Oztech Pty Ltd v Public Trustee of Queensland

Counsel for the Applicant: Mr RPL Lancaster SC with Mr CH Withers, Mr AM Hochroth and Mr RJ May

Counsel for the Respondent: Mr W Sofronoff QC with Mr DB O'Sullivan QC, Mr MJ O'Meara, Mr JP O'Regan, Ms FY Lubett and Ms EL Hoiberg

BETWEEN: OZTECH PTY LTD ACN 005 907 871 Applicant

AND: THE PUBLIC TRUSTEE OF QUEENSLAND Respondent

JUDGE: YATES J DATE OF ORDER: 4 JUNE 2018

1. The parties bring in draft orders giving effect to these reasons by 4.00 pm on 13 June 2018.
2. If agreement cannot be reached on the form of the orders, the parties jointly notify the Associate to Yates J of that fact, identifying the area(s) of disagreement. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT OVERVIEW [1] RELEVANT PROVISIONS OF THE CORPORATIONS ACT [15] RELEVANT PROVISIONS OF THE TRUST DEED AND THE TERMS OF ISSUE [21] THE EVIDENCE AND SUBMISSIONS [31] The applicant's evidence [31] The respondent's evidence [61] The documentary tenders [85] The submissions [87] THE EVENTS PRIOR TO 6 JULY 2007 [88] The merger with S8: the issue of OIN notes [88] PwC 1 [94] The further issue of OIN notes [102] The partial sale of Stella [108] PwC 2 [109] The 17 May 2007 meeting [122] The Fortress facility [129] OL provides documents to PwC [139] The Public Trustee's review of corporate trust files [146] PwC 3 [151] Developments in relation to the partial sale of Stella [157] The Public Trustee's intention to resign [160] The meeting with ASIC [164] The UBS facility [166] THE EVENTS FROM 6 JULY 2007 TO 18 JANUARY 2008 [170] The Public Trustee resigns from the OIN Trust [170] OL's market update [189] Amendments to the Fortress facility [191] OL's 2007 Annual Report [193] The 4 October 2007 meeting [203] The decision not to send the suggested letter [214] Finding a replacement trustee [226] The decision not to sell Stella [234] Further amendments to the Fortress facility [245] OL's quarterly reports [248] The Public Trustee monitors the Octaviar Group [252] OL's announcements to the ASX in January 2008 [275] THE EVENTS FOLLOWING 18 JANUARY 2008: AN OVERVIEW [288] BREACH OF STATUTORY AND EQUITABLE DUTIES: THE APPLICANT'S CASE [299] STATUTORY AND EQUITABLE DUTIES: RELEVANT PRINCIPLES [318] The duty to exercise reasonable diligence [318] The duty to exercise reasonable care [342] BREACH OF STATUTORY AND EQUITABLE DUTIES: ANALYSIS [348] Failure to act on the advice of 17 May 2007 [348] The failure to seek information: OL's business model [365] The findings of PwC 3 [389] Other aspects of the pleaded case [396] Conclusion [409] FIDUCIARY DUTY AND UNCONSCIONABLE CONDUCT: THE APPLICANT'S CASE [411] FIDUCIARY DUTY AND UNCONSCIONABLE CONDUCT: ANALYSIS [417] FRAUDULENT CONCEALMENT: THE APPLICANT'S CASE [454] FRAUDULENT CONCEALMENT: ANALYSIS [461] CAUSATION: THE APPLICANT'S CASE [463] Introduction [463] Overview [464] The PIF transaction [479] Management accounts and cash flow forecasts [484] The first counterfactual [492] The second counterfactual [498] OL's solvency [535] Events of Default [546] Calling in the notes [552] Subsequent events [554] CAUSATION: ANLAYSIS [558] Some general observations [558] The relationship between the applicant's case on breach and its case on causation [558] The use of hindsight [565] The approach to considering causation: the Borrelli reports [571] Borrelli 1: Issues [572] The scope of the work required [573] The scope of the documents sought [574] The time to produce a report such as Borrelli 1 [586] The conclusions reached and recommendations made [588] Mr Joseph's response to Borrelli 1 [614] Borrelli 1: Conclusion on issues [619] Borelli 2: Issues [636] The structure of Borrelli 2 [636] Criticisms of Borrelli 2 [643] The scale and scope of the recommended monitoring [644] What documents would have been produced? [647] How long would it take to produce the documents and a report? [653] Other criticisms [661] Borrelli 2: Conclusions on issues [662] The challenge to Mr Borrelli's recommendation to wind up [699] Introduction [699] Solvency [706] Events of Default [724] The recommendation as at 31 January 2008 [736] The challenge to Mr Borrelli's recommendation to wind up: conclusions [743] Introduction [743] Solvency [747] Events of Default [754] The PIF transaction [771] Introduction [771] Further findings of fact [773] Would the PIF transaction have been identified and revealed in December 2007? [795] Tendency evidence? [819] Summary of findings and conclusions [830] Would the respondent, acting reasonably, have applied promptly to wind up OIN and the Guarantors in mid-February 2008, or by no later than 29 February 2008? [854] Introduction [854] Further findings of fact [858] Consideration and conclusion [932] Would an order for the winding up of OIN and the Guarantors have been made by 29 February 2008 or shortly thereafter? [973] DEFENCES [983] CONCLUSION AND DISPOSITION [987]

OVERVIEW 1 This proceeding is a representative proceeding commenced under Pt IVA of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act). It arises out of the respondent's role as the trustee for noteholders of unsecured notes (notes) issued by a company now called Octaviar Investment Notes Limited (in liquidation) (OIN). The notes are debentures for the purposes of Ch 2L of the Corporations Act 2001 (Cth) (the Corporations Act). 2 The respondent is the Public Trustee of Queensland. The Public Trustee is a corporation sole constituted under the Public Trustee Act 1978 (Qld). 3 OIN is a company within the group of companies now called the Octaviar Group (or, the group). The holding company of the Octaviar Group is a company now called Octaviar Limited (receivers and managers appointed) (in liquidation) (OL). 4 On 2 November 2006, OIN, OL and the respondent entered into a trust deed in compliance with Pt 2L.1 of the Corporations Act. The trust deed included certain terms of issue in respect of the notes (the OIN Trust). 5 On 2 November 2006, OL also executed a deed poll in favour of the respondent and each noteholder by which it guaranteed OIN's payment obligations under the notes. 6 On 1 December 2006, OIN, OL and the respondent entered into an amending deed to replace the terms of issue. Nothing turns on that change for the purposes of this proceeding. I will refer to the trust deed and the amending deed as the Trust Deed and the terms of issue under the amending deed as the Terms of Issue. 7 Each note was issued with a face value of $100 and a maturity date of 30 December 2011 (the maturity date). The notes were interest-bearing, with interest fixed at 8% per annum (later increased to 8.25%), payable semi-annually. 8 On 5 January 2007, the company now called Octaviar Administration Pty Ltd (in liquidation) (OA) and the company now called Octaviar Financial Services Limited (in liquidation) (OFS) entered into separate deeds poll guaranteeing OIN's payment obligations under the notes (the Guarantee Deed Poll). By that time, each was a Material Subsidiary as defined in the Terms of Issue. On 7 February 2008, the company now called Octaviar Investment Bonds Limited (OIB) entered into a deed poll guaranteeing OIN's payment obligations under the notes. Unless the context indicates otherwise, I will refer to OL, OA and OFS, and OIB in the period after 7 February 2008, as the Guarantors. 9 On 6 July 2007, the respondent gave notice to OL of his resignation as trustee but, as events transpired, no new trustee was appointed. Under s 283AD of the Corporations Act, an existing trustee of a debenture issue continues to act as the trustee until a new trustee is appointed and has taken office as trustee. 10 The applicant's case, stated shortly, is that, by July 2007, the respondent had breached his duties to the noteholders by failing to take steps to ascertain and monitor the current and prospective financial position of OL and OIN, the respondent having received warnings in the first half of 2007 about the risks associated with the Octaviar Group. The applicant says that, as a consequence, the respondent was derelict in his duties to noteholders in the period from 6 July 2007 until about 18 January 2008, when OL's share price fell sharply to $0.99 from the previous day's trading of $3.18. The applicant says that if the respondent had not breached his duties, he would have appreciated that the Octaviar Group was insolvent by the end of January 2008 and would have issued an event of default notice, demanded repayment of the notes, and wound up OIN and the Guarantors (or at least, some of them, including OL) by 29 February 2008 or shortly thereafter. The applicant says that this would have reduced the losses suffered by the noteholders when the Octaviar Group collapsed and went into liquidation later in 2008, by which time the net assets of OL and OIN had been substantially diminished. 11 In submissions, the parties referred to OL and the Octaviar Group interchangeably. The same is true of the applicant's pleading and of the evidence, whether given by witnesses or in documentary form. This is understandable given that OL's business was conducted within the structure of, and by means of, the Octaviar Group. In an economic sense, OL and the Octaviar Group were, effectively, one and the same entity. The applicant's pleading, and the parties' submissions, on occasion, also treated OL as the borrower under the notes, rather than OIN. Once again, this appears to be a reflection of the fact that OL's capital raisings for the business were conducted within the structure of the Octaviar Group so that, for example, OIN's indebtedness in respect of the notes was effectively seen as OL's indebtedness. Once again, the same is true of the evidence. I mention these matters because, in my summary and analysis of the evidence and the submissions in the following paragraphs of these reasons, I have endeavoured to remain faithful to the source material, whilst recognising that, for the sake of consistency and the observance of legal form, distinctions could have been, but were not always, made or maintained between entities within the Octaviar Group or between entities and the Octaviar Group itself. I do not think that this affects the comprehensibility of the evidence or of the parties' respective cases or, indeed, of these reasons. 12 As at 25 February 2008, the applicant held 477 notes, it having acquired those notes in January 2007. The applicant says that it has suffered loss and damage by reason of the respondent's alleged breaches of duty. 13 For the reasons which follow, I find that the respondent did not breach his statutory and equitable (including fiduciary) duties in the manner alleged by the applicant. I also find that the respondent did not engage in unconscionable conduct, as the applicant has alleged. For completeness, I have considered the applicant's detailed case on causation. If, contrary to my findings, the respondent did breach his duties, I am not persuaded that, on the balance of probabilities, had he taken the actions pleaded and advanced by the applicant in evidence, the respondent would have formed the view by no later than the end of January 2008 that an Insolvency Event or an Event of Default under the Terms of Issue had occurred and was continuing, and demanded repayment of the notes at that time. Further, I am not persuaded, on the balance of probabilities, that, by mid-February 2008 or by no later than 29 February 2008, the respondent would have applied to wind up OIN and the Guarantors or that, had he so applied, winding up orders would have been made by 29 February 2008 or shortly thereafter, or that an administrator would have been appointed at that time. 14 The respondent has raised certain defences. Given the findings I have made, and the conclusions to which I have come on the applicant's case on breach and causation, it is not necessary for me to consider those defences.

RELEVANT PROVISIONS OF THE CORPORATIONS ACT 15 Section 283BB of the Corporations Act specifies the general duties of a borrower, such as OIN: The borrower must: (a) carry on and conduct its business in a proper and efficient manner; and (b) provide a copy of the trust deed to: (i) a debenture holder; or (ii) the trustee; if they request a copy; and (c) make all of its financial and other records available for inspection by: (i) the trustee; or (ii) an officer or employee of the trustee authorised by the trustee to carry out the inspection; or (iii) a registered company auditor appointed by the trustee to carry out the inspection; and give them any information, explanations or other assistance that they require about matters relating to those records. 16 Under s 283BE of the Corporations Act, the borrower has a duty to inform the trustee about the creation of security interests: If the borrower creates a security interest, it must: (a) give the trustee written details of the security interest within 21 days after it is created; and (b) if the total amount to be advanced on the security of the security interest is indeterminate and the advances are not merged in a current account with bankers, trade creditors or anyone else--give the trustee written details of the amount of each advance within 7 days after it is made. 17 Under s 283BF, the borrower has a duty to give the trustee quarterly reports. The content of the quarterly reports is specified in s 283BF(4) of the Corporations Act: The report for a quarter must include details of: (a) any failure by the borrower and each guarantor to comply with the terms of the debentures or the provisions of the trust deed or this Chapter during the quarter; and (b) any event that has happened during the quarter that has caused, or could cause, 1 or more of the following: (i) any amount deposited or lent under the debentures to become immediately payable; (ii) the debentures to become immediately enforceable; (iii) any other right or remedy under the terms of the debenture or provisions of the trust deed to become immediately enforceable; and (c) any circumstances that have occurred during the quarter that materially prejudice: (i) the borrower, any of its subsidiaries, or any of the guarantors; or (ii) any security interest included in or created by the debentures or the trust deed; and (d) any substantial change in the nature of the business of the borrower, any of its subsidiaries, or any of the guarantors that has occurred during the quarter; and (e) any of the following events that happened in the quarter: (i) the appointment of a guarantor; (ii) the cessation of liability of a guarantor body for the payment of the whole or part of the money for which it was liable under the guarantee; (iii) a change of name of a guarantor (if this happens, the report must also disclose the guarantor's new name); and (f) the net amount outstanding on any advances at the end of the quarter if the borrower has created a security interest where: (i) the total amount to be advanced on the security of the security interest is indeterminate; and (ii) the advances are merged in a current account with bankers, trade creditors or anyone else; and (g) any other matters that may materially prejudice any security interests or other interests of the debenture holders. 18 Part 2L.3 of the Corporations Act specifies the duties of a guarantor. Under s 283CB of the Corporations Act, the general duties of a guarantor are specified as follows: The guarantor must: (a) carry on and conduct its business in a proper and efficient manner; and (b) make all of its financial and other records available for inspection by: (i) the trustee; or (ii) an officer or employee of the trustee authorised by the trustee to carry out the inspection; or (iii) a registered company auditor appointed by the trustee to carry out the inspection; and give them any information, explanations or other assistance that they require about matters relating to those records. 19 Under s 283CC of the Corporations Act, the guarantor also has a duty to inform the trustee about the creation of security interests: If the guarantor creates a security interest, it must: (a) give the trustee written details of the security interest within 21 days after it is created; and (b) if the total amount to be advanced on the security of the security interest is indeterminate, give the trustee written details of: (i) the amount of each advance made within 7 days after it is made; or (ii) where the advances are merged in a current account with bankers, trade creditors or anyone else--the net amount outstanding on the advances at the end of every 3 months. 20 Part 2L.4 of the Corporations Act specifies the duties of the trustee. One of those duties is to exercise reasonable diligence to ascertain whether the property of the borrower and of each guarantor that is or should be available (whether by way of security or otherwise) will be sufficient to repay the amount deposited or lent when it becomes due: s 283DA(a). The trustee must also exercise reasonable diligence to ascertain whether the borrower or any guarantor has committed any breach of the terms of the debentures, the provisions of the Trust Deed or Ch 2L of the Corporations Act and must do everything in its power to ensure that the borrower or guarantor remedies any breach that is known to the trustee, unless the trustee is satisfied that the breach will not materially prejudice the interests of debenture holders or any security for the debentures: ss 283DA(b) and (c). The trustee must also comply with any directions given to it at a debenture holders' meeting which may be called by the borrower (s 283EA), the trustee itself (s 283EB) or the Court (s 283EC), save in exceptional circumstances: s 283DA(h).

RELEVANT PROVISIONS OF THE TRUST DEED AND THE TERMS OF ISSUE 21 The Trust Deed contains a number of provisions reflecting the duties of a borrower under Pt 2L.2 of the Corporations Act. 22 Clause 5.4 provides: (a) The Company agrees to provide the Trustee such information as the Trustee reasonably requests about the Company and any of its Related Bodies Corporate to enable the Trustee to carry out its duties under this Deed and the Corporations Act. (b) Where the information requested in Clause 5.4(a) relates to financial information, the Trustee may request the Company to provide an Auditor's certificate stating that the Auditor has reviewed that financial information and acknowledges that based on the Auditor's reasonable enquiries nothing has come to the Auditor's attention which causes the Auditor to believe that the information provided to the Trustee is incorrect or incomplete. 23 Clause 6.1 provides: The Company has been established for the sole purpose of issuing the Notes. The Company will carry on and conduct its business in a proper and efficient manner. 24 Clause 6.2 provides: The Company will make available for inspection by the Trustee or any registered company auditor appointed by the Trustee the whole of the accounting or other records of the Company and will give to the Trustee such information as it requires with respect to all matters relating to the accounting or other records of the Company. 25 Clause 6.5 provides: The Company covenants to:- (a) perform each of the duties or obligations imposed on it by the Corporations Act including the obligations and duties imposed by Part 2L of the Corporations Act or any other statute from time to time and the ASX Listing Rules; and (b) ensure that all information provided to the Trustee is true and correct and is not (by omission or otherwise) misleading. 26 Clause 6.6 provides: The Company covenants to:- (a) give to the Trustee any information which it may reasonably require for the purposes of this Deed or the Corporations Act; (b) immediately advise the Trustee in writing of any default and particulars of such default by the Company under any encumbrance over all or any part of its assets or undertaking or the assets or undertakings of the Company; (c) duly and punctually fulfil perform [sic] and comply with all the covenants, terms, conditions and obligations imposed upon it by or under this Deed, Chapter 2L of the Corporations Act or the Terms of Issue and notify the Trustee in writing immediately on becoming aware that any of those covenants terms [sic] conditions and obligations cannot be fulfilled or performed; (d) not without the prior consent in writing of the Trustee make an application under section 411 of the Corporations Act; (e) not pay any dividend while any interest on the Notes is overdue and unpaid or while any of the Notes is overdue and unpaid or while any of the Notes which have become payable or redeemable has not been paid or redeemed as a consequence of default by the Company; (f) not without the prior consent in writing of the Trustee reduce or attempt to reduce the capital of the Company; (g) execute and do all such assurances and things as are reasonably required for giving effect to this Deed and conferring the full benefit of this Deed upon Noteholders. 27 Clause 7.2 provides: The Guarantor covenants to: (a) perform each of the duties or obligations imposed on it by the Corporations Act including the obligations and duties imposed by Part 2L of the Corporations Act or any other statute from time to time and the ASX Listing Rules; and (b) ensure that all information provided to the Trustee is true and correct and is not (by omission or otherwise) misleading. 28 Clause 7.3 provides: The Guarantor covenants to: - (a) give to the Trustee any information which it may reasonably require for the purposes of this Deed or the Corporations Act; (b) immediately advise the Trustee in writing of any default and particulars of such default by the Guarantor, the Company or a Related Body Corporate under any encumbrance over all or any part of its assets or undertaking or the assets or undertakings of the Guarantor, the Company or its Related Body Corporate; (c) duly and punctually fulfil perform [sic] and comply with all the covenants, terms, conditions and obligations imposed upon it by or under this Deed, Chapter 2L of the Corporations Act, the Terms of Issue or the Guarantee Deed Poll and notify the Trustee in writing immediately on becoming aware that any of those covenants terms conditions [sic] and obligations cannot be fulfilled or performed; (d) execute and do all such assurances and things that are reasonably required for giving effect to this Deed, the Terms of Issue and the Guarantee Deed Poll and conferring the full benefit of this Deed, the Terms of Issue and the Guarantee Deed Poll upon the Trustee or the Noteholders, as applicable. 29 Clauses 5.1 to 5.5 of the Terms of Issue empowered, and in some cases required, the respondent to take action against OIN should an Event of Default occur: 5.1 Restrictions on actions (a) Subject to clause 5.3, at any time while an Event of Default subsists, the Trustee may (but is not obliged to) without further notice, take such action as it may think fit to enforce any of the provisions of the Trust Deed (including these Terms of Issue). (b) The rights of the Trustee and each Noteholder to take action against the Issuer upon the occurrence of an Event of Default are subject to the express restrictions set out in the Trust Deed. 5.2 Consequences If an Event of Default occurs and continues, the Trustee may, and if directed by the Noteholders pursuant to an Ordinary Resolution, the Trustee must, give notice to the Issuer declaring all the Notes to be due and payable on a specified date. If the Trustee gives such a notice then the Issuer must redeem all the Notes on the date specified in the notice. Each Note must be redeemed at its Face Value plus any Interest that has accrued from (and including) the preceding Interest Payment Date to (but excluding) the date specified in the notice. 5.3 Enforcement At any time that the Notes have become due and payable in accordance with a notice given by the Trustee pursuant to clause 5.2, the Noteholders may by way of an Ordinary Resolution, subject to the restrictions set out in the Trust Deed, direct the Trustee to take such proceedings against the Issuer as the Trustee may think fit to enforce payment in respect of the Notes. 5.4 Trustee not bound to take action The Trustee shall not in any event be bound to take any action referred to in clause 5.3 unless the Trustee shall have been so directed by the Noteholders pursuant to an Ordinary Resolution. 5.5 Noteholders' right to take action No Noteholder shall be entitled to proceed directly against the Issuer to enforce any right or remedy under or in respect of any Note unless the Noteholder is expressly permitted to do so under the Trust Deed. 30 Clause 15.2 of the Terms of Issue defined an Event of Default. An Event of Default occurred if, amongst other events: OIN failed to perform or observe its obligations under the Terms of Issue or the Trust Deed, where the failure was either incapable of being remedied or continued for 30 days following service of a notice requiring the failure to be remedied (sub-clause (b)); any other indebtedness for borrowed money, any present or future guarantee for, or indemnity in respect of, any indebtedness for borrowed money of the Octaviar Group became due and payable prior to its stated maturity by reason of an event of default or any security given by the Octaviar Group for any indebtedness for borrowed money becoming enforceable by reason of default, and steps had been taken to enforce such security (sub-clause(c)); an Insolvency Event (defined to include a body corporate becoming insolvent) occurred with respect to OL or OIN (sub-clause(e)); OL failed to have consolidated net assets of at least $280 million at the end of each six monthly reporting period, which was not rectified within 30 days of notice being given (sub-clause (h)); and a deed poll on substantially the same terms as that given by OL was not executed by a Material Subsidiary within 30 days of that entity becoming a Material Subsidiary (a Material Subsidiary being defined as a wholly-owned subsidiary of OL with unsecured debt owed to a third party other than an entity within the Octaviar Group of greater than $10 million) (sub-clause (k)).

The applicant's evidence 31 The applicant's case is based, substantially, on the expert reports of Philip Joseph and Cosimo Borrelli. It was structured around Mr Joseph as a proxy for the respondent and Mr Borrelli as a proxy for an investigative accountant reporting to the respondent. 32 Mr Joseph is qualified as an expert in the work of corporate trustees. I reject the respondent's submission that Mr Joseph possessed no expertise as a debenture trustee. Mr Joseph made a number of reports. The reports are dated: 8 April 2016 (Joseph 1); 20 April 2016 (Joseph 2); 22 April 2016 (Joseph 3); and 1 July 2016 (Joseph 4). 33 Mr Borrelli is a Chartered Accountant and the Managing Director of Borrelli Walsh, a specialist insolvency, restructuring and forensic accounting firm. He is qualified as an investigative accountant. Mr Borrelli made a number of reports. The reports are dated: 8 April 2016 (Borrelli 1); 22 April 2016 (Borrelli 2); and 27 June 2016 (Borrelli 3). 34 Mr Joseph's reports and Mr Borrelli's reports were admitted into evidence over objection: Oztech Pty Ltd v Public Trustee of Queensland (No 9) [2016] FCA 785 (Reasons 9). 35 In Joseph 1, Mr Joseph expressed opinions as to what steps the respondent, as the trustee for noteholders, should have taken in order to discharge his duties as trustee, including when those steps should have been taken. 36 Mr Joseph said that, at least by 17 May 2007, the respondent should have put in place a monitoring regime by which he (the respondent) received regular (monthly) information from OL. Further, after the respondent had received a high-level report from PricewaterhouseCoopers (PwC) in June 2007 to the effect that PwC was unable to form an opinion as to whether OL would have the ability to meet scheduled debt repayments at the maturity date (this report is referred to below as PwC 3), the respondent should have requested, or have PwC or another investigative accountant request, by July 2007, further information from OL to enable PwC or another investigative accountant to prepare a more extensive and thorough report which considered the business model and the financial position of OIN and the Guarantors; whether OIN or the Guarantors were insolvent; whether there had been breaches of the Trust Deed, the Terms of Issue, the Guarantee Deed Poll, or the Corporations Act (including whether there had been an Event of Default which would make the notes repayable); whether OIN or the Guarantors "will be able to repay the amounts owing" under the notes at the maturity date; and "what appropriate action" the trustee should take. 37 Mr Borrelli was asked to assume that he had been appointed as an investigative accountant by the respondent in July 2007. Borrelli 1 was tendered as the report that Mr Borrelli, as the investigative accountant, would have provided to the respondent at that time. Without descending to the detail of Borrelli 1, Mr Borrelli said that he would have requested copies of certain information and documents in relation to the Octaviar Group in order to facilitate his work as an investigative accountant. He said that, on the basis of the information that would have been provided to him at the relevant time, he could not have concluded that OIN and the Guarantors were insolvent in July 2007. He said, however, that, at that time, there was a risk of insolvency and that he would have recommended that the respondent request monthly information and documents, according to 18 specified categories, in relation to the financial and operational affairs of the Octaviar Group. 38 In Joseph 2, Mr Joseph expressed opinions as to what action the respondent should have taken in August 2007 as a result of receiving Borrelli 1. Mr Joseph said that, amongst other things, he would have followed the investigative accountant's recommendations and engaged the investigative accountant on an ongoing basis to undertake the monitoring recommended in Borrelli 1. 39 Borrelli 2 was tendered as the report that Mr Borrelli, as the investigative accountant, would then have provided to the respondent. Borrelli advised on: the financial position of OIN and the Guarantors since August 2007; whether OIN or any of the Guarantors were insolvent; whether OIN and/or the Guarantors would be able to repay the amounts owing under the notes on the maturity date; whether there had been any breach of the Trust Deed, Terms of Issue, Guarantee Deed Poll and/or the Corporations Act, including whether an Event of Default had occurred; and the appropriate action he, as the investigative accountant, would have recommended the respondent to take in light of his findings. 40 Borrelli 2 made a number of recommendations, including that the respondent should: confirm with appropriate legal advisers that certain events described in Borrelli 2 were Events of Default, and that such events would permit the respondent to issue notices of demand enforcing his rights against OIN and the Guarantors; and consider the pursuit of other options and remedies to protect and preserve the interests of noteholders and creditors, including issuing statutory demands and, if necessary and appropriate, applying promptly to wind up OIN and the Guarantors. 41 In Joseph 3, Mr Joseph expressed opinions as to what action he would have taken in the periods August to October 2007, November 2007, December 2007 and January 2008 had he been trustee. These opinions purport to be based on the advice and recommendations in Borrelli 2. 42 Borrelli 3 was tendered to supplement and explain Borrelli 2. In Borrelli 3, Mr Borrelli explained, amongst other things: when he would have commenced monitoring the Octaviar Group, including meeting with relevant directors and officers; how the timing of his monitoring would have been adjusted in the course of his investigation, including when requesting documents and information; and the extent to which, during his investigation, he would have communicated with the respondent about the status of those investigations. 43 Joseph 4 was tendered to supplement and explain how Mr Joseph arrived at his opinions in Joseph 3 in light of Borrelli 2. In Joseph 4, Mr Joseph explained, amongst other things: the assumptions he adopted as to when he would have been provided with the information in Borrelli 2; the information in Borrelli 2 upon which he relied when expressing his opinions about the actions he would have taken and the time periods identified in Joseph 3; and whether the information in Borrelli 3 would have caused him to change the opinions he expressed in Joseph 3. 44 There was a substantial attack on the form of Borrelli 2 and Joseph 3, as explained in Reasons 9. I will return to that particular attack in later paragraphs of these reasons. 45 In closing submissions, the respondent also attacked the form of Mr Joseph's reports on the basis that Mr Joseph expressed views on what he personally would have done if acting in the role of trustee in relation to the OIN Trust, rather than expert opinions about what a trustee in the position of the respondent ought to have done in the circumstances by reference to the general practice of professionals undertaking that role at the relevant time. As put by Oliver J in Midland Bank Trust Co. Ltd v Hett, Stubbs & Kemp [1979] 1 Ch. 384 (Midland Bank) at 402: The extent of the legal duty in any given situation must, I think, be a question of law for the court. Clearly if there is some practice in a particular profession, some accepted standard of conduct which is laid down by a professional institute or sanctioned by common usage, evidence of that can and ought to be received. But evidence which really amounts to no more than an expression of opinion by a particular practitioner of what he thinks that he would have done had he been placed, hypothetically and without the benefit of hindsight, in the position of the defendants, is of little assistance to the court … 46 In Permanent Trustee Australia Ltd v Boulton (1994) 33 NSWLR 735 at 738, Young J expressed the view that evidence of what the expert himself or herself would have done is inadmissible. In the present case, an objection as to admissibility along these lines was raised in written submissions on the voir dire concerning the admissibility of Mr Joseph's reports but, as I recall it, not expressly pressed at the voir dire hearing itself. As events transpired, those reports were admitted, and the evidence given has been tested by cross-examination. Therefore, this particular objection really goes to the weight that I should now give to Mr Joseph's evidence. 47 The applicant supported Mr Joseph's evidence by submitting that, in his reports, he was plainly giving evidence of what a trustee in the position of the respondent ought to have done, rather than his own idiosyncratic views of what he would have done. In my view, this is not at all clear. In Australian Securities and Investments Commission v Vines [2003] NSWSC 1095; (2004) 48 ACSR 291 at [32], Austin J remarked: Of course, in some cases there will be a fine line between evidence by a professional of what a reasonably competent and careful professional would do in specified circumstances, and evidence of what the witness would do in those circumstances. But there is a significant conceptual difference, because evidence of what a reasonably competent and careful professional would do requires the witness to take an objective view, in circumstances where his or her own standard might be higher or lower than the objective standard. 48 Here, there are clear indications that Mr Joseph's focus was what he, personally, would have done if placed in the position of the respondent. A number of critical passages in Mr Joseph's reports are expressed in the first person - what Mr Joseph would have done. Other passages are expressed more generally. As the applicant would have it, I should ignore this distinction in language in favour of assuming that at all times Mr Joseph was really speaking at a more general level. The applicant submitted that Mr Joseph had merely adopted "linguistic shorthand" to convey what a reasonably prudent trustee in the shoes of the respondent would do. 49 I do not think that I can sensibly read Mr Joseph's reports in this way. I refer particularly, but not exhaustively, to paras 26, 29, 38, 42, 47, 54, 56 and 63 of Joseph 1. Further, para 3 of Joseph 1 makes clear that, in Joseph 2, Mr Joseph was intending to opine on what he would have done following receipt of the report which, in Joseph 1, Mr Joseph says he would have commissioned. I am left with the impression that, when using the first person in his reports, Mr Joseph was speaking of what he, personally, would have done and that, when speaking more generally, he was speaking of expectations according to his own standards rather than according to the common and accepted practices and usages of trustees for debenture holders - the assumption being that all prudent trustees acting in that capacity would have acted in precisely the same way that Mr Joseph believes he would have acted. This latter assumption is not one I am prepared to make. I am reinforced in this conclusion by the fact that, conspicuously, Mr Joseph's reports do not contemplate even the possibility that a trustee in the position of the respondent in relation to the OIN Trust could have discharged his duties in other ways. I accept the respondent's submission that, if the circumstances were such that, in the opinion of the expert, a trustee exercising due diligence and reasonable care could only discharge his duties in one particular way, that would have to be made plain and the reason for the conclusion explained. Mr Joseph's evidence does not grapple with any such possibility. 50 For these reasons, I treat Mr Joseph's reports with considerable caution, particularly when considering the question of whether the respondent breached his duty of due diligence and duty of care. I wish to make clear that this is not a criticism of Mr Joseph personally. 51 A similar criticism was made in relation to Mr Borrelli's reports. At this point it should be appreciated that the present case is not concerned with alleged breaches of duty by an investigative accountant. It is concerned with alleged breaches of duty by a trustee for debenture holders. The significance of Mr Borrelli's evidence lies in its deployment in the applicant's case on causation of damage. Nonetheless, the respondent submitted that the same problem was inherent in this evidence. The respondent submitted that, while Mr Borrelli was advanced as a simulacrum for an investigative accountant appointed by the respondent, his evidence was not directed to what an investigative accountant of ordinary competence would have done but, rather, what he (Mr Borrelli) would have done. 52 I accept that, in his reports, Mr Borrelli approached his task on this basis. Once again, this is not a criticism of Mr Borrelli personally. Indeed, far from it. In their letter of instructions to Mr Borrelli dated 6 April 2016 (in relation to the preparation of Borrelli 1), the applicant's solicitors asked Mr Borrelli to prepare a report addressing particular topics, which included the following instruction: (e) what appropriate action would you recommend that the Public Trustee of Queensland take in light of your findings … 53 It also included this instruction: 5 Based on your study, training and experience as an investigative accountant, the information you have been provided and any other information you consider to be relevant (including documents, if any, that you would have requested from [OL] or any of its subsidiaries) please prepare a report in answer to paragraph 4 above. 54 I have no reason to doubt that Borrelli 1 was Mr Borrelli's response directed to what he, personally, would have done and what he, personally, would have recommended, albeit based on his study, training and experience as an investigative accountant. 55 Similarly, the applicant's solicitors' letter of instructions to Mr Borrelli dated 7 April 2016 (in relation to the preparation of Borrelli 2), asked Mr Borrelli to prepare a report addressing particular topics, which included the following instruction: (e) what appropriate action would you recommend that the Public Trustee of Queensland take in light of your findings … 56 It also included this instruction: 3 Based on your study, training and experience as an investigative accountant, the information you have been provided and any other information you consider to be relevant please prepare a report in answer to paragraph 2 above. 57 Once again, I have no reason to doubt that Borrelli 2 was Mr Borrelli's response directed to what he, personally, would have done and what he, personally, would have recommended. 58 Borrelli 3 was prepared on the same basis. The applicant's solicitors' letter of instructions to Mr Borrelli dated 24 June 2016 included these instructions: 1 When, in your opinion, would you have commenced meeting and discussing with the relevant directors and officers of [the Octaviar Group] and monitoring the financial and operational affairs [of the] Group on (at least) a monthly basis? 2 In what way, if any, do you consider that the timing of such meetings, discussion and/or monitoring would have been adjusted during the period until February 2008? What factors/events would have caused you to adjust the timing of any such meetings, discussion and/or monitoring? 3 Insofar as monitoring includes requests for documents and information from [the Octaviar Group], to what extent if at all would your approach to such requests have adjusted during the course of your investigation and what if any factors or events would have caused you to adjust the timing of such requests? If your answer to this question differs depending on the categories or classes of documents (e.g., management accounts, communications with creditors, internal emails) that would have been requested, please so indicate. 4 To what extent, if at all, would you have communicated with the PTQ about the status of your investigations, during the course of your investigation. 59 Therefore, I also treat Mr Borrelli's reports with caution, particularly when considering the recommendations made notionally to Mr Joseph and, consequently, Mr Joseph's response to those recommendations. Having made this observation, I acknowledge that there are other aspects of Mr Borrelli's evidence where he did speak more broadly in respect of the role of an investigative accountant. 60 There is, however, a further significant and compounding difficulty with Mr Borrelli's reports and evidence more generally. As I will come to elaborate, I am satisfied that Mr Borrelli's own views were unavoidably influenced by hindsight based on his previous engagement by the liquidators of OL and OA.

The respondent's evidence 61 In the respondent's case, evidence was given by: Gregory Edward Klein; Craig Lawrence Dean; Francesco Graziano Prostamo; Ian Donald Cameron Kelly; Ian Richard Hall; Mark Steven Sammut; Gareth John Jenkins; William John Fletcher; Ann-Maree Margaret Dunning; Mark Korda; and Michael McCann. 62 Other than Mr Korda, each witness's evidence in chief was given by affidavit. Each witness, other than Mr Sammut, Mr Fletcher and Ms Dunning, was cross-examined. 63 Mr Klein held the position of Public Trustee of Queensland from 1996 until his retirement on 30 January 2008. He was employed in the Public Trust Office (the PTO) for almost 50 years. He gave evidence concerning his recollection of the circumstances in which he, as the Public Trustee, resigned as trustee of the OIN Trust on 6 July 2007. The applicant submitted that, at times during cross-examination, Mr Klein sought to qualify or distance himself from his affidavit evidence. I think that, in some respects, this is true. Nonetheless, I accept Mr Klein as a reliable witness who sought to give his evidence to the best of his ability. 64 Mr Dean was the Business Support Manager within the Investment Services Branch of the PTO at the time relevant to this proceeding. He also acted as the Manager of Investment Services for short periods in the period 1 October 2006 to 30 December 2008, including in the periods 1 to 5 October 2007 and 7 January to 1 February 2008. He gave evidence concerning the responsibilities and activities of the Business Services team within the PTO. 65 As Business Support Manager, Mr Dean's role was to manage the day to day operations of the PTO's custodian and corporate trust matters. His responsibilities included ensuring that, for each trust with which the respondent was concerned, all legislative and administrative requirements were met and that the PTO's "clients" provided the PTO with the information that it required. Mr Dean reported to Mr Prostamo (the Director Investment Services) through Anita Hicks, the Manager of Investment Services. He also came to report to Mr Kelly (the Director Client Services) with respect to some matters. 66 Mr Dean gave evidence concerning his role in dealing with the OIN Trust. 67 Mr Prostamo was, as I have noted, the Director Investment Services at the time relevant to this proceeding. He reported directly to Mr Klein. In this role, Mr Prostamo was responsible for managing the investments side of the PTO's operations. In the period 2006 to 2007, this responsibility covered funds management and the financial planning and management of the PTO's corporate trusts and custodian investment schemes. 68 Mr Prostamo gave evidence concerning his role in the PTO with respect to the engagement of the respondent as trustee of the OIN Trust, and of the subsequent monitoring of the Trust. 69 The applicant criticised Mr Prostamo's evidence as appearing to be rehearsed. I did not gain that impression when observing him during cross-examination. I consider him to be a reliable witness who gave his evidence to the best of his ability. 70 Mr Kelly, as I have noted, held the position of Director Client Services at the time relevant to this proceeding. The scope of his regular duties as Director Client Services included responsibility for managing the respondent's functions relating to protective management, trusts (excluding those concerned with corporate fundraising), deceased estate administration and will-making. He was the third most senior person within the PTO after the Public Trustee and the Deputy Public Trustee. He was a member of the Executive Management Team and was appointed the Chairman of the Investments Committee on 29 June 2007. Mr Kelly reported directly to Mr Klein until Mr Klein's retirement in January 2008. He then reported to the Acting Public Trustee, Mr Wedge. He gave evidence concerning: the PTO's review of corporate trustee and custodianship matters in about May 2007, including a review of the OIN Trust; the subsequent resignation by the respondent from his trusteeship of the OIN Trust on 6 July 2008; and the steps taken by the PTO in relation to the OIN Trust during the period following the respondent's resignation. 71 The applicant submitted that Mr Kelly was a dishonest and unreliable witness. I reject that criticism. I had the benefit of observing Mr Kelly throughout the course of his cross-examination. My impression was that he gave his evidence honestly and to the best of his ability. This is not to say that I accept all aspects of his evidence but, on the whole, I accept him as a reliable witness. I refer to specific aspects of Mr Kelly's evidence in greater detail in later sections of these reasons. 72 Mr Hall is a partner in KPMG. In the period October 2006 to April 2008 (to which his evidence was directed), he was a partner in PwC, engaged in that firm's Corporate Recovery and Restructuring group. He joined KPMG as a partner in March 2013, having retired as a partner in PwC in January 2010. In the interim period, Mr Hall was engaged in consulting work and sat on a number of company boards. 73 Mr Hall's background and experience is in insolvency, a field in which he has practised for more than 30 years. He is a Chartered Accountant and registered liquidator. His work in insolvency has been predominately in the area of corporate restructuring. Apart from acting in a formal capacity as liquidator, administrator or receiver and manager, a major aspect of his work has been the undertaking of business reviews, in the role of an investigative accountant, mainly for banks and other security holders. 74 Mr Hall gave evidence concerning his role of advising the respondent through a number of reports prepared by PwC, which I discuss in later paragraphs of these reasons. The applicant accepted Mr Hall as a witness who provided straightforward and candid answers in his cross-examination. That was also my impression. 75 Mr Sammut is a partner in Clayton Utz, the respondent's solicitors. He shares responsibility for the carriage of this matter on behalf of the respondent. Mr Sammut's evidence was limited to completing the chain of evidence in relation to Mr McCann's expert evidence (see below) and dealing with other procedural matters. 76 Mr Jenkins is a partner in Clayton Utz who had responsibility for providing advice to the respondent in connection with the OIN Trust during the period 11 February 2008 to 4 June 2008. He provided a substantial affidavit dealing with: the period up to 4 June 2008 when the respondent filed winding up applications seeking the liquidation of OL, OIN, OIB and OFS; the period after the commencement of the winding up proceedings up to 24 July 2008 when certain undertakings were given by those companies; and the period to September 2008, when administrators were appointed to the companies. 77 Mr Fletcher is one of the court-appointed liquidators for OA and OL. He was appointed on 9 September 2009. He gave evidence concerning the engagement of Mr Borrelli to prepare a solvency report in relation to OA and OL for use in litigation in proceedings commenced in the Supreme Court of Queensland. I discuss this report - which I have called the Fortress Report - in later sections of these reasons. His appointment is ongoing. 78 Ms Dunning is a Legal Technology Services Manager in Clayton Utz. She gave evidence concerning the electronic storage and management of documents produced under subpoenas to Clayton Utz. 79 Mr Korda is a partner in KordaMentha. He is a Chartered Accountant and registered liquidator with expertise in corporate insolvency. He is a director of 333 Capital Pty Ltd (333 Capital), an advisory arm of KordaMentha. 333 Capital was engaged by OL on about 22 January 2008 to provide advice to OL on a range of matters including: a detailed review of the company's cash flow forecasts; the management of liquidity issues; advice on restructuring options available to OL and related entities; and "other matters", as and when required. 80 Mr Korda gave evidence concerning the advice provided to OL upon 333 Capital's review of the Octaviar Group. The applicant remarked that 333 Capital is currently involved in proceedings in the Supreme Court of Queensland that have been brought against it by the liquidators of OIN and OIB arising out of advice given to the directors of OL between 22 January 2008 and 15 July 2008. The applicant submitted that, in cross-examination, Mr Korda accepted that he had a strong financial interest in justifying and defending the correctness of the advice he had given to OL in 2008. The applicant submitted that I should approach Mr Korda's evidence with that fact in mind. 81 I note that Mr Korda did not provide an affidavit in support of the respondent's case and that his evidence was given under subpoena. My observation of him when giving his evidence was that he was truthful. I accept him as a reliable witness. 82 The respondent also led evidence from Michael McCann. Mr McCann is a partner of Grant Thornton Australia and is a specialist in restructuring. He is qualified as an investigative accountant and is the responding expert to Mr Borrelli. The applicant criticised Mr McCann and submitted that I should find that he saw his role as an advocate rather than to provide assistance to the Court in an impartial fashion. I reject that criticism. Certainly, Mr McCann advanced views that were clearly supportive of the respondent's case. These views were directed to engaging with views expressed by Mr Borrelli, whose own views were clearly supportive of the applicant's case. 83 Mr Borrelli and Mr McCann prepared a joint report detailing the matters on which they disagreed (the Joint Report). The Joint Report is extensive (240 pages). It is apparent from the size of the Joint Report that there was little agreement between them. Mr Borrelli and Mr McCann gave evidence concurrently by reference to the Joint Report. Each was subsequently cross-examined. 84 The respondent also sought to lead evidence from Philip David Anthon in response to Mr Joseph's evidence. I rejected the tender of a report prepared by Mr Anthon as well as an affidavit made by him: Oztech Pty Ltd v The Public Trustee of Queensland (No 13) [2016] FCA 1153.

The documentary tenders 85 For completeness, I record that the evidence included: a core bundle of documents (50 volumes); an opening bundle of documents (24 volumes); and a cross-examination bundle of documents (8 volumes). 86 Although there was a degree of duplication between the various bundles, it will be appreciated that the documentary tender was significant.

The submissions 87 Each party relied on extensive written submissions. In total, the submissions amounted to approximately 1,000 pages. These were supplemented by oral argument over 6 days. I have not felt it necessary to either detail or discuss every submission that was made. Some submissions were truly peripheral to the cardinal elements of the parties' respective cases.

The merger with S8: the issue of OIN notes 88 At the time when the respondent became trustee, OL was a diversified financial services and investment company with activities in funds management, investment, structured finance and tourism. OL was listed on the Australian Securities Exchange (ASX) and was included in the S&P/ASX 200 Index. It had a market capitalisation of approximately $950 million. 89 As I have noted, OL's business was conducted within the structure of, and by means of, the Octaviar Group. Within that structure, OA acted as the treasury company. It was a party to nearly all intercompany transactions within the group. OFS was the original holding company of the group. However, following the listing of OL in January 2005, OFS's principal activity was the holding of investments in its immediate subsidiaries. These subsidiaries managed funds in listed and unlisted investment vehicles in the finance, property, equity and investment sectors and held investments in listed and unlisted securities. 90 On 4 September 2006, OL and another company, S8 Limited (S8), announced a proposal to merge. At that time, S8 was an integrated travel services business operating in the tourism, travel and leisure sectors, marketing holiday accommodation and travel products and services. OL's business included a division called the Stella Resorts Group (Stella) which had numerous resorts under management in Australia and New Zealand. 91 As part of the merger, OL made an off-market takeover offer for certain convertible notes that S8 had issued (the S8 notes). OL offered alternative consideration for the S8 notes. Holders of the S8 notes could elect to receive, for each note, 1.05 MFS Securities (each MFS Security comprising one note to be issued by OIN and 14 warrants, which were options over OL's unissued shares) plus a cash payment equal to the accrued but unpaid interest on the S8 notes (the non-scrip offer). Alternatively, holders of the S8 notes could convert their notes and accept a separate share offer by OL (the scrip-offer). 92 OIN was incorporated for the purpose of issuing the notes under the non-scrip offer. At that time, it was originally contemplated that the note issue under the non-scrip offer would be for an amount up to $75 million. However, by 31 October 2006, the amount of the proposed issue had increased to $136.6 million. 93 It appears that, by the time the MFS Securities came to be issued, the notes and the warrants were stapled. Clause 3.1 of the Terms of Issue provided that if a noteholder exercised the warrants to which a note had been stapled, OIN would redeem the note for its face value and apply the redemption amount in payment of the exercise price of the stapled warrants. OIN was to pay any excess over the exercise price to the noteholder.

PwC 1 94 For the purpose of considering whether he would undertake the role of trustee of the OIN Trust, the respondent engaged PwC to report on various matters, including on "significant risks and sensitivities" and whether, based on the information available to PwC (within the scope of their engagement), OL would be in a position to meet the future repayment obligations under the notes at the maturity date. I should note here that the respondent had acted as trustee for other notes and debentures issued by OL. 95 In a report dated 31 October 2006 (PwC 1), PwC noted that OL had not provided any forecast information, but brokers had estimated that the combined EBITDA for S8 and OL could be $313 million by 2011. PwC advised that future events are inherently uncertain and that the respondent should consider broker estimates, particularly in later years, in that context. PwC noted that OL had a track record of buying and selling businesses and that this was considered (at least by OL's directors and some brokers) as OL's core business activity. PwC noted that, in the event of cash flow issues (which were not envisaged based on broker consensus estimates), there may be scope for the sale of businesses to generate cash flow. 96 Prior to the merger, OL had estimated that, as at 30 June 2006, it had net current assets of $27.7 million and net tangible assets of $82.5 million. However, based on the proforma balance sheets that had been prepared for the merger, PwC noted that the merged entity would have negative net current assets of $(284.9) million and negative net tangible assets of $(324.2) million, based on the non-scrip offer. Nevertheless, the merged entity would have net assets of over $1 billion. Even on the basis of a 100% acceptance of the scrip offer, the proforma balance sheet for the merged entity as at 30 June 2006 showed negative current assets and negative net tangible assets although, once again, the net assets of the merged entity would be over $1 billion. In this connection, PwC said: Negative net current assets and net tangible assets is not a new issue for you, as this is consistent with S8 prior to the Merger. This reflects the nature of some of the businesses within the Merged Group's portfolio and the acquisitive strategies of both businesses. 97 The statement that "negative net current assets and net tangible assets" were not a "new issue" appears to be a reference to the fact that, quite separately, the respondent was also acting as trustee for the S8 notes. PwC said that the negative net tangible asset position of the proposed merged entity highlighted that the key issue for the respondent, as trustee for the OIN noteholders, was whether EBITDA for the merged entity would be maintainable over the period for which the notes were to be on issue. As Mr Hall explained in cross-examination, cash flow for OL was a very significant consideration because if it did not have the assets to raise additional money, it needed cash flow to cover its commitments. Earnings are a key indicator of cash flow. PwC noted that OL relied heavily on increasing property and asset prices, and that a downturn could impact the earning capacity of the company, particularly if assets needed to be sold to fund cash flows. PwC also noted that there was an inherent risk surrounding OL's acquisition strategy and its ability to identify and integrate acquisitions successfully. PwC noted that interest rate rises were another factor that would reduce OL's profit line, increase the likelihood of loan defaults and affect the demand for property. PwC said that OL's structured finance business, which was conducted in the non-bank lending segment of the real estate market, involved a higher risk than standard bank lending, with the consequence that losses could be incurred by OL as a result of that higher risk. 98 Nevertheless, PwC said that OL had informed it that, as a fund manager and investment bank, it had access to a variety of cash creation resources (such as issuing similar notes, issuing convertible notes, obtaining bank finance, selling assets/businesses or raising capital) which it intended to use in combination, to generate cash. 99 PwC concluded that there was no indication that OL and OIN would not be able to repay the notes at the maturity date. 100 Mr Prostamo gave evidence that, based on PwC 1, he considered OL to have had significant net assets at that time and was in a sound financial position. He said that OL had significant capital backing, which was unusual compared to the respondent's other corporate trust clients, and that OL's balance sheet was also much stronger. He said that, at that time, OL looked to be financially viable following the merger and that, on the basis of PwC 1, he was satisfied that OL would be able to repay the notes when they fell due. 101 As I have noted, on 2 November 2006, OIN, OL and the respondent entered into the Trust Deed for the OIN Trust.

The further issue of OIN notes 102 By the end of February 2007, OIN had issued notes with a total face value of over $146.7 million. 103 Earlier, on 17 January 2007, OL had advised the respondent that it proposed to issue, through OIN, further notes with a total face value of $150 million, with the ability to accept oversubscriptions up to a further $30 million. OIN was entitled to do this under clause 6.2 of the Terms of Issue. As events transpired, the size of the proposed offer increased. Mr Prostamo gave evidence that he was not happy about the proposed new issue. His understanding at the time that the Trust Deed was executed was that OL would not issue further notes without first obtaining the respondent's consent. Mr Klein gave evidence that he was annoyed at (what he described as) the disrespect shown by OL in not consulting with the PTO before taking this step. 104 On 17 February 2007, OL published its interim financial report for the half year ended 31 December 2006. The report was audited by KPMG who gave an unqualified opinion that the report gave a true and fair view of OL's financial position as at 31 December 2006. The consolidated interim balance sheet showed net assets in excess of $1.1 billion. Current assets were shown as including "Assets classified as held for sale" in an amount exceeding $2.1 billion. These assets included Stella and certain other assets in the tourism, hotels and leisure segment of OL's business (including assets acquired as part of the S8 merger) which OL said it had acquired with a view to subsequent disposal. The interim financial report expressed the expectation that the sale of these assets would be completed within 12 months. 105 On 23 February 2007, OL and OIN issued a prospectus which offered notes with a total face value of $160 million and with an ability to accept oversubscriptions up to a further $50 million. The offer was made to institutional investors and Professional and Sophisticated Investors (as defined in the prospectus). The notes were stapled with warrants granting options to subscribe for shares in OL. The notes were offered with the same maturity date as the notes that had been issued in connection with the non-scrip offer for the S8 notes. 106 The prospectus explained the nature of the business conducted by the Octaviar Group. For example: MFS is a diversified financial services and investment group, with total assets of approximately $2.5 billion and net assets of approximately $1.1 billion. MFS is acquisitive by nature and often seeks to acquire strategic assets and businesses with the intention of combining them or developing them for subsequent divestment or undertaking other transactions which enhance the value of those investments. 107 The prospectus noted that, on 19 February 2007, OL had announced that it had commenced a process to achieve a partial sale of Stella, and other assets, in the first half of 2007 - although, this sale would only proceed if the directors believed that the sale would be in the best interests of OL's shareholders. The prospectus said that the partial sale was being undertaken to maintain OL's focus as a funds management and investment vehicle and that the funds to be received from any sale were expected to be used to fund future acquisitions and to repay debt. The prospectus noted that OL expected that its earnings and dividends would be maintained following the sale, although investors were told that there was a risk that earnings and dividends may decrease depending on how, and how quickly, funds received as a result of the sale could be reinvested.

The partial sale of Stella 108 By 2 February 2007, OL's Finance and Investment Committee had devised a strategy to sell its "tourism business" for around $2.5 billion, which would include the reacquisition of a 50% interest in that business for a non-cash consideration. It was considered that this strategy would free up around $2 billion to repay debt and provided working capital of about $1.2 billion. It was considered that a sale at $2.5 billion would result in a profit to OL of about $500 million. The consequence of such a sale, as noted in PwC 2 (discussed below), was that OL would have lower operating cash flows to cover interest and principal repayments that might fall due in respect of the notes. This risk was also noted in the prospectus issued on 23 February 2007 in relation to the further offer of notes.

PwC 2 109 On 9 March 2007, the respondent engaged PwC to provide an "addendum" to PwC 1. The respondent asked PwC to review the interim financial report to determine OL's ability to repay the notes at the maturity date. The respondent also sought PwC's advice on whether the existing minimum net asset cover of $280 million which OL was required to maintain under the Terms of Issue should be revised, in light of the intended further borrowing under the prospectus. 110 On 20 March 2007, PwC provided a report (PwC 2) containing the following findings. 111 First, brokers had estimated that OL's EBITDA could be $397 million by 2010, which was $84 million higher than the expectation recorded in PwC 1. This suggested to PwC that the risk to noteholders had not increased. However, PwC said that it was unclear how the brokers had considered OL's operations following sale of the assets "held for sale". 112 Secondly, the interim balance sheet recorded net current assets of $835 million and net tangible assets as $1,075 million. PwC said that this improvement was "misleading" because material assets that were non-current in nature (significantly, Stella) had been classified within current assets as "held for sale". Material intangible assets had also been included within that category. PwC noted that this treatment in the balance sheet assumed that these assets would convert to cash in the near term. The effect of this reclassification also meant that the balance sheet as at 31 December 2006 could not be compared with the proforma balance sheet used for PwC 1. Plainly, the purpose of these observations was to alert the respondent that the improvement in the Octaviar Group's net asset position should be understood in its proper context. 113 Thirdly, if OL did dispose of assets "held for sale" and distribute the proceeds to shareholders, then OL would have negative net tangible assets. PwC said that the respondent was "somewhat protected" because of the minimum net asset backing of $280 million which OL was required under the Terms of Issue to maintain at the end of each six monthly reporting period. 114 Fourthly, the majority of OL's revenue to date had been associated with the assets "held for sale". Following disposal of these assets, OL would have lower operating cash flows to cover the interest and principal repayments that would fall due under the notes. PwC said that publicly available information was not sufficient to develop illustrative cash flows for the OL business excluding these assets. PwC emphasised that the respondent should consider requesting further analysis and explanations from OL. In cross-examination, Mr Hall addressed the significance of this finding: Well … the risk is [if] you take the main asset that's generating most of the revenue out of the business, then you need to understand … what they are planning on doing with the money, and … how that impacts on the ongoing business. 115 In this passage, Mr Hall's reference to "the main asset" was to Stella. 116 Fifthly, PwC noted that the most significant protection for noteholders was the requirement that OL maintain net assets exceeding $280 million. PwC advised that, given the increase in the face value of the notes from $150 million (then on issue) to approximately $360 million, the respondent should obtain an increase of the net asset backing covenant to $672 million. PwC advised that, in line with that increase, the respondent should make further inquiries as to how OL intended to utilise the funds to be obtained from the asset sales it had announced. 117 I pause here to note that, under the Trust Deed and Terms of Issue, the respondent could not require OL to increase the net asset backing covenant. This is a matter of considerable significance because it meant that the net asset backing covenant provided limited protection for the noteholders in circumstances where OIN was entitled to issue further notes. 118 Mr Prostamo gave evidence that, although PwC had described the interim balance sheet as "misleading", he considered OL's overall net asset position to be "still healthy", with net assets of over $1.1 billion. He said that, from a balance sheet prospective, he considered OL's financial position to be "good". OL's net current assets had increased since PwC 1. He said that his overall impression, based on PwC 2, was that there was some more work that needed to be done in relation to cash flows, but that OL was in a "solid net asset position". He said that, for him, OL's net asset backing of over $1 billion provided a level of comfort. 119 On 29 March 2007, the respondent informed OL that he had engaged PwC to conduct an annual review in order to fulfil his role as trustee. The description "annual" appears to be a misnomer. The review was a follow-up to PwC 2. The respondent asked OL to provide cash flow forecasts "for 12 months", including in respect of businesses that had recently been acquired. 120 I pause to note that, by the end of March 2007, OIN had issued notes with a total face value of over $348.6 million. In cross-examination, Mr Kelly accepted that the net asset backing covenant provided insufficient protection for the noteholders. 121 On 11 May 2007, OL provided PwC with a cash flow statement for the Octaviar Group. It projected yearly cash flows up to the 2012 financial year. It did not factor in any cash outflow for payment of the notes on the maturity date because OL said that it expected that noteholders would "convert the notes" (presumably, exercise the warrants to which the notes were stapled) rather than "seek capital redemption". On 16 May 2007, Mr Hall forwarded the cash flow to Mr Prostamo.

