request was made in August 1994. Ms Conway's regurgitation denial seemed to be because Mr Heydon had not given any opinion in relation to Section 1; so she would not have said anything involving that he had. The answer, I think, is that Mr Bateman was referring to Mr Heydon's opinion so far as it set out the general law, which it did, as distinct from its application of the law in dealing with Ms Singleton's query. Mr Bateman would regurgitate the general law, and then apply it in relation to Section 1. That is what in substance he did. I accept Mr Bateman's evidence of the effective request. 982 On 9 August 1994, at the same time as he provided to Ms Conway the draft letter in relation to the onsert, Mr Bateman provided to her (and to Mr Morgan) a draft letter in relation to Section 1 of the prospectus. He asked if Ms Conway wished him to consider any changes. Ms Conway telephoned Mr Bateman and said that she was happy with the draft. In fact a change was made in the final letter. Again it is best understood with prior reference to the draft. 983 The draft letter began by identifying the prospectus and Section 1 within it: the identification left the date of the prospectus blank. It then read - "2. YOUR QUESTION

You have asked whether the content of the 'Information for Members' satisfies the requirements of the general law concerning material to be supplied to members in relation to the notices of general meeting for each of NRMA Ltd and N.R.M.A. Insurance Ltd.

We are of the opinion that the content of the 'Information for Members' satisfies those requirements of the general law." 984 There was then discussion in para 4 of the letter of what the general law required, sufficiently summarised as the provision of material substantially full and true and sufficient to enable an understanding and judgment upon the relevant business. This part of the letter really repeated the equivalent part of the draft letter in relation to the onsert, and was clearly enough founded on Mr Heydon's opinion. 985 Para 5 then set out those for whose benefit AT's opinion was given, being Association, Insurance, Holdings, Perpetual, the directors of each of those companies, and the other members of the due diligence committee (they included Mr Morgan), and sought to exclude reliance by anyone else. It ended, "This opinion is strictly limited to the matters stated in it and does not apply by implication to any other matters". 986 The change in the final letter was in part suggested by Mr Morgan. On 10 August 1994 Mr Morgan telephoned Mr Bateman, and said that he (Mr Morgan) was not going to express any opinion on a member's entitlement to shares or cash, but was going to assume that the board had made a decision that it constituted a fair and equitable distribution of the entitlement. Mr Morgan said that he was not prepared to sign off on that area because "it's one where oppression could occur. It is a matter for the board to determine". Mr Bateman must have decided to do the same, and his file note of the conversation with Mr Morgan was to the effect that it should be assumed that the basis of entitlement was fair and equitable and "exclude from Section 1". 987 On 10 August 1994 Mr Bateman sent to Ms Conway (and Mr Morgan) a fresh draft of the sign-off letter, the same as before except that there was added at the beginning of para 5 - "5.1 Obviously, the formulation of the proposal, particularly the basis of entitlement of members to Free Shares, is a matter for the directors of NRMA Holdings Ltd, NRMA Ltd and N.R.M.A. Insurance Ltd. Our option assumes that the apportionment of those entitlements constitutes a fair and equitable distribution. The opinion we express in this letter is, therefore, directed to whether the 'Information for Members' material addresses the proposal (so formulated by the NRMA) in a way which satisfies the requirements of the general law.

5.2 Our opinion is not directed to whether the resolution of members will bind all members. The matter is addressed in a written opinion from Mr J D Heydon QC who was briefed by Allen Allen & Hemsley." 988 Paragraph 5.1 addressed what Mr Morgan had raised. Paragraph 5.2, however, went further, and excluded from AT's sign-off "whether the resolution of members will bind all members". The opinion from Mr Heydon must have been his opinion of 28 July 1994. The final letter was in the form of this fresh draft. 989 This must have brought further attention to the AAH sign-off letter, which as I have said in its then draft form was directed to the prospectus in general. 990 Also on 10 August 1994 Mr Morgan sent to Ms Conway (and Mr Bateman) a fresh draft of the AAH sign-off letter. His covering letter included - "We understand Abbot [sic] Tout will be providing an opinion relating to the question as to satisfactory disclosure of information to members for the purposes of the annual general meeting and a copy of that has been separately circulated. We also note that, as agreed, a copy of the opinion of Mr Dyson Heydon on the question as to whether the shares may be fully paid up by NRMA Holdings in consideration of members agreeing to give up their membership and on the question as to whether the resolution of members will bind all members at the general meeting will be tabled at the due diligence committee meeting. Senior counsel confirms in each case that shares may be so issued and the resolution will be so binding. If anyone wishes to see a copy of that opinion prior to the due diligence committee meeting, please advise and I will forward a copy to you.

You will note that in the opinion letter we have added an additional assumption and that is that the distribution of entitlements constitutes a fair and equitable distribution. This is really an issue for NRMA Limited and NRMA Insurance Limited. It goes to the issue as to whether or not a successful suit for oppression could be brought by members by reason of the fact that they were either not properly compensated for giving up their membership or their compensation was inappropriate in comparison with the compensation paid to others. As we understand the position, the Boards of NRMA Limited and NRMA Insurance Limited satisfied themselves in approving the entitlements proposal that the entitlements meet these requirements." The fresh draft was now addressed to Perpetual as well as Holdings (and the draft was also sent to Perpetual's solicitors). 991 The final AAH letter was relevantly in the form of this fresh draft, but with an additional qualification concerning reliance on AT's sign-off as to Section 1 of the prospectus. The additional qualification must have come from further consideration in the light of the proposed AT sign-off, in order to avoid overlapping. 992 The final letter began by describing two categories of information in the prospectus, being financial information and forecasts (in the letter called "Financial Provisions") and other information (in the letter called "General Provisions"). The role of AAH as "solicitors to the Offer" was then described, in summary the role of advising on the content of the General Provisions and advising on and participating in the due diligence process. 993 The letter then said - " 3. Contents of the Prospectus We confirm that, subject to the qualifications and assumptions set out in section 6, nothing has come to our attention in the course of or as a result of performance of our role that causes us to believe that:

(a) the Prospectus (excluding the Financial Provisions) contains any material statement that is false or misleading;

(b) there is any material omission from the Prospectus (excluding the Financial Provisions); or

(c) the issue of the Prospectus (excluding the Financial Provisions) may involve conduct which is misleading or deceptive or likely to mislead or deceive.

We confirm that we concur with the Due Diligence System and the scope of the Due Diligence Enquiries agreed by the Due Diligence Committee in relation to matters concerning the Prospectus, except in relation to the Financial Provisions as to which our role and opinion is limited as specified below, and on the basis of the qualifications and assumptions set out in section 6:

(a) we believe that the Due Diligence System and the Due Diligence Enquiries constitute: (i) reasonable enquiries within the meaning of Sections 996(2), 1008A and 1022(2) of the Corporations Law; and

(ii) reasonable precautions and the exercise of due diligence, within the meaning of Section 1011 of the Corporations Law,

to ensure that there is no material statement in the Prospectus which is false or misleading and that there are no material omissions from the Prospectus; and (b) in our opinion, the Due Diligence System has been implemented and the Due Diligence Enquiries in which we participated as described above have been completed in accordance with the Planning Memorandum.

We confirm that the Verification Report does not disclose any matter in relation to the Prospectus (excluding the Financial Provisions) which would cause us to amend the confirmations given above in sections 3 and 4.

Our confirmations above are subject to the following qualifications.

(a) We are one of Holdings and NRMA Group's solicitors in Australia having Australian legal expertise and our opinion is given only to the extent that we, having the role described above, could reasonably be expected to have become aware of relevant facts and/or to have identified the implications of those facts.

(b) We have not positively verified any statement except those statements in relation to which we have been identified as the Person Responsible. In relation to the other matters we have only collated verification materials supplied to us. We note that verification of the Financial Provisions has been undertaken by the independent Accountant.

(c) This opinion relates to the laws of the Commonwealth of Australia and the States and Territories of the Commonwealth of Australia in force at the date of this opinion. We do not express or imply any opinion as to the laws of any other jurisdiction and have made no independent investigations in relation to those laws.

(d) We have relied on the opinion of Abbott Tout dated on or about the date of this letter relating to the information for members contained in the Prospectus.

(e) We have relied on the following searches only of public records on file on the following dates: Searches of public records on file at the office of the Australian Securities Commission on 17 August 1994 in respect of Holdings and the NRMA Group.

We note that records disclosed by such searches may not be complete or up to date. In giving this opinion we have assumed the following matters:

(a) that the responses to the questions which we have put to the officers, directors and agents of Holdings and NRMA Group members and of Perpetual Trustee Company Limited have been true and accurate in all respects and have contained no omissions;

(b) that the distribution of entitlements to the NRMA Shares constitutes a fair and equitable distribution;

(c) the authenticity of all seals and signatures and of any duty stamp or marking;

(d) the completeness and the conformity to original documents or instruments of all copies examined by us;

(e) that the documents examined by us are within the capacity and powers of, and have been validly authorised, executed and delivered by and are binding on, the signatories to them;

(f) that insofar as any obligation under any document examined by us is to be performed in any jurisdiction outside Australia, its performance will not be illegal or ineffective by virtue of the law of that jurisdiction; and

(g) the accuracy of all certificates, letters and opinions given by external advisers of Holdings and the NRMA Group in relation to the documents examined by us.

(h) that the resolutions of the boards of directors of Holdings, NRMA Limited and NRMA Insurance Limited referred to in the Verification Report are duly passed at meetings of those boards held today.

Our enquiries in the course of performing our role in the Due Diligence System have not given rise to any belief on our part that such assumptions are not correct." 994 The letter ended with a description of those for whose benefit the opinion was given, a disclaimer, and a statement of limitation, in like manner to the AT sign-off letter. 995 Some comments on the sign-off letters may be made. As I have said, the opinion of Mr Heydon to which the AT letter referred must have been his opinion of 28 July 1994. It was in fact tabled at the due diligence committee meeting on 15 August 1994. It may be that exclusion from the AT sign-off of "whether the resolution of members will bind all members" reflected continuing doubt on Mr Bateman's part as to the scheme or meeting question, so that he took care to leave the opinion on that to Mr Heydon and AAH. If so, Mr Bateman did not reiterate or refer to any continuing doubt. Paragraph 3 of the AAH sign-off letter was in terms not an opinion to the effect that the prospectus was not misleading, but a statement that nothing had caused AAH to believe that the prospectus was misleading. It should be said at once that I accept that AAH did not believe that the prospectus was misleading, and as well that AT held the opinion that Section 1 of the prospectus satisfied the requirements of the general law described in the AT sign-off letter. It will be recalled that AAH's defence put its retainer in the words "had come to their attention which caused them to believe", words probably used because of the terms of the sign-off letter, but when AAH had directed and been intimately involved in the due diligence process the sign-off letter conveyed AAH's opinion that the prospectus was not misleading. I accept that AAH held that opinion also. Board approvals of the proposals 996 A meeting of the due diligence committee was held on 15 August 1994. Mr Mackay chaired the meeting. Also present were Mr Kirby, Dr Werner, Mr Willing, Mr Morgan, Mr Bateman, Mr Wehby, Mr Barry, Mr Brad Rees, and Mr Hullah; those in attendance included Ms Godwin. 997 According to the minutes - "The Chairman tabled a number of updated documents forming part of the Legal Due Diligence Report those included:

2. Senior Counsel's opinion confirming the manner in which shares in NRMA Holdings Limited are to be paid up and the binding nature of the resolutions of the members of NRMA Limited and NRMA Insurance Limited.

3. Opinion given as to application and proxy forms being on the same document." 998 The Senior Counsel's opinion was Mr Heydon's opinion of 28 July 1994: the draft AT sign-off letter had foreshadowed that it would be dealt with separately. 999 The other opinion was the AT letter of 15 August 1994. The minutes also recorded Mr Morgan stating that the verification process was largely complete, and it was resolved that the due diligence committee would meet on 18 August 1994 when "Final versions of all opinions and reports would be tabled and signed". 1000 According to Mr Bateman, while the AT letter of 15 August 1994 was formally tabled it was not circulated or otherwise referred to during the meeting. Mr Kirby said in a witness statement that he read the opinion of Mr Heydon and the AT letter of 15 August 1994 "at or about the time I received them", and Mr Mackay said much the same. These were formal repetitions in the witness statements, and I do not think they can be taken as evidence that the AT letter of 15 August 1994 was read at the meeting. But Mr Mackay and Mr Kirby were persons who took care to become familiar with relevant materials, and I accept that they were aware of the letter and, if not at the meeting, read it following its tabling. Mr Morgan, of course, was already familiar with it. It would be surprising if the other members of the committee did not make themselves aware of its substance at this time. 1001 The due diligence committee met again on 17 August 1994: why another meeting prior to 18 August 1994 was unclear. Those present and in attendance included the persons mentioned for 15 August 1994; Mr Adrian Rees was also present. 1002 The minutes included - " LEGAL DUE DILIGENCE REPORT: The Final Due Diligence Report, unsigned, was tabled and John Morgan went through the report. John Morgan asked if any person present wanted to raise any further issues. No issues were raised. John Morgan then explained to the meeting what would take place at the meeting of the Due Diligence Committee on the morning of 18 August 1994.

John Morgan explained that at the next morning's meeting the following documents would be tabled:

2. The Coopers & Lybrand (Securities) Ltd Due Diligence Report;

3. The report from the Due Diligence Committee to the Boards of each of NRMA Holdings Limited and Perpetual Trustee Company Limited;

4. The Verification Report from Allen Allen & Hemsley;

5. Opinion letters on the prospectus and the offers, stamp duty and taxation of the NRMA Offer Trust from Allen Allen and Hemsley and on the notice of meeting section of the prospectus from Abbott Tout." After a record of some discussion and reference to the completion of the verification process, according to the minutes - " LETTERS OF OPINION: Copies of letters of opinion from Allen Allen & Hemsley and Abbott Tout were tabled by the Chairman relating to matters referred to previously." Then after further matters, including noting the latest changes to the prospectus - " DUE DILIGENCE COMMITTEE REPORT: The Chairman tabled the final version of the Due Diligence Committee Report dated 18 August 1994 to be signed at Thursdays meeting." 1003 There was contention in the proceedings over the AT opinion letter said to have been tabled. According to the earlier part of the minutes, there would have been AAH letters "on the prospectus and the offers, stamp duty and taxation of the NRMA Offer Trust". Concentrating on the prospectus and offers, AAH had not yet provided its sign-off letter (the signed letter was dated 18 August 1994), but it was accepted that a copy of the sign-off letter was tabled, and it must have been an unsigned copy in the then final form. Still according to the earlier part of the minutes, there would have been an AT letter or letters "on the notice of meeting section of the prospectus". The signed AT sign-off letter was dated 17 August 1994. The description in the minutes was not very accurate, but would apply more readily to the AT sign-off letter of 17 August 1994 than to the AT letter concerning the onsert of 15 August 1994, and I think it was accepted that the reference in the minutes was not to the letter of 15 August 1994. The contention was over whether the AT sign-off letter was in truth tabled at the meeting. 1004 Mr Bateman gave evidence that he took the AT sign-off letter to the meeting of 17 August 1994, that it was not called for, that he did not provide it or copies of it to anyone, and that he took it back to his office after the meeting. He said that the minutes were incorrect in a number of respects, including so far as they recorded the tabling of opinion letters, and the contention as to the meeting of 17 August 1994 was followed by contention as to the meetings on 18 August 1994. In the hearing, it seemed that AT's position was that its sign-off letter had never come to the actual notice of the members of the due diligence committee and the boards. 1005 I am satisfied that the AT sign-off letter was tabled at the meeting of the due diligence committee on 17 August 1994. Mr Mackay was certain that it was tabled, and that he received a copy, and he had a copy in his own papers. Mr Adrian Rees gave positive evidence of the tabling of the signed sign-off letter, saying that he read it (and the copy of the AAH sign-off letter) at the time because he thought it critical. Mr Gonzales, who was in attendance and prepared the minutes, also asserted a positive recollection of the tabling of the signed sign-off letter, but his recollection was shown to be compromised and I put it aside. Nonetheless, where the agenda included the AT opinion as a discussion item (as it did), where the purpose of the meeting was to prepare for the formal events of the next day, and where the signed letter was available, it is likely that it was indeed tabled. Further, the minutes were distributed, and were not disputed or corrected at a later meeting; on the contrary, Mr Simpson suggested that the draft minutes be amended to include specific reference to tabling the opinion letters of AAH and AT, and Mr Simpson said that they were tabled. The probabilities, the recollections of tabling, and the acceptance of the minutes, in my view, outweigh Mr Bateman's evidence, and I think his recollection was erroneous. 1006 The meetings programme for 18 August 1994 was a meeting of the due diligence committee at 8.00 am, a meeting of the members of Holdings at 9.00 am, a meeting of the board of Holdings at 9.05 am, a joint meeting of the boards of Association and Insurance at 10.00 am, and a reconvened meeting of the board of Holdings at 12.00 noon. 1007 The due diligence committee met as anticipated. Again Mr Mackay chaired the meeting. Present were all who had been present on 17 August 1994, plus Mrs Callaghan and Mr Jack; Ms Godwin was amongst those in attendance. 1008 The minutes of the meeting included - " LEGAL DUE DILIGENCE REPORT: The Chairman tabled the Final Legal Due Diligence Report and it was noted that the ISC had not yet formally informed us of its approval, however, NRMA has received no indication whatsoever that the approval would not be forthcoming.

John Morgan outlined that the prospectus stated that approval is expected, which it is, and it was agreed to proceed on this basis.

John Morgan asked if any member of the Committee wished to raise any matter in connection with the Due Diligence. No matter was raised and it was agreed that all material issues had been dealt with adequately.

John Morgan signed the Allen Allen & Hemsley Legal Due Diligence Report to the Committee.

John Morgan tabled the Verification Report from Allen Allen & Hemsley which was in the same form as that tabled at yesterday's meeting.

The Verification Report was signed by John Morgan and presented to the Committee.

Signed opinion from Allen Allen & Hemsley to NRMA Holdings Limited and Perpetual Trustee Company Limited concerning the prospectus and the offers;

Signed opinion from Allen Allen & Hemsley to NRMA Holdings Limited and Perpetual Trustee Company Limited concerning Stamp Duty implications of the proposal.

Signed opinion from Allen Allen & Hemsley to NRMA Holdings Limited and Perpetual Trustee Company Limited in relation to taxation considerations relevant to the NRMA Offer Trust.

The executed Allen Allen & Hemsley Legal Due Diligence Report;

The executed Allen Allen & Hemsley Verification Report;

The Allen Allen & Hemsley Interim Legal Due Diligence Report;

The Coopers & Lybrand (Securities) Ltd Final Due Diligence Report and Sign-off letter;

The report from the Due Diligence Committee to the directors of NRMA Holdings Limited and Perpetual Trustee Company Limited.

IT WAS RESOLVED by the Committee that the Due Diligence Committee report be adopted by the Committee and approved by the Committee and that Don Mackay, the Chairman of the Due Diligence Committee, be authorised to sign the report.

Don Mackay signed the report." 1009 The AAH sign-off letter was the first of the documents recorded as tabled. It was dated 18 August 1994, and followed the draft of 10 August 1994 with some changes of no present relevance. It, or a copy of it, was physically part of the report of the due diligence committee, in that the report had many attachments as "exhibits" (for example the prospectus and the legal and financial reports), and the sign-off letter was exhibit G. Mr Heydon's opinion of 28 July 1994 was also physically part of the report of the due diligence committee, being exhibit K. 1010 The minutes did not record the tabling of, or otherwise mention, the AT sign-off letter. According to Mr Bateman, he brought the original AT sign-off letter to the meeting and gave it to someone whose identity he could not recall; it was not referred to, and if it was dealt with in any way it was only as forming part of a large pile of documents on the table (and not removed from the pile). Mr Morgan said at the meeting, referring to the pile of documents, that he would take them back to AAH and "we'll do photocopies, binding, and circulate a set to each member of the DDC". Still according to Mr Bateman, the bound documents he later received did not include the AT sign-off letter. 1011 The AAH sign-off letter had not been signed as at 17 August 1994, so the signed letter was tabled on 18 August 1994. The signed AT sign-off letter had been tabled on 17 August 1994, so it was not tabled on 18 August 1994. This simple reasoning may explain why the minutes did not record the tabling of the AT sign-off letter on 18 August 1994. Mr Bateman may have brought the original signed letter to the meeting, perhaps because a copy of the signed letter rather than the original had been physically tabled the previous day, and there were other recollections of him handing a letter over. Mr Mackay thought he was the person to whom Mr Bateman gave the original letter, but I do not think he was certain and in particular he may not have been certain as to the occasion. Mr Mamutil recalled Mr Bateman handing a letter to Mr Simpson. But one would expect the minutes to refer to the letter if it was dealt with in any formal way, and there was no satisfactory evidence that it was. That the AT sign-off letter did not form part of the bound-up set of due diligence documents supports that it was not given mainstream attention at the meeting. 1012 The absence of satisfactory evidence that the AT sign-off letter was dealt with in a formal way had two particular aspects. One aspect was that a number of those present who might have been expected to recollect attention to the letter at the meeting gave no evidence of it. The other was that, while some of those present asserted recollection of attention to the letter at the meeting, their evidence was in my view unreliable. 1013 Dr Werner asserted a recollection of the sign-off letters being placed on the table, even of reading them, but his evidence of this and other matters was very confused as to times, places and events. Mr Kirby said that the AT letter of 17 August 1994 was tabled at the meeting, and that he read it at or about the time of the meeting; again, this was an expression which I doubt was Mr Kirby's own, and I am not prepared to treat what Mr Kirby said as an accurate statement of true recollection. Mr Jack said that Ms Conway put papers on the table and said "We have got the sign-off from Allens and Abbotts", and that he considered that the due diligence committee thereby received the sign-off letters. This can not be correct, as Ms Conway was not at the meeting. Mrs Callaghan indirectly asserted receipt of the AT letter, saying that she would not otherwise have voted to adopt the report of the due diligence committee, but I do not think this was the product of genuine recollection. In my view the stance of a number of the directors had become that the responsibility for what befell the NRMA must have been the responsibility of the lawyers, in Mrs Callaghan's case a concern to sheet that responsibility home, leading them to unjustified present beliefs as to past specific knowledge of the sign-off letters. The preparation of common form or similar witness statements by the NRMA's solicitors in these proceedings did nothing to guard against this, and that feature of the preparation of the proceedings should have been avoided. 1014 I accept that Mr Bateman brought the signed AT sign-off letter to the meeting on 18 August 1994 and gave it to someone, but I do not think it was specifically referred to and it was not distributed or considered at the meeting; hence it was not minuted as tabled. 1015 The members of Holdings then met. They resolved to adopt new articles. 1016 The board of Holdings then met. Present as the board were Mr Mackay, Mr Kirby, Mrs Callaghan, Mr Jack and Mr Willing. Those in attendance included Mr Corrigan, Mr Cox, Dr Werner, Mr Rees, Ms Conway, Mrs Storrs, Mr Morgan, and Mr Bateman. 1017 The minutes included - "PROSPECTUS AND DUE DILIGENCE REPORTS: "The prospectus together with a Due Diligence Report and a Verification Report from Allen Allen & Hemsley, a Due Diligence Report from Coopers & Lybrand (Securities) Ltd and opinions from Messrs Allen Allen & Hemsley and Abbott Tout were tabled.

The directors noted the Due Diligence Reports and the documents and matters referred to in them.

The directors also noted that the Verification Report contained confirmations that statements contained in the Prospectus were materially correct and that there were no material omissions from those statements.

The directors were advised that the conclusion of the Due Diligence Committee was that, based on the due diligence and verification procedures which were implemented and the results of those investigations, the Due Diligence Committee believes that:

(a) the Prospectus does not contain a material statement which is false or misleading;

(b) there are no material omissions from the Prospectus; and

(c) the issue of the Prospectus and the proposed allotment of shares under the Prospectus does not involve conduct that is misleading or deceptive or likely to mislead or deceive.

It was resolved that up to 1,090 million ordinary shares with a par value of $1.00 each in the capital of the Company be offered for subscription pursuant to the Prospectus and that the Prospectus be approved and signed by each director of the Company." 1018 The minutes later recorded the tabling of the prospectus, and resolutions "that the Company proceed with the 'Share the Future' proposal" and that it be recommended that members of Association and Insurance vote in favour. After the adjournment (the joint meeting of the boards of Association and Insurance intervened) the minutes again recorded a resolution that the directors sign the prospectus: there was other repetition, and reference in the minutes to substituted materials which may explain the repetition of the resolution to sign the prospectus. 1019 The description of the tabled reports was unclear: was the "Due Diligence Report" first mentioned the legal due diligence report, as its linking with the verification report and juxtaposition with the financial due diligence report might suggest, and if so what of the report of the due diligence committee? It is all but inconceivable that the report of the due diligence committee was not tabled, Mr Kirby included it amongst the documents he said were tabled, and the minutes must be imperfect. 1020 The imperfection of the minutes is material to the continued contention over the tabling of the AT sign-off letter. Although the minutes recorded that "opinions from Messrs Allen Allen & Hemsley and Abbott Tout were tabled", according to Mr Bateman the AT sign-off letter was not tabled, circulated, or referred to. There was the customary confusion of evidence on the subject. 1021 Many of those present said nothing. Some gave positive evidence of the tabling of the letter. Mr Mackay did so, saying that he was familiar with it because he had received a copy on 17 August 1994, and Mr Rees did so also. On the other hand, the documents which Mr Kirby said were tabled included the AAH sign-off letter but not the AT sign-off letter. Mrs Callaghan and Mr Jack said that they would not have voted in favour of the proposals if they had known the letters were wrong, a less than clear assertion of knowledge of the letters which I do not think justifies a finding of knowledge of the AT sign-off letter. Of particular significance, however, was that Mr Graeme Blackett, then the joint secretary of the NRMA companies, gave evidence that the AT sign-off letter was tabled, and identified it in the board papers kept by the NRMA. It bore a notation in his writing, "tabled Holdings 18/8/94" in accordance with his practice of making such notations on tabled documents and filing them with the board papers. 1021 The probabilities favour the tabling of both sign-off letters. The probabilities, the evidence of Mr Mackay and Mr Rees, this evidence of Mr Blackett, and the prima facie weight of the minutes themselves, lead me to the view that Mr Bateman's recollection is at fault, and that the AT sign-off letter was tabled at the meeting. 1022 Whatever may have been tabled, the minutes indicate that the documents were not then gone through. Rather, they were "noted", and the meeting was "advised" of the conclusion of the due diligence committee and acted on that advising. I do not think the repetition by Mr Kirby and others of the stock phrase that he or she read the documents at or about the time they received them is satisfactory evidence that the documents were read or gone through at the meeting. 1023 The boards of Association and Insurance then met jointly. Present as the board of Association were Mr Mackay, Mr Kirby, Ms Booth, Mr Burrows, Mrs Callaghan, Mr Douglass, Mr Farr-Jones, Miss Fraser, Mr Jack, Dame Leonie Kramer, Mr Lawson, Ms Ralph, Ms Singleton, Mr Talbot, Dr Vanderfield, and Dr Werner. Ms Ralph was present by telephone from Perth. Present as the board of Insurance were Mr Mackay, Mr Jack, Mr Burrows, Mrs Callaghan, Mr Douglass, Mr Easson, Mr Farr-Jones, Mr Kirby, Ms Singleton, Mr Corrigan, and Mr Willing. Those in attendance included Ms Conway, Ms Godwin, and Mr Bateman. 1024 The minutes of the Association meeting included - " 'SHARE THE FUTURE' PROPOSAL

A draft prospectus for the offer of up to 1,090 million ordinary shares in the capital of the Company was tabled (the 'Prospectus'), together with a press release from the Treasurer. The Share the Future proposal was discussed.

A letter dated 29 June 1994 from Ms F J Singleton was noted.

The motion originally put by Mr G F Lawson on 30 June 1994 to the Board of NRMA Limited and which had lain on the table until today's meeting was discussed.

Mr Lawson moved that the motion be amended as follows:

'To enable members to be clearly informed about the issues to be put before them re the 'share the future project' that a direct mail be made to all members outlining the possible short, medium and long term drawbacks and that newspaper notification be made of the same.'

After considerable discussion Mr Lawson withdrew his amended motion.

The directors, having carefully considered the advantages and disadvantages of the proposal, and believing it is in the best interests of the members and the NRMA, and that the Free Shares are being allocated under the proposal in the way the Board believes to be fair, resolved that the company proceed with the 'Share the Future' proposal.

The motion was carried with a majority of 13 votes to 3.

Miss D Fraser, Mr RJ Talbot and Ms FJ Singleton requested that their dissent be noted.

… INFORMATION FOR MEMBERS: A twelve page document entitled 'Information for Members', and Schedule of Statements made by the directors of NRMA Holdings Limited (to be relied upon by the directors of such of NRMA Ltd and NRMA Insurance Ltd), were tabled and minor typographical errors were noted.

It was resolved that the 'Information for Members' is adopted as a joint statement made by the Boards of each of NRMA Ltd and NRMA Insurance Ltd to be supplied to members of each company.

Miss D Fraser, Mr RJ Talbot and Ms FJ Singleton requested that their dissent be noted.

It was resolved that the directors of the Company recommend to members of the Company that:

(a) members of NRMA Limited vote in favour of the proposal; and

(b) members of NRMA Limited choose to take up the Free Shares.

Miss D Fraser, Ms FJ Singleton and Mr RJ Talbot requested that their dissent be noted.

PUBLICATION OF NOTICE OF MEETING AND INFORMATION FOR MEMBERS :

(a) approval is given for the inclusion in the prospectus to be issued by NRMA Holdings Limited and Perpetual Trustee Company Limited of the material in Section 1 and for the Proxy Voting Papers to be on the outside of the prospectus;

(b) members of NRMA Limited be given Notice of General Meeting of the Company and the Information for Members by means of: (i) publication in the Sydney Morning Herald on a date between 26 August 1994 and 9 September 1994; and

(ii) inclusion in the prospectus to be despatched by NRMA Holdings Limited." 1025 Other business in connection with the proposal was also transacted, with a view to the calling and conduct of the relevant meetings and otherwise. 1026 The minutes of the Insurance meeting reflected the minutes of the Association meeting. The resolution to proceed with the proposal was carried with a majority of ten votes to one. Ms Singleton's dissent was noted, and Ms Singleton's dissent to the subsequent resolutions was again noted. 1027 Neither of the minutes said anything of tabling, or indeed referred to, the report of the due diligence committee or any of the due diligence materials. In particular, they said nothing of the sign-off letters. It may be that the view was taken that the due diligence process should be formally reflected in the business of Holdings alone, treating Holdings alone of the issuer of the prospectus: this may have been an incorrect approach, but nonetheless one which was adopted. Whatever the position, it was not suggested in these proceedings that the sign-off letters were placed before the joint meeting, or at least to the extent that anyone so suggested I do not think they were correct. 1028 That the sign-off letters were not placed before the joint meeting does not mean that they were not mentioned in the course of the meeting. Nor is the fact that the minutes do not refer to them inconsistent with some mention, the minutes being only a minutes. The so-called non-verbatim transcript to which I next come indicates the extent of discussion not reflected in the minutes. The transcript was directed to disadvantages and to the AT letter of 15 August 1994, the response to Ms Singleton's query, and I will go to it before returning to the sign-off letters. 1029 The minutes did refer to disadvantages so far as they recorded the raising and fate of Mr Lawson's motion. They did not say anything of Ms Singleton's query or the AT letter of 15 August 1994. The evidence included a document described as "not a verbatim transcript but a summary of notes taken at" the joint meeting, the author being Mrs Storrs. It was a compilation from Mrs Storr's own notes of the meeting and the notes Mr Blackett and a Ms Meredith Richer, and its accuracy in substance was not in doubt. 1030 It is not easy to summarise the transcript, and its importance calls for setting out the material parts. The parts specifically dealing with the AT letter of 15 August 1994 are underlined. 1031 Shortly after Mr Mackay moved and Mr Burrows seconded a resolution to approve the proposal, and following expressions of support and reasons for support by some of the directors, Ms Singleton said that she wished "to vote on item 5 re the 'no' case before item 4 because my feelings on 5 are contingent on 4". This referred to agenda items, item 4 being approval of the proposal and item 5 being Mr Lawson's motion of 30 June 1994 still lying on the table. 1032 Mr Mackay ruled that the agenda order be followed. Thereafter, according to the transcript - "Geoff Lawson I make a motion to amend the original motion of 30 June. I think that there are disadvantages in this proposal although I may still approve it if I know that the no case can be put. I think resolution 5 and 4 interlink. I'd like to also thank the management and staff for all their work.

Don Mackay I may decide to take the resolutions together if this would affect your decision.

Jane Singleton Now you're willing to change your mind.

Michael Easson We've heard the objections in principle to the proposition and I'm thinking that it may be coloured by the position on resolution 5. However, is there any other philosophical points we need to raise outside the no case argument.

Richard Talbot Well I'm against it, I don't like the way its been handled behind the backs of the directors. It should be condemned by the board and the members. We'll be stampeding the members with a prospectus and voting form. It should have been couched by way of plebiscite of the members with a mail out asking how they feel and giving them the for and against case. We would have saved money and then if they wanted to go ahead we could have given them the prospectus.

Dawn Fraser I haven't had an opportunity to read the prospectus. Every time I look at it I get a new one. I think that this has been railroaded through. The prospectus asks for the full name and addresses on the proxy forms but my name and address is missed out on the voting form.

Don Mackay You've had the prospectus since 14 July. There are always amendments in proposals of this kind but we're only asking you to approve section 1.

Greg Bateman The proxy forms require the person appointing the proxy to verify that the person is a member of association. It's the opposite case in Insurance but it is standard practice to identify the person so they do this by name and address.

Dawn Fraser My apologies. I see the boxes for my membership number.

Don Mackay I propose that we have further discussion on resolution 5. I propose that we discuss 5 at the same time as 4.

Mark Burrows I just like to clarify what Richard Talbot said. There is no reason given why we shouldn't de mutualise, only the way we have attempted the look at the process to date. What reasons have you against de mutualisation?

Jane Singleton De mutualisation is something many companies are trying to do. Your question is impossible to answer. There are streams of de mutualisation I have concerns with.

Dame Leonie Do you object to the members of this Kramer organisation being offered shares or cash?

Richard Talbot Personally I would like it to remain a mutual.

Dame Leonie This is not an answer to my question because if Kramer you are against it then the members should know your position.

Richard Talbot I'm against the way it was handled and the way its going to be listed on the ASX. This is going to come under the hands of large institutions and rivals.

Richard Talbot They should be told it is major concern.

Richard Talbot Whether it be sooner or later the control of the NRMA will go into the hands of large institutional investors.

Lynn Ralph Those institutional investors, aren't they managing the funds of individual? Superannuees and retirees?

Don Mackay It would be a dereliction of my duty [not?] to give the members the option to choose at this time to unlock the wealth or let it remain as it is.

Richard Talbot But who is it going to be unlocked for?

Ray Willing The cost base for tax is only for members not for others coming in after.

Richard Talbot There's now 2 classes of members - one with no voting rights.

Don Mackay It has to be decided by members. If they're against it then they will all revert back to being members as usual.

Michael Easson Do you oppose the de mutualisation completely?

Michael Easson There's still Jane's concerns over the prospectus. Have they been clarified?

Jane Singleton The information I have specifically sought has not been given. I think that the referral to the proxy form and the acceptance form on the front of the onsert forms can be misconstrued. I was told that there was advice but not written.

Helen Conway We wanted to give you the advice on the final format. I now table it.

Don Mackay Maybe you can tell us what concerns you have with the prospectus Jane.

Jane Singleton Page 3 of the edition I received the night before last line 8. Is it a member or does it mean shareholder? The reference to 'financial ownership formalises' is a bit too clever. There is an implication if they vote 'no' they don't get shares. This should be made clearer.

Don Mackay The acceptance form clearly tells them the position

Jane Singleton I'm dealing with the prospectus. This implication appears on page 6. It also refers on page 13 to the tax position depending on a favourable outcome from Federal government. There is no way we can assure them that the legislation will be passed. Page 14, I don't like the reference to NRMA culture it is a loose term I prefer to address the issue as to structure of services.

Prue Godwin But this is the way that the questions came to us.

Jane Singleton Culture can mean anything you want. It should be changed to service structure. If the members have to decide it should be as close to a referendum as possible. The prospectus is not down the middle.

Lynn Ralph This is not a referendum, we are not a government.

Don Mackay I'll recapitulate on what has been done to get the information to the public to date. There was a special dispensation from the ASC so the issues could be debated in public. GIO and Woolworths didn't do this. On 17 March there was a decision to consider the proposal. The issues were dealt with in the Media and The Open Road and concerns were raised by NRMA itself such as going to the ASX for take over protection and looking at the tax issues and the service culture. This was dealt with in 2 issues of The Open Road and also dealt with when a document was sent to the members in June (yellow explanatory pamphlet). The board was given a prospectus a month ago. There were no substantial changes only tidying up issues.

In this month's Open Road the no case has been specified in a very good manner. It is heavily weighted in raising issues of concern to members.

Don Mackay There will be a double page spread in the Sydney Morning Herald to include section 1 of the prospectus together with the Notice of Meeting. This will provide the public with even more information. To date there has been no case specified by you. There's only the no case given by Ms Tolz as raised on the Andrew Olle show. Do you want to proceed with your motion?

Jane Singleton It's up to Geoff. He has some amendments.

Geoff Lawson I have some amendments that I'd like to make to the motion I've put. I amend the motion to read 'To enable members to be clearly informed about the issues to be put before them re the "share the future project" that a direct mail be made to all members to outline the possible short, medium and long term drawbacks and newspaper notification be made of the same.'

Mark Burrows I want you to understand that there is a criminal sanction involved here in signing if the companies mislead the public about their prospectus. The 'yes' case has been a proper balanced statement of the companies' prospects.

The Due Diligence Committee was formed to look not only at the financial position but what is to be said to the members. All documents that have gone out have done so with the sanction of the ASC. In relation to the potential drawback in the future you simply can't predict too far into the future, its impossible.

Don Mackay Look at The Open Road. We have got 5 years dispensation to give us time to stabilise. We are also putting section 1 of the prospectus in the Sydney Morning Herald and there has been a supplement in The Open Road on the no case. The only no cases that I'm aware of, such as the potential for takeover, and a possible rise in premiums, well these issues have been dealt with, no new points have been raised which haven't been looked at in the above publication.

Richard Talbot And no other letters have been received?

Don Mackay No letter that hasn't already raised issues dealt with by The Open Road or by section 1 of the prospectus.

Mark Burrows Section 1 does deal with the concerns.

Richard Talbot I could sit down with you Mr Chairman and any other fellow directors and members of NRMA to help develop a no case for mailing out.

Don Mackay What other issues that haven't already been canvassed are there?

Richard Talbot Don't you think it's important enough?

Richard Talbot What is the cost of sending out the prospectus?

Richard Talbot Why not send a mail out? What is the hurry to get everything done so soon?

Dame Leonie So we don't listen to any more ludicrous Kramer arguments from you.

Ray Kirby This has to be done quickly. We are in a changing legal and commercial environment. We've got to go through a window of opportunity. If we don't do this now tax or ASC rules will change. People have been working 7 days a week to get through this time slot.

Ray Willing It's been in the media since 17 March. Its been a drawn out event. If we draw it out any further there'll be even more exposure concerning the accounts and due diligence. The organisation morale will go down, staff and members can't be strung out on this issue any more.

Don Mackay Section 1 contains an examination of all issues and will be mailed out to all members and published in the Sydney Morning Herald.

Michael Easson I don't accept logically that for every good argument there is an equally bad argument. The members of the board have been sent variations from the original proposal on 17 March. There are various classes of persons entitled. We've canvassed views of members and we've addressed questions such as tax. Some directors like to think that the proposition was already decided but it actually was up in the air more than the directors are suggesting. Everything was dependent on the proper response from regulatory authorities. I am personally convinced that what we're doing is the right thing. It was not a clear cut thing that the proposal would go through. I feel I would be morally compromised if I hadn't canvassed all issues to the members, but to give to the members a totally fallacious argument which could be the no case would be a breach of my duty. I feel that a genuine attempt has been made to answer all the points raised.

Gordon Douglass I think Jane should be given time to read through Abbott Tout's advice on the voting form.

Geoff Lawson Given that section 1 is going to go in the Sydney Morning Herald and the Open Road has been mailed out I withdraw the motion.

Michael Easson The other factual matter was that some advice on the front cover was to be obtained concerning the words 'How many shares you may be given.' Whether it is misleading I would be interested to hear the arguments.

Ray Willing The wording is different from when the issue was first raised.

Helen Conway There have been many iterations [sic]. The advice from external consultants was obtained when we finalised the wording. We got Abbott Tout's advice on the formulation and there is no legal problem. This has been approved by the ASC. (Greg Bateman's advice tabled)

Doug Pearce I'd just like to say a bit more on why the prospectus has to be done quickly. Financial information is drawn at a point in time, if we go past that point the forecasts become actuals and have to be redone. Logistically it is impossible to have a prospectus in a longer time frame. Its just not a matter of updating things. We have to start from scratch, and due diligence process needs to start again. This happened with MMI who went through the process 3 times.