The 17 May 2007 meeting 122 On 17 May 2007, Mr Prostamo met with Mr Hall. At the meeting, Mr Prostamo instructed Mr Hall to obtain and review the assumptions and details of the high level cash flow statement that OL had provided. In a contemporaneous email sent to Mr Kelly and others, Mr Prostamo noted that the value of the notes on issue was approximately $360 million. He said that "we require a close examination of the business". He also said: The nature of [OL] is that they are continually buying and selling assets. Ian Hall advised, that it may be prudent to have [OL] submit management accounting reports on a monthly basis to enable the trustee to monitor cashflows, asset backing and profitability. [Emphasis added.] 123 Mr Prostamo considered this advice but formed the view that the audited accounts for the period ending 30 June 2007 would provide a better indication of OL's financial position. Mr Prostamo gave evidence that, as the audited accounts would be available "within a couple of months", he decided that the better course was to wait and review them. 124 In his evidence, Mr Hall said that he was unable to recall the meeting of 17 May 2007 or the advice recorded in the email quoted above. He said that, at the time of this meeting, he was aware that the end of the financial year was approaching and that OL's audited accounts for financial year ending 30 June 2007 would be available shortly thereafter. He also gave evidence that he was aware that those audited accounts would be more reliable than monthly management accounting reports. He said that he could not recall whether he discussed that view with Mr Prostamo at the meeting. 125 In cross-examination, Mr Kelly said that he did not remember seeing the email, although he did not doubt that the email would have come to his email box or that it was on the PTO's file. He also said that, if he had read the email at the time, "I would have done something about it". By this I understood Mr Kelly to mean that he would have followed up that matter by giving attention to the question of whether monthly management accounts should be obtained. Mr Kelly accepted that, as events transpired, he did not do anything about the email. However, this confirmed in his mind that, for whatever reason, he had not read the email at the time. 126 The applicant submitted that it is implausible that Mr Kelly did not read the email at the time it was sent or, at the latest by 1 June 2007, when he reviewed the OIN Trust file maintained by the Business Services team within the PTO: see below. The applicant submitted that Mr Kelly's resistance to accepting in cross-examination that he had read the email was untruthful. I do not accept that Mr Kelly was untruthful in the evidence he gave on this matter. 127 There is no real doubt that Mr Prostamo's email accurately records what Mr Hall said at the meeting. However, PwC did not advance the obtaining of monthly management reports in any formal recommendation it made. This may reflect the importance which Mr Hall placed on obtaining such reports at that time. In cross-examination, Mr Prostamo characterised the advice as a "comment" made during the course of the review. He said that, once the final report of the review was given, there would be a number of recommendations and that the PTO would follow through with those recommendations. There was no such recommendation in relation to obtaining monthly management accounting reports. Mr Prostamo advanced this as a second reason why the advice recorded in his email was not followed. 128 The evidence indicates that Mr Hall's advice concerning monthly management accounting reports was no more than a suggestion that was raised but not pursued. What was pursued was the following additional information from OL, which PwC sought on 17 May 2007 following, it seems, the meeting with Mr Prostamo: profit and loss statements and balance sheets for any three way/integrated budget that had been prepared; and details of the key assumptions that supported OL's cash flows and forecasts, with supporting working papers.

The Fortress facility 129 As at 18 May 2007, OL had identified that it would have a cash deficit of more than $200 million in the May/June 2007 period. 130 On 29 May 2007, OL's Finance and Investments Committee resolved to recommend to OL's Board that a $250 million "bridging loan facility" be put in place until either the partial sale of Stella could be effected or an anticipated $450 million commercial banking facility was finalised. As matters transpired, no commercial banking facility, as contemplated, was entered into, and the partial sale of Stella did not occur until late January 2008, after OL's share price had plummeted. 131 On 1 June 2007, Octaviar Castle Pty Limited (in liquidation), formerly called MFS Investment Holdings No 17 Pty Limited (OC), a wholly-owned subsidiary of OL, together with OL and OFS, entered into an agreement with Fortress Credit Corporation (Australia) II Pty Limited (Fortress). This agreement provided a cash advance facility to OC of up to $250 million, repayable by 1 September 2007 (the Fortress facility). On the same day, OC, OL and OFS each executed a fixed and floating charge in favour of Fortress to secure their obligations under the facility. OC immediately drew down the entire amount of the facility. 132 The applicant says that the Fortress facility was unusual for three reasons: the Octaviar Group was not borrowing from a bank; the loan was secured over virtually all the assets of the group; and the commitment fee of $2.5 million was high relative to the sum lent. 133 Supported by Mr Borrelli's opinion, the applicant submitted that these matters indicate that Fortress was not a traditional lender, but a lender of last resort. 134 I note that clause 8.1 of the agreement implementing the Fortress facility provided that OC was required to deliver to Fortress monthly management accounts, including "monthly statements, profit and loss (financial performance), balance sheet (financial position) and statement of cashflow of the Group". I mention this requirement because of the controversy between the parties concerning the significance of the advice recorded by Mr Prostamo in his email of 17 May 2007, following the meeting with Mr Hall. 135 As they had given guarantees in respect of the Fortress facility, OL and OFS were, individually, required by s 283CC of the Corporations Act and clauses 7.2 and 7.3 of the Trust Deed to notify the respondent of the charge that had been created. They did not do so. Each failure to notify constituted an Event of Default under the Terms of Issue. However, it is not said that these Events of Default were of such a character that they would cause the respondent, acting responsibly, to call in the notes. 136 On 6 June 2007, the respondent received notification from ASIC that OL and OFS had created the charges. There is nothing in the evidence to suggest that, on receiving notification, the respondent did anything about OL's and OFS' failure to inform. 137 As events transpired, OL was not able to obtain the commercial banking facility. There were a number of meetings with banks in April to June 2007 in order to obtain such a facility, but the banks that had provided indicative offers for such a facility had required the sale of Stella as a precondition to drawdown. 138 By 7 June 2007, OL had come to the "blunt assessment" that it did not have sufficient cash reserves to undertake a major acquisition. By no later than 20 August 2007, OL had put its endeavours to achieve the $450 million facility permanently "on hold".

OL provides documents to PwC 139 Meanwhile, on 23 May 2007, OL provided an assumptions document to PwC and the respondent, as well as an income statement and balance sheet as at 31 December 2006 and for the ensuing financial years to 30 June 2012. One of the key assumptions was that a 40-60% stake in Stella would be sold in the first half of 2007. 140 The assumptions document stated: For the purposes of the financial model, the intended sell-down of [OL's] stake in [Stella] has been assumed to occur in FY2007 (June) at a conservative disposal price of $2,319 million and a retention of a 40-60% stake valued at $496 million. We have also assumed the balance of the investment held by [the Octaviar Group] will earn a net profit before tax (NPAT) of $20 million per annum. The actual financial results of the disposal may differ as the sale process is still in progress and under consideration and will only proceed if the Directors believe it is in the interests of [OL] Shareholders and Note Holders. 141 The assumptions document also stated: For the purposes of preparing a 5 year forecast, it is accordingly assumed that all capital, retained earnings and debt facilities not utilised to refinance existing finance facilities, are fully utilised to fund the acquisition or strategic investments which are then held on balance sheet for a 24 month period prior to realisation. During the balance sheet hold period, the earnings of the strategic investments are assumed to be 10%p.a. and reported under the Investments: Strategic heading. The capital growth (gain on realization) is assumed to be 10%p.a. compounded and is reported at realisation in the investment banking earnings. 142 The applicant drew attention to the fact that the assumptions document made no mention of the Fortress facility and submitted that, by 23 May 2007, the facility must have been negotiated. The applicant sought to support that submission by a document dated 25 May 2007. The applicant treated the document as if it were an advice from OL's Finance and Investments Committee to OL's Board. I do not think that this interpretation of the document is correct. As I read the document, it is a recommendation by an unidentified officer that the Finance and Investments Committee make a recommendation to the Board that the Fortress facility be entered into. As I have recorded, it was not until 29 May 2007 that the Finance and Investments Committee resolved to make that recommendation. Nevertheless, the document of 25 May 2007 does record that the key terms of the Fortress facility had been negotiated. Whilst it is certainly possible that, by 23 May 2007, the terms of the Fortress facility had been negotiated, I am not prepared to find that as a fact. However, I accept that it is likely that, by that date, OL was contemplating entering into such a facility with Fortress. 143 The applicant submitted that it was misleading for OL not to have informed the respondent that it was proposing to enter into the facility and not to have updated the cash flow it provided to PwC after it agreed to enter into the Fortress facility, particularly as that facility was intended to meet an anticipated shortfall in cash that had been created by (so the applicant said) OL's inability to sell Stella. Relatedly, the applicant submitted that it was also misleading for OL to suggest in the assumptions document that it expected to sell Stella by the end of June 2007. 144 I am not persuaded that it is necessary for me to make any findings in relation to those submissions. The simple fact is that if, as at 23 May 2007, OL was contemplating entering into the Fortress facility, it did not inform either PwC or the respondent of that fact. If, at a later time, PwC or the respondent had asked OL why the cash flow forecast had not included reference to the Fortress facility, the likely answer would have been that, at the time, the facility had not been entered into. This may or may not have been a satisfying answer. But, either way, I am not persuaded that the answer would have had any consequence relevant to this case. 145 Further, OL did not inform either PwC or the respondent that it was not intending to sell down an interest in Stella before 30 June 2007. In this latter connection I note, however, that OL's announcement to the ASX of that fact was made on 13 June 2007. The evidence is silent on the state of affairs as at 23 May 2007 and what might have transpired between OL and its preferred partner in the period 23 May to 13 June 2007 to change events in relation to the partial sale of Stella.

The Public Trustee's review of corporate trust files 146 In around late April or early May 2007, Mr Klein instructed Mr Kelly to carry out a review of all the corporate trustee files in the PTO. One purpose of this review was to look at each corporate trustee matter to consider whether it was the "right fit" for the respondent's profile, culture and business priorities, taking into account any reputational risk that might be involved. Mr Klein gave evidence that he was particularly conscious of the relationship of trust between the Public Trustee and Queenslanders, and the importance of maintaining the Public Trustee's very high reputation. Mr Klein said that he was not a supporter of the Public Trustee doing corporate trust work. He regarded this to be work that should be performed by the private trustee companies. Mr Klein gave this evidence: I had attended a number of Australia Public Trustees Conferences where the developing mood was that this work was not a good match for the ordinary business of a Public Trustee. The view was developing among Public Trustees that the view promoted by Treasury Officers was misguided. This reinforced my opinion that corporate trustee work should be left to the private sector trustees. It would not have taken much in this mood to instruct that the PTO should resign from any corporate trust regardless or not [sic] of whether there was any reason. And as I recall it a trustee does not have to give a reason. 147 As events transpired, Mr Klein made the decision to resign from a number of existing corporate trusts. His evidence was that he regarded such a decision as one solely for him to make. 148 For the purpose of carrying out the review, Mr Kelly consulted Ms Hicks and Mr Dean. They gave him an overview of the Investments Program. Mr Kelly asked them to advise him on the main file priorities that they saw within that program. Four file priorities were identified. Mr Kelly's review started with those four files. He then reviewed a fifth file before reviewing the OIN Trust. 149 On 1 June 2007, Mr Kelly commenced his review of the Public Trustee's involvement in the OIN Trust. This was, coincidentally, the date when the PTO had arranged a meeting with PwC. Mr Kelly was one of the representatives who attended the meeting. 150 Either at or following the meeting, Mr Kelly made a file note: 1/6/07 Meeting: Craig Dean, Frank Prostamo, Anita Hicks, Ian Kelly, Ian Hall - PWC This meeting was a review the report [sic] of 20 March 2007. The issue that I had was the unwillingness of PWC to express a firm view that PWC [presumably, the Octaviar Group] would be in a position to make all the payments that will be required of them. We discussed that there were a number of assumptions or uncertainties that made a positive statement difficult. It was agreed that there were no issues with the company now but that we could not say about the future. Ian said that the business model is essentially one of just doing deals. The company buys assets and maybe consolidates them and then on sells. For predictions to be met the company needs to keep doing big deals. In the report PWC suggested a high level review of cash flows to see whether comfort could be had from that. I said that I would want PWC to warrant future repayments or say that they would not so that we could determine the next move. I agreed that the report should go ahead. [signature] Ian Kelly 1.6

PwC 3 151 On 8 June 2007, PwC provided a further report to the respondent (PwC 3). The purpose of the report was explained in a covering letter, in which Mr Hall said: This report has been prepared subsequent to our previous reports dated 31 October 2006 and 20 March 2007, as a result of [OL] raising a further $210 million from the issue of convertible notes, in addition to previously issued convertible notes of $150 million. You have requested that we perform a high level review of the cash flow projections supplied by [OL] and advise you if those projections are able to give you additional comfort as to the ability of [OL] to meet scheduled debt repayments up to 30 December 2011 in your role as Trustee. 152 The key findings in PwC 3 assumed great significance in the case. It is appropriate that I set them out as they were expressed in the report: • PwC have been requested to undertake a high level review of the cash flow projections supplied by [OL] to advise if those projections are able to give the additional comfort as to the ability of [OL] to meet scheduled debt repayments up to 30 December to 2011 in your role as Trustee. • [OL] raised a further $210 million from the issue of convertible notes, in addition to previously issued convertible notes of $150 million. • The cash flow statement indicates that as at 30 June 2007, [OL] shall have cash on hand of $1,229 million and net tangible assets of $1,486 million. • The cash on hand figure is subject to completion of [OL] sale of a 40% to 60% stake in [Stella] by the end of June 2007. • It appears that [OL] intend to use the funds from the sale of a stake in Stella to fund future strategic investments. • As a funds management and investment Company, [OL] advise that the acquisition of strategic investments with an expected return on sale is its principal business. • The cash flow statement prepared by [OL] is based on the key assumptions listed below: - All capital, retained earnings and debt facilities not utilised to refinance existing finance facilities, are fully utilised to fund the acquisition of strategic investments which are then held on balance sheet for a 24 month period prior to realisation. - The capital growth on strategic investments is assumed to be 10%p.a. compounded and is reported at realisation in the investment banking earnings. - During the balance sheet hold period, the earnings of the strategic investments are assumed to be 10%p.a. and reported under the Investments: Strategic heading. • The cash flow statement indicates that as at 30 June 2011, [OL] shall have cash on hand of $97 million and net tangible assets of $2,291 million. • In examining the cash flow statement prepared by [OL], it appears that [OL] have the ability to meet the scheduled debt repayments up to including 30 December 2011, from either the realisation of assets or from sourcing borrowings. • If the share price is greater than the exercise price of $6.05 as at 30 December 2011, note holders may exercise the warrants to be issued capital in [OL]. • There are a number of risks associated with the strategic investments [OL] undertakes which may affect the future operation and financial performance of [OL]. • The risks detailed in the prospectus that are associated with the strategic investments [OL] undertakes are: - Increases in interest rates - Default on loans made by [OL] - Unsuccessful investment decisions by [OL] - Changes in regulatory environment - Real estate decline - Decline in tourism - Integration of new acquisitions • These risks are still present and will affect the future operations and financial performance of [OL] • These risks have been present from the first issue of the convertible notes, and as the current financials of [OL] indicate, despite the potential risks, they have continued to grow their balance sheet to date. • As discussed with you at our meeting on Friday 1 June 2007, the risks as outlined in the prospectus and the nature of the business make it much more difficult to project into the future than some more traditional commodity based businesses with regular inputs and outputs. • [OL's] business is based on finding opportunities at the right time producing an expected return. Given the natural volatility of available investments and the size of investments undertaken, is an inherently higher risk than the profile of some more traditional businesses. • Although the projections provided by [OL] indicate that it will have sufficient assets to meet its commitments to repay the note holders, given the inherent uncertainty of the strategic investments that [OL] may undertake up to 30 December 2011, I am unable, based on the information on hand, to form an opinion as to whether [OL] will have the ability to meet scheduled debt repayments on 20 [sic] December 2011. • The Public Trustee should assess these risks against your own risk appetite to consider if they are consistent. 153 The applicant placed a particular complexion on the statement that, in examining the cash flow statement prepared by OL, it appeared that OL had the ability to meet scheduled debt repayments up to 30 December 2011 (the maturity date). The applicant submitted that, in this part of the report, PwC was doing no more than reporting on (in the sense of conveying) the contents of the cash flow statement provided by OL. The applicant sought to distinguish this part of the report from PwC's statement that Mr Hall was unable to form an opinion as to whether OL would have the ability to meet scheduled debt repayments on (presumably) 30 December 2011. The applicant submitted that only this statement was the product of Mr Hall's analysis of the available information. 154 I do not accept that submission. With respect to the first statement, PwC was reporting on Mr Hall's examination and assessment of the ability of OL to meet scheduled debt repayments, based on the cash flow information provided by OL. This was given as one of PwC's key findings. The second statement was plainly made in the context of the inherent uncertainty of the strategic investments that OL might make in the years ahead. Indeed, this part of the report refers back to OL's projections and affirms PwC's finding that, on examination, those projections indicated that OL would have sufficient assets to meet its commitments to repay noteholders. 155 Mr Hall gave evidence that, at the time of PwC 3, he did not hold concerns as to OL's solvency. He said that, in the most recent audited financial statements (for the half year to 31 December 2006), OL had demonstrated a profit for that period of approximately $33 million and had net assets of approximately $1.1 billion. The cash and cash equivalents were approximately $17.9 million. Mr Hall said that his focus was on the risks associated with OL's business model. In this connection, Mr Hall gave this evidence, which I accept: The uncertainty and business risks that were described in the Third PwC Report were of a particular kind. They related to the future. Whether the notes would in fact be paid in December 2011 (assuming they were not converted to equity), depended on whether OL continued to successfully "do deals" during the next four and a half years. Conducting an "investigative accountant" review into OL of the kind sometimes carried out by banks or other lenders who wish to have an independent inquiry into and report upon a distressed borrower … would not enable me to make a positive statement about whether the notes would be paid in full in December 2011. An investigation of that kind could not resolve the uncertainty that was identified in the Third PwC Report. If the Public Trustee had asked me at the time of the Third PwC Report, or shortly thereafter, what more he could do to obtain certainty as to whether the notes would be paid in full in December 2011, I would not have advised the Public Trustee to appoint me to carry out that kind of task... 156 It is also important to note that the matter recorded in Mr Prostamo's email of 17 May 2007 (about Mr Hall advising that it would be prudent to obtain monthly management accounts from OL) did not find expression in PwC 3 or, indeed, in any subsequent report given by PwC. As I have said, what seems to have been a suggestion did not translate into any formal recommendation by PwC and probably reflects how the suggestion was viewed by both Mr Hall and Mr Prostamo at the meeting. It appears to have been overtaken by PwC's pursuit, on the same day, of any three way financial analysis that had been prepared by OL, and for details of the key assumptions and working papers that supported OL's forecasts. PwC's consideration of the materials that were provided culminated in the advice given in PwC 3.

Developments in relation to the partial sale of Stella 157 It is convenient at this point to return to the partial sale of Stella. On 8 May 2007, CVC Asia Pacific Limited (CVC) made a non-binding indicative proposal to acquire 50% of the shares in Stella for between $2,255 to $2,455 million. 158 On 13 June 2007, OL announced to the ASX that it had selected "a preferred partner" with the intention of completing a transaction for the benefit of OL's shareholders. However, OL advised that the transaction would not take place until after the first quarter of the 2008 financial year. 159 The significance of this announcement is obvious. The partial sale of Stella by 30 June 2007 was one of the key assumptions in the financial information provided by OL on 23 May 2007 and one of the matters noted in the key findings in PwC 3. I should record, however, that, absent the sale of Stella, the cash flow provided on 11 May 2007 would still have indicated that OL was cash flow positive as at 30 June 2007 in an amount of $270 million.

The Public Trustee's intention to resign 160 On 13 June 2007, the respondent wrote to OL, informing it that PwC was unable to form an opinion as to whether OL would have the ability to meet scheduled debt repayments at the maturity date. The respondent's letter, which was written by Mr Kelly, sought a meeting with Mr Anderson, the Chief Financial Officer of OL, to discuss how the respondent could discharge his obligations as trustee in light of PwC's comment. 161 On the same day, the respondent also wrote to ASIC. The letter, once again written by Mr Kelly, enclosed a copy of PwC 3 and drew attention to the fact that: … the uncertainty of the business model of [OL] is such that comment cannot be made as to whether they will be able to repay at the end of 2011. 162 The respondent's letter stated that the respondent did not have any concerns as at 13 June 2007 about the viability of OL and that PwC's statement was being referred to ASIC "in an abundance of caution". 163 In an email on 26 June 2007, Mr Anderson responded to the letter sent to OL. It is appropriate that I set out his response in full (omitting formal parts): I received your letter of 13 June with the reference "MFS Limited - Financial Review". Having not received the subsequent contact envisaged in the letter I telephoned you earlier today to discuss this extraordinary comment (if not taken out of context) of Messrs PricewaterhouseCoopers. I have also tried to contact Mr Ian Hall of PwC as the person I understood at PWC was dealing with this matter for you however I have been unsuccessful. I understand he is on leave for some weeks yet. I sit here with • MFS having a market cap of c$3b making it (I think) the 6th largest listed Qld company per the last Deloitte's monthly ranking • MFS rated by most brokers a buy • MFS made NPAT of c$97m in FY06 and c$35m 1H07 and has guidance in the market for a NPAT result FY07 larger than FY06 • the notes themselves the subject of this review are happily trading at well above par value and always have • Acknowledgement by PWC that the MFS forecasts are consistent with repayment in full • PWC not having, to my recollection, put any concerns to me during their review • All MFS entities always receiving a clean Audit report including a reference to solvency ie ability to pay its debts as and when due - ie ability to pay the notes as and when due. I at [sic] a loss really as to where to go from here until Mr Hall (or someone else at PWC) can explain the nature of their inability - is it that 2011 is too far away - is it that they don't understand what MFS is doing - is it that they are concerned with the precise wording that the Public Trustee is seeking them to use. Await your call. Kind regards David Anderson | Chief Financial Officer

The meeting with ASIC 164 As events transpired, the respondent did not have a meeting with OL. Indeed, the respondent did not respond to Mr Anderson's email of 26 June 2007. Mr Kelly's evidence was that, in any event, he did not think that Mr Anderson would express any different view in a meeting. Given the terms of Mr Anderson's email, I think Mr Kelly's view is likely to be correct. The respondent did, however, have a meeting with ASIC on 28 June 2007 at which time the respondent's trusteeship of the OIN Trust was discussed with other matters. At this meeting, Mr Kelly informed ASIC of the respondent's intention to resign as trustee. Mr Kelly's evidence was that, at the meeting, ASIC gave certain assurances about OL's financial standing. Mr Kelly's contemporaneous note of the meeting (so far as relevant to the OIN Trust) is as follows: 1. Business - model - No concerns about [OL] in light of the Convertible Note and the Warrants and their general asset position. ASIC will write to us confirming that they have no concerns. Mark Egan confirmed that we have met our obligations. He indicates the ASIC have [OL] on a watch because of their rate of expansion. I put it to them about resigning as trustee and they expressed surprise asking what we believed to be the risk. We should only be concerned if the share price tanks. Even then they are satisfied that the scheme will hold up. They could borrow the entire amount of the securities at any time. ** … ** That the [OL] model is not the same as the big property models that have gone down." 165 On the same day, ASIC wrote to the respondent: I refer to your letter dated 13 June 2007, the contents of which are noted. I also refer to our meeting on 28 June 2008 where the contents of this letter were discussed. It is noted that the Public Trustee of Queensland is the Trustee for the noteholders under trust deeds in relation to MFS. It is advised that should the Public Trustee of Queensland wish to resign from its role as Trustee, then that resignation should be in accordance with the Trust Deeds, the Corporations Act 2001 and ASIC Policy. The new Trustee appointed should then make application to ASIC for appointment, which would be considered on its merits. If you wish to discuss any further maters in relation to [OL] then please contact the writer …

The UBS facility 166 On 28 June 2007, Stella Group Holdings Pty Limited (SGH) and UBS entered into a loan facility for up to $1.1 billion (the UBS facility). The terms on which the UBS facility was granted prevented Stella from distributing cash to OL or other non-Stella entities in the Octaviar Group except in limited circumstances. The applicant referred to this as the UBS cash lockup. Further, all inter-company loans made by non-Stella entities to an entity within Stella were subordinated to the facility that had been granted. Subordination deeds were entered into. 167 On 28 June 2007, SGH drew down $795 million under the UBS facility to repay various existing external debts. 168 The applicant argued that the effect of the arrangements with UBS under the UBS facility was that OIN and the Guarantors had less ability to utilise the revenue from Stella in order to make repayments on the notes. 169 OL referred to the UBS facility in an announcement to the ASX on 29 June 2007: Following on from the announcement made on 13 June 2007, Stella confirms that Stage 1 of the intended restructure of the Stella Group was completed yesterday. This involved an amalgamation of all of Stella's assets into a discrete corporate group under Stella Group Holdings Pty Ltd ("Stella Group"), together with a complete refinancing of Stella Group. The refinance involved the provision of debt financing totalling $1.2 billion. The facilities are discrete to the Stella Group, and non-recourse to [OL] or the remainder of [OL's] businesses. The refinancing provided $620 million to replace 12 separate debt facilities and the cancellation of other banking arrangements that existed within Stella Group. This is expected to deliver significant savings for the Group, both in terms of direct costs and time associated with the management of complex banking arrangements. …

The Public Trustee resigns from the OIN Trust 170 On 6 July 2007, the respondent gave written notice to OL that he resigned as trustee. The letter was written by Mr Kelly. Mr Kelly wrote a separate, covering letter to Mr Anderson. In this letter, Mr Kelly said that the respondent was tendering his resignation "solely as a result of our own business priorities". The letter continued: We have previously written to you raising our concerns from a report that we have received from PricewaterhouseCoopers. We have since satisfied ourselves that there is no issue and we are of the opinion that [OL] can meet its obligations in relation to the Corporations Act 2001 based on the material that we have received. … 171 The applicant disputed the truth of this statement. It argued that, after PwC 3, the respondent had not requested further information, be it financial or otherwise, from the Octaviar Group that would have enabled Mr Kelly to say that the PTO had since satisfied itself that "there is no issue". In cross-examination, Mr Kelly accepted that this was the case. He said that the PTO "just reconsidered the material that we had". The applicant argued that not only was Mr Kelly's statement "implausible", it masked the true position, which it said was this: The respondent's decision to resign from the OIN Trust was motivated by an appreciation of, and concern about, the risks of the business model and financial position of OL, as well as the respondent's concerns about his own potential liability if he continued as trustee. Indeed, the applicant went further and submitted that Mr Kelly wrote the covering letter to create a false documentary record that the PTO had obtained some further documents or undertaken some further analysis that caused it to no longer be concerned about OL's ability to make scheduled debt repayments. The applicant also argued that the respondent did not want to do anything that might make it more difficult for him to find a replacement trustee. 172 The applicant submitted that the true position is revealed by a number of documents. 173 First, a draft statement was prepared for Mr Kelly in March 2008 in order to obtain legal advice on the respondent's potential liability arising out of the respondent's conduct as trustee of the OIN Trust. The draft relied on refers, in paragraph 9, to PwC 3 and Mr Hall's inability to form an opinion as to whether OL would have the ability to meet scheduled debt repayments at the maturity date of the notes in 2011. The draft also expresses a concern by Mr Kelly of the likelihood, according to some commentators, of a stock market correction. 174 Secondly, in a letter dated 21 April 2008 from the then Acting Public Trustee of Queensland, Mr Wedge, to the Queensland Crime and Misconduct Commission, Mr Wedge referred to PwC 3 and ascribed to it the following conclusion: … A PwC report in June 2007 concluded that based on a number of risk factors, it was not clear that the Company's assets would be sufficient to meet the amounts owed to the debenture note holders. On receipt of that report, the Public Trustee attempted to resign as trustee … 175 In his letter, Mr Wedge also noted that the noteholders were not informed of the respondent's attempted resignation, the reason for it, "or the concerns arising from the PwC reports". 176 Thirdly, a further report prepared by PwC dated 31 January 2008 (PwC 4) states: … In resigning when they did, the Public Trustee recognised the risks associated with this investment and the resultant potential impact on The Public Trustee in its role as Trustee on behalf of the noteholders, and acted in advance of significant concerns being raised by the market, as has been evidenced by the recent fall in the share price of [OL] … 177 The applicant relied on the fact that, although a draft of this report was provided to him, Mr Kelly did not seek to correct or amend this passage. 178 Fourthly, in a brief to counsel dated 29 February 2008 that had been prepared on behalf of the respondent, the respondent's solicitors stated that the respondent resigned as trustee on 6 July 2007 because of his "concerns regarding the Trust". 179 Fifthly, a file note made by the respondent's solicitors on 6 March 2008 recorded a telephone conversation with Mr Kelly that day, attributing to Mr Kelly the statement that it was PwC 3 that prompted the respondent's decision to resign as trustee. The file note also attributed the following information to Mr Kelly: In the report PriceWaterhouseCoopers said that based on the cash flow expectations of [OL] it was likely that there were some concerns about the business model for [OL] and the extent that the model involved doing deals. The Public Trustee asked PriceWaterhouseCoopers to certify that [OL] would be able to meet its repayments in 2011 and PWC said that they were not willing to do so because of the too many variables and their concerns regarding the business model. 180 Although Mr Kelly said that some information recorded in the file note was not accurate, he said in cross-examination that "it has generally got a sort of an accuracy to it" and "it seems to be generally accurate". 181 Sixthly, in a draft affidavit prepared for Mr Kelly in March 2008 for use in proceedings commenced in the Supreme Court of Queensland against OIN and OL seeking the production of information and documents (The Public Trustee of Queensland v MFS Investment Notes Limited & Anor S2159 of 2008) (the QSC Information proceeding), the following statement appears at para 9: As a consequence of concerns held by the Public Trustee flowing from PwC's report of June 2007, it wrote to the Australian Securities and Investment Commission [sic] … advising … of the Public Trustee's intention to resign as trustee of the Trust and received ASIC's agreement with its proposed course of action. 182 This paragraph was later amended so that, in the affidavit as sworn, Mr Kelly deposed: As a result of the review of the business of the Public Trustee, the Public Trustee wrote to the Australian Securities and Investment Commission [sic] … advising … of the Public Trustee's intention to resign as trustee of the Trust and received ASIC's agreement with its proposed course of action. 183 Although the affidavit was prepared for use in the QSC Information proceeding, the applicant argued that this change must be considered in the context that, at this time, the respondent was obtaining legal advice on the respondent's potential liability arising out of his conduct as trustee of the OIN Trust and, in that connection, whether he should have informed noteholders of the contents of PwC 3. The thrust of this submission (made clear in the applicant's opening) is that, seen in this context, Mr Kelly's amendment was made in a deliberate attempt to conceal his true view at the time the letter of resignation was sent. The applicant submitted that I should infer that the respondent resigned for the reason set out in para 9 of the draft. 184 Seventhly, the applicant relied on the respondent's letters to OL and ASIC on 13 June 2007 which, it argued, reflect the respondent's concern about OL's financial position and business model, and the respondent's potential liability as trustee of the OIN Trust. 185 The applicant submitted that Mr Kelly's evidence in cross-examination is also consistent with its allegation that the respondent resigned because of his concern about OL's business model and his potential liability as trustee. The applicant relied, in particular, on the following passages from Mr Kelly's cross-examination: Now, in - on page 9077 in the last bullet point Mr Hall gave advice that the Public Trustee should assess these risks against your own risk appetite to consider if they are consistent. See that? Yes. When you read the report, you regarded the risks being referred to as the risks in the left-hand column on that page; is that right? Yes. These risks, yes. And you also understood him to be referring to the risk that ultimately the notes might not be repaid; is that right? Yes. And it didn't surprise you that Mr Hall was making a recommendation about the Public Trustee's risk appetite, did it? Well, I wouldn't have thought so. I mean, I have already said I thought this was risky. And Mr Hall no doubt, to your mind, included that as a key finding because he knew that, for your part, you were making an assessment of the MFS note trust in terms of its risks to the Public Trustee; correct? That's right. And what did you think those risks were? Well, I thought that the whole thing, you know, was inherently risky, and it was so large. We discussed this before, that if anything happened it could result in, you know, serious losses to the office. I thought the risk, you know, which we had discussed, the … Reputation, do you agree? Well, there's the reputation, but the tangible asset risk, the whole thing, you know, had a certain element of risk to it, and, you know, I think as I said, it was not a deal that I would have done. … Now, the reason for resignation so far as you were concerned was to remove the Public Trustee from a role in managing a large commercial note trust so as to avoid the risk of future liability of the Public Trustee if anything went wrong; that's right, isn't it? Yes. You thought that risk was substantial? I thought it was like - you know when they assess risk against probability versus magnitude? Yes? I thought … It was on the wrong side of the equation? I thought that if you multiplied the probability which probably wasn't very high, the magnitude would be big, so it would be a big number. The risk you considered as not appropriate for the Public Trustee to bear? Yes. And that was because of the nature of the MFS business, that was one of the things? Yes. Well, I guess so. I mean, that's through the - there's a lot of inherent risk, you know, identified in the prospectus and they do have to keep doing deals so - yes. … The reason that you wanted the Public Trustee to resign was the risk you saw to the Public Trustee arising from the third PricewaterhouseCoopers report; correct? Yes. The - that - I don't know whether it's from the third report. It's the same reason that I had all along: unidentified risk. It had a lot of risk. Your only concern in making the decision whether or not to resign was the interests of the Public Trustee itself, wasn't it? Yes. Look, that was - that would be 99 per cent of it, but as I say there, it was also an easy time to resign in that they would be able to get another Trustee without any trouble. And you wanted the Public Trustee to get out of what you saw as a dangerous and risky role for the Public Trustee as soon as possible, didn't you? Well, it just had latent - there was latent risk. We didn't know what the risk of it really was, but yes, I thought they should go. … 186 I will consider these submissions later in these reasons when I deal with the applicant's case on breach of fiduciary duty and unconscionable conduct: see [424]-[429] below. 187 On 9 July 2007, Mr Anderson telephoned Mr Kelly. He was angry. He said that the respondent's resignation as trustee was a slight on OL. He wanted to know if the respondent was singling out OL or whether the respondent had resigned from all trusteeships. Mr Kelly informed Mr Anderson that the respondent was reviewing all its corporate trusteeships on a case by case basis. Mr Anderson said that OL would appoint a new trustee. He sought Mr Kelly's suggestion as to who would be an appropriate trustee. Mr Kelly said that the private trustee companies were "in the debenture trust business". Mr Kelly said that the respondent would continue to carry out his duties and do all that could be done to facilitate a smooth transition. 188 In the period from July 2007 to January 2008, the respondent was not replaced as trustee. The applicant said that, notwithstanding the advice given by PwC at the 17 May 2007 meeting, and (what it argued to be) the concerns raised by PwC 2 and PwC 3, the respondent took very limited steps in his role as trustee from 6 July 2007 until after the collapse of OL's share price on 18 January 2008. The applicant argued that, during this period, the respondent's focus was to identify a replacement trustee, rather than to monitor the financial performance of the Octaviar Group.

OL's market update 189 On 16 August 2007, OL made an announcement to the ASX which included the following: [OL's] tourism business which presently makes up more than 55% of [OL's] ongoing recurrent earnings is continuing to perform strongly and in excess of [OL's] present budget expectations. The three stage process with regard to a new financing structure continues to proceed according to plan. None of the present circumstances of market volatility are presently expected to have any effect on the execution of the third stage of such plan. The Australian funds management business of [OL] continues to perform strongly and the Directors continue to expect its earnings and growth to significantly outperform the market's present expectations. [OL] and its subsidiary funds have no exposure to sub prime issues or similar in the American marketplace. [OL's] Australian investment banking activities which are primarily focused on the Australian property and leisure funds management sector remain strong and the Directors expect it will add considerably to earnings over and above recurrent earnings in the current financial year. 190 Mr Kelly reviewed the announcement at about the time it was made. He believed the statements in it to be true.

Amendments to the Fortress facility 191 On 17 August 2007, the Fortress facility was amended. The date for repayment was extended from 1 September 2007 to 1 December 2007. Apart from the payment of principal and interest, OC was required to pay an extension fee of $2.5 million (it had already paid a commitment fee of $2.5 million) and a monthly maintenance fee of $1.25 million. OC, OL and OFS were also required to provide Fortress with monthly management accounts. Further, under the amended facility, it was an event of default if OL's five day volume weighted average share price fell below $3.20. 192 The applicant argued that these provisions of the amended Fortress facility show that, by 17 August 2007, Fortress was conscious of (what the applicant said was) the "perilous financial position of the Octaviar Group and the need for monthly monitoring of the financial performance of the Group". I do not accept that submission. There is no direct evidence that Fortress considered the Octaviar Group to be in a "perilous financial position" and I would not infer that Fortress held that view simply because of the amendments to the Fortress facility.

OL's 2007 Annual Report 193 On 21 August 2007, the respondent received an ASIC Company Alert Notification advising that OL's Annual Report for 30 June 2007 had been lodged (the 2007 Annual Report). 194 The 2007 Annual Report recorded a net profit after tax of $185 million for the Octaviar Group (an increase of approximately 90% from the previous year), current assets of $3.35 billion and net assets of $1.53 billion. The net assets had grown considerably from $333.8 million for the previous year. There was a positive net cash flow for the year and, at 30 June 2007, the group held a cash balance of $168 million and receivables of a further $252 million. 195 The auditors, KPMG, provided an unqualified opinion that the financial statements in the 2007 Annual Report had been prepared in accordance with the Corporations Act and that they provided a true and fair view of the financial position of OL and its controlled entities as at 30 June 2007. 196 The current assets included assets classified as held for sale of $2.91 billion. Given the materiality of this amount, it can be expected that KPMG would have reviewed and gained sufficient assurance of this value prior to issuing their unqualified opinion. Further, given OL's business model, it can be expected that, if these assets were monetised, the cash would be put aside to repay debt or would be re-invested in new acquisitions and opportunities. 197 The balance sheet recorded an increase in current interest bearing loans and borrowings from $22.10 million (as at 30 June 2006) to $281.45 million. The notes to the balance sheet showed that this increase was primarily attributable to bank loans of $254.34 million secured by a fixed and floating charge over the assets of the group. Although not stated, this is a reference to the Fortress facility. I mention this in particular because it is a key step in the applicant's narrative of critical events. 198 Mr Kelly, Mr Prostamo and Mr Dean looked at the Annual Report for different reasons, at different times, and with varying degrees of attention. None of them noticed the increase in current liabilities or that the liability in question had been secured. Mr Kelly said that the information in the Annual Report confirmed his view that the Octaviar Group was financially strong and improving. Mr Dean identified that OL had met the net asset covenant for that period. He considered that OL had "a good asset position" which had increased from the half-year financial report. 199 There are three further matters to be noted in respect of the 2007 Annual Report. 200 First, in undertaking their audit, it was the auditor's responsibility to consider the appropriateness of OL's management's use of the "going concern assumption" in the preparation of the financial statements. Under the going concern assumption, an entity is viewed as continuing in business for the foreseeable future with neither the intention nor the necessity of liquidation, ceasing trading or seeking protection from creditors. Accordingly, assets and liabilities are recorded on the basis that the entity will be able to realise its assets and discharge its liabilities in the normal course of business. The forecast period is taken to be 12 months: see Accounting Standard ASA570. 201 Second, the financial statements included a note that, apart from events not relevant to this proceeding, there had not arisen in the interval between the end of the financial period (30 June 2007) and the date of the report (20 August 2007) any item, transaction or event of a material nature, likely in the opinion of the directors, to affect significantly the operations of the Octaviar Group, the results of those operations, or the state of affairs of the group, in future financial periods: see in this connection s 299(1)(d) of the Corporations Act. 202 Thirdly, under s 313(1) of the Corporations Act, the auditor of a borrower in relation to debentures must give the trustee for debenture holders a copy of any written report that the auditor is required by s 313(2) to give to the borrower or any guarantor. This is a report of any matter that the auditor becomes aware of in conducting the audit which, in the auditor's opinion, is or is likely to be prejudicial to the interest of the debenture holders and relevant to the exercise of the powers of the trustee, or the performance of the trustee's duties, under the Corporations Act or the trust deed. No such report was provided to the respondent.

The 4 October 2007 meeting 203 On 4 October 2007, Mr Kelly, Ms Hicks and Mr Dean attended a meeting with Mr Hall and Mr Taplin, a Senior Manager at PwC who reported to Mr Hall. It seems that the meeting was arranged by Mr Dean, although he could not recall doing so. Mr Kelly said that he had asked Mr Dean to organise the meeting to discuss the 2007 Annual Report. Mr Dean said that it was the respondent's usual practice to request external accountants to review the Annual Reports of companies for whom the respondent acted as trustee. 204 Mr Kelly's evidence was that, at the meeting, Mr Hall expressed his opinion that the 2007 Annual Report indicated that OL was in a better position than it had been at 31 December 2006, based on the half-yearly figures considered in PwC 3. Mr Kelly recalled Mr Hall saying that PwC had done both an "assets test" and the "cash flows", and that they were "perfect". Mr Kelly also recalled Mr Hall saying that if the respondent wanted additional comfort, then OL could be asked about the steps it had taken to manage the risks stated in the prospectus for the notes. 205 Mr Dean's notes of the meeting recorded: General discussion - where are we now since last meeting. 1. Business Model -> risk -> how does [OL] mitigate that risk. 2. Cash reserves 3. Cash flows 4. Budget/Actuals 206 The notes are obviously skeletal and provide no more than an indication of the topics discussed at the meeting. 207 Mr Hall had no independent recollection of attending the meeting. In cross-examination, he was asked about whether he had said that PwC had conducted a cash flow test and that the results were "perfect". Mr Hall responded that these were not words he would use. He accepted that he would not have said that PwC had conducted a cash flow test because PwC had no means of doing so. He confirmed that the only assessment of cash flows performed by PwC was the one provided in PwC 3. Mr Hall also said that he would not have used the expression "perfect" when discussing financial results because "results are never perfect". 208 Mr Hall was asked about whether he had said that PwC had conducted an assets test and that the results were "perfect". Mr Hall responded, once again, that these were not words he would use. He said that he was not familiar with the concept of an assets test as an accounting matter. 209 Mr Hall accepted that, for the purposes of this meeting, PwC had not conducted an in-depth analysis of the 2007 Annual Report, and would not have done so without an engagement letter. 210 Later, on 9 October 2007, Mr Taplin sent an email to Mr Dean: I refer to our meeting on 4 October 2007, where you have asked us to assist the Public Trustee in understanding what further information should be requested from [OL]. As discussed at our meeting, I recommended that the Public Trustee seek further information from [OL] directly, to obtain additional comfort as to the ability of [OL] to meet future scheduled debt repayments. That information includes: Details of the actions undertaken by [OL] to mitigate the risk associated with its investments; and Compare the projected cash flows and financial statements based on information previously provided by [OL] against actual results and assess the reasonableness of the assumptions. We expect our fees to assist the Public Trustees in this matter shall be $2,500 for a review of actions undertaken by [OL] to mitigate risk. In reviewing the cashflows the cost shall depend on the information provided by [OL] and the depth of that information. I have drafted a suggested letter for the Public Trustee to consider issuing to [OL] to obtain details of how [OL] propose to mitigate their risk. As discussed at out [sic] meeting once you have obtained a response to this we can review and decide if we issue a further request regarding the projected cashflows. … 211 It is important to note that this letter did not recommend or suggest that monthly monitoring or any other periodic monitoring was required. Rather, it contemplated a two-stage process. The first stage was to write to OL seeking answers to a number of questions about how it proposed to mitigate the inherent risk of its business. The second stage was to review the response given and, depending on that response, consider whether a further request for projected cash flows should be made. The letter also contemplated that the previous cash flow forecast provided by OL be compared against actual results to assess the reasonableness of the assumptions underlying the forecast. However, the letter was silent on the information that OL should provide in this regard. 212 The applicant submitted that I should not accept Mr Kelly's account of the meeting in light of Mr Hall's evidence and also in light of the fact that, on 22 October 2007, Mr Dean in fact wrote to OL's solicitors stating that the respondent wanted to undertake a review of the 2007 Annual Report: see below. The letter was sent at a time when a replacement trustee for the OIN Trust was in prospect and suggested that the review by the respondent of the 2007 Annual Report might not be necessary depending on the timeframe for appointing the replacement trustee. 213 In light of Mr Hall's evidence, I do not accept that Mr Hall or anyone else from PwC said that PwC had performed an assets test or a cash flow, and that the results were "perfect". This may have been Mr Kelly's understanding of what was conveyed at the meeting, but it was not the fact. I do accept, however, that the 2007 Annual Report and OL's financial performance as revealed by that report, including the consolidated balance sheet, were discussed at least in general terms at the meeting and that, in light of that report, PwC was asked to assist the respondent in understanding whether further information should then be sought from OL. This was Mr Taplin's purpose in sending his email on 9 October 2007, enclosing a draft letter to be sent to OL. I infer from the terms of Mr Taplin's email that nothing was said at the 4 October 2007 meeting which suggested that, based on the 2007 Annual Report, OL was not in a sound financial position and could not meet scheduled debt repayments on the notes. This is why Mr Taplin referred to the respondent seeking information directly from OL to provide "additional comfort". The reference to "additional comfort" in PwC's email is not verbiage. At this time, there was nothing in the documents reviewed by the respondent or PwC, or other information known to them, which would suggest anything other than that the Octaviar Group was in a sound financial position.

The decision not to send the suggested letter 214 On 18 October 2007, acting on Mr Taplin's email of 9 October 2007, Mr Dean prepared a draft letter to OL. The draft was addressed to Mr Anderson, in the following terms: Dear David, I refer to the annual report for June 2007 and advise that the Public Trustee would like to undertake a review which will:- 1. Consider the actions undertaken by [OL] to mitigate risk. This review is required to fulfill our obligations as trustee of the abovementioned note and debenture Issues. We have requested a quote from PricewaterhouseCoopers to perform this review. They have advised that the estimated fee for the risk mitigation review is $2,500.00 (GST exclusive). If costs are less than this, then they will charge you the lower amount. Please note that the estimated fee does not include any large overstatement to cover contingencies and any material increase in time spent on any particular area. If this leads to an increase in the quoted fee, then this will be discussed with you at the time. As a funds management and investment company, the principal business of [OL] is the acquisition of strategic investments. To do this [OL] must find investment opportunities at the right time producing an expected return. I note there are a number of risks that are associated with these strategic investments undertaken by [OL], which were detailed in the prospectus, being: • Increase in interest rates • Default on loans made by [OL] • Unsuccessful investment decisions by [OL] • Changes in regulatory environment • Real estate decline • Decline in tourism • Integration of new acquisitions. These risks are present now and will effect [sic] the future operations and financial performance of [OL]. To assist us in understanding the extent that these risks may impact on the business of [OL], can you please advise what specific steps you have taken or are taking to minimise these risks in the future. Should you have any queries in relation to this matter, please do not hesitate to contact either Ian Hall … or myself. 215 On 19 October 2007, Mr Dean and Mr Kelly discussed the draft. Mr Dean told Mr Kelly that if PwC were to conduct a further review it would likely take a month or two to be completed, particularly as the relevant information would first need to be provided by OL. Mr Dean told Mr Kelly that he considered it likely that, within that timeframe, a new trustee would be appointed who, Mr Dean expected, would be conducting its own due diligence, so that any review by PwC would be in addition to that due diligence and would be an unnecessary expense that OL would be unlikely to agree to pay for. 216 The upshot of this discussion was that Mr Kelly decided that the appropriate course of action was to hold off sending the letter, and instead ascertain when the change of trustee was to be finalised. When that information was obtained, a decision as to whether to send the draft letter would be made. As I explain below, by this time the respondent had been informed that a replacement trustee had been selected and had been provided with a draft deed providing for the appointment of the new trustee and the retirement of the respondent. 217 On 22 October 2007, Mr Dean wrote to OL's solicitor (Ms Rozental of Hickeys Lawyers) on this basis: I refer to our telephone conversation on the 22 October 2007 relating to the Deed of Retirement and the Public Trustee review of the [OFS] 2006/7 Annual Financials. The Public Trustee has recently received the annual report for the period ended 30 June 2007 and we would like to undertake a review of these Financials. This review is required to fulfil our obligations as trustee of the abovementioned note and debenture Issues. As discussed, your assistance in providing a time frame for the settlement of the abovementioned Deed would be appreciated. We will further consider the relevance of the review upon receipt of the abovementioned time frame. Should you have any queries in relation to this matter, please do not hesitate to contact me ... 218 There is a question raised in the evidence as to the purpose of the draft letter suggested by Mr Taplin. 219 In his evidence in chief, Mr Kelly referred to Mr Taplin's observation about the respondent seeking "additional comfort" as to the ability of OL to meet future scheduled debt repayments. Mr Kelly said that there were no present concerns or matters requiring urgent attention and OL's current financial position was strong. In his mind, the respondent did not need the "additional comfort" to which Mr Taplin referred. 220 In cross-examination, Mr Kelly advanced the draft letter as a means of provoking action on the appointment of a replacement trustee for the OIN Trust - as Mr Kelly put it, it was "just for the purposes of hurrying up [OL] in relation to appointing a new trustee" or "just a suggestion as to how we could push this matter along". In other words, if confronted with a request for information by a retiring trustee, OL might be hastened to appoint a replacement trustee. 221 In this connection, Mr Kelly described the tasks in the letter as "draconian" and said: To answer those questions is a massive undertaking not in line with their normal business practice, I would have thought. 222 He continued: I didn't think it was appropriate to give them this task which we didn't really care about if another trustee was about to be appointed who no doubt would give them some different task to look into. 223 Mr Kelly said that he did not consider that there was any hurry to do the tasks set out in the draft letter and wanted Mr Dean to check when the new trustee was "coming in" and then "review the matter at that point". He concluded: So I hadn't completely wiped out the idea of doing it but I was not intending to. 224 I do not accept that the intended purpose of Mr Taplin's draft letter was to provoke action on the appointment of a replacement trustee although, if sent, this might have been one of its effects. This may well have been in Mr Kelly's mind at the time and may provide an explanation for the evidence he gave in this regard. However, Mr Kelly's evidence of the intended purpose of Mr Taplin's draft letter is not supported by the objective evidence. The intended purpose of the draft letter is clear from Mr Taplin's covering email, which I have quoted above. Mr Dean obviously saw it in that light. Its apparent purpose was the reason why Mr Dean suggested to Mr Kelly that the respondent might put off seeking the suggested information. 225 I do accept that Mr Kelly and Mr Dean had a conversation as summarised in Mr Dean's evidence and that they reached a consensus that, before any further review was undertaken, Mr Dean should endeavour to ascertain when the new trustee was to be appointed so that the question of whether the respondent should undertake a review could then be considered. This understanding is reflected in Mr Dean's letter of 22 October 2007 to Ms Rozental.

Finding a replacement trustee 226 It is convenient, at this point, to summarise the steps that were taken at around this time to find a replacement for the respondent as trustee of the OIN Trust. 227 I have already referred to Mr Anderson's telephone call to Mr Kelly on 9 July 2007. In a file note dated 13 August 2007, Mr Kelly recorded a telephone conversation with Nigel Lane of OL that OL had asked three trustees to provide a proposal to OL and that OL was awaiting a response. 228 On 24 August 2007, Mr Kelly had a telephone conversation with a representative of Equity Trustees in Victoria. At the time, Mr Kelly understood that Equity Trustees had been short-listed by OL with two other private trust companies to take over the trusteeship of the OIN Trust. In this conversation, Mr Kelly was asked why the respondent was resigning and whether the PTO had any issues with OL. Mr Kelly told the representative from Equity Trustees that OL had always met its obligations and, in the respondent's view, had no issues at that time in meeting its obligations under the notes; that the respondent was rationalising his portfolio and that OL had grown too big for the PTO to be confident that it understood OL's business; that, as the notes had been issued for a considerable period, the respondent had decided to withdraw; that advice had been taken from PwC about the financials and OL did not object to that course of action; that the respondent had no issues with OL; and that OL could easily repay its debts at that time. 229 On 8 October 2007, OL advised the respondent that a replacement trustee had been selected and that documents to effect the transfer to the new trustee were being prepared. On 9 October 2007, Mr Kelly was informed that OL had selected a replacement trustee. On 10 October 2007, OL's solicitors sent a copy of a draft deed providing for the appointment of the new trustee and the retirement of the respondent. The replacement trustee was Trust Company Limited (Trust Company). It is important to note that it was in this context that Mr Kelly and Mr Dean had held their conversation about whether to send the letter which Mr Dean had drafted following the receipt of Mr Taplin's email on 9 October 2007. 230 As I have noted, the respondent, instead, sent the letter of 22 October 2017. On 25 October 2007, Mr Dean received a response from Ms Rozental. In that response, Ms Rozental advised that OL was awaiting the return of "the person capable of authorising" the change of trustee which, the email noted, was scheduled for 1 November 2007. Ms Rozental advised that, in effect, no decision would be made in that regard until at least 1 November 2007. Mr Dean said that this confirmed his view that a change in trustee was imminent and that any further inquiries of OL were best made by the incoming trustee. 231 On 27 November 2007, Mr Dean sought an update from OL's solicitors, having heard nothing in the interim. On the following day, 28 November 2007, Mr Dean received a response to the effect that OL was awaiting draft documents from the solicitors for Trust Company. 232 In December 2007, correspondence passed between the solicitors for OL and the solicitors for Trust Company, and between OL and the PTO in respect of a Draft Deed of Retirement and Appointment of Trustee. Correspondence continued up to 9 January 2008. 233 In the event, Trust Company did not replace the respondent as trustee of the OIN Trust. On 24 January 2008, Mr Dean received a communication from OL that Trust Company no longer wished to proceed. This change of mind was, no doubt, prompted by the collapse in OL's share price on 18 January 2008 and the uncertainty surrounding the financial position of the Octaviar Group at that time. However, in the period 8 October 2007 to 24 January 2008, the position represented by OL to the respondent was that the appointment of a new trustee - Trust Company - was imminent.

The decision not to sell Stella 234 On 28 November 2007, OL announced to the ASX that it would retain 100 per cent ownership of Stella: [OL] today announced it would retain 100 per cent ownership of its integrated travel services and hospitality business, the Stella Group, to capitalise on the continuing strength of both the business and the domestic and international tourism and travel sectors. [OL] Chief Executive Michael King said that, after reviewing Stella's year-to-date results, it was the decision of the Board of [OL] that it was in the best interests of [OL] shareholders for Stella to be withdrawn from partial sale. "The Stella Group continues to perform very well and is now a key ongoing contributor to the earnings of the [OL] business," he said. "The Stella Group has achieved financial year-to-date EBITDA of more than $63 million, putting it comfortably on track to exceed FY08 market guidance on a seasonally-adjusted basis. The Stella Group's profit guidance for the current financial year has been upgraded to at least EBITDA of $220 million, an increase of $10 million on previous Stella guidance." "Favourable travel market conditions, the potential for further growth and ongoing strong financial results have convinced [OL] that Stella Group should be withdrawn from sale. [OL] shareholders are entitled to fully participate in the future performance of this valuable business." 235 At the same time, OL announced that it was continuing the global expansion of its retail agency network with the purchase of a United Kingdom company called Global Travel Group plc: The purchase of Global delivers a further 1100 travel agencies to the Stella network, including 650 travel agencies in the Global network and 450 independent travel agents from Worldchoice, another leading consortium that Global has reached agreement to acquire. The acquisition is expected to add $54 million to Stella Group's EBITDA over the next three years. Stella Group is now forecasting a full-year EBITDA of at least $280 million for the year ending June 30, 2009, compared to the previous forecast of $262 million EBITDA The Group's total transaction value will increase to circa $12 billion per year. Stella Group managing Director Rolf Krecklenberg said the acquisition was consistent with the Group's UK expansion strategy. 236 Despite what, on its face, appears to be a commercially justifiable business decision not to sell Stella in the interests of OL shareholders because of the strength of the business and its expansion into the United Kingdom, the applicant argued that the decision placed the Octaviar Group "under even greater financial pressure than it was already in". 237 This last-mentioned contention is a reference to the fact that, back in May 2007, OL had identified, internally, that it would have a cash deficit of more than $200 million in the May/June 2007 period, which was the reason why it sought the Fortress facility to provide bridging finance until Stella could be sold down or a corporate banking facility obtained. A corporate banking facility had not been obtained and now OL had decided not to sell down Stella. 238 The applicant also argued that OL's financial position was exacerbated by what it termed "the UBS cash lock up" which, it said, made it even more difficult for the Octaviar Group to access revenue generated by Stella. 239 The applicant argued that the Octaviar Group now found itself unable to pay the money due under the Fortress facility on 1 December 2007. 240 However, at the time, analysts did not view OL's decision negatively - indeed, far from it. The evidence shows that, on 28 November 2007, ABN AMRO Morgans made a "buy" recommendation in relation to OL's shares, stating: As expected, [OL] has announced it will not sell 50% of Stella to private equity. Management stated that the decision to retain full ownership was due to favourable travel market conditions, the potential for further growth and ongoing strong financial results. Management also commented that it "couldn't reach an appropriate arrangement" with regard to valuation. We expect that there will be polarised views regarding this decision; however, our view is that given current market conditions it is the right decision. Stella will remain as an "asset held for sale" implying that there are other alternatives being explored in the near term. 241 ABN AMRO Morgans said that it endorsed the decision. It continued: As we have stated previously, we are not concerned that [OL] has decided to keep Stella. We expect travel markets to remain buoyant for the travel agents over at least the next couple of years on the back of extra capacity and routes by the airlines; additional low cost carriers; rising A$; and strong economy. Fleet expansion and larger airplanes will need to be filled by the travel agents and, therefore, controlling the distribution will be key. This growth should also lift occupancy at Stella's MLR business. While we believe this decision will result in offering shareholders the most value accretion, we recognise that the bear view will be that [OL] is no longer a quasi investment bank as it is not recycling capital. We do not concur with this view. In the short to medium term, we believe Stella will most likely be divested via an IPO or demerged from [OL]. 242 Similarly, on 29 November 2007, Macquarie Research Equities gave an "outperform" recommendation for OL's shares, stating: The market appears to have brushed off any disappointment about the proposed sale pushing [OL] 6.5% higher due to the removal of the uncertainty. With tourism stocks experiencing strong earnings and share price momentum, it is possible that a re-rating in [OL] may continue given around 60% of the underlying group forecast earnings relate to Stella.. 243 Macquarie Research Equities noted that Stella was performing well, stating: Stella has delivered $63m of EBITDA for the four months to October (seasonally weak period) and [OL] has upgraded Stella FY08 EMITDA guidance from at least $210m to at least $220m EBITDA (Macq $240m). The business is well funded, with $211m of cash on hand at October end with further acquisitions and alliances in the pipeline. 244 Macquarie Research Equities also noted that OL's financial services business was rapidly growing and was "expected to deliver $135+ of EBIT in FY08e...". It outlined the key investment merits of OL as follows: Exposure to legislated superannuation growth with a retail client base of >50,000 investors. Scalable business with >$5bn of assets under management. Niche positioning in investment banking/funds management with strong positioning in the tourism sector. [OL] appears to be building a sustainable competitive advantage in this niche. Improving returns on capital (FY08e ROCE of 19%). Stable management team with track record of wealth creation (HFA, Sheraton Mirage, etc). The [OL] management team also have significant ownership in the business aligning management with shareholder interest.

Further amendments to the Fortress facility 245 On about 30 November 2007, the Fortress facility was again amended. OL's management accounts show that, at this date, OL had cash on hand of $44,165,000. 246 The amendments provided for the following: OC was required to make payments to Fortress of $100 million by 30 November 2007 and the remaining $150 million by 29 February 2008; OC was required to pay Fortress an extension fee of $3 million; and OC was required to pay maintenance fees of $750,000 (for the first month following 30 November 2007), $1.5 million (for the second month following 30 November 2007) and $2.25 million (for the third month following 30 November 2007) in addition to monthly interest due under the facility. 247 On 30 November 2007, OC made the $100 million payment, in circumstances I will elaborate in later paragraphs of these reasons dealing with the so-called PIF transaction.

OL's quarterly reports 248 OL provided the respondent with quarterly reports for the quarters ended 30 June 2007; 30 September 2007 and 31 December 2007. These reports were required to be provided under s 283BF of the Corporations Act. A borrower commits an offence if it intentionally or recklessly contravenes this provision: s 283BI. 249 The reports consistently advised: In accordance with section 283BF of the Corporations Law, the company hereby reports to the Trustee in respect of the quarter ending [relevant quarter] as follows: 1 Neither the Company, nor any guarantor (as defined in Section 9 of the Corporations Law) (a "Guarantor") has failed to comply with the terms of the Trust Deed or Chapter 2L of the Corporations Law or with the terms of any of the Notes issued under the Trust Deed during the quarter. 2 There have been no events that have happened during the quarter that have caused or could cause: (a) any amount deposited or lent under the Notes to become immediately payable; (b) the Notes to become immediately enforceable; or (c) any other right of remedy under the terms of the Notes or provisions of the Trust Deed to become immediately enforceable. 3 No circumstances have occurred during the quarter that materially prejudice: (a) The Company, any of its subsidiaries or any of the Guarantors; or (b) any security or charge included in or created by the Notes or the Trust Deed. 4 There have been no substantial changes in the nature of the business of the Company or of any of the Guarantors during the quarter. 5. During the quarter: (a) no Guarantor was appointed; (b) no liability of any Guarantor for the payment of the whole or any part of the money for which it is liable under its guarantees ceased; (c) no change of name of any Guarantor occurred. 6 The Company has not created a charge under which both: (a) the total amount to be advanced on the security of which is indeterminate; and (b) the advances are merged in a current account with bankers, trade creditors and/or others. 7 There are no other matters that may materially prejudice any security or the interest of the Note holders. 8 During the quarter the Company has deposited money with, or lent money to, or assumed any liability of, related bodies corporate (other than those referred to in subsection 283BF(7)(b) of the Corporations Law) during the quarter as follows: [Details shown.] 9 The Company has not assumed any liability of a related body corporate during the quarter. 250 Each report confirmed the number of notes on issue at relevant times within each period. 251 Mr Dean reviewed the first two reports and Ms Whiting (then acting Business Services Manager in the PTO) reviewed the third report. The reports were passed to Mr Kelly, who also reviewed them. Mr Kelly believed each report to be accurate. He considered each report to be consistent with the information he had on hand at the time. He noted that each report was signed by a director of OL and was expressed to be made in accordance with a resolution of OL's directors.

The Public Trustee monitors the Octaviar Group 252 The applicant argued that, from late 2007, the OIN Trust was effectively without supervision by the respondent. Mr Prostamo's involvement ceased in about June 2007, at about the time that Mr Kelly commenced his review of the files. The applicant said that from the end of October 2007, Mr Kelly's involvement ceased. This left Mr Dean who, the applicant said, was a person with no responsibility for making decisions on the way the respondent managed corporate trusts or for making decisions on information received about those trusts. 253 I do not accept that from late 2007, the OIN Trust was without supervision by the respondent. It is appropriate at this point that I now summarise the evidence of how the respondent monitored the Octaviar Group in the period up to 18 January 2008. The evidence of the respondent's general procedures was given principally by Mr Dean who had the day-to-day responsibility for this function within the PTO as the person who managed the Business Services team within the Investment Services branch. 254 The respondent's management of corporate trusts included arranging and ensuring that reporting was conducted by the companies concerned and to obtain relevant accounting and legal reports when necessary. The Business Services team also checked that the companies appeared to comply with their statutory obligations. Mr Dean's role was to ensure that the PTO obtained the information that it needed on time and, if not received on time, to escalate the non-compliance to Mr Prostamo, Mr Kelly or Ms Hicks. 255 There was a generic email account for the Business Services team and all staff in that team, including Mr Dean, Mr Prostamo, Ms Hicks and, later, Mr Kelly, had access to it. The email account was checked very regularly as it was used for the PTO's custodian clients who would often require urgent transactions to be completed. Mr Dean estimated that the email was checked every 5 to 10 minutes during business hours. 256 The PTO had a task management system in place to ensure that all regular duties were attended to. The tasks were determined having regard to the requirements of the Corporations Act. It was also Mr Dean's practice to review the relevant Trust Deed, and any prospectus for the issue of notes, to determine if additional tasks were required. In the case of OL, Mr Dean determined that the Business Services team needed to check at the end of each six month reporting period that OL had consolidated net assets of at least $280 million. 257 The PTO maintained a manual check list for the OIN Trust. When each task was completed the check list would be dated by the person who had undertaken the task. Once the whole check list was complete, it would be signed by the person who undertook the last task. It was then authorised by the Business Support Manager. 258 In July 2007, the tasks necessary to be completed with respect to the OIN Trust were imported to an in-house computer Client Information Management System (CIMS). The following tasks were imported into CIMS: obtain half year financials (audited); obtain quarterly reports; obtain Annual Financial Report (audited); seek details of the amount of notes on issue at the end of each month; issue an invoice to OL quarterly; and check consolidated net asset covenant of $280 million maintained at the end of each six month period. 259 Only the Business Support Manager had authorisation to "close" a task in CIMS. Mr Dean's usual process was to review the relevant document (whether it be the quarterly report, half-year financials or audited annual financial statement) and then pass it on to Mr Prostamo or Mr Kelly for review. Mr Dean would review emails from OL confirming the amount of notes on issue at the end of each month. 260 Mr Dean gave an account of the tasks that were performed in accordance with the check lists for the period 19 February 2007 to 18 January 2008. 261 In addition, the Business Services team monitored: ASX announcements; the lodgement of documents with ASIC; and media articles concerning OL. 262 The PTO subscribed to an automated email service which sent notifications to the Business Services email account whenever OL made an announcement to the ASX or when it lodged a document with ASIC. The practice of the Business Services team with respect to the email notification of ASX announcements was to go to the ASX website and review the announcement. In the case of automated emails dealing with the lodgement of documents with ASIC, the practice was to obtain a copy of the document, if necessary. The Business Services team obtained documents lodged with ASIC where the documents related to the financial reporting obligations of OL. The Business Services team would not download and review other, more general documents. If a document reviewed by a member of the Business Services team raised any concerns, those concerns would be brought to Mr Dean's attention and he would report to Mr Prostamo, Ms Hicks and Mr Kelly, as he considered necessary. 263 Mr Dean produced a schedule identifying email notifications from ASIC that were received on the Business Services email account for OL for the period July 2007 to January 2008. He also produced a bundle of ASX & Media Announcements for OL that were printed and put on the OIN Trust file for the same period. 264 Mr Dean also received a daily email from a website called "Netquote" which contained the share price for a number of ASX listed companies. If there was an ASX announcement or some other event that impacted on the share price for a corporate trustee or custodian client, Mr Dean would review the share price to see whether there had been any movement. Share movements outside the usual market trend were also usually reported in the media. In this latter regard, the Investment Services branch received copies of The Australian Financial Review, The Australian and The Courier Mail on a daily basis. Generally, Mr Prostamo would read those publications and, if there was any mention of a company for which the respondent acted as trustee or custodian, he would bring it to Mr Dean's attention or Mr Kelly's or Ms Hicks' attention. 265 It should also be noted that following the publication of the 2007 Annual Report, Mr Kelly, Ms Hicks and Mr Dean attended the meeting with Mr Hall and Mr Taplin on 4 October 2007, which had been organised by the respondent to discuss the financial results and consider what further steps the respondent should take, at that time, in relation to the OIN Trust. Later, Mr Kelly and Mr Dean had considered the desirability of sending Mr Taplin's draft letter to OL, and Mr Dean had written to OL's solicitor raising the prospect of the respondent undertaking a review but querying the need to do so depending on the timeframe for the appointment of the new trust. 266 Notwithstanding a degree of repetition, it is appropriate that I should highlight the following matters in relation to the respondent's monitoring of the Octaviar Group in the second half of 2007. 267 First, on 31 July 2007, OL provided its quarterly report for the period ended 30 June 2007. The report was reviewed by Mr Kelly and Mr Dean who relied on its accuracy. The report raised no adverse matters or issues of concern. 268 Secondly, on 16 August 2007, OL had made its announcement that its tourism business, which made up more than 55% of its ongoing recurrent earnings, was continuing to perform strongly and was ahead of budget expectations. The announcement also reported that OL's funds management business was continuing to perform strongly and that the directors expected that its earning and growth would significantly outperform the market's present expectations. As I have said, Mr Kelly reviewed this announcement at about the time it was made. He believed the statements in the announcement to be true. 269 Thirdly, on 21 August 2007, the respondent received ASIC notification that OL's Annual Report for 30 June 2007 had been lodged. The Annual Report was received in September 2007 and reviewed by Mr Kelly, Mr Prostamo and Mr Dean. I have referred to the highlights from the Annual Report. As I have noted, the Annual Report recorded a net profit after tax of $185 million; current assets of $3.35 billion; and net assets of $1.53 billion. There was positive net cash flow. The Octaviar Group held a cash balance of $168 million with receivables of a further $252 million. The Octaviar Group's auditors had issued an unqualified audit certificate. The notes to the financial statements included a note to the effect that, in the interval between 30 June 2007 and 20 August 2007, there had not arisen any item, transaction or event of a material nature that was likely, in the opinion of the directors, to affect significantly the operations of the group, the results of those operations or the state of affairs of the group in future financial periods. Further, the auditors had not provided a report under s 313(1) of the Corporations Act. 270 Fourthly, on 4 October 2007, Mr Kelly, Ms Hicks and Mr Dean attended the meeting with Mr Hall and Mr Taplin, and Mr Kelly and Mr Dean subsequently considered the desirability of sending Mr Taplin's suggested letter in light of the steps then underway to appoint a replacement trustee. 271 Fifthly, on 29 October 2007, OL provided its quarterly report for the period ended 30 September 2007. The report was reviewed by Mr Kelly and Mr Dean who relied on its accuracy. The report raised no adverse matters or issues of concern. 272 Sixthly, on 28 November 2007 OL had announced that it was going to retain 100% ownership of Stella to capitalise on the continuing strength of the business and the continuing strength of the domestic and international tourism and travel sectors. The announcement referred to the fact that OL was continuing the global expansion of its retail agency network with the purchase of a United Kingdom company called Global Travel Group plc. 273 Finally, it is to be noted that, as a public company and listed entity, OL had continuous disclosure obligations in relation to market sensitive information: s 674 of the Corporations Act; ASX Listing Rule 3.1. 274 All these matters indicated that, in the second half of 2007, the Octaviar Group was in a very sound financial position indeed. They showed no reason for concern that the property of OIN and the Guarantors would not be sufficient to repay the notes at the maturity date. However, the applicant's case is that, in OL's particular circumstances, the respondent's monitoring, by relying on publicly available information in the second half of 2007, was insufficient to discharge his duties as trustee of the OIN Trust. The applicant says that the respondent had to go further and was, in effect, under a legal duty to undertake from about mid-August 2007 at the latest a continuing and extensive, monthly financial investigation into OL's affairs even though the publicly available information at that time, including the information required by the Corporations Act to be published, showed that the Octaviar Group was in a sound financial position.

OL's announcements to the ASX in January 2008 275 On 11 January 2008, OL made an announcement to the ASX which was expressed to be an update on Stella. This announcement included two important pieces of information, so far as this proceeding is concerned. 276 First, OL said that, in December 2007, Stella achieved EBITDA in excess of $22 million. This brought EBITDA for the first half of the 2008 financial year to in excess of $103 million which, OL said, was ahead of plan. 277 Secondly, OL said that it had $150 million in debt falling due in the second half of the 2008 financial year. This was a reference to the balance payable under the Fortress facility. OL expressed the belief that this debt would be either repaid or refinanced in the normal course of OL's business on or before the due date which, as I have noted, was 29 February 2008. 278 On 14 January 2008, OL made a further announcement to the ASX. The first part of this announcement concerned an "involuntary" sale of OL shares by a director in response to a margin call. This part of the announcement endeavoured to explain the circumstances of the sale. It is not relevant to this proceeding. 279 The second part of the announcement was: By announcement on Friday 11th January 2008 [OL] advised that it had only $150 million due for re-financing this Financial Year. This debt is approximately 10% only of [OL] and Stella's total debt facilities. All other facilities are long term in nature and no other facility falls due for repayment this calendar year. [OL] and Stella is not in breach of any of its lending facilities. The total debt is less than [OL's] net profit after tax last year and significantly less than [OL's] profit guidance this Financial Year. Whilst a current debt obligation, [OL] is confident of its ability to repay same on or before the due date. [OL] has a long term intention to repay the said debt on or before its due date and had notified its financier of that intention some time ago. [OL] intends to repay the debt from the successful execution of a number of assets monetisation transactions already in train or alternatively [OL] is well progressed on a number of other debt and quasi debt options to repay such debt. [OL] will notify the market if its position in this regard changes at any time. 280 This announcement made clear that the amount to be repaid was less than the prior year's net profit for the Octaviar Group and that there were a number of options available to facilitate repayment. 281 On 14 January 2008, OL made a further announcement to the ASX concerning a merger proposal in relation to its financial services business: [OL] acknowledges receipt from City Pacific Limited (ASX:CIY) of a conditional proposal for CIY to acquire the whole of [OL's] business excluding the Stella Group and to effect a merger of the financial services businesses of both City Pacific Limited and [OL]. The Board of [OL] advises that it will evaluate such a transaction as it agrees with CIY that a consolidation of the two respective financial services businesses could produce substantial synergies and revenue enhancement opportunities. [OL] intend to progress the matter as quickly as possible and will keep the market informed of substantive developments as they occur. The proposed transaction would involve the issue of 225 million new CIY shares in consideration for the acquisition by CIY of the whole of [OL's] financial services business (assets and liabilities). It is proposed that the CIY shares issued in consideration of the transaction would be distributed to [OL] shareholders and that [OL] would still remain as a listed entity owning the whole of the Stella business. The transaction would be subject to [OL] security holder approval. [OL] has appointed UBS Australia as its advisor in respect of this matter. 282 Mr Kelly read and relied on the announcements of 11 and 14 January 2008 at about the time each was made. 283 On 14 January 2008, Mr Kelly also reviewed a letter which had been written by OL's company secretary to the ASX in response to a share price query, the material parts of which are: Further to our letter dated 11 January 2008 … responses to the queries raised in the letter are outlined below: 1. Is the Company aware of any information concerning it that has not been announced which, if known, could be an explanation for recent trading in the securities of the Company? Other than for the matters disclosed to the ASX by the Company and City Pacific Limited this morning which the Company does not believe in any way contributed to the share price movements referred to in your letter, the Company is not aware of any information or fact or circumstance concerning it that has not been announced which, if known, could be an explanation for recent trading in the securities of the Company. 2. If the answer to question 1 is yes, can an announcement be made immediately? If not, why not and when is it expected that an announcement will be made? N/A 3. Is there any reason to think that there may be a change in the operating profit before abnormal items and income tax so that the figure for the half year ended 31 December 2007 would vary from the previous corresponding period by more than 15%? If so, please provide details as to the extent of the likely variation. It is likely that the operating profit for the half-year ended 31 December 2007 will be greater than the previous corresponding period by more than 15%, however such increased operating profit will be in terms of guidance already provided to the market, and no alteration to that guidance is required. 4. Is there any reason to think that the Company may record any material abnormal or extraordinary profit for the half year ended 31 December 2007? If so, please provide details. The Company is not aware of any reason to think that the Company may record any material abnormal or extraordinary profit for the half-year ended 31 December 2007. 5. Is there any other explanation that the Company may have for the price change in the securities of the Company? The Company has no other substantive or fact based explanation regarding the price change in the securities of the Company. 6. Please confirm that the Company is in compliance with the listing rules and, in particular, listing rule 3.1. The Company is in compliance with the ASX listing rules, in particular, listing rule 3.1. ... 284 In light of this letter, Mr Kelly believed that OL's operating profit for the half-year to 31 December 2007 was expected to improve by 15% on the previous corresponding period. 285 On 16 January 2008, OL provided its quarterly report for the period ended 31 December 2007. The report was reviewed by Mr Kelly and Ms Whiting who relied on its accuracy. The report raised no adverse matters or issues of concern. 286 On 18 January 2008, OL made an announcement to the ASX concerning a proposed separation of Stella from OL's financial services business: As indicated in previous announcements to the market on 28 November 2007 and 3 December 2007, [OL] has been considering a separation of the Stella Group (Stella) and [OL] Financial Services businesses into standalone entities. [OL] is now pleased to confirm its intention to separate these businesses into two ASX listed companies. It is expected that the separation will be achieved via a scheme of arrangement subject to both [OL] shareholders and Court approval and that the process will be completed in Q2, 2008. In conjunction with the separation, both Stella and [OL] Financial Services will be recapitalised to reduce indebtedness and to achieve capital structures that are appropriate for the different markets and capital requirements of these respective businesses. It is intended to fund the recapitalisations via an approximately $550 million renounceable entitlement offer of shares in Stella. The entitlement shares will be attractively priced to maximise participation by [OL] shareholders on the register as at the record date. It is anticipated that the entitlement offer will be fully underwritten. [OL] believes that the proposed separation and recapitalisation will act to crystallise the inherent value of both businesses and will deliver to shareholders two well capitalised companies each with different but attractive investment characteristics. The separation will also enable [OL] shareholders to retain all the benefits of ownership of both [OL] Financial Services and Stella. Further details in relation to the proposed separation are contained in the attached presentation. [OL] has been working with Grant Samuel, Macquarie Bank, UBS and Freehills (legal adviser) and KPMG (accounting and tax adviser) in relation to the proposed transaction. 287 This news was received badly by the market. OL's share price plummeted from the previous day's closing price $3.18 to a closing price of $0.99. One consequence of the price fall was that, under the amended terms of the Fortress facility, OC, OL and OFS were in default.

THE EVENTS FOLLOWING 18 JANUARY 2008: AN OVERVIEW 288 The announcement on 18 January 2008 put in train a series of events that led, eventually, to OL being placed in liquidation. Much evidence was devoted to listing and describing these events. I will not rehearse all of it. It will be sufficient, for present purposes, to list the major milestones. In later paragraphs, I will return to some matters of detail in order to analyse the applicant's case on causation. 289 On 18 January 2008, at the time of announcing the proposed separation and capital raising, OL also conducted a teleconference. The holding of the teleconference had been announced to the ASX the previous day. Mr King, the Chief Executive Officer of OL, addressed both the separation of the Stella business and the intended capital raising. One caller questioned the need for Stella to raise capital in light of its earnings forecast of $220 million for the current year. He suggested that investors were not being given "the real picture" of the Octaviar Group's financial position. 290 On 20 January 2008, a binding proposal to acquire 65% of the shares in Stella for $400 million was made. The following day, OL requested a trading halt for the purpose of "considering unsolicited proposals received last night from a number of parties in relation to the purchase of a majority interest in Stella as well as a change in the CEO of [OL]". 291 On 21 January 2007, OL's Chief Executive Office, Mr King, resigned. Mr King's resignation was announced as follows: The Board has, with regret, accepted Michael King's resignation as a director and Chief Executive Officer of [OL] and its subsidiary and managed entities, effective immediately. Craig White has been appointed as Chief Executive Officer effective immediately. Following the market's reaction to the de-merger proposal released on Friday, it was considered to be in the Company's best interest that Mr King resign as Chief Executive Officer, effective immediately. Mr White was previously the Deputy Chief Executive Officer of [OL] and has significant experience in the funds management sector and a comprehensive understanding of the Company's operations. The Board has confirmed their full support of Mr White's ability to lead the Company forward. Mr King has voluntarily foregone his right to be paid compensation and entitlements under his Service Agreement following his resignation. Further details regarding Mr White's arrangements as Chief Executive Officer will be released in due course. 292 On 22 January 2008, OL formally appointed 333 Capital to provide advice. As I have previously recorded, this included: a detailed review of the company's cash flow forecasts; the management of liquidity issues; advice on restructuring options available to the company and related entities; and "other matters", as and when required. 293 It seems, however, that prior to that date, 333 Capital, through Mr Korda, was acting on behalf of the OL Board by engaging in discussions with creditors. One discussion was held with the respondent's representatives on 19 January 2008. 294 On 23 January 2008, OL announced that it had received a number of unsolicited proposals from a number of parties in relation to Stella and that it was presently in detailed discussions with a preferred party. OL said that it was aiming to reach agreement with either that party or an alternate party within the next two weeks. It said that the proceeds of any transaction would not only result in full payment of all short-term maturing debt facilities, but strengthen the financial position of OL. On that day, OL's shares were suspended from trading. 295 On 4 February 2008, OL, MFS Stella Holdings Pty Limited (MFS Stella Holdings) and Global Voyager Pty Limited (Global Voyager) - a joint venture company owned by OL and Europe Voyager NV - entered into a share sale agreement for the sale of 65% of Stella for $409 million. The sale was announced on the same day and completed on 29 February 2008. 296 The sale of a 65% interest for $409 million implied a value for Stella of $629 million. Based on the 2007 audited financial statements of the Octaviar Group, Stella had a carrying value of $1.43 billion. Accordingly, the sale of 65% for $409 million resulted in a substantial write down of the asset and a loss on the sale. 297 On 15 February 2008, the Fortress facility was again amended. On 21 February 2008, OL announced that Fortress had agreed to extend the facility to the earlier of 31 March 2008 or the completion of the partial sale of Stella. Fortress also agreed to advance an additional $50 million to the Octaviar Group to assist with working capital requirements. 298 Following the completion of the partial sale of Stella on 29 February 2008, Fortress was paid from the proceeds.

BREACH OF STATUTORY AND EQUITABLE DUTIES: THE APPLICANT'S CASE 299 The applicant's case in relation to breach of s 283DA of the Corporations Act is directed to paragraph (a) of that provision - namely the duty to exercise reasonable diligence to ascertain whether the property of the borrower and each guarantor that is or should be available will be sufficient to repay the amount deposited or lent when it becomes due: para 92A SOC. In these reasons, it is convenient to refer to that duty as the respondent's duty to exercise reasonable diligence. 300 The applicant also alleged that the respondent owed a duty in equity to group members in the management of the business of the OIN Trust, to exercise the same care and skill as an ordinary prudent man of business would in conducting that business as if it were his own: para 38A SOC. Further, the applicant alleged that the respondent owed a duty to group members in equity to exercise the reasonable care and skill of a professional trustee carrying on the business of corporate trustee services: para 38B SOC. On final analysis, it is not necessary for me to distinguish between these two duties because the applicant did not do so. In these reasons, it is convenient to refer to them as the respondent's duty to exercise reasonable care. 301 The breaches of these duties were pleaded and particularised in substantially the same terms. In final submissions, the applicant addressed the question of breach on the same footing, arguing that the respondent breached his duty by failing to: act on PwC's advice at the 17 May 2007 meeting to request from OL management accounting reports on a monthly basis to enable the respondent to monitor the cash flow, asset backing and profitability of the Octaviar Group; exercise his rights under clauses 5.4(a), 6.2, 6.6 and 7.3 of the Trust Deed to request information from OL as to the financial position and solvency of OL (quaere, OIN) and OL, OA, OFS and OIB; request PwC, or another investigative accountant, to continue to provide regular reports on the ability of OL to meet the debt repayments on the notes and whether there had been any breach by OIN, OL, OA, OFS and OIB of the trust instruments or the Corporations Act; request PwC, or another investigative accountant, to request further information required for PwC to form an opinion as to whether OL could meet scheduled debt repayments on the notes; and/or brief an independent expert to prepare a report on the solvency of OL and OIN. 302 Although couched in this way, the applicant's submissions were directed to two topics: the respondent's alleged failure to request financial information; and the respondent's failure to continue to engage PwC or another investigative accountant. 303 As to the alleged breach arising from the failure to request financial information, the applicant placed primary reliance on two matters. The first was the respondent's failure to follow the advice recorded in Mr Prostamo's email of 17 May 2007, that it may be prudent to have OL submit management accounting reports on a monthly basis to enable the trustee to monitor cash flows, asset backing and profitability. The second concerned the acquisitive nature of the Octaviar Group's business. In essence, the applicant submitted that it was not sufficient, for a business of this kind, for the trustee to rely only on quarterly reports and published financial accounts. As trustee, the respondent had extensive powers under both the Trust Deed and the Corporations Act to request financial information from both OL and OIN in the second half of 2007, and should have done so. 304 Dealing with the first matter, the applicant submitted that a trustee exercising reasonable diligence and reasonable care would have adopted the advice given on 17 May 2007. The applicant submitted that the PTO was dependent on external experts in relation to the administration of the OIN Trust and that through the work he had undertaken for the respondent in that regard, Mr Hall was in a better position to advise the respondent than the staff within the PTO itself. The applicant submitted that, in these circumstances, it was "almost inconceivable" that the advice of 17 May 2007 was not followed. 305 As I have recorded above, Mr Prostamo advanced two reasons for not following this advice. The first reason was that, as at 17 May 2007, the audited financial statements for the year ended 30 June 2007 would be published in the relatively near future. The second reason was that, although the 17 May 2007 advice was given as a comment in the course of the review then being undertaken, it was not translated into any formal recommendation made by PwC. 306 The applicant submitted that the fact that the audited accounts would become available (as it happens, in August 2007) was not a reason not to follow the advice. The applicant said that the fact that the audited accounts would be available in August 2007 must have been known by PwC at the time the advice was given. Further, although not as reliable as the audited accounts, monthly management accounts, including cash flow statements, would provide more up to date information that would not otherwise be available from an annual or semi-annual report. 307 As to the second reason, the applicant submitted that the fact that the 17 May 2007 advice was not in PwC 3 was not a reason not to follow the advice. The advice was sufficiently important to be recorded by Mr Prostamo in his email that had been placed on file. Further, it was not surprising that the advice was not recorded in PwC 3 because that report was directed to expressing an opinion on the ability of OIN to make scheduled debt repayments; it was not directed to the steps that the respondent should take to monitor the OIN Trust. Mr Prostamo accepted that the respondent did not specifically ask PwC to express an opinion or give advice about the level of monitoring the respondent should be undertaking as trustee of the OIN Trust. 308 Dealing with OL's business model, the applicant submitted that, by 6 July 2007, the respondent should have appreciated that the risks associated with that model and the Octaviar Group's financial position necessitated that regular requests for financial information be made. Once again, the applicant submitted, it was not enough for the respondent to rely on publicly available information alone. 309 Here, the applicant relied on evidence given by Mr Joseph to the effect that, from the date of his appointment, the respondent should have known that OL was a high risk company that was difficult to monitor because its business model depended on it buying and selling other businesses. This meant that its cash flow would not be consistent, and would be difficult to predict. Thus, according to Mr Joseph, the respondent: … should have put in place a monitoring regime by which it received regular information from [OL] such as monthly cash flow reports, monthly management accounts, and monthly updates on the sale or purchase of assets by [OL]. This monitoring regime should have been put in place from day one or at least by 17 May 2007 when PwC explained the need for such a monitoring regime in light of [OL's] business. It was standard practice to review quarterly reports, semi-annul and annual financial reports but this was not sufficient for a company such as [OL] because by the time that they were received the information was no longer current. It was also not sufficient for [the respondent] to rely upon other publicly available information such as newspaper articles and ASX announcements in conjunction with quarterly reports, semi-annual reports and annual reports. In my experience, it was standard practice to monitor newspaper articles and ASX announcements but it was not sufficient to monitor an issuer such as [OL] because they do not usually contain information such as cash flows and cash flow projections which would be necessary for [the respondent] to satisfy [himself] that the notes were able to be repaid. 310 In this regard, the applicant pointed to the prospectus for the notes that issued by OL and OIN on 23 February 2007 (referred to above) and noted the reasons stated therein for not providing certain financial statements. The applicant submitted that the continual purchase and sale of businesses meant that past performance was not a reliable guide to future performance, and current financial results could not meaningfully be compared with previous financial results. 311 The applicant also pointed to the advice contained in PwC concerning the classification of certain non-current assets as current assets "held for sale", which meant that the balance sheet as at 31 December 2006 could not be used for comparison with the proforma balance sheet used for PwC 1. Further, the applicant pointed to the advice in PwC 2 that the majority of OL's revenue to the date of the report had been associated with these assets and that, following their disposal, OL would have lower operating cash flows to cover the interest and principal repayments that would fall due under the notes. 312 The applicant also argued that the respondent was required to exercise greater vigilance once it was appreciated that the benefit of the net asset backing covenant had been significantly diluted by the increase of the notes on issue to approximately $360 million, in circumstances where OL had indicated that it was not prepared to consent to a variation of the covenant that had been originally agreed upon. 313 Finally in this regard, the applicant pointed to the fact that the conclusions reached in PwC 3 were, in large part, dependent on OL selling an interest in Stella by 30 June 2007. By 13 June 2007, it was public knowledge that a sale of Stella would not occur until after 30 September 2007, at the earliest. 314 I now turn to the applicant's case that the respondent failed to exercise reasonable diligence and reasonable care by failing to engage PwC or an investigative accountant to continue to provide regular reports on the ability of OL to meet the debt repayments on the notes and/or to prepare a more extensive or thorough report on the ability of OL to meet scheduled debt repayments after receiving PwC 3. 315 In support of this aspect of its case, the applicant submitted that, following what Mr Kelly considered to be a "warning" in PwC 3 concerning the risks referred to in that report, it was incumbent on the respondent to engage PwC or another investigative accountant during the second half of 2007 to request further information and report on the ability of OL to meet scheduled debt repayments. 316 This submission was supported by Mr Joseph who, after referring to the conclusion in PwC 3 that PwC was unable to form an opinion on whether OL would have the ability to meet scheduled debt repayments in December 2011, noted that PwC 3 had been based on a high level cash flow provided by OL. Mr Joseph said: … As PwC were unable to conclude that [OL] would have the ability to meet the schedule [sic] debt repayments on the information that they had available to them, [the respondent] should have requested, or had PwC or another investigative accountant request, further information from [OL] to enable PwC or another investigative accountant to prepare a more extensive and thorough report on the ability of [OL] to meet the scheduled debt repayments. In my opinion, [the respondent] would require such information in order to determine whether the notes were able to be repaid. This information would be necessary for a trustee to discharge its obligations under s 283DA of the Corporations Act. 317 Mr Borrelli gave evidence in support of that position.

STATUTORY AND EQUITABLE DUTIES: RELEVANT PRINCIPLES

The duty to exercise reasonable diligence 318 As I have previously noted, s 283DA(a) of the Corporations Act provides: The trustee of a trust deed entered into under section 283AA must: (a) exercise reasonable diligence to ascertain whether the property of the borrower and of each guarantor that is or should be available (whether by way of security or otherwise) will be sufficient to repay the amount deposited or lent when it becomes due; … 319 By reference to its text and legislative antecedents, the respondent advanced a number of propositions concerning the construction of the provision. 320 First, the respondent submitted that s 283DA has a "dual, alternative character" concerned with the time at which the inquiry required by the provision is undertaken. He argued that this particular character is indicated by the use of "or" which functions disjunctively in the phrase "property … that is or should be available". According to the respondent, there are two inquiries. One inquiry is whether the state of the borrower's and guarantors' property, at the time of the inquiry, is sufficient to pay the amount deposited or lent when it becomes due. The second, but alternative, inquiry is a predictive one that is directed to the likely state of the borrower's and guarantors' available property in the future - the time when repayment of the amount deposited or lent becomes due. The respondent argued that s 283DA(a): … accommodates the possibility that the property of the borrower and guarantors which is currently available may not be sufficient to repay the amount deposited or lent when it becomes due, but may become so in the period between the application of the test and the time when the amount deposited or lent becomes due. 321 The respondent submitted that this means that, if the present state of the available property is sufficient to repay the amount deposited or lent when it becomes due, s 283DA(a) does not require the trustee to inquire whether the future available property (which should be available) will be sufficient for that purpose. As the respondent put it, in those circumstances s 283DA(a) does not require the trustee to inquire into whether the borrower and guarantors might suffer financial misfortune such that their property (found to be sufficient at the present time) might cease to be sufficient for that purpose at some future point in time. 322 As will be apparent from this summary, the respondent conceived s 283DA(a) as having two aspects, either one of which, if satisfied, would discharge the trustee's obligation under the provision. The respondent nevertheless accepted that the obligation of inquiry cast on a trustee is not a static one, but one that falls to be made as reasonable diligence requires. 323 Secondly, the respondent submitted that the test under s 283DA(a) is a "balance-sheet" test. If the balance sheet of the borrower and guarantors discloses sufficient available assets to pay the amount deposited or lent when it becomes due, the trustee is not obliged to inquire further. Specifically, s 283DA(a) does not oblige the trustee to engage in active monitoring to ensure that the available assets will maintain their adequacy for the purpose. The respondent submitted that, if this were not so, the position of the trustee for debenture holders would be assimilated to that of a manager of the borrower and guarantors. The respondent argued that a trustee is only obliged to inquire into the likely future property of the borrower and guarantors if their present balance sheet does not disclose sufficient available assets to repay the amount deposited or lent when it becomes due. 324 Thirdly, the respondent submitted that the obligation under s 283DA(a) to exercise reasonable diligence "to ascertain" is not an obligation to be "satisfied" that the borrower's and guarantors' property will be sufficient to repay the amount deposited or lent when it becomes due. Here, the respondent pointed to (what he said was) the symmetry between s 283DA(b) - the duty to exercise reasonable diligence to ascertain whether the borrower or any guarantor has breached the terms of the debentures, the provisions of the trust deed or Ch 2L of the Corporations Act - and s 283DA(c) - the duty of the trustee to do everything in its power to ensure that the borrower or a guarantor remedies any such known breach. The respondent argued that there was a lack of such symmetry with respect to s 283DA(a). In other words, although a trustee for debenture holders is under a duty to inquire, it is not under a duty to do everything in its power to ensure that the property of the borrower and the guarantors will be sufficient to repay the amount deposited or lent when it becomes due. 325 Fourthly, the respondent submitted that the requirements of "reasonable diligence" are to be assessed prospectively. The respondent argued that it would be an error to assess retrospectively whether a trustee could have ascertained at an earlier point in time that the property of the borrower and guarantors would not have been sufficient to repay, when due, the amount deposited or lent, and then to reason that, if the trustee could have done so, then reasonable diligence required that the trustee should have done so. 326 Fifthly, the respondent submitted that the requirements of "reasonable diligence" fall to be assessed by the regime established under the Corporations Act for reporting by borrowers and their auditors to trustees for debenture holders: see s 283BF concerning the obligation of the borrower to give quarterly reports; ss 292 and 302 read with ss 111AC and 111AI, assessed against the requirements of the Corporations Act for annual and half-yearly financial reports; ss 301, 302(b) and 307-309 with respect to audit requirements; s 313 with respect to the reporting obligations of an auditor in relation to a trustee for debenture holders; and s 318 with respect to the obligations of a borrower to provide copies of reports to the trustee for debenture holders. 327 The respondent submitted that, seen in this context, s 283DA(a) does not require a trustee to be a "bloodhound" in the sense of requiring the trustee to aggressively seek out and find by all means available whether the property of the borrower and guarantors is or will be sufficient to repay the debentures when due. Similarly, s 283DA(a) does not impose on the trustee an obligation to "de-risk" the investment made by debenture holders in the sense of requiring the trustee to eliminate the risk that an investment will not be repaid. In this connection, the respondent submitted that, in the ordinary course, a trustee for debenture holders is entitled to rely on the integrity of reports prepared by the borrower and its auditors, as well as (in the case of listed borrowers and guarantors) the correctness of disclosures and announcements made as part of the continuous disclosure obligations under Ch 3 of the ASX Listing Rules. The respondent argued that only exceptionally would a trustee be required to go beyond the financial reports and quarterly reports (and, where applicable, announcements made to the ASX) and exercise its powers under the trust deed or Corporations Act to require the production of additional information. In this connection, the respondent relied on the following statement in Austin RP and Black AJ, Austin and Black's Annotations to the Corporations Act (LexisNexis, 2010) (Austin and Black) at [2L.283DA]: The duty in s 283DA(a) is "to exercise reasonable diligence" with respect to the adequacy of the property of the borrower and each guarantor. The trustee does not give debenture holders an absolute warranty. Just what amounts to exercising due diligence will be influenced by the structure of Ch 2L, including, in particular, the content and frequency of quarterly reports. The trustee must be vigilant to understand those reports and use its powers of inspection of financial records to make further enquiries where information in the report puts it on inquiry. 328 The respondent submitted that s 283DA(a) does not require the trustee to view suspiciously financial reports and quarterly reports prepared and supplied to it by the borrower, particularly where such reports have been examined by reputable auditors subject to the obligations imposed by the Corporations Act. The respondent also submitted that the obligation to exercise reasonable diligence must have regard to the expense and difficulty of the measures suggested to be necessary to discharge that obligation. In this connection, the respondent argued that, when the financial reports and quarterly reports prepared and supplied by the borrower do not contain material that puts the trustee on inquiry, it would be difficult to justify as prudent, let alone necessary, the undertaking of extraordinary and costly measures such as the appointment and maintenance of an investigative accountant to inquire into the affairs of the borrower and guarantors. 329 The respondent submitted that, on the proper construction of s 283DA(a), there can be no doubt about OL's ability in 2007 to satisfy the repayment obligations imposed on it in respect of the notes. The net assets of OL disclosed in PwC 3 were in the order of $1.3 billion. The net assets in the audited full year accounts rose to some $1.5 billion. The respondent submitted that this remained the best available information about the net asset position of OL at all material times thereafter. 330 I was not taken by the parties to any exposition of s 283DA(a) in the case law. I assume there is none. As I have noted, I was taken to some brief references in the literature. In reply submissions, the applicant referred to another extract from Austin and Black. 331 The respondent's submissions place a number of embellishments or limitations on the scope of s 283DA(a) which the language of the provision and its setting in Ch 2L of the Corporations Act do not warrant or require. 332 Uninstructed by authority, I do not accept that s 283DA(a) exhibits the "dual, alternative" character explained by the respondent. The duty cast upon a trustee by s 283DA(a) is to ascertain, exercising reasonable diligence, whether the property of the borrower and guarantors will be sufficient to repay the amount deposited or lent when it becomes due. So viewed, the duty cast on a trustee is forward-looking. This is signified by the provision's use of the words "will be sufficient to repay the amount … when it becomes due". The determination of sufficiency is to be made by reference to "property … that is or should be available" at that time. The duty is not discharged by considering discrete, alternative time periods, as the respondent would have it. There is, in substance, only one inquiry. It concerns the present ascertainment of the sufficiency in value or amount of the property that "is or should be available" at the future time. The words "is or should be available" are to be read as a whole, with the modal "should" expressing, in this context, no more than a present expectation of a future state of affairs. 333 Further, the duty is a constant one in the sense that it is ever-present. It requires diligence to be exercised by the trustee for so long as the trustee remains in office. As I have noted, the respondent did accept that the trustee's duty under s 283DA(a) is not a static one. He submitted that s 283DA(a) did require inquiry as frequently as reasonable diligence demands. But the constancy of the trustee's duty (in the sense I have described) is not tempered by the word "reasonable". The word "reasonable" tempers the steps required, through the exercise of diligence, to achieve the object of ascertaining whether the property will or should be sufficient to repay the amount at the future time. 334 What constitutes "reasonable diligence" will depend on circumstances as they change and unfold over time. In this connection, I accept that what is "reasonable" will depend on how those circumstances present at the time they occur. I accept that, from the perspective of a trustee discharging its duty under s 283DA(a), it would be an error to consider what is "reasonable" by a process of retrospective reasoning as explained by the respondent: see, relatedly, Elders Trustee & Executor Co Ltd v Higgins [1963] HCA 48; (1963) 113 CLR 426 (Higgins) at 448, noted below. 335 Further, contrary to the respondent's submission, "reasonable diligence" does require active monitoring. This, it seems to me, is imported by the word "diligence" used in connection with the obligation "to ascertain". The trustee must be diligent to ascertain the sufficiency of the borrower's and guarantors' property for the stated purpose. Further, as I have said, that diligence is required in relation to a duty that applies constantly over the period of the trusteeship. I note that in Trust Company (Nominees) Ltd v Angas Securities Ltd [2015] FCA 772; (2015) 107 ACSR 464, Beach J at [79] referred to the provisions of Ch 2L of the Corporations Act as "stock[ing] the armouries of trustees so that they may be active in the protection of debenture holders"; see also Austin and Black at [2L.283DA] which describes s 283DA(a) as requiring a measure of active monitoring or surveillance by the trustee of the borrower's and guarantors' financial position and performance. This is not to assimilate the trustee's duty under s 283DA(a) with that of a manager of the borrower's and guarantors' businesses and affairs. The extent of the monitoring that is required raises a different question. The answer to that question will depend on circumstances prevailing from time to time. I will return to consider whether, in the present case, monitoring of the kind contended for by the applicant was required in all the circumstances. 336 The duty is "to ascertain", not merely "to inquire" without satisfaction as to the outcome of the inquiry. Here, the respondent's submissions tended to use the words "inquire" and "ascertain" synonymously - indeed, to substitute, in meaning, "inquire" for "ascertain". In doing so, the respondent appears to have truncated the scope of the trustee's duty. The meaning of "ascertain" is that given by the Macquarie Dictionary Online: to find out by trial, examination, or experiment, so as to know as certain; determine 337 Thus, I do not accept the respondent's submission that the duty under s 283DA(a) is one of inquiry only, if by that submission the respondent eschews the dictionary meaning of "ascertain". Of course, the trustee's duty under s 283DA(a) does not extend to ensuring that the borrower's and guarantors' obligations of repayment are met, as if the trustee were an insurer of the borrower's legal obligation to repay the amount deposited or lent. Thus, it is not the duty of a trustee under s 283DA(a) to assume the risks undertaken by debenture holders in investing, as they have done, in the borrower. 338 I accept that "reasonable diligence" must take into account the reporting regimes provided by the Corporations Act as well as those that might be imposed by the debentures or the trust deed. It must also take into account the announcements and disclosures required under, say, the disclosure obligations of the ASX Listing Rules where applicable. However, I do not accept that the boundaries of the trustee's duty under s 283DA(a) "to ascertain" are limited to or circumscribed by such matters. I do not read the extract from Austin and Black as confining the trustee's powers of inspection to cases where matters disclosed in such reports put the trustee on inquiry. As I read the extract, it does no more than provide an instance of where the trustee's powers of inspection might be engaged. Further, I do not accept that recourse to other information from the borrower and the guarantors should be seen as an exceptional exercise of the trustee's powers. Whether and to what extent further inquiries are required as a matter of legal obligation will depend on the particular circumstances at the relevant time. In so concluding, I accept that the trustee is not required to approach the consideration of statutory reports and other publicly-conveyed information as if, presumptively, that material is inaccurate or misleading. Still less is the trustee cast in the role of an auditor of the borrower's and guarantors' businesses and affairs. By the same token, the provision's use of the word "diligence" - referable to the ascertainment of sufficiency of the borrower's and guarantors' property to satisfy the obligation of repayment - conveys that the trustee is to be more than a supine observer of events. 339 I accept that s 283DA(a) is directed to determining the sufficiency of property in terms of its amount or value to satisfy the obligation to repay the amount deposited or lent. I would not describe this as a "balance sheet" test, lest it be assumed that other circumstances affecting the sufficiency of that property are not relevant to the discharge of the trustee's duty under s 283DA(a). For example, the fact that a borrower or guarantor might be facing impending insolvency might (and in all likelihood will) cause the trustee to depart from the balance sheet value and to ascertain the realisable value of that property in the hands of a company in some form of external administration. Indeed, regardless of that circumstance, the particular way in which the borrower or guarantor might have treated the value of its property in its balance sheet might be reason enough for the trustee to be put on inquiry as to the sufficiency of that property for the stated purpose of s 283DA(a). Further, as I have noted, the duty cast on the trustee by s 283DA(a) is forward-looking in nature. One is not so much concerned with historical matters, except to the extent that they assist in forming the forward-looking assessment of sufficiency that is required. 340 I also have misgivings about the respondent's submissions concerning the expense and difficulty of carrying out monitoring. The respondent's submissions were premised on the absence of material that puts the trustee on inquiry. I would accept that s 283DA(a) does not impose on the trustee the need to undertake measures that, in terms of costs and difficulty, are not commensurate with the task at hand. But the trustee's duty under s 283DA(a) is not to be curtailed by considerations of costs, difficulty or, indeed, inconvenience when circumstances require the trustee to act in performance of the duty to exercise the required diligence. 341 I have arrived at these conclusions on the content and scope of the trustee's duty under s 283DA(a) having regard to the ordinary English meaning of the language used in the provision, and the provision's apparent scope, purpose and object in its setting within Ch 2L of the Corporations Act.

The duty to exercise reasonable care 342 A trustee owes a duty to use due diligence and care in the administration of a trust: Maguire v Makronis [1997] HCA 23; (1997) 188 CLR 449 at 473. This is an equitable duty, not a common law duty. It arises out of the trust relationship. The extent to which the duty to use due diligence coincides with the duty under s 283DA(a) of the Corporations Act need not be explored. No issue of that kind was raised by the parties. As to the duty to use due care, the standard is, generally speaking, the care that an ordinary, prudent person of business would exercise in the conduct of a business as if it were his or her own business: Breen v Williams [1996] HCA 57; (1996) 186 CLR 71 at 137. 343 In Australian Securities Commission v AS Nominees Limited (1995) 62 FCR 504, Finn J (at 517-518) raised the question of whether a higher standard should be exacted from corporate or professional trustees who hold themselves out as having special or particular knowledge, skill and expertise, and who (directly or indirectly) invite reliance on themselves by members of the public in virtue of the knowledge, skill and experience those trustees appear to have. In that case, Finn J was not required to decide that question, although his Honour nonetheless expressed his preparedness to apply a standard of care higher than that of the ordinary prudent businessperson on the facts before him. 344 In the present case, the respondent accepted that, in the case of a corporate or professional trustee engaged in managing a business or exercising powers of investment, the standard of care is to be adjusted to take account of the special skills the trustee professes to have: see also in that connection s 22 of the Trusts Act 1973 (Qld). However, he submitted that such an enhanced standard of care may not have direct application in the present case because the respondent was neither managing a business nor exercising powers of investment. The respondent also submitted - and I accept - that the standard operates against the statutory background of the Corporations Act. I also accept, as a general proposition, that the trustee's duty to exercise reasonable care may be qualified by the terms of the trust instrument. 345 In considering whether a trustee has duly performed the duty to exercise reasonable care, one looks at the position that would have appeared to the trustee, acting prudently, at the time of the alleged breach. The trustee's conduct is not assessed in the light of later events which, at the time of the alleged breach, could not have been foreseen (although those events might be relevant to the question of loss resulting from any breach that is found): Higgins at 448. In this regard, the application of the duty to exercise reasonable care is in no way different to the application of the duty to exercise reasonable diligence under s 283DA(a). 346 The respondent submitted - and I accept - that a trustee's duty of care would recognise that a trustee acting with reasonable prudence may have open to it a range of possible courses of action. Where that is so, the mere choice of one course over another will not necessarily signal a breach of duty, even if the choice is later shown to be an error of judgment. In those cases, a breach of the duty of care will only arise when a trustee's chosen course of action falls outside the range of possible choices which the trustee, acting reasonably, could have chosen at the relevant time. The same consideration applies in relation to a debenture trustee's statutory duty to exercise due diligence. 347 The matter will be different where there is only one course of action to be taken. If that is so because of, say, some standard or practice that is accepted, recognised or otherwise sanctioned, such as by common usage among trustees in the position of the respondent, then evidence of that fact can be received on the question of the extent of the trustee's duty: see, for example, Midland Bank at 402. However, absent such evidence, there is no reason to think that, in principle, one - and only one - course of action is available to be taken.

Failure to act on the advice of 17 May 2007 348 The applicant's pleaded case on breach by failing to request from OL monthly management accounts is unquestionably based on the meeting of 17 May 2007 and the respondent's failure to adhere to the advice recorded in Mr Prostamo's email: see paras 92B.8A and 92H.10A of the FASOC, read with paras 48G1 and 48G2 thereof. 349 I am not persuaded that the advice recorded in Mr Prostamo's email of 17 May 2007 was formulated in such a way, and given in such circumstances, that a trustee acting with reasonable diligence for the purposes of s 283DA(a) of the Corporations Act, and with reasonable care, would fail in its duty by not following that advice as then given. Given that Mr Hall had no recollection of giving that advice, and that it was not formally recorded by PwC as a recommendation, whether in PwC 3 or, so far as the evidence reveals, in any other communication with the respondent, I think it more likely than not that it had the status of a comment made in the course of a review meeting with respect to a possible course of action for consideration. I accept that the respondent was justified in treating it as such until he received PwC's findings and recommendations in PwC 3. This finding is not gainsaid by the fact that Mr Prostamo recorded the matter in an email. The email stood only as a record that the comment had been made, nothing more than that. 350 Further, this finding is not gainsaid by Mr Kelly's evidence that, had he known of the advice, he would have "done something about it". At this stage, Mr Prostamo still had the primary carriage of the OIN Trust within the PTO, even though, at about that time, Mr Kelly commenced his review of the corporate trusts with which the respondent was involved. As Mr Kelly correctly pointed out, although he was a recipient of the email, it had been sent to the Business Support Unit email account, and was not something that was directed specifically or solely to him. Mr Kelly was not at the meeting; Mr Prostamo was. Mr Prostamo's evidence, and Mr Hall's evidence on this subject, provide a more reliable guide as to the circumstances in which, and importance attaching to, the advice at the time it was given. 351 Also, I think it most unlikely that, had it been a recommendation of importance at the time, PwC would not have followed it up by making a formal note of it in PwC 3 or in some other written communication to the respondent. 352 In any event, regardless of the status of the advice given on 17 May 2007, I am not satisfied that either the exercise of reasonable diligence for the purposes of s 283DA(a) of the Corporations Act or, relatedly, the exercise of reasonable care, required the respondent to adopt, as a matter of legal obligation, that advice and seek monthly management accounts from OL. 353 What did happen following the meeting on 17 May 2007 was that PwC sought the following information from OL: profit and loss statements and balance sheets for any three-way/integrated budget that had been prepared; and details of the key assumptions that supported OL's cash flow forecasts that had been provided on 11 May 2007, with supporting working papers. 354 It was this information, and PwC's analysis of it, which led to the making of the key findings in PwC 3 on 8 June 2007. 355 This course was reasonable and reflected the exercise by the respondent of reasonable diligence within the meaning of s 283DA(a) of the Corporations Act and the exercise of reasonable care as a trustee. 356 I note that Mr Prostamo's email of 17 May 2007 referred to "management accounting reports". On the evidence before me, I accept that management accounting reports would not necessarily include cash flow statements. Certainly one would expect such reports to comprise a profit and loss statement and a balance sheet. That said, Mr Hall accepted in cross-examination that, based on the statement attributed to him in Mr Prostamo's email, he would have intended the expression "management accounting reports" to include monthly cash flow statements. 357 There is an issue between the parties as to whether the record of Mr Hall's advice in Mr Prostamo's email was contemplating the provision of monthly cash flow forecasts rather than monthly cash flow statements as such. I think the better view of Mr Hall's evidence is that, in this part of his cross-examination, he was addressing historical cash flow statements and not forecasts. The matter is muddied somewhat by other passages in Mr Hall's cross-examination which involved general questions about cash flows which drifted between questions directed to cash flow statements (of an historical kind) and questions directed to cash flow forecasts. The applicant's submissions also tried to draw advantage from the fact that, at the time of the meeting on 17 May 2007, OL had provided PwC with (as Mr Prostamo recorded in his email) "high level cash flows for the next five years". The import of the applicant's submission was that cash flow forecasts must have been intended when Mr Prostamo referred to "cashflows" being monitored together with "asset backing and profitability". I do not think that this necessarily follows. The collocation "cashflows, asset backing and profitability" used in Mr Prostamo's email might equally suggest, as the respondent submitted, historical cash flow statements from time to time as might appear in monthly management reports. Certainly, the management accounts in evidence do not contain cash flow statements, let alone cash flow forecasts. They are, in fact, statements of historical financial performance (month to date and year to date) comprising profit and loss statements and balance sheets. It can be expected that, if, at or around 17 May 2007, or indeed at any later time, the respondent had requested the Octaviar Group to provide its monthly management accounts, he would have been given the group's management accounts in this form. 358 I also note in this regard that, in Joseph 1, Mr Joseph distinguished between "cash flows" and "cash flow projections". He gave examples of where, from his experience, issuers of debentures had been required to give "monthly information" in the form of "monthly arrears and monthly cashflow reports", the purpose of which was to assist the trustee, in the case of issuers who were non-bank lenders, to determine the financial progress of the business concerned so as to ascertain whether, say, a spike in the rate of defaults indicated that the business might be in difficulty. The context in which this evidence was given indicates that Mr Joseph was referring to cash flow reports conveying historical information. 359 The debate presented on this matter is a curious one because it involves an attempt to divine what Mr Prostamo's email meant when relaying advice that Mr Hall cannot even remember giving. This does not provide a sound basis for arguing that, by not following this particular advice, the respondent breached his duty to exercise reasonable diligence and duty to exercise reasonable care. 360 Nonetheless, on final analysis, I think the debate can be put aside, for the following reasons. 361 First, it seems to me that any thought that monthly management accounts (whatever their format) might be sought was really overtaken by events - in particular, the seeking of profit and loss statements for any three-way/integrated budget that had been prepared by OL and details of the key assumptions that supported OL's cash flow forecasts that had been provided on 11 May 2007 (with supporting working papers), and the provision of PwC 3 itself. I accept that, as at 17 May 2007, it was reasonable for the respondent to await the outcome of the review by PwC that was then under way and act on the recommendations that were then made. As I have previously recorded, there was no recommendation by PwC in PwC 3, or at any later time, that the respondent should obtain monthly management accounts from OL. PwC did not inform or suggest to the respondent that the information it (PwC) had for the purposes of conducting the review (which was directed to the very question posed by s 283D(a)) was inadequate for the task. 362 Secondly, and relatedly, I am not persuaded that, as at 17 May 2007, obtaining monthly management accounts, even containing monthly cash flow forecasts, would necessarily have been informative of the sufficiency of OIN's and the Guarantors' property to repay the notes at the maturity date, over four years into the future. My reasons for this view are more conveniently explained in the next section of these reasons. The point of present significance is that alternative steps, such as those taken by the respondent in March to June 2007, were equally open and were informative of that question. 363 Thirdly, as at 17 May 2007, the financial position of the Octaviar Group appeared to be, and was, strong. No issues had been flagged in PwC 1 or PwC 2 that called into question the financial performance and strength of OL's business. The position was no different after the 17 May 2007 meeting. The cash flow forecast obtained on 11 May 2007 (and the supporting documents obtained on 23 May 2007) did not disclose any problems - nor did PwC's subsequent analysis of those documents in PwC 3 shortly thereafter. No report under s 283BF of the Corporations Act had been given which disclosed any problems and no disclosures had been made by OL under the ASX Listing Rules or s 674 of the Corporations Act that would alert the market to any difficulty or problem being experienced by the Octaviar Group at that time. There were no grounds for concern at that time that the property of OIN or the Guarantors that was or should have been available would not be sufficient to repay the noteholders at the maturity date. 364 The strength of the Octaviar Group's financial position at that time was later confirmed by the announcement in August 2007 of its financial results for the year ended 30 June 2007 and the release of its audited financial statements. The audited financial statements showed that the Octaviar Group had net assets of approximately $1.5 billion (a significant increase over its previous year position and more than enough to repay the notes at the maturity date) and cash on hand of $167.8 million. It had achieved a net profit of $184.9 million. An unqualified auditor's report had been given which included a going concern statement. Further, the auditors provided no report under s 313 of the Corporation Act of any matter that was or was likely to be prejudicial to the interests of the noteholders or relevant to the exercise by the respondent of his powers or duties as a trustee. Mr Prostamo's view at around 17 May 2007 that he should await the audited accounts for the period ending 30 June 2007 - because these would provide a better indication of OL's financial position than unaudited monthly management accounts - was confirmed by subsequent events to have been justified and a reasonable decision at the time.