Don Mackay Are there any other issues which anyone would like to raise? In that case I put to the Board the resolution that the Company will proceed with the Share proposal." [Underlining added] 1033 Mr Bateman gave evidence of what was said at the meeting, broadly along the same lines as the transcript, but he was going from recollection and I think the transcript is a more reliable source. According to Mr Bateman, when Ms Singleton asked about advice on the proxy form (the first underlining) she was given the AT letter of 15 August 1994. Ms Singleton read the letter, made no comment on it, and did not pass it on. Mr Bateman's evidence did not extend to the apparent second occasion on which AT advice concerning the onsert was tabled (the second underlining). 1034 From the transcript the following appears. 1035 First, there was debate over disadvantages and a "no" case, and in the end Mr Lawson withdrew his motion of 30 June 1994. The majority were of the view that Section 1 of the prospectus presented a balanced case, quite apart from the coverage of the proposal in The Open Road and otherwise in the media; indeed, Mr Lawson seemed to come to be of that view. Ms Fraser did not seem to have the familiarity with the proposal which might have been expected by 18 August 1994; Ms Singleton's concerns were stated, were in part little more than drafting, but included that the prospectus was "not down the middle"; Mr Talbot's concerns were in part as to the handling of the proposal; the only enunciated disadvantages were that the NRMA would fall into the hands of large institutional investors and possibly to do with taxation and the NRMA culture. There was hardly an illuminating critique from the opponents of the proposal of the balance of the prospectus. 1036 Secondly, there was reference by Mr Burrows to the due diligence committee, but no more explicit reference to its report or to the due diligence materials. Implicit in what was said, however, was that the members of the boards knew of the due diligence process, and of course some of them had been on the due diligence committee or at the meeting of Holdings' board. 1037 Thirdly, Mr Easson specifically adverted to Ms Singleton's query (the first underlining). He referred to her "concerns over the prospectus", but there was nothing to suggest concerns going beyond the original query, which Ms Singleton then repeated in part, and the concerns were in fact over the onsert. The response was by tabling "the advice in final format", and there is no doubt that the AT letter of 15 August 1994 was provided at least to Ms Singleton. Ms Singleton said that the information she had "specifically sought" had not been given. The transcript may not properly have captured what she said, as the proxy form and the acceptance form were not referred to on the front of the onsert. Possibly she had in mind that the letter did not in terms speak of misconstruction. More likely she had in mind what had been framed as question 2 in the original letter to Mr Heydon, the question to do with the combination of phrases on the first page of the onsert, because question 1 had been specifically answered but question 2 had not - as described above, the changes to the onsert meant that the specific question 2 question went away, and instead the AT letter now spoke of the general acceptability of the onsert. Possibly Ms Singleton could not clearly remember what her concerns were, and ran them together. Having received the AT letter, Ms Singleton did not press the point. 1038 Fourthly, a little later Mr Easson referred to "advice on the front cover" (the second underlining), whether the words "How many shares you may be given" were misleading. Mr Easson, I think, had in mind something different from Ms Singleton's query. I think he had in mind the separate but related query which he had raised, whether the conjunction of words on the first page of the onsert "might have been leading members to the conclusion that they were getting something no matter what, no matter how they voted". The words "How many shares you may be given" were not the words which had provoked the earlier queries, and there was nothing in the evidence to indicate a particular concern as to the new form of words on the first page of the onsert. I think it likely that Mr Easson referred to these words because they were the words on the latest version of the onsert and so in his mind, not realising that the wording had changed from the wording at the time of the earlier queries, and Mr Willing immediately pointed out that the wording had changed. Mr Easson's own concern was answered with the same AT letter of 15 August 1994, and it is to be noted that the answer lay not in what AT said about the original question 1 asked of Mr Heydon but in what AT said about the general acceptability of the onsert. That Mr Easson had his own concern explains the second provision of the letter. According to Mr Easson, he read the AT letter at the meeting and regarded it as satisfying his concern. 1039 In the light of the transcript, I accept that when the AT letter of 15 August 1994 was given to Ms Singleton she read it, made no comment on it, and did not pass it on. That is why it was again provided as the answer to Mr Easson's query. But I also accept that it was tabled at the later time. Mr Easson said that it was tabled. Ms Conway was certain that it was tabled. Mr Blackett said that it was tabled, and identified it in the board papers. Mrs Storrs gave evidence of the letter in the board papers for the meeting, with Mr Blackett's notation that it was tabled at the meeting, and of a copy of the same letter in the board papers with her notation that it was tabled at the meeting. 1040 That does not mean that everyone at the meeting read the AT letter of 15 August 1994 at the time. They were told by Ms Conway of its effect, and what she said would have conveyed at least that the wording on the front page of the onsert was legally acceptable. To those who knew of the free shares problem and the changes to the onsert it had provoked, it would also have conveyed that the wording of the onsert generally was legally acceptable, as the letter in fact said. 1041 To return then to the sign-off letters, given that the members of the boards knew of the due diligence process it would not be surprising if there was some discussion of the report of the due diligence committee or of the sign-off letters in the course of the meeting. Had that been so, however, I would have expected more explicit evidence of the discussion. The transcript did not include such a discussion. Two of the directors, Mr Burrows and Mr Lawson, did give evidence of reference to the sign-off letters, but I do not consider their evidence reliable. 1042 Mr Burrows said that it was reported to the boards that AAH and AT had each given sign-off letters to the due diligence committee, and that no one said there was any outstanding concern of a legal nature. He also said that it was reported to the meeting that a document had been received "that was unconditional in terms of its legality and sign-off for going forward on the project", but he could not say who reported that matter. Mr Burrows' recollection was not good, and he exhibited in his evidence a tendency to exclude any responsibilities on his own part and increase the responsibilities of the NRMA's advisers. I consider that the less explicit reference to the due diligence process found in the transcript has been magnified in his mind. 1043 Mr Lawson gave evidence to the effect that it was clear at the meeting that the legal advice was that the prospectus was adequate, with some reference to sign-offs. On one view this amounted to evidence that the sign-off letters were specifically referred to. Mr Lawson was not a satisfactory witness, and in my estimation was concerned to justify the withdrawal of his motion on grounds which included that he relied on legal advice that there was no problem with the prospectus. That is not consistent with what appears from the transcript. I do not accept that Mr Lawson was moved in that manner, and so far as Mr Lawson's evidence was of seeing the sign-off letters at the meeting or being told specifically of the sign-off letters (and in the end the extent to which he did say this was not clear) I do not accept it. 1044 In my view, therefore, not only were neither the report of the due diligence committee nor the sign-off letters placed before the joint meeting of the boards of Association and Insurance, but there was no reference to those documents beyond a general reference to the due diligence committee; but there was the specific reference to the AT letter of 15 August 1994 revealed in the transcript. Of course, a number of the directors would have had knowledge of the report of the due diligence committee and the sign-off letters from their presence at the earlier meetings of the due diligence committee, and all would no doubt have been aware that there had been a due diligence process. Events to the decision of Gummow J 1045 The NRMA began to post out the package containing the prospectus and the onsert at about the beginning of September 1994. It also published the text of the prospectus in newspapers and promoted the proposal through the media. The promotion of the proposal through the media included newspaper advertisements published on 4 and 11 September 1994. Two reactions should be noted; they may possibly be relevant to these proceedings. 1046 The first reaction is that of the TPC. Letters dated 14 September 1994 from the Australian Government Solicitor to each of Holdings, Association and Insurance conveyed the TPC's view that the advertisements contravened ss 52 and 53(g) of the TP Act. 1047 The principal concern was that the advertisements suggested that members had to vote in favour of the proposal to get any benefit, whether shares or cash: it was said - "The advertisements appear to be designed in our opinion to induce members of the NRMA to form the belief that if they do not individually vote in favour of the restructuring proposal they will obtain no benefits at all from the restructuring if it is approved." Ms Singleton's query was given some force, although in relation to the advertisements rather than the onsert. 1048 Of more present relevance, the letters also expressed a subsidiary concern that the advertisements contravened the TP Act- "… by describing the shares as 'Free Shares'. The shares which members will receive if they do vote in favour of the proposed changes in sufficient numbers will not be free in the sense that they will not have to be paid for by them in money or money's worth. If members choose to accept the shares, they must forego payment to themselves of the cash alternative. For this reason, the shares cannot truly be described as 'free'." This, of course, also addressed the advertisements rather than the prospectus, but it presented a new perception of a free shares problem - not that the shares were not free because they were in exchange for membership, but that the shares were not free because they were an alternative to the cash. The corrective advertising and other action sought by the TPC was directed to the principal concern, and would have left the subsidiary concern untouched save so far as there was to be included, "You can choose free shares or the cash alternative". 1049 Mr Morgan replied to the Australian Government Solicitor on behalf of the NRMA by a letter dated 14 September 1994. As to the principal concern, he took issue at some length with the TPC's view. As to free shares, he said quite shortly, "It is our view that the shares are free as they will not have to be paid for. In no sense can it be said that the net proceeds of the sale of shares are given up in consideration of the free shares. You misunderstand the nature of the cash alternative as outlined above." It was nonetheless said that further advertisements would be placed to address the TPC's concerns. 1050 Ms Conway also wrote to the Australian Government Solicitor on 15 September 1994, expressing strong disagreement with the TPC's view and saying that the NRMA had legal advice which supported its view, namely the letter from Mr Morgan of 14 September. Over the next few days there was agreement on further advertising to meet the TPC's principal concern, none of which detracted from describing the shares as free shares. 1051 The second reaction is that of Mr Aleco Vrisakis. Mr Vrisakis, a solicitor, wrote to Ms Conway on 15 September 1994, stating that he did so as a concerned member of the NRMA. His concerns included that the advertisements had not fully and fairly told members what their choices were but rather had been designed to convey the message that it was necessary to vote in favour of the proposal in order to get free shares, and that there had not been sufficient disclosure in the prospectus by way of identification and explanation of the disadvantages said to have been considered by the NRMA boards and the reasons for their conclusion that the advantages outweighed the disadvantages. Mr Vrisakis' concerns did not include that the description of the shares as free shares was misleading. 1052 Ms Conway replied to Mr Vrisakis on 19 September 1994. Her reply was drafted by Mr Bateman. As to the advertisements, she said that the NRMA did not accept "the thrust of your comments", but referred to the corrective advertising. As to the prospectus, she said - "As you can appreciate, a proposal like this is considered over some time. One disadvantage of it was thought to be the matter of takeovers. For that reason the NRMA sought additional protection (beyond the second and third forms identified on page 15 of the prospectus) in the form of the 5% share entitlement limit. This lasts until 1 January 2000. This, as you know, is covered on pages 15, 86 and 87 of the prospectus.

Another disadvantage of it was thought to be the impact on the tax position of members. Again, the NRMA sought to address that matter. Pages 13 and 14 note that a favourable outcome for members was negotiated with the Australian Treasurer.

A relatively small number of pensioners (already close to the cut off points) would face unintended consequences. This is noted on page 16 of the prospectus.

The major additional cost of being a listed company, being the cost of maintaining a share register, is noted on page 10 of the prospectus.

Beyond those matters referred to above, the NRMA Boards did not consider there were any other material disadvantages of the proposal." After dealing with certain other matters raised by Mr Vrisakis, Ms Conway said that the NRMA was satisfied that members were fully and fairly informed. 1053 Mr Vrisakis responded on 20 September 1994. I do not think it necessary to indicate what he said about the advertisements. As to the prospectus, he said only - "I note your statement that beyond the matters referred to in your letter the NRMA Boards did not consider there were any other material disadvantages of the proposal. However, that is not what the prospectus tells members. The prospectus does not acknowledge that those matters were considered by the NRMA Boards to be disadvantages, rather, they are dealt with as 'Members' Questions'." 1054 The reply of 21 September 1994 from Ms Conway, also drafted by Mr Bateman, said in relation to the prospectus - "As to your comments concerning the disadvantages of the proposal that were considered, we fail to see how any fair reader could fail to understand, first, that each of the matters we have referred to had not [sic] been considered and, second, that through the efforts of the NRMA, they had been largely overcome. In the circumstances, we find no substance in what you are putting to us.

Indeed, your comments seem to fall foul of the 'nitpicking' of which Mr Justice Young warned in Devereaux Holdings Pty Limited v Pelsart Resources NL (No 2) (1985), one of the key court cases in this area."

1055 The exchange ended with a letter from Mr Vrisakis to Ms Conway dated 22 September 1994, so far as presently material stating that "your reference to 'nitpicking' is consistent with the approach taken by the Board as to making disclosure to members, including, as I understand it, a refusal on the part of the Board to present a 'no case' to members," 1056 The relevance of these reactions to the proceedings explaining the parties' attention to them, seemed to be as follows. 1057 First, the submissions for the defendants, or some of them, included that the absence of complaint from regulatory authorities and others that the description of the shares as free shares was misleading was at least some indication that the decisions of Gummow J and the Full Court in the Federal Court proceedings were unexpected coups for the applicants, and that the decisions did not truly suggest neglectful exposure of the NRMA to the free shares question. The submissions concentrated more on the ASC, and on relief from any liability which might be found, but absence of complaint on the free shares question as found against the NRMA in the Federal Court proceedings from the TPC as a regulatory authority, and from Mr Vrisakis as a concerned and knowledgeable member was part of them. 1058 Secondly, the correspondence with Mr Vrisakis brought the firm statement from the NRMA that the boards did not consider there were material disadvantages other than those with which the prospectus dealt, and was satisfied that members were fully and fairly informed. 1059 Thirdly, the submissions of the defendants, or some of them, also included that the NRMA's prompt rejection of this extra-curial discontent with the proposal provided some support for the position mentioned much earlier in these reasons, that the majority of the board was so intent on implementing the proposal that Gambotto advice would not have brought its suspension until the decision of the High Court was known. 1060 Fourthly, there was a dispute over quantum involving the cost of the newspaper advertisements and the corrective advertising. I will explain it later in these reasons. 1061 I consider regard to the reactions and the dealings with the TPC and Mr Vrisakis to be of marginal assistance at best in deciding these proceedings; while noting them, I go to the events directly leading to the Federal Court proceedings. 1062 In the same period of early September 1994 Mr Talbot and Miss Fraser were taking their own action. On their behalf a brief to advise was delivered to Mr John Garnsey QC and Mr Brian Camilleri, who provided an opinion dated 19 September 1994. 1063 Paragraphs 8 and 9 of the opinion read - "8. We are asked to advise whether, in the light of the contents of the Prospectus and in the light of certain matters as to which we have been instructed in connection with the Prospectus, the Prospectus and the notices of general meetings which it contains properly comply with the law relating to the issue and contents of such documents. Conclusion

9. In our opinion the Prospectus and the notices of general meeting do not properly comply with the law relating to the issue and contents of such documents. The Prospectus and notices should contain or be accompanied by information (a) adequate to enable members of the Association and of NRMA Insurance respectively to decide whether they should attend the meetings or complete proxy forms and vote on the proposed reconstruction, and

(b) adequate to inform members fully and fairly and to instruct the members of the Association and of NRMA Insurance as to their respective rights, both in relation to retaining the existing structure of the NRMA Group and as to the different interests of members of the Association who are not policy holders of NRMA Insurance and of Association members who are also policy holders and members of NRMA Insurance. In our opinion, the Prospectus does not contain and, on our instructions, is not accompanied by such information." 1064 The reasons for the conclusion at which Mr Garnsey and Mr Camilleri arrived were expressed in paras 13 to 19 of the opinion. It is instructive to compare them with the reasons in due course given by Gummow J and the Full Court. "13. A perusal of the Prospectus reveals the following:

13.1 Members of the Association and NRMA Insurance are informed without discrimination that they will receive, as the primary benefit of the proposal, 'Free Shares' (eg pages 6, 7 9 and 28). Each member of the Association is entitled to a minimum of 250 shares (with additional loading for length of membership) and each member who is a policy holder of NRMA Insurance (no matter how many policies of insurance that member holds, or for what period he has held them) is entitled to a further 250 shares. The members who are entitled to the shares are those persons who were members of the Association and of NRMA Insurance prior to and as at 16 March 1994. We are instructed that since that date, approximately a further 80,000 persons have become members, who, for reasons not immediately apparent, are not to have voting rights at the proposed general meetings. New articles of association for the Association and for NRMA Insurance are to be adopted, 'the central element of which means' that members of the Association and NRMA Insurance agreed to give up their membership on condition that free shares are offered by NRMA Holdings (page 12).

13.2 In the financial information in the Prospectus there is a consolidated balance sheet as at 31 March 1994 for the NRMA Group (page 65) with consolidated profit and loss accounts (page 64). At note 8 under 'Investments' the investments of the Insurance Group, current and non current, amount to more than $3.8 billion and the investments of the Association Group amount to $312.1 million dollars (page 74).

13.3 The explanation for the proposed share allocation in the prospectus is in the following terms: 'For a NRMA Insurance policy holder to be eligible to have become a member of NRMA Insurance, the policy holder must have been a member of the Association. Members of the Association are, therefore, being offered an automatic entitlement to Free Shares, with an additional allocation if that membership was linked to an NRMA Policy other than Life or Travel. For these reasons the board consider that members of NRMA Insurance have interests similar to those of members of the Association.' 13.4 Members of the Association and of NRMA Insurance are told that if they do not accept the 'Free Shares' by completing the Free Shares Form they will automatically receive the cash alternative, which is the amount realised on sale of the shares of NRMA Holdings once the transaction price is established (pages 8, 10, 14, 22 23 and 28).

13.5 Additional subscriptions attached to one membership of the Association, and multiple policies of insurance do not entitle the members and holders concerned to more than one allocation of 'Free Shares'. It is said that this decision was made because 85 per cent of all members have only one subscription (one car covered by their membership of the Association) and 'it was thought fair to reward loyalty by taking account of the length of membership. This also recognises that long-standing members tend to have more business with the NRMA' (page 9). It was evidently considered unfair to deal with members who were also policy holders of and members of NRMA Insurance on the basis of the far greater proportion of assets of the NRMA Group held by that company or its subsidiaries, or the number and duration of policies held by the one member. No explanation is given as to why members of NRMA Insurance who have more than one policy, and why the additional value of the premiums contributed by them, and the size of premiums, should not give a greater entitlement to the 'Free Shares'.

14 The information provided in the Prospectus, while it deals at length with the new structure proposed after the reconstruction (eg page 7), does not deal at all with the following matters: 14.1 The present 'mutual nature' of the Association and of NRMA Insurance, as companies limited by guarantee, and the rights of members of the Association and of NRMA Insurance as separate members of each of those companies with separate voting rights.

14.2 The benefits of the present status of the Association and of NRMA Insurance to the existing operations and profitability of the Association and of NRMA Insurance.

14.3 The effect, after restructuring, of a liability or obligation to pay appropriate dividends from profits to shareholders upon the maintenance of existing services, the provision of future services and benefits and business operations and expansion generally. The statements in relation to the financial effect of the change in status which is proposed in the Prospectus is extremely general (pages 14-15).

14.4 The ability of the member policy owners of NRMA Insurance to resolve separately that the company be converted from a company limited by guarantee to a company limited by share capital, and to exploit that change in status themselves by reference to the assets of NRMA Insurance and that company's subsidiaries (the Insurance Group). The consolidated balance sheet (pages 57, 65) does not disclose the separate net worth of 'Members' Equity' of the Association and of NRMA Insurance respectively. The note concerning investments (note 8 page 74) would suggest, as we have said, that the difference would be substantial (NRMA Insurance and its subsidiaries have investments which are worth approximately ten times as those of the Association and its subsidiaries).

14.[sic]The matters to which we have referred above are, in our opinion, information which must be known to the directors of the Association and of NRMA Insurance respectively. They are matters which would enable the members of the Association and members of NRMA Insurance to make a properly informed judgment on the restructuring which is proposed in the Notices of Meeting and in the Prospectus. They are matters which, in our opinion, are vitally important for members to be fully and fairly informed. So far as the Prospectus suggests that the interests of members of the Association and of NRMA Insurance respectively are the same, it is in our opinion, on the facts known to us (which are basically the facts appearing in the Prospectus) positively misleading. 15. There are other criticisms which may be made of the particular statements in the Prospectus. We shall not deal with all of them. However to the extent that the extent that the Prospectus suggests that the shares to be issued by NRMA Holdings Ltd are 'Free Shares', the Prospectus is also, in our opinion misleading especially when one considers the widely held membership of the Association and of NRMA Insurance and the probable lack of commercial sophistication of the vast majority of members and of policy holders. The Prospectus appears to recognise this by its relentless presentation of friendly NRMA employees, which would appear to have little to do with the substance of its contents.

16. In our opinion, the shares which are proposed to be issued cannot in any sense cannot be termed 'Free'. Members of the Association and of NRMA Insurance are giving up membership of those companies in return for an agreed issue of shares in NRMA Holdings Limited, which is to take over the Association and NRMA Insurance and all the assets of those companies. In the case of NRMA Insurance, it appears very probable that the issue of the shares is not only at the expense of membership but at what could be considerable cost to themselves. Members of NRMA Insurance (who are members of the Association and NRMA Insurance policy holders) receive twice as many shares as members of the Association who are not policy holders in NRMA Insurance. However NRMA Insurance appears to have investments worth approximately 10 times as much as those of the Association. Yet these investments are to be pooled for the benefits of all members even those who are not policy holders of NRMA Insurance and are presently not entitled to any voting rights in NRMA Insurance.

17. It is stated that the allocation of shares is 'in a way the Boards believe to be fair' (page 8). The reasons for this belief are not, in our opinion, explained, in any adequate fashion to enable members to judge their respective rights as members of the Association and as members and policy holders in NRMA Insurance (pages 9 and 12). Nor, in our opinion, is there any information provided to enable members of the Association and of NRMA Insurance to judge whether the benefits from listing NRMA Holdings Ltd as a vehicle for dealing in shares reflecting the worth of the Association and of NRMA Insurance will result in an improved or adverse effect upon their present rights as members of the Association and as members of any policy holders of NRMA Insurance respectively.

18. It may also be noted that the Prospectus appears to give an unqualified assurance that the Association and NRMA Insurance will not substantially change as to the services provided and as to the costs of those services (page 14-15). It is difficult to see how the unqualified statement appearing under the heading 'Will the NRMA Change its Culture?' and "With Shareholders, Will NRMA pursue profit at the expense of Service?' (page 14-15) can be made in the terms in which they have been expressed. There is no reference to the obligation of the directors of corporations limited by share capital in relation to the declaration of appropriate dividends out of profits available for that purpose, nor to the ability and perhaps the obligations of future Boards of the Association and of NRMA Insurance to change, improve, and to make more efficient and profitable, their respective methods of operation. At best the statements under those headings are expectations or aspirations. They are expressed however, in our opinion as unequivocal assertions of a continuing and unchanging state of affairs. That is, in our opinion, misleading.

19. Accordingly, as we have said, in our opinion, the notices of meeting in the Prospectus do not provide proper or sufficient information for the members of the Association and of NRMA Insurance to judge whether or not the resolutions and restructuring prosed [sic] should be passed. Proceedings may be commenced by persons with an appropriate interest in the Federal Court of Australia in substance to require the Association and its Board not to proceed with the proposed restructure and general meetings until members of both companies have been fully and fairly informed of their rights. The form of those proceedings requires further consideration." 1065 Many of these matters can be seen in the reasons of Gummow J, but many can not. Less of these matters can be seen in the reasons of the Full Court. That the prospectus was misleading in describing the shares to be issued by Holdings as free shares was seen as a particular matter for criticism, because members were giving up membership in return for an agreed issue of shares in Holdings and also because in the case of Insurance the shares did not reflect Insurance's dominant worth. The opinion noted, however, disclosure that membership was given up in return for the shares (para 13.1). The second ground is not found in the judgments, no doubt because it rested upon membership of Insurance carrying with it an entitlement to that worth, which it did not. The opinion demonstrates the scope for contention that a document such as the prospectus does not provide adequate information or is misleading, whether or not at the level of nitpicking. 1066 The instruction given by the comparison between the reasons for the conclusion at which Mr Garnsey and Mr Camilleri arrived and the reasons in due course given by Gummow J and the Full Court includes that lawyers can and do properly differ in their views, and that being held to be wrong does not necessarily connote negligence. 1067 The Federal Court proceedings were commenced on 22September 1994. In the application filed on that date the basis for the relief sought was reflected in the claim for a declaration - "…THAT, upon the true construction of the Prospectus of NRMA Holdings Ltd issued 23 August 1994 and the Notices of General Meeting of NRMA Ltd and NRMA Insurance Ltd and Forms of Proxy contained therein;

(a) members of NRMA Ltd and NRMA Insurance Ltd are not fully, fairly and adequately informed of the proposals the subject of the resolutions to be put before them or of the offers made in the Prospectus;

(b) the Prospectus and the information in it are misleading and deceptive in certain particulars, inter alia: (i) insofar as it is suggested that the shares in NRMA Holdings Ltd to be offered are 'Free Shares';

(ii) insofar as it is suggested that members of the Association and members of NRMA Insurance have similar interests;

(iii) insofar as the Prospectus fails to inform members of NRMA Ltd or NRMA Insurance Ltd either or at all or adequately of the matters set out in paragraphs 18(c) to (g) and 19(a) to (d), of the affidavit of Richard Talbot, sworn in support of this Application.

(c) the directors of NRMA Ltd, NRMA Insurance Ltd, and NRMA Holdings are in breach of duty in failing to fully, fairly, and adequately inform members of the matters referred to in paragraphs (a) and (b) above." 1068 The matters set out in the paragraphs of Mr Talbot's affidavit were - "18. I also believe that, and as a director of the Association, I am concerned that:

… (c) members asked to vote may in fact lose more present low cost (non-taxable) services which are worth more to members that taxable dividends;

(d) the cost of flotation to be borne by members has not be [sic] fully outlined;

(e) investment uncertainties arising out of the flotation and affecting the value of shares have not been fully and frankly stated;

(f) members are not being given adequate data about share price and tax treatment to make informed decision.

(g) the Prospectus makes no statement that the share float will swamp the insurance sector of the Stock Exchange leading possibly to a depressed return for members.

19. I also believe that, and as a director of the Association, I am concerned that the Prospectus fails to adequately or (in some cases at all) make reference to: (a) the loss of NRMA Mutuality Exemption (b) the loss of NRMA Capital Gains Tax Exempt Assets (c) the Loss of NRMA Franking Account Balances (d) Capital Gains Tax of 'Free' Shares" 1069 The affidavit was lengthy and, apart from the particular matters in paras 18(c) to (g) and 19(a) to (d), asserted failure to outline "the negative consequences and detriment (the NO CASE) flowing to existing members" and complexity and difficulty of understanding. 1070 Association and Insurance briefed Mr Peter Hely QC for the hearing of the Federal Court proceedings before Gummow J commencing on 5 October 1994. Holdings briefed Mr Emmett. The applicants were represented by Mr Garnsey, and the ASC by Mr Steven Rares SC. 1071 By the commencement of the hearing a statement of claim had been filed. The statement of claim was amended on 6 October 1994. It was limited to the issues directed to be separately decided, and the applicants' case as found in the amended statement of claim was different in many respects from that in the application. 1072 The case was one of misleading conduct for reasons particularised in paras 7 and 8 - "7.1 The Prospectus contains documents for the proceedings of three different corporations with different actual or prospective members and does not clearly or adequately differentiate between the documents nor attribute responsibility for them. The Prospectus attempts to suggest that there is and will be no substantial difference between membership of Holdings, the Association and of Insurance.

7.2 The rights and interests of the Association and of Insurance and of the members of the Association and of Insurance respectively were and are substantially different and in conflict in relation to the Restructure and the Share Issue.

7.5 The Prospectus does not comply with the requirements of section 1022 of the Corporations Law. The applicants rely on sub-sections 1022(1)(a) and (b), (2), and 3(a) and (b), the Prospectus' contents, and the composition, nature and size of the widely held membership of the Association and Insurance.

7.6 The Prospectus conveyed the misrepresentations more particularly alleged in paragraph 8 below.

7.7 The Prospectus omitted to inform members of Insurance of their rights as members to determine the structure and to control the disposition of the assets and undertaking of Insurance as a separate corporate entity and separately from the Association.

7.8 The Prospectus omitted to convey information of any substance, or any information, as the case may be, to members of the Association and to members of Insurance, relating to the detriment or possible detriment to them of the Restructure and the Share Issue arising out of (a) the change in status of the Association and of Insurance and its effect on the provision and cost of the services provided by those corporation [sic] and the NRMA Group;

(b) liability to capital gains tax and income tax in connection with the Share Issue;

(c) diminished or withdrawn social security benefits as a result of the Share Issue or related cash offer. 7.9 The Proxy Forms accompanying the Notices of Meeting in the Prospectus unless read and completed with extreme care and an unreasonably high degree of skill favoured the Chairman and the Directors supporting the Restructure and Share Issue.

7.10 A relevant summary of the new Memoranda and Articles of Association of the Association and of Insurance to be adopted in the proposed resolution did not accompany the Notices of Meeting and no adequate information of their content was provided.

8.1 That the Share Issue for members of Insurance adequately reflected the value of the assets and undertaking of Insurance and/or the rights of members of Insurance and the value of that membership.

8.2 That members of Insurance should vote for the Restructure and accept the Share Issue or associated cash offer as in their interests and/or as adequately reflecting the value of the assets and undertaking of Insurance and/or the rights of members of Insurance and the value of that membership.

8.4 That as a result of the Association's control of Insurance by appointing the Board of Insurance and the requirement that policyholder members of Insurance be members of the Association, the interests of members of Insurance and of members of the Association in relation to the Restructure were the same as or similar.

8.5 That the Boards of Association and of Insurance considered that, because of the Association's control of Insurance by appointing the Board of Insurance and the requirement that policyholder members of Insurance be members of the Association, the interests of members of Insurance and of members of the Association in relation to the Restructure and the Association were the same or similar.

8.6 That the members of Insurance did not have any rights as members which would enable them to pass resolutions dealing separately with the status of Insurance, their shares in Insurance, the listing of Insurance on the Stock Exchanges, and/or the assets and undertaking of Insurance.

8.7 That the shares proposed to be issued to members of the Association and to members of Insurance were free of any surrender of rights of any value, benefit or worth by members in the Restructure.

8.8 That the shares proposed to be issued to members of the Association and to members of Insurance were free of any detriment to members arising out of the Restructure.

8.9 that the Restructure and Share Issue would only benefit members of the Association and members of Insurance by conferring on them shares at no cost or detriment to members.

8.10 That the wealth of the NRMA Group could only be unlocked and of benefit to members by the Restructure and Share Issue.

8.11 That Holdings will conduct its business and undertaking so as not to affect in any substantial way the extent of the services or the cost of services presently provided to members of the Association and of Insurance by the NRMA Group.

8.12 That there is no appreciable risk that Holdings will conduct its business and undertaking so as to affect in any substantial way the extent of the services or the cost of services presently provided to members of the Association and of Insurance by the NRMA Group.

8.13 That the extent of the services and the cost of services presently provided to members of the Association and of Insurance by the NRMA Group will not be affected by the Restructure.

8.14 That Holdings will not be able to be controlled by one person or corporation or by persons or corporations in the same interest.

8.15 That only one Director of Insurance is against the Restructure and Share Issue.

8.16 That the Prospectus complies with the requirements of the Corporations Law." 1073 The case as particularised was still much wider than that eventually upheld. Similar comment may be made, and instruction gained, as in relation to the opinion of Mr Garnsey and mr Camilleri. 1074 Numerous affidavits had been filed, but most of those filed on behalf of the applicants were not read or rejected; only a relatively formal affidavit of Mr Talbot was read, putting before the court the memoranda and articles of Association, Insurance and Holdings, the prospectus, and the onsert. Most of a lengthy affidavit of Mr Willing was read, and he was cross-examined. There remained to be heard other issues in the Federal Court proceedings, in summary whether the directors of Association, Insurance, and Holdings had breached their duties in failing properly to inform members, whether Mr Talbot had wrongly been denied access to corporate information, and whether certain amendments to the memorandum and articles of Association passed at its annual general meeting in 1993 were invalid. 1075 In the present proceedings AAH submitted that the evidence before the Federal Court going to the misleading nature of the prospectus and the onsert was much less than the evidence before me, part of a wider submission "that the facts established by the evidence in this case are relevantly different to [sic] the facts capable of being established by the evidence before the Federal Court, thus the findings by the Federal Court of contravention of s 52 is [sic] neither relevant nor a reliable guide to whether [AAH] breached any duty". I am only too well aware of the amount of evidence before me. As I understand it, AAH had in mind the evidence before me going to whether there were in truth material undisclosed disadvantages in the proposal. Appeal from Gummow J? 1076 The boards of Association and Insurance met jointly on the afternoon of 13 October 1994. In accordance with the decision of Gummow J, it was resolved to adjourn the general meetings fixed for 19 October 1994. Mr Mackay moved and Mr Kirby seconded motions that the boards still believed it was in the best interest of members for the NRMA to become publicly listed, which motions were carried. Ms Singleton requested that her dissent be noted. There was one other dissent from the Association motion, but the minutes did not identify the dissentient. Mr Talbot and Miss Fraser were not present, Mr Lawson was, and he was probably the other dissentient. 1077 The NRMA considered whether to appeal from the decision of Gummow J. A notice of motion seeking leave to appeal was filed on 18 October 1994, before the question of an appeal formally came before the boards. This was done ultimately on the instructions of Mr Mackay, it seems after Mr Mackay had spoken informally to some directors and in order that no time would be lost if it were decided to seek leave to appeal. 1078 Two counsel advised on the prospects of an appeal, Mr David Jackson QC and Mr Heydon. There was some contention in the proceedings over their briefings and the disclosure of their opinions. Before going to the briefings and the disclosure of the opinions, I will go to the opinions themselves, and to the NRMA decision. 1079 The opinion of Mr Jackson was dated 19 October 1994. Mr Jackson identified the question on which he was asked to advise as the prospects of success of an appeal from the decision of Gummow J. He identified as the matters underlying his Honour's finding of misleading conduct three topics in the prospectus, namely (a) the treatment of the relationship between Association and Insurance; (b) the description and use of the description "Free Shares"; and (c) the emphasis upon there being "business as usual". 1080 As to (a), Mr Jackson said that different minds could arrive at different views, but that in his opinion the result arrived at by Gummow J was the better view of the matter because he considered that the prospectus glossed over what was ultimately a critical matter, namely, that there were two separate corporate entities, one having the lion's share of the money but having also a smaller membership than the other, and that the positions of the two entities had to be dealt with separately. As to (b), Mr Jackson did not think that Gummow J treated it as a separate issue, saying "To my mind it is simply an aspect of the prospectus's treatment of the two companies". As to (c), Mr Jackson thought that if Gummow J was treating it in isolation he was in error, but if he was treating it as an aspect of the failure to deal satisfactorily with the separate position of members of Association and Insurance he was correct in so doing. He concluded his advice - "In the result my view is that the conclusion arrived at by Gummow J was correct. An element of impression is involved, of course, and there is a possibility of success of an appeal against that decision. I regard the probability, however, as being that an appeal would fail." 1081 As matters fell out, Mr Jackson was correct in the result but not in how it was reached. The view he took of Gummow J's reasons was rather different from that taken by the Full Court. Something like topic (a) was recognised in the Full Court, but it was held that Gummow J was in error. Topic (b) was treated as more than an aspect of the prospectus' treatment of the two companies. Topic (c), business as usual, was not seen as part of the separate position of members of Association and Insurance, although it may have been part of what I have called the disadvantages question. There is another reminder of how legal minds can reasonably differ. 1082 The opinion of Mr Heydon was dated 20 October 1994. Mr Heydon said that he had been asked to advise whether there were prospects of successfully appealing against the decision of Gummow J. He said that that depended on whether there were to be found errors of law, or errors in the application of the law to the prospectus and onsert as described by Gummow J, within his Honour's reasons. 1083 Mr Heydon did not think there was any error in the statements of, or assumptions about, the applicable law. As to application of the law to the facts, he also saw his Honour's conclusions as falling under three heads, although overlapping, the first being issues concerning the relationship between Association and Insurance, the second being issues to do with the expression "Free Shares", and the third being issues connected with the contention that in future members would enjoy "business as usual" without any change in the NRMA's "culture". 1084 As to the first group of issues, for reasons which he gave Mr Heydon thought that Gummow J was unlikely to be overturned, and in particular seemed to endorse the view that the members of Association and Insurance "were entitled to a fuller account of the problems of the proposal so far as the relative position of the two company were concerned, and of its pros and cons". 1085 What Mr Heydon said as to the second group of issues should be set out in more detail, so that it can be understood together with his opinions of 2 and 3 August 1994. He said - "Gummow J's [ reasons] were:

(a) If 'Free Shares' meant that the shares do not carry the need to make any payment, the expression would be correct, but that is not what is meant by the phrase (page 55), because of the extremely large number of instances where 'Free Shares' is not used in apposition to the shares obtained under the 'Sale Offer'.

(b) Instead what the phrase 'Free Shares' means is 'shares given without consideration'. Though some passages make it plain that they were not given without consideration, since something is given up for them (ie membership of the two companies), he considered that the 'effect of the persistent reiteration of the phrase 'Free Shares' is to engender in the reader the notion that the shares may be acquired without any significant loss or outgoing to the offeree who accepts them.' (page 56). In that sense the expression is misleading. (Indeed, although Gummow J does not make this point, it would be fatal to the proposal if the shares in Holdings were issued without consideration (or, as a submission recorded on page 56 says, with 'no significant consideration'), for they would then be issued at a discount in breach of the general principles of company law: Ford's Principles of Corporation Law , 6th edition, paragraph 8211). What the members were losing was: (i) in the case of members of Insurance, their membership and their powers at a general meeting (page 56);

(ii) in the case of members of the Association, their membership, particularly the power to 200 members to requisition meetings, and the power of members to elect directors (a considerable power where 'one member one vote' applies, as distinct from the power of large institutional shareholders using proxies in Holdings after the proposal goes through - in contrast to the status quo, which permits dissident directors to be elected with relative ease) (see pages 56-57);

(iii) 'cheap road service' and 'at least for the present, insurance rebates' (see page 57 read with page 21). (c) In short, the shares were not free, though the decision to consent to the proposal and either obtain them or their cash equivalent depended on the need to weigh competing advantages and disadvantages (page 57); in that regard there was failure to disclose that retention of the status quo would produce the advantages, failure to reveal how the proposal would render accessible hitherto inaccessible wealth, and failure to reveal how this would affect members of the Association considered separately from members of Insurance (page 58). Plainly to some extent this repeats some of Gummow J's reasoning in relation to the first head.

One key element of Gummow J's reasoning as to the construction of 'Free Shares turns on his view that misleading impressions given by the phrases in particular parts of the documents are not cured by recourse to a context, or to an explanation, to be found in other parts. To some extent this was because of the large number of occasions on which the phrase was used compared to the small number of references to the Sale Shares or the giving up of membership. Another basis on which his conclusions can be justified is that, given the very large class addressed and the wide range of skills, interest and diligence of its members, it cannot be assumed that a reader who sees 'Free Shares' in one place will pick up the appropriate clarificatory context or fuller explanation in other places (at least in the absence of quite explicit cross-referencing, which is not present in the prospectus). Whatever the minimum standard to be expected of the class, it is only a paragon who is likely to be in a position to read the entire set of documents steadily and with comprehension. The duty to avoid misleading the reader is a duty to ensure that specific passages do not mislead, not merely a duty to ensure that taken as a whole the prospectus is not misleading." 1086 As to the third group of issues, Mr Heydon express the view that Gummow J's conclusion would not be disturbed, saying that it was a material matter in considering what would happen when a business structure was changed to know what the intentions of the future controllers of the business were and that "The passages quoted on pages 58-63 say something on that subject, but not in any clear detail". 1087 Mr Heydon concluded by expressing the opinion that "any appeal against the orders made by Gummow J will fail". 1088 Mr Heydon's pessimism as to the first group of issues was really not borne out in the reasons of the Full Court. Nor was his analysis of the reasons of Gummow J fully borne out, although in part the link with the disadvantages question was recognised. In passing, Mr Heydon still had in mind that shares issued without consideration would be issued at a discount and, in language used in his earlier opinions, that that would be fatal to the proposal, but he plainly enough saw whether describing the shares as free shares was misleading as a separate legal issue. Implicit in Mr Heydon's opinion was that the parts of the prospectus conveying that membership was being given up and the shares were being issued in return for membership were properly held by Gummow J to be inadequate to overcome the impression created by the extensive use of "Free Shares". 1089 The boards of Association and Insurance met late on 21 October 1994. Present as the board of Association were Mr Mackay, Ms Ralph, Ms Booth, Mr Burrows, Mr Douglass, Mr Farr-Jones, Mr Jack, Ms Singleton, Mr Talbot, and Dr Werner. Present as the board of Insurance were Mr Mackay, Mr Jack, Mr Burrows, Mr Corrigan, Mr Douglas, Mr Easson, Mr Farr-Jones, Ms Singleton, and Mr Willing. It was recorded that Mr Talbot left the meeting before the business concerning an appeal and returned after that business. 1090 According to the minutes the meeting lasted for six minutes, and as the substantive business - " FEDERAL COURT APPEAL: The Board noted the letter from Abbott Tout, Solicitors, dated 21 October 1994.

The Board resolved unanimously that the lodgment of an application for leave to appeal against the decision of Mr Justice Gummow be ratified.

The Board resolved unanimously, in the interests of the NRMA members, policyholders and staff:

to seek mediation on the key issues in contention in relation to the future direction of the NRMA;

that Sir Laurence Street be appointed as mediator;

to ensure any changes to the organisation be ultimately decided by the members on the basis of full information;

to proceed with the appeal on the Gummow judgment in the Federal Court of Australia in order, in particular, to clarify the relationship between NRMA Limited and NRMA Insurance Limited;

that the NRMA meet reasonable costs in these appeal proceedings of Miss Dawn Fraser and Mr Richard Talbot;

that the NRMA seek to have the costs and other proceedings listed for next Tuesday adjourned for one week.

Further that these issues be revisited at the next Board meeting due to be held next Thursday, 27 October 1994.

The Board resolved unanimously that the abovementioned resolution be the entirety of any public statement made by the organisation on the matter." 1091 The minutes did not refer to the opinions of Mr Jackson and Mr Heydon. Neither opinion was put before the boards (I so find despite Mr Mackay's recollection that Mr Jackson's opinion was tabled). What was put before the boards was an AT letter of 21 October 1994. It did not refer to the opinions. It was a letter from Mr John Bartrop, a partner of AT, to the directors of Insurance, reading - "We have been asked to advise on the following matters:

1. What grounds exist for appealing the decision of Gummow J given on 13 October 1994?

As to 1, the grounds of appeal are set out in the attached draft Notice of Appeal.

As to 2, in our view there is justification for lodging such an appeal.

Our reasons for holding this view are as follows: (a) an appeal may succeed;

(b) if an appeal succeeds the current proposal may proceed;

(c) while an appeal may fail, none the less, such appeal may clarify various uncertainties in the judgment of Gummow J, including the issue of whether or not the Association controls Insurance. If such clarification is obtained the company will be assisted in properly placing before its members any future proposal to restructure the NRMA Group.

Even if no such proposal (for restructuring the NRMA Group) was contemplated the possibility of obtaining clarification of that control issue is important to Insurance.

In the context of this matter in our view the legal costs associated with appealing are not significant to the decision.

Finally, you should be aware that the application for expedition has been stood over until Monday 24 October 1994. Counsel for Miss Fraser and Mr Talbot indicated they supported the resolution of an appeal as soon as practically possible." 1092 I come then to the contention over the briefings of Mr Jackson and Mr Heydon and the disclosure of their opinions. It was in two broad areas. One focussed on Mr Bateman's involvement, the other on how the NRMA came to decide to appeal. 1093 A document which I accept as an AT file note dated 17 October 1994 appeared to record a conference between persons identified by the initials TMG, JHB, GAB, and MAH at which there was reference to briefing Mr Jackson for advice on the prospects of an appeal. The initials were those of Mr Tim Griffiths, Mr Bartrop, Mr Bateman, and Mr Mark Harrowell. Mr Griffiths and Mr Harrowell were also partners of AT, and had been involved in acting for Association and Insurance in the proceedings before Gummow J. 1094 Another AT file note dated 17 October 1994 indicated instructions from Ms Conway to brief Mr Jackson, including the words "Three directors agreed to appeal - subject to independent advice". 1095 Mr Jackson was briefed on behalf of Association and Insurance on 17 October 1994, the letter accompanying the brief being written by Mr Bartrop, and he was asked to advise before the next Wednesday "at which time the Boards of our clients will be meeting". He conferred with someone from AT on 18 October 1994, and was briefed on behalf of Holdings on 19 October with a covering letter in the same terms as before. His opinion was marked with Mr Harrowell's initials as the relevant person within AT. 1096 None of Mr Griffiths, Mr Bartrop and Mr Harrowell, or Mr Jackson, gave evidence, and there was no more direct evidence of how Mr Jackson came to be briefed. Ms Conway recalled that an opinion was obtained from Mr Jackson, but could not recall the circumstances. 1097 Ms Conway did say, however, that it was resolved not to brief Mr Heydon because he had been involved in giving advice, and hence Mr Jackson was selected. While it seems that Ms Conway knew that someone at Abbott Tout was "talking to Dyson Heydon about the judgment" and said that he was unsympathetic, she denied that the NRMA instructed Abbott Tout to obtain Mr Heydon's opinion. A memorandum of fees indicates that Mr Heydon was nonetheless briefed by Mr Harrowell, and that Mr Heydon saw Mr Bartrop and Mr Harrowell in conference on 20 October 1994. Mr Mackay said that he did not know of Mr Heydon's opinion, although he knew of Mr Jackson's opinion. 1098 The picture as presented was that the briefing of Mr Heydon was unknown to the NRMA, perhaps by AT for its own purposes (and it is understandable that AT might have wished to obtain an opinion for itself). The complications were, however, that another AT file note dated 19 October 1994 stated "Helen: We are instructed to get opinion on prospects from Heydon QC", and that by a letter dated 27 October 1994 Mr Bartrop sent to the NRMA, for the attention of Ms Conway, the memoranda of fees of both Mr Jackson and Mr Heydon. The picture, and Ms Conway's denial, seemed to be incorrect. Ms Conway said that she did not see the memoranda of fees, because they were not endorsed as they would have been had she seen them, but it still seems that the NRMA did instruct AT to obtain Mr Heydon's opinion. 1099 The NRMA was in a difficult position, in that its litigious opponents Mr Talbot and Miss Fraser were members of one of its boards. Were they entitled to see any advice obtained by the NRMA? Another AT file note, dated 19 October 1994 and in different writing from the file note of 17 October 1994, suggested a telephone conversation between its author and "GAB" (no one other than Mr Bateman was identified with those initials); the only information as to the content was "Jackson Advice By Board meeting?" On the same piece of paper the same author recorded a telephone conversation with "Helen", it would seem Ms Conway, on 20 October 1994, with the content recorded "Can Fraser + Talbot participate in discussing appeal. Advice. Need legal advice tomorrow re 3 directors. If don't want to put in writing". 1100 This was clearly enough linked with a memorandum dated 21 October 1994 from Mr Richard Willcock of AT addressed to Messrs Bartrop, Bateman and Harrowell, on the topic "Disclosure of legal advice to all directors". Mr Willcock began the memorandum - "You have asked me to consider how the Boards of NRMA Limited and N.R.M.A. Insurance Limited should deal with any documents which are provided to them which contain advices concerning the present proceedings.