The failure to seek information: OL's business model 365 The applicant relied on Mr Joseph's evidence concerning the Octaviar Group's business model which, according to him, posed risks which required the respondent to request monthly cash flow reports, monthly management accounts and monthly updates on the sale and purchase of businesses and assets by the group in order to form an up-to-date view (which half-yearly and yearly financial reports do not provide) on whether the notes would be repaid either out of cash flows or the realisation of other assets at the maturity date. This case is not specifically pleaded in the FASOC. It appears to be an elaboration of the applicant's case pleaded in paras 92B.3 and 92H.5, particularly viewed with reference to the particulars given. 366 I do not accept that the discharge of the respondent's duties to exercise reasonable diligence and reasonable care required him to undertake monitoring of this kind as part of an ongoing investigation into the business and affairs of the Octaviar Group. This is not to deny that such a course was, arguably, available to a trustee in the respondent's position. But the question is not whether monthly monitoring of the kind envisaged in Joseph 1 was an available or reasonable step to take. The question is whether, as a matter of legal obligation, the respondent could only discharge his duties by adopting this course. That question should be answered in the negative. 367 Mr Joseph regarded the Octaviar Group's business as "highly uncertain". Whilst there were undoubted risks associated with the business model, I do not accept that, on the evidence, the characterisation of "highly" is warranted. This is certainly not the advice contained in PwC 1, PwC 2 or PwC 3, although the fact that there were risks with the model was fairly addressed and, I have no doubt, appreciated by the respondent. 368 The evidence shows that, in the period March to June 2007, the respondent addressed these risks by consulting PwC and obtaining its advice. As I have found, this course was reasonable and reflected the exercise by the respondent of reasonable diligence within the meaning of s 283DA(a) of the Corporations Act and the exercise of reasonable care as a trustee. Following the findings made in PwC 3, PwC did not recommend the need for monthly monitoring of the kind suggested by Mr Joseph. It did not do so when consulted in October 2007, following the release in August 2007 of the full year audited financial statements for the Octaviar Group. 369 Despite the opinions expressed in Joseph 1 concerning the need for monthly monitoring, in cross-examination Mr Joseph appeared to countenance - indeed, in his oral evidence he advanced - the possibility that it would be appropriate for a trustee, including the respondent, to be guided by what his financial and legal advisers would have advised him to do. Based on this evidence, the respondent submitted that Mr Joseph possessed no relevant expertise and had advanced opinions that were not based on any relevant expertise. I do not accept that submission. But perhaps of more importance for present purposes is the fact that Mr Joseph's oral evidence certainly qualified the absolute terms in which his opinions were expressed in Joseph 1. Mr Joseph's oral evidence provides support for the finding that, far from there being only one course open to a trustee in the respondent's position (monthly monitoring of the kind referred to by Mr Joseph), other ways of discharging a trustee's duties to exercise reasonable diligence and reasonable care would have been open to a trustee in the respondent's position at that time. 370 I am also persuaded that Mr Joseph's opinions in this regard were unavoidably influenced by his knowledge of the views expressed by Mr Borrelli in Borrelli 1. In this connection it is to be recalled that Mr Joseph's and Mr Borrelli's reports were intended to convey a sequence in which Mr Borrelli as an investigative accountant responded to an initial engagement by Mr Joseph as a typical trustee of a debenture trust. However, after being pressed in cross-examination, Mr Joseph accepted that it should be taken that he had received a draft of Borrelli 1 before he had finished his own report (Joseph 1). I note in this connection that both Joseph 1 and Borrelli 1 are dated 8 April 2016. Given the contents of Borrelli 1, it is inconceivable that it was prepared on the same day as, and in response to, Joseph 1. 371 In light of these facts, including Mr Joseph's concession in cross-examination that it could be assumed that he received a draft of Borrelli 1 in the course of his preparation of Joseph 1, I do not accept that Mr Joseph's preparation of Joseph 1, and the opinions expressed by him therein, were truly independent of the preparation of Borrelli 1 and the opinions expressed by Mr Borrelli therein. I accept that, when preparing Joseph 1, Mr Joseph must have known the contents of Borrelli 1 which included the advice which Mr Borrelli says he would have given to the trustee. Importantly, this included Mr Borrelli's views as to the kind of monitoring that should be undertaken by a trustee in the position of the respondent. As the respondent put it, Mr Joseph knew the results of the purported investigation before he expressed his opinion that the respondent was obliged to initiate it. Indeed, para 3 of Joseph 1 indicates that Mr Joseph already had in mind the response he would be making to Borrelli 1. 372 In reply submissions, the applicant submitted that I should accept that the opinions expressed by Mr Joseph were based on his own experience as a trustee, the matters disclosed in PwC 2 and the advice recorded in Mr Prostamo's email of 17 May 2007, as well as Mr Joseph's appreciation of the Octaviar Group's business model, rather than anything said by Mr Borrelli in Borrelli 1. I am not able to accept that submission. I cannot think of any reason why Mr Joseph should have been provided with a draft of Borrelli 1 other than to give him foreknowledge of the contents of Borrelli 1 (which recommends monthly monitoring) for the purpose of preparing his own report. Once that had been done - as I find it had been done - the independence of Mr Joseph's views, which were meant to be a catalyst for obtaining Borrelli 1, were compromised. This requires me to exercise real caution in accepting Mr Joseph's views as having been independently expressed. After some reflection, I do not accept that they were independently expressed views. This adds to my concern about the weight I should give, in any event, to Mr Joseph's reports based on them appearing to express views formed according to his subjective evaluation of what he would have done if he had been in the respondent's position. 373 This state of affairs is exacerbated by the fact that I also accept that Mr Borrelli's own views were unavoidably influenced by hindsight, based on his own previous engagement, and no doubt considerable work, in acting for the liquidators of OL and OA. In short, well before Mr Borrelli came to prepare his reports, he had already undertaken what seems to have been extensive work in relation to the Octaviar Group, knowing of its collapse and opining on the solvency of OL and OA based on an ex post facto analysis of the group's business and financial affairs including, importantly, the PIF transaction discussed below. 374 In oral evidence, Mr Borrelli expressed the view - which I accept was genuinely held by him - that, in preparing his reports, he endeavoured to put out of mind the experience of his previous engagement by the liquidators and the knowledge he gained through that experience. I do not accept, however, that it was realistically possible for Mr Borrelli to do so. 375 Further, as I will develop in later sections of these reasons, I accept that the applicant's case on causation is built upon facts and circumstances that came to be known after (and, in some cases, well after) the collapse of OL's share price in January 2008 rather than by reference to the facts and circumstances as they occurred in the second half of 2007. Despite the applicant arguing that its case was not based on hindsight, I am satisfied that the facts and circumstances that the applicant argued should have been known to the respondent in the second half 2007 - largely based on Mr Borrelli's evidence as to what his recommended monitoring would have revealed - derive from the clarity and certainty that only hindsight can provide. 376 The significance of this finding is that if, by hindsight, it is known that an event has occurred, it is possible to analyse it and appreciate its significance, including its significance in the setting of other events also known, by then, to have occurred. From this vantage, it is almost invariably the case that a seemingly plausible theory can be formulated as to why, with the same clarity and certainty, the event should have been identified or even predicted, its significance appreciated, and its ill consequences avoided. Plainly, the ascertainment, by this mode of reasoning, of whether a duty has been breached, is unsound. Hindsight seldom reflects the facts and circumstances that were known and appreciated in real time and, consequently, whether conduct was or was not reasonable according to those facts and circumstances. 377 Borrelli 1 purports to be a response to a request for advice made by Mr Joseph in Joseph 1, namely to prepare a report and express opinions on: the business model and financial position of OIN and the Guarantors; whether OIN and any of the Guarantors were insolvent; whether OIN and/or the Guarantors would be able to repay the amounts owing on the notes at the maturity date; whether there had been breaches of the Trust Deed, Terms of Issue, Guarantee Deeds Poll and/or the Corporations Act; and the recommendations that should be made to Mr Joseph, as trustee, based on the findings in the report. 378 In Joseph 1, Mr Joseph explained that such a report should have been sought in part because of the key findings in PwC 3. Indeed, it is clear from paras 92B.3 and 92H.5 of the FASOC, and the particulars thereto, that, on the applicant's case, PwC 3 was the trigger for appointing an investigative accountant. 379 However, there was no need, at that time, for the respondent to appoint an investigative accountant of the kind envisaged in Joseph 1. Further, there was no need to obtain a report on the business model and financial position of OIN and the Guarantors (meaning, as Mr Joseph's cross-examination made clear, the business model of the Octaviar Group). This had been covered in PwC 3 and PwC 2 - the findings of which are not in question. It was also explained in the prospectus that had been issued on 23 February 2007. Mr Joseph knew precisely what the business model was. He did not need a further report to explain it. Similarly, there was no need to obtain a report on the solvency of OIN and the Guarantors. There is nothing to suggest in the evidence that there was any cause for concern that OIN or the Guarantors were insolvent at this time. PwC's reports, and in particular PwC 3, certainly raised no such concerns. The financial position of the Octaviar Group as at the date of PwC 3 came to be confirmed by the group's audited financial statements for the year ended 30 June 2007. Similarly, there is nothing to suggest that, at that time, there had been material breaches by OIN or the Guarantors of the Trust Deed, Terms of Issue, Guarantee Deeds Poll or the Corporations Act that would have required the provision of a report by an investigative accountant on that topic. I note the technical breach by OL and OFS in failing to inform the respondent of the charge created in respect of the Fortress facility. However, not even Mr Borrelli seems to have considered that matter to be of any significance. He certainly did not refer to it in Borrelli 1. In Borrelli 1 he did no more than express the general view that, on the information and documents available (which, on the applicant's particularised case, were considerable in number), there was insufficient evidence to provide a conclusive answer to the question whether there had been any breaches. Finally, PwC 3 expressed the opinion that, on examining the cash flow projection provided by OL, it appeared that OL (meaning, in fact, OIN or perhaps more generally the Octaviar Group) would have the ability to meet scheduled debt repayments up to and including the maturity date. 380 I do not accept, therefore, that reasonable diligence or reasonable care required the respondent to appoint an investigative accountant as envisaged by Mr Joseph. As I have said, at that time there was no reason to do so. Further, I do not accept that reasonable diligence or reasonable care required the respondent to seek a report of the kind provided in Borrelli 1. Indeed, such a report was, at that time, completely unnecessary in order for the respondent to discharge his duties to exercise reasonable diligence and reasonable care in light of the analysis and reviews already undertaken by PwC at the respondent's request. I am fortified in these views by Mr Joseph's cross-examination. In particular, Mr Joseph accepted that, apart from his interpretation of PwC 3, he was not in possession of a single fact which indicated that OL faced any solvency risk. As I have found, PwC 3 did not suggest that any company in the Octaviar Group was insolvent or raise any concerns in that regard. Further, when pressed, Mr Joseph was unable to provide a satisfactory explanation of why, in mid-2007, he would think that material breaches of the Trust Deed, Terms of Issue, Guarantee Deed Poll or the Corporations Act had occurred. 381 Returning to the applicant's primary submission that monthly monitoring was required, it is necessary to understand what Mr Joseph meant by such monitoring. Mr Joseph's evidence was that, at least by 17 May 2007, the respondent should have put in place a monthly monitoring regime whereby he obtained monthly management accounts, monthly cash flow reports, and monthly updates on the sale or purchase of assets by OL. However, the monthly monitoring recommended in Borrelli 1 was of a more intensive and intrusive kind. This is gleaned from the recommendation made in Borrelli 1. According to Mr Borrelli, in order to undertake such monitoring, the respondent should have sought the following documents from the Octaviar Group (which comprised at least 130 companies): Financial and Operational Information 1. monthly management accounts of [OIN] and its Guarantors (including balance sheets, income statements and cashflow statements) and the breakdown schedules and underlying supporting documents; 2. monthly summary of outstanding loan balances (and the underlying supporting documentation); 3. full set of general ledgers of the [Octaviar] group; 4. monthly confirmation from [OL] on any change of business nature of the [Octaviar Group]; Cashflow / Liquidity 5. weekly cashflow projections/forecast/waterfall (and the underlying supporting documentation); 6. monthly summary of account balances of each bank accounts of [OIN] and its Guarantors (and the underlying supporting documentation); 7. internal correspondence in relation to cashflow positions of the [Octaviar Group]; Sales and purchase of Assets 8. monthly summary of the status and title details in respect of all substantial assets of the [Octaviar Group] which were provided to lenders as security; 9. monthly update on the status of all assets acquisition or disposal of each [Octaviar Group] entity and all associated (internal and external) correspondence (including any potential acquisition and disposal); 10. monthly updates on the sales of Stella Group and all associated (internal and external) correspondence; Lenders/Creditors 11. monthly summary of all current and potential legal proceedings or enforcements against the [Octaviar Group] or its assets (and the underlying supporting documentation); 12. all agreements entered into between the [Octaviar Group] entities and their lenders/creditors; 13. all correspondence with and in relation to the [Octaviar Group's] creditors/lenders (and their legal advisors); Fund Raising 14. summary of all equity or debt financing raised by the [Octaviar Group] and any subsequent development in relation to these financing; 15. all correspondence with and documentation provided by legal advisors, lenders and investors in respect of any current or potential financing; [OIN] Notes 16. summary of the measures established to identify or avoid actual and potential breaches under the Trust Deed, Terms of Issue, Guarantee Deed Poll and/or the Act ("Breaches") and any subsequent updates; 17. weekly confirmation from [OIN] and its Guarantors on whether any breaches (including but not limited of any events of default) have been identified (and the underlying supporting documentation); and 18. any other information and documents that you consider relevant to my work associated with the Appointment. 382 As I have noted, although a trustee's duty under s 283DA(a) of the Corporations Act does require active monitoring, that duty should not be assimilated to that of a manager of the borrower's and guarantors' businesses and affairs. The monitoring which Mr Borrelli recommended - and, as I will come to explain, the case on causation which the applicant subsequently advanced - was that the respondent would have monitored the performance of the OL's business in some fine detail to assess income and expenses, its operating, financing and forecast cash flows, and its trading and other business prospects. I do not accept that the respondent's duty to exercise reasonable diligence, or his duty to exercise reasonable care, required him, as a matter of legal obligation, to act in that manner in the circumstances that presented at that time. 383 In this connection, I should also draw attention to the fact that, at times, when referring to Mr Joseph's evidence, the applicant's submissions, particularly in reply, lapsed into referring to the need for "regular" reporting to ascertain the ability of OL to meet scheduled debt repayments. This does not accurately capture Mr Joseph's evidence. Mr Joseph was not simply referring to a need for regular reporting. His evidence referred to regular "monthly" reporting. Further, I am in no doubt that the regular monthly reporting envisaged by Mr Joseph from about August 2007 was of the particular kind explained in Borrelli 1 based on the recommendations in that report. This is clear from the instruction which, in Joseph 2, Mr Joseph said he would have given. 384 As I have stated, I do not accept that, as at or around 17 May 2007, or as a consequence of the receipt of PwC 3, the discharge of the respondent's duties to exercise reasonable diligence and reasonable care required him to undertake, on a monthly basis, monitoring of the kind originally suggested by Mr Joseph or of the kind recommended in Borrelli 1. There were other ways in which the respondent, acting in accordance with his duties to exercise reasonable diligence and reasonable care, could have ascertained whether the property of OIN and the Guarantors that was or should have been available would have been sufficient to repay the notes at the maturity date. The steps taken by the respondent in March to June 2007 provide an example. I accept that, given the constant nature of the respondent's duties, there was a need for some form of ongoing monitoring. But, in the present case, this did not require the appointment of, as it were, a full-time investigative accountant, let alone one undertaking the specific kind of monthly monitoring recommended in Borrelli 1 or, indeed, monitoring that was necessarily based on any other fixed periodic cycle. 385 Further, as I have foreshadowed, I am not persuaded that monthly monitoring, particularly by reference to monthly management accounts, would necessarily have been informative of the sufficiency of the OIN's and the Guarantors' property to repay the notes at the maturity date. The respondent submitted that Mr Joseph's explanation of the need for monthly management accounts was "unconvincing". Based on Mr Hall's evidence, he submitted that there were a number of shortcomings in the information that would be provided by such accounts. It is not necessary for me to canvass all these matters. I accept, of course, that consideration of the Octaviar Group's monthly management accounts would have provided regular periodic information on the group's financial performance. However, one matter I should mention is the so-called "lumpy" nature of OL's business. I accept that it would not be regarded as unusual for OL to show losses in its monthly management accounts (as happened in August and September 2007). Its business was not like that of, say, a typical retail business where cash flows were, or could be expected to be, relatively constant. OL relied on major transactions in relation to income-producing assets (such as Stella) that, when acquired, were held for relatively substantial periods of time. When a sale transaction was completed, the profit was brought to account. It was to be expected that OL would incur losses in some months and significant profits in others, simply by the nature of the business that was conducted. As the respondent submitted, this "lumpiness" indicates that only limited information would be likely to be obtained from monthly management accounts. The results obtained in one month would not be a useful predictor of future performance. The same can be said of monthly cash flows and, indeed, monthly cash flow forecasts (although, as I have recorded, the Octaviar Group's monthly management accounts did not include cash flow statements or cash flow forecasts). There is much to be said for the view that the long term cash flow forecast sought by the respondent following PwC 2 would have been more informative of the position of OIN and the Guarantors to repay the notes at the maturity date than monthly cash flows or even monthly cash flow forecasts. A broader, more long-term picture was warranted, if not required, given the nature of OL's business. 386 By way of further explanation, I do not accept that, in July 2007, a trustee in the position of the respondent in respect of the OIN Trust, acting reasonably, would have held the concerns expressed in Borrelli 1, or indeed the concerns expressed by Mr Joseph in Joseph 2, about the Octaviar Group's financial position. But, even if these concerns were held, I accept the respondent's submission that, in that context, there were other ways in which the Octaviar Group's financial position could have been monitored. For example, quarterly monitoring of the kind suggested by Mr McCann may well have been sufficient, in the first instance, to discharge the respondent's duties in those particular circumstances, bearing in mind the other aspects of monitoring then being carried out by the respondent in respect of the OIN Trust. 387 I mention these matters because I am satisfied that there was more than one way in which a trustee in the position of the respondent could carry out the duties to exercise reasonable diligence and reasonable care in relation to the OIN Trust. There was not just one way, which is the theory on which the applicant's case on breach (and, later, causation) is based. 388 It is convenient at this juncture to deal with the complexion placed by the applicant on the key findings in PwC 3 before returning to consider other aspects of the applicant's pleaded case.

The findings of PwC 3 389 Mr Joseph's evidence in Joseph 1 was that PwC 3 had raised concerns about the fact that the notes would be repaid at the maturity date. Mr Joseph reasoned that PwC 3 was based on "limited information" and that, to address the concerns that had been raised, the respondent should have appointed an investigative accountant (which could have been PwC) to prepare a more detailed and thorough report so that the respondent could satisfy himself that the notes would be repaid. 390 Mr Joseph's evidence in this regard - and as a consequence, the applicant's case - proceeds on an incorrect understanding of PwC 3. 391 At the risk of some repetition, it is necessary to bear in mind that one of the key findings in PwC 3 was that the cash flow forecast provided by OL showed that OL (meaning, once again, OIN or more generally the Octaviar Group) had the ability to meet scheduled debt repayments up to and including the maturity date. However, PwC 3 also referred to the nature of OL's business which was "based on finding opportunities at the right time producing an expected return". This meant that its business had "an inherently higher risk than the profile of some more traditional businesses". PwC 3 (Mr Hall) concluded: Although the projections provided by [OL] indicate that it will have sufficient assets to meet its commitments to repay the note holders, given the inherent uncertainty of the strategic investments that [OL] may undertake up to 30 December 2011, I am unable, based on the information on hand, to form an opinion as to whether [OL] will have the ability to meet scheduled debt repayments on 20 [sic] December 2011. 392 This conclusion must be seen in the context in which it was expressed. At the meeting on 1 June 2007, Mr Kelly required PwC, when reviewing the information provided by OL in May 2007 (the cash flow forecast, profit and loss statement, balance sheet and assumptions document) to either "warrant" that the future repayments would be made or to say that it would not do so, so that "we could then determine the next move". The last-mentioned comment was no doubt made with reference to the fact that Mr Kelly had been tasked by Mr Klein to undertake a review of, and advise on, the appropriateness (from the respondent's perspective) of the corporate trusteeships with which the PTO was then involved. 393 I have no doubt that the conclusion quoted above was PwC's response to Mr Kelly's requirement communicated at the 1 June 2007 meeting. In short, PwC was not prepared to "warrant" that the notes would be repaid at the maturity date, for the reasons given in PwC 3. PwC held no concern, based on the information available to it as at 8 June 2007, that the notes would not be repaid. It simply could not foretell what strategic investments and sales OL would make over the ensuing years up to the maturity date in December 2011. This is how Mr Hall and Mr Kelly understood the quoted passage. 394 In cross-examination, Mr Joseph resiled from his position that PwC 3 was based on "limited information". He also accepted that, as at 8 June 2007, PwC could not have provided the kind of assurance that Mr Kelly was seeking. The inability of PwC to provide that kind of assurance was also supported by Mr McCann and Mr Borrelli. 395 I accept the respondent's submission that nothing in PwC 3 called for the extraordinary measure of appointing an investigative accountant and that nothing that an investigative accountant could have done would have resolved the difficulty which PwC (Mr Hall) had in providing the warranty that Mr Kelly sought.

Other aspects of the pleaded case 396 The FASOC is not an exemplar of the art of pleading. Indeed, in significant parts it is a jumble of allegations through which it is hard to navigate. I have, however, endeavoured to give the pleading a coherent interpretation. In light of this observation, it is necessary for me to address some comments in relation to a number of allegations pleaded in relation to this part of the applicant's case. 397 Paragraphs 92B.5 and 92B.6, and correspondingly paras 92H.7 and 92H.8, of the FASOC plead, in general terms, that the respondent breached his duties to exercise reasonable diligence and reasonable care by failing to exercise certain rights under the Trust Deed to require OIN and the Guarantors to provide financial information regarding their respective financial positions and solvency. The applicant does not plead the occasion for the exercise of those rights, the information that should have been sought, or the information that would have been obtained. These allegations do not appear to have a relevance beyond the breaches pleaded in paras 92B.3 and 92B.8A, and correspondingly paras 92H.5 and 92H.10A, of the FASOC. I have addressed the case advanced by the applicant in that regard and rejected it. 398 Paragraphs 92B.8 and 92H.10 of the FASOC are in a similar position. These paragraphs plead that the respondent breached his duties to exercise reasonable diligence and reasonable care by failing to brief an independent expert to provide a report on the solvency of OL and OIN. The only case advanced in submissions was that, based on the "concern" expressed in PwC 3, the respondent should have appointed an investigative accountant to provide a report that included an opinion as to whether OIN and any of the Guarantors were insolvent. I have addressed the case advanced by the applicant in that regard and rejected it. 399 In reply submissions, the applicant seemed to suggest that, somehow, it had pleaded a case in relation to para 92B.5 of the FASOC that the respondent's failure to appreciate, on review of the Octaviar Group's audited financial statements for the year ended 30 June 2007, that the Fortress facility had been entered into, was a breach of duty under s 283D(a). The applicant also seemed to argue that it had opened on such a case. 400 If my understanding of the submission is correct, then I reject it. I do not think it can reasonably be said that any such case was either pleaded or properly raised in opening. That should be the end of that matter. However, for completeness, I record the following submissions and my findings in relation to them. 401 The applicant submitted that had the respondent realised from a review of the financial statements that a fixed and floating charge had been created as part of the Fortress facility, he would have been prompted to request information regarding the financial position and solvency of OIN, to the extent that such a request had not previously been made. I do not accept that submission. At that time, the respondent had the audited financial statements. On the basis of those statements, there was no reason to think that the solvency of OIN was in doubt. 402 The applicant further submitted that the Fortress facility revealed that the Octaviar Group was experiencing a cash flow shortfall pending the partial sale of Stella. The applicant also submitted in this connection that Fortress was a "lender of last resort" and that all these facts combined to indicate that the group was in financial trouble. 403 I do not accept that submission. First, I do not accept the characterisation of Fortress as a "lender of last resort". Mr Borrelli offered that description as a possible characterisation, but the evidence did not go much further than his argument. Secondly, there was nothing unusual about OL taking on debt, in view of the nature of its business. This was Mr Hall's view. I have no doubt that, if asked about that matter by the respondent in August 2007, when the audited financial statements were published, Mr Hall would have expressed that view. I also have no doubt that, if asked, Mr Hall would also have informed the respondent that, even with its liability under the Fortress facility, the Octaviar Group still had net assets of approximately $1.5 billion, which were significantly more than needed to repay the notes on issue. Thirdly, the Fortress facility was entered into, originally, as a short term measure, pending the part sale of Stella. If a query had been raised with OL at that time about the sale of Stella and repayment of the Fortress facility, I am satisfied that it is more likely than not that OL would have informed the respondent that the part sale of Stella was still on track, although not expected until after September 2007 (this is what OL had informed the market in June 2007) and that the Fortress facility had been extended. Further, there is no reason to think that, if pressed, OL would not have continued to maintain the expectations expressed in its market update of 16 August 2007 which, as I have said, Mr Kelly reviewed and accepted as accurate, as he was entitled to do. Therefore, I do not accept that the objective facts as at August 2007 indicated the possibility that the Octaviar Group was in financial trouble. 404 Finally, in reply submissions the applicant pointed to para 90 of the FASOC and submitted that it pleaded "separate" breaches of duty. However, I do not think that it would be sensible to treat para 90 in isolation from the specific breaches of duty that the applicant subsequently pleaded in the FASOC. In this connection, para 90 concerns alleged breaches of duty referable to paras 36 to 38 of the FASOC. These paragraphs identify the duty to exercise reasonable diligence (para 36) and the duty to exercise reasonable care (para 38). The respondent's alleged breach of the duty to exercise reasonable diligence is specifically pleaded and particularised in para 92B. The respondent's alleged breach of the duty to exercise reasonable care is specifically pleaded and particularised in para 92H. To the extent that para 90 invokes a breach of these duties, it seems to me that it must be read in the light of the applicant's more specific pleading of breach. Indeed, the applicant's case (in evidence and submissions in chief) was directed to the more specific paragraphs of its pleading. 405 Paragraph 90 of the FASOC also identifies the alleged breach by the respondent of: a duty to know and understand the Trust Deed (including as amended), the Terms of Issue, the Guarantee Deed Poll and the Deeds of Accession; and a duty to provide information to the Group Members as to the state of the OIN Trust, when called upon to do so. 406 This part of para 90 refers back to para 37A of the FASOC. Breaches of these duties were specifically pleaded in paras 92V and 92W and paras 92AB to 92AD, respectively. However, the applicant subsequently amended its pleading to delete these paragraphs, and no case was advanced in support of them. 407 For these reasons, I do not see para 90 of the FASOC as containing free-standing allegations of breach that are separate from the case on breach that the applicant has otherwise pleaded (or abandoned). 408 Further and perhaps more importantly, notwithstanding para 90, the applicant should be held to the way in which it actually advanced its case in chief on breach of the duties to exercise reasonable diligence and reasonable care, which I have summarised at [299]-[317] above.

Conclusion 409 The applicant has failed to establish its case that the respondent breached his duties to exercise reasonable diligence and reasonable care. 410 Apart from the specific findings I have made above, and by way of overall summary, I do not accept that: as at or prior to 17 May 2007, the respondent was under a duty, whether by reason of advice given by PwC or the nature of the Octaviar Group's business model or for any other reason, to request from OL monthly management accounting reports to enable the respondent to monitor cash flows, asset backing and profitability of the Octaviar Group including OIN and the Guarantors; as at or prior to 17 May 2007, the respondent was under a duty, whether by reason of advice given by PwC or the nature of the Octaviar Group's business model or for any other reason, to obtain a report on the matters identified in para 43 of Joseph 1 and addressed in Borrelli 1; as a result of PwC 3, the respondent was under a duty to obtain a report on the matters identified in para 43 of Joseph 1 and addressed in Borrelli 1; as a result of PwC 3, the respondent was under a duty to request either PwC or an investigative accountant to provide regular monthly reports on the ability of OL to meet scheduled debt repayments and on whether there had been any breach by OIN and the Guarantors of the Trust Deed, Terms of Issue and/or the Corporations Act, including monthly reports of the specific kind recommended in Borrelli 1, or to prepare a report on the solvency of OL and OIN or any other company in the Octaviar Group, or that he breached his duties to exercise reasonable diligence and reasonable care by not taking these steps. In this context, I do not accept that the respondent failed to exercise his rights under the Trust Deed and/or the Corporations Act to request information from OL as to its financial position and solvency or as to the financial position and solvency of OIN, OA, OFS and OIB.

FIDUCIARY DUTY AND UNCONSCIONABLE CONDUCT: THE APPLICANT'S CASE 411 In final submissions, the applicant addressed its allegations of breach of fiduciary duty and of unconscionable conduct together. Its allegations in respect of breach of fiduciary duty are pleaded, principally, in paras 92M to 92U of the FASOC, which incorporate, by reference, other paragraphs in the pleading. Its allegations of unconscionable conduct are pleaded, principally, in paras 92AH1 to 92AH8 of the FASOC, which also incorporate, by reference, other paragraphs in the pleading. 412 In relation to breach of fiduciary duty, the applicant's pleaded case is that the respondent owed a duty to the applicant and the group members to act bona fide in their interests at all times without regard to his own interests, and not to allow his interests to conflict, or potentially conflict, with their interests. The applicant alleges that the respondent breached these duties because he gave the notice of his resignation as trustee out of concern about the financial position of OIN and OL, the business model of OL, and/or his potential liability as trustee of the notes, and in doing so preferred his own interests to that of the applicant and group members. The nub of the applicant's case is that, in resigning as trustee following his receipt of PwC 3, the respondent was seeking to protect his own interests rather than the interests of noteholders. 413 The applicant submitted that, in light of PwC 3, Mr Kelly was clearly and justifiably concerned about the business model and financial position of the Octaviar Group, and the respondent's own potential liability, if the respondent were to continue to act as trustee of the OIN Trust. The applicant submitted that the respondent made his decision to resign without regard to the interests of noteholders. The applicant went so far as to submit that Mr Kelly's evidence revealed a "callous and unsympathetic" attitude as to what may happen to the noteholders as a result of the risks identified in PwC 3. 414 Further, the applicant submitted that, in the second half of 2007, the respondent did not take steps to monitor the OIN Trust out of a concern that, if he did so, information might be revealed which would make it difficult for a replacement trustee to be found. The applicant submitted that Mr Kelly's prime concern during the second half of 2007 was not to do anything that may upset the respondent's resignation or hinder or delay the process of appointing a replacement trustee. The applicant exemplified this submission by referring to Mr Kelly's evidence as to why he did not adopt PwC's recommendation, following the meeting on 4 October 2007, to send the draft letter set out in Mr Taplin's email of 9 October 2007. The applicant's submission appears to be that Mr Kelly's explanation that the suggested letter was intended as a means to "hurry up" the appointment of a new trustee, was falsely given and that Mr Kelly's true motive was not to risk uncovering information that would make it difficult for a replacement trustee to be found. Based on Mr Joseph's evidence, the applicant argued that this conduct was, in fact, counterintuitive because, until the "issues" raised in PwC 3 had been resolved, it was unlikely that a new trustee would be found. 415 The applicant pointed to an email, internal to PTO, which outlined "the relevant key dates and correspondence between PTO and [OL]" in the period 6 July 2007 (the date of the respondent's resignation as trustee) and 18 January 2008 (the date of OL's share price collapse), to argue that, in this period, the respondent was solely focussed on identifying a replacement trustee. In this connection, the applicant argued that the timeline presented in this email shows that none of the "key dates" and "correspondence" related to the respondent monitoring the OIN Trust for the purpose of assessing the likelihood of the notes being repaid. The applicant said that, by the time of OL's share price collapse on 18 January 2008, the last time the respondent, or PwC on behalf of the respondent, requested financial information from the Octaviar Group was in May 2007. 416 The applicant did not seek to elaborate its case on unconscionable conduct beyond the factual matters recorded above. Its pleading, on this aspect of its case, is skeletal.

FIDUCIARY DUTY AND UNCONSCIONABLE CONDUCT: ANALYSIS 417 These allegations are without substance. They are not supported by the facts. 418 The applicant's starting proposition is that Mr Kelly was concerned about the business model and financial position of the Octaviar Group following the receipt of PwC 3, including the respondent's own potential liability as trustee. 419 In a sense it is true to say that, after the respondent's receipt of PwC 3, Mr Kelly was "concerned" about the Octaviar Group's business model and the respondent's potential liability as trustee. However, these were not the "concerns" that the applicant has sought to establish in this proceeding, with their overtones of foreboding danger and peril in relation to the Octaviar Group's financial position. 420 By way of explanation, Mr Kelly's evidence, which I accept, was that, sometime after receiving PwC 3, he reported to Mr Klein as follows: PwC had reported (based on PwC 3) that "the current financials were strong at around $1 billion" and that OIN should be able to repay the notes in 2011, but that "PwC were not prepared to warrant this outcome"; the PTO's Investments Branch had originally believed that the offer under the OIN Trust was for a maximum of $75 million and had "struck a fee based on that amount"; OIN had subsequently issued notes which brought the total notes on issue to $350 million, "which was never intended" (the amount of the notes on issue varies in the evidence, but this is what Mr Kelly said); the respondent's attempts to "impose further security" in addition to the $280 million net asset covenant had been rejected; the "deal" was not, therefore, what was envisaged when the respondent took on the trusteeship; OL was "complicated" and the respondent would continue to require external assistance and support from experts like PwC; he (Mr Kelly) would not have "done the deal" had he known that the notes on issue would increase to $350 million; the "huge size of the deal" made it disproportionately large within the PTO's portfolio of matters and "represented a great risk as against the PTO's resources and reputation in the event of a default"; whilst the respondent could be satisfied that the notes should be repaid from property held, no one could be certain that the notes would be repaid in 2011 as "2011 was so far away that you really could not work out what would happen by then". 421 I certainly accept that, following the respondent's receipt of PwC 3, these conclusions represented Mr Kelly's state of mind when recommending that the respondent resign as trustee of the OIN Trust. I also accept Mr Kelly's evidence that, at this time, he considered that it would be convenient for the respondent to resign (subject to approval by ASIC) because there were "no current issues with OIN and OL" and that "the timing of the resignation coincided with massive growth in OL, which would be attractive to less risk averse private trustee companies". 422 As I have noted, Mr Kelly's concern was that it was difficult to predict, at that time, what the Octaviar Group's financial position might be some years in the future. There were risks associated with such a model because it depended on the group continuing to buy and profitably sell assets. However, there is nothing in the evidence to suggest, for example, that such a model was not commercially sound or that Mr Kelly considered such a model not to be commercially sound or that, indeed, OL's business (based on this model) was not viable. Mr Kelly's concern about the Octaviar Group appears to have been a reflection of Mr Klein's view, which was common to a number of trusteeships that Mr Kelly was reviewing, that the role of trustee for debenture holders in relation to capital raisings by large commercial concerns was not the kind of role the respondent should be undertaking, notwithstanding the business decisions that had been made in the past in that regard. 423 Mr Kelly's desire for PwC to commit itself to an unequivocal position in June 2007 as to whether OIN could repay the notes in December 2011 was unrealistic because it required a power of prediction which, it seems to me, no adviser in PwC's position could reasonably give, notwithstanding the then buoyant financial position of the Octaviar Group. For one thing, at that time, one would simply not know what investments OL might make in the years ahead. Mr Kelly's oral evidence makes clear that he, himself, thought it unlikely that PwC would be able to provide such a warranty given the relatively lengthy time horizon to the maturity date of the notes. But this is not to say that the Octaviar Group's business model was not viable or that, in mid-2007, there was any matter or circumstance that showed, or that Mr Kelly believed, that somehow because of that model, the Octaviar Group's business was in jeopardy, such that noteholders would not be paid. Indeed, this model had proven to be extremely successful for the Octaviar Group. It was a model whose profile and risks must have been patently obvious to its investors, including the noteholders, at the time they made their investments. It can be taken that, for these investors, the business model of the Octaviar Group was precisely the kind of business they wanted, or were prepared, to invest in. 424 This leads me to the second aspect of the applicant's starting proposition. There is no evidence that, in mid-2007, Mr Kelly or PwC were concerned about the Octaviar Group's financial position. On the evidence, the position was quite to the contrary. Based on the cash flows that had been provided by OL, PwC had expressed the view in PwC 3 that OIN had the ability to meet scheduled debt repayments up to and including 30 December 2011 from either the realisation of assets or from sourcing borrowings. The cash flow statement showed that, as at 30 June 2007, OL would have cash on hand of $1,229 million and net tangible assets of $1,486 million. 425 However, PwC also noted that there were risks associated with the strategic investments that OL was undertaking, which may affect its future operation and financial performance. These risks were, in fact, the risks identified in the prospectus that had been issued in respect of the notes and, as PwC pointed out at the time, were risks that were present from when the notes were first issued. As I have said, they were risks which would have been obvious to investors in the Octaviar Group. They were not matters of heightened concern at the time. 426 The respondent's satisfaction of OL's financial position, at that time, was reflected in the respondent's letter to ASIC on 13 June 2007, which stated that the respondent did not have any concerns, at that time, about OL's viability. 427 It was also reflected in the respondent's letter to OL on 6 July 2007, when resigning as trustee, that there was "no issue" and that the respondent was satisfied that OL could meet its obligations to noteholders. This statement was obviously based on the key findings presented in PwC 3 with reference to the cash flow prepared by OL. I reject the applicant's submission that this was letter was written in terms which, according to the applicant, masked Mr Kelly's true concerns about OL's financial position. 428 For the avoidance of doubt, I also reject the applicant's submission that Mr Kelly wrote the letter of resignation to create a false documentary record that the PTO had obtained some further documents or undertaken some further analysis that caused it to no longer be concerned about OL's ability to make scheduled debt repayments. Those submissions are without foundation. 429 In this connection, I accept Mr Kelly's evidence that the statement in the letter - "(w)e have since satisfied ourselves that there is no issue" - reflects a reconsideration of the material that the respondent already had. Apart from PwC 3, the respondent had the benefit of Mr Anderson's email of 26 June 2007 and the meeting with ASIC on 28 June 2007, in addition to what one might have thought was a period for reflection in any event. Having expressed that acceptance, I should also record (for the avoidance of doubt) that I do not accept that the statement itself reflects a changed view of the respondent's understanding of OL's financial position based on PwC 3 itself, despite the applicant's submission to the contrary. 430 The applicant advanced various submissions to the effect that other documents reveal that these statements by the respondent in his letter to ASIC and in his resignation letter to OL masked Mr Kelly's true concerns about the Octaviar Group's business model and financial position. I have recorded these submissions at [173]-[184] above. I reject them, for the following reasons. 431 First, paragraph 9 of the draft statement prepared by Mr Kelly in March 2008 accurately reports on part of PwC 3. However, the paragraph cannot be read in isolation. In paragraph 8, Mr Kelly records that PwC 3 indicated that OL had the ability to repay the notes either from selling assets or borrowing. It also recorded the possibility that, at the maturity date, noteholders might convert the notes to shares at an exercise price lower than the then share price. In paragraph 13, Mr Kelly recorded that, at the time that the respondent's notice of resignation was given, there were no particular concerns about the financial position of OL which, he said, was "actually improving". In support, Mr Kelly referred to the fact that OL's audited net asset position had improved from $333,759,000 at 30 June 2006 to $1,102,286,000 at 31 December 2006 and that this continued to increase to $1,533,419.00 in June 2007 (although the June 2007 position was not available at the time of the decision to resign). 432 Secondly, Mr Wedge's letter (which was written in April 2008) must be seen in its own context. There is no evidence that Mr Wedge had any involvement in the decision of the respondent to resign as trustee or, indeed, had any involvement within the PTO with the respondent's role as trustee of the OIN Trust at or prior to that time. Further, Mr Wedge's letter does not accurately convey the tenor of PwC 3. 433 Thirdly, the statement in PwC 4 on which the applicant relies is accurate, but it does not reflect that Mr Kelly - or through him, the respondent - held concerns as to OL's financial position at the time that the notice of resignation was given. Further, the reference in PwC 4 to "significant concerns being raised by the market" can only be a reference to later events, in particular the share price collapse on 18 January 2008. There is no evidence that, at the time the letter of resignation was given on 6 July 2007, the market had any concerns, financial or otherwise, about OL or the Octaviar Group. 434 Fourthly, the statement in the brief to counsel concerning the respondent's "concerns regarding the Trust" must also be seen in context. As I have found, in a sense Mr Kelly did have "concerns", but these were not "concerns" having the character that the applicant has sought to establish in this proceeding. 435 Fifthly, although Mr Kelly accepted that the relevant part of the solicitor's file note was generally accurate, I do not accept that it accurately records the tenor of PwC 3, unless the file note is taken to mean that the cash flow expectations of the business model were based on OL doing deals. As written, the file note could be taken as suggesting that PwC had expressed concerns about OL's cash flows, when that was not the case. Plainly, the terms in which the note is expressed cannot have precedence over what PwC 3 actually says, regardless of the concession obtained from Mr Kelly. Further, the file note records that PwC 3 "prompted" the respondent to resign as trustee. This is accurate, so far as it goes. But the full import of that statement must be seen against the background of the findings of fact I have made, including that the review of the respondent's trusteeship of the OIN Trust was part of a larger business review initiated by Mr Klein because of his concerns about whether such trusteeships were the "right fit" for the respondent's profile, culture and business priorities, taking into account any reputational risk that might be involved. 436 Sixthly, in relation to the amendments made to the draft paragraph in Mr Kelly's affidavit in the QSC Information proceeding, I reject the submission that, in light of the fact that legal advice was being obtained as to whether the respondent should have informed noteholders of the contents of PwC 3, Mr Kelly caused the amendments to be made in a deliberate attempt to conceal his true view as to OL's financial position at the time the letter of resignation was sent. The evidence marshalled by the applicant to support that submission falls well short of the mark. The better view - which I accept - is that the amendment was made at Mr Kelly's request because he did not think that the paragraph, as originally drafted, was accurate and that, by the amendment requested, he had sought to rectify that inaccuracy. This was the effect of Mr Kelly's evidence. I see no reason why I should not accept it. It is entirely plausible and, apart from anything else, it is consistent with the conclusions I have reached based on the other evidence I have recorded. As I have said, I do not accept that Mr Kelly - or through him, the respondent - held "concerns", flowing from PwC 3, of the character that the applicant has sought to establish in this proceeding. In light of the debate that has raged in this part of the applicant's case, I can well-understand why, on perfectly proper grounds, the original drafting of the paragraph in question might have been thought to have been inaccurate. Moreover, it is, in any event, an important contextual fact that the respondent's resignation took place as part of a review of the business activities of the PTO. 437 On the evidence, I am satisfied that the respondent resigned from his position as trustee for the cumulative reasons expressed by Mr Kelly, which I have summarised above. Although Mr Klein was unable to recall Mr Kelly reporting to him on these matters, I am in no real doubt that there was a meeting between Mr Klein and Mr Kelly at which Mr Kelly conveyed these matters, and that Mr Klein accepted Mr Kelly's views and gave the instruction to resign. There is no reason to doubt Mr Kelly's evidence on that matter. It is entirely plausible and consistent with the fact that Mr Klein directed Mr Kelly to undertake the review of the corporate trusteeships within the PTO, as well as the fact that it was Mr Klein who had the authority to resign from the trusteeship, not Mr Kelly. 438 This then leaves me to consider the submission that, in the second half of 2007, the respondent failed to monitor the Octaviar Group out of a concern that the respondent would risk learning of information that would make it difficult for him to find a replacement trustee. 439 There are a number of threads in that submission which need to be untangled. 440 First, it is not correct that the respondent failed to monitor the Octaviar Group in the second half of 2007. Indeed, the evidence makes clear that the respondent continued monitoring the Octaviar Group up to and beyond 18 January 2008. It is true that the respondent did not seek further financial information from OL in the period 6 July 2007 up to 18 January 2008, but this does not mean that the respondent did not monitor the Octaviar Group. It plainly did, and I have set out the facts in that regard. Whether the monitoring it undertook reached the standard required under s 283DA of the Act, or the respondent's duty as trustee to exercise reasonable care, is another matter. I have, however, considered and rejected the case that the applicant pleaded and advanced on that question. 441 Secondly, it is not correct to say that in the period 6 July 2007 to 18 January 2008, the respondent was solely focussed on identifying a replacement trustee. I accept the respondent's submission that the internal timeline on which the applicant relies plainly omits uncontroversial aspects of monitoring undertaken by the respondent within that period. Further, the respondent, himself, was not actively seeking a replacement trustee. This process was handled entirely by OL, with only occasional input provided by the respondent, such as by Mr Kelly answering inquiries addressed to him. 442 Thirdly, the evidence does not lead me to conclude that the respondent deliberately took steps not to monitor the OIN Trust out of a concern that, by doing so, he might learn of information which would make it difficult to find a replacement trustee. This is a serious allegation, and I reject it. The evidence shows that the respondent was aware that, following his resignation, steps were underway to appoint a new trustee. I accept that this is the reason why, for example, the respondent did not proceed to send the draft letter referred to in Mr Taplin's email of 9 October 2007. The respondent stayed his hand in this regard, not because of a fear of uncovering information that might make it difficult to appoint a new trustee, but because he thought the task might not be necessary; an incoming trustee would carry out its own due diligence and inform itself of OL's then financial position, including OIN's ability to meet scheduled debt repayments. This, of course, did not absolve the respondent from the performance of his duties as a trustee. 443 The parties were at issue as to the scope of the fiduciary duties which the respondent owed to noteholders, particularly as to when there will be a conflict between duty and interest. 444 The respondent submitted that it is too broad a proposition to state that a fiduciary must not allow its interests to conflict, or potentially conflict, with the interest of its beneficiaries. The respondent submitted that there must be some identifiable transaction or engagement that puts the fiduciary in a position of pursuing gain or causing a loss in circumstances where there is a conflict, or real possibility of conflict, between the fiduciary's personal interest and those of the beneficiaries. 445 Thus, the respondent submitted, in the present case the applicant must establish an identifiable personal interest of the respondent in a decision taken, or transaction effected, within the scope of his duties; pursuit by the respondent of that personal interest; and a conflict, or substantial possibility of conflict, between the respondent's personal interest and the interests of noteholders. 446 The respondent submitted that he was entitled under cl 13.1 of the Trust Deed to retire at any time, including for personal reasons. The respondent submitted that this entitlement is consistent with the general law position that no person can be compelled to remain as a trustee and act in execution of a trust: Foreshaw v Higginson (1855) 20 Beav 485; 52 ER 690. The respondent submitted that this was also implicit in s 283AD of the Corporations Act which provides that an existing trustee for debenture holders continues to act until a new trustee has been appointed and taken office. The respondent also argued that this continuing obligation made it all the more difficult to see how, by giving notice of resignation (as the respondent did by his letter of 6 July 2007) he could be accused of pursuing his own personal interests in dereliction of his duty to noteholders to act in their interests. The respondent submitted that the applicant's case on breach of fiduciary duty was misconceived. 447 The applicant submitted that the respondent's notion of "interest" is too narrow. It could involve avoiding a prospective liability. In this connection, the applicant relied on the general statement of principle in Finn PD, Fiduciary Obligations (Federation Press, first published 1977, 2016 ed) at 219, [472]: The sheer variety of transactions to which the conflict rule applies makes it impossible to give anything like a comprehensive definition of an "interest" for its purposes. In rudimentary terms it signifies the presence of some personal concern of possible significant pecuniary value in a decision taken, or transaction effected, by a fiduciary… The pecuniary dimension of the fiduciary's concern may take the form of an actual, prospective, or possible profit to be made in, or as a result of, the decision he takes or the transaction he effects. Or it may take the form of an actual, prospective, or possible saving, or a diminution of a personal liability. Beyond these generalities one can only talk of "interests" in the contexts of the many distinctive subrules of the general conflict rule. 448 The applicant submitted that this general statement of principle was consistent with the Full Court's formulation of "interest" in Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296 at [180]: …Put compendiously, the term signifies the presence of some personal concern of possible pecuniary value in a decision taken, or a transaction effected, with the scope of the fiduciary's duties… 449 The applicant submitted that it had identified a personal interest on the part of the respondent - the respondent's concerns about reputational and financial risks if he were to remain as trustee of the OIN Trust. The applicant submitted that it had identified the respondent's pursuit of that personal interest - the respondent's decision to resign as trustee and his decision not to request information from OL and OIN for the second half of 2007. The applicant submitted that it had identified a conflict or substantial conflict - the conflict between the respondent's desire not to impede or delay his resignation by requesting information from OL and OIN for the second half of 2007 and the respondent's duty to act in the best interests of the noteholders. 450 If the applicant's submissions in this regard are to be accepted, they require the elaboration and colour provided by the applicant's earlier submissions, particularly its submission that, based on PwC 3, Mr Kelly - and through him, the respondent - held actual concerns about the Octaviar Group's financial position at the time the letter of resignation was given, and that this was the reason for the respondent's resignation. They also require acceptance of the applicant's case that the respondent deliberately refrained from seeking financial information from OL and OIN in the second half of 2007 for fear that such information would impede or delay the respondent's resignation being effectuated by the appointment of a new trustee. As I have found, that case fails. 451 The applicant has not established a breach of the fiduciary duties it has alleged. In the circumstances, it is not necessary for me to decide the question whether, as the respondent contended, the applicant has formulated the duties too broadly. 452 The parties advanced a number of other, related but nevertheless subsidiary submissions on this aspect of the applicant's case. In view of the factual findings I have made, it is not necessary for me to deal with them. 453 As I have noted, the applicant did not seek to elaborate its case on unconscionable conduct beyond the factual matters relating to the alleged breaches of fiduciary duty. Its case on unconscionable conduct fails on the same basis.

FRAUDULENT CONCEALMENT: THE APPLICANT'S CASE 454 It is convenient to consider, at this juncture, the applicant's case on fraudulent concealment. This issue arises because the respondent has pleaded limitation defences in paragraph 151 of the further amended defence dated 20 June 2016. In that paragraph, the respondent pleads that, in relation to the various breaches of duty alleged, and in relation to the respondent's alleged unconscionable conduct, all relevant limitation periods expired on or before 24 February 2014 (in some cases, much earlier). 455 On 26 April 2016, I made an order excluding the determination, in the present hearing, of certain allegations raised in the pleadings. One of the exclusions was paragraph 151 of the defence (as then pleaded): see Oztech Pty Ltd v Public Trustee of Queensland (No 6) [2016] FCA 391. However, in the course of opening, the applicant brought to my attention certain allegations in the applicant's reply to paragraph 151 of the defence that should be determined now because, as the applicant put it in supporting written submissions, "those parts of the Reply are not in substance any different from the pleadings in the statement of claim of breach of fiduciary duty (paras 92M - 92U) and unconscionable conduct (paras 92AH1 - 92AH8)". 456 On that basis, the parties submitted an agreed form of order (which I made on 7 July 2016) to the effect that the issues to be determined at the present time are to include the facts upon which the applicant relies in paragraphs 3(m) to 3(cc) and paragraph 3(jj)(ii)-(iii) (to the extent to which it depends on findings of fact in relation to paragraphs 3(m) to (cc)) of the applicant's reply dated 1 April 2016. 457 By way of summary, the allegations in those paragraphs are that the respondent knowingly and recklessly breached his duty to exercise reasonable diligence and his duty to exercise reasonable care, and knowingly and recklessly breached his fiduciary duties (as pleaded by the applicant). These are aspects of a broader allegation (which includes other aspects which do not fall for determination at the present time) that the respondent fraudulently concealed these breaches from the applicant. 458 In this connection, s 38(1) of the Limitation of Actions Act 1974 (Qld) provides: (1) Where in an action for which a period of limitation is prescribed by this Act- (a) the action is based upon the fraud of the defendant or the defendant's agent or of a person through whom he or she claims or his or her agent; or (b) the right of action is concealed by the fraud of a person referred to in paragraph (a); or … the period of limitation shall not begin to run until the plaintiff has discovered the fraud or, as the case may be, mistake or could with reasonable diligence have discovered it. 459 Correspondingly, s 55(1)(b) of the Limitation Act 1969 (NSW) provides: (1) Subject to subsection (3) where: … (b) a cause of action or the identity of a person against whom a cause of action lies is fraudulently concealed, the time which elapses after a limitation period fixed by or under this Act for the cause of action commences to run and before the date on which a person having (either solely or with other persons) the cause of action first discovers, or may with reasonable diligence discover, the fraud deceit or concealment, as the case may be, does not count in the reckoning of the limitation period for an action on the cause of action by the person or by a person claiming through the person against a person answerable for the fraud deceit or concealment. 460 These allegations in the reply are also aspects of a broader plea that the limitation periods arising under these limitation statutes, and s 283F(2) of the Corporations Act (which imposes a limitation period in relation to the alleged breach of duty to exercise reasonable diligence), should not be applied as a matter of discretion. Once again, there are other aspects of this broader plea that do not fall for determination at the present time.

FRAUDULENT CONCEALMENT: ANALYSIS 461 There is a significant issue between the parties as to what constitutes "fraudulent concealment" for the purposes of the two limitation statutes. The applicant contended that, in order to make out the "fraudulent concealment" exception in each case, it is not necessary for it to establish common law fraud or deceit involving moral turpitude. Rather, the applicant says that it is sufficient for it to establish that the respondent acted with a consciousness of wrongdoing or that the respondent is seeking to take advantage of his wrongdoing. The respondent disputed this position. 462 It is not necessary for me to embark upon, still less to resolve, this debate. First, as I have noted, the factual issues that arise for present determination are but aspects of broader questions that are not ripe for determination at the present time. Secondly, even assuming the correctness of the applicant's contentions, these aspects of its case on fraudulent concealment depend on my acceptance of the factual underpinnings of that case, which the applicant has assimilated to its case on breach of fiduciary duty and unconscionable conduct. As I have rejected the factual basis for the applicant's case on breach of fiduciary duty and unconscionable conduct, it follows that I also reject the factual basis for its case on fraudulent concealment and also on discretionary rejection of the limitation defences, as they arise for determination at the present time. For the avoidance of doubt, I am not satisfied that, in resigning as he did, the respondent engaged in any wrongdoing and acted with consciousness of that wrongdoing or sought to take advantage of that wrongdoing.

Introduction 463 I have rejected the case that the applicant has pleaded and advanced in relation to the respondent's alleged breaches of duty. Given those findings, the applicant's case on causation does not arise for determination, strictly speaking. Nonetheless, I will consider that case and make findings in relation to it, although I do not propose to make findings in relation to each and every one of the myriad arguments raised by the respondent in criticism of that case.