I understand that Greg Bateman has given some advice concerning the formation of a committee to which each Board may elect to delegate its powers concerning (relevantly) the receipt and consideration of legal advice concerning the proceedings. I proceed on the basis that such a committee does not presently exist." 1101 After discussing the law, Mr Willcock suggested a course of action whereby advices might properly not be made known to Mr Talbot, Miss Fraser, and possibly Ms Singleton. 1102 This difficulty in the NRMA's position may explain why Mr Jackson was apparently re-briefed on behalf of Holdings rather than Association and Insurance. It may also explain why, rightly or wrongly, the opinions were not provided to the boards. And it is apparent that the joint board meeting for six minutes was not the real forum for deciding whether or not to appeal. I have referred to the AT letter of 21 October 1994. In fact the letter was provided earlier than the joint board meeting. According to Mr Bateman, he accompanied Messrs Bartrop and Harrowell to the place where a meeting was being held, and the three of them waited outside the meeting. Ms Conway left the meeting from time to time to tell them what was occurring. On one such occasion Ms Conway told them that the directors did not want to appeal against the decision of Gummow J. Mr Harrowell said "But there are reasons to appeal", and Ms Conway said, "Well, you give us an advice on why we should appeal". The letter was then prepared by Mr Harrowell, and after typing at the AT offices was brought to him. Mr Bateman, Mr Bartrop, and Mr Harrowell then went into the meeting, and Mr Harrowell spoke to the letter. The key to understanding this is that the meeting was not the joint board meeting. It was a meeting earlier in the day, at the offices of the firm of which Mr Mackay was a partner, attended by Mr Mackay, Mr Kirby, Dame Leonie Kramer, Mr Burrows, Mr Douglass, Mr Willing, and other directors, but not by Mr Talbot, Ms Singleton, Ms Fraser, or Mr Lawson. 1103 Why did the parties spend a not inconsiderable time in contention over the briefings and the disclosure of the opinions? In the excitement of the hunt, they may have overlooked the value of the quarry. While dealing with the matter at the length I have, I do not think it has great significance. 1104 As I have said, Mr Bateman gave evidence that he had not seen either the opinion of Mr Jackson or the opinion of Mr Heydon at the time. He recalled being told that Mr Jackson had been briefed, but not being told of the result, and said that he was heavily engaged at the time with matters to do with the general meetings. The NRMA said that this did not sit well with participation in briefing Mr Jackson apparent from the file notes of 17 and 19 October 1994, with participation in advising on disclosure of advice concerning the Federal Court proceedings to Mr Talbot and others apparent from Mr Willcock's memorandum, or with his presence at the time of the informal meeting on 21 October 1994. It was suggested that Mr Bateman was less than frank in his evidence in this area, and was seeking to distance himself from the predicament in which the NRMA then found itself, and that this showed awareness of neglect in his duties contributing to the predicament. For their part, the defendants said that the mystery surrounding briefing Mr Heydon, the failure to make the opinions available to the boards, and the provision of the AT letter of 21 October 1994 which hardly advised on the prospects of an appeal (it said an appeal may or may not succeed, without reasoning), all pointed to a situation brought about by Mr Mackay to ensure that the boards resolved to undertake the appeal in ignorance of any prognosis of failure. This, it was said, was another indication, relevant to whether the NRMA would have gone ahead with the proposal in the face of the Gambotto advice, of the determination of Mr Mackay and an inner group of directors to proceed with the proposal at all costs. 1105 In drawing inferences, I consider that I can assume that the evidence of none of Mr Bartrop, Mr Harrowell, or other AT solicitors involved would have assisted AT's position: the failure to call these persons who could have provided assistance was unexplained. Mr Mackay said that there was good reason to appeal even if the appeal did not overturn the injunction granted by Gummow J, because the appeal could clarify, and possibly reverse, his Honour's view of the control of Insurance. That can be seen in the AT letter of 21 October 1994, and in the resolutions of the boards (including the resolution to meet the costs of Mr Talbot and Miss Fraser), and I accept that it was seen as providing good reason to appeal. 1106 It is nonetheless strange that the boards, or at least the informal meeting on 21 October 1994, were not told of the opinions, and fear that Mr Talbot would come to know of the advice is not a satisfactory explanation for failure to tell the boards, in the absence of Mr Talbot, that the advice was that an appeal would fail. Indeed, Mr Mackay did not give that explanation, or any explanation: if it were thought the advice could not be kept from Ms Singleton and that Ms Singleton would tell Mr Talbot, he did not say so. 1107 There is uncertainty in any conclusions. On balance, I find that Ms Conway instructed AT to brief Mr Jackson and Mr Heydon on the prospects of an appeal, but that Mr Bartrop and Mr Harrowell took up the instructions and Mr Bateman had little to do with the briefings. One or both of Mr Bartrop and Mr Harrowell knew that the opinions were negative. I am not satisfied that Mr Bateman knew what the opinions were, and Mr Bateman's involvement was ancillary to that of his partners (although extending to involvement in advance concerning disclosure to Mr Talbot, Miss Fraser, and Ms Singleton). Mr Mackay knew of Mr Jackson's opinion, but it may be that Ms Conway did not pass on to him the similarly negative opinion of Mr Heydon. Mr Mackay had initiated the appeal prior to the opinions, saw good reason to appeal at least in relation to the control of Insurance, and I see no acceptable alternative to the conclusion that, wishing that there should be an appeal, he ensured that the negative opinion of Mr Jackson was not made known to the directors. I do not accept that Mr Bateman was less than frank or seeking to distance himself from the NRMA's predicament. I accept that Mr Mackay revealed determination that there should be an appeal, but I do not extend that to determination to proceed with the proposal at all costs. To the decision of the Full Court 1108 So far as the evidence showed, any consideration by the NRMA of what it would do if an appeal failed, or even if an appeal were successful, was not prominent in the weeks after 21 October 1994. Attention was concentrated on the mediation the subject of one of the resolutions of 21 October 1994. The mediation was undertaken with the Honourable G D Needham QC as mediator, but it came to no result and it need not be mentioned again. 1109 Shortly before the hearing of the motion for leave to appeal Mr Morgan prepared a draft memorandum dated 15 November 1994, expressed to give consideration "to the contents of any future NRMA Prospectus or, alternatively, the processes involved if a scheme of arrangement was undertaken." It seems that the memorandum was not immediately provided to the NRMA. It included a paragraph concerning Gambotto's case on which the NRMA placed some reliance in these proceedings. 1110 The memorandum referred to difficulty in continuing with the then current prospectus. If there was a successful appeal, there were material changes in circumstances of which notice would have to be given or the accounting information in the prospectus would be out of date. If the appeal was not successful, then the prospectus would have to be changed in order to meet the deficiencies found in the Federal Court proceedings. The memorandum also referred to what would be involved if a scheme of arrangement were undertaken, with the observations that a scheme of arrangement would have the "independent supervisor" of the Court, independent experts' reports, and an opportunity for all opponents to state their positions. 1111 This consideration of the future was preceded in the memorandum by a "background", the commencement of which was - "Under the original proposal, we had examined the possible use of a scheme of arrangement rather than proceeding by way of prospectus and notice of meeting. The prospectus and notice of meeting procedure was adopted after Senior Counsel confirmed that it would bind members into the proposals. You should note that one of the principal authorities upon which this view was based is subject to a High Court appeal and, although the case has been argued, no final decision has been made. It is not expected that the High Court's views will change the conclusion but it is a matter that needs to be watched." The background then went on to say that the scheme of arrangement was considered to be an unsatisfactory approach, because it was likely to be more lengthy, it was more complex and less easily explained, it gave opportunities to raise objections before the court, and there were some potentially difficult issues to be resolved particularly as to division of members into classes. 1112 The confirmation that the prospectus and notice of meeting procedure would "bind members into the proposals" must have been either Mr Heydon's opinion of 20 December 1993 or his opinion of 28 July 1994; more likely the former, since the background spoke of the initial consideration of the alternative routes. The authority to which Mr Morgan intended to refer was Gambotto's case. The statement that the confirmation was based on Gambotto's case, amongst other authorities, was probably not accurate, but involved recognition that Gambotto's case was a material authority. As I have earlier recorded, according to Mr Morgan he became aware that Gambotto's case was on appeal to the High Court in the course of the proceedings before Gummow J. 1113 The NRMA's reliance was, in short, that if an appeal in Gambotto's case needed to be watched in November 1994 it had needed to be watched in late 1993 and early 1994: so a lawyer acting properly should have found out about the special leave application and the appeal and should have given the Gambotto advice. 1114 It does not seem that Mr Morgan, or anyone else, conveyed to the NRMA at this time that the reserved decision in Gambotto's case could be an impediment to the proposal, or at least it was not conveyed with any force. Two of the directors gave evidence suggesting reference to Gambotto's case. 1115 According to Dr Werner, he heard of Gambotto's case at some time before Christmas 1994, in the discussions concerning the decision of Gummow J and the appeal to the Full Court. He was uncertain as to the time, and did not have a clear recollection of what was said. He recalled somebody saying that the Federal Court proceedings "might not be the only problem you've got", and in explanation "a bit of discussion then about Gummow [sic; Gambotto]". His evidence then was - "Q. What's your best recollection now of what you were told about Gambotto at that time? A. Well, I've just described that it - I understood - well, apart from the mechanics, that is to say that Mr Gambotto had taken the matter to the Supreme Court, there was an appeal, he had applied to the High Court for right of appeal to the High Court and that had been granted. Those kinds of things aside, I was told or I'd heard that the problem, as I say, was associated with the rights of minority groups of share holders or people with certain rights and that Mr Gambotto's problem was that he was arguing that a certain take-over abrogated the rights of certain minority groups. That's my best memory of it." 1116 Mr Lawson also gave evidence of a recollection of hearing about Gambotto's case before the decision of the High Court, as something which had "the possibility of impacting on our demutualisation", but he did not recall when. 1117 There was no other evidence of recognition within the NRMA, prior to the decision of the Full Court, of a possible difficulty, and persons such as Mr Mackay and Ms Conway would be expected to have become aware of it if it was made known. I think it likely that Dr Werner and Mr Lawson misplaced their awareness of Gambotto's case, and that their recollections were really of later awareness, probably of awareness in late February or early March 1995 in connection with the solicitors' submissions to which I will come, or even of awareness after the decision of the High Court. Neither Dr Werner nor Mr Lawson, particularly the latter, was a reliable historian of the timing and detail of events. 1118 The motion for leave to appeal was heard on 6 and 7 December 1994, and the argument proceeded on the basis that, if leave were granted, the hearing would be the hearing of the appeal. Association, Insurance and Holdings were represented by Mr Bennett. Mr Talbot and Miss Fraser were represented by Mr Garnsey, and the ASC by Mr Rares. Judgment was reserved. 1119 The NRMA was still committed to putting a proposal for restructuring to members. At a joint meeting of the boards of Association and Insurance on 8 December 1994, according to the minutes - "It was further resolved that a proposal for re-structuring the organisation should be put to the members for decision as early as possible in 1995 and that management are authorised to undertake all steps necessary in preparing this. It was noted that, in preparing such a proposal, management would seek to address and incorporate where appropriate the following matters:

(a) any issues flowing from the Gummow judgment and the subsequent Appeal judgment;

(b) the views expressed by members during 1994 regarding the 'Share the Future' proposal; and

(c) submissions from individual Directors relating to issues relevant to any re-structuring proposal." Mr Talbot and Miss Fraser were present: no voting or dissent was recorded, but it is unlikely that the resolutions were unanimous. 1120 And outside the boards the resolve of some of the directors to proceed with the restructuring was illustrated by the formation of the Motorists' Majority, with the involvement of (amongst others) Mr Mackay, Mr Douglass, Mrs Callaghan, Mr Farr-Jones and Mr Corrigan, as a body the interests of which included promotion of the restructuring. 1121 Some work was done towards an "updated" or supplementary prospectus, for example, discussions at meetings on 12 and 25 January 1995, but little could effectively be done until the judgment and reasons of the Full Court were given and available. Similarly, consideration of proceeding with the proposal by a scheme of arrangement could really not be taken far. 1122 Mr Talbot and Miss Fraser were not idle, however, and still active in opposing the proposal. On their instructions, Mr Garnsey and Mr Camilleri prepared an amended application and amended statement of claim in the Federal Court proceedings, taking account of further material provided to them and also seeking preliminary orders to enable Mr Talbot and Miss Fraser to prosecute the remainder of the proceedings as a derivative action on behalf of members of Association and Insurance. In an opinion dated 23 December 1994 Mr Garnsey and Mr Camilleri advised that there were good prospects of success in the balance of the proceedings, and it is clear that, subject to obtaining legal aid, Mr Talbot and Miss Fraser were determined to maintain and escalate their opposition to the restructuring. Whether the NRMA knew of the proposed amendments at this time is not clear, but in due course the Federal Court proceedings were enlarged. To the decision of the High Court in Gambotto's case 1123 With the judgment of the Full Court on 27 January 1995, and the further judgment on 30 January 1995 whereby a supplementary prospectus was left open, the NRMA had to decide what to do. 1124 The NRMA had earlier considered engaging different solicitors if it took the proposal back to members, and by letters dated 23 December 1994 had invited submissions from three firms, Clayton Utz ("CU"), Minter Ellison Morris Fletcher ("ME"), and Norton Smith ("NS"). The invitations had included asking for an evaluation of the prospectus, the approach to any new prospectus, and a strategy "for assisting the NRMA to move ahead". 1125 The submissions had been received by mid-January 1995, and ultimately ME was retained. The submissions were quite lengthy, and I will refer only to what was said to be relevant to these proceedings. 1126 CU foresaw the need for an entirely new prospectus. It suggested review of whether schemes of arrangement should be undertaken, saying that it saw "potential advantages in a scheme which could be material, although not without some risk". It referred to Gambotto's case, although not by name, and the appeal, in a part of the submission dealing with potential for further litigation in which two issues with such a potential were identified, one being "the legal steps which are proposed to effect the demutualisation" and the other being the basis of allocation of shares. As to the first, it was said - "The new Articles of Association which are to be adopted for each of the Association and NRMA Insurance, provide for the existing members, other than NRMA Holdings, to cease to be members of the Association and NRMA Insurance at the specified time. The Prospectus, Section 1, also stipulates that these provisions in the Articles will constitute a contract binding on all members irrespective of whether or not they vote in favour of the adoption of the new Articles.

Presumably, this is based on the assumption that an amendment to the Articles of Association to provide for the cessation of a member's membership, irrespective of whether that member agrees, is binding. There have been recent cases which deal with the question of expropriation of shares in a company limited by shares, by amendment to the Articles of Association of the relevant company or by reduction of capital. Having regard to the decisions expressed by the Courts in those cases, we believe that it is possible to provide for cancellation of membership of a company limited by guarantee where, as is proposed in this case, compensation is provided, namely the opportunity to receive shares in the new holding company or the cash alternative. However the principal case dealing with amendments to Articles of Association has been appealed to the High Court and judgment is still awaited. The cases proceed on the basis that the Court will examine closely whether the compensation to be provided in exchange for extinguishment of existing shareholders' rights is fair. This immediately leads to the second issue, namely the basis of allocation of shares to the respective members.

We are aware that there is a contrary view on expropriation and an off-the-record discussion which we had with a senior officer of the ASC who is looking at demutualisation issues, reveals that officer's understanding that removal of members rights, but not their membership, is the appropriate way to proceed.

The possibility of challenge on this basis cannot be ignored." 1127 The ME submission also foresaw the need for a new prospectus; it also suggested following a scheme of arrangement route, giving reasons for and against. One of the reasons for following a scheme of arrangement route was that - " … lengthy challenges to the implementation of the proposal, on such grounds as that the cancellation of memberships is oppressive or in fraud on the minority (grounds of uncertain scope in light of the Gambotto litigation) would effectively be avoided because the proposal would be sanctioned by orders of the court." A completely new way of demutualising was raised, but still involving a resolutions in general meetings route. 1128 The NS submission was less detailed, seemed to envisage a new prospectus, but did say - "However we must add the warning that we think that there are further basic underlying problems with the prospectus (or is it meeting) approach. In particular there is the question of the rights of members between themselves even forgetting the association/insurance question. As a clear example, any one who has become a member over the last 9 months will receive no benefit at all. What is the 'right' of people who became members earlier to leave out these later one out [sic]. Bearing in mind that everyone has a different although probably highly undefined interest, how can one member vote away the different rights of another?

Possibly we are more sensitive to this than might be generally the case because of the delay in receiving a judgment from the High Court in the appeal to that Court from the Court of Appeal Judgment in WCP v Gambotto. The recent judgment of McClelland J [sic] in Melcann v Superjohn is also cause for concern." So NS wondered "whether notice of meetings/prospectus route is the best, especially given the opposition." 1129 Apart from being one source of advice about what to do, the submissions were said to be relevant to these proceedings in that they showed other lawyers watching the appeal in Gambotto's case. The watchers' gazes went beyond simple fairness or unfairness. CU focussed on fairness, but hinted at a more fundamental basis of challenge on the ground that membership could not be cancelled while apparently of the view that such a challenge would not succeed. ME referred to uncertainty over cancellation of memberships in the light of the Gambotto litigation, uncertainty which had to go further than the fairness of entitlements since the price for the shares in Gambotto's case was conceded to be fair. NS questioned how one member can "vote away the different rights of another", referring to sensitivity involving the appeal in Gambotto's case. Although not in terms, all saw the decision in the appeal as something to be known in order properly to advise. 1130 The NRMA received a letter from Mr Morgan to Mr Mackay dated 27 January 1995, clearly enough written with knowledge of the invitation to other solicitors and with a view to continued engagement of AAH. It was in general terms, contemplating a supplementary prospectus or a new prospectus depending on the outcome of the appeal and referring rather in passing to the alternative route of a scheme of arrangement. Even with knowledge of the High Court appeal in Gambotto's case, Mr Morgan can not have seen it as an impediment to the resolutions in general meetings route. 1131 Mr Morgan then provided, under cover of a letter to Ms Conway dated 31 January 1995, a memorandum concerning a scheme of arrangement "to put in place the same result as was envisaged under the prospectus". The memorandum was but an outline. It referred to possible difficulties because of different classes of members. Maybe reference to Gambotto's case should not have been expected, and in fact no Gambotto concern was expressed. 1132 By a further letter to Ms Conway dated 1 February 1995 Mr Morgan said that, with consideration of the options following the decision of the Full Court on the previous day, he did not think a scheme of arrangement "presents any advantages over the proposal that has now been made by the Federal Court". The letter included that Mr Morgan did not think a scheme of arrangement was necessary as had been confirmed by Mr Heydon, and the alternatives Mr Morgan identified were a new prospectus (as distinct from a supplementary prospectus) and delaying the float. 1133 The boards of Association and Insurance met jointly on 2 February 1995. A resolution was passed (Mr Talbot and Ms Singleton voting against) which included that the boards supported demutualisation, that management was authorised "to continue to do all work necessary in respect of putting a proposal for restructuring to members", and that management should prepare a report and recommendations for the way forward in the light of the decision of the Full Court. Miss Fraser supported the resolution, saying that the objective "of having a 'no' case put to the members" had been achieved, and withdrew from the Federal Court proceedings. 1-134 Mr Talbot's opposition to the restructuring did not abate. He moved, and Ms Singleton seconded, that the two of them be constituted a committee to obtain advice on recovering damages and costs from Holdings, from directors, management and staff of Association and Insurance, and from any other party responsible for the promotion, preparation and advertising of the prospectus, and to bring proceedings if the advice were favourable. The motion was lost. Then on 6 February 1994 Mr Talbot filed a notice of motion in the Federal Court proceedings seeking leave to amend the proceedings, not just in the respects the subject of the opinion of 23 December 1994 but in many other respects involving orders restraining continuance with the proposal, joinder of some of the NRMA directors, and claims for damages against the directors. This was indeed escalation of the hostilities, and the condition of legal aid seems to have been put aside. 1135 Mr Bateman was asked to indicate his view as to the way forward, and in a letter to Ms Conway dated 6 February 1995 he said that he thought the preparation of a supplementary prospectus as soon as possible was the preferred course. He briefly reviewed possible difficulties, and expressed the view that a revision of the existing prospectus was the second option. 1136 The NRMA selected ME as the solicitors for further work on the restructuring, at that time leaving undecided whether it would also continue with AAH and AT; however, the board management liaison committee, a group established in December 1994 with the function indicated by its name, resolved to obtain legal advice on whether AAH and AT had been negligent. Mr Paul Mazoudier, Mr Peter Kuner, and Professor Robert Austin of ME provided advice to a management committee constituted by the NRMA to prepare a report and recommendations in accordance with the resolution of 2 February 1995. In the result, ME itself provided the report and recommendations by a report to the boards of Association and Insurance dated 21 February 1995. 1137 ME recommended that the boards commission an independent expert's report on the reasons for and against demutualisation, on whether it was advisable in the interests of Association and Insurance and their respective members, and on whether the proposals in the prospectus were fair and reasonable as regards Association and Insurance and their respective members and the reasons for that opinion. It was said that the independent expert's report should consider whether there was any obvious alternative which should be preferred, that management should be authorised to take steps to preserve the existing options pending the boards' reconsideration, and that the boards should reconsider their decisions with respect to demutualisation after the receipt of the independent expert's report. 1138 Essentially, the reasoning was that in the events which had happened it was desirable that there be full and genuine reconsideration of the entire demutualisation process. If it were decided to proceed, ME considered that the most viable alternative was to continue with the proposals in the existing prospectus, reviving the adjourned meetings either with a supplementary prospectus or with a new prospectus, preferring that course to undertaking a scheme of arrangement. The advantages and disadvantages of each alternative were summarised. Perhaps curiously in the light of the earlier submission, in relation to a scheme of arrangement the stated disadvantages did not mention Gambotto's case, save so far as that might have been involved in the observation that if the court were to identify small groups of members as separate classes "those small groups would have a power of veto over the proposal whatever the wishes of the majority of members as a whole". But as will appear, outside the report the NRMA was told of concern over the appeal in Gambotto's case. 1139 The ME report of 21 February 1995 was presented to a joint meeting of the boards of Association and Insurance on 23 February 1995. Mr Mazoudier, Mr Kuner, and Professor Austin spoke to it. It was resolved that a committee be formed to consider the submissions (which had already been received) for the preparation of an independent expert's report, and to provide its recommendations to the resumed meeting on 27 February 1995. At the resumed meeting the appointment of Grant Samuel & Associates Pty Ltd ("Grant Samuel") was recommended, and it was resolved that it be commissioned to provide the independent expert's report and otherwise in accordance with the suggestions in the ME report. 1140 Mr Talbot's notice of motion in the Federal Court proceedings was heard in late February 1994. It was unsuccessful, in that Gummow J thought that Mr Talbot should bring fresh proceedings rather than amend in the existing proceedings. 1141 At the meeting of 23 February 1995 Mr Talbot moved that Association commence proceedings in the Federal Court, under instructions from himself, Ms Singleton, and one other board appointee, claiming extensive declaratory and other relief. The relief included declarations "as to whether the reconstruction as proposed can proceed without a scheme of arrangement and approval by the Court", "as to whether the reconstruction and share issue in the form proposed contravenes the provisions of the Corporations Law with particular reference to s 185 of that Law", as to whether the directors of Holdings breached their fiduciary and other duties as directors of Association or Insurance in relation to the proposal and its implementation, as to contravention of s 52 of the TP Act and the Law "in the advertising and/or the public relations and media campaign for or in relation to the proposed reconstruction, share issue, public float and Prospectus". It also included the recovery of damages from Holdings, its directors, and the directors and officers of Association and Insurance. 1142 The motion was accepted without a seconder, and it was resolved (over the dissent of Mr Talbot) that it lie on the table until 27 February 1994. On that day it was resolved (again over the dissent of Mr Talbot) that the motion continue to lie on the table. But by then Mr Talbot had brought fresh proceedings in the Federal Court, as a derivative action against Association, Insurance, Holdings and their directors. The determination to oppose the restructuring was still evident. 1143 Although the ME report of 21 February 1994 did not refer to Gambotto's case as posing a risk to the proposal, according to Mr Mackay in late February or early March 1995 Professor Austin told him of the outstanding High Court appeal and "alerted me to the fact that, if the decision went in favour of Gambotto, it might present a problem". Mr Easson gave general evidence of being told by ME shortly before the High Court decision was given that the High Court might, in considering the then reserved Gambotto case, reconsider the area of law involving oppression. Mr Burrows, on the other hand, gave evidence that he attended two meetings with Professor Austin concerning a supplementary prospectus, and that nothing was said about Gambotto's case as a case the decision in which might render the proposal unlawful. Given the content of the ME submission, it is likely that Professor Austin would have spoken to Mr Mackay to the effect he recalled, and to others, and I accept that he did. 1144 This may be the source of the recollections of Dr Werner and Mr Lawson earlier noted. The concern can not have been regarded as major, or it would have been found in the ME report of 21 February 1994 and ME would not have considered resolutions in general meetings the most viable alternative. But ME was watching Gambotto's case, and awareness that the resolutions in general meetings route might be open to challenge underlay the first declaration proposed by Mr Talbot. 1145 The remainder of the original Federal Court proceedings was dismissed by Gummow J on 2 March 1994, over the opposition of Mr Talbot: presumably his Honour considered that there was no point in having the remaining issues decided. Mr Talbot's fresh derivative proceedings remained on foot. After the decision of the High Court 1146 The High Court delivered judgment on 8 March 1995. The decision was immediately seen as an obstacle to the proposal as then under way. 1147 The record (it is probably not accurate to call it minutes) of a meeting on 9 March 1995 of the board management liaison committee included - " 1. Update from Gambotto judgment Bob Austin distributed an initial report on the Gambotto ruling which went 5-0 in Gambotto's favour. This has fundamental implications for our demutualisation proposal relating to the claim of oppression and compulsion. Minter Ellison and Arthur Emmett QC have reviewed the judgement and, although final written confirmation is sought from Emmett, Minter Ellison's feeling is that to proceed with our current proposal would be 'risky and foolhardy'.

Minter Ellison's recommendation is to cease all work related to either a supplementary prospectus or a new prospectus for the current proposal. The Committee accepted this recommendation.

In light of this decision, the Grant Samuel brief may require some addition to accommodate the ruling. Action: Minter Ellison to review the brief and propose amendment. " The initial report presented by Professor Austin read - "REPORT TO THE BOARD MANAGEMENT LIAISON COMMITTEE CANCELLATION OF MEMBERS' RIGHTS - THE OPPRESSION ARGUMENT

An integral part of the demutualisation proposal contained in the 1994 prospectus was that all members of the Association and Insurance would cease to be members upon implementation of the proposal, on condition that they were offered shares in Holdings or the cash alternative.

The compulsory aspect of the demutualisation proposal was to be achieved by provisions in the new articles of association of the two companies, which were to be adopted by special resolution of the members.

'The special resolutions (if passed) constitute an agreement which binds all members of the Association and NRMA Insurance, even if they voted against the proposal or did not vote at all.'

As we have indicated previously, there is a legal issue as to whether an amendment to articles of association of a company which compulsorily extinguishes membership against the wishes of a member is necessarily oppressive and therefore invalid.

The decision of the High Court in WCP Limited v Gambotto was delivered on 8 March 1995. In that case the articles of association of WCP were amended to permit the 99.7% shareholder to acquire compulsorily the remaining 0.3% of the company's shares for a price which was acknowledged to be more than fair. Mr Gambotto objected to the compulsory acquisition. The High Court held that the amendment to the articles was invalid.

In the view of Chief Justice Mason and Justices Brennan, Deane and Dawson, who delivered a joint judgment, an amendment which expropriates the proprietary rights of a member is invalid unless those who assert its validity can prove that -

the amendment was made for a proper purpose, and the expropriation will not operate oppressively or unfairly to minority shareholders.

An expropriation may be justified 'where it is reasonably apprehended that the continued shareholding of the minority is detrimental to the company' (at 11) - for example, where the minority shareholder is completing with the company, or where the company is a television licensee and the minority shareholder is a foreign shareholder whose continued holding may prejudice the company's licence: 'but that is not to say that the majority can expropriate the minority merely in order to secure for themselves the benefit of the corporate structure that can derive some new commercial advantage by virtue of the expropriation' (at 11).

Obviously the demutualisation proposal is factually distinguished from Gambotto's case in several respects. The demutualisation proposal would compulsorily extinguish the rights of all members, including those who vote in favour of the new articles. Moreover, there are important differences between shareholding and membership of a company limited by guarantee. It is not clear, even after the Full Court's judgment in the NRMA case , whether the rights of a member of a company limited by guarantee are properly described as 'proprietary rights'.

Nevertheless, our provisional opinion is that the basic reasoning of the Gambotto case is applicable to the demutualisation proposal. The majority voting in favour of the proposal would be doing so in order to secure for themselves the benefit of a corporate structure that can derive a new commercial advantage. It could not be said that the continued shareholding of the minority is detrimental to the company.

Yesterday afternoon we consulted Mr Arthur Emmett QC who agrees with our provisional view. It will be necessary to obtain written advice from Senior Counsel as soon as practicable.

If our provisional view is correct, the implication seems to be that it will be impossible to proceed with the supplementary prospectus, or with a new prospectus to implement the current demutualisation proposal. The alternatives will be either:

a scheme of arrangement; or a proposal in which members will have a choice between retaining their existing membership rights or taking shares." 1148 It will be seen that the initial report said that ME had "indicated previously" a legal issue as to whether compulsory extinguishment of membership by amendment to articles was "necessarily oppressive and therefore invalid". This supports the conclusion that Professor Austin had earlier told Mr Mackay, and others, that a decision in favour of Mr Gambotto might present a problem. 1149 Accordingly to the initial report, the concern in relation to the proposal was that compulsory extinguishment of membership might be "necessarily oppressive", a concise way of expressing of the observations much earlier in these reasons that McLelland J in Gambotto's case seems to have thought that the fact of expropriation was enough to constitute oppression, but in the view of the Court of Appeal if the expropriation was fair the fact of expropriation would not invalidate the exercise of the power to change the articles. The High Court did not decide that an expropriation of shares was necessarily oppressive, but, to repeat what I said also much earlier in these reasons, held that the fact of expropriation would make the exercise of the power invalid, even if the expropriation was fair (which was equated with not oppressive), unless the majority shareholders could prove a proper purpose. 1150 Professor Austin's reaction to the decision of the High Court was matched by that of Mr Bateman. It seems of his own initiative, by a letter dated 10 March 1995 he sent to Ms Conway for her information a copy of the judgment, saying - "The reasoning of the High Court has implications for any restructuring of NRMA Limited and/or NRMA Insurance Limited. While the Judgment is framed in terms of a majority expropriating the shares of a minority, it can also be viewed, on one interpretation, as also dealing with the expropriation of the rights of a minority regardless of the fact that the majority do not acquire those rights." 1151 Professor Austin did obtain the written advice of senior counsel, as it happened Mr Heydon. Mr Heydon provided an opinion dated 13 March 1995. 1152 He recorded as the subject of his advice whether the special resolutions proposed by the NRMA for the adoption of new articles of association to implement the 1994 demutualisation proposal would be valid, if adopted, having regard to the decision of the High Court in Gambotto's case. He outlined the effect of the special resolutions, summarising it as termination of the membership rights which members of Association and Insurance possessed until that time. He first considered whether the reasoning in Gambotto's case was inapplicable to companies limited by guarantee, and after discussion concluded that it was not. 1153 Mr Heydon then asked whether the reasoning applied adversely to the validity of the proposal, and said - "The two questions which the High Court says any majority must demonstrate to be capable only of an affirmative answer are, first, whether the purpose is to secure the company from significant detriment or harm and, secondly, whether the alteration to the articles is 'fair' ie not oppressive.

As to the first question, the minority in the present circumstances are not analogous to competitors or foreign shareholders preventing the company from obtaining or retaining an advantage. Gambotto's case (in the view of the majority though not that of McHugh J) excludes the capacity of a company to rely on tax advantages by grouping and administrative benefits as a justification for expropriating minorities. Those advantages are real advantages to the company and to the majority, but they do not appear to be different in character, so far as the present problem is concerned, from the benefits summarised on page 6 of the prospectus. The High Court specifically said that the majority cannot expropriate the minority 'in order to secure for themselves the benefit of a corporate structure that can derive some new commercial advantage'. It also forbade expropriation ' where it would advance the interests of the company as a legal or commercial entity or those of the general body of corporators'.

If the first question were not answered affirmatively, the second would not arise. Even if the first question were answered affirmatively, the second would seem to call for a disclosure of 'all relevant information leading up to the alteration' (which incidentally may create a collision with what the Full Federal Court said in Fraser v NRMA Holdings Limited (1995) ATPR 41-374 at 40,144) as well as valuation by an independent expert (which, according to the Full Federal Court in Fraser v NRMA Holdings Limited (1995) ATPR 41-374 at 40,157 'may be impossible'). These are heavy burdens. The High Court left open the question of whether the majority should abstain from voting; an answer that they should would be fatal so far as the present enterprise is concerned.

The answer to the question is accordingly that there seems to be at least a significant likelihood that the special resolutions would not be valid having regard to the decision of the High Court in WCP Limited v Gambotto . They would appear to be capable of validation only if some reason for the demutualisation of which I am unaware is capable of being identified and is capable of being characterised as falling within the permissible purposes stated by the High Court in that case." 1154 This opinion was not definitive. It was rather obscure as to fairness or oppression, and while focussing on proper purpose did not clearly address the NRMA's purpose and its propriety. No doubt that was why, from an account in a later letter from ME to Ms Conway, Mr Heydon was then asked to advise whether, having regard to the text of the prospectus, any reason had been identified falling within the permissible purposes stated by the High Court. 1155 On 15 March 1995 Mr Heydon advised in conference that he had reviewed the prospectus and had not identified any reason for the demutualisation which would serve to distinguish the facts from those in Gambotto's case. According to the account in the letter, "In particular, purposes relating to unlocking the wealth of the organisations, stabilising their Boards and corporate governance, and improving the 'financial engineering' of the companies would not fall within the permissible purposes stated by the High Court in that case." 1156 Mr Heydon's advices were reported to the board management liaison committee on 21 March 1995. Some members of the committee expressed reservations about the advices, and Mr Easson prepared a paper the thrust of which was that there could be a demutualisation as proposed consistently with Gambotto's case. 1157 ME was asked to obtain further advice, and briefed Mr S E K Hulme QC. Mr Hulme was asked the same question as had initially been asked of Mr Heydon. In a telephone conversation with Professor Austin on 23 March 1994 Mr Hulme advised, as recorded by Professor Austin, "that in your view, the Gambotto case would pose a problem if our clients were to proceed with the special resolutions proposed last year". Professor Austin told Mr Hulme that a written opinion would not be required. 1158 Mr Hulme was then asked, by a letter from ME dated 26 March 1995, to consider three related or consequential questions, probably as a result of Mr Easson's paper. 1159 The first question was whether special resolutions along the lines of the 1994 proposal would be valid if adopted for certain purposes which had been identified as reasons for demutualisation in the paper, some of the reasons not being expressly stated in the prospectus. The reasons were to the effect that the NRMA had to expand its business and improve its competitive position, by increasing its ownership base and its market beyond New South Wales and defeating the medium to long term threat of other organisations; that the NRMA had to improve its corporate governance to remove exposure to populism and ensure the skills required to manage its business; and that the NRMA's surplus capital had to be made available to members; all of which called for change from a mutual structure to the structure of a listed entity. 1160 The second question was whether, as suggested by Mr Easson, there were sufficient points of distinction between the circumstances of the NRMA and Gambotto's case that a new proposal which would by amendment to the articles extinguish the membership of members of Association and Insurance in exchange for shares or a cash alternative "would avoid the Gambotto principle". 1161 The third question was whether a procedure under which membership of Association and Insurance was not extinguished, but the voting rights of members was curtailed so that Holdings would be the sole voting member of Association and Insurance, if implemented by amendment to the articles of association of Association and Insurance without a scheme of arrangement, "would attract the principle in Gambotto". 1162 Mr Hulme provided two opinions dated 3 April 1995. Although he had been relieved of the need to provide a written opinion, the first opinion seems to have addressed the question on which he had orally advised on 23 March 1995. 1163 Mr Hulme was clearly not enamoured of the manner in which the judgments of the High Court were expressed. But he said in the first opinion that if what was to happen constituted the expropriation of a minority, then Gambotto's case was obviously significant because the attainment of the purposes expressed in the prospectus did not justify an amendment introducing a power not previously there to expropriate the minority. In Mr Hulme's view, there would be a compulsory loss of a position seen as being, and being, a valuable one, and that would be an expropriation. Mr Hulme concluded - "15. Accordingly I am of opinion that what is to be done does constitute expropriation; that the decision in Gambotto is likely to stand in its way; that no court lower in the hierarchy is likely to accept an argument distinguishing this case from Gambotto ; and that the chances of the High Court wishing to do so are low.

16. In that last regard it may be noted that the judgment said little as to expropriation occurring via schemes of arrangement, reconstructions etc. But at T 12 the judgment does say that to allow expropriation wherever commercial advantage could be shown (cf passages f and g in para 9 above) would 'circumvent the protection which the Corporations Law gives to minorities who resist compromises, amalgamations and reconstructions, schemes of arrangement and takeover offers'. It appears then that what has been said is not intended to stand in the way of expropriation seen as proper by a court-approved scheme of arrangement. That I fancy means that the High Court would be more likely to expand Gambotto than restrict it, leaving those still wishing to proceed to do so via the method which gives the acquired person the protection of the courts." 1164 The second opinion addressed the three further questions posed in the letter of 26 March 1995. As to the first question, Mr Hulme expressed the view that the purposes identified in Mr Easson's paper took the matter no further, and that "the Easson reasons give no reason to alter the views I have previously expressed". As to the second question, Mr Hulme considered the points of distinction between the circumstances of the NRMA and Gambotto's case which had been identified by Mr Easson, and expressed the view that the NRMA's circumstances were not "sufficiently distinguishable to enable a proposal for amendment of the articles to extinguish the memberships to be drawn in such manner as to avoid Gambotto". As to the third question, Mr Hulme said that depriving members of the right to vote was expropriation for the purposes of Gambotto's case, the right to vote being one of the bundle of rights enjoyed by a shareholder, and that there was no difference of principle between taking all the rights and taking some of them and that a right to vote had a value. Mr Hulme concluded this opinion - "11. The central fact, as I see it, is that having taken a stand of the kind it did in Gambotto , the High Court is not lightly going to let parties find ways to circumvent it. As one considers the various alternatives to the original proposal, one finds Gambotto lying in wait. Increasingly I feel forced to the view that the courts will force the matter into the form of scheme of arrangement." 1165 This was a powerful body of advice that Gambotto's case precluded implementing the demutualisation through special resolutions at meetings of members. In these proceedings the NRMA submitted that in fact it did not do so, but the NRMA could hardly be expected to have acted contrary to the body of advice it was receiving; and it did not blindly succumb to one opinion, but questioned the advice it was receiving and was given confirmatory advice. 1166 ME provided a draft further report dated 29 March 1995 addressed to the boards of Association and Insurance, prior to the written opinions of Mr Hulme. The draft report concluded that it was no longer feasible to revive the meetings which had been convened and adjourned in 1994, or to issue a supplementary prospectus, and that the only feasible alternatives were demutualisation by scheme of arrangement, demutualisation by Act of Parliament, or some form of demutualisation on a "non-compulsory" basis in which members could choose to retain their existing memberships. 1167 There was detailed reasoning in the report, significant in which was that the decision of the High Court in Gambotto's case spelt the end of the meetings. After reference to the reasons of the High Court, and recital of the written and oral advice received from Mr Heydon and the oral advice received from Mr Hulme, it was said - "3.12 Counsels' advice on the implications of the Gambotto case has the effect that the adjourned meetings should be abandoned, because:-

the resolutions of which notice was given would be invalid in some respects, according to Counsel; under s 253 of the Corporations Law, as interpreted by case law, a special resolution moved at a meeting cannot be substantially different from the resolution of which notice has been given; consequently, it would not be permissible to amend at the adjourned meetings the special resolutions proposed by the 1994 prospectus in order to remove their invalidating components; nor would it be permissible to issue amended notices of resolution, as the amended resolutions would be so substantially different from the original resolutions that they could not be treated as mere amendments; therefore the meetings cannot be kept alive if the resolutions are amended to avoid the Gambotto principles.

(It follows, incidentally, that the strategy of reviving the adjourned meetings while issuing a new prospectus is necessarily excluded.)

3.13 The only question which remains is whether a supplementary prospectus can be lodged together with notices convening new meetings which would avoid the invalidating effects of the Gambotto case. To avoid the Gambotto principle, the new resolutions must either:

avoid extinguishing the membership rights of members who oppose the proposal or do nothing (that is, a 'non-compulsory' proposal); or extinguish membership rights in the context of a court-approved scheme of arrangement.

3.14 In either event, the resolutions would need to be substantially different from those contained in the 1994 prospectus.

3.15 The 1994 prospectus is governed by the Corporations Law as in force prior to amendments which commence on 5 September 1994. At that time s 1024 of the Corporations Law provided for the lodgment of a supplementary prospectus in cases of 'significant change' affecting a matter contained in the prospectus and in cases where a 'significant new matter' arose after the lodgment of the prospectus. Section 1033(7) provided for the lodgment of a supplementary prospectus after the Commission had issued a stop order because of a defect in the original prospectus. Clearly the circumstances in which a supplementary prospectus could be lodged were limited. Nevertheless, in ASC Practice Note 45 the ASC took a broad interpretation of these provisions, contemplating that a company which discovers a deficiency in a prospectus may lodge a supplementary prospectus to overcome the defect, or significant new matter, and no stop order has been issued.

3.16 However, notwithstanding this broad interpretation, the ASC expressed the view in Practice Note 45 that there are limits to what may be achieved by a supplementary prospectus. According to the ASC: 's 1024 provides a person who has lodged a prospectus with an avenue to issue additional material connected with the offer or invitation but … it does not allow the use of a supplementary prospectus to make a different offer or invitation.'

3.17 In our opinion, if the proposed resolutions are altered to overcome the Gambotto principle, either by removing their compulsory aspect or by proposing a scheme of arrangement, the offer of shares would be seen by the ASC as a new offer and the ASC would not permit the companies to proceed by supplementary prospectus. As a matter of law, the alteration could not be regarded as a 'significant change' or a 'significant new matter' and consequently a supplementary prospectus would not strictly be authorised by s 1024.

3.18 In all the circumstances, therefore, our advice is that in light of the Gambotto decision and the opinions of Counsel, it is now no longer possible to proceed by way of supplementary prospectus, even with newly convened meetings." 1168 This advice could only have been reinforced by Mr Hulme's written opinions of 3 April 1995. 1169 Before the joint board meeting on 3 April 1995, there was provided to the NRMA an opinion of Mr Garnsey and Mr Camilleri concerning Gambotto's case obtained by Mr Talbot. With detailed reasons following, the subject of the opinion and the conclusions were expressed - " 1. W e have been asked to provide our opinion to Mr Richard Talbot, a Director of NRMA Limited, as to the effect of the decisions of the High Court of Australia in Gambotto v WCP Ltd (1995) 127 ALR 417 and of the Federal Court of Australia in Fraser & Talbot v NRMA & Others (1994) 124 ALR 548; (1995) 127 ALR 543 on the proposed reconstruction and share issue of NRMA Limited and of NRMA Insurance Limited in the form described in the Prospectus which was distributed in August and September 1994 (the 'NRMA reconstruction').

2.1 T he NRMA reconstruction in the form proposed or in any form substantially the same could not be carried out in accordance with law, in the light of the decisions of the High Court of Australia in Gambotto's Case and of the Federal Court of Australia in the NRMA Case .

2.2 N o prudent director of NRMA Limited or of NRMA Insurance Limited, acting with due regard to the duties and obligations of a Director, could resolve to proceed with the NRMA reconstruction or with any proposal substantially to the same effect without obtaining appropriate declaratory and other relief from the Federal Court of Australia or other appropriate Court as to whether the proposed NRMA reconstruction or other proposal was valid and effective in law.

2.3 I n the light of the decision of the High Court of Australia in Gambotto's Case it is difficult, and probably impossible, to carry out any reconstruction of NRMA Limited and of NRMA Insurance Limited involving the conversion of those corporations, now corporations limited by guarantee, to corporations limited by guarantee and a share capital, so as to achieve 'demutualisation' and the listing of shares on the Australian Stock Exchange, which would be valid and effective in law." 1170 This went further than the ME draft report of 29 March 1995, in that it suggested that Gambotto's case precluded even the route of a scheme of arrangement. Professor Austin did not agree, nor did Mr Hulme. But the advice concerning the resolutions in general meetings route would again have been reinforced. More than that, it would have appeared that Mr Talbot now had, and would use, an additional weapon in his opposition to the demutualisation, and would use it to attack not just the proposal but the directors. 1171 ME was asked to prepare a short written report for the joint board meeting of Association and Insurance on 3 April 1995. It did so, recounting in particular the advices which had been received from Mr Heydon and Mr Hulme and referring to the opinion obtained by Mr Talbot, and concluded - "12. In our opinion it is essential for the Boards to make a determination on the first question which Grant Samuel was instructed to consider, namely whether demutualisation is advisable in the interests of the companies and their respective members, without being diverted by questions of implementation. However, it is relevant for the Boards to have our opinion at this stage as to whether, if they decide to proceed with a demutualisation proposal, methods of implementation are available.

13. In Mr Hulme's opinion and our own, the Gambotto case does not prevent the implementation of the substance of the 'share the future' proposal by way of scheme of arrangement. Other possible methods of demutualisation would be pursuant to an Act of Parliament or by means of a proposal which would not compulsorily extinguish memberships. These matters will be fully addressed in our further report." 1172 The reference to Grant Samuel recalls the appointment of Grant Samuel on 27 February 1995, before the decision of the High Court, to provide an independent expert's report. There was a particular issue in the proceedings over the cost of distributing the Grant Samuel report to NRMA members and engaging in a consequential process of consultation. 1173 The Grant Samuel report dated 29 March 1995 had become available on that day, and both it and the ME draft report of that date came before the steering committee in anticipation of the joint board meeting appointed for 3 April 1995. The Grant Samuel report was in favour of demutualisation. It came to the conclusions that demutualisation was in the best interests of Association and Insurance and their respective members, that the proposal set out in the prospectus was fair and reasonable as regards Association, Insurance and their respective members, and that alternative restructuring proposals that would achieve a better outcome had not been identified. The report went into great detail. It did not address how to achieve the restructuring, that is, by special resolutions, scheme of arrangement, or in some other way. 1174 The Grant Samuel report and the ME letter of 3 April 1995 were amongst the documents tabled at the joint board meeting on 3 April 1995. The ME draft report of 29 March 1995 was not in final form, and does not seem to have been formally tabled. Each of the Grant Samuel report and the letter was spoken to. Mr Talbot took issue with the Grant Samuel report on a number of grounds, said to have the support of his solicitors and counsel, broadly to the effect that Gambotto's case made it impossible for Grant Samuel to conclude that the proposed demutualisation was in the interests of members and fair and reasonable. 1175 It was resolved, Mr Talbot dissenting and Ms Singleton and Dr Vanderfield abstaining, that there be consultation to obtain the views of members, staff and the broader community before taking such steps as might be necessary to enable members to determine whether the NRMA should or should not demutualise. Amongst other things expenditure of up to $680,000 for the purposes of the consultation, including the costs of printing and postage of the Grant Samuel report, public meetings, and advertising, was authorised. Board meetings were appointed for 27 May 1995 "to consider demutualisation in the light of the Grant Samuel report, the outcome of the consultation and such other information as may be appropriate". 1176 The Grant Samuel report was distributed to all NRMA members, with a covering letter which drew attention to Gambotto's case as possibly affecting implementation of a demutualisation but said that the question of methods of implementation was one for the future. To appreciate the NRMA's purpose as revealed by the letter, it should be set out - "I enclose a copy of the report by Grant Samuel & Associates Pty Limited dated 29 March 1995. The directors would welcome your views on the report. If you wish to make written comments, please do so by 15 May 1995.

To assist you in considering the report, I would like to explain our purpose in making the report available to members, and to provide you with some background information.

The NRMA and NRMA Insurance are presently mutual associations in which each member has a single vote and no shares have been issued. Grant Samuel were commissioned by the directors to report on proposals to 'demutualise' these companies. 'Demutualisation' refers to any process by which members of a mutual association become shareholders. Normally the shares are quoted on the stock exchange.

At their meetings on 3 April 1995, the directors of the two companies discussed the Grant Samuel report and resolved to seek the views of the members and the broader community before deciding whether to take any further steps towards demutualisation. There will be a process of consultation with members during the period to 15 May 1995, and then the directors will meet again to consider, in the light of members' comments, whether to proceed with any form of demutualisation of the NRMA group.

If they decide to proceed, the directors will then have to consider two further issues.

The first is how to calculate members' entitlements to shares. Please note that, since no decision has been taken on this point, we are not in a position to answer members' questions about entitlements to shares or cash at this stage. The other issue is to choose the most appropriate method of implementation of the proposal. Some comment is needed on this last issue.

It has been said that a recent decision of the High Court of Australia, the Gambotto case, makes it impossible for the directors to proceed with demutualisation of the companies. The companies' lawyers believe that this is not so. Gambotto's case strictly limited the circumstances in which the members of a company may amend its articles of association to extinguish minority memberships. It does not deal with the implementation of a proposal for demutualisation by other means, such as a court-approved scheme of arrangement. But the question of methods of implementation is one for the future.

This is only the first stage of a process of consultation. Members will be further consulted on issues to do with implementation if the directors decide in favour of a demutualisation proposal. In that event, a concrete proposal will be put to members with full and adequate explanation, and members will have the opportunity to vote for or against that proposal.

You are not asked to make any decisions or cast any votes at this stage. You are simply invited to express any views which you may have on any aspect of demutualisation, including matters raised in the Grant Samuel report and any relevant matters which you think the report should have covered but has not.

This is not a poll or ballot. Nor is it an offer or invitation to take up shares. As members are aware, when demutualisation was proposed in 1994, a prospectus was issued to members, but when the Federal Court found that the prospectus was misleading or deceptive, the demutualisation process was halted.

In summary, the directors of the NRMA and NRMA Insurance invite you to consider the Grant Samuel report and then, if you wish, make written comments by 15 May 1995. Please address your comments to: Reply Paid 37 NRMA Members Feedback Locked Bag 1994 GPO Sydney NSW 2001 Whatever may be decided, the directors wish to ensure that members are given an adequate opportunity to express their views." 1177 The point was expressed by Mr Mackay by his evidence that "The members were in a very confused state: was demutualisation a good or a bad thing? Why had it failed? We wanted to allay some of their fears." And he still thought demutualisation was in the bests interests of the NRMA. 1178 Advertisements were placed, public consultation meetings were held, and market research was undertaken. Mr Talbot's threatened proceedings to restrain the distribution of the Grant Samuel report did not eventuate, but he moved for, and was granted, leave to amend the existing (fresh) Federal Court proceedings to include a claim that the consultation process was misleading conduct. 1179 At the joint meeting of the boards of Association and Insurance on 27 May 1995 there were presented a report on the public consultation meetings, a report on the written "feedback" received by the NRMA, and a report from ME entitled "Status of the 1994 Proposals". 1180 The first two reports were to the effect that the membership was negative and a 75% vote of members in favour of demutualisation was unlikely. The third report concluded - "12. In summary, on the basis of legal advice the position is that it is not feasible to · proceed with the meetings convened and adjourned in 1994; or · issue a supplementary prospectus,

having regard to the impact of the decision in the Gambotto case and all other relevant circumstances.

13. It therefore seems appropriate for the Boards to resolve that the 1994 meetings and prospectus should be abandoned, while leaving open the question whether similar proposals should be put forward by convening new meetings and issuing a new prospectus, or by proceeding in some other way, in the future." 1181 The Grant Samuel report was further considered so far as it concerned reasons for demutualisation, reasons against demutualisation, and alternative approaches to demutualisation. A further ME report, described as "Options For The Way Forward", was noted and discussed, as was a report concerning corporate governance. The former report posed, without recommendation of any one of them, four "broad options" for consideration, namely - "(a) do nothing;

(b) defer going to members to change structure until after 1995 AGM and elections;

(c) ask management to develop for the Boards' consideration a concept document which addresses the concerns coming out of the consultation and the key outcomes of the Independent Expert's Report;

(d) implement essentially the 1994 proposal to demutualise by 'mandatory' scheme of arrangement." 1182 The meeting was lengthy, extending over eight hours. The minutes recorded - "Professor R Austin of Minter Ellison presented a report on the Status of the 1994 Proposals.

After discussion, it was resolved that, having regard to the matters outlined in the report entitled 'Status of the 1994 Proposals' prepared by Minter Ellison and dated 24 May 1995, the October 1994 meeting and prospectus not be proceeded with." 1183 Later the minutes recorded - "Having considered the views of Professor R Austin on Proper Corporate Purposes, the Board resolved that it reconfirms its decision to propose to members a re-structuring of the company in order to achieve a widely-based service-oriented organisation for the reasons set out in the independent expert's report by Grant Samuel & Associates Pty Limited, dated 29 March 1995.

Ms FJ Singleton and Mr RJ Talbot voted against the motion.

The Board further resolved to request management to develop for the Board within three months a concept document to address the concerns coming out of the consultation process and the key concepts of the independent expert's report.

Ms FJ Singleton and Mr RJ Talbot voted against the motion.

The Board further resolved that any proposal subsequently adopted in principle be fully communicated to members and they have ample opportunity to consider and comment on it before implementation.

Mr RJ Talbot abstained from voting." 1184 So the proposal, at least the proposal as reflected in the prospectus, came to an end, but with the majority on the boards still in favour of restructuring the NRMA. In a manner which it is unnecessary to describe, Mr Talbot's fresh Federal Court proceedings, which had been progressing with some vigour, were then terminated.

VII GAMBOTTO LIABILITY 1185 The NRMA's case, as summarised in submissions, was that it should have been advised by the defendants that Gambotto's case was on appeal to the High Court and, after 10 December 1993, that the appeal had reasonable prospects of success and there was a real risk that the High Court's decision might adversely impact upon the proposal; had that advice been given, the boards would have voted to stop or slow down the proposal and much, if not all, of the expenditure later incurred would have been avoided. The preferred date by which the advice should have been given and would have been acted on was 17 March 1994, when the proposal was put before the boards. The fall-back date was 28 April 1994, the date of the first board meetings after the hearing of the appeal. 1186 If Gambotto liability be found, the NRMA's damages would be at most that part of the wasted expenditure incurred after 17 March 1994 or 28 April 1994, rather than the entire wasted expenditure. At one point in the course of the hearing the NRMA said that it would be necessary to consider free shares/disadvantages liability only if there was not Gambotto liability, but it became evident that this was incorrect. Damages in relation to the wasted expenditure incurred after 17 March 1994 or 28 April 1994 would pick up the majority of the wasted expenditure, but it would still be necessary to consider free shares/disadvantages liability because the NRMA's claims there extended to earlier expenditure as wasted expenditure. 1187 A number of the defendants' defences would not apply to Gambotto liability. It is desirable to repeat what I earlier said, that not all the facts described are of great moment in my decision of these proceedings. What follows takes up the matters leading to my conclusions on Gambotto liability by general rather than detailed reference to the facts I have described, but in the light of all the facts. 1188 In accordance with the earlier description of the claims against the defendants, save as to contributory negligence it is not necessary to distinguish between the claims for negligence and the claims for breach of contract. I will deal in turn with negligence, causation, and defences. Negligence 1189 The defendants were bound to exercise due care, skill and diligence, bringing to their task the competence and skill usual amongst solicitors or barristers (as the case may be) practising their profession and taking proper care in what they did (Voli v Inglewood Shire Council (1963) 110 CLR 74 at 84; Midland Bank Trust Co Limited v Hett Stubbs & Kemp (1979) 1 Ch 384 at 403). Each of AAH, AT and Mr Heydon professed to be, and was, expert in corporations law, and the care, skill and diligence to be exercised was that appropriate to a member of the relevant profession having such specialist expertise (Duchess of Argyll v Beuselinck (1972) 2 LLR 172 at 185; Rogers v Whitaker (1992) 175 CLR 479 at 483; Yates Property Corporation (in Liquidation) v Boland (1998) 157 ALR 30 at 50-51; Montague Mining Pty Ltd v Gare (Wilcox J, 23 October 1998, unreported). 1190 The obligation was nonetheless one of reasonable care: "the duty of care is not a warranty of perfection" (Duchess of Argyll v Beuselinck at 185; see also cases cited below when noting that negligence by the lawyers does not automatically follow from the decisions of Gummow J and the Full Court). It was not suggested that Mr Heydon was entitled to the advocate's immunity considered in Giannarelli v Wraith (1988) 165 CLR 543. 1191 The due care, skill and diligence were to be exercised in doing what the solicitors were retained or Mr Heydon was briefed to do. Because a solicitor's duty lies in tort as well as contract, it may be that in the particular circumstances it may require that the solicitor go beyond the specifically agreed professional task or function if that is necessary to avoid a real and foreseeable risk of economic loss being sustained by the client (Hawkins v Clayton at 579; Waimond Pty Ltd v Byrne at 652; Citicorp Australia Ltd v O'Brien (1996) 40 NSWLR 398 at 418). 1192 In the present case I have no doubt that the retainer of AAH and AT extended to advice upon the possible risk to the proposal from the appeal to the High Court in Gambotto's case, if the exercise of due care, skill and diligence so required, and that the briefs to Mr Heydon similarly required him to advert to that risk if the exercise of due care, skill and diligence so required. 1193 As to AAH and AT, they were called upon to advise the NRMA whether the proposal could and should be implemented by scheme or meeting, and a risk in the resolutions in general meetings route was clearly something to which they should have had regard and of which they should have informed the NRMA. As to Mr Heydon, as a minimum he was asked by the revised brief delivered on 15 or 16 December 1993 to advise "whether there is a legal requirement to proceed by scheme of arrangement … or whether it is sufficient if the necessary resolutions are passed by members in general meeting". If a risk to the proposal because the resolutions would be "necessarily oppressive" (to take up Professor Austin's concise expression) should have been seen, reference to the risk should have been part of the advice. In the circumstances, it would not have been sufficient for AAH, AT, or Mr Heydon simply to advise that the proposal could be implemented by the resolutions in general meetings route, if of that view after weighing arguments for and against, without informing the NRMA of a risk forming one of the arguments against. In the language of the brief to Mr Heydon, resolutions in general meetings would not be sufficient, either as the obverse of a legal requirement to proceed by way of scheme of arrangement or as a course for the NRMA to undertake, if there were a risk. 1195 More widely, the question was whether to proceed by the resolutions in general meetings route or the scheme of arrangement route had significant practical implications, given that opposition to the proposal was expected. AAH and AT were well aware of this, and it was made known to Mr Heydon. This emphasised, if it were not already evident, that the risk of a necessarily invalidating impediment to the resolutions in general meetings route should be brought to account. 1196 The NRMA did not call a solicitor or a barrister to give expert evidence of the practice of solicitors or barristers in the positions of the defendants, or of what a solicitor or barrister in the position of the defendants would have done. Nor did the defendants, subject to what I will say about the evidence of Mr Bennett to which I will shortly refer. The NRMA drew attention to the deprecation of calling such evidence in Midland Bank Trust Co Limited v Hett Stubbs & Kemp at 402, embraced (after the hearing of these proceedings began) in Yates Property Corporation (in Liquidation) v Boland at 55-6. 1197 I express no view on whether expert evidence could or should have been called in the present case: perhaps it would not have been easy to identify areas of practice. The fact is that, again subject to what I will say about the evidence of Mr Bennett, there was no evidence from persons outside the relevant transactions to assist in giving content to the due care, skill and diligence required of the defendants. It falls to the Court itself to provide that content (see Negal v Power (1967) SASR 373 at 376; Fox v Everingham (1983) 76 FLR 170 at 178-9; Waimond Pty Ltd v Byrne at 654; Amadio Pty Ltd v Henderson (1998) 81 FLR 149 at 217). 1198 AAH called Mr Bennett, whose expertise in corporations law and experience in practice as a barrister were unquestioned, not to give evidence of practice but to give evidence of what he, Mr Bennett, would have done and advised if briefed in December 1993. The evidence was led to found a submission as to causation to the effect that, had Mr Heydon given the Gambotto advice which the NRMA said should have been given, the NRMA would have asked for a second opinion, Mr Bennett would have been briefed to advise on the relevance of Gambotto's case to the proposal, Mr Bennett's opinion would have allayed any fears of risk to the proposal in connection with Gambotto's case, and the NRMA would not have stopped or slowed down the proposal. Other parties enlarged Mr Bennett's evidence in cross-examination, and his evidence even of what he would have done and advised was inevitably drawn on by the parties, in different ways, in endeavours to give content to the due care, skill and diligence required of the defendants. 1199 Mr Bennett's evidence was founded on a brief in fact delivered to him in July 1998. The brief provided a copy of the revised brief delivered to Mr Heydon on 15 or 16 December 1993, asked that it be assumed (amongst other things) that Mr Heydon had advised "without addressing the question of oppression" that the proposal could be implemented by resolutions in general meetings, drew attention to Gambotto's case and the pending appeal to the High Court, and asked Mr Bennett to advise - (a) as at January 1994 "whether the fact that Gambotto has gone on appeal to the High Court has any relevance to the plan to implement the proposal by way of special resolution at members' meetings and if so, what relevance"; and (b) as at May 1994, after the hearing of the appeal, "if there is anything you wish to add to your opinion or if you wish to change your opinion in any way". 1200 In summary, in his evidence in chief Mr Bennett said that without perusal of the transcripts of the application for special leave to appeal or the argument on appeal he would have said that the appeal to the High Court in Gambotto's case was likely to fail; with perusal of the transcript of the application for special leave to appeal, he would have said that there was a possibility of the appeal being allowed, although a less than 50 per cent prospect of success; with perusal of the transcript of the argument on the appeal, he would have said that there was a reasonable prospect of the appeal succeeding, "possibly slightly in excess of 50 per cent"; and that in both instances he would have said that the possible allowance of the appeal in Gambotto's case would not affect the proposal. 1201 Mr Bennett's reasons for this last view were that the proposal and the expropriation in Gambotto's case were quite different; first, in that in the proposal all members were treated equally because all lost their memberships and had an entitlement to shares or cash; secondly, in that the members could continue to enjoy the same assets as shareholders; and thirdly, in that in Gambotto's case the interests and wishes of the majority differed from those of the minority but under the proposal the interests of all were identical. In his oral evidence he said that he thought that "the parameters of Gambotto at the trial and in the Court of Appeal are sufficiently narrow that it would be unlikely in the extreme that any decision by the High Court, even one allowing the appeal, would be so wide as to apply to this very different sort of proposal". He confirmed that he would have come to these views having exercised reasonable care. 1202 For the present concentrating on Mr Bennett's evidence so far as it might give content to the due care, skill and diligence required of the defendants, the cross-examination established that, in order to advise whether the appeal in Gambotto's case was likely to affect the proposal, he would have required to see the transcripts, and that he would have foreseen a successful appeal more readily after the grant of special leave and would have expected the High Court to decide the appeal by reference to principle rather than on the particular facts. To this extent the NRMA's case was assisted, while remembering that the course which Mr Bennett would have taken and his expectation were not necessarily the general or required course and expectation of a lawyer acting with due care and skill - for example, they may have exceeded what was involved in the exercise of due care, skill and diligence. With a similar qualification, in saying that, for the reasons outlined, he did not think that the High Court was likely to express a principle so wide as to affect the proposal, Mr Bennett's evidence was adverse to the NRMA's case, but did not directly address that case in that it presupposed awareness of the possibility that Gambotto's case might impact on the proposal. Mr Bennett was asked to advise on that possibility. Even if Mr Bennett thought that Gambotto's case would not impact on the proposal, should a lawyer in the position of the defendants have adverted to the possibility? (a) Mr Heydon 1203 I have found on the probabilities that Mr Morgan did refer to Gambotto's case being on appeal at the conference on 14 December 1993, and so that Mr Heydon was made aware of the appeal - even if only in a loose sense which could have conveyed an application for special leave to appeal or the grant of special leave to appeal - if he was not otherwise aware. 1204 In any event, I consider that Mr Heydon should have been aware of the appeal, consistently with the exercise of due care, skill and diligence. Gambotto's case was a relevant case, at the least as a recent appellate discussion of what could constitute oppression, and had been cited prominently in the brief; it was specifically referred to at the conference as the most recent case in the area. The report at hand disclosed that an application for special leave to appeal had been filed, and even if Mr Heydon thought that the Court of Appeal was correct in what it had said it was incumbent on him, in my view, to take note that an application for special leave to appeal had been filed and follow it up to see whether special leave to appeal had been granted. If a grant of special leave to appeal had been granted, that would indicate that members of the High Court considered that there was a point of principle requiring clarification or correction, and that there was at least a prospect that the appeal would be allowed. So the filing of the application for special leave to appeal could not be ignored. 1205 In referring to at least a prospect of a successful appeal, I put aside the evidence tendered by the NRMA by way of a statistical analysis of applications, grants, and appeals, since it did not allow for different kinds of cases and to my mind would not be part of the armoury of knowledge which a barrister would bring to the practice of his profession. But I accept that from general knowledge and experience a barrister would recognise, as did Mr Bennett, that a grant of special leave to appeal warns of doubt about the reasons for the decision appealed against, and Mr Heydon's experience was that about fifty per cent of appeals to the High Court succeeded and that the decisions were generally at the level of legal principle. The percentages do not much matter. The prospect of reconsideration at the level of legal principle is what matters. 1206 Had he noted and followed up the application for special leave to appeal, Mr Heydon would have found that special leave to appeal had been granted on 10 December 1993. Even if he did not then obtain the transcript of the application for special leave to appeal, he should have seen the prospect that the appeal would be allowed to which I have referred (which not to say that the appeal was more likely than not to succeed). What did the exercise of due care, skill and diligence, from someone expert in the relevant field of law, require? 1207 I remind myself that hindsight must be avoided, and so that the upholding of the appeal and the reasons given in the High Court must not govern the answer to that question. The answer is to be found in an analysis of what upholding the appeal could mean for the proposal, viewed as at December 1993. But it must not be forgotten that Mr Heydon was an expert in the relevant area of the law, and was briefed as such. The exercise of reasonable care, skill and diligence required appropriately thoughtful and informed analysis. 1208 I return to the earlier observations about Gambotto's case, up to the decision of the Court of Appeal. The effect of the decision of McLelland J was that the fact of expropriation was enough to constitute oppression. The effect of the decision of the Court of Appeal was that, if the expropriation was fair, the fact of expropriation would not make the exercise of the power to change the articles invalid. Both McLelland J and the Court of Appeal found unhelpful the test of constraint according to exercise of the power bona fide for the benefit of the company as a whole, and the High Court in earlier cases had said much the same. The outcome did not turn on oppression because of unfairness, because the acquisition of the shares was on fair terms. So if the appeal were upheld it was in prospect that it would be upheld pursuant to a principle fashioned by the High Court, other than a test of the exercise of the power bona fide for the benefit of the company as a whole, by which the fact of expropriation, quite apart from fairness, constrained the exercise of the power. 1209 The principle could be as blunt as that upon which McLelland J had apparently acted (and his Honour was a respected and experienced judge in this area), or could leave room for expropriation if a condition or conditions other than fairness were met, but the prospect was of constraint on the exercise of the power to amend the articles greater than as held in the Court of Appeal. At the heart of any such constraint was likely to be (as in fact was evident in the High Court's reasons, although for present purposes that must be put aside) that valuable proprietary rights were at stake, something foreshadowed in the observation of Priestley JA in the Court of Appeal that the divesting of property from an owner without that owner's consent will often attract community opinion that the divestment was oppressive and/or unjust. Whatever was meant by expropriation, and notwithstanding points of distinction such as those seen by Mr Bennett, if under the proposal members arguably lost valuable proprietary rights, a successful appeal in Gambotto's case could mean that the proposal could not be implemented by resolutions in general meetings. 1210 In my opinion analysis of this kind should have led Mr Heydon to see in a grant of special leave to appeal in Gambotto's case a risk in proceeding by the resolutions in general meetings route. Perusal of the transcript of the special leave application, which I think should have been done, would have heightened concern about a risk, because the court did not call on the applicant. 1211 And, if the grant of special leave to appeal signalled the need to peruse the transcript of the argument on appeal in due course, such perusal would have given further grounds for the analysis. Mason CJ spoke of lack of power to amend articles with the effect of expropriating minority shareholders, not of oppression. So did Brennan J. McHugh J spoke of prima facie oppression to take someone's shares away, and of infraction of proprietary rights, and asked "Why should not a statutory power be read subject to the exception if it is not intended to take away such a fundamental right as your right to possess their own share" (sic: the transcript is corrupt, but the meaning is clear). Dawson J responded to the submission "One cannot say just because it is an expropriation it is oppressive" with a direct "Why not?". Going back to December 1993, these attitudes in the High Court could and should have been foreseen by a barrister professing the expertise of Mr Heydon. 1212 In my view, the risk of a decision on appeal adverse to an expropriation of shares in the circumstances of Gambotto's case should have been seen. The members of the NRMA had proprietary rights of at least some value, which Mr Morgan himself had equated with the proprietary rights of a shareholder in a company limited by shares (see in particular his letter of 4 November 1993), and which Mr Heydon recognised (although perhaps describing them as weak rights) in the conference on 29 April 1994 and his opinion of 14 June 1994. There was a difference between the majority expropriating the shares of the minority and a divesting of all memberships in return for shares or cash, but common to both was that proprietary rights were compulsorily taken away by voting power in general meeting. A risk to compulsory divestment of membership should also have been seen, depending on the principle fashioned by the High Court and its basis, and the prospect to which I have referred included that the appeal in Gambotto's case would affect the implementation of the proposal. 1213 I do not overlook the evidence of Mr Bennett. I am far from sure that, in the circumstances in which it was given in chief and by cross-examination, it could properly be taken as evidence of what the exercise of due care, skill and diligence required (more precisely, did not require). But, so far as the views of individual lawyers upon the significance of the appeal in Gambotto's case to the proposal may be taken into account as evidence of practice, it is balanced, if not outweighed, by the attention given by CU, ME and NS to the appeal as something to be known about in order properly to advise the NRMA, and by Professor Austin's express view, prior to the decision of the High Court, that a decision in favour of Mr Gambotto might present a problem because the compulsory extinguishment of membership might be necessarily oppressive. Perhaps these firms and Professor Austin had the benefit of the transcript of the argument on appeal, but the attitudes earlier mentioned would not have been unexpected if the process of analysis I have described were undertaken. 1214 That Mr Morgan saw the appeal in Gambotto's case as something to be watched in November 1994 could only tip the scales further. The preponderance of such "expert" evidence as there was in what Mr Bennett, these firms, and Professor Austin thought and did or would have done, in my opinion favours the NRMA's case, and is consistent with the view to which I would have come in the absence of the assistance gained from that evidence. 1215 It was nonetheless submitted that, taking Mr Bennett's evidence as evidence of what advice could have been given without carelessness even though others might have seen and advised of a risk (CU, ME, NS, and Professor Austin), it would not have been negligent for the defendants to conclude that Gambotto's case would not affect the proposal and so not advise of risk in proceeding by the resolutions in general meetings route. I repeat my doubt about this use of Mr Bennett's evidence, and in any event do not accept the submission. 1216 Although concluding that it was "unlikely in the extreme" that a decision upholding the appeal would be "so wide as to apply to this very different sort of proposal", Mr Bennett explained his reasons. The reasons were open to debate, and a different opinion was at the least reasonably open. As I have explained Mr Bennett was asked to advise of the relevance to the implementation of the proposal of the appeal to the High Court in Gambotto's case, and his evidence presupposed awareness of the possibility that Gambotto's case might impact on the proposal. Mr Heydon did not recognise or give thought to the possibility. In my opinion the issue posed was such that, notwithstanding that Mr Bennett saw a reasonably clear answer, there was still a risk which should have been recognised in advice to the NRMA. 1217 Perhaps curiously, in order to repel a causation argument in connection with free shares/disadvantages negligence to which I will come, the NRMA itself submitted that Gambotto's case as decided by the High Court would not have prevented the demutualisation from proceeding. It said that there were two "simple and obvious" features taking the proposal out of the reach of Gambotto's case. One was that there was no expropriation by a majority because the majority was not expropriating anything. The other was that everyone was treated equally, and all were given the same option. These features have some similarity to those underlying Mr Bennett's reasons for advising that Gambotto's case would not affect the proposal. They are, however, a product of knowledge after the event, and I am not moved by the NRMA's present stance in this respect to depart from what I have said in the preceding paragraphs. 1218 In my opinion, therefore, in responding to the revised brief delivered on 15 or 16 December 1993 Mr Heydon should have adverted to the grant of special leave to appeal to the High Court in Gambotto's case, and should have warned that if the appeal were upheld it might be upheld on grounds inimical to the validity of resolutions in general meetings having the effect that members of the NRMA were deprived of their memberships. Mr Heydon may have thought, and said, the appeal would not succeed, or that if it succeeded it would not succeed on grounds relevant to the proposal, but he did not advert to Gambotto's case in this respect, to an appeal in Gambotto's case, or to risk. At the least, a warning whereby further consideration should be given to the risk when the appeal had been heard, with the benefit of the transcript of the argument, should have been given., If that had been done, as earlier explained the transcript of the argument would have given further grounds for the analysis I have described. 1219 I do not think that, as faintly suggested in the conduct of Mr Heydon's case, failure to advert to the risk can adequately be explained by the reservation for a later occasion of advice on the other issues in the brief, or by the course taken at the conference on 2 February 1994 when those other issues had been raised in the brief of 25 January 1994 and the letter of 31 January 1994. Certainly the other issues and parts of the later brief and letter were to do with oppression, but oppression because of unfairness. The potential in the appeal to the High Court in Gambotto's case was in a sense to do with oppression, but not oppression because of unfairness; rather, oppression because of the expropriatory nature of the proposal. For reasons I have explained, oppression of that kind fell within the advice required of Mr Heydon in December 1993, but if it was not then the subject of advice there were occasions in February and March 1994 when, with appreciation that the issue was not oppression because of unfairness but oppression because of the expropriatory nature of the process, Mr Heydon should have returned to it. 1220 It is, I think, appropriate to test what I have said against evidence of Mr Heydon. Without setting out the passages, there can be found in his evidence acceptance that - (a) if he had been aware of the appeal, he would not have expected the High Court to have decided Gambotto's case on the facts, but would have expected that "either some renewal of existing principle or some change to it was likely to occur"; (b) when he first read Gambotto's case (in context, before the decision of the High Court) he recognised it as a case dealing with the elimination or extinguishment of the rights of shareholders; (c) it was a case about whether expropriation of shareholders, even for an adequate value, was "as it were per se unlawful"; (d) if one knew only that there was an appeal to the High Court "it would be difficult to think of any other significant issue in that appeal except a resolution of the difference between the trial judge and the Court of Appeal"; (e) the decision of the Court of Appeal "sanctioned the use of the resolution path as a means of expropriating minority interests"; (f) the appeal to the High Court was appropriately described as an examination of the legitimacy of one of the methods of acquiring minority held shares; namely, the method of alteration of the articles of association; (g) he recognised when he read and heard the explanation of the proposal that it involved the extinguishment or termination of membership of Association and Insurance; (h) he had no recollection one way or the other of recognising that to that extent Gambotto's case "bore upon the questions at issue" (but he did not agree that in retrospect it would be "hard to have missed the point"); (i) the question "Why can't he say I just want to stay a member of Association and Insurance" (see Mr Heydon's note for the conference of 7 March 1994) was "the very case Mr Gambotto was making"; that issue was "a Gambotto style issue". 1221 Mr Heydon gave his evidence carefully and with candour, and in these respects it seems to me to support the position that, had he given attention to the appeal, he would have seen that the appeal in Gambotto's case might be upheld on grounds inimical to the validity of resolutions in general meetings having the effect that members of the NRMA were deprived of their memberships. That position is supported, in my view, even when Mr Heydon said that it was his view in 1993-94 that it was not necessary for a company wishing to proceed by way of members' resolution in a proposal such as the NRMA's proposal to establish that its purpose was to secure itself from significant detriment or harm (that being a necessary purpose stated in the decision of the High Court). He did not give attention to the appeal. 1222 Mr Heydon said in his evidence that he had not "put myself in my chair in 1994 to see looking forward what the outcome might be" if advising on the likely result of the appeal or the effect of a successful appeal on the proposal, and that he could not do that in a reliable way in the witness box because it would be necessary to engage in quite an extensive inquiry into the cases and texts. He said that "what the High Court did was, as it were, survey the earlier authorities and propound a view different from the Court of Appeal. A similar sort of process of analysis would have to be undertaken if one was to try and predict what would happen to the Court of Appeal's judgment once the High Court had decided the case". On one view, there was in this a degree of acceptance that there was occasion for such an inquiry. (b) AAH and AT 1223 The reasoning I have outlined in relation to Mr Heydon applies in principle to AAH and AT. I do not accept their submission to the effect that it was not a breach of the duty of care to fail to be aware of the application for special leave to appeal, or of the appeal, or to fail to perceive that Gambotto's case might present a risk to the proposal. 1224 Mr Morgan and Mr Bateman professed and had expertise in corporations law. They could and should have followed up the application for special leave to appeal, and undertaken the analysis I have described - they were not tyros in the field, or general practitioners entitled to rely on others with greater expertise. What I have said in relation to Mr Heydon applies to them also. But there was more. 1225 Mr Bateman had questioned whether a minority of members could deprive the majority of membership, and Gambotto's case had been specifically raised by Mr Morgan as the answer to his concern. Mr Bateman's answer was that Gambotto's case as decided in the Court of Appeal may not provide a sound basis for proceeding by the resolutions in general meetings route, for reasons only partially involving necessarily oppressive expropriation, but one would have expected Mr Morgan and Mr Bateman to ensure that the application for special leave to appeal was followed up and that regard was had to the pending appeal in the advice which would direct the important choice between scheme or meeting. 1226 Strangely, the grounds for Mr Bateman's concern were not translated into the brief to Mr Heydon, and while Gambotto's case in the Court of Appeal was prominent in the observations in the brief it was not put forward as relevant to the essential disagreement between Mr Morgan and Mr Bateman, whether the fact of something like expropriation would make the exercise of the power to amend the articles invalid. 1227 Concentration on Gambotto's case as relevant only to oppression in the sense of unfairness, by reason of the basis of entitlement, seems to have sent the advice on scheme or meeting down a narrower path than was warranted, and the solicitors did not adequately address either the grounds for Mr Bateman's concern or, following through Mr Morgan's view that Gambotto's case in the Court of Appeal did provide a sound basis for proceeding by the resolutions in general meetings route, whether the pending appeal might affect that basis. They did not give thought to an analysis of the kind I have described when dealing with Mr Heydon's position, but their positions and expertise were such that they should have. 1228 Had they done so, it would have been obvious to them that Mr Heydon had not given due attention to the risk from the appeal to the High Court in Gambotto's case to implementation of the proposal by resolutions in general meetings. The opinion of 20 December 1993 did not refer to Gambotto's case at all. It was primarily concerned with the source of power in s 167 of the Law and the memoranda and articles of Association and Insurance, and did not consider possible constraint on the exercise of the power because of something like expropriation. For reasons I have given, reservation of oppression for a later opinion should not have been seen as the explanation for the deficiency, but in any event neither AAH nor AT took steps to ensure that, when oppression was dealt with (to the extent to which it was), the present relevance of Gambotto's case, and the possible significance of the appeal to the High Court, were addressed and the subject of advice. So AAH and AT left the NRMA without that advice, and because they did not themselves address risk to the proposal from the appeal to the High Court in Gambotto's case, or ensure that Mr Heydon addressed it, they also did not exercise due care, skill and diligence. 1229 In what I have said I have put AAH and AT together. It was submitted by AT that its position was different from that of AAH. It was said that Mr Bateman had expressed reservations at the meetings of 3 and 6 December 1993 on the question of scheme or meeting, saying he thought a scheme of arrangement was necessary; that Ms Conway and Mr Rees at the meeting of 6 December 1993 had firmly said that Mr Morgan would deal with the matter; that Mr Bateman maintained his reservations, and brought them to the meetings of the due diligence committee on 30 March 1994 and 1 July 1994; that Mr Morgan had been left to obtain a final opinion from Mr Heydon; and that the opinion (Mr Heydon's opinion of 28 July 1994, which Mr Bateman did not see until mid-August 1994) was plain. According to the submission, Mr Bateman had "legitimately deferred to and relied on the opinions of those retained and briefed on the matter when his view had been specifically not preferred by the client". It was not for him to speak out any more than he had done, and his sign-off letter was accordingly and appropriately qualified in para 5.2 to exclude an opinion concerning "whether the resolution of members will bind all members". 1230 I do not think this answers the basis for my conclusion that AT, in common with AAH, did not exercise due care, skill and diligence. 1231 Having expressed his reservations, which he attributed to a feeling that the resolutions in general meeting route was not right rather than to risk from Gambotto's case or any other reasoned regard to statute or general law, Mr Bateman's obligation was to see that the NRMA received proper advice. His reservations had been answered by reference to Gambotto's case, and when Gambotto's case was on appeal it followed that the answer might shortly lose its basis. For that reason alone, one would have expected Mr Bateman to speak out more than he had done, but as well the reasons I have given meant that the proper advice included regard to the appeal in Gambotto's case. 1232 As I have said, it would have been obvious to Mr Bateman that Mr Heydon had not given due attention to the risk from the appeal to implementation of the proposal by resolutions in general meeting. His own continued reservations raised on 30 March 1994 and 11 July 1994 show that he did not think the NRMA had been properly advised. He did not himself give attention to the risk, or pursue attention to it by Mr Heydon or Mr Morgan, and the opinion of 28 July 1994 was as silent as the opinion of 20 December 1993 on the matters which had excited Mr Bateman's reservations and on Gambotto's case. Mr Bateman could not adopt a passive role, and in doing so, and failing himself to have regard to the pending appeal in the choice between scheme and meeting, he did not discharge his duty of care. 1233 Mr Bateman referred to and relied on what was said to be an analogous situation in Unioil International Pty Ltd v Deloitte Touche Tohmatsu (Ipp J (1977) 17 WAR 98, only reported in part; FC, 30 September 1998, unreported). I do not think that case assists AT's submission. The plaintiffs made a disastrous investment in a corporate group. Accountants and solicitors were engaged to undertake a due diligence investigation of the group. Ipp J considered and made findings on the demarcation of the work to be done between the accountants and the solicitors, and said that the ambit of the solicitors' duty depended on what they were to do. He accepted that if in the course of their work the solicitors came into possession of information which was not confidential and was clearly of potential significance to the client, the solicitors should advise the client of it, and that both professionals should advise of any "deal breakers". In the present case, as I have said, the retainer of AT extended to advice upon whether the proposal could and should be implemented by scheme or meeting, which included regard to and advice on risk in the resolutions in general meetings route. Mr Bateman was not absolved from attention to that matter when he knew or should have known that it had not properly been addressed. 1234 AAH submitted that it was entitled to rely on Mr Heydon's advice in discharging any duty of care concerning Gambotto's case. The detail in support of the submission seemed to go beyond it, and in large part to be unrelated to it, but included that AAH acted reasonably in obtaining Mr Heydon's advice and, in doing so, referring him to Gambotto's case in the context of the validity of proceeding by members' resolutions. The detail going beyond the submission seemed to contend that there was no breach of the duty of care owed by AAH because any risk posed by the appeal in Gambotto's case was "outside what a competent practitioner at the time would regard as being within the traditional issues associated with oppression". 1235 The submission so far as it concerned reliance on Mr Heydon's advice is answered by what I have already said. The retainer of AAH required that it exercise due care, skill and diligence in acting for the NRMA, and it did not cease to have that obligation because it briefed Mr Heydon. Particularly where Mr Morgan professed and had expertise in corporations law, the NRMA was entitled to the benefit of his expertise, including participation with Mr Heydon in ensuring that a relevant matter was addressed by him: cf Yates Property Corporation (in Liquidation) v Boland at 48-9. The submission so far as it concerned traditional issues associated with oppression is also answered by what I have said. On an analysis of the kind I have described, the traditional issues associated with oppression were under challenge, and the competent practitioner should have so recognised (as a number of practitioners did). 1236 AT put a slightly different submission. It said that it was reasonable for Mr Bateman to act on the law declared in a unanimous decision of the Court of Appeal until it was overturned, particularly when eminent senior counsel experienced in the field had expressed his agreement with the decision and had not thereafter withdrawn or qualified his agreement. In the circumstances I have outlined I do not agree that it was reasonable; in brief, the submission ignored the significance of a grant of leave to appeal and the inattention to it by the senior counsel to which I have referred. Causation 1237 The advice about scheme or meeting was obtained while management was developing the proposal for presentation to the boards. As earlier recorded, in relation to causation the NRMA's case was that if the Gambotto advice had been given the boards would have voted to stop or slow down the proposal and, if not all, of the expenditure after 17 March 1994 or 28 April 1994 would have been avoided. 1238 Implicitly, it was accepted by the NRMA that warning of risk to implementation of the proposal by the resolutions in general meetings route would not have caused management to abort the proposal, and that management would still have presented the proposal to the boards on (as it happened) 17 March 1994, but with deferral of the proposal until after the decision of the High Court was known as one course open to the boards. A decision to proceed by way of scheme of arrangement was not put forward as an alternative course, either in the NRMA's evidence or in submissions - indeed, in submissions the NRMA said that it was not part of its case that there should have been advice that the risk posed by Gambotto's case might be avoided by taking the scheme of arrangement route. 1239 There is some artificiality in this. Had there been given in December 1993 the Gambotto advice which the NRMA said should have been given, management may well have directed the development of the proposal along the scheme of arrangement route. The two alternatives were squarely posed at the beginning of December 1993, and were recorded for decision by or on 4 January 1994. While there was a preference for the resolutions in general meetings route, because it was perceived that there would be a lesser platform for opponents to the proposal, management could have decided that it was better to suffer the enhanced platform rather than present the opponents with a Gambotto's case argument. If management did not so decide, and presented the proposal to the boards accordingly, the boards may have considered that the scheme of arrangement route was preferable to delaying the proposal for an unknown period pending the decision of the High Court, with the possibility that the decision dictated the scheme of arrangement route in any event. 1240 But the NRMA did not seek to improve its recovery by a case for abandonment of the proposal by management (or the boards) prior to 17 March 1994. Nor, with the exception of questions to Dr Werner asking if he would have "favoured a scheme of arrangement" if told that "the object could be achieved with legal certainty", did the defendants in the course of the evidence seek to meet the case as presented by the NRMA by cross-examination of the NRMA's witnesses to suggest that the NRMA would have continued with the proposal but by the scheme of arrangement route. Relevantly, the issue between the parties was whether or not, if the Gambotto advice had been given, the NRMA would have put the proposal on hold and so avoided wasted expenditure. 1241 A submission particularly made by Mr Heydon was that, assuming Mr Heydon had given the Gambotto advice which the NRMA said should have been given, it was likely that it would not have been communicated to the NRMA, and even more likely that within the NRMA it would not have been communicated to the boards. I do not accept the submission. 1242 For the first limb of the submission it was said that Mr Heydon's advice would have gone to Mr Morgan and/or Mr Bateman, and that it was likely that they would not have passed it on. It was likely that they would not have passed it on, it was said, because with the knowledge they in fact had they did not tell anyone at the NRMA about Gambotto's case being on appeal and its possible relevance to the implementation of the proposal. 1243 Mr Morgan and Mr Bateman failed so to advise the NRMA, but not because they considered the matter unworthy of communication to the NRMA. Rather, they failed because they did not see the risk and consequent relevance. The reasoning in this limb of the submission is astray. Its hypothesis was not put to Mr Morgan or Mr Bateman, and in my opinion it is all but unthinkable that, if Mr Heydon had warned of a risk to proceeding by the resolutions in general meetings route, the solicitors would not have passed on what he said to the NRMA. The question of scheme or meeting was an important question, alive at the time, and known to management. I do not accept this limb of the submission. 1244 For the second limb of the submission it was said that the communication would have been to Ms Godwin or Ms Conway, that it would have been "filtered" or "interpreted" at management level, and that the boards would have received no more than a fairly generalised summary of what management had done in the development of the proposal. Many references were given to the directors' faith in and reliance on management, including in receiving only the end-product of management's consideration of a number of matters, and it was said that what would have happened was demonstrated by the retention of Mr Heydon's opinions of 2 and 3 August 1994 at management level and (in another use of the evidence on the matter) by the failure to provide to the boards the opinions of Mr Jackson of 19 October 1994 and Mr Heydon of 20 October 1994. That the boards were not told in early 1994 of the CU, ME and NS concerns in early 1995 about the appeal in Gambotto's case was said to support that management would not have passed on the Gambotto advice. Further, it was said, the NRMA had not led evidence from Mr Rees or Ms Conway, or called Mr Willing to give evidence, that Gambotto advice would have been passed on to the boards, so a conclusion favourable to the NRMA should not be inferred (Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 289 at 418-9; Huntsman Chemical Company Australia Ltd v International Pools Australia Ltd (1995) 36 NSWLR 242 at 263-9) and a conclusion to the contrary could more comfortably be reached (Jones v Dunkel (1959) 101 CLR 298). 1245 Given the importance of the question of scheme or meeting, both as to the fundamental procedure for a demutualisation and as material to the voicing of and grounds for opposition to the proposal, I consider it very likely, at the least, that management would have reported to the boards on the two possible routes and, amongst other things, the risk the subject of the Gambotto advice. Assurance about the chosen route was seen as important for the due diligence committee, and rightly so; I do not think management would have left the boards unaware of the risk. I so conclude despite what was put about inferring and comfort in conclusions, and am not swayed from my conclusion by the other matters to which I have referred. It was thought that the free shares problem identified by Mr Heydon had been adequately dealt with, but in any event a number of directors were made aware of it, and the circumstances of non-disclosure of the opinions in October 1994 and of the attention to Gambotto's case in early 1995 were very different from those at the time of the question of scheme or meeting in early 1994. I do not accept this limb of the submission either. 1246 I have already set out the Gambotto advice as defined in the points of claim, and noted that it was rather different from the Gambotto advice taken up in the NRMA's evidence. Rather different again was the Gambotto advice as summarised in the NRMA's submissions, to repeat, advice that Gambotto's case was on appeal to the High Court and, after 10 December 1993, that the appeal had reasonable prospects of success and there was a real risk that the High Court's decision might adversely impact upon the proposal. 1247 This was certainly a summary, because the case that the boards would have voted to stop or slow down the proposal, put through the evidence of a number of the NRMA directors at the time called by the NRMA, took up a common form, lengthy, assumed advice set out in their witness statements - "I have been asked to assume that at or prior to the meetings of 17 March 1994 referred to above that either the First Defendants ('AAH'), the Second Defendants ('AT') or both of them had advised me that -

(a) there existed a real risk that the Project as then envisaged and formulated could be rendered unlawful by an adverse decision of the High Court of Australia in an appeal in the case of Gambotto v WCP Limited ('the Gambotto case');

(b) Mr Gambotto's claim was heard at first instance by Justice McClelland [sic] in the Equity Division, Supreme Court of New South Wales. He found in favour of Mr Gambotto on 29 June 1992. WPC appealed to the New South Wales Court of Appeal and the appeal was heard on 4 March 1993. The Court of Appeal gave judgment (3-0) on 7 May 1993 allowing the appeal. Before Justice McClelland [sic] and in the Court of Appeal Mr Gambotto was represented by Solicitors and Counsel;

(c) Mr Gambotto sought special leave to appeal to the High Court of Australia and that application was heard on 10 December 1993. Mr Gambotto appeared for himself. Mr Gambotto was successful and special leave was granted;

(d) special leave was not granted as of right. The High Court has a discretion as to whether to grant special leave. In exercising that discretion, the Court has regard to the public importance of any question of law and the need to resolve judicial differences of opinion concerning the state of the law. In addition, the Court shall consider whether the administration of justice, either generally or in the particular case, requires an application for special leave to be granted. The High Court grants special leave sparingly. The case concerned needs to involve some point of general interest and generally, there needs to be substantial doubt as to the correctness of the decision being appealed;

(e) Mr Gambotto's appeal to the High Court was listed for hearing by the High Court on 21 April 1994;

(f) once the decision to proceed with the investigation of the Project was made significant expenditure would be incurred to take the Project up to the approval stage. This expenditure would amount to several million dollars;

(g) there existed a real risk that the expenditure on the investigation of the Project could be wasted by the decision of the High Court in the Gambotto case." 1248 This hypothetical advice founded evidence of the directors' voting at the meetings on 17 March 1994. For the meetings on 28 April 1994 the hypothetical advice repeated paras (a) to (d) and paras (f) and (g), and added that the appeal had been heard by the High Court on 21 April 1994, that Mr Gambotto had appeared for himself, that the High Court had reserved judgment, that the issues raised in the case were "alive" to a sufficient degree that the High Court had reserved its decision, and that the High Court could take up to a year to deliver judgment but it could also be given within a few months. 1249 Of the sixteen directors of Association, twelve gave evidence of what their reaction to the Gambotto advice would have been. Miss Fraser, Ms Singleton, and Mr Talbot did not, but since they were opposed to the proposal it may be accepted that they would not have voted to continue with it despite the Gambotto advice. Dr Vanderfield did not, and there was evidence to the effect that he was unwilling to give evidence for fear that the stress of doing so might exacerbate a heart condition. 1250 Of the eleven directors of Insurance (overlapping with the directors of Association), nine gave evidence of what their reaction to the Gambotto advice would have been. Ms Singleton did not, but again she would not have voted in favour of continuing with the proposal. Mr Willing did not, and the evidence explaining his absence (he was available) was unsatisfactory: in his case, but not that of Dr Vanderfield, I consider that I can proceed on the basis that his evidence would not have assisted the NRMA. 1251 I do not think the absence of Dr Vanderfield and Mr Willing matters, however, because whether the boards would have voted to stop or slow down the proposal can be decided on the evidence of the other directors and with acceptance that the directors opposed to the proposal would have voted against it. My decision would not be altered by any inference available from their absence. 1252 Taking only the witness statements through which they gave their evidence in chief, the reactions of the directors to the Gambotto advice may be summarised as follows.