Overview 464 In closing submissions, the applicant advanced its case on causation by reference to two counterfactuals. The respondent submitted that only one of these counterfactuals (the second counterfactual) has been pleaded and particularised. 465 The first counterfactual is directed to what would have occurred if the respondent had requested certain financial information from the Octaviar Group. The second counterfactual is directed to what would have occurred if the respondent had engaged PwC or another investigative accountant to request information from OL, or review information obtained about OL, and advise the respondent. 466 It is not easy to distinguish between these counterfactuals because each involves the appointment, in about July 2007, of an investigative accountant and the preparation by the investigative accountant of a report to the respondent recommending that a monthly monitoring regime be put in place to monitor, as discussed below, the financial performance of the Octaviar Group. From that point on, each counterfactual is, in substance, the same. 467 In particulars provided on 14 June 2016 (the 14 June 2016 particulars), the applicant was specific about the appointment of an investigative accountant in July 2007 to provide a report: 2. Paragraph 92B pleads that the Respondent breached its duties by failing to act on PwC's advice to request from OL management accounting reports on a monthly basis to enable the Respondent to monitor cash flows, asset backing and profitability. 3. Mr Joseph opines in his First Report that the primary responsibility of a trustee under Chapter 2L is set out in section 283DA of the Corporations Act which provides: "To exercise reasonable diligence to ascertain whether the property of the borrower and each guarantor that is or should be available will be sufficient to repay the amount lent when it becomes due" (First Joseph Report at [13]). 4. Mr Joseph would have requested monthly cash flow reports, monthly management accounts and monthly updates on the sale and purchase of businesses and assets (particularly Stella) by the group (First Joseph Report at [21], [23], [31], and [34]). Mr Joseph opines that this information would usually be provided to internal accounting and administration teams who would then generate a report on how the business was tracking on a month by month basis (First Joseph Report at [24]). 5. Mr Joseph would have appointed an investigative accountant (IA) in July 2007 (First Joseph Report [40]). 6. Mr Joseph would have asked PwC or another IA to request information from [OL] to prepare a more detailed report than the June PwC report (First Joseph Report at [43]). 7. The appointed IA, Mr Borrelli, opines that he would have requested certain information and documents in relation to the [Octaviar Group], including, management accounts, general ledgers agreements, cashflow forecasts, documents related to the operational and financial affairs of the [Octaviar Group] and company information such as group charts (First Borrelli report at [4], List of Information and Documents Request at Tab 2 and Tab 8). 468 On 15 June 2016 the applicant provided particulars (the 15 June 2016 particulars) in respect of the documents it alleged: an investigative accountant would have obtained and at approximately what point in time; an investigative accountant would have provided to the respondent and at approximately what point in time; and the respondent would have provided to his lawyers and at approximately what point in time. 469 The particulars provided are as follows: Documents that should have been obtained by the Public Trustee 1. Due to the risks identified in paragraphs [19] to [21] of the First Joseph Report and the difficulties identified in paragraphs [22] to [24] of the First Joseph Report, Mr Joseph would have requested on an ongoing basis monthly cash flow reports, monthly management accounts and monthly updates on the sale or purchase of assets of [OL] by no later than 17 May 2007 and certainly following the resignation of the Public Trustee on 6 July 2007 and would have received those documents within a short time of their creation by the [Octaviar Group]. First Borrelli Report 2. Mr Joseph would have appointed an investigative accountant (IA) in July 2007 (First Joseph Report at [40]) to request in writing the information that the Trustee would have required to prepare a report that considered the matters set out in paragraph [43] of the First Joseph Report. 3 The IA would commence his work by "obtaining and considering the financial and other information necessary to fulfil [his] appointed role" (First Borrelli Report at [3]). In July 2007, Mr Borrelli would have requested copies of certain information and documents in order to facilitate his work (First Borrelli Report at [4] and Tab 2). 4. The documents that Mr Borrelli would have obtained in or about July - August 2007 are listed at Tab 5 of the First Borrelli Report and Schedule 1. 5. Mr Borrelli would have focused on reviewing the information and documents relevant and necessary in order for him to provide his opinions in respect of the questions asked of him set out in paragraph [43] of the First Joseph Report (First Borrelli Report at [23]). Second Borrelli Report 6. In August 2007, Mr Borrelli would have recommended that the PTQ request further information and documents and monthly updates in relation to the financial and operational affairs of the [Octaviar Group] (First Borrelli Report at [115]). A copy of the information and documents that Mr Borrelli would have requested from the [Octaviar Group] is at Tab 8 of the First Borrelli Report. 7. Mr Joseph would have adopted the recommendations in the First Borrelli Report including: a. sending the letter to [Octaviar Group] on or about 15 August 2007 to: i. initiate the monitoring (Tab 8 of First Borrelli Report); and ii set up a meeting between the Mr Joseph, Mr Borrelli and the relevant directors and officers of the [Octaviar Group] (at paragraph [8] of the First Joseph Report, Tab 8 of the First Borrelli Report, paragraph [4] of the Second Borrelli Report). 8. Mr Borrelli would have held meetings and discussions with relevant directors and officers of the [Octaviar Group] and monitored the financial and operational affairs of the [Octaviar Group] on at least a monthly basis in order to identify and obtain all the necessary documents set out in Tab 3 (paragraph [15] of Second Borrelli Report) and Schedule 1. 9. The documents identified in Tab 3 of the Second Borrelli Report and Schedule 1 would have been obtained within a short time, no more than a matter of weeks and as the financial position of the [Octaviar Group] became even more dire throughout the second half of 2007, the Respondent ought to have demanded documents be provided on a much shorter time frame, meaning that documents and information were likely to have been supplied within days of the request or soon after their creation, where there was a recurring request for information (such as monthly management accounts and cash flows). Documents provided to the Public Trustee and their Lawyers 10. Mr Borrelli would have provided copies of the documents he received to the Public Trustee on a rolling basis as part of his monitoring process. 11. The Public Trustee would have provided the documents he received directly from [Octaviar Group] and through Mr Borrelli to his lawyers from July 2007 when the Public Trustee should have appointed lawyers (paragraph [9] of the Second Joseph Report). The documents would have been provided to the lawyers on a rolling basis as and when they were provided to the Public Trustee directly by the [Octaviar Group] and by the IA. The lawyers would have reviewed the documents to determine if there had been any breaches of the Trust Deed and Amended Trust Deed (or the Terms of Issue) and if any Events of Default had occurred. 470 I also observe that paras 92C and 92D (and paras 92I and 92J) of the FASOC - which plead the case on causation - proceed sequentially: But for the breaches alleged, the respondent would have appointed an investigative accountant and obtained a report on specific topics; the report would have expressed certain conclusions and made a particular recommendation for monthly monitoring of the Octaviar Group; the recommendation would have been accepted; the monthly monitoring would have caused the respondent to form the view that, by about the end of January 2008, certain Events of Default had occurred; the respondent would then have called in the notes; failing payment on the notes as demanded, the respondent would have applied for an order that OIN and the Guarantors be wound up; and such an order would have been obtained by no later than 29 February 2008, unless OIN and the Guarantors had not, by then, appointed an external controller. 471 It is convenient to note at this juncture that the applicant sought to support its case theory on causation by reference to allegations pleaded by the respondent in proceedings commenced in the Supreme Court of Queensland against some of OL's former directors (The Public Trustee of Queensland as Trustee of the Octaviar Note Trust v David Mark Anderson & Ors S546 of 2014) (the QSC Directors proceeding). Specifically, in the QSC Directors proceeding the respondent pleaded that the quarterly reports provided by OIN on 31 July 2007, 29 October 2007, 16 January 2008 and 6 May 2008 contained "deficiencies" and that, had the quarterly reports not contained these deficiencies, the respondent would have become aware of various matters and taken various steps. The respondent has pleaded in paras 164(g)-(k) and 165(b)-(c) of the statement of claim filed in that proceeding (the QSC Directors statement of claim) that, amongst other things, he would have: exercised his rights under clauses 5.4(a), 6.2, 6.6 and 7.3 of the Trust Deed to require OIN, OL and any Material Subsidiary to provide information regarding the financial position and solvency of OL, OA and OIN; briefed an independent expert to consider the quarterly reports and provide an opinion to the respondent as to the ability of OIN and the Guarantors to repay the notes; briefed an independent expert to provide a report to the respondent on the solvency of OL, OA and OIN; formed the view that an Insolvency Event and an Event of Default had occurred and was continuing under the Terms of Issue in respect of OL and OIN; given notice to OIN declaring all of the notes to be due and payable on a date not more than 14 days after the date of the notice; and applied for an order that OL, OA and OIN be wound up in insolvency if the demand for repayment was not met. 472 As to the last-mentioned matter, the applicant pleaded that a winding up order would have been obtained by either 1 December 2007 or 16 January 2008, unless OL, OA and OIN had already appointed an external controller before one of those dates. 473 There are, however, some matters which I should note concerning the QSC Directors statement of claim and the QSC Directors proceeding more generally. 474 First, while the proceeding has been commenced, it has not progressed. Mr Jenkins, the solicitor responsible for preparation of the QSC Directors statement of claim said that, on further investigation, the respondent (Mr Jenkins said "we", by which I take him to include the respondent) had reached the view that the claim is not worth pursuing. One reason advanced by Mr Jenkins for that conclusion is that there are causation difficulties with the pleaded case, namely proving that the events "that played out ultimately in 2008" would have been different had the quarterly reports been accurate. 475 Secondly, Mr Jenkins said that there was "a very obvious defence" to the claim that had been pleaded because, given that the allegations included responses to correspondence in February 2008, the pleaded failures in respect of that correspondence could not have led to a winding up on either 1 December 2007 or 16 January 2008. 476 Thirdly, Mr Jenkins suggested that not all the pleaded deficiencies concerning the quarterly reports would likely have led to the respondent calling for early repayment of the notes. 477 I will return to consider the significance of the allegations pleaded in the QSC Directors statement of claim. 478 Before dealing with each counterfactual, it is necessary to say something more about the background facts.

The PIF transaction 479 In June 2007, MFS Investment Management Ltd was the responsible entity of a managed investment scheme called the Premium Income Fund (Australian Registered Scheme No. 090 687 577) (PIF). The company has changed its name a number of times. It has also changed its corporate status. It is convenient to refer to it at the present time as MFS IM. 480 On 29 June 2007, MFS IM, as responsible entity for PIF, entered into a loan facility agreement with the Royal Bank of Scotland plc (RBS). The loan amount was $200 million. 481 On 27 November 2007, MFS IM requested a drawdown of $150 million. Pursuant to that request, on 30 November 2007 RBS paid $147.5 million into an operating account maintained by MFS IM. On the same day, MFS IM paid $130 million from its operating account into an account held in the name of OA, and OA paid $103 million from that account to Fortress in satisfaction of the obligation to make part payment to Fortress on 30 November 2007 pursuant to the further amendments to the Fortress facility referred to above ($100 million) and in payment of an "extension fee" ($3 million). The parties referred to these events as the PIF transaction. 482 As a result of the PIF transaction, the applicant says that OA became indebted to MFS IM for $130 million. The transaction and the use of the funds were not authorised in advance by MFS IM and were contrary to a representation made in the Product Disclosure Statement that MFS IM would not lend to or invest in OL's majority-owned investments. 483 The parties in this proceeding were of one mind that the PIF transaction was fraudulent (I make no finding in that regard), although both the PIF transaction and its fraudulent character were not known by the respondent at the time the transaction took place. These matters were not known and appreciated by the respondent until much later.

Management accounts and cash flow forecasts 484 The applicant tendered monthly management accounts and various cash flow forecasts for the Octaviar Group, and drew attention to the following matters. 485 A cash flow forecast prepared as at July 2007 shows that the following shortfalls were projected: $2,912,169 for 27 August 2007; $264,092,640 for September 2007; and $282,701,359 for October 2007. 486 The management accounts for August 2007 record losses of $7,161,228 for the month and $12,896,004 for the year. A cash flow forecast prepared as at August 2007 shows that the following shortfalls were projected: $10,062,005 for 25 September 2007; $142,682,395 for October 2007; and $461,284,166 for November 2007. 487 The management accounts for September 2007 record losses of $8,787,460 for the month and $21,683,465 for the year. A cash flow forecast prepared as at September 2007 shows that the following shortfalls were projected: $16,616,726 for 31 October 2007; $336,022,497 for November 2007; and $337,077,497 for December 2007. 488 A cash flow forecast prepared as at October 2007 shows that the following shortfalls were projected: $103,449,244 for 29 November 2007; $363,160,060 for December 2007; and $372,367,969 for January 2008. 489 The cash flow forecasts for July, August and October 2007 referred to above, but not the cash flow forecast for September 2007, were considered by Mr Borrelli in Borrelli 2. I will return to consider the significance of these and the other cash flow forecasts tendered by the applicant - including their reliability and likely function within the Octaviar Group - in later sections of these reasons. 490 The applicant also relied on management accounts for October 2007. It submitted that these accounts record losses of $18,864,759 for the month and $34,796,141 for the year. I do not accept that submission. As I read the accounts, they in fact record a net profit of $38,266,426 for the month and $16,582,961 for the year. I also observe that: the management accounts for November 2007 record a net profit of $14,232,781 for the month and $30,815,742 for the year ; and the management accounts for December 2007 record a net profit of $1,684,715 for the month and $32,500,458 for the year. 491 It is also convenient to record at this juncture that all the management accounts referred to above show that, in each period, the Octaviar Group had net assets of around $1.5 billion.

The first counterfactual 492 The applicant submitted that if by July 2007 the respondent had requested monthly management accounts and cash flow statements, he would have learnt that the Octaviar Group was forecasting significant short term cash flow shortfalls in excess of $250 million for September and October 2007. He would also have learnt that the Fortress facility had been entered into. 493 The applicant also submitted that, if that had happened, and the respondent was aware of the forecasted cash flow shortfalls, he would have submitted the monthly management accounts and cash flow statements to PwC or another accountant for investigation. Mr Kelly accepted the last-mentioned proposition, but he doubted that, as a matter of practical reality, the respondent would have received that information. 494 The applicant submitted that, armed with the knowledge that cash flow shortfalls were being forecasted, and that the Fortress facility had been entered into, with repayment due by 1 September 2007, PwC or another investigative accountant would then have raised a number of questions concerning the Fortress facility and queried how the forecasted shortfalls (including repayment of the Fortress facility) were going to be met. The last-mentioned submission was supported by Mr Hall's evidence in cross-examination. 495 The applicant then submitted that PwC or another investigative accountant would have learnt by July 2007 that the Fortress facility would not be repaid through a partial sale of Stella (because OL had announced on 13 June 2007 that the sale had been postponed until after 30 September 2007); there were ongoing delays in obtaining a commercial banking facility; and management had excluded revenue from Stella from the cash flow statements as a result of the UBS cash lockup. Aspects of this submission are supported by allegations made by the respondent in the QSC Directors statement of claim: see, for example, paras 120(a)-(b). 496 Further, the applicant submitted that the respondent would have appreciated that the assumptions document provided to PwC by OL on 23 May 2007 had made no mention of the Fortress facility. In cross-examination, Mr Hall accepted that, if he had known of the Fortress facility when PwC 3 was prepared, he would have recommended to the respondent that he (Mr Hall) find out more about the facility. Mr Hall said that he would have asked OL to explain why the Fortress facility was not included in the assumptions document in the first place, and to address the facility as part of the assumptions document. 497 Thus, the applicant submitted, in July 2007 the respondent would have engaged an investigative accountant to prepare a report of the kind envisaged in the second counterfactual.

The second counterfactual 498 In conformity with the pleaded case, the applicant's evidence was that, by no later than July 2007, a trustee in the position of the respondent, and in the circumstances then known, would have engaged an investigative accountant to prepare a report in July 2007 that considered: the business model and the financial position of OL and the Guarantors; whether OL or the Guarantors were solvent; whether there had been any breaches of, inter alia, the Trust Deed, the Terms of Issue or the Corporations Act, including any Event of Default which would make the notes repayable; whether OL or any Guarantor would be able to repay the amounts owing under the notes on their maturity; and what appropriate action the respondent should take. 499 This is based on Mr Joseph's evidence in Joseph 1 that, in light of the key findings in PwC 3 - in particular, the finding that PwC was unable, on the information on hand, to form an opinion as to whether OL would have the ability to meet the scheduled debt repayments on 30 December 2011 - a trustee in the respondent's position should have asked PwC what information it needed to form the opinion that the notes could be repaid, and to prepare a more detailed and thorough report so that the respondent could satisfy himself as to whether OL would be able to repay the notes. 500 Mr Borrelli's evidence in Borrelli 1 was that, had he been appointed by the respondent as an investigative accountant to provide the report to which Mr Joseph referred in Joseph 1, he would have requested and received the following information and documents from the Octaviar Group: financial information such as management accounts, general ledgers, agreements and correspondence with major creditors; cash flow/liquidity information such as business plans and cash flow forecasts; operational information such as correspondence, written advice, presentations and reports in relation to the operational and financial affairs as well as internal restructuring proposals; and company/corporate information such as group charts, board minutes and correspondence, written advice and presentations, and reports in relation to any equity or debt raising and realisation of assets. 501 In later paragraphs of these reasons, I identify the specific categories of documents which Mr Borrelli said he would have requested (reflecting the above description) as the B1/Tab 2 categories. I identify the documents with which Mr Borrelli was provided as the B1/Tab 5 documents. As I will come to explain, these documents were a selection of documents made by the applicant's solicitors. As I will also come to explain, Mr Borrelli did not, in fact, rely on all the B1/Tab 5 documents. Rather he relied on what appears to have been a subset of documents, which I identify as the B1/Tab 7 documents. 502 Based on Mr Borrelli's evidence in Borrelli 1, the applicant submitted that, as a result of the information that OL would have provided at the investigative accountant's request, the investigative accountant would have concluded, by about August 2007, that cash flow projections prepared by the Octaviar Group highlighted that the group could have substantial negative cash flow shortages for the second half of the 2007 calendar year and that the Octaviar Group had been seeking to realise a partial interest in its major asset, Stella, and secure a commercial banking facility in order to generate cash flow. 503 Based on Mr Borrelli's evidence, the applicant also submitted that whilst there was a possibility that the Octaviar Group could realise its assets, and/or raise equity and debt, a risk of insolvency was evident in about July 2007, and there was reason to be concerned about the ability of OIN and the Guarantors to repay the amounts owing to noteholders in December 2011. 504 Based on Mr Borrelli's evidence and Mr Joseph's evidence, the applicant submitted that, in August 2007, an investigative accountant would have recommended, and a trustee in the position of the respondent would have accepted, that a monthly monitoring regime should be implemented in respect of the Octaviar Group which would be "adjusted for specific aspects" as the monitoring developed and as further information was made available. 505 In Borrelli 1, Mr Borrelli said that, on the basis of information and documents that would have been available in around July 2007, he would have recommended that the respondent: 34.1. request further information and documents and monthly updates in relation to the financial and operational affairs of the [Octaviar] Group and in particular those relating to the following broad categories: 34.1.1 short and long term cashflow forecast; 34.1.2 any potential sale and purchase of substantial assets and their impact on the cashflow position of the [Octaviar] Group; 34.1.3 the [Octaviar] Group's short and long term repayment obligations to old material creditors and the discussions and correspondence with these creditors; 34.1.4 whether any current financial facilities are or are likely to be in default; and 34.1.5 any equity and/or debt raising activities; 34.2. monitor the cashflow position of the [Octaviar] Group regularly; 34.3. monitor and assess any sales and purchase of substantial assets and the repayment obligations of the [Octaviar] Group; and 34.4. monitor and assess any breaches of the Trust Deed, Terms of Issues, Guarantee Deed Poll and/or the Act and the action to be taken in case of any breaches; and 34.5. enforce immediate payment of the [OIN] notes upon identification of any events of default pursuant to the Terms of Issues in the circumstances of any deterioration of [Octaviar] Group's financial and operational position (with the exception of minor technical default). 506 At Tab 8 of Borrelli 1, Mr Borrelli provided a draft letter (dated 15 August 2007) (the draft August 2007 letter) which he says he would have recommended be sent to the Octaviar Group for "information and assistance" in order to initiate this monitoring. This letter seeks eighteen categories of documents to give effect to the request referred to immediately above. These categories are reproduced at [381] above. I discuss them at [664]-[673] below. 507 In Borrelli 3, Mr Borrelli said that, as a result of this "collection and review process", he would have identified and revealed, by November 2007, a number of "red flags": 47.1 the August 2007 cashflow projection forecast a cash flow shortfall of AU$461.3 million in or around November 2007 … 47.2 during 14 and 16 September 2007, [Octaviar] Group had concluded that [OL] did not have any share placement capacity … 47.3 on 24 September 2007, financial services companies in Australia and New Zealand were reported as collapsing. New Zealand finance companies came under pressure from declining property values, high levels of gearing and the implosion of the retail debenture market. 8 New Zealand Finance companies (Bridgecorp Capital Limited, Nathan Finance, Chancery Finance, Property Finance Securities, Five Star Consumer Finance, Autares, LDC Finance and Finance and Investments) collapsed due to failed speculative property developments and overleveraged balance sheets … 47.4 the 5 October 2007 cashflow projection forecast a cashflow shortfall of AU $353.6 million in or around December 2007 … 47.5 on 8 October 2007, OL approached UBS for a loan facility. UBS declined to provide [OL] with any additional facilities … 47.6 on 26 October 2007, [Octaviar] Group [forecasted] a cashflow shortfall of AU$372.4 million in or around January 2008 … 508 Mr Borrelli explained: 48. The red flags described in the above paragraph would alert me of [Octaviar] Group's inability to raise necessary funding through raising equity and/or debt and its cashflow shortfalls. As a result, from November 2007, I would accelerate the monitoring process by requesting more detailed and specific information and documents in respect of [Octaviar] Group's financial and operational affairs and work with [Octaviar] Group on a very regular basis (at least weekly and when necessary, daily) and, in particular, in respect of the following: 48.1 obtaining further information and documents (especially in relation to the financial and operational affairs of [Octaviar] Group, cashflow/liquidity, lenders/creditors, sales and purchase of assets and fundraising); 48.2 working with [Octaviar] Group in respect of its cashflow and forecasts; 48.3 [Octaviar] Group's relationship and communications with its major creditors; and 48.4 internal discussions, meetings and correspondence in relation to matters under consideration. … 509 In Borrelli 3, Mr Borrelli said that, in the early stage of the monitoring process (up to November 2007) he would have prepared written reports to, and had meetings with, the respondent on a regular basis, providing interim reports on a weekly basis and at least one substantial monthly report. He also said that, as further information became available, and as more serious "red flags" were revealed, he would have accelerated the frequency of his monitoring of the Octaviar Group to at least a weekly basis in the period November to December 2007. 510 In Borrelli 3, Mr Borrelli said that, by December 2007, his monitoring of the Octaviar Group would have accelerated to "an almost daily basis", with his communications with the respondent being adjusted to rely more heavily on "more expedient and efficient means of communication". He said that he would have identified a number of further "red flags", which would have revealed the Octaviar Group's inability to raise funds and its "serious cash flow shortfalls", which were continuing and "deteriorating further". These "red flags" included the following: On 31 October 2007, the Octaviar Group recognised that it had insufficient cash flow to meet its obligations. On 12 November 2007, Mr Anderson informed colleagues that the Octaviar Group would have a nil bank balance in a few days and would require $30 million. On 24 November 2007, OL informed Fortress that it did not intend to proceed with the sale of Stella to repay the Fortress facility. On 27 November 2007, Mr Anderson informed colleagues that the Octaviar Group would have a funding shortfall of $10 million by 30 November 2007. 511 Mr Borrelli said that he would also have noted that the various attempts to sell all or a part of Stella had been unsuccessful. 512 Another "red flag" Mr Borrelli said he would have identified was the PIF transaction. He opined that the existence of this transaction would have been evident from his work in relation to the receipts and payments of the Octaviar Group and its bank statements; financial obligations of the group including repayment timetables and amounts; contracts and agreements entered into by the group; and meetings and minutes of the relevant companies and their committees. 513 In concurrent evidence, Mr Borrelli said that the PIF transaction would have been discovered in two ways. First, the existence of the Fortress facility would already have come to light and, by November 2007, the investigative accountant would have been interested to know what was happening with it. The investigative accountant would have seen that the facility had been reduced by $100 million at a time when "there wasn't $100 million in the group". Therefore, the investigative accountant would want to know where the money had come from and, if borrowed, the terms on which the money had been borrowed. Mr Borrelli suggested that an investigative accountant would "dig deeper" and ascertain that the funds had been borrowed from a related party that was a managed fund, which would be "extremely rare". Secondly, Mr Borrelli said that the PIF transaction would have been identified by the investigative accountant simply monitoring cash flows. He said that $103 million or $108 million flowing into the group's accounts in November 2007 would have warranted further enquiry. 514 Mr Borrelli also said that another thing that would have stood out was that this sum had "arrived with almost no documentation". This, he said, would have caused the investigative accountant to be concerned. He also remarked that the borrowing of this sum was secured merely on "an assignment of receivables", which he also considered to be unusual. 515 I think that, in this part of his evidence, Mr Borrelli was intending to refer to $130 million (not $103 million or $108 million) paid by MFS IM to OA on 30 November 2007. 516 In Borrelli 3, Mr Borrelli said that, by this time, the risk of insolvency of the Octaviar Group was evident, as was the risk that OIN and the Guarantors would not be able to repay the amount owing on the notes on 30 December 2011. Mr Borrelli said that the PIF transaction highlighted how desperately the Octaviar Group required cash. 517 In Borrelli 3, Mr Borrelli said that, as a result of these developments, he would have further accelerated the monitoring process by requesting the Octaviar Group's directors, managers and employees to provide more detailed and frequent information and documents in respect of the financial and operational affairs of the group and to meet and work with him on a daily or real-time basis so as to allow him access to the group's financial and accounting systems; provide for reporting to him of the group's cash flow position on a daily basis; address him with all communications with creditors on a real-time basis and, where appropriate, include him and his representatives in meetings with major creditors. 518 The applicant's case on both counterfactuals is that the likely reaction of the respondent to OL's share price crash on 18 January 2008 should be assessed against knowledge which the respondent would have had if he had complied with his duties, as the applicant saw them to be. 519 First, from May 2007, Octaviar had been forecasting substantial negative short-term cash flows, on the basis that Stella would not be sold in the near term. It had been unable to obtain a commercial banking facility. 520 Secondly, on 23 May 2007, Octaviar had misled the respondent and PwC with a cash flow forecast which still included the sale of Stella by the end of June 2007 (when in fact Octaviar must have known that a sale was unlikely to occur by that date), and which omitted reference to the Fortress facility, which was only days away from being finalised. The applicant submitted that the purpose of misleading the respondent and PwC in this way was to "present a cashflow positive picture of the business". 521 Thirdly, apart from the Fortress facility, SGH had entered into the UBS facility, which restricted the ability of cash to be distributed outside the Stella business and into the Octaviar Group more generally. 522 Fourthly, on 17 August 2007, the Fortress facility had been extended on (what the applicant said were) materially worse terms for the Octaviar Group. 523 Fifthly, on 30 November 2007, the Fortress facility was again extended on (what the applicant said were) materially worse terms for the Octaviar Group. Further, on the same day, OL had made partial repayment under the Fortress facility using money from PIF in what the applicant described as an "undocumented and fraudulent transaction". 524 Sixthly, none of the above matters had been disclosed to the respondent in the quarterly reports that Octaviar had provided to him. 525 Further, based on Mr Borrelli's evidence concerning the accelerated monitoring regime that would have been in place, the applicant submitted that it is likely that an investigative accountant would have participated in the teleconference held on 18 January 2008 (in respect of the separation of Stella from OL's financial services business and the proposed capital raising); would have known of Mr King's resignation on 21 January 2008; would have known of the trading halt placed on OL's shares on 21 January 2008 and the subsequent suspension from quotation of its shares on 23 January 2008; and would have known "at about this time" of OL's engagement of 333 Capital. 526 With respect to 333 Capital's engagement, the applicant submitted that it was likely that an investigative accountant would have immediately engaged in discussions with Mr Korda regarding the solvency of the Octaviar Group. The applicant submitted that, if asked, it is likely that Mr Korda would have informed the investigative accountant that, absent a "standstill agreement" with its major creditors, OL would be insolvent. 527 The applicant submitted that, at the same time, the investigative accountant would have ascertained through assiduous monitoring that creditors were making demands and asserting that events of default had occurred under various facilities and other financing arrangements. 528 In this connection, based on Mr Borrelli's evidence in Borrelli 2, the applicant noted a number of such events in the period from 21 to 30 January 2008, including a communication from Challenger Managed Investments Limited (Challenger) to OL on 23 January 2008 that a Bondholder Trigger Event may have occurred in relation to bonds that had been issued to Challenger by OIB. The applicant submitted that the making of demands and the assertion of events of default represented "typical behaviour by lenders in a distressed debtor situation" which, it said, an investigative accountant would have recognised. The applicant further submitted that, by mid-late January 2008, OL had very little cash at bank, in the face of very substantial group debts. 529 There is a dispute in the evidence concerning the existence of these group debts as at 31 January 2008. There was agreement between the experts that a tax debt of $52 million (originally estimated at $62 million) was due and owing as at January 2008, but that is where the agreement ended. The Fortress facility debt of $189.9 million was due for repayment on 29 February 2008. The applicant also sought to rely on a debt of $40 million which, according to Mr Borrelli, was due for repayment to National Australia Bank on 20 March 2008. There was also a separate debt due to Fortress of $15 million in respect of which Fortress demanded repayment by 4 February 2008 based on an alleged event of default under the relevant facility. I should record the fact that despite Mr Borrelli opining that a number of other creditors of the Octaviar Group were likely to call in their debts by 31 January 2008, there is no evidence that any other creditor did. 530 The applicant submitted that an investigative accountant would also have identified that the Octaviar Group was at risk that other debts would become payable in the near future. In this connection, the applicant referred to the possible repayment of $100 million owing under the Challenger bonds based on the asserted Bondholder Trigger Event; the possible need for OL to provide $50 million support to PIF based on a guarantee given by OL (referred to as the PIF Support Mechanism); and OL's possible liability under a put option agreement to acquire loans from a New Zealand subsidiary, at one time estimated at $286 million (referred to as the PAC Put Option). The applicant also relied on OL's liability in respect of the PIF transaction. It submitted that, as at January 2008, an investigative accountant would have been aware that "the Octaviar entities" would have been obliged to repay the $130 million that the applicant said had been misappropriated on 30 November 2007. 531 The point in referring to these matters is that, on the applicant's case, the Octaviar Group did not have the cash flow to meet these debts. It relied on Mr Korda's assessment, communicated to OL's Board on 25 January 2018, that cash flows to 29 February 2008 indicated that OL could continue to pay all day-to-day obligations, but not non-operational creditors. The applicant submitted that Mr Korda's assessment did not include cash flow from Stella because of the cash lock up under the UBS facility. 532 The applicant also submitted that, by this time (which, in context, can only mean late January/early February 2008), an investigative accountant monitoring the Octaviar Group would have concluded that it no longer had a business model. The applicant submitted that OL had sold a controlling interest in Stella on 4 February 2008 for "a fire sale price", when in mid-2007 it was intended that the sale would fund further profitable acquisitions for the group. The applicant pointed out that this stated intention was the basis for the cash flow statement that had been provided to PwC on 23 May 2007. As events transpired, the "fire sale price" received by OL on 29 February 2008 was deployed, in significant part (approximately $200 million), in paying the amount due under the Fortress facility. 533 In support of its submission, the applicant also pointed, again, to the fact that PIF (which it described as "the flagship fund for Octaviar's financial services business") had been defrauded of $130 million, with little or no hope of that amount being repaid. In this connection, the applicant also pointed to the fact that redemptions from the fund were suspended on 29 January 2008. 534 Thus, the applicant submitted, OL's business model had collapsed and that, from that point on, a winding up, formally or informally, of the Octaviar businesses was inevitable. The applicant submitted that this would have been obvious to an investigative accountant and that any reasonable trustee, so advised by an investigative accountant, would have formed the view that immediate steps were required to stop the flow of cash from the Octaviar Group.

OL's solvency 535 The applicant then developed its case on causation by submitting that an investigative accountant would comfortably have come to the view in mid-late January 2008, that OL was insolvent. There is an immediate problem with this submission in that the applicant explicitly based it on events and circumstances flowing into early February 2008, culminating in the sale of Stella. Nonetheless, the applicant argued that, having regard to earlier cash flows, an investigative accountant would have had regard to the fact that OL was solvent only on the assumed basis that Stella would be sold for $1.2 billion. It argued that an investigative accountant would have known (presumably, before 4 February 2008) that Stella had not been sold and that, in the "distressed state of the Octaviar Group", a sale at that price would not be achieved. It argued, further, that an investigative accountant would have expected that any sale of OL's non-Stella assets (in other words, its financial services business) would also suffer from reduced prices in the same circumstances. 536 The applicant argued that, in reaching this view, an investigative accountant (i.e., one undertaking monthly monitoring of the Octaviar Group in the second half of 2007, with increasingly more frequent monitoring in November and December 2007) would have drawn on experience and observed a steady deterioration in the financial position of the group since July 2007. It argued that an investigative accountant would have concluded that OL had exhausted its ability to raise capital: its attempts to obtain debt finance (other than from Fortress) had been unsuccessful and, on 18 January 2008, the market had rejected its proposal to raise $550 million as part of the proposed separation of its travel and financial services businesses. Moreover, the applicant argued, this had "occurred in a context where financial services companies in Australia and New Zealand had been collapsing". 537 The applicant submitted that, at the very least, an investigative accountant would comfortably have come to the conclusion that, absent a compromise or standstill with major creditors, OL would be insolvent. This was the view to which Mr Korda came in about late January 2008. 538 The applicant submitted that an investigative accountant would have concluded that there was no reasonable prospect of OL coming to such a compromise. In support of that submission, the applicant drew particular attention to Challenger's position. The applicant argued that Challenger "was not in any way inclined, in January and February 2008, to accept a compromise or standstill arrangement from Octaviar". The applicant based this argument on the fact that, on 23 January 2008, Challenger had asserted that a Bondholder Trigger Event may have occurred and that Challenger had commenced proceedings on 13 March 2008. However, it is convenient to note at this stage that when Challenger made its claim on 23 January 2008, it did so in somewhat tentative terms and expressly reserved its position. It also engaged in discussions with Mr Korda throughout February 2008. It seems that its main concern was to obtain accession deeds to shore up its position in relation to other creditors. The applicant submitted that the inference should be drawn that there was "no meaningful prospect of Challenger… agreeing to a standstill or compromise at the time". I should say now that, based on the facts presented by the applicant, I would not draw that inference, either in the period January-February 2008, or even as at March 2008. Indeed, as I will come to explain, as late as 21 July 2008, Challenger was actively exploring a compromise that had been advanced by OL. 539 The applicant submitted that it is inconceivable that the respondent would have been prepared to enter into a compromise or standstill arrangement with OL, including because: OL had misled the respondent when submitting the cash flow statement on 23 May 2007; OL had failed to disclose the Fortress facility to the respondent, as required by the Corporations Act; and OL had misappropriated over $100 million in the PIF transaction to make partial repayment to Fortress under the Fortress facility. 540 In further support of its submission that OL was insolvent in mid-late January 2008 and that (presumably, at that time) an investigative accountant (appointed and acting as hypothesised by the applicant) would have ascertained that fact, the applicant relied on submissions made and evidence adduced by the respondent in proceedings commenced by him in the Supreme Court of Queensland in 2009 to set aside certain deeds of company arrangement (the QSC DOCA proceeding). The QSC DOCA proceeding involved a determination of whether a charge purportedly created in favour of Fortress on 22 January 2008 was void as an insolvent transaction under s 588FE(2) of the Corporations Act. In the present proceeding, the applicant submitted that, based on the submissions made and evidence adduced in the QSC DOCA proceeding, the respondent should be taken as having admitted that OL was insolvent as at 22 January 2008 and that, as at 24 January 2008, Fortress knew that OL was insolvent. 541 The evidence relied upon for the submission concerning OL's solvency as at 22 January 2008 was a report dated 3 April 2009 that had been prepared by Professor Stephen Gray who, at the time he made the report, was Professor of Finance at the University of Queensland Business School. In his report, Professor Gray opined that OL was insolvent as at 22 January 2008 on the basis that, even using the most optimistic assumptions, it was unable to pay all its debts and obligations out of internal cash flow and the proceeds of asset sales, and had no reasonable prospect of being able to raise the required amount of new capital from debt and equity markets. It is important to note that Professor Gray's opinion was based, in part, on internally generated cash flow documents available as at 4 February 2008, and knowledge of the likely value of a 65% interest in Stella in a transaction completing before 29 February 2008. 542 Relatedly, the applicant relied on a submission made by the respondent in the QSC DOCA proceeding that it was not reasonable to expect that OL would reach a compromise with its major creditors. That submission was based on evidence given by Professor Gray. Professor Gray's opinion in that regard was based on analyses conducted by him in reports made on 21 July 2008 and 8 August 2008. I was not taken to those reports. 543 In respect of Fortress' knowledge as at 24 January 2008 of OL's solvency, the applicant relied on a submission made by the respondent in the QSC DOCA proceeding that was based on a communication internal to Fortress which had commented on a cash flow projection provided by OL at around that time. The comment was to the effect that the cash flow projection failed to provide for material, actual and potential outgoings in the immediate future. 544 The applicant submitted that it could be inferred that, at about the same time, an investigative accountant appointed by the respondent would have asked OL for a cash flow and been provided with the same document that had been given to Fortress. The applicant further submitted that it could be inferred that an investigative accountant would then have reached the same conclusion as that contained in the internal Fortress communication. 545 The applicant submitted that the same conclusion is fortified by the respondent's pleading in the QSC Directors proceeding. Based on certain paragraphs in the QSC Directors statement of claim, the applicant submitted that it is clear that the respondent had alleged that, but for certain events, it would have obtained an expert's report opining that OL was insolvent, and on that basis obtained a winding up order against OL by 16 January 2008.

Events of Default 546 The next development in the applicant's case on causation was that in January 2008, an investigative accountant appointed by the respondent would have identified Events of Default, aside from OL's insolvency. 547 The relevance of this aspect of the applicant's case on causation is that, upon the occurrence of an Event of Default under the Terms of Issue, the respondent was entitled, although not obliged (except by direction of the noteholders) to give notice to OIN declaring all the notes to be due and payable by a specified date. In the event of non-payment in accordance with the notice, the respondent was entitled, although not obliged (except by direction of the noteholders) to take proceedings against OIN to enforce payment in respect of the notes. 548 The applicant identified what it said were Events of Default based on the Quarterly Reports given on 31 July 2007, 29 October 2007 and 16 January 2008. It submitted that certain non-disclosures constituted a breach of cl 6.5(b) of the Trust Deed (by providing misleading information) and of cl 6.5(a) (by failing to comply with s 283BF of the Corporations Act). The applicant submitted that these breaches were, by their nature, incapable of being remedied. 549 The applicant also submitted that an Event of Default had taken place by reason of the fact that certain Stella entities - each of which was a "Material Subsidiary " within the Terms of Issue - were required to execute, but did not execute, a Guarantee Deed Poll. 550 I pause to note that not all the matters pleaded as Events of Default in the FASOC were identified as such by Mr Borrelli in carrying out the monitoring recommended in Borrelli 1, and some of the asserted Events of Default identified by Mr Borrelli in Borrelli 2 were not relied on by the applicant in closing submissions. 551 The applicant's case is that, as at 31 January 2008, an investigative accountant appointed by the respondent would have identified multiple Events of Default and recommended that this view be confirmed by the respondent's legal advisers. According to the applicant, the respondent would have sought that advice. The respondent would also have provided copies of the documents obtained by the investigative accountant to his legal advisers to enable them to determine whether additional Events of Default had occurred which had not been included in the investigative accountant's report. Thereafter, the respondent's legal advisers would have confirmed that multiple Events of Default had occurred, and the respondent himself would have formed the view that he was entitled to call in the notes. It is important to understand that, in terms of the applicant's submissions, all the steps would have been actioned and completed at about the same time, namely the end of January 2008. Once again, the applicant placed reliance on allegations made in the respondent's statement of claim filed in the QSC Directors proceeding.

Calling in the notes 552 Having set this scene, the applicant submitted, in reliance on Mr Borrelli's evidence, that, by the end of January 2008, the investigative accountant would have advised the respondent to call in the notes. It submitted that the respondent would have accepted that advice. Based on Mr Joseph's evidence, the applicant submitted that the respondent would have required the notes to be paid within two weeks thereafter. Adopting the applicant's timeline, this means that OIN would have been required to pay the notes by, say, 14 February 2008. Once again, the applicant called in aid allegations pleaded by the respondent in the QSC Directors proceeding to support its submission. 553 The applicant submitted that there would have been no reason for the respondent not to call in the notes. It argued: …Calling in the Notes would not, on the information that would have been available to the Public Trustee, of itself put the Octaviar Group into insolvency. That is because the position as advised by Mr Korda was already that absent a standstill or compromise with large creditors, the Octaviar Group was insolvent. Calling in the Notes would not change that; if the prospect of a standstill or compromise was sufficient to avoid a conclusion of insolvency, this would be no less true after the notice was issued. Indeed, the Public Trustee could well have taken the view that calling in the Notes may motivate Octaviar to present some form of proposal to it, if there was any viable proposal to be put.

Subsequent events 554 The applicant's case is that, absent the appointment of an administrator (which Mr Korda would not have recommended) or the offer (and, presumably, acceptance) of a suitable compromise or standstill proposal, the Court should infer that the respondent would have sought to wind up OIN and the Guarantors in February 2008, based on advice to that effect which would have been given by the investigative accountant. Once again, the applicant relied upon allegations pleaded by the respondent in the QSC Directors proceeding. Mr Borrelli was more precise in Borrelli 3. He said that by no later than mid-February 2008, he would have recommended that OL (presumably OIN and the Guarantors) be wound up. 555 The applicant then submitted that OIN and the Guarantors would have been wound up "in short order". The applicant argued that it should not be inferred that there would have been substantial opposition to that course. Here, the applicant argued that reliance could not be placed on the events that actually happened in July 2008 when the respondent did seek to have the companies wound up. I will summarise these events in a later section of these reasons. For present purposes, it is sufficient to record that the applicant contended that, at that later time, circumstances were different. 556 The applicant also argued that an application in February 2008 for an order that the companies be wound up would have been based, in part, on knowledge of the PIF transaction, when those in the Octaviar Group implicated in the transaction were still in management. The applicant contrasted this position with the actual events. It argued that, in the events which did occur, there were only suspicions about the PIF transaction when the respondent moved to wind up the companies in July 2008. Further, at that time, those involved in the transaction had left the group. The applicant submitted that knowledge of the PIF transaction would have been a sufficient reason for the respondent to issue a notice under cl 5.2 of the Terms of Issue. The applicant said that, had that notice been issued, it would have led to cross-defaults by the companies under facilities with other creditors. The applicant submitted that, considered in these hypothetical circumstances, "the conclusion that the Octaviar entities were insolvent would have been irresistible". 557 The applicant argued for another possibility, which was that, in the face of a winding up application, the directors would, themselves, have moved to appoint an administrator under s 436A of the Corporations Act. Indeed, the applicant submitted that this scenario was "perhaps most likely".

The relationship between the applicant's case on breach and its case on causation 558 It is necessary to say something about the relationship of the applicant's case on causation to its case on breach. As is apparent from the summary given above, the applicant's case on causation depends on three critical matters being established. 559 The first critical matter is that, by the end of January 2008, an investigative accountant appointed by the respondent would have come, comfortably, to the view that OL was insolvent; that various Events of Default had occurred; and that OL had lost its business model. 560 The second critical matter is that, also by the end of January 2008, an investigative accountant would then have advised the respondent to call in the notes, and the respondent would have done so. 561 The third critical matter is that, on the basis that the notes were not repaid sometime in February 2008 (it would seem, on the applicant's chronology, mid-February 2008), the respondent would have applied immediately to wind up OIN and the Guarantors and that, within a short time thereafter - critically, by 29 February 2008 - winding up orders would have been made or the companies would have been placed in external administration (most likely, voluntary administration). (I pause to note that, in reply submissions, the applicant argued that its case on causation was not dependent on winding up orders being made by 29 February 2008. With reference to the particulars to para 91 of the FASOC, it argued that its case on causation extended to OIN and the Guarantors being placed in liquidation on or shortly after 29 February 2008. For present purposes, nothing turns on this slight difference). 562 The first two critical matters depend, firstly, on the appointment of an investigative accountant by July 2007; secondly, the investigative accountant providing a report on the matters sought by Mr Joseph in Joseph 1 and then, on further instructions, carrying out the very kind of detailed monthly monitoring recommended by Mr Borrelli in Borrelli 1 (it seems, from 15 August 2007 onwards); and thirdly, the investigative accountant ascertaining the matters which, in Borrelli 2, Mr Borrelli says the investigative accountant would have ascertained by carrying out that monitoring, having regard to the timing referred to in Borrelli 3. 563 Once this is appreciated, it can be seen that there needs to have been some event or circumstance which, by mid-July 2007 at the latest, would have required the respondent, as a matter of legal obligation, to appoint an investigative accountant to provide the initial report and then to carry out the particular monthly monitoring recommended by Mr Borrelli in Borrelli 1. 564 This, perhaps, explains why the applicant has advanced, in the way it has, its case on breach in relation to the duties to exercise reasonable diligence and reasonable care. That case must accommodate the case on causation the applicant has pleaded and particularised, including by reference to the 14 June 2016 and 15 June 2016 particulars. The applicant did not advance an alternative case on breach that, temporally, is later than the failure by the respondent to respond forthwith to PwC 3 in the particular way the applicant says he (the respondent) should have responded - once again, by seeking the report referred to in Joseph 1. Although trite, it is important to note that had the applicant advanced a different case on breach, it would have been necessary for it to have advanced a different case on causation. No different case on breach or causation was advanced, and no different case falls to be considered.

The use of hindsight 565 There is a critical weakness in the applicant's case on causation. I am satisfied that it is based on a hindsight analysis that is informed by Mr Borrelli's previous work for the liquidators of OL and OA. 566 By letters of instruction dated 24 June 2011 and 13 January 2012, Mr Borrelli was engaged by the solicitors for the liquidators of OL and OA to provide a report on whether OL and OA were insolvent on certain dates in 2008 and 2009. Mr Borrelli provided his report on 14 October 2012. The respondent referred to this as the Fortress Report, no doubt because it was deployed in proceedings in the Supreme Court of Queensland that had been brought by the liquidators seeking relief under s 588FF of the Corporations Act against Fortress. The Fortress Report included Mr Borrelli's investigation of the PIF transaction. When provided, the Fortress Report was 346 pages, with 490 pages of annexures. 567 To enable him to prepare the Fortress Report, Mr Borrelli was provided with approximately 10,000 documents. These documents had been sourced from a database developed by OL's and OA's liquidators. The database contained (what the respondent described as) a vast number of documents that had been obtained from OL and OA and from third parties (such as KPMG, Fortress, Freehills, Ashurst, the respondent's solicitors (Clayton Utz), KordaMentha, Deloitte, Perpetual Nominees, and one of OL's directors, amongst others) as a result of the liquidators' investigations. The documents covered a date range of 1 January 1991 to 23 February 2012, significantly broader than the date range of the events in question in the present case. The 10,000 documents provided to Mr Borrelli for the purposes of the Fortress Report were, in fact, a selection made by the liquidators' solicitors of documents considered by them to be potentially relevant to Mr Borrelli's investigation on the liquidators' behalf (the Fortress Report documents). The task of obtaining the documents from which the Fortress Report documents were selected was certainly vast. It took 1.5 years, involved a team of 11 accountants and consultants, and a number of lawyers from one firm. Up to 30 June 2011, the work in obtaining the Fortress report documents cost some $10 million. In undertaking that task, the sources of some of the documents could not be ascertained. 568 On 27 January 2016, the applicant in the instant case sought the issue of a subpoena directed to OL's and OA's liquidators seeking the production of the Fortress Report documents. On 3 February 2016, the documents were produced. They were then analysed by the applicant's solicitors, who made their own selection and provided that selection (a large number of documents) to Mr Borrelli for the purposes of preparing, initially, Borrelli 1 and, later, Borrelli 2. 569 The respondent submitted that Mr Borrelli's reports in this proceeding were fundamentally and incurably infected with an invalid hindsight analysis, given the work undertaken by him over some months in preparing the Fortress Report, and given the manner in which documents were obtained and briefed to him in this proceeding. I accept that submission. Mr Borrelli properly accepted that it would be naïve of him to suggest that he did not rely, consciously or otherwise, on what he already knew when preparing his reports in this proceeding. However, he urged the view that this knowledge did not play a material role in the views he expressed and that there was "very much a keen focus" on his part to rely only on the material provided to him. 570 Despite that sentiment, I am persuaded that the extensive work previously undertaken by Mr Borrelli in preparing the Fortress Report, and the knowledge gained by him in undertaking that engagement, must have contributed significantly to the structure and preparation of his reports in this proceeding, and the findings, opinions and recommendations expressed therein. I accept that this would be particularly so on matters such as the need for the intensive monthly monitoring he recommended in Borrelli 1 and on what an investigative accountant, in that position and undertaking that role, would have ascertained in the second half of 2007 up to 31 January 2008, including the timing when, Mr Borrelli says, an investigative accountant would have ascertained relevant facts and reached his or her findings and conclusions.

The approach to considering causation: the Borrelli reports 571 As is clear from paras 92C and 92I of the FASOC, the 14 June 2016 particulars, and the 15 June 2016 particulars, the applicant's case on causation is based, substantially, on Mr Borrelli's evidence, in particular Borrelli 1, Borrelli 2, and Borrelli 3, and Mr Joseph's response to those reports. It is appropriate, therefore, to address the applicant's case on causation by reference to Borrelli 1 and Borrelli 2, considered against the additional evidence provided by Borrelli 3. The respondent advanced a large number of criticisms in relation to these reports.

Borrelli 1: Issues 572 The main criticisms of Borrelli 1, as advanced by the respondent, are as follows.

The scope of the work required 573 The respondent submitted that Borrelli 1 is based on the unrealistic scope of work identified in Joseph 1. The respondent submitted that, for that reason, Borrelli 1 cannot be regarded as a reliable simulation of what an investigative accountant would have reported.

The scope of the documents sought 574 The respondent submitted that, having been tasked with an unrealistically wide scope of work, Mr Borrelli then made an unrealistically wide document request from OL. Here, Mr Borrelli said that he would have sought information and documents from OL by reference to the following categories (it being remembered that the Octaviar Group comprised a very large number of companies): Financial Information 1. audited financial statements since 2004 to 2007; 2. [OL's] and its material subsidiaries' management accounts (including breakdown, supporting schedules and supporting documents) since 2004 to the latest practical date; 3. general ledgers of [OL] and its material subsidiaries since 2004 to the latest practical date; 4. a listing of all bank accounts of the [Octaviar] Group and supporting bank statements since 2004 to the latest practical date; 5. a listing of receipts and payments in respect of [OL] and its material subsidiaries since 2004 to the latest practical date including the amounts and timing of material payables; 6. details of all material assets owned by the [Octaviar] Group and any valuation reports of these material assets since 2004 to the latest practical date; 7. all underlying agreements, correspondence, legal advice and court or administrative proceedings in relation to the major creditors of the [Octaviar] Group; 8. details to support the legitimacy and reliability of historical financial data and information; Cashflow/Liquidity 9. budgets, business plans, financial models, profit and loss and cashflow forecasts in respect of the [Octaviar] Group since 2004 to the latest practical date and the underlying documents substantiating these budgets, profit and loss and cashflow forecasts; 10. details of key operating metrics of the [Octaviar] Group to determine the reasonableness of operational, commercial or other assumptions associated with the forecasts and budgets of the [Octaviar] Group; 11. details of disbursement control over payments; Operational 12. all engagement letters, correspondence, written advice, presentations and reports in relation to the operational and financial affairs of the [Octaviar] Group; 13. details of any protective measures or options available to the [Octaviar] Group to safeguard against further deterioration of the financial position; 14. any plans outlining internal restructuring proposals or cost cutting measures; 15. any plans or measures to supplement existing management or structure or implementation of internal approvals in respect of monitoring and managing operations; Company/Corporate Information 16. [Octaviar] Group group chart; 17. all minutes of the board of directors and committees meetings of [Octaviar] Group; and 18. all engagement letters, correspondence, written advice, presentations and reports in relation to any equity or debt raising and realisation of assets by the [Octaviar] Group. 575 These categories were listed in Tab 2 to Borrelli 1 and constitute the document request referred to paragraph 3 of the 15 June 2016 particulars (the B1/Tab 2 categories). 576 The respondent invited the Court to find that an investigative accountant would not have sent a request to the Octaviar Group in these terms "in the real world in July 2017". The respondent submitted, alternatively, that the Court should find that the applicant has not discharged the onus of proving that an investigative accountant would have made such a request. 577 In this connection, the respondent submitted that the range of documents that Mr Borrelli said he would have requested are only appropriate for a litigant seeking to cast as wide a net as possible in order to maximise the prospects of identifying a basis to contend that in mid-2007 the respondent ought to have identified concerns about the solvency of OL or breaches of the Trust Deed, Corporations Act or other Events of Default, so as to justify the continued retainer of an investigative accountant. The respondent submitted that the information sought by reference to the B1/Tab 2 categories bears little relation to any known or suspected concerns about OL which were present in mid-2007, or any matter identified in PwC 3, on which the applicant relied as the catalyst for the appointment of the investigative accountant in the first place. The respondent submitted that the B1/Tab 2 categories reflect an attempt to "reverse-engineer" the circumstances to fit the documents that needed to be uncovered and the information that needed to come to light, to prove certain elements of the applicant's case, rather than reflecting a real-time analysis of what an investigative accountant would actually have requested, if retained by the respondent in July 2007. 578 As events transpired, Borrelli 1 was not prepared on the basis of considering the documents and information produced in response to the B1/Tab 2 categories. Rather, Mr Borrelli was provided with documents in the somewhat artificial process described above. Thus, out of the approximately 10,000 documents sought and obtained by the applicant's solicitors, Mr Borrelli was provided with a selection (not made by him), which he listed in Tab 5 of Borrelli 1 - some 1246 or 1292 documents (the number varies in submissions) (the B1/Tab 5 documents). 579 It seems that Mr Borrelli did not himself think that most of these documents (the B1/Tab 5 documents) were of much, if any, assistance. In Borrelli 1, he said that he did not consider all the documents and information with which he had been provided. Instead, he selected a subset of documents (the respondent said 24 documents) which he considered to be "relevant and necessary in forming my opinions for the purpose of this report". These documents are listed in Tab 7 of Borrelli 1 (the B1/Tab 7 documents). 580 How and why Mr Borrelli selected the B1/Tab 7 documents, and rejected the bulk of the B1/Tab 5 documents, is not explained in Borrelli 1. The respondent submitted that it was likely that Mr Borrelli selected the documents based on the extensive work he had done for the purposes of the Fortress Report. That is certainly possible. 581 In the Joint Report, Mr Borrelli expressed his expectation that the B1/Tab 5 documents (the documents Mr Borrelli was given) would have been produced in response to the B1/Tab 2 categories (the documents and information Mr Borrelli said he would have sought). However, I place little weight on that evidence. With respect, that evidence is little more than speculation on Mr Borrelli's part. His view also sits uncomfortably with his acknowledgement in Borrelli 1 that he did not review and consider all the B1/Tab 5 information and documents. If Mr Borrelli did not review and consider all the B1/Tab 5 information and documents, it is difficult to see on what basis he could then reasonably express an expectation that those documents would have been provided. 582 The respondent submitted that the Court should find that an investigative accountant, having made the request for the documents and information in the B1/Tab 2 categories, would not have been provided with the B1/Tab 5 documents. The respondent submitted, alternatively, that the Court should find that the applicant has not discharged its onus of proving the fact that the B1/Tab 5 documents would have been provided. 583 In this connection, the respondent submitted that the applicant made no attempt to prove that the B1/Tab 5 documents would have been provided to an investigative accountant who, in the real world, had been appointed in 2007 as the applicant had alleged. According to the respondent, it followed that Mr Borrelli's opinions as expressed in Borrelli 1 could not be accepted as a surrogate for those of the hypothetical investigative accountant in 2007. Further, the respondent submitted that the applicant had not proved an element of the case it had pleaded and particularised: see, in that regard, Reasons 9 at [42]. The respondent submitted further that the applicant had not proved, and had not attempted to prove, that the documents that Mr Borrelli did rely on in Borrelli 1 (the B1/Tab 7 documents) are documents that an investigative accountant would have received: see, in that regard, Reasons 9 at [85] and [94]. 584 A further aspect of the respondent's submission is that part of the role and expertise of an investigative accountant is the identification and selection of relevant documents. The respondent submitted that if it is not shown that the B1/Tab 5 documents would have been provided to an investigative accountant in 2007, then Mr Borrelli's selection of the B1/Tab 7 documents is not a reliable guide to what an investigative accountant appointed in 2007 would have done. 585 I should also mention that it was part of the applicant's particularised case that, apart from the B1/Tab 5 documents, an investigative accountant would also have had, as at July 2007, six additional documents. These documents are noted in the 15 June 2016 particulars. The respondent said that none of the six documents appears to be referred to in Borrelli 1 (or, indeed Borrelli 2) or otherwise relied on by Mr Borrelli. The applicant did not dispute that proposition.

The time to produce a report such as Borrelli 1 586 The applicants case proceeds on the basis that Mr Borrelli was appointed as an investigative account on 15 July 2007 and that Borrelli 1 was provided by 15 August 2007 - a period of some four weeks only. In Borrelli 3, Mr Borrelli opined that documents responding to the B1/Tab 2 categories would have been provided progressively over one to five days. He sought to exemplify this in the Joint Report by reference to the B1/Tab 2 categories themselves. Mr Borrelli also said that Borrelli 1 would have been preceded by two to three interim reports presented in meetings or sent by email. 587 The respondent submitted that this timeframe is wholly unrealistic given the scope of the instructions given by Mr Joseph in Joseph 1; the volume of documents to be reviewed and understood; and the size and detail of Borrelli 1. Based on Mr McCann's evidence, the respondent submitted that a report such as Borrelli 1 could only have been produced by the end of the first week in October 2007 at the earliest, and at a cost well in excess of $300,000.00 to $400,000.00.