Director 17 March 1994 28 April 1994 Mr Mackay Defer resolutions; request advice of senior counsel as to the likely outcome of the appeal and the effect it was likely to have on the proposal; if the advice was that there was a real risk that the expenditure on the proposal as intended to be implemented would be wasted, support a resolution deferring the investigation of the proposal to after the decision of the High Court or until other avenues by which the proposal could be achieved without being exposed to such a risk had been explored. Request advice of senior counsel as to the likely outcome of the appeal and the effect it was likely to have on the proposal; if the advice was that there was a real risk that the expenditure on the proposal would be wasted support a resolution deferring the investigation of the proposal until after the decision of the High Court or until other avenues by which the proposal could be achieved without being exposed to such a risk had been explored. Mr Kirby With some hesitation, vote in favour of the resolutions. With some hesitation, supported a resolution deferring the investigation of the proposal until after the decision of the High Court. Ms Ralph Not vote in favour of resolutions; support a resolution permitting limited expenditure pending the decision of the High Court so as to ensure that the proposal continued to move forward, including expenditure on whether the proposal could be structured in such a way as to avoid the risks which Gambotto's case presented. Support a resolution deferring the investigation of the proposal pending the decision of the High Court; support a resolution permitting further limited expenditure so as to ensure that the proposal continued to move forward including expenditure on whether the proposal could be structured in such a way as to avoid the risks which Gambotto's case presented. Ms Booth Request legal advice as to the way forward in light of the risks presented by Gambotto's case; support a resolution permitting sufficient expenditure on the further investigation of the proposal so as to maintain its momentum. Request legal advice as to the way forward in light of the risks presented by Gambotto's case; support a resolution permitting sufficient expenditure on the further investigation of the proposal so as to maintain its momentum. Mr Burrows Absent from meeting. Exercise caution in permitting the further investigation of the proposal; probably request advice of senior counsel as to likely outcome of the appeal and the effect it was likely to have on the proposal; if advice was that there was a real risk that the expenditure on the proposal would be wasted, probably support resolution deferring the investigation of the proposal until after the decision of the High Court. Mrs Callaghan Vote against the resolutions; support a resolution deferring consideration of the resolutions until after the hearing of the appeal by the High Court. Support a resolution deferring the investigation of the proposal until after the decision of the High Court. Mr Corrigan Vote against the resolution; support a resolution deferring consideration of the resolutions until after the hearing of the appeal by the High Court. Support a resolution deferring the investigation of the proposal until after the decision of the High Court. Mr Douglass Request advice of senior counsel; probably support a resolution deferring consideration of the resolutions until after the hearing of the appeal by the High Court; certainly ask management to explore alternative proposals that could not be impacted upon by an adverse determination in Gambotto's case. Request senior counsel's opinion; probably support a resolution deferring the investigation of the proposal until after the decision of the High Court; certainly ask management to explore alternative proposals that could not be impacted upon by an adverse determination in Gambotto's case. Mr Easson Vote against the resolutions; request senior counsel's opinion; probably support resolution deferring consideration of all resolutions until after the decision of the High Court: certainly ask management to explore alternative proposals that could not be impacted upon by an adverse determination in Gambotto's case. Request senior counsel's opinion; probably support resolution deferring investigation of the proposal until after the decision of the High Court; certainly ask management to explore alternative proposals that could not be impacted upon by an adverse determination in Gambotto's case. Mr Farr-Jones Vote against the resolutions; request AAH and AT to provide a full briefing on Gambotto's case and in particular its potential ramifications for the implementation of the proposal; if the briefing confirmed a real risk that expenditure on the proposal could be wasted, support a resolution deferring investigation of the proposal after the decision of the High Court. Request AAH and AT to provide a full briefing on Gambotto's case and in particular its potential ramifications for the implementation of the proposal; if the briefing confirmed a real risk that expenditure on the proposal could be wasted, support a resolution deferring the investigation of the proposal until after the decision of the High Court. Mr Jack Vote against the resolutions; permit further limited expenditure on the investigation of the proposal whilst closely monitoring developments in Gambotto's case. Support resolution permitting further limited expenditure on the investigation of the proposal whilst awaiting the decision of the High Court; otherwise support resolution deferring investigation of the proposal until after the decision of the High Court. Dame Leonie Kramer Want to see further evidence and suggest caution about going ahead. No evidence (Nothing in witness statement; taken from cross examination) Mr Lawson Not present. Support resolution deferring further investigation of proposal until after the decision of the High Court. Dr Werner Support resolution deferring consideration of resolutions until after the hearing of the appeal by the High Court; support resolution permitting expenditure on the further investigation of the legality of the proposal including the consideration of alternative proposals in respect of their legality. Support resolution deferring the investigation of the proposal until after the decision of the High Court; support resolution permitting expenditure on the further investigation of the legality of the proposal including the consideration of alternative proposals in respect of their legality.

1253 Taking this material at face value, reactions to the Gambotto advice would have been varied. Five of the directors would have considered alternative courses rather than deferral of the proposal, and while the preponderant reaction was one of deferral a number of the directors would have permitted limited expenditure. 1254 It was, of course, not easy for the directors to put themselves in the position of receipt of the hypothetical Gambotto advice and come to views upon what they would have done, particularly when the wider hypothesis did not spell out any other matters which would have influenced their conduct at the time and when the failure of the proposal and the bringing of these proceedings could affect the reconstruction by the most honest director of what he or she would have done. Further, in reality there probably would have been discussion at the board meetings and the modification of views towards a consensus, and a tabulation of individual reconstructions does not allow for the dynamics of the meetings. 1255 Particular aspects of the directors' difficulties were brought out in cross-examination. Some agreed that they would have wanted to know more, or would have wanted further advice. Some expressed their understanding of the "real risk" in the hypothetical Gambotto advice as something more likely than not to happen (one put it as something over 70 per cent), but most resisted a percentage assessment and, in varying ways, accepted that the risk would have been evaluated and, depending on its extent, they would have voted for or against deferring the proposal. Some would have proceeded if the risk was very low or low, or if there was a high degree of certainty of a favourable outcome. One would not have gone ahead under any circumstances, although that present view in my opinion was strongly influenced by none too rational hindsight. Some really reached the position in which they could only say that they would have evaluated the risk in conjunction with their fellow directors and made an appropriate decision. 1256 This does not separately summarise the cross-examinations, which produced a degree of confusion (in both questioning and answering) and a spectrum of views. But it is sufficient for present purposes: I do not think the basic caution of the directors was materially altered. The cross-examination also put to a number of the directors the alternative hypothesis of a second opinion additional to the Gambotto advice propounded by the NRMA, in which senior counsel said that a successful appeal in Gambotto's case was unlikely to affect the proposal - this was intended to found reliance on the evidence of Mr Bennett to which I have already referred. 1257 In a number of cases it has been recognised that the evidence of a witness as to what he would have done in hypothetical circumstances, while admissible, may be of little weight because given with hindsight and possibly self-serving (see for example Dominelli Ford Hurstville Pty Ltd v Karmot Auto Spares Pty Ltd (1992) 38 FCR 471 at 483; Hosmer Holdings Pty Ltd v CAJ Investments Limited (1995) ATPR 41-442 at 40,989; Tanna v Deutche Bank (Asia) AG (Hodgson J, 5 September 1996, unreported); Allstate Life Insurance Co v Australia & New Zealand Banking Group Limited (1996) 64 FCR 73 at 77; Hughes Aircraft Services International v Air Services Australia (No 3) (1998) ATPR 41-612 at 40,712). It would be wrong, however, significantly to discount the evidence of the directors in the present case. I am satisfied that most of them were endeavouring fairly to place themselves in the position in March or April 1994 required by the hypotheses put to them, and I consider that, despite reservations about the evidence of one or two of the directors, their evidence may be accepted as establishing that the collegiate reactions of the boards would have been of caution, of unwillingness to proceed with the proposal beyond further internal development unless firmly advised that the resolutions in general meetings route was not attended by risk of invalidity flowing from the decision of the High Court in Gambotto's case. 1258 It is necessary, of course, to go beyond the evidence of the directors in order to determine what would have happened if the Gambotto advice had been given, and the defendants submitted that if that were done it had clearly not been established that the NRMA would have acted differently if the Gambotto advice had been given. 1259 It was submitted that if the Gambotto advice had been given it would not have reached the boards, or at least not in a form which would have caused the boards to stop or slow down the proposal: I have already dealt with this. 1260 It was submitted that the boards were given little information about the proposal, in Mr Rees' report of 8 March 1994 or at all, and in particular little information about risks attendant upon it; that the boards resolved to proceed with the proposal on 17 March 1994 in concrete terms, evidencing a commitment to demutualisation rather than inclination subject to assessment of risks; that the boards continued with the proposal notwithstanding the risks to its success in obtaining taxation relief (the Treasurer's final agreement on taxation relief was not obtained until 15 August 1994), Stock Exchange approval to a shareholding limitation (the approval was not formally obtained until early August 1994), and ultimately a favourable vote at the general meetings; and that management and an inner group of directors really controlled the process and were so intent on having the proposal proceed that Gambotto advice, if given, would not have been heeded. 1261 This tended to merge with the submission that the majority of the directors were so determined that the proposal should proceed, and should proceed prior to the next annual general meeting amongst other reasons in order to increase the prospects of displacing the MAG directors, that they would have run even a substantial risk in order to have the proposal before the members of the NRMA in October 1994. 1262 So, it was said, the proposal was kept secret in July 1993 (I have already dealt with that); only the BT preferred option went to the boards in March 1994, not the other options; before the meetings of 17 March 1994 a time-table was in place for implementation of the proposal, external advisers had been retained, and even the information hotline had been established; opposition from Mr Talbot was sought to be nullified by the late briefing session and the order and timing of meetings on 17 March 1994 (I have also referred to this); in other ways appearing from the recital of facts in these reasons, for example as to Mr Lawson's motion of 30 June 1994, opposition to the proposal or even full exploration of its disadvantages was discouraged; and the boards adopted and continued with the proposal notwithstanding other risks to its success already mentioned, that is, risks of obtaining taxation relief, Stock Exchange approval to a shareholding limitation, and ultimately a favourable vote at the general meetings. The events in October 1994 were invoked as showing a resolve by the majority of the boards, or their key members, to press on with the proposal by appealing to the Full Court of the Federal Court without disclosure of the adverse opinions of Mr Jackson and Mr Heydon. 1263 There was much more to this effect in the cases of the defendants, and a great deal of their attention in cross-examination was directed to it. I have used general descriptions, without seeking to be exhaustive but intending to refer to the recounting of the history of the proposal earlier in these reasons, and to other like matters in the detailed written submissions of the defendants. 1264 I do not find the defendants' case in these respects at all persuasive. I see no reason why management should not have presented the boards with the proposal as it had been developed, and am quite satisfied that a risk of the nature of the "real risk" in the Gambotto advice was of such significance that it would have been included in what was put before the boards (if management had not itself decided to take the scheme of arrangement route - see above). There is nothing in the defendants' reliance upon such matters as the retention of external advisers and establishment of the hotline - it is not to be expected that the boards would have approved proceeding with the proposal unless the preparation for proceeding had been made, including how to deal with the inevitable inquiries. Despite all that the defendants sought to bring out and put in submissions, I do not think that the favourable view of demutualisation held by the majority of the boards, for whatever reasons, would have caused them to disregard the Gambotto advice, if given, or to proceed with the proposal in the face of advice that there was a risk that the decision of the High Court in Gambotto's case might adversely impact upon it. 1265 There is no doubt that many members of the boards, and some members of senior management, found Mr Talbot difficult, and considered that he and to some extent the other MAG directors did not discharge their offices as directors in the best interests of the NRMA. Some of the directors saw the possible demise of MAG an additional benefit in demutualisation, because for the benefit of the NRMA. But I do not accept that such antipathy as there was directed or influenced the directors, still less senior management, to stances or actions inimical to the interests of the NRMA, or that the directors would have been moved to proceed with the proposal in the face of the Gambotto advice when they would not otherwise have so acted. A "real risk" as hypothesised in the Gambotto advice propounded by the NRMA was different from the so-called risks of obtaining tax relief, a shareholding limitation, and ultimately favourable votes at the general meetings. These last-mentioned matters were seen as or were essential to the demutualisation, and had to be achieved; if they were achieved, the demutualisation would proceed and succeed, and they were not risks to the proposal but necessary steps to its completion. The "real risk" in the Gambotto advice was a risk to the proposal, and could bring the demutualisation undone. 1266 To the contrary of the defendants' submissions, it seems to me that the probabilities strongly favour finding the cautious collegiate view of the boards to which I earlier referred. 1267 The Gambotto advice propounded by the NRMA included "real risk" that the proposal could be rendered unlawful by an adverse decision of the High Court in the appeal in Gambotto's case, and that the expenditure on the investigation of the proposal could be wasted. It is probable, and to some extent this was brought out in cross-examination, that the directors would have asked or been told why, and they would have been told something to the effect that there was a risk that the decision of the High Court would mean that the resolutions passed at the general meetings would be held to be invalid because necessarily oppressive. What they would have been told in amplification of the hypothetical Gambotto advice would in my view be unlikely to have overcome their caution, particularly if there were explained to them the analysis I have earlier made. 1268 Even if a senior counsel - Mr Heydon or someone else - had said that he did not think that the appeal would succeed, or that if it succeeded it would not succeed on grounds relevant to the proposal, I doubt that the opinion could or would have been given in terms reducing whatever the directors might have thought was meant by a real risk to something which they could ignore or to a risk they could run. Opposition to demutualisation was expected, as evidenced by the war gaming session and Ms Conway's request for advice to Mr Bateman. The expected opposition included through legal proceedings alleging oppression: I have referred to much from which this was plain in going through the facts. It is all but inconceivable that the directors would not have been acutely conscious that, if the decision of the High Court so allowed, Mr Talbot would assert invalidity of the resolutions and that the demutualisation was ineffective. It is all but inconceivable that the directors would have exposed themselves to that situation on such a fundamental matter in the implementation of the proposal - they would lose credibility and the support of the NRMA members if it were shown that, notwithstanding advice that the resolutions might be held to be invalid, they nonetheless took the resolutions in general meetings route. 1269 The interests of the NRMA, and self interest of the directors favouring demutualisation and (if you will) opposed to MAG, together dictated the prudent course of awaiting the decision of the High Court unless there was firm advice that the resolutions in general meetings route was not attended by invalidity. Those wishing to see the MAG representation lessened might have preferred to achieve demutualisation promptly, and for practical reasons it was desirable that the momentum of the Legal Status Project be maintained, but I do not think that those or any other considerations would have outweighed the reasons in favour of deferring the proposal until the decision of the High Court was known. On the probabilities, in my opinion, the NRMA would have put the proposal on hold. 1270 What then of the reliance on the evidence of Mr Bennett? Let it be assumed that, as a number of the directors said, further advice of senior counsel would have been requested. If the senior counsel had been Mr Bennett, he would have advised that the possible allowance of the appeal in Gambotto's case would not affect the proposal. 1271 I doubt whether, in the assessment of the risk which would then have fallen to the boards, it would have been seen as sufficiently small that the proposals should proceed. I do not suggest that the boards would timidly have deferred demutualisation in the face of the slightest risk, but there would then have been divergent opinions, and it is probable that the boards would have explored why one of the opinions saw a risk (if they had not already done so): for example, Mr Easson was clearly of a questioning mind and would have wanted to explore the opinions, and others (Mr Burrows, Mr Corrigan, Mr Kirby) would probably have done the same. There would have been explanation. On the reasoning which I outlined when dealing with negligence, the boards may well have concluded that, despite Mr Bennett's opinion, there was a risk of sufficient magnitude to warrant deferral of the proposal. 1272 But it does not matter, because on the probabilities, in my view, if a second opinion of senior counsel had been obtained it would not have been obtained from Mr Bennett. 1273 Mr Bennett had given advice to the NRMA in 1991 concerning requisitioning of meetings, and instructions were given in early November 1993 to brief him to advise on class rights in connection with the proposal. He was so briefed in early December 1993. He was one of four counsel identified as a panel of senior counsel who might be retained to advise as required throughout 1994 in relation to the proposal, the other counsel including Mr Emmett. But Mr Bennett was not briefed in relation to the proposal, at least until he appeared for the NRMA before the Full Court of the Federal Court, while Mr Emmett was. Indeed, as I have earlier recorded, a brief was delivered to Mr Emmett in December 1993 in the same terms as the revised brief to Mr Heydon delivered on 15 or 16 December 1993, and the admittedly obscure reference in 1994 to a "big brief to Heydon and Emmett" shows that Mr Emmett was still in AAH's mind as the additional or alternative counsel to Mr Heydon. 1274 If a second opinion were required, the natural thing would have been to obtain it from Mr Emmett, particularly when Mr Emmett had been counsel in Gambotto's case in the Court of Appeal. On the probabilities, Mr Emmett rather than Mr Bennett would have provided the second opinion postulated by AAH, or at the least it would be no more than speculation to say that Mr Bennett would have provided it rather than Mr Emmett (or Mr Jackson, the fourth member of the panel to which I have referred). 1275 I do not think it realistic to find that there would have been an immediate decision by the boards to postpone the proposal on 17 March 1994. It is likely that the boards would have asked for an explanation of the advice which I consider Mr Heydon should have given, and would have been told of something like the reasoning which I outlined when dealing with negligence. The boards would also have been told that the appeal was to be heard on 21 April 1994, and in my view the probability is that they would have put off their decision until after the hearing of the appeal in order that the lawyers might give further advice with the benefit of the transcript of the argument at the hearing. Regard to the transcript of the argument would have heightened concern about following the resolutions in general meetings route. In my opinion, the boards would have voted to defer the proposal on or around 28 April 1994, and the resolutions would have been to the effect that further steps in the proposal other than limited activity by management to further develop it should be deferred until the decision of the High Court was known. 1276 I referred earlier to some artificiality in the NRMA's case on causation, including in that the boards might have thought that the scheme of arrangement route was preferable to delaying the proposal for an unknown period. I said that in the course of the evidence the defendants did not seek to meet the NRMA's case as presented by it by cross-examination of the NRMA's witnesses to suggest that the NRMA would have proceeded with the proposal but by the scheme of arrangement route, and that the issue between the parties was whether or not, if the Gambotto advice had been given, the NRMA would have put the proposal on hold and so avoided wasted expenditure. 1277 In submissions AT said that, if the NRMA had been advised of the risk posed by the pending High Court appeal in Gambotto's case, it ought to have been advised that it was possible to avoid that risk by proceeding by a scheme of arrangement, and that it should be found that the boards would have gone to the members with a scheme of arrangement. The point of the submission was that it was then said that the damages would be not the expenditure after the proposal would have been put on hold, but that expenditure less what would have been spent in putting a scheme of arrangement before the members - according to the submission, perhaps with no damages. 1278 It is not necessary to consider the validity of the reasoning of allowance for expenditure on putting a scheme of arrangement before the members. From the tabulation of their positions, it can be seen that some of the directors would have considered other ways of proceeding. A number of transcript references were given said to be evidence of "attitudes to Gambotto risk and scheme of arrangement", but they did not constitute cross-examination of the nature described above. Mr Mackay, whose views would have carried weight, thought that the scheme of arrangement route would be more difficult than the resolutions in general meetings route because it would have given any minority dissidents a platform, not just Mr Talbot, with possibly a number of separate class meetings and the need for majority approval at each meeting. As he correctly saw, this could lessen the prospects of success. There was other evidence to this effect. 1279 I doubt that it is open to AT to seek the finding I have mentioned when the issue was not adequately made part of the proceedings, but in any event I am not satisfied, on the at best tangential material on which the submission can be founded, that the collegiate decision would have been to proceed by the scheme of arrangement route rather than put the proposal on hold. The aversion to a scheme of arrangement whereby a platform would be given to opponents was great. The questions to Dr Werner notwithstanding, and despite the grounds for many of the directors to wish to press on with the proposal, I consider on the probabilities that the boards would not have so decided. I come to that view with more comfort when taking the scheme of arrangement route was not squarely put to the directors. 1280 I conclude that, if the Gambotto advice had been given, in which I comprehend the advice which I consider Mr Heydon should have given, the NRMA would not have incurred most of the expenditure on the proposal which it in fact incurred after 28 April 1994, that is, expenditure other than for the limited further development, and that the Gambotto negligence which I have found caused loss to the NRMA accordingly. Defences 1281 Causation was for the NRMA to prove, but neither issue of causation specifically raised remained. 1282 As to causation by the supervening decision of the High Court in Gambotto's case, the loss was because the NRMA incurred expenditure which it would not have incurred if the proposal had been put on hold. It was really not a case of wasted expenditure, that is, expenditure wasted because the purpose of the expenditure was not achieved. There was no question of loss because of the decision of the High Court. 1283 The problem lay in the NRMA's continued description, inappropriately in the case of Gambotto liability, of wasted expenditure. So the defendants said that the expenditure, if incurred, would have been wasted anyway with the abandonment of the proposal because of the decision of the High Court. I do not think that is a correct approach to causation in relation to Gambotto liability. Addressing it in the terms put forward by the parties, had the proposal been put on hold pending the decision of the High Court I am satisfied that it would have been abandoned as in fact occurred in 1995. Additional matters contributed to the then abandonment, which would not have arisen if the proposal had been put on hold, at least in the form they took (for example adverse perceptions flowing from the Federal Court proceedings). But the advice that Gambotto's case was an obstacle to implementation by resolutions in general meetings was firm, and in my opinion would have been given and followed. Still in what I consider inappropriate terms, any loss suffered by the NRMA was not caused by the supervening decision of the High Court in Gambotto's case, because the negligence exposed the NRMA to the effect of the decision. Put another way, the decision was not an intervening event breaking the chain of causation between the negligence and the loss, but part of the chain of causation: cf Medlin v State Government Insurance Commission (1995) 182 CLR 1 at 6. 1284 As to rejection of the proposal by members, that the proposal might have been defeated at the meetings was of no consequence, as on the findings I have made the proposal would not have got to the meetings if the Gambotto advice had been given. Again most of the expenditure which the NRMA claims as wasted expenditure would not have been incurred. 1285 Save perhaps for s 1318(1), the defendants did not in their defences as filed rely on exculpatory provisions of the Law in the case of Gambotto liability. None of the defendants relied on s 1318(1) in submissions to meet Gambotto liability. 1286 As to mitigation of loss by issuing a supplementary prospectus, the NRMA received clear advice that it could not proceed, consistently with Gambotto's case, by the resolutions in general meetings route, and it was entitled to accept and act on that advice. It could not be said that it should have mitigated its loss by issuing a supplementary prospectus. 1287 As to mitigation of loss by implementing the proposal by a scheme of arrangement, the advice that the NRMA could not proceed, consistently with Gambotto's case, by the scheme of arrangement route was not so clear, indeed rather to the contrary (Mr Garnsey and Mr Camilleri that it could not, Mr Hulme and Professor Austin that it could). AAH submitted that the only expenditure recoverable was the expenditure which would not have been of use in an implementation of the proposal by a scheme of arrangement following the decision of the High Court in Gambotto's case. 1288 It was said that the issue was not one of failure to mitigate loss, but whether loss had been suffered at all. That can not be accepted. The relevant expenditure, although claimed as wasted expenditure, was expenditure which would not have been incurred, and constitutes loss caused by the Gambotto negligence. The NRMA did not in fact take up the scheme of arrangement route, and AAH must contend that, in mitigation of its loss, the NRMA should have taken it up and so should have obtained benefit from that part of the expenditure which was of use in implementing the proposal by a scheme of arrangement. 1289 The alternative of putting the proposal on hold in 1994 does not govern at this stage, and the NRMA's conduct is judged in the circumstances in which it was in fact in 1995. A plaintiff is not obliged to act otherwise than in the ordinary course of business, and the standard is not a high one because the defendant is a wrongdoer (see Sacher Investments Ltd v Forma Stereo Consultants Ltd (1976) 1 NSWLR 5 at 9, citing Banco de Portugal v Waterlow & Sons Ltd (1932) AC 452), and in the circumstances afflicting the NRMA in and after March 1995 I do not think it acted unreasonably in deciding not to proceed with the demutualisation at all. It was time to regroup and reconsider, and to take account of members' concerns produced inter alia by the failure of the demutualisation to that point. The concerns included that the resolutions in general meeting route had been followed but was denied to the NRMA, and that the proper means of demutualising was uncertain. 1290 The allegations of contributory negligence in the defences were particularised in terms directed more to free shares/disadvantages liability than to Gambotto liability. AAH did not, but AT and Mr Heydon did, put a submission of contributory negligence in relation to Gambotto liability. Given the decision in Astley v Austrust Ltd, the solicitors can not rely on contributory negligence to reduce their Gambotto liability for breach of contract, and the defence is of no value to them. Mr Heydon can rely on contributory negligence, since he is sued only in tort. And Astley v Austrust Ltd has settled that a plaintiff can be guilty of contributory negligence even where the defendant should have protected the plaintiff from the loss suffered as a result of the defendant's breach of duty. 1291 But I can see no acceptable grounds for concluding that the NRMA was negligent in relation to risk to the proposal in connection with Gambotto's case. AT's submission of contributory negligence was to the effect that the NRMA's wish to avoid a scheme of arrangement was a contributing factor to the loss suffered. Mr Heydon's submission of contributory negligence was to the effect that, although the NRMA was aware that the proposal was susceptible to challenge on the grounds of oppression, it chose not to obtain any advice from its solicitors or counsel as to whether the proposal in its final form involved oppression by the majority of the minority, or as to the implications of the appeal in Gambotto's case for the proposal. I do not think there was any fault on the part of the NRMA in these respects. 1292 There could be no fault simply in wishing to avoid a scheme of arrangement. The NRMA sought advice on scheme or meeting, and received advice whereby it took the resolutions in general meetings route. I do not see why the NRMA for itself should have added to or gone behind that which its external lawyers were doing in that regard, and its internal lawyers did not have the expertise and to the knowledge of all concerned would not have been expected to second guess the external lawyers. In particular, where Mr Bateman conveyed to the due diligence committee that any doubt about the proposed process should be removed, and the due diligence committee was then provided with Mr Heydon's opinion of 28 July 1994, without AT suggesting that doubt remained, the NRMA was entitled to regard the question of scheme or meeting as concluded and to rely on the external lawyers in that regard.

VIII FREE SHARES/DISADVANTAGES LIABILITY 1293 The NRMA claimed for free shares/disadvantages liability the entirety of the wasted expenditure, and so some millions of dollars of expenditure incurred prior to 28 April 1994 as well as the expenditure thereafter. Assuming negligence or entitlement to recover loss by virtue of provisions of the FT Act or the Law, there was considerable debate over the reasoning by which the NRMA said it was then entitled to recover the wasted expenditure. I repeat again that not all the facts described are of great moment in my decision of these proceedings and what follows takes up the matters leading to my conclusions on free shares/disadvantages liability by general rather than detailed reference to the facts I have described, but in the light of all the facts. The Claims for Breach of Contract and Negligence 1294 In accordance with the earlier description of the claims against the defendants, save as to contributory negligence and possibly recovery of the wasted expenditure as damages it is not necessary to distinguish between the claims for negligence and the claims for breach of contract. Again I will deal in turn with negligence, causation, and defences. Negligence 1295 The NRMA submitted that the defendants should have advised it to delete the references to free shares in both the onsert and the prospectus, or at least to find a way of explaining the terminology in a manner leading to a proper understanding of the references, so that the prospectus was not misleading as found by the Full Court of the Federal Court. It contended that the decision of the Full Court was correct, but that even if it were not correct the defendants negligently exposed it to the risk of the adverse result in the Federal Court proceedings. It was said that both Mr Heydon and the solicitors should have so advised the NRMA on or after 2 August 1994, and that the solicitors should have done so at an earlier unspecified time; the emphasis in the submissions was on 2 August 1994 as the critical date and, as will appear, on the NRMA's case the approval of the boards on 18 August 1994 was the critical event and earlier negligence was unnecessary in order to recover the wasted expenditure. 1296 What I have already said about the obligations of the lawyers to exercise due care, skill and diligence need not be repeated. No evidence was led from practitioners other than those involved at the time, as expert evidence or otherwise, either as to any practice relevant to the conduct of Mr Heydon or the solicitors or of what a barrister or solicitor in their positions would properly have done. What I have said in this regard in relation to Gambotto liability is equally applicable, and the content of the duties of care owed by Mr Heydon and the solicitors must be found by the Court. 1297 In relation to free shares/disadvantages liability there was not such assistance as there was in relation to Gambotto liability from the evidence of Mr Bennett and the submissions from CU, ME and NS. There was, of course, the fact that Gummow J and the Full Court had found that the distribution of the prospectus and onsert was engaging in misleading conduct, but it does not automatically follow that the defendants were negligent. A solicitor who brings a reasonable degree of skill and knowledge to a task and exercises reasonable care in carrying it out will not be liable for an error of judgment "upon points … of nice or doubtful construction" (Godefrey v Dalton (1830) 6 Bing. 460; (1830) 130 ER 1357; see also Fletcher and Son v Jubb Booth and Helliwell (1920) 1 KB 275 at 289, 280-81; Ormindale Holdings v Ray (1982) 36 BCLR 378 at 387; Trust Company of Australia Limited v Perpetual Trustees WA Limited (1997) 42 NSWLR 237 at 247), and a lawyer may be found to have made an error or given wrong advice but not to have been negligent (R & T Thew Limited v Reeves (No 2) (1982) QB 1283; Trust Company of Australia Limited v Perpetual Trustees WA Limited at 247). Sufficient has appeared in relating the opinions given by Mr Garnsey and Mr Camilleri and the course of the Federal Court proceedings, including the not inconsiderable differences of view between Gummow J and the Full Court, to underline that, in many areas of the law and the application of the law to the facts, differing views may reasonably be held; further, while it will always depend on the particular facts, a lawyer may not be required to warn experienced business clients of the possibility that his opinion, although firmly held, may not in fact prevail (Ormindale Holdings v Ray at 389; Trust Company of Australia Limited v Perpetual Trustees WA Limited at 247). 1298 In its submissions the NRMA described the decision of the Full Court relevantly as a decision that the repeated use of the expression "free shares" in the prospectus rendered it misleading and deceptive. While placing great weight on Mr Heydon's description of the expression "free shares" as ambiguous or worse, the NRMA's submissions recognised that the reasoning of the Full Court was rather different from that of Mr Heydon. Mr Heydon saw the problem that the shares were not free because the members were giving up rights and Holdings was gaining greater power in Association and Insurance. The Full Court saw the difficulty that the shares were not free because there might have been disadvantages in the proposal not sufficiently identified and elaborated in the prospectus (see the analysis of the judgment of the Full Court much earlier in these reasons). 1299 So the NRMA's submissions said that the repeated use of "free shares" in the prospectus gave rise to lack of balance in the prospectus, suggesting that the memberships were of no real value, and that this was compounded by referring to but not articulating disadvantages and so giving the impression that they were of no substance. As it was summarised in the NRMA's written submissions - "It was the combination of these characteristics (amongst which the dangerously ambiguous adjective 'free' played a central role) which the plaintiffs submit led inexorably to the Federal Court's correct characterisation of the prospectus as misleading and deceptive. The prospectus lacked balance and conveyed the false impression to the NRMA members that, whatever they might be giving up in exchange for the shares offered to them by Holdings, it was not something which had any real substance or value. These facts taken together constitute the "free shares" negligence which is at the heart of the plaintiff's case in these proceedings." 1300 Even this did not in my view fully reflect the basis of the decision of the Full Court in relation to free shares and disadvantages, but it was markedly different from the basis for the concern earlier in 1994 over whether the shares could be described as free shares, and from the free shares problem identified by Mr Heydon in August 1994. In truth, the NRMA's case involved that Mr Heydon and the solicitors should have identified a free shares problem, or the risk of a free shares problem, other than that which was extensively canvassed in the evidence before me, and that their negligence lay in not identifying the free shares problem which was found by the Full Court rather than in failing to advise the NRMA that the free shares problem which had been identified by Mr Heydon should be avoided by doing away with the expression entirely. Perhaps this was why the NRMA added a variant to its submissions, that Mr Heydon should have advised that an expert in the law of misleading conduct should address the NRMA documentation, and that the solicitors should have ensured that an expert did so. 1301 In my view, for reasons which will by now be apparent the central question is whether the exercise of reasonable care, skill and diligence require that Mr Heydon and the solicitors see that the prospectus would be misleading in describing the shares to be issued by Holdings as free shares because there might have been disadvantages in the proposal not sufficiently identified and elaborated in the prospectus, or that there was a risk that it might be misleading for that reason; and that they advise the NRMA of that difficulty, and that the description should be avoided or the difficulty, otherwise overcome. (a) Mr Heydon 1302 In the end, and despite asserting negligence in its written submissions, I did not understand the NRMA to rely on negligence in advising that the shares could be described as free in the conference on 7 March 1994. If it did, I do not accept that there was negligence. In the manner I have described, there may have been a passing remark to the effect that the shares were capable of being described as free, but the occasion was not one for expression of an opinion to guide the NRMA, and in particular was not one in which Mr Heydon was, or could have been expected to have been, in a position to give a meaningful opinion on the propriety of the description of the shares as free in the light of the disclosure of disadvantages in the proposal. Amongst other reasons, Mr Heydon had no information about the disclosure of disadvantages. 1303 On none of the occasions on which he was thereafter briefed until he came to his opinion of 2 August 1994 was Mr Heydon even remotely called upon to advise in relation to the description of the shares as free shares, in the onsert let alone in the prospectus. In the end, again, and despite the particulars of negligence in the statement of claim, I did not understand the NRMA to rely on negligence by silence in that he did not in the conferences after 7 March 1994 object to the description of the shares as free shares, but if it did I do not accept that there was negligence. As well as not being called on to advise in relation to the description, Mr Heydon still had no information about the disclosure of disadvantages. 1304 While Mr Heydon considered it necessary for the opinion of 2 August 1994 to address the ambiguity of the word "free", the context was quite different from that which brought the decision of the Full Court. It was limited to the onsert, and, without the full prospectus or even Section 1 of the prospectus, Mr Heydon still did not have the information which would have enabled him even to identify the difficulty found by the Full Court turning upon disclosure of disadvantages. It would be unrealistic to say that Mr Heydon should have recalled and brought to his advice to the NRMA whatever he might have seen in passing when dealing with a different matter in response to the Perpetual brief, and he was entitled to assume that the experienced solicitors briefing him had a proper grasp of the overall transaction, had deliberately briefed him on a particular question, and could appreciate the wider implications for the transaction, if there were any, of his answer to the question: cf Mathew v Maughold Life Assurance Co Ltd (1987) 3 PN 98 at 104-5. 1305 Mr Heydon's advice was correct, in answer to the question which he had been asked or even going beyond an answer to that question, and I do not think that the exercise of due care, skill and diligence called for him to explore further, or advise that there should be explored further, the use of the description "free shares" in the prospectus, or the discussion of advantages and disadvantages in the prospectus so far as that might have been material to members' assessment of the importance of their membership rights. As I have said, in particular circumstances, a lawyer's duty of care may require the taking of positive steps beyond a specifically agreed task or function where that is necessary to avoid a real and foreseeable risk of the client sustaining economic loss. But the courts should be cautious about imposing a duty beyond the scope of the specifically agreed task or function (Hawkins v Clayton at 579; Waimond Pty Ltd v Byrne at 370), and I can see no proper grounds for concluding that the circumstances required that Mr Heydon do more than he did. 1306 The NRMA's submissions included that, when Mr Heydon held the opinion that the entire transaction was at risk if the shares were free, his "failure to sound any warning signals to anyone" was a breach of his duty of care. Mr Heydon did warn, and the submission in this respect was less than precise or helpful: presumably the NRMA meant that Mr Heydon did not warn against using "free" in the prospectus. But the submission was misconceived. 1307 As explained when dealing with how Mr Heydon's opinion should be read, his reference to the entire transaction being at risk if the shares were free was not to risk because "free" was ambiguous and it would be misleading to describe the shares as free. His point in the reference, no doubt coming to his mind because of the paid-up shares question on which he had advised in conference on 29 April 1994 and his recent confirmatory opinion of 28 July 1994, stemmed from the fact that the shares could not be issued for no consideration. As I have said, the point was really an aside that had the shares truly been free, which they were not, they would be issued for no consideration and the transaction would for that reason be at risk. This risk to which Mr Heydon referred did not call for warning signals, because everyone knew that the shares were not free in that they were in exchange for membership rights. 1308 In my opinion, the question earlier stated should be answered in the negative. Mr Heydon was not negligent. 1309 Some further aspects of the NRMA's case against Mr Heydon should be noted. 1310 First, while it was acknowledged that the case against Mr Heydon was not one of negligence in failing to advise about lack of balance in the prospectus, it was said that Mr Heydon's ignorance of the contents of the prospectus was all the more reason for him to give careful and cautious advice about the description of the shares as free shares, or to advise that someone should give careful consideration to the use of the description in the prospectus. Mr Heydon did not know and was not in a position to know anything about lack of balance in the prospectus. What he was asked about and advised about did not call for him to question its balance or lack of balance, and in my view this aspect of the NRMA's submissions is fanciful. 1311 Secondly, it was said that the asterisk and explanation approved by Mr Heydon were deficient, in that telling the member that the free shares the cash alternative were in return for his existing membership effectively told the member nothing because it said nothing about the value of the membership rights in money terms or otherwise, or even what the rights were. So, it was said, Mr Heydon should have stuck to his guns in his opinion of 3 August 1994 and continued to advise that "free shares" should not be used. In my view, however, there was nothing wrong with informing members by the asterisk and explanation that the free shares or cash alternative were in return for existing memberships. They were, and the deficiency found in the Federal Court was a different matter, neither one for Mr Heydon's attention nor one which he should have thought to question. 1312 Thirdly, and as I have already indicated, it was said that Mr Heydon's provision of a stand alone opinion on 3 August 1994, and the change in language from his opinion of 2 August 1994, were "inexplicable". I see nothing sinister or inappropriate in what Mr Heydon did. Indeed, in his opinion of 3 August 1994 he did advert to risk notwithstanding the asterisk and explanation, while saying that he thought that any dispute would be decided favourably to the NRMA. (b) AAH and AT 1313 AAH and AT are not in the same position as Mr Heydon, since they had the detailed knowledge of the prospectus and could have been expected to consider the implications beyond the onsert, if any, of the ambiguity identified by Mr Heydon. As what I have said in describing the facts shows, the possible implications were identified. In its submissions the NRMA asserted that "the fundamental act of negligence by the solicitors in relation to free shares is that they both allowed their clients to take an unwarranted and unnecessary risk in ignorance of its existence", meaning the risk in describing the shares as free shares posed by the free shares problem identified by Mr Heydon. 1314 One difficulty with such a case of negligence is that, referring to the free shares problem identified by Mr Heydon as distinct from the different problem involving disclosure of disadvantages upon which the decision of the Full Court turned, the NRMA knew, at the least through Ms Conway, of the existence of the risk. To accommodate this, the negligence would have to lie in failure sufficiently to convey the gravity of the risk, or to draw attention to the risk at the level of the due diligence committee or the boards. Even then, in the manner I have described the free shares problem identified by Mr Heydon was made known to Mr Mackay and probably, as the incomplete recollections of Mr Kirby and Mr Douglass suggests, to others in the decision-making area. The fault, if there was fault, lay in the 1315 This aspect of the NRMA's case raised most directly the sign-off letters, and was taken up again in relation to contravention of the FT Act. 1316 I have referred to the materiality guidelines for the due diligence process, in substance that the prospectus should include or comment on anything which might affect the decision of a potential investor. The due diligence process included regard to breach of legislative or other requirements, and the sign-off letters were directed to whether the prospectus sufficiently included or commented on anything which might affect the decision of a potential investor and, specifically in the case of the AAH sign-off letter, whether there was a material false or misleading statement or material in the prospectus. 1317 I put aside for present purposes that the AAH sign-off letter had the qualification that AAH had relied on the AT sign-off letter in relation to Section 1, and treat it as extending without qualification to that Section. I also assume for present purposes that the onsert was fully to be regarded as part of the prospectus, or otherwise the subject of the due diligence process and the sign-off letters. Did the exercise of reasonable care, skill and diligence, bearing in mind the nature and purpose of the due diligence process and the materiality guidelines and otherwise AAH's and AT's positions as solicitors advising the NRMA, require that there be reference to the due diligence committee or in the sign-off letters to the free shares problem identified by Mr Heydon? 1318 As to the onsert, by the asterisk and explanation the free shares problem had been "cured" in accordance with Mr Heydon's opinion of 3 August 1994. The changes in the onsert after he gave his opinion were such that the cure would still be worked. It is true that Mr Heydon still referred to risk of readers being led into a misapprehension and risk of successful challenge to the document, and said that legal issues arose from the form of the first page although in his opinion they would be resolved favourably, but reading the opinion as a whole in my view that would reasonably have been seen as no more than recognition that an ill-founded allegation that a document is misleading can never be precluded. The remaining so-called risk in my view was something different from and of little consequence in comparison to a risk such as that posed to the basic means of implementing the proposal by the appeal to the High Court in Gambotto's case: as Ms Conway said in her evidence, it was one of the many issues which came up and was dealt with, and things moved on. 1319 There had to be some exercise of judgment as to what should specifically be brought to the attention of the due diligence committee, or mentioned in the sign-off letters as something considered but discarded as an impediment to the opinions in the sign-off letters. Otherwise there would have been no end to the meetings of the due diligence committee or the pages of the sign-off letters, given the myriad of legal and other issues, on a spectrum of significance, which had arisen. In my opinion the implicit judgment exercised by Mr Morgan and Mr Bateman was reasonable, and the exercise of due care, skill and diligence did not call for reference to the free shares problem identified by Mr Heydon in relation to the onsert. 1320 As to the prospectus, whether the free shares problem identified by Mr Heydon affected the use of the description of free shares in the prospectus was raised at the meeting on the afternoon of 2 August 1994, and Mr Morgan said in substance that it did not; Mr Bateman did not say anything to the contrary. The matter came up again, less directly, on 7 August 1994. It was thought that the prospectus was not affected by the free shares problem identified by Mr Heydon because it described the transaction and made sufficiently clear to members that they were giving up their membership rights, quite apart from any disagreement from Mr Morgan with Mr Heydon's view and any different perception by Mr Bateman of the free shares problem. Following the opinions of Mr Heydon, if it was sufficiently made clear that the members were giving up their membership rights, the description of the shares in the prospectus as free shares - more as Free Shares, the defined term - would not continue to have the ambiguity to which Mr Heydon referred. 1321 In my opinion it was open to AAH and AT reasonably to conclude, as they did, that it was sufficiently made clear. The purpose of the transaction was to change the NRMA's structure. A diagram showed the new structure, with Holdings wholly owning Association and Insurance. Members would receive shares or cash. This strongly pointed to a change by which the positions of members as members would go, and they would either become shareholders in Holdings or take cash. In the part of the prospectus against the heading "Legal Steps Involved in Change", a part to which members could be expected to go to find out more, it was said expressly that members would cease to be members, and that the central element of the new articles "means that members (other than NRMA Holdings) agree to give up their membership of the Association and NRMA Insurance on condition that Free Shares are offered by NRMA Holdings". The notices of meeting, another part to which members could be expected to go to find out more, said expressly that as part of the legal changes members would no longer be members (but road service would be provided under contract) on condition that Free Shares in Holdings were offered by it. With the utmost respect to Gummow J and the members of the Full Court, to the extent to which they found these passages overwhelmed by the repetition of the description of Free Shares I take a different view, but of present significance I do not think there was a failure in the exercise of due care, skill and diligence when AAH and AT thought that the prospectus did not suffer from the free shares problem identified by Mr Heydon. 1322 For reasons similar to those given in relation to the onsert, then, I do not think that it was necessary for the solicitors to bring to the attention of the due diligence committee, or refer in the sign-off letters to, the possible flow-on of the free shares problem identified by Mr Heydon to the prospectus. The question had been raised, it had been considered, and it was reasonably thought that the prospectus was nonetheless satisfactory. The implicit judgment in my opinion was again reasonable, and the exercise of due care, skill and diligence did not call for reference to the free shares problem identified by Mr Heydon in relation to the prospectus. 1323 While I would be of these opinions in any event, it should not be forgotten that Ms Conway knew what Mr Heydon had said in his opinions of 2 and 3 August 1994, had been closely involved in addressing the free shares problem he had identified, had considered the drafts of the sign-off letters, and was the NRMA's senior legal officer with fairly close contact with the due diligence committee and the boards. She did not think it necessary to do more than convey what Mr Heydon had advised in the manner I have described when saying that the free shares problem was not hidden. When Ms Conway did not see default on the part of the solicitors in allowing the NRMA to take an unwarranted and unnecessary risk in ignorance of its existence, I am comforted in my own opinions. 1324 Equally as an aside, for present purposes, it may be noted that Mr Mackay as an experienced solicitor and businessman read the prospectus with a view, amongst other things, to satisfying himself that members were aware from the prospectus that they were giving up their membership and receiving shares or cash in place of membership, and independently satisfied himself as to that. Evidence to the same effect was given by Mr Douglass, who also said that that was one of the reasons he accepted the advice he was given (apparently meaning advice of one or more of the defendants), Mrs Callaghan (although she said that at the time she did not relate it to whether the shares were free), probably Mr Easson (it was less direct), probably Ms Ralph, possibly Mr Kirby, Dame Leonie Kramer, and Mr Farr-Jones. That does not bind a court, or necessarily preclude negligence by the solicitors. But it gives pause for thought before finding that the solicitors were negligence in their similar conclusions. 1325 The more fundamental difficulty in the NRMA's case of negligence against the solicitors, however, is that (as earlier explained) the NRMA's case in truth involved that the solicitors should have identified a free shares problem, or the risk of a free shares problem, different from that identified by Mr Heydon. The true question, partially recognised elsewhere in the NRMA's submissions, was whether, in the exercise of due care, skill and diligence, the solicitors should have seen that it was misleading to describe the shares to be issued by Holdings as free shares because there might have been disadvantages in the proposal not sufficiently identified and elaborated in the prospectus, or that there was a risk of that being found. 1326 I here return to my respectful difficulties with the reasons of the Full Court. To answer the question in the affirmative, it would have to be concluded that AAH and AT knew or should have known of disadvantages, which might be thought significant in relation to the exchange of rights and were not sufficiently identified and elaborated in the prospectus. 1327 Mr Morgan and Mr Bateman had seen and participated in extensive discussions of disadvantages, in particular when the question of a "no" case came up, and from their perception the directors of the NRMA must have been satisfied that all relevant disadvantages had been disclosed and adequately described. The evidence showed that the directors who gave evidence were so satisfied, save that Mr Corrigan said that he held the view (from his evidence, an indistinct and qualified view) that insurance premiums might increase following demutualisation. Mr Corrigan probably did not make his view known, and he approved Section 1 of the prospectus. Mr Jack said that he thought there was a slight risk that premiums might increase, but he regarded it as immaterial. There was no suggestion that he made his view known, and he also approved Section 1 of the prospectus. I am not persuaded that Mr Morgan and Mr Bateman should have taken a different view, or seen a risk that a different view would be taken calling for advice to reword the prospectus in a manner which would better identify and elaborate disadvantages so as to remove any difficulty in describing the shares as free shares. 1328 While AAH and AT had to consider the implications of Mr Heydon's advice beyond the onsert, I do not think that they fell short of the standard of care required even of solicitors proficient in the relevant field of expertise in failing to see the rather different basis for misleading conduct found by the Full Court. For the present the correctness of the decision of the Full Court in this respect does not matter, if for no other reason because the negligence alleged against AAH and AT includes failure to advise of the risk of that which the Full Court found, but the difficulties I have expressed in relation to the decision of the Full Court are such that, notwithstanding the fact of the decision, I do not think the risk was something which should have occurred to the solicitors. 1329 While I would be of this view in any event, it is not without significance that the basis of misleading conduct found by the Full Court is not clearly to be found in the opinion of Mr Garnsey and Mr Camilleri of 19 September 1994, which in relation to the description of the shares as free found the price of the shares in giving up membership associated with disproportionate allocation of Insurance's net worth. This was also different from the free shares problem identified by Mr Heydon, and Mr Garnsey and Mr Camilleri did not so far as their opinion shows consider whether the prospectus sufficiently made clear that members were giving up their membership rights. Causation 1330 In the absence of negligence, there can be no free shares/disadvantages liability for negligence. In case I am incorrect in what I have said, I propose to deal also with causation. My conclusions as to causation will be material also to proof of loss in the claims for contravention of the FT Act, involvement in Holdings' contravention of the FT Act, and contraventions of s 995(2) and 996(1) of the Law. 1331 The NRMA's case in submissions was that, had the defendants advised it to delete the references to free shares in both the onsert and the prospectus, or appropriately qualify that expression, the boards would not have approved the issue of the prospectus in the form found by the Federal Court to be misleading; so its expenditure "would have resulted in the proposal being put to the members lawfully" and, it was said, the NRMA "would not have suffered the loss [it] did when [it was] enjoined by the Federal Court". 1332 There were two steps in the NRMA's argument from negligence to recovery of the wasted expenditure. One was that, had the NRMA been properly advised, distribution of the prospectus and onsert would not have constituted engaging in misleading conduct, because the boards would not have approved the prospectus in the form in which it was in fact issued. The other was that for that reason alone the wasted expenditure was recoverable, regardless of whether the proposal would then have been put to the members or endorsed by sufficient majorities of members in general meetings. The second step in particular excited the debate to which I referred when first embarking on free shares/disadvantages liability, but the first was not free from dispute. 1333 It must first be said that, for reasons I have explained, concentration on use of the words "free shares" obscures that the vice as later found in the prospectus, which really turned on its treatment of disadvantages. And again there was some artificiality in the case as put for the NRMA. Had Mr Heydon or the solicitors advised that the phrase "free shares" should be avoided entirely in the prospectus or that an explanation should be included to make clear that the price for the shares was giving up membership and suffering a comprehensive collection of disadvantages, or in some other way addressed the basis for misleading conduct later found, management may well have ensured that the prospectus was put before the boards in an appropriate form. What would have happened would perhaps have depended on when the advice was given and the then state of the draft prospectus, but it might be thought unlikely that the boards would have been presented with the option of approving a prospectus which management had been advised was deficient. If it were necessary for the NRMA to prove how it would have acted in response to the advice which it said should have been given, management rather than the directors could have been expected to give evidence. 1334 The NRMA did not call evidence of how it would have reacted to the advice which it said should have been given, from either management or the directors. The NRMA did lead evidence from directors, in various forms of words, to the effect that they relied on the sign-off letters or on knowledge of the due diligence process and the involvement of the solicitors, and I will come to that evidence, but this fell short of evidence that the advice which the NRMA said should have been given would have been acted upon and how it would have been acted upon. In particular, it fell short of evidence that the boards would not have approved the issue of the prospectus in the form found by the Federal Court to be misleading. The question was not academic, given the perceived advantage in "selling" the proposal of the notion of free shares, and the stance of the defendants that a majority of the directors were so intent on implementing the proposal that they were prepared to run risks. 1335 The NRMA submitted that it was unnecessary in law for it to lead evidence of this kind; indeed, it took the submission into the area of the second step to which I have referred, and said that what would have happened if the advice had been given was irrelevant to its recovery of the wasted expenditure. It relied on Bristol and West Building Society v Mothew (1998) Ch 1. 1336 The society offered to advance money for the purchase of a house, on the express condition that the balance of the purchase price was provided by the purchasers without resort to further borrowing. It instructed its solicitor to report prior to completion any proposal that the purchasers might create a second mortgage or otherwise borrow in order to finance part of the purchase price. The solicitor knew that the purchasers were arranging for an existing bank debt to be secured by a second charge on the property, but due to an oversight reported that the balance of the purchase price was being provided by the purchasers without resort to further borrowing. The society made the loan. The purchasers defaulted. The society enforced its security, and the house was sold at a loss. 1337 The society claimed damages from its solicitor. It claimed the whole of its loss on the transaction, and submitted that it was entitled to recover the loss without having to establish that it would not have proceeded with the transaction if it had been informed of the facts. Millett LJ said (at 11) - "In the present case the society's claim is not for misrepresentation. Accordingly, questions of inducement and materiality are not relevant. Its claim lies in negligence, and the relevant concept is reliance. In considering the issue of causation in an action for negligence brought by a client against his solicitor it appears from Downs v Chappell [(1977) 1 WLR 426] that it is necessary to distinguish between two different kinds of case.