The conclusions reached and recommendations made 588 The respondent submitted that an investigative accountant appointed in July 2007 would not have arrived at the conclusions or made the recommendations expressed in Borrelli 1. 589 To explain, in Borrelli 1 Mr Borrelli said that he was unable to conclude on the information and documents available to him in or around July 2007 that OIN and the Guarantors were insolvent. This is a curious way of putting the matter. Even though Mr Borrelli's conclusion responded to Mr Joseph's request for an opinion on whether OIN and the Guarantors were insolvent, there was, as I have already found, nothing to suggest in the evidence that there was any cause for concern as at July 2007 that OIN and the Guarantors were insolvent. Nonetheless, Mr Borrelli went on to say that, despite his inability to express a conclusion of insolvency, "the risk of insolvency was evident in about July 2007" and that this should have been a "key focus" of any assessment of the Octaviar Group, which "warranted further work and assessment". 590 It seems that this conclusion is based, in large measure, on two cash flow forecasts identified in Section H of Borrelli 1, even though Mr Borrelli accepted that these forecasts were "insufficient to reach any conclusions in respect of the solvency of [OIN] and the Guarantors". The first cash flow forecast was made as at 18 May 2007 and projected a cash shortfall of $200.7 million in June 2007 (the May 2007 forecast). The second cash flow forecast was made as at 12 June 2007 and projected a cash shortfall of $301.8 million in August 2007 (the June 2007 forecast). 591 The respondent directed a number of criticisms to the conclusion that, as at July 2007, OIN and the Guarantors faced a risk of insolvency that warranted further work and assessment. 592 First, the respondent submitted that this conclusion was reached despite the fact that: Borrelli 1 was finalised and presented without, it would seem, any (hypothetical) discussion with management at OL, particularly in relation to whether OIN and the Guarantors faced a risk of insolvency; no attempt was made to verify the accuracy or purpose of the cash flow forecasts; no attempt was made to reconcile the projections of the cash flow forecasts with the projections of the cash flow forecast actually provided to PwC in May 2007; and no attempt was made to reconcile the conclusion that there was a risk of insolvency against the Octaviar Group's audited financial statements for the year ended 30 June 2007, which became available a few days after it is said Borrelli 1 would have been finalised and presented (and which Mr Borrelli relied on in any event in preparing Borrelli 1 even though these financial statements were outside the date range Mr Borrelli set for himself). 593 Secondly, the respondent directed criticisms to the May 2007 cash flow forecast and the June 2007 cash flow forecast. It is important to note, in this connection, that there were about 110 cash flow forecasts or cash requirements forecasts provided to Mr Borrelli as part of the B1/Tab 5 documents (the Tab 5 forecasts). The cash flow forecasts appear to have been prepared as at 99 separate dates; the cash requirements forecasts comprise 11 versions prepared at various dates. The respondent submitted that the May 2007 forecast and the June 2007 forecast should be considered in the context of all the Tab 5 forecasts. Based on Mr McCann's evidence, the respondent submitted with respect to all the Tab 5 forecasts that: it is unclear who prepared them, and for what purpose; it is unclear whether they were drafts, work in progress or final documents; it could not be concluded that they were provided to auditors or other external parties; generally speaking, it is likely that they were no more than a daily treasury management tool, given that they appear to have been prepared every few days, giving daily forecasts for approximately 10 days, then weekly forecasts for about five weeks, and then monthly forecasts for about two months; they are "one-dimensional" forecasts in that they do not reconcile to the financial statements of the Octaviar Group, thus making it difficult to determine their reliability; they are incomplete in that they exclude various Octaviar Group entities and, in some cases, omit significant transactions, such as the Fortress facility; and despite showing closing cash flow deficiencies, the vast majority (according to Mr McCann 97 out of 99 cash flow forecasts) also show opening cash positive balances, thereby indicating that, in the vast majority of cases, the forecasted shortfalls never eventuated. 594 The May 2007 forecast shows an opening cash balance of $11.951 million. It projects a cash balance of $4.624 million at the end of May and a cash shortfall of $200.703 million at the end of June. In Borrelli 1, Mr Borrelli said that the May 2007 forecast showed that the Octaviar Group would have a "substantial negative cashflow shortfall from at least May 2007". Mr McCann disagreed. He said that a cash shortfall was only projected for June 2007. This reflected a need to obtain finance in June 2007 for the projected settlement of purchases for $57 million (Sunkids) and $136 million (Sunleisure). The Octaviar Group obtained the Fortress facility on 1 June 2007 in an amount that was approximately $50 million more that the requirements projected in the May 2007 forecast. Mr McCann opined that the May 2007 forecast was prepared to estimate the financing that the business would require at the end of the May/June 2007 period. I think that this is likely to be the case. 595 The June 2007 forecast appears to be part of the series of forecasts prepared from time to time as a daily treasury management tool. It shows an opening cash balance of $179.077 million, which is consistent with finance having been obtained under the Fortress facility. This negatives Mr Borrelli's statement that the May 2007 forecast and the June 2007 forecast show that the Octaviar Group would have a substantial negative cash flow shortfall "from at least May 2007". 596 As I have noted, the June 2007 forecast projected a cash shortfall of $301.8 million in August 2007. However, other cash flow forecasts in the Tab 5 forecasts show positive opening cash balances at around the end of August. For example, a forecast as at 28 August 2007 shows an opening balance of $17.028 million; a forecast as at 29 August 2007 shows an opening balance of $8.659 million; and a forecast as at 14 September 2007 shows an opening balance of $11.210 million. Mr McCann argued that this demonstrated that Mr Borrelli was wrong to rely on the cash shortfall projected in the June 2007 forecast. The June 2007 forecast was presumably prepared on the basis that the Fortress facility was to be repaid at the end of August 2007. However, before that time, the facility was extended. 597 The respondent submitted that Mr Borrelli, Mr McCann and Mr Hall all agreed on the importance of knowing the underlying assumptions before assessing the reliability of a cash flow forecast. The respondent submitted that the absence of any information about the provenance of the May 2007 forecast and the June 2007 forecast led, irresistibly, to the conclusion that they could not be relied upon to form any conclusion about insolvency. The respondent submitted that a fortiori the Court would not accept that an investigative accountant appointed by the respondent would have relied on them in the way that Mr Borrelli did in Borrelli 1. 598 Another conclusion reached by Mr Borrelli in Borrelli 1 was that the information and documents available in or around July 2007 were not sufficient to enable any conclusion to be reached as to whether OIN and the Guarantors would be able to repay the notes at the maturity date. According to Mr Borrelli, this depended on "the financial, solvency and cash flow positions of these entities". Mr Borrelli went on to say that the Octaviar Group appeared to be forecasting cash flow shortfalls in or around July 2007; the risk of insolvency of OIN and the Guarantors was evident, including as a result of the cash shortfall projections; and that there was reason to be concerned as to the ability of OIN and the Guarantors to repay the notes at the maturity date. In this latter regard, Mr Borrelli said, without elaboration, that it was "doubtful" as to whether the Octaviar Group business would be sustainable because it depended on the matching of available funds with the scheduled payment of its borrowings. He also said that the projected partial sale of Stella would likely worsen the Octaviar Group's position because the group would have less long term income after the sale. 599 The respondent challenged these conclusions on a number of bases. 600 First, the respondent submitted that the question that Mr Borrelli was asked to answer - whether OIN and the Guarantors would be able to repay the notes at the maturity date - misinterprets the test under s 283DA(a), which is directed to whether the property of the borrower and guarantors that is or should be available will be sufficient to repay the notes at the maturity date. The respondent's point was that s 283DA(a) does not ask for a wide-ranging inquiry into whether, for example, a borrower's business model is operating in a sustainable manner so as to ensure that cash flow will be sufficient to repay borrowings as and when they fall due. In other words, the inquiry is not really about (as Mr Borrelli opined) the financial, solvency and cash flow position of OIN and the Guarantors, but their likely asset position at the maturity date. 601 Secondly, the central plank of Mr Borrelli's conclusion was missing: an investigative accountant would not have concluded as at July 2007 that OIN and the Guarantors were facing a risk of insolvency. 602 Thirdly, there was no reason to think in July 2007 that the Octaviar Group's business model was not sustainable. 603 Fourthly, Mr Borrelli's concern that the partial sale of Stella would lead to less long term income was misplaced because the Octaviar Group's business model was to apply investment sale proceeds toward future investments that would replace the cash flows previously generated by the asset sold (in this case, Stella). Alternatively, the sale proceeds would be used to reduce debt, thereby reducing the level of interest payments required to be funded from ongoing income sources. Therefore, the long term net income generating ability of the Octaviar Group would not be negatively affected by the sale. 604 The respondent then turned to challenge the recommendations made in Borrelli 1. I have quoted these recommendations at [505] above. According to Mr Borrelli, these recommendations would have been made because, in or around July 2007, the Octaviar Group was facing the following "issues": the PwC reports indicated concerns by PwC in relation to the ability of OIN to meet scheduled debt repayments on the notes; the Octaviar Group's expansion of assets and business relied on heavy borrowings and disposing of assets and investments at the right time and at the optimum value, hoping to generate sources of funding for further acquisitions and expansion of the business and the repayment of borrowings; it was doubtful whether the Octaviar Group's business model would be sustainable as it was highly dependent on the matching of funds with the payment schedule of its borrowings; any mismatching between the funds available in the payment of scheduled borrowings would likely result in substantial difficulties in the business and operation of the group or even the insolvency of group entities; the Octaviar Group was seeking to sell Stella and the issues referred to immediately above would likely be worsened by the sale as the group would likely have less long-term income after the sale; the Octaviar Group had been projecting negative cash flow shortfall from at least May 2007; and notwithstanding that the information and documents available in or around July 2007 were insufficient to conclude that OIN and the Guarantors were insolvent, they evidenced the risk of insolvency which warranted further work and assessment. 605 It will be apparent that these "issues" reflect a number of conclusions or findings which have been noted above. The respondent submitted that these "issues" are either errors or do not provide a basis for the intensive monthly monitoring recommended by Mr Borrelli. The respondent submitted that the first issue proceeds on an erroneous understanding of the conclusion expressed in PwC 3 and that the last two issues simply cannot be sustained as a matter of fact, for the reasons noted above. The respondent submitted that, even if correct, the other "issues" are really no more than pejorative characterisations of features inherent in the Octaviar Group's business. 606 In the Joint Report, Mr Borrelli also advanced "the global and economic turmoil" as a reason for making his recommendations. Indeed, in concurrent evidence he advanced this as a reason for thinking that OIN and the Guarantors were at risk of insolvency. He relied on "the circumstances surrounding the global financial market in the second half of 2007" to argue that there was real doubt that the Octaviar Group would be able to acquire new strategic business assets which would be sufficient to compensate the group's long-term income-generating ability following the sale of an interest in Stella. Mr Borrelli illustrated "the global and economic turmoil" by reference to certain events and quotes from some newspaper articles, which he listed in a table in the report. As the respondent correctly pointed out, "the global and economic turmoil" was not advanced as a reason in Borrelli 1 for thinking that, as at July 2007, OIN and the Guarantors were at risk of insolvency; nor was it advanced as a reason justifying the recommendation to undertake monthly monitoring of the kind described in Borrelli 1. 607 Further, the respondent criticised Mr Borrelli's reasoning on the ground that it contained "critical flaws". The respondent submitted that recourse to "the global and economic turmoil" was an example of hindsight analysis when, in mid-2007, there was little awareness of how US events would impact on Australian markets. In this connection, the Reserve Bank of Australia's Statement on Monetary Policy dated 13 August 2007 contained the following statements: Economic data in Australia over recent months have signalled a pick-up in the pace of growth in demand and activity. Capacity utilisation is high after a lengthy period of expansion, and business and consumer confidence are strong. These conditions have been accompanied recently by higher-than-expected underlying inflation. … Growth of the Australian economy has for some time been assisted by favourable international conditions. Current expectations of official and private-sector observers are that the world economy will continue to grow at an above-average pace in both 2007 and 2008. These expectations have generally been revised upwards over recent months, with slower growth in the United States expected to be more than offset by stronger growth in China and the other major economies. … Notwithstanding the strong overall performance of the world economy, international financial markets have experienced significant volatility in recent weeks, primarily stemming from the sub-prime mortgage market in the United States. Delinquency rates in that market have been rising over the past year reflecting a marked decline in lending standards, particularly in 2006, and the expiration of discounted interest rates applying for the first two years of many of these loans. The mortgage-backed securities and the associated collateralised debt obligations based on these loans have suffered sharp falls in prices, exacerbated by a lack of liquidity in these markets. This in turn has generated problems for the holders of these products, particular those who had used leverage. … The extent to which these financial events might affect global growth remains uncertain. The main risk would appear to stem from the possibility of an excessive withdrawal of the provision of credit, which could constrain growth in spending and output, particularly in the United States. At this stage, however, the evidence continues to point to strong growth in the global economy overall. 608 The respondent also noted that: the table which Mr Borrelli included in the Joint Report was "almost identical" to a table also set out in the Fortress Report; and one source relied on was a BBC News article dated 7 August 2009, which could only be based on hindsight. 609 In the Joint Report, Mr Borrelli said that the ultimate impact of the global financial crisis would not have been known to an investigative account in July 2007 but "these developments" (meaning, the global financial crisis) were alone sufficient to warrant or justify short term monitoring. Mr Borrelli said that the Reserve Bank statement quoted above "cannot refute what has been happening and widely reported in relation to the distressed state of economy at that time". For his part, the respondent submitted that it was far-fetched to suggest that occasional media reports on US sub-prime mortgage markets would be enough to justify a trustee in the position of the respondent to undertake "invasive and costly monitoring" of the kind recommended in Borrelli 1. 610 Based on Mr McCann's evidence, the respondent submitted that the scale of the monthly monitoring recommended by Mr Borrelli was not appropriate. Mr McCann's evidence was to the effect that: the scale of the Octaviar Group was such that it was not practical or effective to review financial and operational information on a monthly basis; given the business model of the group, transactions that would impact on the ability to repay the notes at the maturity date would not materially move in the space of a month, without disclosure to the market; any material changes in position, such as business sale events, would be identified by the review of ASX announcements and the ongoing monitoring of the Octaviar Group, which had continuous disclosure obligations in accordance with the ASX Listing Rules; the monthly monitoring recommended by Mr Borrelli was substantial in scope in relation to the documentation proposed to be requested and reviewed, which went beyond what would be expected of an investigative accountant undertaking monthly monitoring due to the time and costs involved in undertaking such a detailed scope of work; the information sought by Mr Borrelli was onerous given that (in Mr McCann's estimation) it would take management four weeks to prepare and collate the information and a further three to four weeks for the investigative accountant to prepare a monthly report; the monitoring recommended by Mr Borrelli was in the nature of an ongoing investigation into the affairs of the Octaviar Group rather than the monthly monitoring of its performance and events; and the Octaviar Group provided quarterly compliance reports and the respondent had those reports as well as the group's annual accounts and half yearly accounts. 611 Mr McCann said that, in particular, obtaining the following information was not warranted: breakdown schedules and underlying supporting documents for the monthly management accounts; underlying supporting documentation for the monthly summary of outstanding loan balances; the full set of ledgers for the Octaviar Group; underlying supporting documentation for the monthly summary of account balances of each bank account; internal correspondence in relation to cash flow positions; all associated correspondence in relation to all asset acquisitions or disposals; all associated correspondence in relation to the proposed sale of Stella; all correspondence with and any documentation provided by legal advisers, lenders and investors in respect of any current or potential financing; summaries of the measures established to identify or avoid actual and potential breaches of the Trust Deed, Terms of Issue, Guarantee Deeds Poll and the Corporations Act; and weekly confirmation from OIN and the Guarantors on whether any breaches had been identified. 612 Mr McCann said that if he were requested to undertake the scope of works proposed by Mr Borrelli on a monthly basis, it would take a total of seven to eight weeks from the end of the month to issue a report to the respondent. He said that the time taken to analyse the information could result in the report being out of date when eventually issued. 613 The respondent submitted that the Court should find that the applicant has not established that an investigative accountant of ordinary competence, who was engaged by the respondent to provide the report sought by Mr Joseph in Joseph 1, would have been led to advise the respondent to undertake monthly monitoring of the Octaviar Group, whether of the kind recommended by Mr Borrelli in Borrelli 1 or any other kind of monthly monitoring. If this is accepted then the applicant's counterfactual case falls away because it is based on the investigative accountant undertaking monthly monitoring from August 2007 onwards.

Mr Joseph's response to Borrelli 1 614 It is convenient at this point to consider Mr Joseph's response to Borrelli 1. Mr Joseph said that he would accept Mr Borrelli's findings and recommendations because they appeared to be "entirely reasonable in all the circumstances". In Joseph 2, Mr Joseph explained the reason for his acceptance. He said "the company" was in a precarious financial position and needed to be monitored closely. In this connection, he said that an investigative accountant "knows and understands the company better than the corporate trustee following its review" and that the investigative accountant had expertise that the trustee would not have had. 615 The respondent submitted that the Court should reject Mr Joseph's evidence in this regard and find that it has not been established that any prudent trustee would have decided to undertake monthly monitoring. The respondent submitted that it was clear that Mr Joseph had brought no expertise to bear on the question and had exercised no independent judgment on the point; he simply adopted, wholesale, Mr Borrelli's recommendations without considering the cost or time to be expended on such a monitoring regime or whether and to what extent it was properly required by the duties of a trustee. 616 The respondent also submitted that the absence from Mr Joseph's reasoning of any consideration of the Octaviar Group's audited financial statements for the year ended 30 June 2007 was very revealing. The respondent submitted that it was not clear in the applicant's evidence as to when, in August 2007, Mr Joseph would have received and considered Borrelli 1. It submitted that, nevertheless, it was obvious that no prudent debenture trustee would, in the circumstances of August 2007, make decisions and take actions of the kind suggested in Joseph 2 without waiting for the Octaviar Group's audited financial statements which were, by 15 August 2007, at least imminently due. 617 Relatedly, the respondent submitted that Mr Joseph made no attempt to explain how it could be said that, as at August 2007, "the company" was in a precarious financial position. The respondent submitted that this view was not expressed in Borrelli 1 and, in any event, could not be reconciled with the Octaviar Group's audited financial statements for the year ended 30 June 2007. 618 In Joseph 2, Mr Joseph said that he would have shown Borrelli 1 to the Octaviar Group and sought the directors' comments on it. The respondent submitted that, if that be so, it was obvious that the directors would have asserted that, given the audited financial statements for the year ended 30 June 2007, the conclusions in Borrelli 1 were fundamentally incorrect (the respondent submitted that Mr Borrelli's reliance on the cash flow forecasts was misplaced for the reasons advanced) and the purported solvency risks identified by Mr Borrelli were non-existent. The respondent submitted that the directors would have objected to the recommended "invasive" monthly monitoring regime on that basis alone. The respondent submitted that Mr Joseph's approach was an ex post facto contrivance calculated to serve the forensic purposes of the applicant in this proceeding, and nothing else.

Borrelli 1: Conclusion on issues 619 I do not propose to make a finding on each and every argument summarised above. It is not necessary for me to do so in order to reach a conclusion on this part of the applicant's case on causation. 620 I have found that reasonable diligence and reasonable care did not require the respondent to appoint an investigative accountant as envisaged by Mr Joseph or to seek a report of the kind provided in Borrelli 1. Indeed, I have concluded that such a report was, at the time, completely unnecessary in order for the respondent to discharge his duties to exercise reasonable diligence and reasonable care in light of the reviews already undertaken by PwC at the respondent's request. Therefore, on my findings, the occasion for a report such as Borrelli 1, and hence the occasion for making its recommendations, would not have arisen, as the applicant's counterfactual case requires. Hence, I accept that Borrelli 1 is based on an unrealistic scope of work and, further, that a request for documents according to the B1/Tab 2 categories would have been an unrealistically wide request in the circumstances. 621 Further, I am not prepared to find that the B1/Tab 5 documents are the documents that would have been provided to an investigative accountant in response to a request made in accordance with the B1/Tab 2 categories, had such a request been made. I have recorded the circumstances in which the B1/Tab 5 documents came to be produced to Mr Borrelli - they were a selection made by the applicant's solicitors from the greater body of documents made available to Mr Borrelli for the purposes of preparing the Fortress Report. There is no evidence before me of the evaluative process undertaken by the applicant's solicitors to select the B1/Tab 5 documents from the bulk of the documents they obtained under subpoena, including what documents might have been rejected as part of that process. I do not even know who undertook that process and cannot reach any conclusion as to the suitability or competence of the person or persons involved. 622 Further, as I have noted, Mr Borrelli did not consider all the B1/Tab 5 documents in any event. Rather he relied on documents (namely, the B1/Tab 7 documents) which he considered to be "relevant and necessary" in forming his opinions in Borrelli 1. This, in fact, illustrates the artificiality of the framework on which the applicant's case on causation proceeds. If Mr Borrelli did not even review all the B1/Tab 5 documents - which were intended to simulate the corpus of information which would have been provided pursuant to the B1/Tab 2 categories - then this plainly suggests that the B1/Tab 2 categories represent an unrealistically wide document request. I cannot help but think that if the B1/Tab 2 categories had been a realistic request for information which the investigative accountant thought necessary to carry out his or her engagement, then he or she would have reviewed and considered the documents produced pursuant to that request. Mr Borrelli did not do so because, other than for the B1/Tab 7 documents, the B1/Tab 5 documents were not relevant or necessary for the task at hand. 623 On the evidence before me, I am unable to determine with any reasonable precision, what documents, in fact, would have been provided to the investigative accountant in July 2007 to enable him or her to prepare the report sought by Mr Joseph. However, given the scope of the B1/Tab 2 categories (assuming, contrary to my finding, that they represent a realistic attempt to obtain information for the purpose of preparing the report sought by Mr Joseph), and given the apparent size of the Octaviar Group, I am not persuaded that documents responsive to that request would have been provided within the timeframes suggested by Mr Borrelli. Mr Borrelli argued that the documents would have been provided progressively over one to five days. I consider this to be a completely unrealistic timeframe. 624 Further, the applicant's case is that Borrelli 1 would have been produced within one month of a document request, according to the B1/Tab 2 categories, having been made. I accept the respondent's submission that this timeframe is, too, wholly unrealistic given the scope of the instructions in Joseph 1; the volume of documents to be reviewed and understood; and the size and detail of Borrelli 1 itself. 625 Mr McCann's evidence provides a different timeframe. In this connection, Mr McCann opined that a report such as Borrelli 1 could only have been produced by the end of the first week in October 2007. Mr McCann's evidence was that it would likely take four weeks to produce the B1/Tab 5 documents (assuming them to be a response to the B1/Tab 2 categories); seven to eleven weeks to review the B1/Tab 5 documents for the purpose of preparing Borrelli 1; and an additional week to supply a draft of the report to OL for comment. This represents a period of 12 to 16 weeks from start to finish. 626 I am not persuaded that this period of time would be required. I think that the period for review would likely be considerably less than Mr McCann estimated, although I accept that it might well take up to four weeks for the Octaviar Group to produce all the documents requested. In any event, I am not persuaded that, realistically, a report such as Borrelli 1 would have been provided at any time close to 15 August 2007, as postulated in the applicant's case on causation. I am satisfied that such a report would have been provided some weeks later at the earliest and most likely after the 2007 Annual Report for OL had been released to the market on 21 August 2007, assuming the process of preparing the investigative accountant's report to have started from 15 July 2007 (the applicant's assumed starting date for making a document request). This has the consequence that the applicant's timeline for the balance of its case on causation is disrupted significantly because the respondent would not have had the report and its recommendations by the date assumed by Mr Joseph in Joseph 2. As a result - and assuming that the respondent would have given the instruction which Mr Joseph says the respondent should have given - the investigative accountant would not have commenced his or her monthly monitoring until much later in the piece. 627 Further, as I have noted, although Mr Borrelli was unable to express a conclusion on whether OIN and the Guarantors were insolvent, he said that the "risk of insolvency" was evident in about July 2007 and that this should be a "key focus" of any assessment of the Octaviar Group, including OIN and the Guarantors. 628 I am not persuaded that this is a conclusion which an investigative accountant would have reached in mid-August 2007 and communicated to the respondent. It is based, substantially, on the cash flow forecasts I have discussed above. Although I am unable to determine with reasonable precision what documents, in fact, would have been provided to the investigative accountant in July 2007 to enable him or her to prepare the report sought by Mr Joseph, I am satisfied that an investigative accountant would not have been provided with the cash flow forecasts on which Mr Borrelli relied. I accept the respondent's criticisms of those forecasts as expressed through Mr McCann's evidence, which I have summarised above. Further, I am not prepared to assume that forecasts of that nature would have been provided to an investigative accountant appointed by the respondent. Even if I were to assume that forecasts of that nature would have been provided, I am not satisfied that, having regard to their obvious deficiencies, an investigative accountant would have placed any reliance on them to express a view about the solvency of OIN or the Guarantors. 629 As I have noted, in the Joint Report, Mr Borrelli advanced "the global and economic turmoil" as a reason for expressing the view that the "risk of insolvency" in respect of OIN and the Guarantors was evident as at July 2007. This is not a view exposed in Borrelli 1, but it was developed in the Joint Report and was the subject of concurrent evidence. I accept the respondent's submission that this aspect of the applicant's case is another indicium of a hindsight analysis. I prefer the Reserve Bank's Statement on Monetary Policy dated 13 August 2007 as reflecting a considered view of the state of the Australian and world economies at the time, rather than Mr Borrelli's selection. The Reserve Bank's conclusion was that, despite a degree of volatility in financial markets attributable to the sub-prime mortgage market in the United States of America, the evidence then available continued to point to strong growth in the global economy overall. 630 Further, I am not persuaded that an investigative accountant would have concluded in mid-August 2007 that there was reason to be concerned that OIN and the Guarantors would not be able to repay the notes at the maturity date, based on the Octaviar Group's business model. The risks posed by that model were known and, I have no doubt, appreciated by the respondent and the noteholders. But, contrary to Mr Borrelli's statement in Borrelli 1, I am not persuaded that an investigative accountant would have reached the view, at that time, that it was doubtful that the Octaviar Group's business would be sustainable. This statement was not explained in Borrelli 1 beyond the obvious fact that such a model depends on the ability to buy and sell assets profitably and to have funds available, whether through cash, debt or equity, to meet outgoings in the meantime. 631 Stella was one such asset. It was profitable. It was the Octaviar Group's intention to sell down an interest in it, but, as at July 2007, it was not anticipated that that interest would be sold until after the first quarter of the 2008 financial year. The cash flow forecast provided to the respondent on 11 May 2007 showed that, absent a sale of Stella, OL was still cash flow positive as at 30 June 2007 in an amount of $270 million. Moreover on 16 August 2007, OL had announced to the market that its tourism business, which made up more than 55% of OL's ongoing recurrent earnings, was continuing to perform strongly and in excess of OL's then budget expectations. As events transpired, on 28 November 2007, OL announced that it would retain 100% ownership of Stella because it wanted to capitalise on the continuing strength of the business and the tourism and travel sectors of the market. It was management's view that, after reviewing year-to-date results, a withdrawal of the partial sale of Stella was in the best interests of shareholders. 632 I am not persuaded that, if an investigative accountant had made inquiries about the strength of the Octaviar Group's business, and of the strength of Stella in particular, OL would have informed the investigative accountant differently. Further, there is no evidence before me that throws doubt on the accuracy of the above statements at the time that they were made by OL. 633 Absent any demonstrable concern about the solvency of OIN and the Guarantors or about the viability of the Octaviar Group's business model into the future, I am not persuaded that, in mid-August 2007, an investigative accountant would have made a recommendation for the ongoing monitoring of the Octaviar Group with the periodicity, scale and scope recommended in Borrelli 1. I prefer, and accept, Mr McCann's evidence in this regard, which I have summarised above. 634 It follows that, in the counterfactual world advanced by the applicant, there would not have been the recommendation on which Joseph 2, and then Borrelli 2, proceed. There may have been some other recommendation, but the applicant's counterfactual case, as pleaded and particularised, including by reference to the 14 June 2016 particulars and the 15 June 2016 particulars, does not provide an alternative scenario. I accept the respondent's submission that, in light of this conclusion, the balance of the applicant's counterfactual case falls away. Even so, I propose to deal with it. 635 Before doing so, it is appropriate that I make further comment on Mr Joseph's evidence. As noted above, Mr Joseph read Borrelli 1 as reporting that OL was in a precarious financial position. This is not a correct reading of the report. In any event, I do not accept that an investigative accountant, acting reasonably, would have reported to the respondent in mid-August 2006 that OL, the Octaviar Group, or OIN and the Guarantors were in a precarious financial position. Thus, Mr Joseph's principal justification for appointing an investigative accountant to carry out the monitoring recommended in Borrelli 1 is absent, with the consequence that, for this reason alone, the applicant's counterfactual case falls away.

The structure of Borrelli 2 636 I commence this section of the reasons by making some observations about the structure of Borrelli 2. 637 Borrelli 2 purports to be the report that Mr Borrelli would have provided as an investigative accountant pursuant to the engagement recommended in Borrelli 1. The recommendation made in Borrelli 1 was for monthly monitoring to be undertaken. The terms of Mr Borrelli's engagement, following the recommendations made in Borrelli 1, are contained in Tab 1 of Borrelli 2. In this connection, Mr Borrelli was asked by the applicant's solicitors to assume that he had been appointed on an on-going basis in August 2007 as an investigative accountant to monitor the financial position of the Octaviar Group. To this end, he was requested to prepare a report at the end of each month (until advised otherwise) on: the financial position of OIN and the Guarantors; whether OIN or the Guarantors were insolvent; whether there had been breaches of the Trust Deed, Terms of Issue, Guarantee Deed Poll and/or the Corporations Act; whether OIN and/or the Guarantors would be able to repay the amounts owing under the notes on the maturity date; and what appropriate action he would recommend the respondent to take in light of his findings on the above matters. 638 Despite the terms of his engagement, Mr Borrelli did not provide a series of discrete monthly reports reporting on each of these matters. Rather, Borrelli 2 is one report covering the entire period from mid-August 2007 to the end of February 2008. 639 The respondent submitted that the structure of Borrelli 2 is such that it cannot be read as providing information, recommendations and documents on a monthly periodic basis over that time. The respondent submitted that one cannot tell from Borrelli 2 what documents and information the investigative accountant would have received monthly. Thus, the respondent argued, Borrelli 2 cannot provide the foundation it purports to provide for Mr Joseph's subsequent report (Joseph 3). 640 At an earlier stage in the hearing, the respondent argued that Joseph 3 should be rejected on this basis. I considered this objection in Reasons 9, where it is referred to as the disconformity argument. I did not reject Joseph 3 but, in the course of considering the objection, I did express the view that I had some difficulty in reading Borrelli 2 in the way in which the applicant argued that it should be read - namely, one report which, in fact, covers monthly reporting on a progressive basis, showing the information that the investigative accountant would have ascertained in carrying out his assignment. Having reflected further on the matter, I have no reason to change the view I then expressed. I think that the structure of Borrelli 2 is another indicium that the applicant's case on causation is affected by a hindsight analysis. It is directed to an endpoint in February 2008, but glosses over important questions of sequence and timing. 641 Borrelli 3 was tendered as a "repairing" report to clarify the sequence and timing of certain events recorded in Borrelli 2. Thus, Borrelli 2 must be read in light of Borrelli 3. The respondent pointed to one consequence of reading Borrelli 2 in this way: the information requests that Mr Borrelli said should be made in the draft August 2007 letter (see [381] above) were, by the time of Borrelli 3, transformed into different requests as at November and December 2007. I have referred to these matters in my summary of the applicant's second counterfactual. They represent a considerable embellishment of Borrelli 2. 642 To recapitulate, in Borrelli 3 Mr Borrelli said that, from November 2007, he would have accelerated his monitoring because of certain "red flags" (Mr Borrelli identified these in Borrelli 2 as the Octaviar Group's inability to raise equity and/or debt, and its cash flow shortfalls). In this regard, Mr Borrelli said that he would have requested more detailed and specific information and documents in respect of the Octaviar Group's financial and operational affairs. Mr Borrelli said that, from December 2007, he would have further accelerated the monitoring process to an almost daily basis with his communications being adjusted to rely more heavily on more expedient and efficient means of communication.

Criticisms of Borrelli 2 643 The respondent criticised Borrelli 2, read in light of Borrelli 3, on a number of grounds. I will deal with some of these criticisms now and defer for later consideration the criticisms made by the respondent in respect of Mr Borrelli's recommendation in Borrelli 2 to wind up OIN and the Guarantors, and Mr Borrelli's analysis and reliance on the PIF transaction.

The scale and scope of the recommended monitoring 644 The respondent submitted that even monthly monitoring in terms of the draft August 2007 letter would not have been appropriate, given the size and complexity of the Octaviar Group. In this connection, the respondent repeated the submission based on Mr McCann's evidence, which I have recorded at [610]-[611] above. The respondent submitted that Mr McCann's evidence should be accepted because it reflects the commercial reality of what would have been involved in undertaking such a wide-ranging review each month, which (on Mr McCann's evidence) would take many weeks at a cost of tens of thousands of dollars (to be met by the Octaviar Group), when none of the circumstances in August 2007 justified such an "invasive" process. 645 The respondent submitted that Mr Borrelli's evidence was based on increasingly implausible requests for information culminating, in December 2007, in access to perfect, real-time information on all aspects of every facet of the Octaviar Group's business, as if the investigative accountant were effectively embedded within the Octaviar Group's management team. According to the respondent, Mr Borrelli saw himself as a quasi-director or auditor of the Octaviar Group. The respondent submitted that the applicant has not identified any lawful basis on which the respondent could have insisted on an investigative accountant having the kind of access to the Octaviar Group's business in December 2007 as Mr Borrelli envisaged. Concomitantly, the respondent submitted that the proposition that the Octaviar Group would voluntarily have granted such access is so unlikely as to be fanciful. The respondent submitted that the ever-intensifying monitoring postulated in Borrelli 3 should be seen as a mere buttress for conclusions that Mr Borrelli had already reached utilising fully the advantages of hindsight. 646 The respondent submitted that, if it be accepted that an investigative accountant of ordinary prudence would not have undertaken the work described by Mr Borrelli as at August 2007, then the essential factual foundation for what Mr Borrelli says he would have discovered and would have done after August 2007 is missing. Accordingly, the opinions expressed by Mr Borrelli after August 2007 should be afforded little, if any, weight.

What documents would have been produced? 647 As with Borrelli 1, the respondent criticised the basis on which documents were provided to Mr Borrelli. For the purposes of Borrelli 2, the applicant's solicitors provided Mr Borrelli with 4,514 documents. The documents are listed in Tab 3 of Borrelli 2 (the B2/Tab 3 documents). Like the B1/Tab 5 documents, the B2/Tab 3 documents were selected and briefed from the 10,000 documents produced by OA's liquidators under subpoena. 648 Given the way in which the applicant has structured its case, I take the B2/Tab 3 documents to be the documents which, the applicant says, would have been produced pursuant to the request contained in the draft August 2007 letter. In the evidence, there was no direct attempt to correlate the B2/Tab 3 documents with the named categories in the draft August 2007 letter, and there is no complete correlation. The applicant's case proceeded as if the categories in the draft August 2007 letter were sufficiently broad to cover the B2/Tab 3 documents. They might be. But as with the B1/Tab 5 documents, there is no evidence before me of the selection process that was undertaken. I refer in particular to the comments I have made at [621] above which apply equally here. 649 Moreover, as the B2/Tab 3 documents were produced to Mr Borrelli in one group, there was no attempt to show which of the B2/Tab 3 documents would have been provided to the investigative accountant in any particular month of the hypothetical engagement. As I have noted above, the respondent submitted that one cannot tell from Borrelli 2 what documents and information the investigative accountant would have received monthly. 650 Once again, it does not appear that Mr Borrelli thought that most of these documents were of assistance. In Borrelli 2, Mr Borrelli said that he only considered and reviewed the information and documents which he considered to be relevant and necessary in forming the opinions expressed in Borrelli 2. These documents are listed in Tab 5 of Borrelli 2 (the B2/Tab 5 documents). According to the respondent, there are 140 such documents. 651 In the Joint Report, Mr Borrelli went further and said that it is unlikely that he would have received all the B2/Tab 3 documents. The respondent submitted that Mr Borrelli's acknowledgement that he would not have received all the B2/Tab 3 documents, let alone reviewed and considered them, meant that a crucial threshold fact, on which Borrelli 2 depended, is missing. The respondent argued that, for this reason, Borrelli 2 cannot be given weight as an accurate simulation of the opinions that would have been expressed by such an accountant. 652 The view that an investigative accountant, conducting monthly monitoring as envisaged by Borrelli 1, would not have received all the B2/Tab 3 documents was supported by Mr McCann. Mr McCann said: 364 As with the information requested by Mr Borrelli for the initial Investigative Accountant report, I have not seen such a volume of documents requested and provided to undertake an Investigative Accountant review and it is unrealistic to consider that an Investigative Accountant conducting monthly monitoring would be provided with the documents set out in Tab 3 of the Second Borrelli Report. This is for many of the same reasons as set out at paragraph 346 of this report, being: a The volume of documents sought is too large; b The documents are outside what is required considering a reasonable scope of works for such a monitoring review; c Some of the documents are from external third parties and are unlikely to have been available to an Investigative Accountant; d The volume of documents would take too long to review; and e Management may not have provided certain documents where their provision may have compromised management. 365 Monthly monitoring is ordinarily undertaken to monitor operational performance against budget, identify events or progress of transactions against certain milestones. Accordingly, the large volume of information contained in Tab 3 of the Second Borrelli Report is not appropriate to review or analyse for this purpose.

How long would it take to produce the documents and a report? 653 The respondent submitted that the applicant has not proved that an investigative accountant would have been provided with documents within the timeframes it had alleged. In this connection, the applicant's particularised case, having regard to the 15 June 2016 particulars, is that, having made a request for documents in terms of the draft August 2007 letter, the investigative accountant would have obtained the B2/Tab 3 documents: … within a short time, no more than a matter of weeks and as the financial position of the [Octaviar Group] became even more dire throughout the second half of 2007, the Respondent ought to have demanded documents be provided on a much shorter time frame, meaning the documents and information were likely to have been supplied within days of the request or soon after their creation, where there was a recurring request for information (such as monthly management accounts and cash flows). 654 The applicant also included within this timeframe the receipt of the six additional documents it had noted in the 15 June 2016 particulars. Why these documents are included is not clear given that, according to the applicant's particulars, the investigative accountant would already have had these documents in July 2007. Further, as I have noted above, none of these documents appears to have been referred to in Borrelli 1 or Borrelli 2. 655 In Borrelli 3, Mr Borrelli sought to address the question of timing by reference to the following summary of the eighteen categories in the draft August 2007 letter: 43.1 financial and operational information - including monthly management accounts, supporting schedules for these management accounts, loan agreements and general ledgers; 43.2 cash flow/liquidity - including weekly cashflow projections and internal correspondence in relation to cashflow positions; 43.3 sale and purchase of assets - including internal and external correspondence in relation to the status of assets acquisition and disposal; 43.4 lenders/creditors - including agreements entered into between the MFS Group entities and their (intercompany and external) lenders/creditors and associated correspondence; and 43.5 fund raising - including correspondence and documentation provided by legal advisors, lenders and investors in respect of any current or potential financing. 656 In Borrelli 3, Mr Borrelli said that most, if not all, of the information and documents were financial and operational information and documents which, in his experience, were readily available for companies like the Octaviar Group and could be provided swiftly and in batches. For example, in relation to a request made in August 2007, he said that he would be able to receive and start reviewing and considering some of the documents in one to two days, and most in seven to ten days. He opined that he would have received, reviewed and considered all the information and documents within a month. Mr Borrelli said that a similar pattern would have been followed in each ensuing month. In other words, based on the same pattern, he would have been able to provide a report for a given month by the end of the following month. He said that he would have prepared written reports and met with the respondent in respect of his work and findings on a regular basis. He said that he would have provided interim reports on a weekly basis and at least one substantial monthly report. 657 In the Joint Report, Mr Borrelli went further. Rather than stating when certain categories of documents could have been provided (as he had in Borrelli 3), Mr Borrelli purported to state when categories of documents would have been provided. 658 The respondent submitted that, while Mr Borrelli could express an opinion as to when categories of documents could and might have been provided, he had gone too far in the Joint Report in seeking to give evidence as to when categories of documents would have been provided. The respondent submitted that Mr Borrelli's latter opinions were no more than guesses which he was in no better position to make than anyone else. 659 On the assumption that monthly periodic reviews were being undertaken as recommended in Borrelli 1, Mr McCann said it would take in the range of seven to eight weeks from month-end to produce the information and documents sought in the draft August 2007 letter, and to complete a monthly report. He said that it would not be practicable for the Octaviar Group finance team to collate all of these documents during the three week period while their attention was primarily focused on the preparation of management accounts. He said that the provision of these documents would have taken an additional week, bringing the total period of time to provide documents to an investigative accountant to four weeks. He also said that the proper consideration and analysis of the volume of documents sought by the draft August 2007 letter, and the preparation of a report, would be "a considerable exercise" which would require an additional two weeks. 660 In response, Mr Borrelli considered Mr McCann's timeframes to be "exaggerated", primarily as a result of a "passive approach" to monitoring. Mr Borrelli said that his approach was more realistic taking into account "the circumstances facing" the Octaviar Group and bearing in mind the ultimate objective of the investigative accountant to protect the interests of the noteholders.

Other criticisms 661 In dealing with Borrelli 2, the respondent also advanced a number of submissions which are really of a peripheral nature and do not engage with the substance of the monitoring which Mr Borrelli said he would have undertaken or the recommendations he would have made. Given their nature, I do not propose to deal with them. They do not affect the conclusions to which I have come.

Borrelli 2: Conclusions on issues 662 As with the respondent's criticisms of Borrelli 1, I do not propose to make a finding on each and every argument summarised above in respect of Borrelli 2. Once again, it is not necessary for me to do so in order to reach a conclusion on this part of the applicant's case on causation. 663 As I have stated, I am not persuaded that, in mid-August 2007, an investigative accountant would have made a recommendation for the ongoing monitoring of the Octaviar Group with the periodicity, scale and scope recommended in Borrelli 1. I accept, therefore, the respondent's submission that the essential foundation for what Mr Borrelli says he would have discovered and would have done after mid-August 2007 is missing. 664 Further, I am not prepared to assume, let alone find, that all the B2/Tab 3 documents would have been provided to an investigative accountant in response to a request made in accordance with the draft August 2007 letter. First, as I have noted, in the Joint Report Mr Borrelli acknowledged that it is unlikely that he would have received all the B2/Tab 3 documents. Secondly, as with the B1/Tab 5 documents, there is no evidence before me to show how the B2/Tab 3 documents were selected by the applicant's solicitors. Thirdly, as with the B1/Tab 5 documents, Mr Borrelli did not consider all the B2/Tab 3 documents. Rather, he relied on the B2/Tab 5 documents which he considered to be relevant and necessary in forming his opinions in Borrelli 2. Given that the B2/Tab 3 documents were intended to simulate the response that would have been made to the draft August 2007 letter, and given that Mr Borrelli considered only the B2/Tab 5 documents to be "relevant and necessary", I am left to conclude, as I did with the B1/Tab 2 categories, that the request in the draft August 2007 letter is unrealistically wide. This reinforces my conclusion that, contrary to Mr Borrelli's opinion, an investigative accountant, in mid-August 2007, would not have recommended monitoring on the scale or scope recommended in Borrelli 1. 665 Despite the evidence he had given in his reports, Mr Borrelli appeared to accept this in concurrent evidence: MR BORRELLI: … I would like to clarify one thing. I don't think I'm - well, I'm not suggesting, and I think the report makes clear I'm not suggesting, that an IA would sit down every month and go through every general ledger, and go through every bank statement, and go through every piece of internal correspondence. What I'm saying is that you should have access, and you should warn the company that you will want - you may want access to that level of information, and there may be particular circumstances that will lead you to a specific request within the general ledger, within the bank statements. … 666 This concession is a departure from the recommendation made in Borrelli 1 that the investigative accountant's monthly monitoring be undertaken with reference to the eighteen categories of documents sought by the draft August 2007 letter. It leaves unclear what documents, in fact, the Octaviar Group would have been required to produce to the investigative accountant each month, as a matter of process. Moreover, somewhat inconsistently with this evidence, in Borrelli 2, Mr Borrelli did in fact proceed as if going through every piece of internal correspondence when providing his commentary on the Octaviar Group's "ability to raise funding and associated events" and the PIF transaction. 667 The applicant submitted that the B2/Tab 3 documents had been described by category and that no suggestion had been made that the descriptions given were inaccurate. The applicant also submitted that the documents fell within categories of documents which the investigative accountant would have sought. However, the true position is that the descriptions in B2/Tab 3 are very general. The documents themselves have not been tendered. I have no idea of their contents beyond the very general descriptions given. The descriptions given also indicate that the documents come from a variety of sources. In the circumstances, I am unable to determine with reasonable precision what documents would have been provided, each month, to the investigative accountant in the period mid-August 2007 to mid-February 2008 in response to the draft August 2007 letter, beyond obvious documents like the Octaviar Group's monthly management accounts. 668 Despite Mr Borrelli's oral evidence quoted above, the assumption in Borrelli 2 is that the investigative accountant would have received all the B2/Tab 5 documents. But a review of Tab 5 of Borrelli 2 indicates that the B2/Tab 5 documents also come from a wide variety of sources. No effort has been made to demonstrate which of the documents would have been available to the investigative accountant, let alone available according to the sequence and timing expressed in Borrelli 3, to allow for the progressive opinions expressed by Mr Borrelli in that respect. 669 I appreciate, of course, the difficulty facing the applicant in proving its case on causation. I would accept that some number of the documents on which Mr Borrelli relied would have been available to the investigative accountant at some time during the period. I have in mind, in particular, the Octaviar Group's monthly management accounts. But the artificial framework the applicant has employed for providing documents to Mr Borrelli, as the hypothetical investigative accountant, gives me no confidence that an investigative accountant engaged in mid-August 2007 to carry out the monitoring recommended in Borrelli 1, would have had all the documents on which Mr Borrelli in fact relied in expressing his opinions in Borrelli 2, or would have had all those documents in a timely manner. For example, I am not persuaded that an investigative accountant would have had the cash flow forecasts on which Mr Borrelli relied or the various and numerous pieces of correspondence to which he referred in piecing together his narrative of events dealing with the Octaviar Group's "ability to raise funding and associated events" and the PIF transaction. It is not enough for the applicant to say, as it did in reply submissions, that all the documents actually relied on by Mr Borrelli fell within the "categories" he said a prudent investigative accountant would have requested. For example, if it be accepted (for the sake of argument) that an investigative accountant would have sought cash flow forecasts, it simply does not follow that he or she would have been provided with the actual cash flow forecasts on which Mr Borrelli, in fact, relied. Indeed, I am positively satisfied that the investigative accountant would not have had those particular forecasts. 670 Further, it is one thing to investigate past events (as Mr Borrelli did in preparing the Fortress Report) and, in that process, discover, by various means, documents and information that would enable facts to be found and conclusions to be reached about those events. But this does not simulate the task of ascertaining information, and finding facts and reaching conclusions, in real time, as events are unfolding. It is proof involving the latter task which confronts the applicant. It has not undertaken this task beyond reliance on Mr Borrelli's evidence. 671 In this connection, Mr Borrelli said in Borrelli 3 that documents responding to the draft August 2007 letter were mostly of a financial or operational nature which, in his experience, are readily available to companies such as those in the Octaviar Group. He said that such documents could be provided swiftly. 672 There are a number of difficulties with this evidence. It addresses the call of the draft August 2007 letter rather than the B2/Tab 3 documents (which, on the applicant's case, are the documents that would have been provided to the investigative accountant in response to the draft August 2007 letter) or the B2/Tab 5 documents (which are the documents Mr Borrelli considered to be relevant and necessary for the opinions expressed in Borrelli 2 and on which he, in fact, relied). There is an absence of evidence establishing a link between the call of the draft August 2007 letter and the B2/Tab 3 documents themselves. The corpus of the B2/Tab 3 documents is the product of unexplained work undertaken by the applicant's solicitors which finds its source in the extensive information-gathering exercise undertaken by the liquidators of OL and OA to enable Mr Borrelli to provide the Fortress Report. As I have said, I am not prepared to merely assume that all the B2/Tab 3 documents would have been provided to an investigative accountant in response to a request made in accordance with the draft August 2007 letter. I am left, therefore, to consider this aspect of the applicant's case on causation on the basis of the framework it has posited, but not established. 673 Further, the characterisation of the documents and information as "financial and operational" does not assist the inquiry. It may be accepted that all the documents sought by the draft August 2007 letter are documents of this general character. But it certainly does not follow that all the documents sought by the draft August 2007 letter could have been, or more importantly would have been, produced "swiftly", as Mr Borrelli contended in Borrelli 3, but did not elaborate upon. I am in no doubt that compliance, on a monthly basis, with the extensive request in the draft August 2007 letter, by a corporate group the size and complexity of the Octaviar Group, would have been a substantial task that would have taken more than a day or two to process. 674 In Borrelli 3, Mr Borrelli then said that he would have been able to receive and start reviewing and considering some of the documents in one to two days (by which I take him to mean one to two working days). But he did not identify these documents or even describe their general character. He then said that he would have been able to receive, review and consider most documents in seven to ten days (by which I take him to mean, once again, seven to ten working days). Similarly, he did not identify these documents or describe their general character. 675 Mr Borrelli then said that he would have been able to receive, review and consider all the information and documents by the end of each month after the month under review. I take Mr Borrelli to include, within this period, the preparation of the substantive report he said he would have prepared as part of the monitoring process, as well as the raising and answering of requests and queries to enable the report to be prepared. 676 Like his evidence on the identity of the documents that would have been before the investigative accountant for the purposes of review, Mr Borrelli's evidence in Borrelli 3 on timing with respect to the review process is of a most general kind. As a matter of substance, all of this evidence is really no more than Mr Borrelli's say-so. 677 There is a further difficulty with Mr Borrelli's evidence on this topic. He refers to time periods in which he would have received, reviewed and considered (or started to review or consider) documents and information. Expressed in this way, it is not clear whether, in respect of these time periods, Mr Borrelli has accounted for the time that would have been taken for the Octaviar Group to locate, collate and produce the documents and information. As I have recorded above, the respondent submitted that, in Borrelli 3, Mr Borrelli did, in fact, leave this out of his consideration. This seems to be so, based on Mr Borrelli's statement that the documents would have been readily available and could have been provided "swiftly". 678 In the Joint Report, Mr Borrelli revisited this question by estimating time periods such as "1-2 days after request", "1-5 days", and "within 1 day" with reference to categories corresponding to the categories in the draft August 2007 letter. I have no way of gauging whether those time periods for the location, collation and production of documents are realistic and practical. Once again, they are based on Mr Borrelli's say-so. 679 Mr McCann's evidence on this topic provides some assistance. Assuming that monthly reporting was being undertaken as recommended in Borrelli 1, Mr McCann said (as I have recorded above) that it would not be practicable for the Octaviar Group finance team to collate all the documents sought by the draft August 2007 letter during the period when the team's attention was focused on the preparation of monthly management accounts. Allowing a three week period to prepare management accounts, Mr McCann said that it would take a further week to produce all the documents responding to the letter. I accept that Mr McCann expressed this view based on all the B2/Tab 3 documents (because that is how Borrelli 2 was structured) and that the documents to be located, collated and produced on a monthly basis would not be as voluminous as the B2/Tab 3 documents in their entirety. However, the scope of the request would have remained the same. 680 Even if I were to allow for the possibility that documents could be produced in batches (although what the batches might be was not addressed in the applicant's evidence), I think it is unlikely that most documents responding to the draft August 2007 letter would have been produced, on a monthly basis, substantially in advance of the preparation and production of the monthly management accounts themselves. I am not persuaded, therefore, that most documents would have been produced by the Octaviar Group, and reviewed and considered by the investigative accountant, within seven to ten days after the document request, as Mr Borrelli opined in Borrelli 3. 681 Further, I am not persuaded that all the documents and information would have been produced, reviewed and considered, and a substantial monthly report prepared, by the following month end, as Mr Borrelli opined in Borrelli 3. I think this is optimistic, to say the least. 682 Mr McCann's evidence was that a monthly review, as envisaged in Borrelli 1 (based on the scope of documents identified in the draft August 2007 letter) would take seven to eight weeks from month end (including the preparation of a report). As I have noted, Mr Borrelli considered Mr McCann's assessment to be "passive monitoring" and that his (Mr Borrelli's) approach was more realistic taking into account "the circumstances facing" the Octaviar Group. 683 I do not think that Mr McCann's evidence can be dismissed in this way. For one thing, it is not clear to me what Mr Borrelli means by "passive monitoring". Mr McCann's timeframes addressed the monitoring recommended in Borrelli 1 by reference to the extensive scope of the draft August 2007 letter. Further, I am not persuaded that, as at mid-August 2007, or in the succeeding months, an investigative accountant would have considered the Octaviar Group's circumstances as warranting anything other than a response based on realistic and practical timeframes within which to comply with a request of that scope. I do not accept that Mr McCann exaggerated the timeframes given in his evidence, but it does not follow that I would accept his timeframes without question. 684 I am persuaded that, in all likelihood, it would take approximately three to four weeks, from month end, for the Octaviar Group to produce for review all the documents reasonably responding to the eighteen categories in the draft August 2007 letter. My reasons are as follows. 685 Although Mr McCann expressed the view that management accounts for a group such as the Octaviar Group would normally take about three weeks after month end to prepare, I note that the Facility Agreement for the Fortress facility required monthly management accounts for the group to be provided to Fortress within 10 Business Days (as defined) (in effect, two weeks) from month end. I do not know whether this schedule was, in fact, adhered to, but I think that I should nonetheless adopt it in preference to the three week period suggested by Mr McCann. 686 As I have said, I think it is unlikely that most documents responding to the draft August 2007 letter would have been produced, on a monthly basis, substantially in advance of the preparation and production of the monthly management accounts themselves. Allowing two weeks for the production of the monthly management accounts, it seems to me (doing the best I can) that a further period of one to two weeks should be allowed for the location, collation and production of the balance of the documents called for (there were, as I have said, at least 130 companies in the group). 687 Further, I am persuaded that, as a minimum, it would take a further one to two weeks to review and consider the documents, and to produce a monthly report for the respondent, particularly bearing in mind the questions and topics the report was to address. This timeframe would allow the investigative accountant time to raise, discuss and, if need be, follow up with the Octaviar Group's management any requests or queries he or she might have in relation to the documents and information provided as a matter of process. 688 Therefore, I think it is more likely than not that, as a minimum, it would have taken something in the order of five to six weeks from month end for the Octaviar Group to locate, collate and produce, and for the investigative accountant to receive, review and consider, the documents sought by the draft August 2007 letter, and for the investigative accountant to prepare a monthly report in accordance with the monitoring recommended in Borrelli 1, including following up requests and queries. In arriving at this estimate, I have proceeded on the basis that the Octaviar Group would have provided reasonable co-operation in providing information and documents, and in answering queries and providing further information in response to the investigative accountant's requests. 689 If I assume, contrary to my finding above, that an investigative accountant would have been appointed by the respondent in mid-August 2007 to undertake monthly monitoring of the kind recommended in Borrelli 1, I think it is also reasonable to assume that the first monthly report would have been prepared for the month ending 31 August 2007. If so, I think it is more likely than not that such a report would have been prepared, and made available for review by the respondent, at some time in the week ending 12 October 2007. I am persuaded that the same pattern would have been followed for succeeding months, with the possible exception of the month of December, where the Christmas period would have intervened and, more likely than not, delayed this schedule. 690 A key plank in the applicant's case is Mr Borrelli's view that, by November 2007, he would have identified a number of "red flags" that would have caused him to undertake accelerated monitoring. There are a number of assumptions in this proposition, involving access to certain cash flow forecasts, including the cash flow forecasts prepared on 5 October 2007 and 26 October 2007 referred to above; access to seemingly confidential communications between the Octaviar Group and UBS, and within the Octaviar Group, about a possible loan facility; access to records of deliberations of management, internal to the Octaviar Group; and access to an analyst's report and an article described in Borrelli 2 as "Article from Faculty of Business of AUT University title The Financial Crisis in New Zealand: An Inconvenient Truth", the publication date of which is not in evidence. 691 For present purposes, I leave to one side whether all these documents would have been produced to an investigative account in response to the draft August 2007 letter or, if produced, whether an investigative accountant would have considered them to be reliable sources of information. The matter for immediate attention is that, in light of the conclusions I have reached above, it is apparent that it is unlikely that documents created in October 2007 would have been available to an investigative accountant by November 2007 (meaning, the beginning of November 2007) for the purpose of conducting a review of the Octaviar Group's performance for October 2007 at month's end. On my findings, the likelihood is that such documents would have been available for review and consideration by no earlier than towards the end of November 2007, with a substantial report prepared sometime towards the end of the second week in December 2007. Thus, I do not accept that, because of information obtained from these documents, accelerated monitoring, as described by Mr Borrelli, would have taken place in November 2007, as Mr Borrelli said in Borrelli 3. 692 In Borrelli 3, Mr Borrelli said that, by December 2007, he would have identified other "red flags". Once again, there are a number of assumptions in this proposition, involving access to records of deliberations of management, internal to the Octaviar Group on 31 October 2007, 12 November 2007; 27 November 2007 and 6 December 2007; and access to a communication on 24 November 2007 between the Octaviar Group and Fortress in relation to the Fortress facility. Leaving to one side whether all these documents would have been produced to the investigative accountant in response to the draft August 2007 letter, it will be apparent, once again, that documents coming into existence on dates in or after November 2007 are unlikely to have been available to an investigative accountant by December 2007 for the purpose of conducting a review of the Octaviar Group's performance for November 2007 at month's end. On my findings, the likelihood is that such documents would have been available for review and consideration by no earlier than towards the end of December 2007, with a substantial report prepared sometime towards the end of the second week in January 2008 at the earliest. This does not even take into account the intervening Christmas period and the likely delays that would arise as a consequence. Thus, I do not accept that, because of information obtained from these documents, accelerated monitoring by the investigative accountant would have taken place in December 2007. 693 It is convenient at this point to address whether the investigative accountant would have been provided with all internal communications within the Octaviar Group in relation to cash flow positions; the sale of Stella; dealings with the group's creditors and lenders, including their legal advisers; and all communications by the Octaviar Group with legal advisers, lenders and investors in respect of current or potential financing. Taken literally, the draft August 2007 letter would call for all such communications. 694 As I have noted, Mr McCann considered access to such documents to be unwarranted. He saw such a request as more aligned with the conduct of an ongoing investigation into the affairs of the Octaviar Group rather than with monthly monitoring to review the Octaviar Group's performance. I accept that assessment. The applicant accepted that the function of the investigative accountant, in the instant case, is not akin to that of an investigative accountant examining the affairs of an entity after, say, a corporate collapse, gathering all available documents and selecting from them the relevant documents to answer questions such as the cause of the collapse or when an entity became insolvent. Despite this acceptance, Borrelli 2 really proceeds from that vantage. 695 I am not persuaded that it would have been reasonable for an investigative accountant to have been provided with access to all such communications as sought by the draft August 2007 letter, unless good reason could have been shown for seeking that access. I am not persuaded that good reason has been established. 696 Further, I think it is most unlikely that management would have taken the draft August 2007 letter literally, assuming it to stand as a monthly request for documents. I think that any reasonable understanding of the request would have required a line to be drawn somewhere. I am not persuaded, for example, that management would have provided the investigative accountant with email correspondence of their ponderings on financial or operational matters, or email correspondence of their informal communications with banks or other lenders in the course of inquiring about possible financing facilities. I am persuaded that, with some justification, management would consider communications of that granularity to be outside the intent of the request and beyond what would reasonably be necessary for a trustee for debenture holders to review the group's monthly performance. I am satisfied that if a request for such documents had become a contentious matter between the Octaviar Group and a trustee in the position of the respondent, then a court, if called upon to decide the issue, would have required good reason to be shown as to why an order should be made for the production of documents of that kind. Good reason would not have been provided by the existence of an inquisitive mind. 697 For these reasons, and regardless of questions of timing, I am not persuaded that an investigative accountant would have been provided with all internal communications within the Octaviar Group in relation to cash flow positions; the sale of Stella; dealings with the group's creditors and lenders, including their legal advisers; and all communications by the Octaviar Group with legal advisers, lenders and investors in respect of current or potential financing. In particular, I am not persuaded that an investigative accountant would, in fact, have been provided with the documents on which Mr Borrelli based his "red flag" findings in Borrelli 3 with reference to paras 94.3 and 94.5 ("red flags" as at November 2007), and paras 94.7, 94.8, 94.9, 94.10 and 94.12 ("red flags" as at December 2007) of Borrelli 2. Of course, if an investigative accountant had been appointed to conduct an ex post facto investigation into the affairs of a corporation, or to investigate a particular transaction of the corporation, such as Mr Borrelli came to do when preparing the Fortress Report, it can be understood how, using various processes, such documents might come to light and provide a reservoir of information from which the investigative accountant might draw to make his or her findings. 698 It is also to be remembered that, if monthly monitoring had been carried out at this time, the investigative accountant would have been informed by the management accounts for October 2007 that the group had recorded a net profit of $38,266,426 for the month and $16,582,961 for the year. He or she would also have been informed by the management accounts for November 2007 that the group had recorded a net profit of $14,232,781 for the month and $30,815,742 for the year.