Where a client sues his solicitor for having negligently failed to give him proper advice, he must show what advice should have been given and (on a balance of probabilities) that if such advice had been given he would not have entered into the relevant transaction or would not have entered into it on the terms he did. The same applies where the client's complaint is that the solicitor failed in his duty to give him material information. In Sykes v Midland Bank Executor and Trustee Co Ltd [1971] 1 QB 113, which was concerned with a failure to give proper advice, the plaintiff was unable to establish this and his claim to damages for negligence failed. In Mortgage Express Ltd v Bowerman & Partners [1996] 2 All ER 836, which was concerned with a failure to convey information, the plaintiff was able to establish that if it had been given the information it would have withdrawn from the transaction and its claim succeeded.

Where, however, a client sues his solicitor for having negligently given him incorrect advice or for having negligently given him incorrect information, the position appears to be different. In such a case it is sufficient for the plaintiff to prove that he relied on the advice or information, that is to say, that he would not have acted as he did if he had not been given such advice or information. It is not necessary for him to prove that he would not have acted as he did if he had been given the proper advice or the correct information. This was the position in Downs v Chappel .

In the present case the society makes complaints of both kinds. It alleges that the defendant negligently and in breach of his instructions failed to report the purchasers' proposed arrangements with the bank prior to completion. This is a claim of the first kind, and if it were all the society would have to establish that if it had been informed of those arrangements it would not have proceeded with the mortgage advance. But the defendant went further than this. He did not merely fail to report the arrangements to the society; he expressly represented to the society that no such arrangements existed. That brings the case within the second category. It follows from the decision of this court in Downs v Chappell that it is sufficient for the society to prove that it relied on the representations in the report. Although the judge spoke in terms of inducement, he plainly found reliance. The society's procedures were designed to ensure that no cheque would be issued in the absence of a satisfactory report from its solicitor.

In my judgment we are bound by the decision in Downs v Chappell to hold that the necessary causal link between the defendant's negligence and the mortgage advance was proved." 1338 The NRMA drew from this that in the case of a negligent failure to advise the client must prove what he would have done had the correct advice been given, but in the case of a negligent giving of advice it was sufficient for the client to prove that he would not have acted as he did but for the advice, without having to prove what he would have done if the correct advice had been given. So, it said, in the present case the defendants negligently gave incorrect advice, and it was unnecessary for the NRMA to prove what would have happened if the correct advice had been given. 1339 The validity of the distinction has been questioned, see Tanna v Deutsche Bank (Asia) AG (NSWCA, 15 September 1998, unreported, per Powell JA; Hodgson, (1997) 71 ALJ 596-7). Failure to give proper advice and giving incorrect advice may merge into each other, and most cases of negligently giving incorrect advice can be seen as cases of negligently failing to give proper advice: so the two different kinds of case are not so different. In either event, in order to prove that the negligence caused the loss in question it may be necessary to prove what the client would have done had there had been proper advice or had there not been incorrect advice, depending on the facts and the way in which it is said that loss was suffered. If the facts are such that a solicitor acting properly should have given no advice at all, it may be enough for the client to prove that he would not have acted as he did but for the advice, but if the solicitor acting properly should have given different advice it may be necessary for the client to prove what he would have done if the different advice had been given. 1340 In any case, reliance in the abstract is meaningless: there must be reliance causing or contributing to doing or not doing something. On the facts in Bristol and West Building Society v Mothew, the reliance was in making the loan. Whatever be the validity of the distinction, all Millett LJ was saying was that express evidence that the society would not have made the loan if it had been informed of the facts was unnecessary, and his Lordship was not denying that the loss claimed had to have been caused by the negligence. I do not read his Lordship's observations as making irrelevant inquiry into the relationship between the NRMA's conduct in August 1994 and the characterisation of the expenditure as wasted expenditure. That which it is not necessary for the NRMA to prove, in the second case postulated by Millett LJ, is the proper advice and what the NRMA would have done; that does not affect proof of the loss caused by its acting as it did in reliance on the incorrect advice, that is, that the wasted expenditure was wasted expenditure because of the defendants' negligence. I return to the second step in the NRMA's case on causation shortly. 1341 As to the first step, however, I do not think the distinction drawn in Bristol and West Building Society v Mothew affects the result. That is so because, to return to 18 August 1994, even in the absence of direct evidence from the directors I am satisfied that, had AAH, AT or Mr Heydon advised that the expression "free shares" should not be used in the prospectus, they would have accepted the advice and ensured that the prospectus was appropriately amended; had AAH, AT or Mr Heydon advised them that more comprehensive spelling out of the disadvantages was necessary in order to make clear their possible significance to members in deciding how to vote and whether to accept the shares, that also would have been done. The proposal would not have been called off. The two choices would have been to proceed with the prospectus as it was, or to amend the prospectus to accommodate the advice, and the later course would have been followed. 1342 Without doubt there was a perceived advantage, and a significant one, in describing the shares as free shares, and the NRMA would have been reluctant to forego it. To the extent to which I have described, there was a desire in the majority to see the proposal implemented, and they would have been particularly reluctant to forego the advantage because approval of the proposal in the general meetings was by no means assured and might be endangered by loss of the advantage. As can be seen from the attention given to it in the development of the proposal, there was a disinclination to emphasise the disadvantages of the proposal, although in my view not such as to inhibit compliance with advice of the kind I have postulated. 1343 But it seems to me that, in a similar manner as in relation to the Gambotto negligence, the directors would not have been inclined or prepared to act contrary to the advice, if for no other reason than because to do so would be contrary to what they perceived to be the interests of the NRMA and their own interests. The due diligence process would have thrown up the advice, and they could not have afforded to proceed contrary to the advice. To do so would have exposed the NRMA to attack at the hands of the opponents of the proposal, with potential detrimental consequences to the success of the proposal, and would have exposed themselves to similar attack. At worst, there could be the calumny of successful action by the opponents. In referring to self interest I do not mean that the actions of the directors would have been governed by self interest, and I accept that in their own ways each had the interests of the NRMA at heart and acted accordingly, but self interest would have added to the constraint against ignoring the advice. 1344 My conclusion does not rest upon whether the sign-off letters were tabled or read at the board meetings on 18 August 1994 or at the due diligence committee meetings on and shortly before that day, or wholly on the evidence of the directors, in some respects rather unsatisfactory, of general reliance on the solicitors. 1345 I have described the evidence concerning the tabling and reading of the sign-off letters earlier in these reasons. The evidence of reliance on the solicitors was of different kinds. Some directors who undoubtedly read the sign-off letters said that they relied on the solicitors in deciding to support the resolution to adopt and approve the report of the due diligence committee or the resolutions in favour of the proposal at the board meetings. Most directors gave evidence that they were not aware of any advice or opinion of AAH or AT to the effect that the prospectus was deficient in relation to free shares and disadvantages or in relation to compliance with the general law concerning material to be supplied to members (the formulaic words commonly used were lengthy, and need not be set out), and that they would not have voted in favour of the proposal in August 1994 had they been advised to that effect. Most directors gave evidence at further remove, to the effect that they were aware of AAH and AT as leading commercial solicitors and relied on their involvement in the formulation and implementation of the proposal as some assurance of its legal integrity (again the formula commonly used was lengthy, and perhaps less direct than my summary). 1346 I do not think it is necessary to go through the directors individually, or further to detail and refine the evidence of this kind. As a matter of common sense, the directors knew that the solicitors were closely involved in the drafting of the prospectus and in the supervision of the due diligence committee, and would have expected that any deficiencies in the content of the prospectus which the exercise of due care, skill and diligence called for the solicitors to guard against would have been made known, and that advice as to the nature and extent of deficiencies of that kind, the risks they posed, and the means of overcoming them, would have been given. Absence of such advice from AAH and AT, as much as the terms of the sign-off letters, gave rise to reliance by the NRMA on the solicitors. 1347 Of more significance was the second step in the NRMA's argument from negligence to recovery of the wasted expenditure. How, beyond its reliance on Bristol and West Building Society v Mothew, did the NRMA claim the wasted expenditure as damages for negligence? 1348 Earlier in these reasons I said that, while in the points of claim the loss in the amount of the wasted expenditure was claimed globally, in submissions there was late modification by the NRMA to the claim that part of the wasted expenditure would be recoverable as such, and that other of the wasted expenditure would be recoverable on a different basis. But the modification was late and limited, and until then in the manner the NRMA conducted its case it contended that it could recover all its expenditure on the proposal as wasted expenditure. Further, it said that it could recover the expenditure whether or not the proposal would have been approved by the members at the general meetings. 1349 The defendants, on the other hand, said that the expenditure prior to 18 August 1994 could not have been caused by negligence on their part affecting the NRMA's conduct only on 18 August 1994, and that in any event the expenditure both before and after 18 August 1994 would have been wasted anyway because the proposal would not have been approved by the members in general meeting. The defendants said, more fundamentally, that the claim for loss in the amount of the wasted expenditure was flawed, because the claimable loss was the difference in money terms between the NRMA demutualised and the NRMA under its present structure, or at least the difference between its position if a prospectus free from the deficiencies as to free shares and disadvantages had been distributed and its position when enjoined from distribution of the prospectus as approved on 18 August 1994. The NRMA did not attempt to make out a case of loss arrived at in that way, and so, said the defendants, it had not proved loss. 1350 The NRMA stated unequivocally that it did not claim damages for loss of a chance. It claimed the entirety of the wasted expenditure, not some part of the expenditure turning on an assessment of the prospects of demutualisation if proper advice had been given. To adapt the words of Gummow J in Chappel v Hart at paras 75-76, it did not allege that it contracted for the benefit of a chance of avoiding waste of the expenditure, or that the deprivation of the chance of benefit from the expenditure was an acceptable substitute for the entire benefit, and it did not seek damages for the loss of an opportunity or chance to acquire or receive a benefit with a value to be ascertained by reference to the degree of probabilities or possibilities. It claimed the entirety of the wasted expenditure, not as expenditure which was wasted because it should not have been incurred, but as expenditure which was wasted because the purpose of the expenditure was not achieved. 1351 Critical to the NRMA's claim was what it said was the reasoning of the High Court in McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 (McRae's case). 1352 The Commission invited tenders for the purchase of an oil tanker lying on Jourmaund Reef. McRae tendered, and his tender was accepted. A sales advice note described what was sold as an oil tanker including contents wrecked on Jourmaund Reef. McRae fitted out a salvage expedition and proceeded to the locality where the tanker was alleged to be lying, but could not find the tanker, and in fact there was no tanker in that locality. It was held that McRae was entitled to recover damages for breach of contract, and that the damages were the purchase price plus the expenditure wasted in reliance on the promise that there was a tanker at the given locality. The principal judgment was a joint judgment of Dixon and Fullagar JJ; McTiernan J delivered a short concurring judgment. 1353 Their Honours rejected the argument that there had only been a purported contract nullified by mistake, and held that there was a contract in which the Commission promised that a tanker existed in the position specified. The promise had been broken: "Since there was no such tanker, there has been a breach of contract, and the plaintiffs are entitled to damages for that breach" (at 410). 1354 What were the damages? Damages for non-delivery of goods could not be assessed, because it was impossible to place a value on what the Commission had purported to sell. Their Honours continued - "There is, however, more in this case than that, and the truth is that to regard this case as a simple case of breach of contract by non-delivery of goods would be to take an unreal and misleading view of it. The practical substance of the case lies in these three factors - (1) the Commission promised that there was a tanker at or near to the specified place; (2) in reliance on that promise the plaintiffs expended considerable sums of money; (3) there was in fact no tanker at or anywhere near to the specified place. In the waste of their considerable expenditure seems to lie the real and understandable grievance of the plaintiffs, and the ultimate question in the case (apart from any question of quantum) is whether the plaintiffs can recover the amount of this wasted expenditure or any part of it as damages for breach of the Commission's contract that there was a tanker in existence." 1355 After concluding that it was reasonable for McRae to assume that there was a tanker in the locality given, and to undertake the salvage operations, their Honours said - "There is, however, still another question. Mr Tait not only strongly opposed the view so far expressed, but he also contended that, even if that view were accepted, it still could not be held that the alleged damage flowed from the alleged breach. Let it be supposed, he said in effect, that the plaintiffs acted reasonably in what they did, and let it be supposed that the Commission ought reasonably to have contemplated that they would so act. Still, he said, the plaintiffs are faced with precisely the same difficulty with which they are faced if the case is regarded as a simple and normal case of breach by non-delivery. Suppose there had been a tanker at the place indicated. Non constat that the expenditure incurred by the plaintiffs would not have been equally wasted. If the promise that there was a tanker in situ had been performed, she might still have been found worthless or not susceptible of profitable salvage operations or of any salvage operations at all. How, then, he asked, can the plaintiffs say that their expenditure was wasted because there was no tanker in existence?

The argument is far from being negligible. But it is really, we think, fallacious. If we regard the case as a simple and normal case of breach by non-delivery, the plaintiffs have no starting point. The burden of proof is on them, and they cannot establish that they have suffered any damage unless they can show that a tanker delivered in performance of the contract would have had some value, and this they cannot show. But when the contract alleged is a contract that there was a tanker in a particular place, and the breach assigned is that there was no tanker there, and the damages claimed are measured by expenditure incurred on the faith of the promise that there was a tanker in that place, the plaintiffs are in a very different position. They have now a starting point. They can say: (1) this expense was incurred; (2) it was incurred because you promised us that there was a tanker; (3) the fact that there was no tanker made it certain that this expense would be wasted. The plaintiffs have in this way a starting-point. They make a prima facie case. The fact that the expense was wasted flowed prima facie from the fact that there was no tanker; and the first fact is damage, and the second fact is breach of contract. The burden is now thrown on the Commission of establishing that, if there had been a tanker, the expense incurred would equally have been wasted. This, of course, the Commission cannot establish. The fact is that the impossibility of assessing damages on the basis of a comparison between what was promised and what was delivered arises not because what was promised was valueless but because it is impossible to value a non-existent thing. It is the breach of contract itself which makes it impossible even to undertake an assessment on that basis. It is not impossible, however, to undertake an assessment on another basis, and, in so far as the Commission's breach of contract itself reduces the possibility of an accurate assessment, it is not for the Commission to complain.

For these reasons we are of opinion that the plaintiffs were entitled to recover damages in this case for breach of contract, and that their damages are to be measured by reference to expenditure incurred and wasted in reliance on the Commission's promise that a tanker existed at the place specified. The only problem now remaining is to quantify those damages …". 1356 In the NRMA's submission, the fact that the opportunity lost by a defendant's breach of duty is difficult to value does not mean that the plaintiff is left without a remedy. The plaintiff may sue in the alternative for the expenditure wasted in pursuing the opportunity, provided it was the defendant's breach of duty which caused that expenditure to be incurred and wasted. The submission did include that the breach of duty caused the expenditure to be incurred). What the NRMA said was the reasoning of the High Court was applied by it by saying that the defendants owed duties to the NRMA in contract and tort to exercise reasonable care, skill and diligence to ensure that the NRMA was given the opportunity lawfully to put the demutualisation proposal to its members; that in breach of their duties, the defendants allowed inherent defects to be included in the documentation for the proposal, which defects ultimately came to fruition and destroyed the transaction; that it might have been possible for the NRMA to sue for the lost opportunity of demutualising, but it chose not to claim for such a loss; that instead, as in McRae's case, it sued for wasted expenditure only; and that, as in McRae's case, it was entitled to recover the wasted expenditure. 1357 It had to be said that this application of what the NRMA said was the reasoning of the High Court paid little regard to what the High Court had said, and no regard to later consideration of McRae's case. The NRMA's submission was by way of assertion rather than structured argument. Even if the reliance on McRae's case could have brought recovery of wasted expenditure, it is questionable whether it could have brought recovery of expenditure after (in broad terms) the decision of the Full Court, because that expenditure would not be wasted expenditure of the kind in McRae's case. But I do not think that McRae's case takes the NRMA to recovery of the wasted expenditure at all. 1358 McRae's case was considered and explained in Commonwealth of Australia v Amann Aviation Pty Limited (1991) 174 CLR 64. The general rule was affirmed that damages for breach of contract should so far as money can do so place the plaintiff in the position he would have been in had the contract been performed (the Robinson v Harman (1848) 1 Ex 850; 154 ER 363 principle). Damages for expenditure reasonably incurred are a manifestation of that principle, and so damages for expenditure reasonably incurred are available only to the extent to which, had the contract been performed, the expenditure would have been recouped. Where it is not possible to predict what position a plaintiff would have been in had the contract been performed, as was the position in McRae's case, nonetheless recovery of the expenditure reasonably incurred in reliance on the defendant's promise is allowed on a presumption or assumption made in the plaintiff's favour that he would at least have recovered his expenditure had the contract been fully performed. The defendant may establish, notwithstanding the impossibility, that the plaintiff's expenditure would not have been recouped, in which case the recovery is denied. The damages are still limited by the Robinson v Harman principle, although the application of the principle is affected by the reversal of the onus of proof involved in the presumption or assumption made in favour of the plaintiff. 1359 This analysis appears from the judgments of Mason CJ and Dawson J at 80-89, Brennan J at 104-108, Deane J at 126-128, Toohey J at 134-143 (differing in the description of the onus of proof), and Gaudron J at 154-157 (also differing in the description of the onus of proof as a practical or evidentiary onus); cf McHugh J at 164-167. The particular references to McRae's case include (the parts in the passages in square brackets are footnotes in the judgment) - "Accordingly, McRae illustrates the proposition that a plaintiff has a prima facie case for recovery of wasted expenditure once it is established that the expense was incurred in reliance on the promise of the party in breach, there being a failure of performance by that party. By reason of its facts, the reasoning in McRae does not depend upon the presumption that an innocent party would not have entered into the contract unless it would at least have recovered its reliance expenditure under the contract had it been performed. But the reasoning is not inconsistent with the application, in appropriate cases, of that presumption which, in our view, has much to commend it. Indeed, it is just and fair that the repudiating party should bear the onus of showing that the party not in breach would have made a loss on the contract." (per Mason CJ and Dawson J at 89).

"In a case where a plaintiff has incurred expenditure either in procuring the contract or in its performance but it is impossible or difficult to establish the value of any benefits which the plaintiff would have derived from performance by the defendant, considerations of justice dictate that the plaintiff may rely on a presumption that the value of those benefits would have been at least equal to the total detriment which has been or would have been sustained by the plaintiff in doing whatever was reasonably necessary to procure and perform the contract [See, eg McRae (1951) 84 CLR at 414; Holt v United Security Life Ins. & Trust Co (1909) 72 Atlantic Reporter 301 at pp 305-306; L Albert & Son v Armstrong Rubber Co (1949) 178 F. 2d 182 at pp 188-189]. In my view, the rational basis of that presumption is that that total detriment represents what would reasonably have been in the contemplation of the parties themselves as the cost to the plaintiff of full performance by the defendant and constitutes some evidence, in proceedings between them, of the value of the total benefits which would have been derived by the plaintiff from such performance. It follows from that, at least in a case where proof of value is impossible or difficult, it is presumed in the plaintiff's favour that the future net benefits (ie excess of future benefit over future detriment) which would have been derived from performance of the contract would have been of a value sufficient to recoup the past net expenditure reasonably incurred in procuring or performing it. Where that presumption is operative, it enables the recovery by a plaintiff of what are commonly referred to as 'reliance damages', that is to say, damages equivalent to the wasted expenditure which has been reasonably incurred in reliance upon the assumption that the contractual promises of the defendant would be honoured. The presumption will be rebutted if it be self-evident or established that the plaintiff would have derived no financial or other benefit from performance of the contract or that any financial or other benefit which would have been derived from future performance would not have been sufficient in value to counter balance the past expenditure. The presumption will not, however, be displaced merely by the circumstance that the benefit which the plaintiff would have obtained from performance by the defendant included the chance of some more remote benefits which the plaintiff would have obtained from performance by the defendant included the chance of some more remote benefit and it is a matter of speculation whether that ultimate benefit would have in fact been obtained or by the circumstance that the perceived 'benefit' which the plaintiff sought and for which he incurred the past expenditure is something which is of value only to the plaintiff or which, for some other reason, is not capable of being objectively valued in monetary terms [See eg McRae (1951) 84 CLR at p 414; Fink v Fink (1946) 74 CLR at pp 134-135, 143]." (per Deane J at 126-127). "Once it is appreciated that damages assessed by reference to wasted expenditure are awarded to compensate for the loss of contractual rights or for loss of profits, it is apparent that what is involved is an assumption [Referred to in McRae (1951) 84 CLR at p 414, as 'a starting-point'] that the loss is no less than that which has been outlaid and wasted by reason of repudiation or breach. An assumption to that effect is no more than the recognition of the ordinary expectations of the world of commerce that the value of a contract will be no less than the cost of its performance." (Per Gaudron J at 155-156). 1360 McRae's case, therefore, illustrates the recovery of wasted expenditure as damages for breach of contract where the expenditure was reasonably incurred in reliance on the promise of the party in breach. The expenditure is recovered as compensatory damages within the Robinson v Harman principle, to put the plaintiff in the position he would have been in had the contract been performed. Recovery of the expenditure is presumed or assumed where the defendant's breach makes it impossible to show what the plaintiff's position would have been had the contract been performed, subject to the defendant being able to establish that it would not have been recovered. The NRMA's submission by way of assertion passed all this by. 1361 The reasoning in McRae's case, as explained in Commonwealth of Australia v Amann Aviation Pty Ltd, does not sit well with the NRMA's claim to recover the wasted expenditure. To begin with, only the claims against the solicitors are claims for breach of contract. Confining attention to those claims, it is necessary that the expenditure claimed as wasted expenditure was incurred in reliance on a promise by the solicitors. The relevant promise was a promise to exercise due care, skill and diligence in the tasks required of the solicitors, not a promise to ensure that the NRMA was given the opportunity lawfully to put the demutualisation proposal to its members. Both promises are different from the promise in McRae's case. This case is really not a case of recoupment of expenditure from performance of the contract at all, so the presumption or assumption at the heart of the reasoning in McRae's case can not readily be made. 1362 But to the extent to which the reasoning is applicable, it does not render irrelevant what would have happened if the solicitors had given the advice in relation to free shares and disadvantages which the NRMA says should have been given. While affected by the presumption or assumption, in accordance with the Robinson v Harman principle the damages are to place the NRMA in the position it would have been in had the contract been performed, and so it is relevant to consider what that position would have been. 1363 Claims for breach of contract have brought recovery of wasted expenditure in other cases not involving recoupment of expenditure from performance of the contract, cases where it is "not sensible to speak of loss of profits". These words are taken from the judgment of Mason CJ and Dawson J in Commonwealth of Australia v Amann Aviation Pty Ltd at 81-2 (the citations in square brackets are footnotes in the judgment) - "A further example of the application of Robinson v Harman [(1848) 1 Ex 850 at 855; 154 ER 363 at 365] which will result in a plaintiff being entitled to claim damages for wasted expenditure is in a contract for services such as that between a solicitor and a client. Where a solicitor has breached his or her contractual duty of care, the measure of damages to which a client will be entitled will be such an amount as would put the client in the position he or she would have been in had the contract of retainer been performed without negligence. In cases where, had non-negligent advice been given, the client would not have entered into a subsequent transaction, for example a purchase of real property, then, in conformity with Robinson v Harman , the client will be entitled to recover as damages expenditure wasted on account of the negligent advice, less anything subsequently recovered and given reasonable acts of mitigation [ Hayes v Dodd (1990) 2 All ER 815 at 820, per Staughton LJ]. The amount of wasted expenditure will be the appropriate measure of damages in such a situation because, it having been established that the client would not have entered into the subsequent contract if proper advice had been given, it is not sensible to speak of loss of profits. Hayes v Dodd is a useful illustration of the statement that the expressions 'expectation damages', 'damages for loss of profits', 'reliance damages' and 'damages for wasted expenditure' are simply manifestations of the central principle enunciated in Robinson v Harman rather than discrete and truly alternative measures of damages which a party not in breach may elect to claim." 1364 But in those cases also the recovery of the wasted expenditure is compensatory, intended to put the plaintiff in the position he would have been in had the contract been performed. As appears from the reference to Hayes v Dodd (1990) 2 All ER 815, the clients would not have purchased the property but for the solicitor's negligent advice. Damages were awarded on the basis of comparing the clients' actual situation with their situation if they had not entered into the transaction, and the damages included the loss on resale of the property and holding expenses. This is unexceptional, and the description of wasted expenditure should not mislead - the damages were for the loss to the clients of money they would not have spent if the solicitors had given proper advice. 1365 A number of other cases were cited as illustrations of recovery of wasted expenditure. 1366 In Anglia Television Ltd v Reed (1972) 1 QB 60 an actor repudiated a contract to appear in a film. The profits if the film had been made could not be established, and the maker of the film claimed its wasted expenditure. It was held that it could do so, including expenditure before the contract was made, provided the expenditure was such as would reasonably be in the contemplation of the parties as likely to be wasted if the contract was broken. 1367 In Transportation Agency Ltd v Jenkins (1972) 223 EG 1101 the client recovered damages from his solicitors when he took a lease of a property which, because of restrictive clauses, he could not use for his business. The damages included expenditure on the taking of the lease plus rent, it seems by consent part of "a balance of what the plaintiffs had in fact lost and gained" (at 1102). 1368 In Heywood v Wellers (1976) 1 QB 446 the client recovered from her solicitors the costs paid to the solicitors for obtaining an injunction which was of no use to her, but at least in the view of Lord Denning MR as money paid on a consideration which had wholly failed (see at 458). 1369 In Clarke v Milford (1987) 38 DLR (4th) 139 the client recovered from his solicitors the money paid for a property to which, through the solicitor's negligence, he got no title, plus municipal taxes paid in respect of the property. This was a similar case to Hayes v Dodd. 1370 A case on which the NRMA placed considerable reliance was Waribay Pty Ltd v Minter Ellison (Brooking J, 7 March 1989, unreported). The client's damages for its solicitors' negligence in relation to a share transaction included the costs charged by the solicitors. But the judgment records that recovery of the costs was conceded, and I do not think the NRMA gains any assistance from this case. The concession was noted when the case went on appeal (1991) 2 VR 391. 1371 Some cases were also cited as illustrations of non-recovery of wasted expenditure. 1372 In C & P Haulage v Middleton (1983) 1 WLR 1461 a car repairer who had been wrongly ejected from rented premises claimed recovery of expenditure incurred to make the premises suitable for occupation. Ackner LJ said that this would do more than put him in the position he would have been in if the contract had been performed, and would put him in the position he would have been in if the contract had never been made. Fox LJ took a rather different approach saying that the expenditure was wasted not because of the breach of contract but because the rental agreement permitted termination on short notice, and that the waste resulted from a bad bargain: with respect, this is not entirely clear. 1373 In GP & P Ltd v Bulcraig Davis (1986) 2 EGLR 148 the client failed to recover from its solicitors for some expenditure prior to the solicitors' breach of their retainer. The nature of the expenditure is unclear. The client relied on Anglia Television Ltd v Reed, but that case was distinguished (at 153) - "Unlike the case of Reed , the waste here was not caused by the failure to discover the planning condition on conveyancing, nor was the project abandoned because of it. The expenditure would have been wasted and the project abandoned if Mr Wade had performed his duty. It was abortive expenditure in any event … . It is not right to say that Mr Wade must notionally have contemplated that if he failed in his duty, this expenditure would go to waste."

On appeal (1988) 1 EGLR 138 this was not in question. 1374 The defendants cited St George Commercial Credit Corporation Ltd v Collins Wallis Properties Pty Ltd (Rolfe J, 21 August 1998, unreported), to show that it is necessary to look beyond the fact of a solicitor's negligence and see what loss was caused by the negligence. The lender's solicitor negligently failed to advise that certain guarantees were unenforceable. If he had so advised, the matter making them unenforceable would have been rectified and the transaction would have gone ahead. To the knowledge of the lender, the guarantors were financially worthless, and if the guarantees had been enforceable the lender would not have obtained anything under them. It was held that the solicitor's negligence did not cause the lender's loss. The cause of the loss was the lender's preparedness to take financially worthless guarantees. 1375 I do not think that regard to these cases detracts from the need to arrive at the NRMA's recovery in accordance with the Robinson v Harman principle. Describing expenditure as wasted expenditure does not of itself open the door to recovery. Still confining attention to claims for breach of contract against the solicitors, and on the assumption of negligence, if the contract had been performed the solicitors would have given the advice in relation to free shares and disadvantages which the NRMA said should have been given. The NRMA would have gone ahead with the proposal, but with a suitably altered prospectus free from the deficiencies in relation to free shares and disadvantages. The expenditure would still have been incurred, and was not wasted expenditure in the sense of expenditure which would not have been incurred. Asking what money is necessary to put the NRMA in the position it would have been in if the solicitors had given the advice in relation to free shares and disadvantages which the NRMA said should have been given, the answer is not the whole range of expenditure claimed globally by the NRMA as the wasted expenditure. And if the proper conclusion is that the proposal have failed if the NRMA had gone ahead with a suitably altered prospectus, because unacceptable to the members in general meetings or for some other reason, the wasted expenditure is, not the measure of the NRMA's damages. 1376 Any liability of the solicitors would be in tort as well as in contract, and the case as ultimately maintained against Mr Heydon was one of liability only in tort. The purpose of damages in tort is to place the plaintiff in the position he would have been in but for the wrongful conduct, and normally that would require the plaintiff to establish in money terms the position he would have been in but for the wrongful conduct and his position in fact, the difference being his damages (see for example the discussions in Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 and Marks v GIO Australia Holdings Ltd (1998) 73 ALJR 12). From this came the defendants' submission that the NRMA had to establish in money terms the difference between its position demutualised and its position under its mutual structure, or at the least the difference between its position if a prospectus free from the deficiencies as to free shares and disadvantages had been distributed and its position when enjoined from distribution of the prospectus as approved on 18 August 1994. 1377 The former would not be an easy exercise, but in any event was not attempted by the NRMA. Nor indeed did the NRMA attempt the latter. But the position the NRMA would have been in but for the wrongful conduct postulates the giving of the advice in relation to free shares and disadvantages which the NRMA said should have been given. Asking as before what money is necessary to put the NRMA in the position it would have been in if the solicitors or Mr Heydon had given that advice, the answer is not the whole range of expenditure claimed globally by the NRMA as wasted expenditure, and the wasted expenditure is not the measure of the NRMA's damages. 1378 In this respect, in this case the working out of the damages for breach of contract and the damages in tort come together. Recovery of wasted expenditure as damages in a claim in tort must still be consistent with the central principle of the assessment of damages in tort, as recovery of wasted expenditure as damages for breach of contract must be consistent with the Robinson v Harman principle. Where it is not sensible to speak of loss of profits, it may be that the expenditure is recoverable if it would not have been incurred, if the proper advice had been given. If the expenditure would still have been incurred it is relevant to ask whether the expenditure would have been wasted, that is, in this case whether the proposal would not have been approved by the members in general meetings or would otherwise not have proceeded. Even an affirmative answer to this last question does not mean that the wasted expenditure is the measure of the NRMA's damages, but it is a necessary question. 1379 In my opinion, therefore, the second step in the NRMA's argument should not be accepted. The difficulty then is that, adhering to its argument, the NRMA did not present a case of putting the proposal to the members, or of endorsement of the proposal by a sufficient majority of members in general meetings. Subject to the shift from a global claim of loss earlier mentioned, it maintained the global claim to the entire wasted expenditure, and squarely stood or fell according to the acceptance of its argument based on McRae's case, and maintained that investigation beyond 18 August 1994 was not relevant. 1380 So in the transcript of the oral submissions - "HIS HONOUR: Does it follow from the way you are putting the matter, Mr Sher, that you could in principle concede that the demutualisation proposal would have been rejected by the members if the meeting had been held, but say that doesn't affect the claim you now make?

MR SHER: Yes, that's absolutely right, your Honour. There are two reasons for that. The first is we don't allege that the task of the defendants, any of them, was to effect the demutualisation; that is something they couldn't have done. Only the members could have effected the demutualisation. What the defendants could do, and what we say they were all engaged to do, was to facilitate legally the plaintiff's attempt to demutualise in a lawful manner.

The second reason that we say that it doesn't matter is because whatever the cases say as to whether you're forced to elect or not, they certainly make clear that you can sue for wasted expenditure and, if you sue for wasted expenditure, considerations in relation to loss of opportunity or loss of a chance are irrelevant.