The challenge to Mr Borrelli's recommendation to wind up

Introduction 699 The respondent challenged Mr Borrelli's recommendation in Borrelli 2 that, as early as February 2008, he would have recommended that the respondent promptly apply for the winding up of OL (presumably, OIN and the Guarantors). I note that in Borrelli 3, and as the applicant's case on causation came to be developed in final submissions, this timeframe changed to "by no later than mid-February 2007". The assumption here is that, by 31 January 2008, Events of Default would have taken place; the respondent would have obtained legal advice on that question; the respondent would have called in the notes; and payment on the notes would not have been made by mid-February 2008. 700 The respondent noted that the recommendation to wind up OIN and the Guarantors in mid-February 2008 was founded on a number of conclusions expressed by Mr Borrelli - in particular, his conclusion that OL was insolvent (meaning, as I would understand from other parts of Mr Borrelli's evidence, that the Octaviar Group as a consolidated entity was insolvent or that OIN and the Guarantors were insolvent) as at 31 January 2008 and that the Octaviar Group had engaged in the PIF transaction. 701 The respondent submitted that an investigative accountant of ordinary competence would not have made this recommendation for two reasons. 702 The first reason is that the assumptions underpinning Mr Borrelli's reports as to the scope of the investigative accountant's instructions; the scope of the documents that would have been provided; and the timing of document production and review have not been established - all of which I have discussed above. 703 The second reason is that Mr Borrelli's findings and conclusions with respect to the solvency of OIN and the Guarantors; the ability of OIN and the Guarantors to repay the notes at the maturity date; and the existence of Events of Default, have not been established. The respondent submitted that Mr Borrelli's conclusions on these matters do not withstand scrutiny. 704 Mr Borrelli's findings and conclusions in relation to the solvency of OIN and the Guarantors and the existence of Events of Default involve, in part, a consideration of the PIF transaction and whether that transaction would have been identified by an investigative accountant in December 2007. Mr Borrelli devoted 22 pages to the PIF transaction in a discrete section of Borrelli 2 headed "PIF Transactions - Details and Chronology" (the PIF Chronology), as well as making numerous references to it in the body of his report. 705 Given the role that the PIF transaction plays in the applicant's case, I propose to deal with it separately in these reasons. In the meantime, I will deal with the other aspects of the applicant's case on the topics mentioned above, namely the solvency of the Octaviar Group as at mid-February 2008, and the existence of Events of Default as at 31 January 2008.

Solvency 706 With respect to the question of solvency, Mr Borrelli relied on four cash flow forecasts dated 31 July 2007, 29 August 2007, 5 October 2007 and 26 October 2007. These cash flow forecasts were among the Tab 5 forecasts to which I have already referred. The respondent submitted that they suffer the same deficiencies and uncertainties I have discussed when considering the cash flow forecasts referred to in Borrelli 1. 707 In Borrelli 2, Mr Borrelli showed each of the four forecasts with a negative opening balance. This is Mr Borrelli's interpolation. As originally prepared, each forecast commenced with a positive opening balance (for the four in question, ranging between $8.7 million and $30.3 million). The respondent submitted that, as with many of the cash flow forecasts in evidence, the projected deficits were not in fact realised when regard is had to the opening balances recorded in succeeding forecasts. In the present group of forecasts, the 31 July 2007 forecast projected a deficiency of $282.7 million for the end of October 2007, whereas the 5 October 2007 forecast, as prepared, shows an opening balance of $9.4 million. 708 Further, the respondent submitted that the 26 October 2007 cash flow forecast, which covers the period to 31 January 2008, does not incorporate up-to-date information regarding the cash flows of the Octaviar Group in January 2008. For example, the 26 October 2007 forecast assumes repayment of the Fortress facility in January 2008 whereas, in fact, the facility had been reduced to $150 million in November 2007 and the repayment date of the facility was extended to 29 February 2008. Further, the respondent submitted that, in Borrelli 1, Mr Borrelli stated that the sale of Stella would result in the Octaviar Group having less long-term income-generating ability which would negatively and substantially affect the group. However, as at the date of the 26 October 2007 cash flow forecast, Stella was still retained by the group, but its contribution to income (as well as the contribution of other group entities) had been excluded from the forecast. 709 Mr McCann maintained his concerns about the reliability of all the cash flow forecasts. In particular, he did not consider that reliance could be placed on the 26 October 2007 cash flow forecast to conclude ex post facto that the Octaviar Group had a cash deficiency as at 31 January 2008. 710 The respondent submitted that Mr Borrelli's conclusion in Borrelli 2 on the question of solvency is infected by his reliance on the four cash flow forecasts and cannot be supported by these documents. 711 Another basis on which Mr Borrelli's conclusion on solvency rests was his view that, as at 31 January 2008, the Octaviar Group would need funds to meet debts of $1,694.1 million due and owing at that date. This figure comprises debts due to six major creditors (other than the respondent) ($760.4 million), various guarantee liabilities ($209.8 million) and intercompany loans ($723.9 million). 712 As to the debts owing to the six major creditors, it must be said at the outset that, to a significant extent, Mr Borrelli's reasoning that these debts would have been due and owing as at 31 January 2008 rests on supposition as to how certain of the creditors would have reacted to circumstances as Mr Borrelli saw them to be. His evidence was admitted on this basis: Reasons 9 at [113]. Further, Mr Borrelli's views appear to have been informed by internal correspondence to which he assumed he would have been given access - an assumption which, based on Mr McCann's evidence, the respondent disputed. 713 Based on Mr McCann's evidence and reasoning, the respondent submitted that, apart from a tax debt of $52 million, none of the debts owed to these creditors was due and owing as at 31 January 2008. The respondent provided an analysis of the debts in an annexure to his written closing submissions. 714 The respondent submitted that, even in respect of the tax debt, there was no demand by the Australian Taxation Office (ATO) for payment before 29 February 2008. Apart from the ATO, the only creditor to make a demand on or before 31 January 2008 was Fortress in relation to another facility (not the Fortress facility) called the YVE facility. This was a demand for payment of $15 million on 4 February 2008. Payment was in fact made on 18 February 2008. 715 As to the guarantee liabilities, the respondent submitted that Mr Borrelli's opinion once again rests, to a significant extent, on supposition as to how guarantee creditors would react to circumstances as Mr Borrelli saw them to be. The respondent submitted that Mr Borrelli's opinion was, in any event, flawed because $88.8 million of the debt he had calculated was in respect of guarantees that had expired on or before 31 December 2007. The respondent submitted further that there is no evidence that the guarantee debts had, in fact, been called up. 716 As to the intercompany loans, the respondent submitted that Mr Borrelli's opinion also rests, to a significant extent, on his supposition as to how entities within the Octaviar Group would have reacted to each other in response to the claims of creditors external to the group. The respondent submitted that, in any event, the inclusion by him of the intercompany loans of $723.9 million in the overall debt of $1,694.1 million is double-counting. The respondent's position is explained in Mr McCann's evidence: 506 In considering the debts likely to be called upon the various entities within the Octaviar Group, Mr Borrelli has aggregated those creditors' claims and considered the "consolidated" position of Octaviar Group liabilities. He has therefore assessed an overall liability position which may be due and payable and therefore needed to be met by the various entities in the Octaviar Group. 507 For the purpose of his analysis this treatment is acceptable. In this respect it is noted that several entities within the Octaviar Group guarantee various of the debts of the other entities. Further there is a complicated chain of intercompany indebtedness within the Octaviar Group and between the of Octaviar Group entities. Where an external creditor calls upon one entity this entity may call upon debts due to it by other Group entities. 508 From this perspective it appears the external liabilities of one entity in effect became the liability of all or most entities within the Octaviar Group and or would be met by the aggregate assets of the Octaviar Group. 509 Applying this consolidation approach, the claims between the various entities within the Octaviar Group effectively cancel out or offset each other resulting in an elimination of all intercompany debt positions. 510 Consequently, it is not appropriate to then add a selection of the intercompany liabilities to the total of overall external liabilities to assess what might be a cumulative liability position. 511 Inclusion of the intercompany liabilities as proposed by Mr Borrelli would in effect result in eight double counting of liabilities and therefore overstate and misrepresent the amounts due to creditors of the Octaviar Group. 717 For the above reasons, the respondent submitted that, instead of the $1,694.1 million that Mr Borrelli had calculated, only $52 million could be said to be due and owing at 31 January 2008, and even then there had been no demand for payment by the ATO. The respondent submitted that Mr McCann's evidence should be accepted over Mr Borrelli's evidence because Mr McCann's evidence reflected "a careful consideration of all the circumstances as they actually existed in January 2008". 718 Before leaving the topic of debt and its implications for determining the solvency of OIN and the Guarantors (or the Octaviar Group as a consolidated entity), it is necessary to refer to (what the respondent described as) a significant shift in Mr Borrelli's conclusion on solvency between Borrelli 2 and the view he expressed in the Joint Report. The respondent submitted that, in Borrelli 2, Mr Borrelli's opinion was that $1,694.1 million in debts would become due and payable "on or around 31 January 2008" and that OIN and the Guarantors "were insolvent by the end of January 2008 and thereafter": Borrelli 2, paras 92 and 110. However, in the Joint Report, Mr Borrelli said that $1,694.1 million in debts would become due and payable "from around 31 January 2008 and within the projection period" - meaning, up to 31 July 2008: Joint Report [11.24]. In the Joint Report, Mr Borrelli said: 9.13.3 …Any assessment of insolvency will require a projection into the future to establish what debts will fall due for payment and when - this means that if the relevant date is 31 January 2008 with a 6 month projection period up to 31 July 2008, any debts which would become due and payable from 31 January 2008 to 31 July 2008 would be considered as the due and payable debts as at the relevant date for the insolvency analysis. In any event, the Investigative Accountant is unlikely to have the information and time available to be able to determine an exact date at this stage as suggested by McCann nor it is (sic) necessary. 719 The respondent seized on this last comment. He submitted that it was contrary to Mr Borrelli's stance that, as an investigative accountant, he would have been provided with all the information he asked for. Further, the statement had implications for Mr Borrelli's opinion that he would have recommended, by no later than mid-February 2008, that OIN and the Guarantors be wound up. The respondent submitted that: …the Court may infer that Mr Borrelli considers it unnecessary to determine dates on which debts fall due (and therefore determine solvency) with any accuracy, despite the serious repercussions and the size of the companies involved. The overall inference, when taken with the recommendation to wind up the Octaviar Group shortly after these insolvency conclusions are drawn, is that despite not having enough information and time to determine critically important things like the dates on which debts are due and payable, the notional IA is nonetheless able to make a determination, in a matter of days early in February 2008, that the Public Trustee should wind up substantial companies such as OIN and the Guarantors, and is comfortable making that recommendation without having "the information and time available". Neither PwC nor an IA of ordinary competence would have so concluded. Mr Borrelli's views should not be regarded as probative of what those notional IA's would have done. 720 Another basis on which Mr Borrelli's conclusion on solvency rests was his view that, by the end of January 2008, the Octaviar Group's ability to obtain funding through asset sales or by raising equity and/or debt was exhausted. This conclusion is undoubtedly based on Mr Borrelli's access to correspondence and other documents within the Octaviar Group (including emails reporting on conversations between officers); correspondence and records of telephone conversations between officers of OL and potential lenders; and commercial negotiations between OL and third parties in relation to the possible sale of assets. 721 As I have previously recorded and discussed, Mr McCann gave evidence that the Octaviar Group would not have provided the investigative accountant with this level of information. Further, the respondent submitted that Mr Borrelli's conclusion was inconsistent with the facts that, on 4 February 2008, the Octaviar Group announced the sale of a 65% interest in Stella; on 14 February 2008, City Pacific Limited (City Pacific) announced that it would commence due diligence with a view to acquiring assets owned by the Octaviar Group's financial services business; and additional finance of $50 million had been negotiated with Fortress, including an extension of the date for repayment of the Fortress facility to the earlier of the sale of Stella or 31 March 2008. 722 It is convenient at this point to record Mr McCann's evidence that he could not form a view that either OIN or OL was insolvent between July 2007 and 18 January 2008, based on documents and information available to the respondent, which comprised PwC 1, 2 and 3; ASX announcements made by OL; the quarterly reports issued by OIN; OL's annual financial reports and half-yearly accounts; media articles; and the requirements of the Corporation Act as they would have affected the Octaviar Group's auditors. Mr McCann said that this information would not have given rise to genuine concerns as to a risk of insolvency or to the need for serious inquiry as to possible insolvency. 723 However, Mr McCann said that, in the period 18 January 2008 to 29 February 2008 there were indicators that the Octaviar Group was experiencing substantial change and a period of financial distress. This was indicated by the substantial decrease in OL's share price on 18 January 2008; the resignation of directors and key management personnel; the sale of an interest in Stella below its carrying value, announced on 4 February 2008; the expected impact of the sale on the Octaviar Group's net asset position; the strategic review of the Octaviar Group by management, announced on 4 February 2008; and the appointment of 333 Capital as restructuring advisers. Mr McCann said that the cumulative impact of these events suggested a basis for genuine concern as to the risk of insolvency of OL and OIN, which would have arisen from 4 February 2008 onwards.

Events of Default 724 Mr Borrelli identified a number of Events of Default relating to: the quarterly reports; demands for repayment; and the PIF transaction. 725 In Borrelli 2, Mr Borrelli argued that the quarterly reports represented a breach of cl 6.5(b) of the Trust Deed and an Event of Default because they did not report (what he said were) the cash flow shortfalls suffered by the Octaviar Group and (what he said were) the substantial changes in the nature of the Octaviar Group's business, "resulting from the work undertaken to raise funds and/or realisation of core assets (such as the Stella Group) to repay borrowings rather than making strategic investments - in fact, strategic investments were no longer possible". 726 For the reasons summarised above, the respondent submitted that the cash flow forecasts cannot be relied on. Even so, when they are considered as a group, the projected shortfalls never eventuated. The respondent submitted that, as the shortfalls never eventuated, it could not be said that the quarterly reports were inaccurate in this respect. 727 Based on Mr McCann's evidence, the respondent submitted that there was no significant change in the business model of the Octaviar Group as at the dates of the quarterly reports. The business model of the Octaviar Group remained one of buying and selling strategic assets. The respondent submitted that the Octaviar Group's inability to sell a particular asset at a particular time or for a certain price did not mean that its business model had changed. Therefore, the quarterly reports were not inaccurate in this respect. 728 With respect to demands for repayment, in Borrelli 2 Mr Borrelli argued that, in the period 21 January 2008 to 7 February 2008, certain demands for repayment or notices of default had been issued, which represented Events of Default. The respondent advanced a number of submissions in answer to Mr Borrelli's argument. 729 First, the respondent submitted that, as a matter of pleading, the allegation had not been made and, for that reason alone, the applicant should not be entitled to rely on it now. 730 Secondly, the respondent submitted that none of the events relied on would have resulted in an Event of Default occurring in January 2008. The first date at which an Event of Default arose from a demand for repayment was 4 February 2008. In this connection, two such demands were made (for approximately $1 million in total). 731 Thirdly and relatedly, the respondent submitted that an investigative accountant would only have become aware of a demand for repayment if the matter had been brought to his or her attention. The respondent submitted that when he made such inquiries of the Octaviar Group, he was informed on 26 and 27 February 2008 that neither OIN nor OL had defaulted under the terms of any facilities under which they had received an advance of funds. Further, the Octaviar Group had not made any announcement to the ASX that there had been a default under such facilities. 732 Fourthly, the respondent submitted that Mr Borrelli's opinions in this regard strayed beyond his area of competence and expertise, and amounted to a legal conclusion which he was not qualified to give. 733 With respect to the PIF transaction, Mr Borrelli argued that it represented an Event of Default because it indicated that OL was not carrying on and conducting its business in a proper and efficient manner. He said that this was contrary to cl 7.3(c) of the Trust Deed and s 283BC of the Corporations Act. The respondent submitted that, in expressing this view, Mr Borrelli once again strayed from his area of competence and expertise and advanced a legal conclusion which he was not qualified to give. Further, based on Mr McCann's evidence, the respondent submitted that an investigative accountant would not have formed a conclusion in January 2008 that an Event of Default had occurred in relation to the PIF transaction. As I have mentioned, I will deal with the PIF transaction in a separate section of these reasons. 734 In its written closing submissions, the applicant advanced another alleged Event of Default - namely, the failure of Material Subsidiaries (as defined in the Terms of Issue) to execute a Guarantee Deed Poll. This is not an event which is recorded in Borrelli 2 as an Event of Default, but it is convenient at this juncture to note the applicant's argument, which, according to the 14 June 2016 particulars, proceeds as follows. In Joseph 2, Mr Joseph opined that, having received Borrelli 1, he would have appointed lawyers to advise on the respondent's obligations under the Trust Deed. In the meantime, the investigative accountant appointed by him would have received monthly management accounts and financial statements from the Octaviar Group and identified OL's wholly-owned subsidiaries with unsecured third-party debts in excess of $10 million. According to the applicant, Mr Joseph would have asked the lawyers retained by him to advise on whether there had been an Event of Default and the lawyers would have identified that a company called Stella Travel Services (Australia) Pty Ltd had not provided a guarantee. 735 The respondent described this scenario as a "fantastic series of events … supported by no evidence whatever". The document said to evidence the relevant debt is not one of the B2/Tab 3 documents. It is in fact one of the additional documents referred to in the 15 June 2016 particulars. Even though this document was not briefed to Mr Borrelli, paradoxically the applicant's case is that it would have been briefed to the hypothetical investigative accountant. The respondent submitted that the documents on which the applicant relies to establish the third-party debts in excess of $10 million are "entirely opaque" on this question. The respondent also submitted that the applicant's submissions do not engage with the difficult questions of construction arising in relation to the definition of Material Subsidiary.

The recommendation as at 31 January 2008 736 In Borrelli 2, Mr Borrelli said that, by no later than the end of January 2008, he would have recommended that the monitoring process he had recommended in Borrelli 1 continue; that the respondent obtain legal advice on whether the Events of Default he had identified (including those on which the applicant says it does not rely) were, in fact, Events of Default permitting the respondent to call in the notes and enforce the respondent's rights against OIN and the Guarantors; and that the respondent consult with the Octaviar Group with a view to confirming the conclusions reached in Borrelli 2. Importantly, Mr Borrelli also said that he would have recommended suitable advisers to the Octaviar Group to assist in establishing options, including developing a restructuring plan. 737 The applicant's chronology does not appear to cater for the time required for the respondent to seek, obtain or consider legal advice as to whether Events of Default had occurred. It proceeds by assuming that, as at the end of January 2008, the investigative accountant would have advised the respondent to call in the notes, and the respondent would have accepted, and acted on, that advice: see para 56 of Borrelli 3. 738 In this connection, in Borrelli 2 Mr Borrelli said: 133. In circumstances where [the Octaviar] Group is insolvent and facing numerous demands for repayment that it cannot meet and PTQ is aware of the transactions entered into and payments made by PIF in November 2007 (or where [the Octaviar] Group refuses to provide the information and documents in relation to these payments) it is incumbent on PTQ to promptly move to protect and preserve the interests of [OIN] Notes and its creditors. This would entail the prompt issuance of a demand for repayment by PTQ while, in parallel, working with and obtaining information from [the Octaviar] Group to establish, inter-alia: 133.1. the resources available to meet the sum due to [OIN] Notes; 133.2. the possible restructuring of the [Octaviar] Group; and 133.3. the implications of the transactions entered into and payments made by PIF in November 2007. 134. The issue of the demand by PTQ will provide PTQ with an opportunity to consider the above matters and following due consideration (and with the appropriate transparency), decide whether to proceed to the winding-up of [OL] or alternatively, pursue a restructuring of [the Octaviar] Group. At the heart of this decision would be an analysis of whether there existed a credible restructuring plan, capable of completion and which likely delivered a return to creditors which is superior to that which may be available in a winding-up and whether the concerns associated with PIF and likely recovery actions associated with it would require or prefer the prompt appointment of liquidators to [OL]. 739 In Borrelli 3, Mr Borrelli also said that he would have recommended by mid-February 2008 that the respondent apply to wind up OL (meaning, OIN and the Guarantors). In Borrelli 2, Mr Borrelli identified the following reasons for his conclusion: the very large disparity between the estimated value of the assets available to the Octaviar Group and its liabilities; the lack of sustainable funding to continue the operations of the group; the lack of a viable restructuring proposal or any proposal that would be forthcoming in February 2008; the lack of substantial assets or business upon which to base a restructuring and the likely difficulties associated with facilitating a restructuring of such large debts in a poor economic environment; concerns over the Octaviar Group's management, including as a result of the PIF transaction; and the likely need to investigate the remedies available in respect of the PIF transaction and the payment to Fortress in November 2007. 740 Mr McCann disputed that these matters would have been identified or established by an investigative accountant in January 2008 or even probably in February 2008. He made particular criticisms of Mr Borrelli's reasoning. It is convenient to set out his affidavit evidence in this regard: 775 … I do not consider that Mr Borrelli has demonstrated that: a There existed a significant disparity between the estimated value of the assets available to the Octaviar Group and the liabilities of the Octaviar Group. Mr Borrelli does not set out any analysis of the estimated value of the assets available to the Octaviar Group. In addition, I note that the analysis by Mr Borrelli of the major creditors of the Octaviar Group at 31 January 2008 is flawed, as detailed at Section 8.0 of this Report. Further, my analysis of the balance sheet of the Octaviar Group, taking into account the reduced value of the interest in Stella Group that would have been known from 4 February 2008 onwards, does not indicate a deficiency in assets. My analysis is discussed at paragraphs 687 to 692 of this report. b There was a lack of sustainable funding available to continue operations. Mr Borrelli does not set out the level of funding that may have been required by the Octaviar Group or compare this with the ongoing income and funding available to the Octavia Group. c There was a lack of a viable restructuring proposal or indication that one will be forthcoming. I note that minutes of board meetings held on 22 January 2008 and 25 January 2008 note that 333 Capital are exploring potential restructuring options. Mr Borrelli does not detail any of these options or consider their viability. d There was a lack of any substantial assets or business upon which to base a restructuring; I disagree with this assertion. On 4 February 2008, Octaviar Group announced the sale of 65% of Stella Group. Board minutes also indicate that the sale of parts of the Octaviar Financial Services business was also being explored at that time. Mr Borrelli does not consider the potential funds that may have been realised from a sale or how a restructuring may have been organised. I also note that my analysis of the balance sheet including the reduced value of the Stella Group details that there were still positive net assets at carrying value which could support the Public Trustee covenant as well as further asset sales or refinancing. My analysis is discussed at paragraphs 687 to 692 of this Report. e An Investigative Accountant would have identified concerns regarding the ability and integrity of Octaviar Group management. Mr Borrelli appears to base this comment on the improper transfer of funds from PIF that was used to repay part of the Fortress loan facility on 30 November 2008. As previously discussed, I do not consider that information regarding this transaction sufficient to form a view as to its propriety would have been available to an Investigative Accountant, nor would an investigation of same have fallen within the scope of the Investigative Accountant's work. f An Investigative Accountant would have identified there was a need to investigate remedies available in respect of the PIF transaction. As detailed above and previously in this Report, I do not consider that an Investigative Accountant would have identified a need to investigate the PIF transaction. 741 In the Joint Report, in response to Mr McCann's evidence, Mr Borrelli expressed the opinion that there was no reasonable prospect of the Octaviar Group reaching any restructuring or other similar arrangement with its major creditors (see "c" quoted above) because it had a substantial tax liability to the ATO in respect of which there had been no meaningful communication with the ATO by January 2008; (according to Mr Borrelli) most, if not all, of the Octaviar Group's major creditors had not indicated that they would entertain any restructuring or some similar arrangement by that time; and numerous creditors had taken the action and steps referred to in paras 109 and 136 of Borrelli 2. I observe that para 109 of Borrelli 2 refers to creditor events occurring in the period 21 to 30 January 2008, after the share price collapse on 18 January 2008. I observe that para 136 of Borrelli 2 refers to events occurring throughout February 2008, up to and including 27 February 2008, after the date on which, according to the applicant, the investigative accountant would have recommended that the respondent promptly apply to wind up OIN and the Guarantors. 742 I will consider the significance of these matters when dealing with the separate question of whether a trustee in the position of the respondent would have applied promptly in mid-February 2008 to wind up OIN and the Guarantors: see below at [854]-[972].

The challenge to Mr Borrelli's recommendation to wind up: conclusions

Introduction 743 As I have recorded above, the respondent submitted that an investigative accountant of ordinary competence would not have recommended, by no later than mid-February 2008, that he (the respondent) promptly apply to wind up OIN and the Guarantors. 744 One reason was that the assumptions underpinning Mr Borrelli's reports as to the scope of the investigative accountant's instructions; the scope of the documents that would have been provided; and the timing of document production and review (as the applicant would have it) have not been established. 745 I have found that the occasion for making the recommendations in Borrelli 1 would not have arisen. Further, I have expressed my lack of persuasion that an investigative accountant would have made a recommendation for the ongoing monitoring of the Octaviar Group with the periodicity, scale and scope recommended in Borrelli 1. These findings are critical in relation to the applicant's case on causation as expressed through Mr Joseph and Mr Borrelli. Absent these findings, this case on causation falters and cannot succeed. I have also made other findings which reject this case insofar as it depends on the documents which, the applicant says, the investigative accountant would have had. I have also made findings which reject the applicant's case on timing with respect to when documents would have been available to the investigative accountant, when monthly reports would have been provided, and whether monitoring would have been accelerated. All of these findings demonstrate that the applicant's case on causation cannot be accepted as a coherent whole. 746 Given the manner in which the applicant has pleaded and particularised its case on causation - I refer in particular to the pleading of paras 92C and 92I of the FASOC, the 14 June 2016 particulars, and the 15 June 2015 particulars - it seems to me that these findings and conclusions are fatal to the acceptance of that case because the factual underpinnings of why the investigative accountant would have made important findings and arrived at important conclusions are missing and are, as a consequence, unexplained. Nonetheless, I now turn to consider the additional matters that have been raised in support of the applicant's case that, by mid-February 2008, an investigative accountant would have recommended that the respondent promptly apply to wind up OIN and the Guarantors.

Solvency 747 As to Mr Borrelli's conclusions on solvency, I accept the respondent's criticisms of the cash flow forecasts on which Mr Borrelli relied. Although I am unable to determine with reasonable precision what documents would have been provided to an investigative accountant in the period mid-August 2007 to mid-February 2008 (other than, say, the monthly management accounts), I am satisfied that an investigative accountant would not have been provided with the cash flow forecasts on which Mr Borrelli relied. Once again, I accept the respondent's criticism of those forecasts, as expressed through Mr McCann. Further, I am not prepared to assume that forecasts of that nature would have been provided to an investigative accountant appointed by the respondent. Even if I were to assume that forecasts of that nature would have been provided, I am not satisfied that, having regard to their obvious deficiencies, an investigative accountant would have placed any reliance on them to express a view about the solvency of OIN and the Guarantors. 748 Further, in Borrelli 3, Mr Borrelli relied on the cash flow forecasts of 8 October 2007 and 26 October 2007, as well as an earlier cash flow forecast in August 2007, as "red flags" in November 2007. On the evidence before me, I am not persuaded that an investigative accountant would have found these "red flags" to exist. This provides a further reason why I do not accept that accelerated monitoring by an investigative accountant would have taken place in November 2007. 749 Further, I accept Mr McCann's evidence that reliance cannot be placed on the 26 October 2007 cash flow forecast to conclude, ex post facto, that the Octaviar Group had a cash deficiency as at 31 October 2008. 750 Further, I am not persuaded that, as at 31 January 2008, the Octaviar Group would need funds to meet debts of $1,694.1 million due and owing at that time. On the paucity of the evidence before me on this question, I am not in a position to determine whether any of the debts owing to the major creditors were due and owing as at 31 January 2008, other than in respect of the tax debt which the parties accept was due and owing at that time, although no demand for payment had been made before 29 February 2008. I am, however, able to express the following conclusions. First, I accept that, in arriving at the figure of $1,694.1 million, there has been double-counting in respect of inter-company loans. Secondly, I accept that some of the guarantees on which Mr Borrelli relied in arriving at this figure had expired by effluxion of time. Thirdly, Mr Borrelli's analysis involves matters of supposition on his part. Thus, his opinion is speculative to this extent. Fourthly, based on Mr McCann's analysis, I am persuaded that, as at mid-February 2008, there was reason to conclude, on substantial grounds, that the debts to the major creditors, other than that due to the ATO, were not due for payment as at 31 January 2008. 751 In the circumstances, I am satisfied that, as at 31 January 2008, a determination as to what debts were due and owing at that time would have raised substantial legal and factual questions that needed to be investigated and, if need be, resolved by legal proceedings. I am not persuaded that an investigative accountant - or, indeed, the respondent's legal advisers - would have been in a position to express a concluded view on the matter at that time. 752 As I have noted, another basis on which Mr Borrelli's conclusion of insolvency rests is his view that, by 31 January 2008, the Octaviar Group's ability to obtain funding through equity and/or debt was exhausted. This is an evaluative conclusion based, in large measure, on access to correspondence and other documents within the Octaviar Group of the kind I have discussed above. I am not persuaded that an investigative accountant would have had access to all the information and documents by reference to which Mr Borrelli formed his views on this question. Some of the documents on which Mr Borrelli relied provided the evidence for some of his "red flags". As I have said, I am not persuaded that an investigative accountant would have access to these particular documents. I am not persuaded, therefore, that, as at 31 January 2008, an investigative accountant would necessarily have reached the conclusion that the Octaviar Group had exhausted all possibilities in this regard. 753 For these reasons, I am not persuaded that, as at 31 January 2008, an investigative accountant would have reached so definite a conclusion that OIN and the Guarantors were insolvent at that time. Nevertheless, it is abundantly clear that, in the period after 18 January 2008, the Octaviar Group was financially distressed, as Mr McCann said. There is no doubt that the Octaviar Group held substantial liabilities. The question whether there had been trigger events entitling creditors to call for payment of these liabilities would have loomed large at the time. In this connection, I accept that, as at 31 January 2008, an assessment of the solvency of OIN and the Guarantors would have included an assessment of the existence of debts likely to fall due in the future. In later paragraphs of these reasons I deal with whether those circumstances alone would have led a trustee in the position of the respondent, acting responsibly, to promptly apply to wind up OIN and the Guarantors.

Events of default 754 In this section I deal with Events of Default other than the Event of Default based on the PIF transaction. 755 In Borrelli 2, Mr Borrelli concluded that Events of Default existed by January 2008 which would have led him to inform the respondent of this fact and to recommend that legal advice be obtained with a view to considering whether the notes should be called in and, if necessary and appropriate, for an application to be made to wind up OIN and the Guarantors. 756 The first asserted Events of Default are based on the quarterly reports which, according to Mr Borrelli, did not report cash flow shortfalls or that there had been substantial changes in the nature of the Octaviar Group's business. 757 On the evidence before me, I am not persuaded that these asserted Events of Default have been established. First, the allegation that there were cash flow shortfalls remains just that, in light of the fact that the cash flow forecasts on which this part of Mr Borrelli's evidence is based are, in my view, unreliable, for the reasons I have given, and do not establish that there were, in fact, cash flow shortfalls in the periods covered by the quarterly reports. Secondly, I do not accept that in the periods covered by the quarterly reports there was any substantial change in the Octaviar Group's business model as Mr Borrelli argued. Mr McCann addressed this question. I prefer his evidence to Mr Borrelli's reasoning in Borrelli 2. Mr Borrelli's reasoning proceeds on his evaluation of whether the business model could be successfully undertaken, rather than whether the model itself had changed. There is nothing in the evidence which persuades me that, by the end of 2007, the Octaviar Group had changed its business model or that the Octaviar Group considered that it was acting under a changed business model. It follows, therefore, that I am not persuaded that, as at 31 January 2008, an investigative accountant would have identified these matters as Events of Default. 758 The second asserted Events of Default are based on demands/claims for payment of debts. In its reply submissions, the respondent stated that it did not rely on these demands/claims as Events of Default, notwithstanding that they were treated as such in Borrelli 2. I will, nevertheless, deal with them briefly because they are part of Mr Borrelli's reasoning which informs the recommendations he said he would have made. They were also the subject of discussion in the Joint Report. 759 In Borrelli 2, Mr Borrelli advanced nine events involving demands or claims for payment by creditors in the period 21 January 2008 to 7 February 2008, each of which, he argued, constituted an Event of Default arising under cl 15.2(c) of the Terms of Issue. Mr Borrelli provided no explanation for his conclusions in this regard. 760 Whether or not an Event of Default had occurred involves the construction of cl 15.2(c) of the Terms of Issue and other clauses. As I have noted above, the respondent argued that the expression of an opinion by Mr Borrelli on that question is beyond his competence. I accept that submission. But that is, no doubt, the reason why Mr Borrelli said that he would have recommended that legal advice be obtained on the subject. 761 Mr McCann was tasked with considering each of the nine matters on the basis of certain assumptions he was given as to the construction of cl 15.2(c). Based on those assumptions, he concluded that no Events of Default had occurred in January 2008. He concluded, however, that two Events of Default, for debts totalling $1.0 million, occurred on 4 February 2008. 762 On the very limited evidence before me, I am not able to come to a conclusion whether the Events of Default asserted by Mr Borrelli occurred, other than in respect of the two cases that have been accepted. However, the analysis provided by Mr McCann throws into serious question whether the remaining demands/claims constituted Events of Default. 763 A further question is whether any of the matters relied on by Mr Borrelli would have come to the attention of an investigative accountant in any event. I have referred to the fact that, when enquiries were made of the Octaviar Group by the respondent, he was informed on 26 and 27 February 2008 that neither OIN nor OL had defaulted under the terms of any facilities under which they had received an advance of funds. Further, the Octaviar Group had not made any announcement to the ASX that there had been a default under such facilities. In light of these facts, I accept that it is doubtful that an investigative accountant would have known of the demands/claims made or been informed of those matters if he or she had asked the question. The answer to the question, if asked, would no doubt reflect the opinion which the Octaviar Group itself had formed on the matter. 764 Nonetheless, I am satisfied that if one of the demands/claims had come to an investigative accountant's attention in January or February 2008, then the investigative accountant would have regarded that as a matter for further investigation and advice. I am not persuaded that such investigation would have been concluded by 31 January 2008 (indeed, it could not have been in respect of the demands/claims made in February 2008) or resulted in the investigative accountant being positively satisfied, at that time, that an Event of Default had occurred, entitling the respondent to call in the notes. The significance of that finding lies in the fact that, on the applicant's chronology, such a view would have had to have been formed at that time, leading to the respondent (immediately it would seem) making a demand which would not have been met by mid-February 2008. It is convenient to record at this point that the applicant's chronology does not take into account the time that would be taken to engage lawyers and receive their advice on whether an Event of Default had occurred and was sufficiently material to warrant the respondent calling in the notes - even though the applicant's own evidence, through Mr Borrelli, recognises the importance of taking that step. 765 The remaining Event of Default (other than in respect of the PIF transaction) specifically addressed in closing submissions concerns the failure of Stella Travel Services (Australia) Pty Ltd to execute a Guarantee Deed Poll. From the evidence provided, I am unable to determine whether the company was indebted as the applicant has alleged. So far as I can see, that topic is not really addressed in the evidence and, importantly, Mr Borrelli did not identify any such default. The applicant advanced an argument in its written reply submissions in which it said that Stella Travel Services (Australia) Pty Ltd was a Material Subsidiary. This argument, however, was erroneously based on the company's revenue, not its debts. I am not persuaded, therefore, that this asserted Event of Default has been established. Further, I am not persuaded that, as at 31 January 2008, an investigative accountant would have identified this matter as an Event of Default or, if he or she had, that this Event of Default would have warranted the respondent calling in the notes, as opposed to requiring the company to execute a Guarantee Deed Poll. 766 I should add in this connection that determining whether, and at what point in time, a company might be a Material Subsidiary is not an easy question. The difficulties of interpretation of, and ambiguities in, the definition of that term were explored in the respondent's submissions and addressed in Mr Jenkins' evidence. In light of the broad factual conclusions to which I have come, it is not necessary for me to delve into, still less decide, the intricacies of that question. 767 As I have noted above, there are other matters pleaded as Events of Default in the FASOC which were not identified as such by Mr Borrelli in carrying out the monitoring recommended in Borrelli 1. These were referred to in the applicant's opening submissions, but not elaborated upon in closing submissions. 768 The asserted events concern what the applicant says are deficiencies in the quarterly reports for 30 June 2007, 30 September 2007 and 31 December 2007 which, according to the applicant, rendered the reports misleading or deceptive and a breach of s 283BF of the Corporations Act in that OIN failed to report matters that may materially prejudice the interests of the noteholders. 769 Although there was no engagement between the applicant and the respondent as to whether these matters constituted Events of Default within the meaning of the Terms of Issue, it does not appear to be in dispute that the reports for the quarters ended 30 June 2007, 30 September 2007, and 31 December 2007 are not accurate statements of OIN's or the Guarantors' positions at the relevant times. However, the respondent did not come to know of that fact until much later in the piece, and well after the events that are central to the determination of the issues raised in this proceeding. 770 The question is whether an investigative accountant carrying out the monthly monitoring recommended in Borrelli 1 would have identified these matters as Events of Default, which would then have been passed to the respondent's lawyers to determine whether or not they or any of them were Events of Default within the meaning of the Terms of Issue. There is very little evidence, if at all, on these matters and the fact that Mr Borrelli did not identify any of them as an Event of Default, despite the monitoring he said he would have carried out, leads me to conclude that, as at 31 January 2008, an investigative accountant, similarly, would not have identified any of these matters as an Event of Default.

Introduction 771 The applicant's case is that an investigative accountant appointed pursuant to, and acting in accordance with, the recommendation in Borrelli 1 would have discovered the PIF transaction in December 2007. Indeed, in Borrelli 3, Mr Borrelli said that he would have identified and revealed the PIF transaction to the respondent by December 2007. I do not think that Mr Borrelli could possibly have meant to say this. It is to be recalled that the transaction involved payments on 30 November 2007 from RBS to MFS IM, from MFS IM to OA, and from OA to Fortress - the last payment being in part satisfaction of the indebtedness under the Fortress facility. Therefore, even adopting the most optimistic assumptions on timing, I do not accept that the PIF transaction would have been identified and revealed, in the sense of analysed and reported on, by December 2007. 772 Some further findings of fact concerning the PIF transaction need to be made.

Further findings of fact 773 At the time the PIF transaction occurred it was not documented beyond the requests and directions for the payments in question. On 19 December 2007, Mr Hutchings, the Chief Executive Officer of MFS IM - believing the payment by MFS IM to OA to have been a loan - sought information from Mr Anderson in relation to the transaction. Mr Anderson corrected Mr Hutchings: the payment was not a loan but the consideration for "the benefit of certain loans" that OL had transferred to MFS IM. On 14 January 2008, Mr Hutchings sought details from Mr Anderson as to the assets that had been acquired. Mr Anderson confirmed that the $100 million used to reduce the Fortress facility was: …raised from moving Loans (either to 3rd parties or to MFS Pacific Finance) into a new investment Fund. 774 In the meantime, employees of OL had commenced to document the passage of the $130 million drawn down by MFS IM from RBS, essentially by creating back-dated documents. It appears that this was undertaken because of an impending review by PIF's auditors, who were not the same as the Octaviar Group's auditors. The documents included a draft paper to the Investment Approval Committee of PIF, back-dated to 28 November 2007. This paper was expressed as seeking approval of a proposal for PIF to invest in then unidentified loan assets to a combined value of $147.5 million. 775 On 7 January 2008, this draft was sent to Mr White, the Deputy Chief Executive Officer of OL, who, on 15 January 2008, sent the draft to Mr Anderson with the comments: Need your creative brain. and: … I am sure you can work out what the $147.5 million went to. 776 On Friday 18 January 2008 (the date of the share price collapse), an employee of OL sent an email to Mr Anderson chasing up a response to the email sent on 15 January 2008 because $147.5 million was: …still sitting in PIF's accounts with no allocation against it. 777 The email continued: As I am sure you are aware, I have auditors arriving at 9am on Monday morning and this will need to be addressed before then. 778 No response had been received by Sunday, 20 January 2008. However, on that day, Mr Anderson agreed with the auditors to delay the commencement of the audit to 22 January 2008. As events transpired, the audit was further delayed to 5 February 2008. 779 On 21 January 2008, Mr Hutchings sent an email to Mr White (who, by then, had replaced Mr King as Chief Executive Officer of OL), Mr Anderson and another, stating: I have just received some information which I regard with very serious concern and which I believe requires our urgent attention. 1. Contrary to indications over recent weeks, I now understand that the majority approximately $200m drawn down by Premium Income Fund from the RBS facility has not been utilised to purchase assets to replace a similar amount of facilities that are maturing in the next month or so or for assets that would seed the Maximum Yield Fund. I understand that it may have been invested in a manner which is in breach of the PIF PDS and related party requirements. I understand that the MFS Board and you may not in the loop on this. 2. I understand from Sue Davis at MPY that the question of that company's solvency is in question if they cannot draw down on the existing PIF facility over coming weeks. Considering these issues and the liquidity of the portfolio, I do not believe the fund will be able to meet redemptions and maintain a $1 unit price without the support of MFS Limited and the repayment of the RBS facility. Based on this information, as directors and fund managers we genuinely need to urgently consider a course of action that is in the best interests of PIF unit holders. I do not believe the fund can operate in this basis. These are matters I believe need to be advised to Chairman of the MFSIM Board as soon as practicable and be involved in this decision. In the absence of any further information, I believe these may be reportable matters and we should get advice on this. 780 An email exchange between Mr White and Mr Anderson indicates that Mr White may have spoken to Mr Hutchings on the same day that Mr Hutching sent his email. In the exchange between Mr White and Mr Anderson, Mr White told Mr Anderson that he and Mr Anderson needed to have "a pretty frank conversation". 781 On 23 January 2008, in the course of two email communications, Mr Anderson sent to Mr White a "Listing of Loans" totalling $147.5 million. This list, with some modifications, was then sent to Mr Hutchings on the same day. These loans came to be divided between loans totalling $85 million to be held in a fund called the MFS Maximum Yield Fund (No 1) (MYF) - of which MFS IM was the responsible entity - and loans totalling $62.5 million that had been made by MFS Pacific Finance Limited (MFS Pac Fin). 782 On the same day, 23 January 2008, OL sent a Current Asset List and Liquidity Profile to RBS which included information based on the "Listing of Loans" sent to Mr Hutchings that day. This was done pursuant to a request made by RBS on 21 January 2008 "(g)iven the recent press coverage and announcements" within the Octaviar Group. The request was for a list of all assets by current value, maturity date and asset class. 783 Further draft papers for the Investments Approval Committee were prepared. The first was back-dated to 28 November 2007. It proposed the entry by PIF into a loan participation agreement with MFS Pac Fin using amounts drawn down from RBS and relating to loans made by MFS Pac Fin to the value of $62.5 million. A second draft paper was back-dated to 10 December 2007. It sought approval for PIF to make an investment of $85 million in units issued by MYF using amounts drawn down from RBS. 784 On 25 January 2008, Mr White and Mr Anderson had a meeting with Mr Korda (333 Capital having by then been appointed) at which, according to Mr White's notes, Mr Korda was informed that a transaction involving the issue of units in MYF and the loan participation agreement with MFS Pac Fin: …had been completed, full consideration had passed and documentation completed, however final accounting and execution had not been completed. This had been an oversight of the CFO [as] it had remained in his in tray as a result of many priority issues that had come up over the previous weeks. The concern was that this needed to be completed [from] an accounting execution perspective and [Mr Anderson] and [Mr White] felt it necessary to bring this to the attention of 333 Capital in light of recent events since the 18th January. Mark Korda was shown all documentation … and [Mr Anderson] and [Mr White] explained the sequence of events and details of the transaction. The transaction was discussed at length and after deliberation it was decided that despite the final steps remaining to be completed the contracts were binding in particular as consideration had passed. 785 I do not know what documentation was, in fact, shown to Mr Korda. However, later correspondence from 333 Capital shows its understanding of the transaction. This correspondence includes a flow chart, said to be based on Mr Anderson's explanation, showing the flow of funds ($100 million) to OA from PIF and loans being transferred from MFS Pac Fin to PIF and MYF in return. 786 By 31 January 2008, draft minutes of a meeting of the PIF Investment Approval Committee, purportedly held on 30 November 2007, were created. The minutes record that Mr White and Mr Hutchings had attended the meeting and that the two transactions described above had been approved. Although imprinted as a draft, the document in evidence shows Mr Hutchings as having signed the document as chairman of the meeting. No such meeting had been held. 787 On the same day, an Information Memorandum relating to the issue of units in MYF to PIF, and forms for the issue to PIF of units in MYF, back-dated to 1 November 2007, were created. On 1 February 2008, a proposal to the board of MFS IM, back-dated to 31 October 2007, for the issue of 100 million further units in MYF was created. On 5 February 2008, a certificate for the issue of 85 million units in MYF to MFS IM (as the responsible entity of PIF) was created. 788 On 5 February 2008, the delayed audit commenced. The evidence shows that PIF's auditors were provided with documents and information in relation to the loan participation agreement with MFS Pac Fin and the issue to MFS IM of 85 million units in MYF. These included: the loan agreement between MFS IM and RBS; copies of drawdown notices given to RBS; details of all authorised investments for PIF as at December 2007 (including in MYF and MFS Pac Fin); minutes of a meeting of the Investment Approval Committee dated 23 November 2007 and signed by Mr Hutchings, approving the two investments (cf the draft minutes referred to above) - no such meeting was held; an information paper dated 20 November 2007 in relation to the loan participation agreement with MFS Pac Fin (prepared purportedly for the 23 November 2007 Investment Approval Committee meeting which never took place); application forms dated 23 November 2007 for units in MYF; certificates recording the issue to MFS IM of units in MYF in the amount of $85 million; information relating to the target rate of return of PIF's investment in MYF; and an Information Memorandum dated 23 November 2007 in relation to the issue of units in MYF to MFS IM (cf the Information Memorandum referred to above). 789 The evidence also records that meetings were held with the auditors in relation to the loan participation agreement with MFS Pac Fin. 790 On 18 March 2008, an Interim Report for PIF in respect of the half-year ended 31 December 2007 was issued. The Interim Report recorded the investment by PIF in MYF for 85 million units at $1.00 per unit. It also recorded: Within the Asset Backed Investments sector, the Trust entered into a Participation Agreement with MFS Pacific Finance on 30 November 2007, whereby the Trust would participate in loans originated by MFS Pacific Finance by up to $62.5 M (June 2007: $nil). The participation agreement covers six corporate loans with varying maturities, the longest of which mature on 2 October 2009. 791 The auditors provided their opinion that the Interim Report gave a true and fair view of PIF's financial position as at 31 December 2007. 792 The financial statements for OL and its consolidated entities for the half-year ended 31 December 2007 were signed on 28 April 2008. They were subject to review by the group's auditors. The financial statements made no reference to the PIF transaction and did not include any reference to a liability in OA to repay the $130 million received from MFS IM on 30 November 2007. 793 Finally, I note that, on 20 February 2008, OL sought legal advice in relation to PIF investing in MYF. The question raised was whether MYF had breached the Corporations Act by not depositing application money (said to be in respect of PIF's investment) into a trust account. OL described the transaction to its lawyers as follows: We note that MFSIM is the Responsible Entity for both PIF and MYF. On 23 November 2007, MYF released an Information Memorandum …, which was only released to PIF ... On 30 November 2007, PIF applied for 67.5m units for $1 per unit (total of $67.5 m) in MYF through the 23 November MYF IM. On 30 November 2007, PIF drew $150m from the Royal Bank of Scotland through a loan facility to fund the MYF application and other investments. The $150 million was credited/transferred to the MFS Administration Pty Ltd bank account and was disbursed on the same day. We note that as part of such disbursement, no application monies totalling to $67.5 million was ever transferred to a MYF bank account as payment of PIF's application. Subsequently, MYF issued/allocated 67.5m Class A units (a new class of units) to PIF as part of its application (the date of this transaction is believed to be the 30 November 2007 as per the internal register, we have been informed that such units were issued on the same day. We note that the external registry (Perpetual Nominees Pty Ltd) was not advised of the issue of a new class of units until February 2008). In return of the allocation of units by MYF, a number of assets (loans through participating agreements) were transferred from other MFS related companies/funds to MYF. We require your advice in relation to whether MYF breached the Corporations Act by not depositing application monies, which are to be held in trust until the issue of units, into a MYF bank account and subsequently issuing units as a result of that application. We note that section 722 of the Corporations Act requires application monies to be held in trust until such time the units are issued. Further, section 1017E(2) requires the deposit of application monies into a designated bank account for the purpose of holding trust monies. It is of our view that MYF has breached sections 722 and 1017E(2) of the Act and the Compliance Plan … as it failed to deposit trust monies into a separate bank account (created for the purpose of holding trust monies) and accepted PIF's deposit of the $67.5m (part of the $150m) to the MFS Administration P/L account rather than a separate bank account. We further note that the MFS Administration P/L bank account, which the application monies were deposited, is not a bank account for the purpose of holding application monies. 794 The important matter to note about this request for legal advice is that it emanated from a Senior Compliance Officer within OL who treated the investment by PIF in MYF as one which had actually taken place in November 2007. The true position appears to have been appreciated only by a limited number of personnel within the Octaviar Group at the time. In the meantime, the auditors (PIF's auditors and the group's auditors), OL's financial/restructuring adviser (333 Capital), its lender with an interest in the transactions (RBS) and even key personnel such as those within OL's Risk and Compliance team in the Financial Services Division, all accepted that the investments had been made as represented to them, without knowledge of the true facts. The auditors, in particular, must have reached an appropriate level of satisfaction as to the existence of the investments that had been represented. They must have been satisfied as to the documentation given and the explanations provided in meetings.

Would the PIF transaction have been identified and revealed in December 2007? 795 The PIF Chronology is a rich and detailed narrative of events concerning the PIF transaction. It is the product of significant industry, said by Mr Borrelli to be based on information and documents available to him. The PIF Chronology is, however, a substantial reproduction of relevant sections of the Fortress Report that Mr Borrelli had prepared for the liquidators of OL and OA. I reach this conclusion on the basis of a side-by-side comparison of the PIF Chronology with a marked-up extract from the Fortress Report which the respondent provided in an annexure to his written closing submissions. Thus, when Mr Borrelli said that the PIF Chronology is based on information and documents available to him, this can only mean, as a matter of substance, the information and documents that were available to him as part of his engagement to provide the Fortress Report. A table of supporting documents indicates that the information and documents come from a variety of sources. There is no attempt in Borrelli 2 to identify when, let alone whether, the documents would have been made available to an investigative accountant, other than Mr Borrelli's expression of belief that the monitoring he had recommended in Borrelli 1 would have readily revealed to an investigative accountant the events leading up to the payment of funds to Fortress. Mr Borrelli said that this would have happened as a result of the investigative accountant monitoring: the receipts and payments of the Octaviar Group and its bank statements; the financial obligations of the Octaviar Group, including repayment timetable and amounts; contracts and agreements entered into by the Octaviar Group; and meetings and minutes of the relevant companies in the Octaviar Group and their committees. 796 This is a description of great generality. The real assumption in Borrelli 2 is that all the documents identified in the table of documents supporting the PIF Chronology would have been available to and obtained by an investigative accountant in December 2007 and, within the same period, selected, collated, and analysed as part of the more general task of carrying out the detailed monitoring of all the other activities of the Octaviar Group for the month of November 2007. The further assumption is that, within the same period, the investigative accountant would have assessed the PIF transaction and appreciated that it was (to use Mr Borrelli's description) a suspicious and improper transaction in that, as stated in para 105 of Borrelli 2, the payment of $130 million by MFS IM to OA on 30 November 2007 was: made to facilitate a payment of $103 million to Fortress; lacked any necessary planning, negotiation or documentation commensurate with a transaction of this size and nature let alone one with a related party and with corporate governance concerns and risks; lacked any meaningful commercial purpose because it was not in the interests of PIF's unit holders; breached PIF's Product Disclosure Statement and Compliance Plan; was undertaken without the necessary approval by the Conflicts and Related Party Investment Committee of PIF; and was followed by attempts to record transactions that were not concluded until two months after the payment was first made. 797 These are significant evaluative judgments that are based on an analysis and appreciation of a broad range of facts recited in Borrelli 2, which have been taken from a variety of sources and span the period late December 2006 to mid-February 2008. It is apparent that they have been arrived at, and are coloured by, events and circumstances that only occurred on and from the second-half of January 2008. These features of the PIF Chronology are captured in the following extract from Borrelli 2: 21. A key issue in any assessment of PIF during FY2007 and FY2008 is the payment of AU$130.0 million from funds drawn down from PIF's RBS Loan Facility on 28 November 2007 and paid to MA on 30 November 2007. On the same day, MA used AU$130.0 million from these funds to make a payment due to Fortress pursuant to the Fortress Facility Second Deed of Amendment. 22. The payment of AU$103.0 million to Fortress was a partial repayment of the MCP Facility under the agreement dated 1 June 2007 between MCP (as Borrower) and two guarantors - MFS Financial and MFS. Fortress was the lender. MA had not guaranteed this loan and I have not been able to identify any other obligation of MA in respect of the repayment of the loan. 23. Thereafter, the events described in paragraphs 20.1 to 20.53 indicate that a series of discussions, correspondence and draft and undated agreements and submissions to the MFSIM IAC were put in place to portray or disguise the payments made by PIF to MA as payments by PIF to other entities associated the [Octaviar] Group (PAC and MYF) in respect of the purported participation by PIF in loans originated by PAC and PIF's investment in Class A Unit shares in MYF listed in paragraphs 20.48 to 20.53. However, this was obviously not the case and this was likely evident to those involved with the transactions at the time. 24. The events described in paragraphs 20.1 to 20.53 also indicate a lack of due diligence or any other real attempt to determine value of the loans originated by PAC in which PIF and MYF participated. The information available to me indicates that not only was no due diligence undertaken to determine the value of these loans but the information that was available in respect of many of these loans indicated that there was good reason to believe that their true value was likely substantially less than their face value (as described below). 25. This information includes the Draft Vendor Due Diligence Report dated 27 February 2008 prepared by McGrath Nicol on behalf of RBS in respect of RBS's independent assessment of the PIF loan portfolio. The draft report stated, inter alias, the following: … 798 The PIF Chronology then proceeds to quote extensively from the Draft Vendor Due Diligence Report dated 27 February 2008 before arriving at the expression of the following concerns: 27. The information available to me also highlights the following concerns in respect of this transaction and/or how it was portrayed: 27.1. the payment of AU$130.0 million by PIF to MA was not supported by any documentation nor the subject of any meaningful preparation or analysis commensurate with a payment or transaction of this size; 27.2. the purported transaction structure (loan participations with PAC and investment in MYF) was established almost two months after the AU$130.0 million payment was made. The two purported IAC submissions and approvals were prepared on or around 27 January 2008 and were backdated to 28 November and 10 December 2007 respectively. The PIF and MYF Loan Participation Agreements were prepared on or around 5 February 2008 but were undated. The register of members of MYF as at 13 February 2008 did not substantiate the purported investment by PIF in the Class A Units of MYF; 27.3. no proper due diligence was conducted in respect of the financial position of PAC, MYF and the underlying loans, borrowers and security in which PIF and MYF purportedly participated before or after the purported investments were made; 27.4. the purported investments in loan participations with PAC and in the Class A Units in MYF were not Authorised Investments as described in the PIF Constitution or the PIF PDS; 27.5. the purported loan participations and investment in MYF were related party transactions with the MFS Group with evident conflicts of interest. These conflicts of interest included the following: 27.5.1 MFS guaranteed the book value of all loan and assets of PAC under the Put Option; 27.5.2 Mr White was a director of MFSIM and PAC and also a member of the IAC; and 27.5.3 Mr White signed the Loan Participation Agreements on behalf of both PAC and MFSIM. There is no evidence of any of these conflicts being considered by Mr King, Mr Anderson, Mr White and Mr Hutchings. The PIF Compliance Plan and PDS required that these transactions be considered and approved by the Conflicts and Related Party Investment Committee. The information and documents available to me from the date of my appointment to February 2008 highlight that these purported loan participations and investments were not submitted to the Conflicts and Related Party Investment Committee for its consideration. 27.6 The Draft Vendors Due Diligence Report also indicates that any due diligence undertaken at that time would have likely indicated that it was unlikely that any meaningful recovery or return was possible any participation in most of the PAC loans and the MYF Investment. 799 I am satisfied that Mr Borrelli's concluded views in Borrelli 2 on the PIF transaction only come to be expressed through the work he carried out in preparing the Fortress Report which includes work and analyses carried out by third parties. I have already referred to the considerable resources deployed in producing that report. I do not accept, therefore, that the analysis, reasoning and conclusions expressed in Borrelli 2 in relation to the PIF transaction represent a simulation of the analysis, reasoning and conclusions of an investigative accountant in December 2007 acting pursuant to the engagement recommended in Borrelli 1. This part of Borrelli 2 is another indicium of the hindsight analysis adopted by the applicant. 800 Mr McCann said that it was not likely that an investigative accountant undertaking monitoring would be provided with the level of documentation Mr Borrelli said he would have received. Further, he noted that OA undertook the Octaviar Group's treasury function, so that it is unlikely that a payment made from OA in respect of another entity's debts would have been a cause for concern for the investigative accountant. Also, as PIF was a separate fund, it would not have been within the scope of the investigative accountant's work to consider whether PIF was entitled to make the payment. 801 In this connection, Mr McCann said that the motive and ability of PIF to provide such funding would have been unknown to an investigative accountant and further investigation would have been required before any view could be formed. However, the transaction would likely have been only a secondary consideration for the investigative accountant, who would have limited motivation to pursue such an inquiry. Relatedly, Mr McCann pointed to the fact that the Octaviar Group's interim financial report for the half year ended 31 December 2007 makes no reference to the PIF transaction and no reference to any amounts due to PIF. 802 Mr McCann also said that, even if the investigative accountant identified the existence of the PIF transaction, it is unlikely that he or she would have discovered and reported on it until January 2008 or February 2008. In this connection, Mr McCann said (as I have previously recorded) that, based on his experience, it normally takes a group such as the Octaviar Group three weeks from the end of the prior month to finalise the monthly management accounts. Given that the PIF transaction occurred on 30 November 2007, he expressed the view that it is possible that management may not have finalised accounts for November 2007 until just before Christmas 2007. For the reasons I have expressed, I think that the better view is that the management accounts for November 2007 would have been prepared slightly earlier than that. In any event, Mr McCann also noted that it is common for businesses and accounting practices to close for two to three weeks over the Christmas break and that the Octaviar Group was likely to have been pre-occupied, in any event, with preparation for the mid-year audit in January 2008, with the consequence that there would be delays in obtaining any further information, documents or explanations required. I accept that this is likely to have been the case. The investigative accountant would then have been required to review the information received, make enquiries and, most likely, request further information to fully understand the transaction. 803 Mr McCann also suggested that the existence, or the improper nature, of the PIF transaction may have been concealed by management from the investigative accountant. Mr McCann's evidence on this last matter was only received as a submission. It was a submission which the respondent nevertheless maintained. I will return to it. I note, however, that, in oral evidence, Mr McCann, Mr Hall and Mr Joseph all gave evidence to the effect that, if an inquiry is made of management about a transaction, and if management provides an explanation that is credible, then that explanation is usually accepted unless there is reason to go behind it. This is an important consideration. The evidence shows that PIF's auditors did query the PIF transaction and were provided with documentation, information and explanations which they must have considered to be appropriate and satisfactory, at least for the purpose of providing their opinion that the Interim Report gave a true and fair view of PIF's financial position as at 31 December 2007. Mr White and Mr Anderson also provided an (apparently unsolicited) explanation of the transaction to Mr Korda which, it can be taken, Mr Korda and 333 Capital found to be satisfactory. 804 In concurrent evidence and cross-examination, Mr Borrelli said that the PIF transaction would have come to the attention of an investigative accountant for the following reasons: when the investigative accountant saw that the Fortress facility had been reduced by approximately $100 million, he or she would be interested in knowing the source of the money and the obligations associated with the borrowing; it would be extremely rare for a managed fund to be able to lend money to a party related to the manager of the fund; the transaction was a borrowing of money with "almost no documentation"; and approvals had not been obtained for a loan of that magnitude. 805 Further, Mr Borrelli saw the PIF transaction as: a "red flag" which called into question the solvency of OIN and the Guarantors; emblematic of the fact that OL was not carrying on its business in a proper and efficient manner, which was an Event of Default; and a reason why, in mid-February 2008, the investigative accountant would have recommended that the respondent promptly apply to wind up OIN and the Guarantors. 806 Curiously, in this part of his evidence, Mr Borrelli saw the PIF transaction as involving a loan from PIF (MFS IM) to OA. This was not the transaction that had been represented. Further, as Mr Hall explained in cross-examination, the Octaviar Group's business was complex and involved the transfer of funds between various members of the group all the time. 807 I am not persuaded that the movement of funds from MFS IM to OA would have been a matter of particular concern or interest for an investigative accountant appointed by the respondent to monitor the ability of OIN to repay the notes at the maturity date. 808 However, I accept that the fact that the Fortress facility had been reduced by approximately $100 million on 30 November 2007 would have been of greater interest. If monthly monitoring had taken place, then it is more likely than not that documents for the month ended 30 November 2007, including the monthly management accounts, would only have been provided to an investigative accountant towards the end of December 2007, at the earliest. Given the Christmas/New Year period, the production of documents for that month may well have been later - perhaps sometime in the New Year. The likelihood is that an investigative accountant would not have commenced reviewing the documents until sometime in the first half of January 2008 at the earliest. 809 Had, at that time, an investigative accountant expressed an interest in knowing the source of the funds used to reduce the Fortress facility, then in likelihood he or she would have been told that funds had become available within the group because PIF had entered into a Participation Fund Agreement with MFS Pac Fin and had also acquired units in MYF. I have no reason to think that a different explanation would have been provided. 810 I am not persuaded that, having been told how funds had become available within the group, an investigative accountant would necessarily have proceeded to investigate PIF's acquisition of the investments, at least without obtaining instructions from the respondent to do so. I emphasise that, at that time, such an accountant would not have been undertaking the role that Mr Borrelli undertook for the purposes of the Fortress Report. I accept Mr McCann's evidence that the transactions relating to the investments would likely have been only a secondary consideration for the investigative accountant, whose role was to monitor the Octaviar Group as recommended in Borrelli 1 and instructed in Joseph 2. I accept that it would not have been within the ordinary scope of that engagement to consider whether PIF was entitled to acquire these investments. Further, I accept that the motive and ability of PIF to make the payment would have been unknown to the investigative accountant and that further investigation would have been required before any view could have been formed in that regard. Thus, the likelihood would have been that the investigative accountant would have required the respondent's instructions before carrying out a substantive investigation into the PIF transaction. 811 It is not apparent to me why, simply knowing that PIF had acquired the investments in question, the respondent would have been motivated to investigate the acquisition with a view to determining its propriety, unless convincing reasons for doing so could have been advanced. In light of the other findings I have made, it seems to me to be doubtful that convincing reasons could have been advanced at that time. Nevertheless, if it be assumed, contrary to this finding, that such an instruction had been given by the respondent, I am satisfied that the work required to be undertaken in that regard would have been substantial and, I would add, likely to have been met with some resistance from OL. As the applicant's reply submissions recognised, apart from identifying the mechanics of the PIF transaction, an investigative accountant would have been required to investigate whether the investments which PIF made were authorised by PIF's Constitution or Product Disclosure Statement (noting that there appears to be a difference between the two as to authorised investments, as explained in Borrelli 2); whether in making the investments there had been compliance with the PIF Compliance Plan; whether the investments had been the subject of consideration or had been monitored by various organs such as the Investment Approval Committee, the Conflicts and Related Party Investment Committee, the Compliance Committee, and the Credit Committee and, if so, the extent of that consideration or monitoring; whether the investments involved a related party transaction; whether the investments required member approval or whether exceptions existed; and whether each of the investments was reasonable in the circumstances. I note that, in relation to the last-mentioned matter, Mr Borrelli himself relied on work undertaken for RBS that was only reported on 27 February 2008, which appears to have been a substantial undertaking in and of itself. 812 If it be further assumed that the investigative accountant would have commenced to carry out such an investigation in January 2008, and that such an investigation would have been of the scope revealed by the narrative in Borrelli 2, then I am not persuaded that the work would have been completed by 31 January 2008. I think that the work would have taken considerably longer to complete, by a measure of some weeks. It is not necessary for me to be any more precise than that. I do not accept, as the applicant argued in reply submissions, that an investigative accountant who asked questions about the use of PIF's funds to pay Fortress would almost immediately have ascertained the facts set out in para 105 of Borrelli 2 (noted at [796] above). That submission is implausible. It also appears to be quite inconsistent with the task that confronted Mr Borrelli when he, in fact, carried out such an investigation. 813 The applicant sought to avoid this difficulty by arguing that, had an investigative accountant carried out his or her investigation at an earlier time, say in December 2007, he or she would have been met with a lack of documentation, which would have reflected adversely on the propriety of the transaction. 814 There are two things to be said in that regard. First, I am not persuaded that the investigative accountant would have commenced his or her investigation at a substantially earlier time. Secondly, if an issue had arisen which required the production of documentation, and if the documentation was not then in existence, I am persuaded that it is more likely than not that the creation of documents would have been accelerated to meet the occasion. I will return to this matter when discussing the applicant's submission on tendency evidence. 815 For completeness, I should record that, in its reply submissions, the applicant went so far as to submit that Mr Borrelli himself would not have needed all of the documents identified in Tab 8 of Borrelli 2 to form the conclusions expressed at para 105 of that report with respect to the transaction. I reject that submission. Mr Borrelli did not give evidence to that effect and I proceed on the basis that Borrelli 2 faithfully and accurately records the reasons for his opinions. 816 In summary, I am not persuaded that, in December 2007, an investigative accountant would have identified the PIF transaction as an improper transaction as the applicant contended or that, at that time, that an investigative accountant would have identified the PIF transaction as the "red flag" that Mr Borrelli found in Borrelli 3. 817 Further, I am not persuaded that an investigation into the PIF transaction of the scope revealed by the narrative in Borrelli 2, if commenced in January 2008, would have been completed by 31 January 2008. 818 Before leaving this aspect of the case, I note that the applicant relies on the PIF transaction for a number of purposes. One of those purposes is to establish an Event of Default as at 31 January 2008, which would have entitled the respondent to call in the notes at that time. The asserted Event of Default is that, by engaging in the PIF transaction, OL, as guarantor, failed to carry on and conduct its business in a proper and efficient manner, contrary to s 283CB(a) of the Corporations Act and, hence, contrary to cll 7.2 and 7.3 of the Terms of Issue. The questions whether, by reason of the PIF transaction, OL breached s 283CB(a) of the Corporations Act or cll 7.2 and 7.3 of the Terms of Issue, and whether (assuming such breaches) an Event of Default thereby occurred, were not debated. I express no view on those questions. But if an Event of Default had occurred, I am not persuaded that, as at 31 January 2008, an investigative accountant would have identified the PIF transaction as giving rise to that event.