A claim that the meeting may or may not have voted in favour of the demutualisation is relevant to the issue of loss of a chance or loss of opportunity." 1381 The NRMA did concede that if the demutualisation "was doomed to failure from day one because there was never a chance that the members would agree to it", then "one of our difficulties might be that we couldn't show that the cause of the loss was in fact the inability to hold a lawful meeting". In my view the (partial) concession was correctly made, and pointed up the difficulty in principle in the NRMA's case for recovery of the whole of the wasted expenditure. 1382 In these circumstances it might be sufficient to say that, where I have not accepted the second step in the NRMA's argument, the claim in relation to free shares and disadvantages must fail because, in the manner it put its case, the NRMA has not established that the wasted expenditure was its loss in consequence of the alleged negligence of the defendants. The defendants, however, specifically raised causation defences. Again causation was for the NRMA to prove, but I should say more of those defences. Defences 1383 In my opinion the causation defences specifically raised are good defences, in the sense that on the facts disclosed in the evidence I consider that, even if the defendants had given the advice in relation to free shares and disadvantages which the NRMA says should have been given, the proposal would not have been approved by the members in general meetings. There are a number of steps in the reasoning to that conclusion. 1384 As has been seen in the description of the proceedings before Gummow J, his Honour found that distribution of the prospectus and onsert was engaging in misleading conduct in five respects. Only one of the respects, that to do with free shares identified as (d) in these reasons, was upheld by the Full Court. In my opinion it is plain that, had there not been the deficiency of which the NRMA complains in these proceedings in relation to free shares and disadvantages, his Honour would have restrained further distribution of the prospectus and onsert, and proceeding with the meetings, because of the misleading conduct found by him in the other respects. The NRMA submitted before me that free shares was the overwhelming deficiency, and that in its absence the injunctions would not have been granted. I do not agree. I should add for completeness, although I do not think it was in issue, that given the profound opposition to the proposal evinced by Mr Talbot and the advice he had received from Mr Garnsey and Mr Camilleri, I also consider it plain that, even in the absence of the deficiency of which the NRMA complains in these proceedings, Mr Talbot and Miss Fraser would have brought the Federal Court proceedings. 1385 The case of Barnes v Hay (1988) 12 NSWLR 337 which the NRMA said precluded the defendants from relying in this way on the prosecution of the Federal Court proceedings by Mr Talbot, does not do so. There the solicitor's negligence left the client without protection from the broad equivalent to the spoiling tactics. Here the four other respects in which Gummow J found misleading conduct were available to Mr Talbot apart from any negligence by the defendants, Mr Talbot would have taken them up, and even if negligence by the defendants be assumed it did not expose the NRMA to the claims leading to those findings. 1386 So the NRMA would have had to consider appealing to the Full Court. Still postulating a prospectus without the deficiencies of which the NRMA complains in these proceedings, in my opinion the NRMA would have resolved to appeal. The first respect in which Gummow J found misleading conduct was of general importance to it, and was significant in the decision the NRMA in fact took. A majority was anxious that the proposal should proceed. The decision would have been the same. 1387 The general meetings would therefore have been adjourned into 1995 even if the lawyers had given the advice which the NRMA says should have been given and the prospectus had been suitably altered. That would have happened for reasons unconnected with the negligence on the part of the defendants alleged in these proceedings. It would have happened because the proposal by its nature and in the circumstances then obtaining met the opposition of Mr Talbot, and the prospect always present that opponents of the proposal would seek to prevent its implementation by alleging that members were being misled would have been realised. So-called spoiling tactics had always been foreseen, and this sort of event had been particularly forecast by, for example, Mr Bateman on 3 December 1993. 1388 If the Full Court had upheld the appeal and dissolved the injunctions, because the deficiencies in relation to free shares/disadvantages were not present and the other respects in which Gummow J had found misleading conduct were overturned, the NRMA would have been able to proceed with the general meetings. (It may be that Mr Talbot would have brought forward the remaining elements of his proceedings, or brought other proceedings, to prevent the NRMA from proceeding with the general meetings. As can be seen from the facts, his resolve was strong and he was active in his opposition. I will assume that nothing of this kind would have occurred.) The NRMA would then have been able to put the proposal before the general meetings, albeit (a) after some delay; and (b) without the advantage, as it was perceived, of describing the shares as free shares in the manner of the original prospectus (although there may still have been some kind of notion of free shares). 1389 But by one or other of alternative last steps, in the result the proposal would not have been approved by the members in general meetings, or it has not been established that it would have been so approved. 1390 One of the alternative last steps is itself a little complex, involving the financial position of the NRMA as disclosed to the adjourned general meetings. In brief, demutualisation would by then have lost the earlier financial attraction, and would not have attracted sufficient support from the members. The make-up of this last step is as follows. 1391 As earlier described, the prospectus included financial information, part of which was a forecast consolidated after-tax profit for the NRMA Group for 1994/95 of $215 million involving an underwriting loss of $129 million and unrealised investment gains of $102 million. The C&L report, while making it clear that actual results might vary materially from the forecasts, said that movements from 30 June 1994 to the date of the report had "not been significant in terms of their effect on the results". The prospectus had a limited life, and even during its currency a "significant change" affecting a matter within it had to be the subject of a supplementary prospectus (s 1024 of the Law, coming into force on 1 September 1994). The need to inform members of any significant movements could only have been underlined by the C&L report. 1392 The evidence of Mr Worthington and Mr Chalmers enabled the conclusions (i) that by early 1995 an evaluation of the NRMA's investment portfolio would have indicated that the unrealised investment gains would not exceed $70 million, and that the NRMA would have been so aware; (ii) that by the same time a deterioration in the CTP results was evident; and (iii) that these represented a material change in the forecast profit of $215 million. To this evidence may be added a note to the 1993/94 financial statements that the value of equity investments held by the Insurance Group had fallen by $84.8 million from 30 June to 30 November 1994, a letter from Mr Pearce dated 21 February 1995 to the board of Insurance forecasting a loss of $99.4 million in lieu of a forecast profit of $197 million for the purposes of the prospectus (these were for Insurance, so not directly found in the prospectus). 1393 At least some of the directors were aware of an averse change in the NRMA's financial position. In January 1995 Mr Mackay learnt of the CTP deterioration, which he agreed "made the forecast in the prospectus look fairly sick". Mr Corrigan knew, probably in December 1994, that the trend in relation to CTP was "not looking good". Mr Jack knew by the end of 1994 that there were significant unrealised losses and that the forecasts in the prospectus so far as they concerned CTP "had started to look sick". 1394 Mr Mackay agreed that a revised forecast in a supplementary prospectus would have been required. Mr Corrigan's evidence was to the same effect, and Mr Jack in retrospect saw that the forecasts might have needed revision. Mr Ross of BT thought that what was in Mr Pearce's letter was sufficiently material to require the issue of a supplementary prospectus. These were, perhaps, incomplete and insufficiently comprehensive reactions in cross-examination. But the conclusions available from the evidence of Mr Worthington and Mr Chalmers should in my opinion be reached. Based on those conclusions, it should further be concluded that there was a significant change affecting the profit forecast, known to the NRMA no later than the end of January 1995 and probably early in January 1995, calling for the issue of a supplementary prospectus in which the profit forecast was significantly less than the $215 million. The further conclusion can be reached with more comfort in the light of the reactions of Mr Mackay, Mr Corrigan, Mr Jack, and Mr Ross. 1395 I leave out of account evidence from Mr Morgan and Mr Bateman to the effect that Ms Conway said that the management accounts showed a major deterioration in profit (early December 1994, Mr Morgan) and that the profit forecast of $215 million was likely to be a loss of $100 million although the position was unclear (1 February 1995, Mr Bateman). There was some contention and obscurity over the first of these, and the second was qualified and the sub-figures told to Mr Bateman ($200 million unrealised losses, $100 million drop in CTP) were remarkably large and not otherwise supported. But this evidence would only confirm the further conclusion. 1396 The members would have attended the adjourned general meetings, or given their proxies, after receipt of a supplementary prospectus disclosing a significant change in the forecast consolidated net profit for the then current year. Apart from the supplementary prospectus, those who read the financial press would have seen articles at the end of January and early in February 1995 in which Mr Mackay was reported as saying that the falling share market had caused a fall of $200 million in the value of the NRMA and that "the original $2 billion tag placed on the float would not be reached under current market conditions. They would have seen articles in which a "sharp revision" to the prospectus forecast was to be made, articles in which unnamed "observers" referred to $300 million lost capitalisation, and articles in which NRMA executives otherwise acknowledged a less attractive financial state. Unnamed "analysts" said that the NRMA would have to decide "whether to press ahead with the float as soon as possible or delay for several months in the hope that the sharemarket improved and generated a greater listing price". The proposal would have been seen as financially less attractive, and the shares would have been worth less, than presented in the original prospectus, although I do not think the evidence permitted a reliable finding as to the figures. 1397 Most of the members would also have been aware of the discussion underlying and litigation in the Federal Court proceedings, litigation in which (on the hypothetical basis now under consideration) the NRMA had been found at first instance to have engaged in misleading conduct but had been absolved on appeal. And (on the same hypothetical basis) the members would not have been enticed by the references to free shares seen by the marketing advisers as important to a favourable outcome of the meetings, or at least not in the manner of the original prospectus. Would the proposal have gained the necessary 75 per cent approvals? 1398 At least in part because, true to its argument, the NRMA did not enter upon the area, this is close to the realm of speculation. The defendants did enter upon the area, but an attempt to answer the question must draw on more or less obscure indicators. 1399 The market research carried out by Woolcott for the NRMA in late 1993 showed resistance to the "corporatisation" of the NRMA. A report of 2 February 1994 stated that "initially 43% would have voted against the proposed change, 31% were in favour and 26% were undecided". When reference was made to the share allocation, however, the percentages were 36 percent, 42 per cent, and 22 per cent - the share distribution motivated approval. Hence what Woolcott called communication objectives "to inform members of the proposed changes and encourage them to vote in favour", with the added comment, "This includes communication of the proposed distribution of the current wealth of the NRMA via member and policyholder entitlements, ie share allocation". 1400 By mid-April 1994 further research showed that 50 per cent of members were not aware of the proposal, and that of the 50 per cent who were aware of it over half (27 per cent of the whole) were undecided and some (6 per cent of the whole) would vote against. Mr Salvage described these results as "encouraging at such an early stage", but said that "much remains to be done to overcome the notoriously high levels of member inertia (in spite of high levels of professed intent to act) on governance issues". He said that all press and television advertising would "aim to focus on the four key issues which research has identified as critical", namely change for the better, shares at no cost, value from $500 to $2,000, and voting is vital. 1401 Further research by Woolcott in August and September 1994 included tracking the percentage of respondents who were in favour of the proposal because "provide benefits/advantage for those involved/free shares". The percentage increased quite markedly, and confirmed the views of Mr Barrett and Mr Fitch that the use of "free shares" was an important part of the NRMA's publicity. 1402 A communications meeting on 2 September 1994 was told that there had been "no dramatic movement in the results of the research. Awareness and voting intentions have increased slightly". The base from which this spoke was not entirely clear. A telephone survey of NRMA members conducted at the end of September 1994, it seems not on behalf of the NRMA, showed considerable awareness of the proposal (92 per cent) and intention to vote (82 per cent), and that of those intending to vote "almost half (44 per cent) indicated that they will definitely support the float and a further 19 per cent will probably support it, making a nett support level of 63 per cent". The net opposition figure was 18 per cent, and the surveyor commented that it appeared that the last-minute decision of those members still undecided would "have a big influence on the outcome of the proposal". 1403 The proxies received for the meetings of 19 October 1994 reflected approvals in excess of the necessary 75 per cent, but not greatly in excess -

Association Eligible voters Proxies Approval Disapproval 1,750,606 1,314,599 80.23% 16.21

Insurance Eligible voters Proxies Approval Disapproval 1,192,518 882,752 80.42% 16.39%

These approvals would be vulnerable to an adverse impression from the litigation or, more particularly, the reduced forecast net profit. 1404 As at the beginning of May 1995 market research indicated that the approvals had fallen to approximately 50 per cent and the disapprovals had increased to approximately 25 per cent. These results were, no doubt, affected by the NRMA's defeat in the Federal Court proceedings, which must have created an adverse perception in some members. But the vulnerability to adverse impression is underlined, and Mr Worland, then the NRMA's assistant general manager, public affairs, considered that it would not be possible to achieve the 75 per cent approvals in the foreseeable future. 1405 Taking all these maters going to the last step to which I have referred, and to the extent to which a finding can reliably be made on the scanty material available, on the probabilities I consider that the proposal would not have gained the necessary 75 per cent approvals at the adjourned general meetings. I am not sure that a finding can reliably be made, and would prefer to say that I do not think it has been established that the proposal would have gained the necessary approvals at the adjourned general meetings. 1406 The other alternative last step may be stated more shortly. It looks to the effect of the decision of the High Court in Gambotto's case. 1407 With a decision of the Full Court at about the end of January 1995, and the need for the reasons just given for a supplementary prospectus, on the probabilities the adjourned general meetings would not have been reconvened until after the decision of the High Court in Gambotto's case had been handed down on 8 March 1995. Even if the NRMA had not received the submissions of CU, ME and NS, and was not receiving advice from Professor Austin, the reception given to the decision amongst corporate lawyers would have led to the same recognition as in fact occurred that the proposal could not be implemented by the resolutions in general meetings route. The proposal would not have been approved by the members in general meetings, because it would not have been put before the general meetings. 1408 The NRMA sought to counter this by submissions at some length. It described the steps as an argument that the decision of the High Court in Gambotto's case was a supervening event, breaking the chain of causation. It said that the free shares/disadvantages negligence was "still operating", because but for that negligence the NRMA would not have been exposed to the effect of Gambotto's case. It was also said that the decision of the High Court was "the final event which causes the whole of the damage". The reasoning was not made clear, but seemed to be that expressed in the submissions that "the original negligence was itself foreseeably likely to cause significant delay" and that the continuing effect of the free shares/disadvantages negligence "was the delay that negligence caused and the exposure of [the NRMA] to the risk that the Gambotto decision actually … was." 1409 In my view this misses the point. Whether or not it be accepted that delay exposing the NRMA to the effect of Gambotto's case was reasonably foreseeable (which may require that Gambotto negligence be taken together with free shares/disadvantages negligence), the point is that the delay would have occurred even if there had not been the free shares/disadvantages negligence. The decision in Gambotto's case was a supervening decision, but that is not the same as being a supervening event in an argument about causation. The NRMA was always exposed to the effect of Gambotto's case, and would have suffered that effect even if there had not been free shares/disadvantages negligence. 1410 The NRMA's submission that Gambotto's case as decided by the High Court would not have prevented the demutualisation from proceeding, a submission which I earlier described as made in order to repel a causation argument, seemed to be directed to this step in the defendants' causation defences. The submission, however, did not meet the argument. What matters is not whether, on a correct appreciation of the decision, the demutualisation could have proceeded by the resolutions in general meetings route despite Gambotto's case, but that the NRMA was advised that it could not so proceed in the face of Gambotto's case, and acted on that advice. It is not necessary to express a view on whether the advice the NRMA received from Mr Emmett, Professor Austin, Mr Heydon and Mr Hulme was correct. There is no reason to think that the same advice would not have been given, and acted on, in the circumstances now under consideration. 1411 The causation defences should therefore be approached with the finding that, had the defendants given the advice in relation to free shares/disadvantages which the NRMA says should have been given, the proposal would still not have gone to the members in general meetings or, if it went to the members in general meetings, would not have gained the necessary 75 per cent approvals; as the preferred finding, it has not been established that it would have gained the necessary 75 per cent approvals. The expenditure would have been wasted anyway, in the sense that demutualisation by the resolutions in general meetings route would have failed. (For present purposes Gambotto negligence must be put aside, and the fact of the resolutions in general meetings route must be accepted). 1412 That is the finding of fact, but does it mean that the free shares/disadvantages negligence alleged against the defendants would not in law have caused the waste of the expenditure? Causation in the law is notoriously difficult, and the submissions on causation in these proceedings were extensive. I intend no disrespect in explaining quite briefly why I consider the answer is yes. 1413 It is well established that the existence of a causal connection between a plaintiff's claimed loss and the defendant's negligence is to be determined according to common sense ideas, and not according to philosophical or scientific theories of causation (March v E & M H Stramare Pty Ltd (1991) 171 CLR 506; Bennett v Minister of Community Welfare (1992) 176 CLR 408; Chappel v Hart). Causation in the law is concerned with ascertaining or apportioning legal responsibility for an act or omission, and so involves value judgments and "the infusion of policy considerations" ((March v E & M H Stramare Pty Ltd at 516). Although there may be a causal connection where the act or omission only contributes to the loss, that is, is one of a number of conditions sufficient to produce the loss, the "but for" test is not the sole determinant of causation, and so the plaintiff will not necessarily succeed merely because he would not have suffered the loss but for the defendant's act or omission. Conversely, as Chappel v Hart shows, the defendant's act or omission may be held to have caused the plaintiff's loss where the plaintiff might have suffered the loss anyway. In that case the possibility that the loss would have been suffered anyway was regarded by the majority as insufficient reason to displace the connection between the defendant's omission and the injury in fact suffered by the plaintiff. Even then, in Chappel v Hart it would have been open to the defendant to have the plaintiff's damages reduced to reflect the possibility that, independently of his omission, the plaintiff would have sustained her injury at a later time. 1414 In the present case, at all times, there was the prospect that the demutualisation would not gain the necessary 75 per cent approvals, either because of successful spoiling tactics or because the members were not persuaded on the merits to vote in favour of the proposal. The prospect was not a random possibility like that to which the plaintiff in Chappel v Hart was exposed, and was a prospect which at all times would have been recognised as leading to waste of the NRMA's expenditure, if it came about, in that the expenditure would have been incurred but the demutualisation would have failed. On the finding I have made, the prospect would have been realised even if there had not been the free shares/disadvantages negligence (and on one of the alternative would have been realised quite apart from Gambotto's case). The free shares/disadvantages negligence accelerated the same outcome, failure of the demutualisation by the resolutions in general meetings route. On the common sense approach to which I have referred, I do not think the waste of the expenditure should be regarded as having been caused by the free shares/disadvantages negligence alleged. Although for different reasons, as in St George Commercial Credit Corporation Ltd v Collins Wallis Properties Pty Ltd the negligence would not have caused the client the claimed loss. 1415 It remains to refer to the NRMA's shift from a global claim of loss. 1416 In the course of the NRMA's submissions in chief its position throughout the hearing was confirmed - "HIS HONOUR: Just before you do that - please do in a moment - I had intended to ask you whether so far as your submissions were concerned you really did treat all the money in the one category; it was win or lose as to the lot, with the difference in the case of the Gambotto case about pre-17 March or pre-first board meeting after the hearing.

MR SHER: It is, but subject to the resolution of those arguments in principle. There's a series of arguments which we address in our submissions and we've given your Honour authority on managerial expenses in the case of Tate . That is our position." The arguments in principle were discrete matters considered later in these reasons. 1417 In the course of Mr Heydon's submissions on why the NRMA's stance on causation was incorrect, it was said that the NRMA could have sought to demonstrate what expenditure had been incurred which would not have been incurred but for the free shares/disadvantages negligence, for example the expenditure on retaining the other solicitors in early 1995. This was not news. 1418 Then came the shift in the NRMA's position in its submissions in reply. In the context of submissions concerning Gambotto's case as a supervening event, it was said that the NRMA's case in relation to damages "falls into a number of parts". One part was that the decision of Gummow J meant that the expenditure to that time was wasted. The other part was described as "damage which flowed from the attempt to mitigate and which is recoverable as a consequence of the original wrongful acts", itself described as falling into two parts, namely the expenditure until the decision in Gambotto's case (getting advice, the costs of the Federal Court proceedings, and other things after the decision of the Full Court) and then the expenditure thereafter (getting advice, and the Grant Samuel report and its distribution). 1419 A little later, in the context of submissions on causation generally, the expenditure after the decision of Gummow J was described as "a classic case of mitigation", and while the label of wasted expenditure was still given to the damages the now tripartite division of the damages was asserted - "But in our submission, if one thinks about it, once you assume that we're seeking wasted expenditure in saying that in effect Justice Gummow's decision caused it, even though the second lot of wasted expenditure is still wasted expenditure, we say it is a consequential waste of expenditure. Perhaps we should have made that clear, but I think yesterday I said there were three lots really: there is the wasted expenditure after the decision in Gambotto when they got the Grant Samuel report and distributed it to the members. So in a sense we've got three categories of wasted expenditure." 1420 This was really a different case on damages. The expenditure after the decision of Gummow J was not wasted expenditure in the same sense as the expenditure prior to that decision, if properly described as wasted expenditure at all. Perhaps it could have been claimed as expenditure reasonably incurred as a result of the defendants' negligence or statutory wrong, but it had not been claimed in that way. AAH submitted that it was not open to the NRMA to depart from its global claim of loss, and that it (AAH) would have done other than it had in evidence and submissions, had the damages been claimed in a different way. The other defendants expressly or impliedly adopted the same position. I agree. The shift from a global claim of loss should not be permitted. 1421 In outlining the defences as filed, I recorded that each of the defendants had relied on s 1318(1) of the Law in relation not only to the claims under ss 995(2) and 996(1) of the Law, but also to all the claims against it or him. The submissions of AAH were confined to reliance on s 1318(1) in relation to the claims under ss 995(2) and 996(1) of the Law. The submissions of AT were more general, it seems relying on s 1318(1) in relation to the claim for negligence: there was reference to Daniels v Anderson (1995) 37 NSWLR 438 at 524-5, in which availability of s 1318(1) in relation to a claim for negligence was assumed but not decided. The submissions did not otherwise go into the arguments for and against availability, and as to the substance were no more than a few lines, referring to "the novelty of the transaction, the force of the instructions from the client and the novelty of the law as found in Fraser (both in its application of TPA section 52 to prospectuses and the manner in which the duty of disclosure was interpreted in the context of section 52". Mr Heydon also referred to Daniels v Anderson, saying that the evidence demonstrated that he had acted honestly in performing the tasks which he was retained to perform, comparing his role to that of the solicitors, and putting a number of matters alleged to constitute contributory negligence on the part of the NRMA. 1422 The submissions as to s 1318(1) were not entirely satisfactory. Fortunately, it is unnecessary to consider the availability of s 1318(1) in relation to the claims in contract and for negligence, or whether the defendants can successfully rely on it. 1423 I do not think that there was anything in the allegations of failure to mitigate loss. As with Gambotto liability, in the face of the clear advice received by the NRMA that it could not proceed by the resolutions in general meetings route, it could not be said that it should have mitigated its loss by issuing a supplementary prospectus. That is so regardless of Gambotto negligence, and for reasons earlier given the implementation of the proposal would have been delayed until a time when the advice would have had effect before implementation by to a supplementary prospectus. What I have said in dealing with Gambotto liability in connection with proceeding by the scheme of arrangement route is equally material to free shares/disadvantages liability. 1424 The allegations of contributory negligence in the defences were particularly directed to free shares/disadvantages liability. Again the decision in Astley v Austrust Ltd makes contributory negligence of no value to the solicitors, but where I have found that neither they nor Mr Heydon was negligent an exercise of identifying any negligence on the part of the NRMA and assessing respective responsibilities can not readily be undertaken. The exercise would be so hypothetical and accordingly qualified that I consider it would be more of a hindrance than a help to attempt it for the assistance of an appellate court if these proceedings go further, and I do not attempt it. Contravention of the Fair Trading Act 1425 The statutory provisions have already been set out. It is necessary that AAH and AT engaged in misleading conduct, that they did so in trade or commerce, and that the NRMA suffered loss or damage by that conduct. It is not necessary that AAH and AT were negligent in the conduct alleged to constitute the misleading conduct, or that they intended to mislead, and even if they acted honestly and reasonably they may nonetheless be held to have contravened s 42 of the FT Act and to be liable accordingly (see Parkdale Custombuilt Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 197, 223; Yorke v Lucas (1984) 158 CLR 661 at 666). Thus my opinion that they were not negligent in relation to free shares and disadvantages does not of itself provide an answer to these claims, although as will be seen it is not irrelevant to them. 1426 The NRMA submitted that the solicitors had engaged in misleading conduct of three separate but interrelated kinds. First, it was said that, following the opinions of Mr Heydon of 2 and 3 August 1994, Mr Morgan and Mr Bateman knew that it could not be represented that there was nothing which had come to their attention which might give rise to an allegation of misleading or deceptive conduct in, or material omission from, the prospectus, but by their participation in the activities of the due diligence committee and their approval of the report of the due diligence committee, without bringing to the attention of the committee the free shares problem raised by Mr Heydon, they represented to the contrary. Secondly, it was said that the sign-off letters, by their failure to raise or address the issues drawn to the attention of Mr Morgan and Mr Bateman by Mr Heydon's opinions of 2 and 3 August 1994, also conveyed the misleading representation that there was nothing which had come to their attention which might render the prospectus misleading or deceptive. Thirdly, it was said that in remaining silent about Mr Heydon's opinions of 2 and 3 August 1994 when attending the various committee and board meetings later in August 1994 Mr Morgan and Mr Bateman conveyed the same misleading representation. 1427 The misleading conduct on which the NRMA relied in each instance was conduct by silence. It was put forward in supplementary written submissions intended to restate the NRMA's case in this respect. The earlier written submissions, while referring in a less than satisfactory manner to misleading conduct by silence, had also put forward misleading conduct by what was described as express representations in the sign-off letters and the report of the due diligence committee "that the demutualisation transaction itself and the transaction documents they had drawn up to implement it were lawful and legally effective", and by verification statements by Mr Morgan and Mr Bateman part of the due diligence process "in which they purported to verify the accuracy of every statement in the prospectus". The supplementary submissions followed my request that the NRMA identify the specific passages in the sign-off letters, the report of the due diligence committee, and the verification statements it said amount to the representations. 1428 In the result, the NRMA abandoned a case of express representations, and by the supplementary submissions enlarged and clarified its case of misleading conduct by silence. The NRMA accepted in submissions that if there could be "nothing more alleged in connection with the conduct than the negligence itself" there would not be misleading conduct, and it seems that the NRMA put its case in the way it did in order better to contend that there was misleading conduct, and that the conduct was in trade and commerce consistently with the reasoning in Prestia v Acknar (1996) 40 NSWLR 165, see later in these reasons. 1429 Silence may constitute misleading conduct as part of all relevant circumstances constituted by acts, omissions, statements or silence, for example if the circumstances are such as to give rise to the reasonable expectation that if a particular state of affairs exists it will be disclosed. Put another way, if the silence gives rise to an inference that the state of affairs does not exist, a failure to disclose that it exists may be misleading conduct. It is sufficient to refer, amongst the many cases on the subject, to Commonwealth Bank of Australia v Mehta (1991) 23 NSWLR 84; Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31; and Warner v Elders Rural Finance Ltd (1993) 41 FCR 399. 1430 Where the circumstances include that the existence of the state of affairs involves a judgment or an opinion, that it does so must be taken into account in determining whether the silence constitutes misleading conducts. That is so because in the circumstances as a whole the silence may itself be an expression of judgment or opinion by the silent party, to be tested for its misleading nature according to whether the judgment or opinion represented an honest opinion with a rational basis (cf Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82 at 88; Bateman v Slatyer (1987) 71 ALR 553 at 559), and because the other party's expectation or inference may be affected by his recognition that the silent party is exercising judgment or expressing an opinion. That, however, will only be part of the overall circumstances. 1431 As I have earlier noted, the due diligence process included regard to breach of legislative or other requirements, and the sign-off letters were directed to whether the prospectus sufficiently included or commented on anything which might affect the decision of a potential investor and, specifically in the case of the AAH sign-off letter, whether there was a material false or misleading statement or material omission in the prospectus. In a letter from AAH to Mr Rees dated 30 March 1994 it was said that the members of the due diligence committee "must be satisfied that the process identifies material matters and does not omit material issues", and in a paper dealing with materiality for the purposes of prospectus disclosure towards the end of April 1994 AT stated that an item of information would be judged material "if its omission, non-disclosure or mis-statement would cause the prospectus to mislead users when making evaluations or decisions about investing in NRMA". 1432 Mr Morgan and Mr Bateman had to act accordingly, both in their participation in the activities of the due diligence committee and in providing the sign-off letters, and it may be assumed that their attendance at the various committee and board meetings in August 1994 provided alternative opportunities for them to disclose, if it was necessary that it be disclosed, the free shares problem raised by Mr Heydon and their awareness of it as something which might render the prospectus misleading or deceptive. 1433 However, for the reasons given when dealing with negligence in relation to free shares and disadvantages, I do not think the implicit judgment exercised by Mr Morgan and Mr Bateman in that connection was unreasonable. Whether there was misleading conduct involves not a narrow finding that Mr Morgan and Mr Bateman did not tell the due diligence committee or the boards of Mr Heydon's opinions or of the free shares problem he had raised. It involves an assessment of their conduct as a whole, in order to determine whether it should properly be categorised as misleading conduct. I do not think it should. 1434 The solicitors provided Mr Heydon's opinions to the NRMA, to Ms Conway its legal counsel in particular, and so the free shares problem as perceived by Mr Heydon, and the legal issue and risk which might have remained even with the asterisk and explanation, were made known to Ms Conway. Ms Conway was a party to the discussions on 2 August 1994 to the extent to which extension of the free shares problem to the prospectus was there mentioned, and knew of the perceived possibility. Mr Morgan and Mr Bateman considered, and here it is of relevance that in my view they did so without negligence, that the free shares problem identified by Mr Heydon did not extend to the prospectus, and they said so: for the reasons I have given, the deficiency later found in the prospectus in relation to free shares and disadvantages was really different from that which Mr Heydon had raised, and there was no negligence in that respect. As explained when describing the facts, that Mr Heydon had identified the free shares problem was not hidden, and was made known beyond Ms Conway, including to Mr McKay, the chairman of the due diligence committee and the President of the NRMA. The solicitors could, of course, have done more, but that is not the question; the question is whether by not specifically bringing to the attention of the due diligence committee the free shares problem raised by Mr Heydon, not addressing in the sign-off letters the issues in Mr Heydon's opinions of 2 and 3 August 1994, or not bringing those opinions up at the committee and board meetings in August 1994, they engaged in misleading conduct. In my opinion, in the circumstances it was not necessary that they do so, or to be expected that they would do so, and they did not. 1435 If there had been misleading conduct, there were competing submissions over whether it was engaged in in trade or commerce. By the definitions in s 4(1) of the FT Act, trade or commerce "includes any business or professional activity" and business included a trade or profession. But AAH and AT submitted that there was a distinction between the exercise of intellectual skill, on the one hand, and representation about the product of the exercise of the intellectual skill, on the other hand, and that the former was not conduct in trade or commerce; implicitly, they submitted that the misleading conduct on which the NRMA relied was not in the trade or commerce category. For the distinction, AAH and AT cited Prestia v Aknar. As I have said, it seems that the NRMA put its case in the way it did in order better to counter this submission. 1436 Prestia v Aknar was referred to in Yates Property Corporation Pty Limited v Boland (1997) 145 ALR 169, but it was unnecessary for Branson J to explore or apply it. Nor is it necessary in this case, and I resist AT's invitation to decide in any event whether the conduct of the solicitors was in trade or commerce. 1437 For completeness, I should record that the NRMA submitted that it suffered loss or damage by the solicitors' misleading conduct because that conduct in turn caused the NRMA to engage in the relevant misleading conduct found by the Federal Court and so brought the wasted expenditure. Whether there was the causal link was disputed by the solicitors. 1438 First, the solicitors said that the prospectus would have been left unchanged even if Mr Morgan or Mr Bateman had brought the free shares problem raised by Mr Heydon to the attention of the due diligence committee, or the boards, as something which might render the prospectus misleading or deceptive. It is important to recognise that the hypothesis is different from the advice considered earlier in these reasons in relation to causation in free shares/disadvantages negligence. The advice then considered was that the NRMA should delete the reference to the "free shares" in both the onsert and the prospectus, or appropriately qualify that expression. The hypothesis is less than that. Consistently with the way in which the NRMA put its case, the solicitors would not have engaged in misleading conduct if they had told (for example) the due diligence committees of Mr Heydon's opinions of 2 and 3 August 1994, that Mr Heydon had left the possibility of risk in describing the shares as free shares, but that they (the solicitors) considered that the prospectus was not open to challenge because of the free shares problem raised by Mr Heydon because it sufficiently made clear that the members were giving up their membership rights. If what I have earlier said be correct, the solicitors' advice in that respect was not negligent. 1439 It is readily arguable that the boards would have been content to proceed without changing the prospectus. Causation in connection with the misleading conduct on which the NRMA relied is by no means clear, and the finding would be influenced by the way in which the hypothetical disclosure to the due diligence committee, in the sign-off letters, or to the other committees or the boards, was framed, and with what accompanying or consequential advice from the solicitors. This was really not addressed in the evidence or in submissions, and I do not think it useful to go further into it. 1440 Secondly, it was said that, as with the claims for negligence, even if the prospectus had been changed so as to avoid the misleading conduct in relation to free shares and disadvantages found by the Full Court, the wasted expenditure would have been wasted anyway. The statutory test is whether the wasted expenditure was loss or damage suffered "by" the misleading conduct of the solicitors, which denotes a causal relationship but does not confine relief under s 68 of the FT Act by analogy with claims in tort or contract (Marks v GIO Australia Holdings Ltd at 16, 20, 31). The submissions did not advert to any difference in approach, when determining whether the wasted expenditure was recoverable as damages, between damages for breach of contract or negligence on the one hand and damages as relief under s 68 of the FT Act on the other hand. In particular, the NRMA did not suggest that the test of loss or damage suffered "by" the misleading conduct of the solicitors in some manner made it easier to achieve the objective it sought to achieve by invoking what it said was the reasoning in McRae's case. 1441 Given that there must be a causal relationship, for essentially the same reasons as earlier given I do not think that the wasted expenditure is the measure of the loss or damage suffered by the solicitors' misleading conduct, and enquiry into whether the wasted expenditure would have been wasted anyway is just as appropriate. What I have earlier said need not be repeated. 1442 I do not think that in the end even AT relied on s 1318(1) of the Law in answer to this claim. It is unnecessary to say anything about whether failure to mitigate loss and contributory negligence could be available to reduce the claims against the solicitors, or to say more about the allegations of failure to mitigate loss and contributory negligence themselves. Involvement in Holdings' contravention of the FT Act 1443 Again the statutory provisions have already been set out. It was necessary that Holdings engaged in misleading conduct in trade or commerce, that the NRMA suffered loss or damage by that conduct, and that AAH, AT and Mr Heydon were involved in Holdings' contravention. 1444 The relevant contravention by Holdings had to be engaging in misleading conduct with respect to free shares and disadvantages, as found by the Full Court, since only that contravention could be said to have led to the NRMA suffering loss in the amount of the wasted expenditure. The NRMA simply relied on the decision of the Full Court, saying that the defendants' accessory liability "flows a fortiori from the findings of breach in the Federal Court". 1445 The defendants replied, correctly, that they were not parties to the proceedings in the Federal Court, and so the findings and decision of the Full Court did not bind them. I have already noted that AAH submitted that there was much more evidence before me than was before the Federal Court, whereby a decision different from that reached by the Full Court was dictated. In particular, it was said that there was evidence before me but not before the Federal Court which established that the disadvantages listed in the Federal Court judgment were "not disadvantages in any real or practical sense", and that there was overwhelming evidence before me to the effect that the prospectus was in fact taken to convey that "free" in its context meant without payment being required. So, it was submitted, the decision of the Full Court was not even persuasive to the conclusion in these proceedings that Holdings had relevantly engaged in misleading conduct. 1446 I must decide for myself whether Holdings engaged in misleading conduct with respect to free shares and disadvantages. The decisions of Gummow J and the Full Court are, of course, entitled to earnest and respectful consideration. But there is no question of following the decision of the Full Court for reasons of comity, if for no other reason because neither that decision nor my decision turns on a debatable proposition of law, and each turned and turns upon the particular facts before the Court and the reasoning in applying the terms of s 42 of the FT Act to the facts. I have already indicated that I have difficulties with the reasons of the Full Court, and have explained those difficulties. I do not lightly come to a conclusion different from the conclusions to which Gummow J and the Full Court came, but I am not satisfied that Holdings engaged in misleading conduct as found by the Full Court. My reasons can be stated at three levels. 1447 First, I have already endeavoured to analyse the reasoning of the Full Court, arriving at the view that the free shares question and the disadvantages question merged and the vice in the prospectus was that there might have been disadvantages in the proposal not sufficiently identified and elaborated in the prospectus. I have suggested that it could not be said that the prospectus was misleading unless the existence and significance of the postulated disadvantages was established. When that was not done, in my respectful opinion the reasoning to misleading conduct was deficient. 1448 Secondly, much earlier in these reasons I suggested grounds for concluding that the possible disadvantages to which the Full Court referred (disadvantages (i) to (v) from the applicants' submissions and a further consideration added by the Court) were not disadvantages requiring identification, or were disadvantages sufficiently identified and explained in the prospectus. I find those grounds persuasive, and on the evidence before the Full Court I would not reach the same conclusion as was reached by it in January 1995. 1449 Thirdly, on the evidence before me I do not think that it has been established that Holdings engaged in misleading conduct as found and decided by the Full Court. With the advice of the solicitors that the prospectus had to be balanced and had to identify the disadvantages in the proposal, and under the impetus of the agitation for presentation of a "no" case in the prospectus and otherwise, detailed and careful consideration was given by the directors and the advisers to the disadvantages in the proposal. In my opinion there was an adequate statement in the prospectus of the disadvantages of which the directors were aware, and there were no other disadvantages of significance which were not identified and elaborated whereby distribution of the prospectus was engaging in misleading conduct. The rights being given up were transitory, even membership of Association depending on annual renewal, and as the Full Court acknowledged were probably impossible of valuation. Their value lay in the control over exposure to disadvantages through demutualisation, and so depended on there being disadvantages of significance. On the evidence before me, I do not think that the existence was established of any such disadvantages - by which I mean that they could rationally affect the members' decision on the proposal - not sufficiently disclosed in the prospectus. The most that could be said was that Mr Corrigan's view about possible increase in insurance premiums supported such a disadvantage, but cessation of insurance rebates was clearly identified (a reason for demutualisation was avoiding artificially low premiums), and otherwise this fell within the broader issue of pursuit of profits and the culture of the NRMA. 1450 That would be sufficient for failure of these claims, but I should also refer to whether the defendants were involved in what I will assume to be a contravention of the FT Act by Holdings. 1451 In submissions the NRMA took up the groups of words in paras (a) and (c) of s 61(1) of the FT Act, "aided, abetted, counselled or procured" and "in any way, directly or indirectly, knowingly concerned in or party to". It said that the words were satisfied because "the defendants' role was as counsellors to the plaintiffs in connection with, and the substantial draftsmen of and editors of, the very documents which were found to be misleading or deceptive". At another point it said that the conduct of the solicitors on which it relied as misleading conduct, described earlier in these reasons, satisfied the words, adding that the solicitors were named in the prospectus, and that Mr Heydon was involved in the contravention because he confirmed in his opinion of 3 August 1994 that it was lawful for the onsert to be distributed and was silent "about any other parts of the onsert or the prospectus". 1452 Section 75B of the TP Act, and in particular the words in the corresponding two paragraphs presently material, was considered by the High Court in Yorke v Lucas. It was held that para (a) required intentional participation in the contravention, and that to form the requisite intent the participant had to have knowledge of the essential matters which went to make up the contravention. It was held also that, for the purposes of para (c), a person could not be knowingly concerned in a contravention unless he had knowledge of the essential facts constituting the contravention, and that a person could only properly be said to be party to a contravention if his participation was in the context of knowledge of the essential facts constituting the particular contravention. The allegation in that case was that Lucas was involved in contravention of s 52 of the TP Act by his company, in that the company, by Lucas, had falsely represented the turnover of its business. It was held that Lucas did not intentionally participate in the contravention because he did not know of the falsity of the representation. 1453 From the facts which I have set out, it is plain that Mr Heydon did not have knowledge of the essential matters going to make up the contravention found by the Full Court. He had knowledge of the contents of the prospectus at most only via the draft prospectus, in its form at or prior to 14 July 1994 in the Perpetual brief. At no time had he been called on to consider the adequacy of disclosure of disadvantages, and he had no knowledge of the disadvantages in the proposal of which the directors were aware or should have been aware. Even if he had been conscious of the use of the expression "free shares" in the prospectus, his knowledge was far short of that required for either para (a) or (c) as construed in Yorke v Lucas, but as well I have accepted that he was not conscious of that use. For these reasons alone, quite apart from what follows, Mr Heydon was not involved in the assumed contravention of the FT Act by Holdings. 1454 The position is not quite so clear in relation to AAH and AT. AAH submitted that, absent dishonesty or no reasonable basis for holding the opinion that there was no misleading conduct in the distribution of the prospectus, it did not have "the requisite knowledge to attract accessorial liability". This was not developed. AT submitted that the giving of professional advice does not constitute involvement within the meaning of s 75B of the TP Act, referring generally to Yorke v Lucas, but again this was not developed. 1455 Because of what they did in and in relation to drafting and revising the prospectus, and advising upon its compliance with the law, the solicitors had extensive knowledge of what it said and did not say and of what could have been said. No party attempted an analysis of the essential facts constituting Holdings' contravention, or of the solicitors' knowledge of those facts, and absence of dishonesty or a reasonable basis for holding that there was no misleading conduct in the distribution of the prospectus is not the same as absence of knowledge of whatever may have been the essential facts. Yorke v Lucas was concerned with the knowledge required for accessory liability, and did not decide that the giving of professional advice does not constitute involvement. The submissions from the NRMA and the solicitors were not of much assistance. 1456 In the absence of meaningful submissions, I do not propose to determine whether the solicitors or either of them was involved in the assumed contravention of the FT Act by Holdings. Knowledge of the essential facts alone is not sufficient for accessory liability. There must be something more constituting involvement, within the groups of words, in the primary contravention. A person who is no more than an adviser may not be involved; alternatively, it may be that a person who, though an adviser, is intimately involved in the transaction giving rise to the contravention, is involved. Sutton v A J Thompson Pty Ltd (1987) 73 ALR 233 may illustrate this, it being found that the adviser played a significant part in the contravention by keeping financial statements from the plaintiff and accepting joint responsibility for false statements about volumes of sales and prices: he was found to have been "an intentional participant with full knowledge of the essential elements of the contravention" (at 242-3). Perhaps the key is whether the person is "linked in purpose" with the person committing the primary contravention (see R v Russell (1933) VLR 59 at 67; Giorgianni v R (1985) 156 CLR 473 at 479-80, 493; see also the discussion of various forms of words expressing involvement in Yorke v Lucas in the Full Federal Court (1983) 49 ALR 672 at 681-2). If so, only in unusual circumstances would an adviser incur accessory liability. I have endeavoured to find facts which will enable this question to be determined elsewhere, if necessary. 1457 Nothing more need be said about whether the wasted expenditure is the measure of the loss or damage suffered by Holdings' assumed conduct in contravention of the FT Act, about reliance on s 1318(1) of the Law, or about failure to mitigate loss and contributory negligence. Nor is it necessary to say anything about Mr Heydon's defence that the claim against him was statute barred. Contravention of s 995(2) of the Law 1458 In outlining the defences as filed I recorded that AAH and AT said that s995(2) of the Law was not available to the NRMA, because it had contravened the provision itself and/or because it had itself issued or been involved in issuing the prospectus, or because it was not within the category of persons who could rely on it. Neither AAH nor AT put a submission taking up this pleaded element of its defence. In those circumstances, I do not see why the availability of s 995(2) should not be accepted, the question being whether AAT or AT contravened it. In litigation of the present kind, where an issue has been expressly pleaded but is not taken up in submissions, it can and should be concluded that it has been conceded in favour of the opponent. In any event, the conclusion to which I have come makes the matter of no consequence. 1459 Again the statutory provisions have already been set out. It was necessary that AAH and AT engage in misleading conduct, that they do so in connection with a dealing in securities (using that description to encompass the more complex sub-categories in s 995(2)(b)), and that the NRMA suffered loss or damage by that conduct. Unlike the claim for contravention of the FT Act, it was not necessary that the misleading conduct be engaged in in trade or commerce, but there had to be the connection with dealing in securities. 1460 The NRMA's submissions were brief, namely that the solicitors' sign-off letters and failures to warn it about the errors in, and omissions from, the prospectus constituted engaging in misleading conduct in relation to the prospectus and/or in relation to matters preparatory to the prospectus, being particular sub-categories in s 995(2)(b). The submissions took it for granted that there would be the requisite connection with dealing in securities, that is, with the prospectus or with matters preparatory to the prospectus. 1461 This in substance took up the submission as to misleading conduct in relation to contravention of the FT Act, and for the reasons I gave when considering those claims I do not think that the solicitors engaged in misleading conduct. 1462 AT contested the connection with dealing in securities. It submitted that when an adviser gives advice it is not engaging in conduct in relation to dealing in securities, because the client's conduct intervenes between the giving of advice and the dealing in securities. For the purposes of s 995(2), it was said, the adviser's conduct was in relation to the client's conduct in relation to the dealing in securities. The NRMA did not meaningfully respond, and there was scanty attention to the matter. It being necessary to express a view, I take the matter no further. 1463 Again nothing more need be said about whether the wasted expenditure is the measure of the loss or damage suffered by assumed conduct of the solicitors in contravention of s 995(2), or about failure to mitigate and contributory negligence. It is unnecessary to consider the reliance on exculpatory provisions of the Law. In submissions AAH took up only s 1011 and s 1318(1), the former only in passing, eschewing the complexity of ss 1006 and 1009. The thrust of its submission was that AAH was an expert (see 1006(2)(e)) and had acted reasonably. AT took up all of ss 1006 and 1009, s 1011, and s 1318(1). The thrust of its submission was that AT was named as a solicitor in the prospectus and as performing that function (see s 1006(2)(g) and (h)), implicitly that it was an expert (see s 1006(2)(e)), and that it had reasonably relied on the directors and otherwise acted reasonably. There was the reference to Daniels v Anderson which I mentioned earlier. The submissions were sketchy, and I express no view on the availability or application of these provisions. Contravention of s 996(1) of the Law. 1464 The question of whether s 996(1) of the Law was available to the NRMA was in the same position as the question of whether s 995(2) was available to it. Extended also to Mr Heydon's defence as filed, and to the absence of a submission taking up this pleaded element of his defence, it should be concluded that the issue has been conceded in favour of the NRMA. Again, the conclusion to which I have come makes the matter of no consequence. 1465 Once more the statutory provisions have already been set out. It was necessary that AAH, AT and Mr Heydon authorised or caused the issue of the prospectus, that a material statement in the prospectus was false or misleading or there was a material omission from the prospectus, and that the NRMA suffered loss or damage by the conduct of authorising or causing the issue of the prospectus. 1466 The prospectus included a statement to the effect that AAH and AT (and others) had not authorised or caused its issue. It was not submitted that this statement carried weight against the NRMA, whose document the prospectus was, as some kind of admission, and I put it aside. In formally giving its consent to the issue of the prospectus with the references to it "in the form and context in which they appear", AT added to its letter, "Abbott Tout has not authorised or caused the issue of the prospectus". It was not submitted that this carried weight either. 1467 As to authorisation, the NRMA referred to University of New South Wales v Moorhouse (1975) 133 CLR 1 and Nationwide News Pty Ltd v Copyright Agency Ltd (1996) 136 ALR 273, both copyright cases, for the adoption of a broad view of authorisation by a dictionary meaning of "sanction, approve, countenance" and equation with "permit". It submitted, in short, that the solicitors authorised the issue of the prospectus because they gave the sign-off letters without warning of the deficiencies in the prospectus, and that the solicitors and Mr Heydon authorised the issue of the prospectus because, being in a position to do otherwise, they let it go ahead. 1468 The submission in relation to Mr Heydon was really quite fanciful. In more detail, it was that, being in a position to refuse it, Mr Heydon gave his sanction, approval or countenance for the publication and distribution of the onsert on 3 August 1994 by confirming that in his opinion it was lawful for it to be distributed to members, and that by this sanction, approval or countenance, coupled with his silence about any other parts of the onsert or the prospectus (which according to the submission he had seen in their entirety), he thereby authorised the issue of the prospectus. At one point it was said that Mr Heydon approved the onsert for distribution, the onsert was part of the prospectus, and so there was authorisation to distribute the prospectus. 1469 For reasons which by now will be apparent, even on the wide meaning of authorisation put forward by the NRMA I do not think it could sensibly be said that Mr Heydon authorised the issue of the prospectus. Whatever Mr Heydon did was relevantly in connection with the onsert, not the prospectus. Neither the NRMA nor its solicitors gave him a copy of the draft or the final version of the prospectus; he was asked for advice on specific questions concerning the transaction, and not at all about the prospectus; he had nothing to do with the drafting or settling of the prospectus; and he played no part in issuing it and no role in which he was called on to, or did, say that it should or should not issue. Undoubtedly Mr Heydon knew that a prospectus was to issue, but he was never in a position to say that the prospectus should not go ahead, let alone to authorise the issue of the prospectus. 1470 AAH and AT had more to do with the prospectus and its issue. Again in more detail, the submission in relation to AAH and AT was that, by the conduct on which the NRMA relied as misleading conduct described earlier in these reasons, plus being named in the prospectus, they authorised the issue of the prospectus because they did not warn of the deficiencies and instead gave the sign-off letters upon which, in a broad sense at least, the NRMA relied. Although not made express, the reasoning must have been that the solicitors could have prevented the issue of the prospectus in its misleading form if they had warned of the deficiencies, but they did not do so and by failing to warn permitted, even approved, the issue of the prospectus. 1471 The parties' researches did not find any authority on when a person authorises the issue of a prospectus. I do not think that the broad view of authorisation in the context of the law of copyright can be transposed to s 996(1) of the Law. Contravention of s 996(1) carries potentially wide civil liability, liability for loss or damage suffered by the contravening conduct. Unlike contravention of s 995(2) (see s 995(3)), it also constitutes an offence (s 1311 of the Law) for which a substantial pecuniary penalty or imprisonment for five years, or both, may be imposed. Where their scope is unclear, a confined rather than ample scope should be given to the words "authorise or cause the issue of a prospectus". 1472 Those words postulate a specific event, the issue of a prospectus. The event will normally follow a conscious and relatively formal decision that the prospectus should issue. The statement of the alternatives "authorise" and "cause" gives colour to what each means, causation being a more direct connection with the happening of the event and authorisation being less direct, but the authorisation in my view must still be part of the decision-making process. The directors of the relevant company no doubt authorise (and cause) the issue of a prospectus, because they make the decision (cf Flavel v Giorgio (1990) 2 ACSR 568; Australian Securities Commission v Burns (1994) 12 ACLC 545), but an adviser whose advice is taken into account by the decision-makers is not relevantly part of the decision-making process. His advice may affect the decision, but the decision is not his, and that remains the case even if, had the adviser given advice which if accepted would have meant a negative decision, the adviser did not so advise. 1473 Conceivably someone such as an underwriter may be regarded as part of the decision-making process, because able to impose his will on the issuer to ensure the accuracy of disclosure, but someone such as a solicitor will normally not have that control or even be concerned with the content of much of the prospectus. Unless there are unusual circumstances, a solicitor acting as adviser will not authorise the issue of the prospectus. I do not think that in the circumstances of the present case AAH or AT, or Mr Morgan or Mr Bateman, were relevantly part of the decision-making process, and in my opinion AAH and AT did not authorise the issue of the prospectus. 1474 As to causation, the NRMA referred to Alphacell Ltd v Woodward (1972) AC 824 and Empress Car (Abertilly) Ltd v National Rivers Authority (1998) 1 All ER 481 for causation according to the natural consequences of intentional acts. It said in its initial written submissions that the defendants caused the issue of the prospectus because the NRMA "reasonably relied on their unqualified sign-offs in deciding to proceed to publish and circulate the document". This hardly applied to Mr Heydon. In further written submissions the NRMA took up all that it had relied on for authorising the issue of the prospectus, saying that the same matters also made out causing the issue of the prospectus. In oral submissions the cases just mentioned were taken up. 1475 In Alphacell Ltd v Woodward it was held that Alphacell had caused polluting material to enter a river, within the meaning of a statute concerned with prevention of pollution, because it had deliberately conducted a manufacturing process involving an overflow into the river if pumps operated defectively and the pumps had operated defectively. Lord Wilberforce saw this as giving a common sense meaning to causing (at 834); Viscount Dilhorne applied the principle that a man may be said to cause results, even if he does not intend them, if he "deliberately and intentionally does certain acts of which the natural consequence is that certain results ensue" (at 839-40); Lord Pearson appears to have though it sufficient that there were "positive activities" which "directly brought about the overflow", at least where no other cause could be attributed (at 845); and Lords Cross and Salmon appear to have thought it sufficient for Alphacell to have intentionally operated the manufacturing process, again at least where no other cause could be attributed (at 846, 847). 1476 In Empress Car (Abertilly) Ltd v National Rivers Authority Empress was charged with causing polluting matter to enter a river, within the meaning of a similar statute. It had maintained a diesel tank in a yard which drained into the river. An unknown person opened a tap so that the diesel drained from the tank into the yard and thence into the river. It was held that there was evidence on which it could be found that Empress had caused the pollution. Lord Hoffmann, with whom Lords Browne-Wilkinson, Lloyd and Nolan agreed, said that while the notion of causation should not be overcomplicated, nor should it be oversimplified (at 486), and his Lordship's speech included (at 487-9) - "The first point to emphasise is that commonsense answers to questions of causation will differ according to the purpose for which the question is asked. Questions of causation often arise for the purpose of attributing responsibility to someone, for example, so as to blame him for something which has happened or to make him guilty of an offence or liable in damages. In such cases, the answer will depend upon the rule by which responsibility is being attributed. Take, for example, the case of the man who forgets to take the radio out of his car and during the night someone breaks the quarterlight, enters the car and steals it. What caused the damage? If the thief is on trial, so that the question is whether he is criminally responsible, then obviously the answer is that he caused the damage. It is no answer for him to say that it was caused by the owner carelessly leaving the radio inside. On the other hand, the owner's wife, irritated at the third such occurrence in a year, might well say that it was his fault. In the context of an inquiry into the owner's blameworthiness under a non-legal, commonsense duty to take reasonable care of one's own possessions, one would say that his carelessness caused the loss of the radio.

I turn next to the question of third parties and natural forces. In answering questions of causation for the purposes of holding someone responsible, both the law and common sense normally attach great significance to deliberate human acts and extraordinary natural events. A factory owner carelessly leaves a drum containing highly inflammable vapour in a place where it could easily be accidentally ignited. If a workman, thinking it is only an empty drum, throws in a cigarette butt and causes an explosion, one would have no difficulty in saying that the negligence of the owner caused the explosion. On the other hand, if the workman, knowing exactly what the drum contains, lights a match and ignites it, one would have equally little difficulty in saying that he had caused the explosion for what he did. One would probably say the same if the drum was struck by lightning. In both cases one would say that although the vapour-filled drum was a necessary condition for the explosion to happen, it was not caused by the owner's negligence. One might add by way of further explanation that the presence of an arsonist workman or lightning happening to strike at that time and place was a coincidence.

On the other hand, there are cases in which the duty imposed by the rule is to take precautions to prevent loss being caused by third parties or natural events. One example has already been given; the common sense rule (not legally enforceable, but neglect of which may expose one to blame from one's wife) which requires one to remove the car radio at night. A legal example is the well-known case of Stansbie v Troman [1948] 2 KB 48. A decorator working alone in a house went out to buy wallpaper and left the front door unlocked. He was held liable for the loss caused by a thief who entered while he was away. For the purpose of attributing liability to the thief (eg in a prosecution for theft) the loss was caused by his deliberate act and no one would have said that it was caused by the door being left open. But for the purpose of attributing liability to the decorator, the loss was caused by the negligence because his duty was to take reasonable care to guard against thieves entering.

These examples show that one cannot give a commonsense answer to a question of causation for the purpose of attributing responsibility under some rule without knowing the purpose and scope of the rule. Does the rule impose a duty which requires one to guard against, or makes one responsible for, the deliberate acts of third persons? If so, it will be correct to say, when loss is caused by the act of such a third person, that it was caused by the breach of duty.

Before answering questions about causation, it is therefore first necessary to identify the scope of the relevant rule. This is not a question of common sense fact; it is a question of law. In Stansbie v Troman the law imposed a duty which included having to take precautions against burglars. Therefore breach of that duty caused the loss of the property stolen. In the example of the vapour-filled drum, the duty does not extend to taking precautions against arsonists. In other contexts there might be such a duty (compare Mediterranean Freight Services Ltd v BP Oil International, The Fiona (1994) 2 Lloyd's Rep 506 at 522) but the law of negligence would not impose one."

1477 Again the parties' researches did not find any authority on when a person causes the issue of a prospectus. The cases to which the NRMA referred were in very different situations. To ask whether the defendants or any of them intentionally did acts which naturally brought about the issue of the prospectus, or some other question reflecting the approach in Alphacell Ltd v Woodward, is not particularly helpful. Lord Hoffman's speech is a valuable reminder that the answer to a question of causation depends, amongst other things, on why the question is asked, but for s 996(1) causation is part of defining the extent of the duty, not a question asked in the light of the extent of the duty.

1478 In the present case many persons played a part in the issue of the prospectus, but the issue of the prospectus was at all times to be subject to the decision of the NRMA - that was the point of its ultimate approval, and the resolutions to proceed, at the board meetings of Holdings, Association, and Insurance on 18 August 1994. The NRMA caused the issue of the prospectus. That does not mean that it can not be said that someone or something else caused the issue of the prospectus (see Empress Car (Abertilly) Ltd v National Rivers Authority at 487). But the confined rather than ample scope of the words "authorised or caused the issue of a prospectus" to which I earlier referred remains in point, and for essentially the same reasons as in relation to authorising the issue of the prospectus I do not think that Mr Heydon caused the issue of the prospectus (the submission in that respect was equally fanciful) or that the solicitors caused the issue of the prospectus.

1479 Going to the next element in these claims, the NRMA submitted that the use of the expression "free shares" and cognate expressions repeatedly in the prospectus gave rise to material statements which were false or misleading, and that there was a material omission from the prospectus because it stated that there were disadvantages arising out of the proposal without describing or explaining those disadvantages. For reasons earlier given, I do not so find. Even if, therefore, AAH, AT or Mr Heydon had authorised the issue of the prospectus, s 996(1) was not in my view satisfied.

1480 Again nothing more need be said about whether the wasted expenditure is the measure of loss or damage suffered by contravention of s 996(1), or about failure to mitigate and contributory negligence. The position as to reliance on the exculpatory provisions of the Law was the same as for the claims under s 996(1).

IX CONTRIBUTION BETWEEN THE DEFENDANTS 1481 If what I have said be correct, in relation to Gambotto liability each of AAH, AT, and Mr Heydon is a tortfeasor liable in respect of the damage suffered by the NRMA as a result of a tort, within the meaning of s 5(1)(c) of the LR Act. Pursuant to s 5(2), each may recover contribution from each of the others of an amount found by the Court "to be just and equitable having regard to the extent of [the other's] responsibility for the damage". 1482 The measure of contribution is expressed in language reminiscent of that guiding reduction of damages for contributory negligence, and so calling for regard to what was said in Podrebersek v Australian Iron and Steel Pty Ltd (1985) 59 ALJR 492 at 494 - "The making of an apportionment as between a plaintiff and a defendant of their respective shares in the responsibility for the damage involves a comparison both of culpability, ie of the degree of departure from the standard of care of the reasonable man ( Pennington v Norris (1956) 96 CLR 10 at 16) and of the relative importance of the acts of the parties in causing the damage: Stapley v Gypsum Mines Ltd (1953) AC 663 at 682; Smith v McIntyre (1958) Tas SR 36 at 42-49 and Broadhurst v Millman (1976) VR 208 at 219 and cases there cited. It is the whole conduct of each negligent party in relation to the circumstances of the accident which must be subjected to comparative examination. The significance of the various elements involved in such an examination will vary from case to case; for example, the circumstances of some cases may be such that a comparison of the relative importance of the acts of the parties in causing the damage will be of little, if any, importance." 1483 The defendants' submissions were quite brief. AAH asserted entitlement to contribution, but said almost nothing about the amounts. AT submitted that no contribution or minimal contribution should be found against it, saying that it did not "carry the retainer" relevant to Gambotto liability, that it was not its advice which "set the parameters for structure and drafting", and that Mr Bateman's role was limited to one of pointing out extraordinary risks, usually in the capacity of a lawyer sitting on a committee which included many other experts. Mr Heydon submitted that he had specific and periodical involvement, to be contrasted with the close and continuous involvement and general overview enjoyed by AAH and AT, and added that the extent of the respective involvements was reflected in the much larger fees paid to AAH and AT. 1484 I do not accept AT's characterisation of its position, nor do I think that the respective fees or the fact that Mr Heydon's involvement was not continuous is of much significance. AAH and AT were both required to, and did, address the scheme or meeting question, even if Mr Rees gave the primary carriage of the question to Mr Morgan. Mr Bateman continued to involve himself, including by returning to the question in the course of the due diligence process. For the reasons I have given, the advice required of Mr Heydon in December 1993 called for attention to risk to the proposal proceeding by the resolutions in general meetings route. While Mr Heydon's opinion might have been regarded as the principal factor in answering the scheme or meetings question, Mr Morgan and Mr Bateman were experienced corporate lawyers and, if Mr Heydon did not adequately address the question, should have made sure that he did; they also should have given thought to an analysis of the kind I described when dealing with Mr Heydon's position. In my opinion the culpability and contribution of AAH, AT, and Mr Heydon in and to the NRMA proceeding without Gambotto advice should be regarded as equal, and looking at the conduct of each of them just and equitable contribution will be reached if there be equal contribution between them. 1485 The cross-claims for contribution between the defendants were said to be "in equity" as well as under s 5 of the LR Act. This was not amplified in submissions. Whether it was intended to assert differential contribution in equity or equal contribution as an equitable principle, the result would be no different.

X THE DEFENDANTS CLAIMS AGAINST THE NRMA 1486 With the possible exception of the three further ways put forward by AT, all the ways in which the defendants framed their cross-claims against the NRMA were concerned with the issue or distribution of the prospectus, and with misleading conduct or misleading content of the prospectus. They do not avail the defendants in relation to their Gambotto liability. 1487 AT made but passing reference to its cross-claim against the NRMA, not distinguishing between the ways in which it was put, and nothing was said making it apparent that the three further ways could be apt to, or might, avail AT in relation to Gambotto liability. In any event, for the reasons I have given, I do not think that there was any lack of reasonable care or other default by the NRMA in its own attention to risk to the proposal in connection with Gambotto's case. 1488 The cross-claims by the defendants against the NRMA should fail.

XI QUANTUM 1489 In the course of the hearing the parties undertook an exercise in which they agreed upon the amounts and other particulars of the expenditure claimed by the NRMA as wasted expenditure. The defendants identified and described what were called general disputes and specific disputes in relation to those amounts. 1490 The amounts and other particulars of the expenditure were reduced to Scott Schedule form, one Scott Schedule for external service providers and other Scott Schedule for internal costs. The external service providers were all the expenditure other than salaries and wages of employees of the NRMA who worked on the proposal, a wide notion of "service". The internal costs were salaries and wages of employees of the NRMA who worked on the proposal. Copies of the Scott Schedules are appendix 2 and appendix 3 respectively to these reasons. 1491 The Scott Schedules divided the expenditure according to when it was incurred, and so it can be seen that the expenditure incurred after 28 April 1994 was $25,139,852 made up of $23,870,124 for external service providers and $1,269,728 for internal costs. Save so far as via the general disputes and the specific disputes, the defendants did not submit that any of the amounts fell outside what was recoverable because the proposal was not put on hold. The NRMA's potential recovery for Gambotto liability is therefore $25,139,852. The general disputes 1492 In describing the general disputes, the defendants said that they should not be read as limiting "the liability, causation, remoteness, mitigation, contributory negligence and other issues" on which they relied. Nonetheless, to a considerable extent the general disputes were restatements of matters already considered. 1493 The first general dispute was said to be that if any of the defendants had free shares/disadvantages liability but not Gambotto liability, "all loss and damage was caused by Gambotto". The meaning of this was unclear, but it does not matter. The defendants have Gambotto liability but not free shares/disadvantages liability. 1494 The second general dispute was said to be that the only loss or damage caused by conduct of any defendant giving rise to free shares/disadvantages liability was "the cost of fixing up the prospectus by issue of a supplementary prospectus", and that since a supplementary prospectus was not issued there was no loss or damage; alternatively, the loss or damage was limited to the reasonable cost of the issue of a supplementary prospectus if it had occurred. Again, in the absence of free shares/disadvantages liability, this does not arise. I have made reference to issuing a supplementary prospectus, and it is unnecessary to say more. 1495 The third general dispute was said to be that any loss or damage caused by conduct of any defendant "in respect of Gambotto" was limited to "the cost of attempting to implement the existing proposal by way of scheme of arrangement", and that since no scheme was sought to be implemented there was no loss or damage; alternatively, the loss or damage was limited to the reasonable cost of such a scheme if it had occurred. For reasons which I have given, I do not accept this. 1496 The fourth general dispute was said to be that "even if the proposal proceeded, the plaintiffs would have incurred the expenses they did and there is no evidence as to whether or not the plaintiffs are better or worse off under the proposal". This was not explained, but appears to have reflected the submission that the NRMA's claimable loss was the difference in money terms between the NRMA demutualised and the NRMA under its present structure. It is unnecessary to say any more on this point. 1497 The fifth and last general dispute was said to be that "any quantification of expense must be discounted (including to nil) by the prospect that the proposal would not have proceeded in any event, especially without the impugned elements (repetition of 'free shares' and formulation of advantages and disadvantages)". Examples were given, some not obviously related to the statement of the dispute. This also was not explained. In referring to discounting it appeared to suggest a "loss of a chance" approach, which the defendants did not contend for any more than the NRMA. Possibly the defendants had in mind the kind of reduction in damages to which I referred in relation to Chappel v Hart, there reduction to reflect the possibility, that, independently of the defendant's omission, the plaintiff would have sustained her injury at a later time. If so, for reasons already given it does not apply in relation to Gambotto liability. This general dispute, as with some of the others, seemed to represent an early statement of the defendants' positions, those positions being changed and perhaps refined as the hearing proceeded and in submissions. Again, it is not necessary to say anything further. 1498 No doubt in part because of the evolution of the general disputes, there were two more general disputes which must be addressed. 1499 First, AT submitted that the amount recoverable by the NRMA was capped because its financial statements for 1997 "provide an admission on the maximum amount of [its] loss". It referred to Stevinson Hardy & Co Ltd v Smith Wylie (Australia) Ltd (1939) 39 SR 388 at 407; Potts v Miller (1940) 64 CLR 282 at 292, 301-5; and The Stage Club Ltd v Millers Hotels Pty Ltd (1981) 150 CLR 535 at 542-4, 551, 554. 1500 The submission was misconceived. The cases cited were concerned with admissibility of financial records and statements and, as to the third case, acknowledgment of a debt. They supported that the financial statements provided evidence of the NRMA's loss, but not that the amount recoverable was capped. 1501 A note to the consolidated accounts part of the financial statements referred to these proceedings and said that "any recoveries received would offset the $2,473,000 and $22,257,000 expensed during the 1994 and 1995 financial years by NRMA Insurance Limited and NRMA Limited, respectively". If the NRMA were held to a maximum amount of its loss of $24,730,000, how an apportionment could be made to isolate the loss in relation to Gambotto liability, or to take account of the specific disputes raised by the defendants, was not explained. But the NRMA is not so held. 1502 Treating the note, at best for AT, as an admission, it is only one piece of evidence going to establish the amount of the NRMA's expenditure. What lies behind it is unknown. It is overwhelmed by the detailed information in the Scott Schedules, backed up in the case of the external service providers by seven folders of documents and out of court investigation by the defendants which enabled them to agree upon the amounts in the Scott Schedule and raise their general and specific disputes, and in the case of the internal costs by witness statements of most of the relevant employees (as recorded in the Scott Schedule). Few of the employees were required for cross-examination, and the cross-examination was not directed to the figures. Notwithstanding what was said in the financial statements, the NRMA's potential recovery for Gambotto liability remains at $25,139,582. 1503 Secondly, it follows from my finding that the proposal would have been put on hold, other than for limited activity by management to further develop it, that there would have been some expenditure between 28 April 1994 and the decision of the High Court in Gambotto's case. The NRMA would have obtained advice on the decision of the High Court. There must be an allowance for that expenditure. 1504 In referring to activity by management to further develop the proposal there should not be excluded expenditure on external service providers, as in the further development management would have obtained the services of, for example, BT, PJP, C & L, possibly Woolcott, and the solicitors. The extent to which the services of external service providers would have been used, and the extent to which employees of the NRMA would have been committed to the further development, and consequently the amount of any expenditure, were really not gone into in the evidence or in submissions. An estimate must be made, notwithstanding the difficulty and uncertainty involved (cf Fink v Fink (1946) 74 CLR 127 at 143; the Commonwealth v Amann Aviation Pty Ltd at 83, 102, 125, 153). In the circumstances, the estimate is of necessity little more than a guess (Jones v Schiffmann (1971) 124 CLR 303 at 308). 1505 For reasons which will appear, I confine the estimate to the external service providers. By 28 April 1994 the proposal was well developed, the major work thereafter being detailed work which is unlikely to have proceeded. Bearing in mind the expenditure to 17 March 1994, when the more fundamental development of the proposal was in hand, of approximately $3,200,000 and that the total expenditure on external service providers of the kinds whose services would to some extent have continued was something like $4,500,000, in my estimation the maximum reasonable expenditure would be $500,000. The burden of proof bring on the NRMA, I make an allowance of $500,000. The specific dispute 1506 The defendants described ten specific disputes, designated A, B, C, D, E, F, H, J, K and M. The intermediate letters were used to designate other specific disputes which fell away. The designations can be seen against the amounts in the Scott Schedules to which the defendants said they related, in the column headed "Dispute as to principle". 1507 Specific dispute A was concerned with the internal costs as a whole, the amount of $1,269,728 incurred after 28 April 1994. The defendants submitted that there was no loss or damage relating to employees "because there is no evidence of incurrence of abnormal or additional expense in this respect by reason of the proposal". It is correct that there was no such evidence, for example of hiring additional employees or working overtime, or even that the NRMA's staff would have been reduced but for the demands of the proposal. So far as the evidence showed, the NRMA would have paid by way of salaries and wages what it in fact paid over the years 1992-94, whether the employees were working on the proposal or not. 1508 The NRMA submitted that the internal costs were nonetheless recoverable, referring to McRae's case and to Tate & Lyle Food Distribution Ltd v Greater London Council (1982) 1 WLR 149. In McRae's case the wasted expenditure claimed included an amount of £154 office expenses, as to which Dixon and Fullager JJ said (at 418) that "[i]t seems reasonable to suppose that some office expenses were incurred and wasted, and, though nothing much better than a guess is possible, it is probably fair enough to add £100 for these". In Tate & Lyle Food Distribution Ltd v Greater London Council the defendant's negligence required that the plaintiff dredge part of a river, and it was held that the expenditure of managerial time, described as additional managerial time, could properly form the subject of a head of special damage. No amount was recovered, because the plaintiff had not kept records to show what was described as "the extent to which their trading routine was disturbed by the necessity for continual dredging sessions", and the court was not prepared to strike a speculative percentage of managerial time, but the NRMA said that in the present case there were records. 1509 Neither of these cases really answered the defendant's submission. Both the office expenses and the costs underlying the expenditure of additional managerial time may have been regarded by the parties, and the courts, as expenditure which would otherwise not have been incurred, and the judgments do not address the present question. A similar question has arisen, however, in relation to claims in construction cases for a percentage allowance for overheads, and the defendants relied on the reasoning found in my decisions in Thiess Watkins White Construction Ltd v The Commonwealth (1992) 14 BCL 61 at 77-78 and Bulk Materials (Coal Handling) Pty Ltd v Compressed Air & Packing Systems (NSW) Pty Ltd (1997) 14 BCL 109 at 134-135 and the cases there considered. In short, and putting aside whether the defendants wrong inhibited the earning of income to defray the normal overheads, unless it be established that additional or increased overhead costs were incurred by reason of the wrong, and that the increased or additional costs are appropriately measured by the suggested percentage, a percentage claim to overheads can not be recovered. 1510 In the same way, in my view, unless it is established that the NRMA paid additional or increased salaries and wages which would not have been paid had the proposal been put on hold, being expenditure properly measured by taking the salaries and wages of the employees who worked on the proposal as set out in the Scott Schedule, the internal costs are not recoverable. As I have said, the NRMA has not established this. The internal costs have not been shown to have been costs which would not have been incurred if the proposal were put on hold. On the contrary, I consider that in the state of the evidence the only proper conclusion is that the amounts of the salaries and wages paid to employees as listed in the Scott Schedule would have been paid in any event. Accordingly, I do not think that the NRMA can recover the internal costs. An "allowance" of $1,269,728 should be made. 1511 I will not go through the detailed submissions as to each employee's work in connection with the proposal. In the further specific disputes I will restrict consideration to expenditure on external service providers, save as to specific dispute B where reference to the work of the NRMA employees is necessary to understand the dispute. 1512 Specific dispute B was said to be concerned with expenditure in relation to the NRMA's members registers. Some of the external service providers and some of the NRMA's employees provided services in relation to, or worked on, revision of the members registers in the period prior to 19 October 1994. The external services included establishing and staffing a Share Information Centre to deal with members' queries in response to the entitlements letters. The external service providers in question are too numerous to list, and included diverse providers such as professionals, marketers, envelope makers, Telecom, and Australia Post. The defendants said that the expenditure for all these purposes was not recoverable because it had "enduring value" for the NRMA. 1513 Association and Insurance were required by law to maintain registers of members containing the names and addresses of the members, the date at which the name of each person was entered in the register as a member, and the date at which any person who ceased to be a member during the previous seven years so ceased to be a member. Unless the registers themselves constituted indices, they also had to keep indices in convenient form of the names of the members. The registers and indices had to be open for inspection. 1514 The NRMA had a database, the so-called identity database, containing the names and addresses of members of Association and customers of Insurance. The identity database was used, inter alia, to prepare members registers, as the basis for mailing lists for the Open Road, and as the basis for marketing campaigns. It did not throw up an accurate members register for Insurance, principally because members of Association and policy holders were not matched, but also because there was duplication where memberships or policies were in joint names, where there had been changes of name, where there had been changes of address, and for other reasons. Inspection of the registers of members was possible only by accessing the identity database or running a programme to create a hard copy members registers, and in the case of Insurance that could not adequately be done. 1515 Quite apart from the demutualisation, therefore, it was necessary for the NRMA to do work on the identity database and otherwise in order to have the members registers required by law. The proposal was clearly enough the impetus for this work. When the Christmas Project was established it was recognised that the membership records were unsatisfactory. In November 1993 it was decided "that a project be undertaken" to fix the problem of a members register for Insurance. Minutes of a meeting on 23 February 1993 recorded "HC to advance the rationalisation of polyholders [sic] and membership data bases", and minutes of a meeting on 2 March 1993 referred to "incomplete records of membership" of Insurance and recorded that there was to be "work on fixing the data records". 1516 Work was done to establish a system for matching members of Association and policyholders in a way which would allow the production of a members register for Insurance, and a so-called clean-up of the identity database to eliminate duplications was carried out by about mid-April 1994. But the work done went much further. Because the entitlements differed according to length of membership and the holding of policies issued by Insurance, separation of members into appropriate categories was required. So as well as the clean-up of the identity database and the production of a membership database, an entitlements database was brought into existence. This was done by the end of May 1994, and the cleaned-up identity database and the entitlements database were used to send out the entitlements letters. 1517 One of the purposes of the entitlements letters was to assist the NRMA to verify memberships and lengths of memberships and insurance policies held, and corrections were thereafter made. With the benefit of the responses to the entitlements letters, the NRMA created voting registers for Association and Insurance which reflected the entitlements. 1518 The defendants submitted that all the services and work were of enduring value because, although they went to creation of the voting registers and entitlements database, they also went to the creation of a more accurate database for use inter alia in mailing the Open Road and for marketing campaigns, and also enabled the NRMA to produce the members registers required by law. 1519 The notion of enduring value, much spoken of in the course of the hearing, was never really made clear. It seemed to be a response to the NRMA's description of its loss as wasted expenditure. It made more sense in relation to wasted expenditure as claimed for free shares/disadvantages liability than in relation to the expenditure, also described as wasted expenditure, claimed for Gambotto liability. The latter expenditure was more correctly expenditure which would not have been incurred had the proposal been put on hold. 1520 Much of the expenditure in relation to the members registers, understanding that in a wide sense, had been incurred before 28 April 1994. The expenditure thereafter was generally to do with sending out the entitlements letters and the conduct of the intended general meetings, or consequent on the entitlements letters. Had the boards voted to put the proposal on hold towards the end of April 1994, it is clear enough that the entitlements letters would not have gone out. Would the work in relation to the members registers have continued? On the probabilities, I do not think it would. The NRMA had functioned with an imperfect identity database prior to 1994, the imperfection had been largely corrected, and putting the proposal to the members in the general meetings was the occasion for the continuation of the work. There is a degree of speculation in this, as there was no evidence specifically directed to whether the work would have continued as distinct from the notion of enduring value, but I consider that I may properly come to that conclusion. 1521 It is unnecessary to say anything of the extent, at first sight difficult to justify, to which by their B designations in the Scott Schedules the defendants sought to apply this specific dispute: the expenditure after 28 April 1994 so designated totalled $7,039.651. The expenditure of the kind described by the defendants would not have been incurred if the proposal had been put on hold. I do not think any allowance for the so-called "enduring value" in question should be made. 1522 Specific dispute C was concerned with other expenditure said by the defendants to have been of enduring value. The defendants gave this designation to all the BT costs, some of the C & L costs, some of the DTT costs, all the PJP costs, all the costs of SMS Consulting Group Pty Ltd ("SMS"), and all the Grant Samuel costs. The expenditure after 28 April 1994 so designated totalled $2,289,944. 1523 In short, and apart from an additional submission in relation to SMS, the defendants' submission was that on 27 May 1995 the NRMA had resolved not to proceed with the meeting originally called for 19 October 1994 or with the prospectus, but had remained intent on putting to members a restructuring of the organisation for the reasons set out in the Grant Samuel report; that there was no evidence that this objective, including a possible demutualisation, had been abandoned; and that the work of these external service providers could be reused in a future restructuring and had enduring value to the NRMA. Only part of the relevant expenditure was challenged, in that it was said that the work could be reused in part, and how an apportionment should be made was unclear. 1524 Any enduring value is highly debatable, and even if the submission otherwise had merit the consequence would certainly not be an allowance for all the expenditure to which the defendants gave the C designation - indeed, putting a figure on the enduring value would probably be impossible. It does not matter. As with special dispute B, the true question is whether the NRMA would have incurred the expenditure had the proposal been put on hold on or about 28 April 1994. Some of the expenditure designated as C expenditure would not have been affected by a stay on the demutualisation, and to the extent to which expenditure of that kind would have been incurred it is accommodated by the allowance of $500,000 to which I have earlier referred. No further allowance under specific dispute C should be made. 1525 The C&L costs in the Scott Schedule included the costs for services in connection with the 31 March 1994 audit for inclusion in the prospectus. The NRMA conceded that as a result of the work done in preparing for this audit there was a saving to it in the costs for services in connection with the normal 30 June 1994 audit. The saving was estimated at $100,000. However, since the expenditure preceded 28 April 1994, and is not initially part of the NRMA's damages now in question, no allowance for the sum should be made. 1526 As to SMS, it was obliquely submitted (as part of specific dispute C, although in truth a separate dispute) that there was no satisfactory evidence "about what SMS did, how satisfactory or otherwise it was, and how it was relied upon". The point may have been that without such evidence it had not been established that the expenditure did not have enduring value, or it may have been that it had not been established that the expenditure would not have been incurred if the proposal had been put on hold. In case it was the latter, SMS provided the services of Mr Hosking. If the proposal had been put on hold, I consider that on the probabilities his services would have been dispensed with. 1527 Specific dispute D was concerned with the distribution of the Grant Samuel report and the process of consultation at that time. The defendants said that, to the extent that there was no enduring value for the report, any expenditure after the decision of the High Court in Gambotto's case on 8 March 1995 was "unjustified", and alternatively that the expenditure was "too remote from the proposal". Since other expenditure after 8 March 1995 was the subject of a specific dispute, I take the defendants' position to be confined to expenditure of the kind I have described. The amounts designated D in the Scott Schedule did not include the fees of Grant Samuel itself, those fees being subject to specific dispute C. They covered a number of external service providers, including Telecom, Woolcott and S&S. The expenditure designated D, all after 28 April 1994, totalled $573,038. 1528 When dealing with the facts I have explained why the Grant Samuel report was distributed and, without going into detail, that advertisements were placed, public consultation meetings were held, and market research was undertaken. Justification is not the issue when the NRMA's damages are the expenditure it would not have incurred had the proposal been put on hold. Had the proposal been put on hold on or about 28 April 1994, there would not have been the distribution of the prospectus, the litigation in the Federal Court, and what was undoubtedly divisive public contention. There may or may not have been occasion for a further report such as the Grant Samuel report, and the specific disputes seemed to accept that there would not have been occasion for that report because challenging the fees of Grant Samuel only on enduring value grounds under specific dispute C. On the probabilities, in my view, there would not have been a report such as the Grant Samuel report, or the Grant Samuel report itself, and there would not have been the process of distribution and consultation involving the other report or the Grant Samuel report. The issue, then, is whether the expenditure on the process of distribution and consultation in fact incurred was too remote - not too remote "from the proposal", but remote in law. 1529 The expenditure presently in question will not be recoverable as damages for the solicitors' breaches of contract unless it was such as might fairly and reasonably be considered as arising naturally, that is, according to the usual course of things, from the breaches of contract themselves, or such as might reasonably be supposed to have been in the contemplation of all parties at the time they made the contracts as the probable result of the breaches of the contracts (Hadley v Baxendale (1854) 9 Ex 341 at 355; 156 ER 145 at 151; Koufos v C Czarnikow Ltd (1969) 1 AC 350 at 388, 406, 410-11, 414-5, 425; Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310 at 363-6). Nor will the expenditure be recoverable as damages for the defendants' breaches of duty unless it was of a class or kind which was reasonably foreseeable as the result of the wrongful act or omission (Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co Ltd (The Wagonmound) (No 1) (1961) AC 388 at 426; Overseas Tankship (UK) Ltd v Miller Steamship Co Pty Ltd (The Wagonmound) (No 2) (1967) 1 AC 617 at 316; Rowe v McCartney (1976) 2 NSWLR 72 at 89; Alexander v Cambridge Credit Corporation Ltd at 360, 366.). 1530 Litigation such as the Federal Court proceedings, and the divisive public contention, were undoubtedly foreseeable, and it is sufficient to recall the concern over spoiling tactics - it does not matter that the particular manifestation so far as it involved free shares and disadvantages may not have been foreseen. That the NRMA would publicise the proposal, even engage in marketing strategies intended to achieve a successful outcome, and would receive and respond to members' reactions and comments was no doubt also foreseeable. But I do not think that a process of distribution and consultation of the kind in which the NRMA engaged in April-May 1995 was foreseeable, using that word as shorthand for the more accurately stated principles. I consider that specific dispute D should be decided in favour of the defendants on grounds of remoteness. 1531 The NRMA did not say that any of the amounts so designated fell outside specific dispute D if the dispute of principle were determined in favour of the defendants. An allowance of $573,038 should be made. 1532 Specific dispute E was concerned with what was described as corporate advertising. The defendants said that part of the expenditure was "not additional expenditure". The amounts designated E in the Scott Schedule were the entirety of the payments to S&S, a total of $3,099,360 from March 1994 to February 1995 inclusive, plus $134,838 paid to the NRMA company responsible for The Open Road, The Open Road Pty Limited, at the end of 1994. 1533 The expenditure in favour of S&S incurred prior to 28 April 1994, $162,520, may be put aside, and it should not be forgotten that the dispute challenged only portion of the expenditure. The defendants' submission was that to a large extent advertising expenditure on the proposal was not additional expenditure, but was merely money which "would have been spent on corporate advertising anyway". 1534 A marketing plan and budget in relation to the proposal dated 14 April 1994, submitted by Mr Salvage and recording the research and four key issues mentioned when considering whether the proposal would have gained the necessary 75 per cent approval, showed gross expenditure on television advertising of $745,250, but recorded that "the TV media schedule for this campaign will allow a reduction in the normal corporate TV schedule to the value of $536,000". The total budget was $1,940,000. In early June 1994 Mr Salvage wrote to Mr Rees and Ms Conway about forthcoming advertising for a three week period, recording costs of $180,000 for the production of the television material, $300,000 for the television media, and $100,000 for the press media, and stating that those activities and costs "are substantially replacing normal advertising" so that the net additional cost to the NRMA was not great. On this material, the defendants submitted that it should be inferred that something like 70 per cent of the amounts paid to S&S, through whom the corporate advertising was arranged and paid, would have been incurred for normal advertising if there had been no demutualisation proposal at all. Although not specifically directed to Gambotto liability, the submission would extend to expenditure on normal advertising if the proposal had been put on hold. 1535 The NRMA is entitled to recover only the net expenditure on corporate advertising, after an allowance for the expenditure which was not incurred because the proposal proceeded. While the evidentiary basis was slim, there was nothing of significance to deny the conclusion from the material to which the defendants referred that an allowance should be made. The difficulty is to arrive at an amount. 1536 I was not referred to anything else in the evidence to assist in arriving at an allowance. The ratio of $536,000 to $745,250 may not have applied over the whole of the relevant period, and there was evidence that the advertising plan involved three stages for advertising in relation to the proposal, in March, June and September-October 1994. The reason for these months is obvious. From Mr Salvage's memorandum, the total of $580,000 for a three week period "substantially" replaced normal advertising, so the normal expenditure on advertising must have been high. Once again, an estimate close to a guess must be made. The corporate advertising in connection with the proposal would not have substantially replaced normal advertising uniformly, and the amounts paid to S&S in the latter part of 1994 and early 1995 may not have been in the same position as the amounts earlier paid when Mr Salvage prepared the marketing plan and budget and wrote the memorandum. In all the circumstances, on my estimation an allowance of 50 per cent of the S&S expenditure incurred after 28 April 1994 should be made, a figure of $1,468,420. 1537 As to the amount paid to The Open Road Pty Ltd, the NRMA conceded that - "With the exception of the costs of external legal sign-off, there was incurred by the plaintiffs in producing material in respect of or in relation to the Share the Future proposal for inclusion in any edition of the 'Open Road' magazine no cost additional to that which would have been incurred by the plaintiffs in producing the substitute or alternative material that would otherwise have been included in the 'Open Road' magazine." The defendants said that the damages should therefore not include this amount, alternatively that the payment was only an intra-group charge and it had not been shown that it represented a production cost actually incurred by The Open Road Pty Ltd. 1538 I see no sufficient reason to treat the charge as anything other than a proper commercial charge, but on the NRMA's concession it replaced expenditure which would otherwise have been incurred. The NRMA submitted that the work had nevertheless been wasted. This gave the notion of wasted expenditure a new, and unsustainable, application. An allowance of $134,838 should be made. 1539 Specific dispute F was concerned with $100,000 paid to Were on 1 June 1995. The defendants said that a "credit for any future float in invoiced fees [was] not deducted from plaintiff's claim". 1540 Were was engaged in June 1994 as lead manager for the proposed public listing of Holdings. Mr Brad Rees, refrerred to when recounting the facts, was from Were. It was entitled to a particular fee if Holdings was listed and payment on hourly rates if it was not. In May 1995 it submitted an account for a round figure of $100,000, the covering letter stating that it "includes an amount of $29,925.00 in respect of work which can be carried forward to a subsequent NRMA float process and which will therefore be rebated against fees for such a future appointment". When the account was paid, the NRMA's covering letter noted this statement. 1541 The expenditure of the full $100,000 would not have been incurred if the proposal had been put on hold. No question of rebating the $29,925 against fees for a future float would have arisen. Assuming nonetheless that regard should be had to the promised rebate, it would only benefit the NRMA in the event of a future float for which Were was engaged. On the evidence, such an event is entirely speculative, and I do not think any allowance should be made in respect of the $29,925.00. 1542 Specific dispute H was concerned with part of the fees paid to AAH and AT. The defendants said that part of the services provided by AAH and AT had enduring value, being work during the due diligence process to ensure that the NRMA complied with the Credit Act and work to do with ownership of the intellectual property in software of one of the NRMA companies. The defendants did not identify any particular amounts; indeed, their submissions (by AT, adopted by AAH and possibly by Mr Heydon) did not refer to any relevant evidence and were little more than as I have stated. 1543 It was accepted, as I understand it, that the relevant services were provided by AAH and AT as part of the work towards the implementation of the proposal. It is far from clear that, in the end, this dispute was maintained. The NRMA's written submissions in reply included that "AAH Credit Act advice" had been the subject of agreement and adjustment to the amount claimed. There was in fact no designation H in the Scott Schedule. No one indicated whether the relevant work was done before or after 28 April 1994. 1544 Probably the dispute was not maintained, but it does not matter. As before, the question of enduring value is not the correct question. Would the services have been provided if the proposal had been put on hold? The defendants did not refer to any evidence, or any reasoning, by which that conclusion should be reached. As I have said, they did not identify the amounts. I do not think any allowance should be made. 1545 Special dispute J was concerned with expenditure incurred over the approximate period June 1994 - February 1995 inclusive for services provided by SOCOM Public Relations. The dispute as described by the defendants was "no recognition of requirement to give 30 days' notice of calculation at significant timing dates". The total amount was $18,822.50. 1546 AAH's written submissions stated that it would address this dispute orally. It did not. Nor did AT or Mr Heydon. What the dispute was is unknown, it must have been abandoned, and no allowance should be made. 1547 Specific dispute K was described by the defendants as "no or inadequate supporting evidence". Only one amount was given this designation, $90,029 incurred in favour of Customnet prior to 28 April 1994. It and the dispute are not material to the damages for Gambotto liability. 1548 Specific dispute M was concerned with some of the expenditure incurred for the services of S&S. A number of amounts in the Scott Schedule incurred over the approximate period July 1994 - December 1994 inclusive were designated M, totalling $880,487 and the defendants' description of the dispute was that the amounts were "not reasonably paid, since the advertisements were the subject of challenge by the Trade Practices Commission or were the corrective advertising consequent on the settlement of the TPC challenge". 1549 AAH specifically did not take up this dispute. AT said only that it had no responsibility for advertising which the TPC sought to challenge, or for the costs of its correction as a consequence of the compromise between the TPC and the NRMA. Mr Heydon said nothing on the matter. 1550 Despite the designation M of expenditure prior to that time, presumably the expenditure in question was that to do with the advertising which brought objections and corrective advertising in and perhaps after September 1994 (although whether the later designated expenditure was corrective advertising is unclear). It does not matter that AT was not involved in the advertising or its consequences. The expenditure on the advertising would not have been incurred if the proposal had been put on hold. That there would be such expenditure in the course of the proposal was plainly foreseeable. I do not think it was too remote because the initial advertising incurred the displeasure of the TPC, and there was a reasonable resolution of the TPC's complaint, what happened being amongst the tribulations to be encountered in the course of endeavouring to implement the proposal. No allowance should be made. 1551 Of the potential $25,139,852, therefore, in my opinion a total allowance of $3,946,024 should be made. The recoverable loss suffered by the NRMA for Gambotto liability is $21,193,828. Interest will run on the relevant expenditure.

XII THE RESULT 1552 AAH, AT, and Mr Heydon are each liable in damages to the NRMA for $21,193,828 plus interest. As between themselves, the defendants share this amount equally. 1553 It will be necessary for interest to be calculated, and no doubt the parties will wish to put submissions on costs. 1554 The proceedings will be stood over for mention at 9.30 am on 3 June 1999. No less than seven days prior to that date the NRMA should provide to the other parties its calculation of interest, and a statement of the order as to costs it seeks together with a brief outline of the reasons why that order should be made. No less than two days prior to that date the defendants should provide to the NRMA a note of any disagreement with the calculation of interest and the reasons for the disagreement, and a statement of the order or orders as to costs they seek together with a brief outline of the reasons why that order or orders should be made. Directions will be given on 3 June 1999 so far as a further hearing may be necessary to resolve disagreement in these areas, and a date for doing so will be appointed.

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