Tendency evidence? 819 In Oztech Pty Ltd v Public Trustee of Queensland (No 14) [2016] FCA 1162 (Reasons 14), I made a ruling in respect of the applicant's objection to the tender of certain documents by the respondent evidencing or concerning the PIF transaction. One ground of objection was that the documents would be used as tendency evidence without compliance with the notice requirements of s 97(1) of the Evidence Act 1995 (NSW) (Evidence Act). At [16] of Reasons 14, I noted: 16 In the course of submissions, senior counsel for the respondent stated that one purpose of the tender was to use the fact that "false documents" had been created to sustain an argument that it would be unreal to expect that an investigative accountant engaged by the respondent (in the circumstances posited by the applicant) would have been given either "candid information" or information that did not constitute either "prevarication or distraction". In short, the respondent wishes to advance an argument in closing submissions that, given that, apparently, the Octaviar Group had misled its auditors and its own corporate consultants, who had been engaged in January 2008, as to the nature of the PIF transaction, an investigative accountant engaged by the respondent would, similarly, have been misled if that person were to have inquired about the transaction in either late 2007 or early 2008. 820 Section 97(1) of the Evidence Act provides: Evidence of the character, reputation or conduct of a person, or a tendency that a person has or had, is not admissible to prove that a person has or had a tendency (whether because of the person's character or otherwise) to act in a particular way, or to have a particular state of mind unless: (a) the party seeking to adduce the evidence gave reasonable notice in writing to each other party of the party's intention to adduce the evidence; and (b) the court thinks that the evidence will, either by itself or having regard to other evidence adduced or to be adduced by the party seeking to adduce the evidence, have significant probative value. 821 The requirement of notice in relation to the tendency rule is referred to in s 99 of the Evidence Act: Notices given under section 97 or 98 are to be given in accordance with any regulation or rules of court made for the purposes of this section. 822 Section 95 of the Evidence Act is also important: (1) Evidence that under this Part is not admissible to prove a particular matter must not be used to prove the matter even if it is relevant for another purpose. (2) Evidence that under this Part cannot be used against a party to prove a particular matter must not be used against the party to prove that matter even if it is relevant for another purpose. 823 In the event, I admitted the documents on the basis that they were evidence of the primary facts and circumstances concerning the PIF transaction and ruled that the use to which this evidence could be put should be addressed in closing submissions: see at [18]-[19] of Reasons 14. 824 In his written closing submissions, the respondent submitted that Mr Borrelli had assumed that, if an investigative accountant had inquired into the PIF transaction in December 2007, it would have remained undocumented. The respondent submitted that this was inherently unlikely and that the overwhelming likelihood was that if an investigative accountant had commenced to inquire into the transaction in December 2007, Mr Anderson and others would have acted to create a documentary trail for the transaction, just as they did when PIF's auditors commenced to inquire into it in January 2008. 825 In light of the findings I have made, it is not necessary for me to address this particular submission. However, had such an issue arisen in December 2007 or had the same issue arisen in January 2008 before the time when all the documents provided to PIF's auditors had been created, I would infer that the creation of the documents would have been accelerated to meet the occasion. 826 Further, had an inquiry been made in, say, November 2007 as to how the renegotiated Fortress facility was to be partly repaid, I would infer that an investigative accountant acting for the respondent would have been told that assets had been or were to be sold (because that is what OL subsequently represented) and that the part repayment would be made from the proceeds of sale (because that is what happened). If further inquiries revealed that PIF was acquiring these investments and the question was raised whether approvals had been given, I would infer that an investigative accountant acting for the respondent would have been told that approvals had been or would be given (because this is what OL subsequently documented). I would add that it is likely that this would satisfy the inquiry made, unless there was some reason not to accept the explanation. I am not persuaded that, at this stage, an investigative accountant appointed by the respondent would then embark on a full blown investigation of the transaction or of the propriety of the investments made by PIF. 827 In my view, these findings do not violate the tendency rule under s 97(1) of the Evidence Act or involve the use of evidence, otherwise admissible, for an impermissible tendency purpose. In short, the evidence has neither been adduced nor used to prove that a person has or had a tendency to act in a particular way or to have a particular state of mind. It is evidence which concerns only the transaction in question. 828 As the Court of Criminal Appeal in New South Wales observed in Elomar v R [2014] NSWCCA 303; (2014) 316 ALR 206 at [360] with respect to s 97(1), tendency evidence is a means of proving, by deduction, that a person who acted in a particular way on an occasion other than the occasion in question, acted in that way on the occasion in question. The reasoning is relied on where there is no, or inadequate, direct evidence of the conduct in question. 829 Here, the conduct in question is the documentation of the PIF transaction. There is ample, direct evidence of what certain officers of OL did in that regard. The question whether they did the acts because they had a tendency to engage in such acts is not engaged and is superfluous. The only question is whether the established acts could and would have taken place at an earlier point in time in hypothesised circumstances. Inferences as to the timing when those acts could or would otherwise have taken place can be drawn. When such inferences are drawn in the present case, they are based on and derive from direct evidence that the very acts in question were committed. They are not based on or derive from some unrelated and, it seems to me, superfluous body of evidence dealing with the anterior question whether the actors had a tendency to commit those acts.

Summary of findings and conclusions 830 I have found that the applicant's pleaded case of causation, taken with the 14 June 2016 particulars and the 15 June 2016 particulars, and advanced through Mr Joseph's evidence and Mr Borrelli's evidence, falters at a number of critical stages and steps. 831 I have made the following findings: The occasion for making the recommendations in Borrelli 1 would not have arisen. Reasonable diligence and reasonable care did not require the respondent to appoint an investigative accountant as envisaged by Mr Joseph or to seek a report of the kind provided in Borrelli 1. At the time in question, a report was completely unnecessary in order for the respondent to discharge his duties. In any event, I am not persuaded that an investigative accountant would have made a recommendation for the ongoing monitoring of the Octaviar Group with the periodicity, scale and scope recommended in Borrelli 1. I am not persuaded that a report such as Borrelli 1 would have been provided at any time close to 15 August 2007, as postulated in the applicant's case on causation. Such a report would have been provided some weeks later at the earliest. This has the consequence that the applicant's timeline for the balance of its case on causation is disrupted significantly because, if monthly monitoring had taken place, it would not have commenced until much later in the piece. I am not prepared to find or assume that all the B2/Tab 3 documents would have been provided to an investigative accountant in response to a request made in accordance with the draft August 2007 letter. Apart from the Octaviar Group's monthly management accounts, I am unable to determine with reasonable precision what documents would have been provided to an investigative accountant in the period mid-August 2007 to mid-February 2008, or when they would have been provided. The analytical framework the applicant has employed for providing documents to Mr Borrelli, as the hypothetical investigative accountant, gives me no confidence that an investigative accountant engaged in mid-August 2007 to carry out the monthly reporting recommended in Borrelli 1, would have had all the documents which Mr Borrelli, in fact, relied on in expressing his opinions in Borrelli 2, or would have had all those documents in a timely manner. It is more likely than not that it would have taken something in the order of five to six weeks from month-end for the investigative accountant to prepare a monthly report in accordance with the monitoring recommended in Borrelli 1. I am not persuaded that an investigative accountant would have been provided with all internal communications within the Octaviar Group in relation to cash flow positions; the sale of Stella; dealings with the group's creditors and lenders, including their legal advisers; and all communications by the Octaviar Group with legal advisers, lenders and investors in respect of current or potential financing. I am not persuaded that an investigative accountant would, in fact, have been provided with a number of documents on which Mr Borrelli based his "red flag" findings in Borrelli 3. I am not persuaded that accelerated monitoring, as described in Borrelli 3, would have taken place in November and December 2007. 832 I have concluded, therefore, that the applicant's case on causation cannot be accepted as a coherent whole and that, in light of the pleading of paras 92C and 92I of the FASOC and the particulars that have been provided, including the 14 June 2016 particulars and the 15 June 2015 particulars, this is fatal to the acceptance of that case. 833 I have also made these findings: I am not persuaded that, as at 31 January 2008, an investigative accountant would have reached so definite a conclusion that OIN and the Guarantors were insolvent at that time, although it would have been clear that, in the period after 18 January 2008, the Octaviar Group was financially distressed. A determination of what debts were due and owing by the Octaviar Group as at 31 January 2008 would have raised substantial legal and factual questions that needed to be investigated and, if need be, resolved by legal proceedings. I am not persuaded that, as at 31 January 2008, an investigative accountant would necessarily have reached the conclusion that the Octaviar Group had exhausted all ability to obtain funding. With respect to the PIF transaction, I am not persuaded that, in December 2007, an investigative accountant would have identified the PIF transaction as an improper transaction as the applicant contended or that, at that time, an investigative accountant would have identified the PIF transaction as the "red flag" that Mr Borrelli found in Borrelli 3. Further, I am not persuaded that an investigation into the PIF transaction of the scope revealed by the narrative in Borrelli 2, if commenced in mid-January 2008, would have been completed by 31 January 2008. It would not have been completed until some weeks later. I am not persuaded, therefore, that, as at 31 January 2008, an investigative accountant would have identified the PIF transaction as an Event of Default. As to the other asserted Events of Default relied upon by the applicant as entitling the respondent, as at 31 January 2008, to call in the notes, I am not persuaded that the asserted Events of Default addressed in Borrelli 2 have been established as such. More importantly, I am not persuaded that, as at 31 January 2008, an investigative accountant would have identified any of the other matters relied upon by the applicant as Events of Default which would then have been referred to the respondent's lawyers for advice on that subject. 834 These findings are of critical importance because they lead to the conclusion that the applicant has not established that, as at 31 January 2008, there would have been a proper basis for the respondent to call in the notes. Absent such a basis, the applicant's chronology falls down. There would not have been a failure to make payment by mid-February 2008 (because the respondent would not have had a proper basis for calling in the notes) and an investigative accountant would not otherwise have reached so definite a conclusion as at 31 January 2008 that OIN and the Guarantors were insolvent at that time. 835 I should add that, by about mid-January 2008, the group's management accounts for the month ended 31 December 2007 would have been available to an investigative accountant. As I have noted above, those accounts would have informed the investigative accountant that the group had recorded a net profit of $1,684,715 for the month and $32,500,458 for the year. Further, the December 2007 management accounts recorded that the Octaviar Group had net assets of approximately $1.5 billion. 836 There are other aspects of the applicant's case on causation to which I should return. 837 The first matter is the applicant's first counterfactual. There are aspects of that counterfactual which, as articulated in submissions, are not pleaded or particularised. Thus, there is considerable justification for the respondent's complaint that the first counterfactual advances a new and unpleaded case as to why, had he not allegedly breached his duties, the respondent would have appointed an investigative accountant in July 2007. 838 The applicant should be held to its pleaded case. But, even so, I am not persuaded that the first counterfactual materially advances the applicant's case on causation, given that it converges with the second counterfactual at the point of the respondent appointing an investigative accountant in mid-July 2007 to prepare an initial report on the matters identified in Joseph 1, and given further that there are significant obstacles to accepting the first counterfactual in any event. 839 In this latter regard, I would accept, firstly, that, had the respondent requested and obtained monthly management accounts from the Octaviar Group for the month ending 30 June 2007, then in all likelihood he would have identified the existence of the Fortress facility through those accounts. The management accounts for the month ended 30 June 2007 are not in evidence. However, other management accounts in subsequent months are in evidence and do record the facility, which is also recorded in the financial statements in the 2007 Annual Report. It seems to me to be reasonable to infer that the management accounts for the month ended 30 June 2007 would also have recorded the Fortress facility. 840 Even so, I see no reason why, necessarily, the respondent would have asked for those accounts. As I have concluded, it was not a breach of duty not to ask for monthly management accounts at that time. Further, based on my previous findings, I do not expect that those accounts would have been available to the respondent until about two weeks after month end, at the earliest. Had he requested monthly management accounts for the month ended 30 June 2007, the respondent would have known by mid-July 2007 at the earliest that the Fortress facility had been entered into for $250 million, at about the time when, in the second counterfactual, the investigative accountant would have been appointed in any event. 841 Secondly, as I have previously noted, the Octaviar Group's monthly management accounts do not contain cash flow statements, let alone cash flow forecasts. I see no reason why the respondent would have asked for a monthly cash flow forecast at the time in question and, as I have concluded, it was not a breach of duty not to ask for cash flow forecasts at that time. Further, for the reasons I have already stated, I do not accept that, had the respondent asked for cash flow forecasts, he would have been provided with cash flow forecasts of the kind considered in Borrelli 1 and Borrelli 2. 842 Thirdly, had the respondent enquired in July 2008 about how the Fortress facility was to be repaid absent a sale of Stella by 1 August 2007, I am satisfied (as I have already recorded) that it is more likely than not that an investigative accountant would have been informed that the partial sale of Stella was still on foot (as OL had announced to the market on 13 June 2007) and that, if need be, it was open to OL to extend the facility (as in fact happened on 17 August 2007). 843 Fourthly, the UBS facility stands in the same position as the Fortress facility, in terms of its disclosure and the timing of that disclosure. 844 Fifthly, I am unable to see how any of these matters would have led the respondent to engage an investigative accountant in July 2007 to prepare the kind of report sought in Joseph 1 and provided in Borrelli 1. 845 The second matter is that, in reply submissions, the applicant advanced what is, in substance, a third counterfactual. It submitted that the respondent had failed to engage with "the simple path to causation developed in the [applicant's closing submissions]", the salient features of which are: the respondent would have identified the Fortress facility; given the short-term cash flow projections (presumably those on which Mr Borrelli relied), the respondent would have been concerned to know how the Fortress facility was to be repaid absent a sale of Stella; the Fortress facility was extended on disadvantageous terms on 17 August 2007, so that it would be repayable on 1 December 2007; on 28 November 2007, it was announced that the sale of Stella would not proceed; this would have raised concerns as to how funds could be raised to repay the facility; when, on 30 November 2007, the loan was partly repaid, questions would have been asked as to how the funds to part pay the facility had been obtained, given the previous cash flow forecasts and the fact that Stella had not been sold; by December 2007 or January 2008, any competent investigative accountant would have identified that money had been misappropriated from PIF; and when OL's share price collapsed on 18 January 2008, any competent investigative accountant would have concluded that the Octaviar Group entities must be insolvent. 846 This submission can be answered immediately by recognising that this "simple path" is not the case on causation which the applicant has pleaded and particularised; nor is that the case which the applicant advanced through Mr Joseph's and Mr Borrelli's evidence. Thus, it is not the case on causation which the respondent was called on to meet. It is an argument the applicant has erected in final submissions despite its pleaded and particularised case. 847 The respondent sought to meet the case that had been pleaded and particularised, and that had been advanced through Mr Joseph's and Mr Borrelli's evidence, by extensive evidence from Mr McCann. That case was also addressed in the Joint Report and in concurrent evidence. The respondent also sought to rely on evidence from Mr Anthon, which, as matters transpired, I rejected on admissibility grounds during the course of the hearing: Oztech Pty Ltd v Public Trustee of Queensland (No 13) [2016] FCA 1153. 848 The applicant developed its "simple path" argument by stating that all it is required to do is to establish that the respondent's alleged breaches of duty materially contributed to its loss. It submitted that this task does not necessarily involve the establishment in finite detail of a counterfactual course of events over the seven month period from July 2007 to February 2008, with each detail being established on the balance of probabilities. 849 The first aspect of this submission - that the applicant is required to establish that the respondent's alleged breaches of duty materially contributed to its loss - can be accepted at the level of generality at which the proposition is expressed. The second aspect of the submission - that it is not necessary for the applicant to establish the finite detail of a counterfactual course of events - cannot be accepted unreservedly. The "simple path" is a substantial retreat from the applicant's pleaded and particularised case, and from Mr Joseph's and Mr Borrelli's evidence, which was based on obtaining a report of a particular kind which, in the event, would have recommended monthly monitoring of a particular kind that would have been carried out. When deficiencies in Borrelli 2 were recognised, the applicant advanced Borrelli 3 as a repairing affidavit to show with greater precision how, based on the recommended monthly monitoring, the position would have been arrived at by mid-February 2008 whereby the respondent would have applied promptly to wind up OIN and the Guarantors. The "simple path" retreats from that position to advance a more generalised case, namely that, with "very basic monitoring" (as the applicant put it), an investigative accountant appointed in July 2007 would have identified significant shortfalls in projected cash that the Octaviar Group was forecasting in 2007; the consequent need to "plug the gap" with the Fortress facility; and the resort to misappropriation from PIF when the Fortress facility could not be repaid. 850 The "simple path" argument cherry-picks aspects of the financial evidence to provide a different concatenation of events from that originally provided by the framework of the applicant's pleaded and particularised causation case. Thus, the matter is not simply one of failing to prove matters of finite detail but, rather, advancing a fundamentally different case on causation. 851 On the basis of the applicant's pleaded and particularised case, supported by Mr Joseph's and Mr Borrelli's expert evidence, I am not persuaded of the likely existence of a number of matters which now appear in the applicant's "simple path". For example, I am not persuaded that an investigative accountant would have identified the PIF transaction as an improper transaction in December 2007 or that an investigation into the PIF transaction would have been completed by 31 January 2008. I am also not persuaded that an investigative accountant would have been provided with the cash flow forecasts on which Mr Borrelli relied and on which, it seems, the "simple path" argument also relies. Further, I am not persuaded that, as at 31 January 2008, an investigative accountant would have reached so definite a conclusion that OIN and the Guarantors were insolvent at that time. 852 Given that I have not been persuaded on such matters when viewed in the context of the applicant's pleaded and particularised case, and Mr Joseph's and Mr Borrelli's expert evidence, I do not see how or why I would reach a contrary conclusion on these matters via the applicant's "simple path" argument - and I do not do so. 853 In summary, the applicant should, once again, be held to its pleaded and particularised case. Nonetheless, its "simple path" argument similarly fails because of the conclusions I have reached in respect of a number of facts in issue, based on the evidence before me.

Would the respondent, acting reasonably, have applied promptly to wind up OIN and the Guarantors in mid-February 2008, or by no later than 29 February 2008?

Introduction 854 I commence this section of the reasons by drawing attention to and explaining the significance of the two dates identified in this question: mid-February 2008 and 29 February 2008. The applicant's case in chief was advanced on the basis of the mid-February 2008 date. However, as I have noted at [404] above, in its reply submissions the applicant endeavoured to rely on para 90 of the FASOC. Relevantly, para 90.5 pleads that the respondent failed to take the steps described in para 87 of the FASOC until 4 June 2008. Paragraph 87 relevantly pleads (in para 87.1) that, had the respondent formed certain views, he "would immediately, and by no later than 29 February 2008, have made application to the court for orders that … OIN and the Guarantors be wound up". This explains the reference to the second date in this question. Later, in the particulars to para 91 of the FASOC, the applicant implies that OIN and the Guarantors would have been placed in liquidation on or shortly after 29 February 2008. Even though I have concluded that it would not be sensible to treat para 90 of the FASOC in isolation from the specific breaches subsequently pleaded and particularised, and even though para 90 of the FASOC cannot be divorced from the way in which the applicant actually advanced its case in chief on breach - with the consequence that the relevant date is really mid-February 2008 - I will nevertheless consider the alternative date of 29 February 2008 as well. 855 It is also important to note that this aspect of the case on causation involves the compression of a series of events, commencing from the collapse of OL's share price on 18 January 2008. Although not confined to the events in that period, the applicant's case on causation nevertheless proceeds - and is dependent on - how the respondent, acting reasonably, would or should have reacted to OL's share price collapse in circumstances where important integers of the applicant's case only took place after 18 January 2008 and where the collapse itself was not foreseen, and could not reasonably have been foreseen. It is not suggested, for example, that the investigative accountant posited by the applicant would have had foreknowledge of OL's decision to effect a demerger by separating its tourism and financial service businesses in conjunction with a capital raising, or would have predicted the market's reaction to that proposal when announced on 18 January 2008. Indeed, even as at 15 January 2008, Macquarie Research Equities was maintaining its "outperform" recommendation in relation to OL's shares. It noted that OL had received a conditional takeover offer from City Pacific (an independent diversified financier providing funding to residential, commercial and development properties in south-east Queensland, NSW and Victoria) with respect to OL's financial services business, which valued that business at $1.73 per share - a value which Macquarie Research Equities considered to be far too low. Macquarie Research Equities considered OL's financial services business to be worth closer to $3.15 per share, and that the Stella business was worth $3.50+ per share. It placed a value on the group business at $6.94 per share. 856 It was after the share price collapse on 18 January 2008 that a series of other events occurred including, for example, the making of the demands and claims by creditors in the second half of January 2008 on which Mr Borrelli relied in Borrelli 2 (at paras 109 and 127) in making his recommendations. It was in those circumstances that the sale of Stella proceeded. The applicant's case is that, even as those events were unfolding, the respondent, acting reasonably, would not only have commenced proceedings to wind up OIN and the Guarantors in mid-February 2008 (or by no later than 29 February 2008), but would have obtained winding up orders by 29 February 2008 (or shortly thereafter) or, alternatively, appointed an administrator. 857 In order to consider the question posed in this section of the reasons, it is necessary to make further findings of fact.

Further findings of fact 858 On 29 January 2008, Mr Hall sent an email to Mr Kelly setting out possible questions for Mr Kelly to raise with OL's management following OL's share price collapse: Dear Ian Further to our conversation I have set out some considerations you may wish to give with respect to an approach and possible questions for management, when considering the current situation with [OL]. Short term focus what is the likely sale price for Stella? how is the residual cash going to be used to reduce debt (under various scenarios)? what is the attitude of the other lenders/What are their rights in regards to demanding early repayment (as only the Fortress debt appears to be due in 2008) does the sale of Stella trigger an early repayment of the Notes? where do the Noteholders sit in priority to the other banks/creditors? (security analysis) details of any covenants breached Medium term focus what will the business model look like post sale of Stella? will this business model be suitable? what are the key drivers of success/sensitivities has the financial services business been damaged by the negative publicity? what is the likely impact? what safeguards are in place to protect value In the absence of any sensible forecasts, these are probably some of the medium term issues that management should be in a position to discuss in broad terms. They might give the you [sic] a flavour for whether the Notes are likely to have any value post the restructuring of [OL]. As we indicated in our earlier reports projections for the repayment of the notes in 2011 are going to be difficult to assess especially given the nature of the business which relies on future acquisition and sale transactions. Further the answers to some of the questions above will have a significant impact on the ability of [OL] to repay the Noteholders in 2011. Hence the suggested focus is to ascertain if they will survive this current crises [sic] before considering if they can repay the Notes in 2011. Please give me a call to discuss it further. Regards 859 Further, on 31 January 2008, PwC provided the respondent with PwC 4, which set out a list of possible future steps for the respondent's consideration. This included seeking answers to a number of questions from OIN and OL to ascertain whether they had complied with, and would be able to comply with, their obligations in respect of the notes. PwC also advised the respondent to seek legal advice to understand, amongst other things, the legal options open to the respondent to enforce his rights and to seek information and co-operation from OL. 860 On 4 February 2008, following consultation within the PTO, the respondent engaged his present solicitors, who were on the respondent's panel of legal advisers. On 14, 20 and 21 February 2008, the respondent's solicitors wrote to OIN and OL seeking information as to the financial standing of OIN, OL and any Material Subsidiaries. 861 On 13 February 2008, in the context of considering whether to extend the Fortress facility on the terms then proposed, OL's directors recorded their conclusion, and resolved that as the company was solvent and able to pay its debts as and when they became due and payable, the facility should be extended. 862 On 19 February 2008, Mr Kelly and the respondent's solicitors met with Mr Korda. At that meeting, Mr Korda advised that the sale of Stella was contingent on a declaration of solvency, which OL's directors were happy to give. In this connection, the Stella share sale agreement contained warranties by OL that no petition or other process for winding-up or dissolution had been presented or threatened in writing against it and that, so far as it was aware, there were no circumstances justifying a petition or other process. OL had also warranted that it was able to pay its debts as and when they fell due. The respondent did not have a copy of the share sale agreement at this time. He was reliant on what Mr Korda had said in that regard. The respondent's solicitors were only given a copy of the share sale agreement by OL's solicitors on 18 March 2008. 863 Also at this meeting, and somewhat paradoxically, Mr Korda advised that, in the absence of a "standstill agreement" with creditors, which would include the respondent on behalf of the noteholders, OL would probably be insolvent, even though the group was meeting its day to day operational expenses. As the respondent's solicitors' letter to the respondent on 20 February 2008 suggests, Mr Korda's standstill proposal, as it might affect the respondent and the noteholders, was somewhat undeveloped. Nonetheless, it appeared to involve the noteholders agreeing to vary the maturity date to keep it "flexible" (either by bringing it forward or postponing it), foregoing interest for a period, and receiving repayments of capital on a staged basis. In response, the respondent's solicitors advised the respondent to seek further information from OL; to provide them (the solicitors) with instructions to meet with the major noteholders in respect of Mr Korda's "proposal"; and to engage Mr Hall to advise on the information that would be necessary to allow due diligence to be conducted in relation to that "proposal". 864 On 20 February 2008, 333 Capital provided Mr Kelly with a "cash flow waterfall" and a "strategic review". The "cash flow waterfall" was an outline of the (realisable) asset position of the Octaviar Group. The main assets were the Stella sale proceeds and the value of the residual 35% interest in Stella. The "cash flow waterfall" identified the "Net Cash Flow Before Long Term Creditors" as $984.9 million. The "strategic review" was a high level document directed to summarising key information as to the position of the group, and future plans. 865 On 26 and 27 February 2008, OIN and OL responded to the respondent's solicitors' requests by providing some information. The respondent's solicitors did not consider the responses to be satisfactory. In their view, a number of answers were non-responsive to the questions that had been asked, and other answers were "simply inadequate". Further, in their view, the answers given were inconsistent. 866 Notwithstanding the respondent's solicitors' view as to the unsatisfactory nature of OL's responses, the following matters impressed themselves on Mr Jenkins, who had responsibility for the matter within the firm. 867 First, in its responses, OL said: There was only one secured debt (the Fortress facility). There were no defaults under any facilities and no monies had become due and payable. There were no breaches of the Trust Deed, Terms of Issue or Chapter 2L of the Corporations Act, and no covenants or conditions that could not be performed. OL did not believe that any event had occurred since the last quarterly report which could cause the notes to become immediately due, constitute an Event of Default, give rise to rights or remedies, or materially prejudice noteholders. 868 Secondly, the answers given by Mr Anderson as Chief Financial Officer on behalf of OL had been copied by him to members of 333 Capital and Freehills (then acting for OL). Mr Jenkins gave this evidence in relation to the significance of this circumstance: I can recall that we were told by David Anderson that the relevant companies (in particular OIN) were not in default under any facilities or under the notes terms and noting he had copied the Group's professional advisers. I took this as indicating that those advisers had been involved in formulating the answers. That suggested to me that they were credible answers because, whilst sometimes a distressed debtor may not be entirely frank, my expectation of fellow professionals (lawyers and accountants) was that they would not knowingly mislead me. 869 At this time, Mr Kelly was concerned that Stella had been sold at an undervalue. He raised this concern with Mr Megson (a solicitor within the office of the Official Solicitor to the respondent) and inquired as to the "possibility of urgently appointing a liquidator to prevent the sale proceeding". Mr Megson warned Mr Kelly about the dangers for the respondent if an application were to be brought and it was later found that the sale had not been at an undervalue as Mr Kelly had feared. Mr Megson advised Mr Kelly that if OL suffered loss as a result of the respondent's actions, then it may have recourse against the respondent. 870 Relatedly, Mr Jenkins gave evidence that, at this time, he was concerned about "precipitous steps" that might cause the partial sale of Stella to "fall over". In his affidavit, he said: 69 …At this point, the Octaviar Group was taking advice from reputable professional advisors and had embarked on the sale of part of the Stella Group in order to generate cash to pay its creditors and meet operating costs. Whilst the PTQ had some concerns as to the Octaviar Group's financial state, my view at the time was there was no justification at this point for taking steps that might further harm the company's financial position unless they were necessary and considered and in the best interests of noteholders. 70 Whilst I had not seen the Share Sale Agreement at this time, my experience told me that insolvency of the ultimate vendor entity during the due diligence period or just prior to completion may trigger default clauses or provide "get out" options for the buyer. If that occurred and the contract fell over, unless a sale on equal terms could be negotiated, the PTQ might face damages claims for loss of the sale. I did not want the PTQ exposed to the consequences of such an outcome which might have included damages claims for many millions of dollars if the contract collapsed. ... 871 On 27 February 2008, the respondent's solicitors wrote to OL demanding that the requested information be provided. They also sought an undertaking (to be provided by no later than 4.00 pm on 28 February 2008) that the sale of any assets by companies within the Octaviar Group, including the proceeds of sale of Stella, be held in a dedicated "Asset Realisation Account" until such time as a proposal for the disposition of the funds could be formulated and agreed to by the creditors of the Octaviar Group, or an administrator appointed. As events transpired, this undertaking was not given. 872 At this time, Mr Jenkins was endeavouring to come to an understanding whether the noteholders would be better off under the kind of proposal advanced by Mr Korda. In order to reach that understanding, he had to understand what the likely position would be absent acceptance of such a proposal. In short, he was endeavouring to determine and value the respondent's current rights. One of the difficulties was the complex nature of the Octaviar Group. Mr Jenkins explained the position as follows: 55. The structure of the Group involved over 130 subsidiaries and its assets were held in each of those companies. The Octaviar Group business involved acquiring assets and using special purpose companies to hold them. There were intercompany loans created as a consequence of that activity. The issue being confronted at this point by the PTQ and the major note holders from my perspective was the need to understand the complexities of the intercompany position in order to be able to compare it to any proposal that might be put. This is because the intercompany position would dictate what funds might become available to note holders free of other claims in a winding up. The reason this was an issue for me was that this comparison would determine what step was in the best interest of the note holders. That is, winding up or work out. 56. In my experience, when a creditor of a company has distressed debt and the company may be insolvent, the default position is not to simply wind up the debtor company. What normally occurs is that there is a conversation with the debtor about why the debt is distressed and whether the situation is salvageable either entirely or in part. Once that information is available, the creditor is able to consult its own interests and consider the options it has. Therefore, my view at the time was that we needed, first, information to enable a winding up scenario to be worked through in order to predict outcomes for the note holders and, second, a detailed alternative proposal to be put by OL and Mark Korda to enable a meaningful comparison. Obtaining that information became my focus at that time. 873 Mr Jenkins was also focused on determining whether a trigger for a notice of default existed and what the "guarantee position" would be if a default was triggered. 874 I should also record that, at around this time, Deutsche Bank - a major noteholder - and other major noteholders were, separately, seeking their own legal advice and interacting with the Octaviar Group through 333 Capital and Mr Korda. 875 Having not been provided with what the respondent's solicitors regarded to be adequate responses to the requests for information that had been made, and on instructions from the respondent, counsel were briefed on Friday 29 February 2008 to advise on the respondent's obligations and the steps he should take to enforce his rights to obtain information from OIN and OL. For this purpose, the solicitors drafted an originating application to be filed in the Supreme Court of Queensland seeking declaratory relief that OIN and OL had breached the Trust Deed by failing to provide information to the respondent. The draft originating application also sought injunctive relief, including an order that an affidavit be filed certifying OIN's and OL's net assets and an order that, save for the payment of secured creditors and transaction expenses, the sale proceeds of Stella and of any other asset sold at that time be held in an "Asset Realisation Account" on certain terms. 876 Also on 29 February 2008, Mr Korda informed Mr Kelly that the sale of Stella would complete on that day and that OL's directors had signed a certificate of solvency. Mr Korda also informed Mr Kelly that a meeting of the Octaviar Group's five largest creditors would be called in the ensuing week to discuss a "proposal". 877 On 3 March 2008 - the following Monday - counsel who had been briefed (Mr Sofronoff QC and Mr O'Sullivan) advised that: the briefed material showed justifiable concerns about the solvency of OL, although much of the material had the status of information, not admissible evidence; the time had come for the respondent to exercise his powers of inspection; the respondent should appoint an auditor to OL and OL should be informed that its "financial and other records" were to be inspected; a request should be made of OL to allow the auditor to enter its property for the purposes of inspection; upon consideration, an application to the Supreme Court of Queensland should not be made at that time, but in the event of undue delay (on the part of OL) urgent injunctive relief should be considered. 878 On 3 March 2008, Mr Hall prepared a list of "priority material" to be inspected. This was to assist the auditor. 879 On 4 March 2008, the respondent appointed Robert Roach of PwC to act as auditor. The respondent's solicitors also wrote to OL informing it that Mr Roach would be attending to inspect documents the following day. The letter identified the records and information that were required for inspection under the following categories: the sale of Stella; board papers, financial papers and correspondence; assets and cash flow; and details of liabilities. 880 Mr Anderson responded on behalf of OL. He sought to delay the inspection until 7 March 2008. He considered the allowed time period for production to be unreasonable. The respondent's solicitors sent an email to Mr Anderson, rejecting his contention. 881 On 5 March 2008, Mr Roach and a Mr Taylor (a consultant at PwC), together with Mr Hall and Mr Kelly, attended OL's premises in Southport, Queensland to inspect the documents sought. As events transpired, the inspection did not proceed. Mr Anderson informed those attending that his staff were working on compiling the documents and that Mr Roach should return the following Friday, 7 March 2008. Mr Anderson was quizzed on a number of matters. He confirmed that a certificate of solvency had been given in relation to the completion of the sale of Stella and reiterated his own view that OL was solvent. 882 On 7 March 2008, OL produced certain documents. Following inspection, the respondent's solicitors formed the view that the production was inadequate. Further, from the information provided, the respondent's solicitors came to the realisation that this information was inconsistent with earlier answers given by OL in respect of the respondent's requests, and revealed apparent errors in some of those answers. 883 Mr Hall and his team within PwC also considered the documents, which included the "cash flow waterfall" prepared by 333 Capital. Mr Hall gave evidence in the present proceeding to the effect that, on the information then provided by OL, it was not possible for him to come to a view whether OL and OIN were solvent or insolvent. 884 On Saturday 8 March 2008, the respondent's solicitors sent an email to Mr Anderson, stating (amongst other things) that the respondent's requests for information and documents had not been fully addressed and that some of the responses that had been given were evasive. The email concluded by stating that, unless certain documents and information were provided by 2.00 pm on Monday 10 March 2008, the respondent had given instructions that proceedings were to be commenced seeking orders (amongst other orders) that the information be produced. 885 On 10 March 2008, the respondent's solicitors received a letter from Freehills. In that letter, Freehills said that: their clients had expressed a willingness to provide information; there had been a number of requests for information; the foreshadowed proceedings would be "a waste of time and money" and an abuse of process in the circumstances; it would be "regrettable" if any proceedings issued by the respondent led to a "loss of goodwill" between the respondent and the noteholders, which was "essential to ensuring that the most favourable outcome for all stakeholders in [OL]…is achieved". 886 Mr Jenkins gave this evidence in respect of Freehills' letter: The letter accords with my general recollection that Octaviar at that time maintained that it was acting in compliance with its obligations. The suggestion of the loss of goodwill of the note holders is consistent with my recollection that pressure was being brought to bear on the PTQ by Octaviar and its advisors (Freehills and 333 Capital/Korda Mentha) that the PTQ was out of step with the view of the majority of its note holders and was acting un-commercially and potentially to their detriment. 887 Nonetheless, on 11 March 2008, the respondent commenced proceedings in the Supreme Court of Queensland against OIN and OL seeking "access to records" and the provision of certain "information, explanations and assistance" (that is, the QSC Information proceeding). It was in this context that Mr Kelly made the affidavit on which the applicant relies in relation to its case on breach of fiduciary duty and unconscionable conduct. 888 Mr Hall provided an affidavit in the QSC Information proceeding in which he deposed that the material produced by OL on 7 March 2008 was not adequate for him to reach a concluded view as to the solvency of OL or OIN, although the fact that certain information had not been produced raised concerns regarding the solvency of those companies. 889 On 14 March 2008, the Queensland Supreme Court made orders that OIN and OL progressively provide the respondent's solicitors with access to certain categories of documents. The Queensland Supreme Court also ordered that, by 5.00 pm on 17 March 2008, OIN and OL provide a statement signed on behalf of OIN's and OL's directors as to "whether or not, in their opinion, there are reasonable grounds to currently believe that [OIN and OL] will be able to pay their debts as and when they become due and payable". 890 OIN and OL progressively provided documents. 891 On 16 March 2008, Freehills provided written advice to the directors of OIN and OL on the principles for assessing whether a company is able to pay its debts as and when they become due and payable. As part of that advice, Freehills recorded their instructions that the Octaviar Group had only been served with two statutory demands (which had been complied with before the demands expired) and that OIN had not been served with any statutory demand or any other demand purporting to accelerate its liabilities to any person. Freehills also recorded their instructions that the Octaviar Group proposed to negotiate a standstill arrangement with the group's five major unsecured creditors, including the respondent, which would provide a moratorium of creditors' claims while the group realised its businesses and assets in an orderly manner. 892 On 17 March 2008, the statement of solvency was provided by OIN's and OL's directors. The statement recorded that the directors of OL and the directors of OIN were of the opinion that there were reasonable grounds to believe, at that date, that OL and OIN "will be able to pay their debts as and when they become due and payable". 893 On 18 March 2008, OL sent the respondent a draft standstill agreement. 894 On 18 March 2008, the respondent's solicitors engaged PwC (Mr Hall) to review certain documents provided by OIN and OL and to express an opinion on, amongst other things, whether the documents were sufficient for OIN's and OL's directors to provide the solvency statement that had been given. PwC were also to review a valuation that OL had provided for its residual (35%) holding in Stella and to comment on whether the valuation appeared reasonable. In the ensuing period, further information was sent by the respondent's solicitors to PwC for these purposes. 895 Also on 18 March 2008, it came to Mr Jenkins' attention that, on 13 March 2008, Challenger had commenced proceedings against OL and OIB in the Supreme Court of New South Wales seeking declarations that a Bondholder Trigger Event had occurred. In those proceedings, Challenger also sought an inquiry as to which of OL's subsidiaries answered the description "Material Subsidiary", and an order requiring OL to procure each such subsidiary to enter into a guarantee in favour of Challenger. 896 On 31 March 2008, Mr Hall sought to clarify the scope of work that PwC was required to undertake under their engagement on 18 March 2008. In an email sent that day to the respondent's solicitors and to Mr Kelly, he said: As you are aware the [Octaviar Group] is a complex web of inter related entities and it is not possible to provide an in depth analysis of its solvency position. Our comments therefore are necessarily limited to the documentation provided as part of the legal proceedings brought by The Public Trustee in its capacity as trustee of [OIN] noteholders. 897 In evidence, Mr Hall confirmed that this was his view of the position at the time. 898 On 2 April 2008, PwC provided a draft report - PwC 5 - to the respondent and the respondent's solicitors. By that time, PwC's instructions had been modified. PwC were no longer required to express an opinion about whether the documents that had been provided by OL were sufficient for OIN's and OL's directors to provide the solvency statement they had given. PwC 5 included findings that the methodology that had been employed for an indicative valuation of Stella appeared reasonable and that, applying a discount for the fact that OL did not have a controlling interest, PwC's estimate of OL's 35% stake was in the range of $170.1 to $220.2 million. It does not appear that PwC 5 progressed beyond the draft stage. 899 Mr Jenkins gave evidence that, at this time, the respondent and his advisers were still trying to understand the solvency position of the Octaviar Group, including how funds would flow through the group in the event of a winding up. He also gave evidence that none of the noteholders was pushing the respondent to call in the notes or to seek a winding up of any OL entity at this time. Throughout this period, Freehills continued to provide the respondent's solicitors with information in relation to the Octaviar Group and developments affecting the group. 900 The respondent's evidence is rich in detail on these and other matters at the time. It is not necessary for me to set out that detail. It is sufficient for me to move forward to 28 April 2008, when OL issued its financial report for the Octaviar Group for the first half of the 2008 financial year. The report recorded that the group had made a loss of approximately $221.5 million for the period but had net assets of approximately $1.223 billion. However, this figure was based on a valuation of Stella prior to its partial sale in February that year. It did not take account of Stella's implied value as a result of that sale. 901 The directors expressed their opinion that there were reasonable grounds to believe that OL would be able to pay its debts as and when they became due and payable. But, the Directors' Declaration contained the following reservation: The Directors note however that due to events occurring subsequent to balance date…there is material uncertainty as to the Company continuing as a going concern. Specifically the Group will need to reach an accommodation with its large unsecured creditors to remain a going concern… 902 The auditors, KPMG, issued the following disclaimer: As a result of the multiple significant uncertainties set out above we are unable to form a conclusion on the appropriateness of the going concern basis used in the preparation of the interim financial report. We therefore are unable to and do not form a conclusion as to whether the interim financial report of Octaviar Limited is in accordance with the Corporations Act 2001 including: (a) giving a true and fair view of the Group's financial position as at 31 December 2007 and of its performance for the half year ended on that date; and (b) complying with Australian Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001. 903 Mr Jenkins considered this report to be a "game changer". His evidence was that the report would enable the respondent to argue that OIN and the Guarantors were insolvent, and therefore open the way for the respondent to apply for winding up. He said, however, that the question remained whether winding up OIN and the Guarantors would have been the optimal outcome for the noteholders. 904 On 3 May 2008, Mr Sofronoff QC and Mr O'Sullivan were briefed to advise whether there had been an Event of Default under the Trust Deed and Terms of Issue and, if so, whether the default was sufficient to enable the respondent to call in the notes. 905 On 8 May 2008, Mr Jenkins approached Mr Hall about whether he was in a position to provide an affidavit deposing to the insolvency of OIN and the Guarantors. Mr Hall was not prepared to give such an affidavit, principally (it would seem) because the "cash flow waterfalls" prepared by 333 Capital indicated that the Octaviar Group was meeting its day to day costs, and long term debts were not then due. 906 On the same day, Mr Sofronoff QC and Mr O'Sullivan provided their joint opinion, which was that an Event of Default had occurred justifying the respondent calling in the notes and, simultaneously, applying to wind up OL and OIN on the ground of insolvency. In this connection they advised that, on the available evidence - in particular the qualification provided by the directors in the half-yearly report; the auditor's disclaimer; and counsels' own analysis of the financial report taking into account the sale value of Stella - OL was unable to meet debts to very large creditors, which were due and payable from time to time over the following two to three years, from assets OL currently owned or from other sources that might come into existence within the relevant time frame. They concluded that the Octaviar Group did not have net assets of $1.223 billion (as reported), or "anything like that sum". They noted that the respondent was not minded to recommend to noteholders that an accommodation be reached with OL or to permit OL and 333 Capital to continue to undertake what was, in substance, a liquidation of the Octaviar Group under the supervision of its board of directors. In the circumstances, counsel concluded that OL was "profoundly insolvent" in the absence of a credible proposal to get it out of its present state of insolvency. They recommended, nonetheless, that the respondent retain an appropriate expert to review their interpretation of the accounting materials that had been briefed. 907 On 17 May 2008, Professor Gray provided a report to the effect that OL and OIN were insolvent. 908 On 23 May 2008, the respondent served a notice of default on OIN. The notice was based on the insolvency of OIN and OL, giving rise to an Insolvency Event and, hence, an Event of Default. It was also based on OIN providing misleading information to the respondent in response to his requests for information on 14 and 21 February 2008 (specifically, Mr Anderson's responses on 26 and 27 February 2008) and by providing the statement of solvency on 17 March 2008. The notice demanded that, on 5 June 2008, OIN redeem the notes for their face value with interest payable up to and including 4 June 2008. This demand was not met. 909 Consequently, on 4 June 2008, the respondent commenced separate proceedings in the Supreme Court of Queensland to wind up OL, OIN, OFS and OIB. The applications were supported by an affidavit made by Mr Wedge who, by that time, was acting as Public Trustee. 910 The following day, 5 June 2008, Freehills sent a letter to the respondent's solicitors, which stated (amongst other things): Although we have yet to review in detail the material said to support the applications, we expressed to you yesterday our clients' immediate concern at the terms of paragraph 28 of the affidavit of Mr Wedge. That paragraph suggests that the Public Trustee has formed a firm intention not to consider any standstill proposal from Octaviar whatsoever. If this is correct: • it is a matter which, far from demonstrating compliance with the duties of a trustee, might be thought to indicate an abdication of responsibility and a fettering of the Public Trustee's duty to consider which of the available alternatives might best serve the interests of those for whom he is trustee; and • it indicates that the Public Trustee is taking a position which we understand to be contrary to that favoured by a number (and the majority in value) of the Noteholders whose interests it is supposed to represent. We are confident that you would agree that it would be a very real concern not only to our client but also to noteholders if the Public Trustee placed itself in a position where it would not consider entering into a standstill agreement even in circumstances where such an agreement was likely to lead to a better outcome and recovery for Noteholders. 911 The letter referred to the potential harm to all creditors (including the noteholders) should the Octaviar Group be "pushed" into liquidation. The letter argued that the respondent's applications were "counter-productive in terms of achieving the optimum outcome for [the respondent] and other creditors of the group". In this connection, the letter argued: As you and your client have been made repeatedly aware, if all the Octaviar group's large creditors' debts were to become immediately payable, the group presently has insufficient funds to be able to pay those debts. The very fact of service of your client's winding up applications is likely to cause Challenger to be able to accelerate the date for payment of its $100 million Bonds debt, as it will be an Event of Default under those Bonds if the winding up applications against Octaviar Ltd and Octaviar Investment Bonds Ltd are not dismissed or withdrawn within 7 days. Based solely on an assessment of the group's current creditors and the present value of its assets there would be a significant shortfall as regards creditors if the group were to go into liquidation at this time - a shortfall of at least $400 million. 912 The letter urged the respondent to accept that creditors would be significantly better off under a standstill than a liquidation. 913 The letter then turned to discuss the views of noteholders. These passages are important because they advance the proposition that, in seeking the winding up of the companies, the respondent was out of step with the major noteholders: As you are aware, Mark Korda of 333 Capital, on behalf of Octaviar, has had a number of discussions with Deutsche Bank. As your client is also aware, Deutsche Bank is one of the largest holders of Notes. In addition, Deutsche Bank, we understand, has over time liaised with a number of other large Noteholders who, between them, hold well in excess of 50% by value of all the Notes. The writer spoke to David Maynard, a Director of Deutsche Bank after receipt of your client's winding up applications. Mr Maynard reiterated that Deutsche Bank remains receptive to a commercial arrangement between the Octaviar group and its creditors which will deliver to those creditors greater value than a liquidation of the group. In addition, recent discussions with Challenger lead the Octaviar group to believe that Challenger - which is not only the holder of unlisted Bonds, but also holder of approximately $42 million of Notes - is also coming to recognise that the advantages of a standstill agreement may deliver a better outcome for creditors than a liquidation of the group. While you indicated that the Public Trustee had consulted with Noteholders our clients are concerned at the apparent divergence between the views of those large Noteholders relayed to us (as described above) and the view of the Public Trustee as set out in paragraph 28 of Mr Wedge's affidavit. Deutsche Bank and those with whom we understand it to have been liaising, and Challenger are all sophisticated commercial organisations which can be assumed to be capable of assessing what is likely to be in their best commercial interests in terms of maximising their recovery. If those organisations are prepared to explore the possibility of entry into a standstill agreement, it would be unfortunate if your client closed itself to such a possibility or if it expressed views which might be interpreted as foreclosing such a possibility. If the views of those Noteholders have been accurately relayed to our client, then it is also a matter of concern to understand how and why it is that the Public Trustee has formed a view which is so different from that apparently held by the holders of so large a proportion of the Notes, and how, in view of the matters we have a listed above, the Public Trustee will justify to those Noteholders the lower return which they will obtain on a liquidation of the group than would be available under a negotiated standstill arrangement. We also note that none of the group's other large creditors has indicated an unwillingness to consider a standstill. Moreover, in one case - OPI Pacific finance, whose debt is second in value only to your client's - the trustee for noteholders has expressly sought and obtained agreement to a moratorium for a period to enable the negotiation of a standstill with Octaviar. In the circumstances, we invite your client to consider whether it wishes to proceed to file the affidavit of Mr Wedge in its current form. In particular, we would invite your client to reconsider whether paragraph 28 accurately represents Mr Wedge's position. If it does, we would be grateful to receive written confirmation that while that may be his present position, he does not intend by the statement in paragraph 28 to rule out the possibility of entertaining a revised proposal for a standstill if and when one is formally put to him, (though we note, for the record, that Mr Wedge has to date declined to enter into any dialogue with us or our clients). We also invite you to inform us as to whether the position expressed in paragraph 28 of Mr Wedge's affidavit is said by the Public Trustee to reflect the view of the major Noteholders by either number or value, as this is a matter which is relevant to our clients' approach to the winding up applications, a matter on which they may seek to adduce evidence or cross-examine, and one which will be a relevant factor to be considered by the Court. 914 On 6 June 2008, the respondent issued the following information memorandum to the noteholders: The Public Trustee of Queensland, on 4 June 2008, applied to the Supreme Court of Queensland for an Order that Octaviar Ltd, Octaviar Investment Notes Limited, Octaviar Investment Bonds Limited and Octaviar Financial Services Limited be wound-up and a liquidator appointed. The Trustee has exercised his discretion on behalf of noteholders and considers their interests to be of central importance. The Trustee has acted after careful examination and advice. The Trustee's assessment is that the half yearly accounts reveal some concerns and in particular, the sales of assets which involved large write-downs in book value. The Trustee is also concerned about the outflow of cash from the group that has seen a reduction in the net proceeds of the sale of the Stella interest. The Trustees is of the view that the time has come for the group's affairs to be under the control of an independent liquidator whose first duty is to the creditors and for this process to be supervised by the Court. Should you require any further information please contact the Trustee's legal advisors … 915 On 6 July 2008, Mr Anderson made an affidavit which was filed in the winding up proceedings. In that affidavit, he gave an overview of the Octaviar Group and its operations; the events following the share price collapse on 18 January 2008, including the steps taken to stabilise the group's position; and the group's current financial position. In his affidavit, Mr Anderson conveyed the view of the board and management of OL (said to be consistent with the advice given by Mr Korda) that a liquidation of the Octaviar Group was likely to deliver a less favourable outcome for creditors and shareholders. Four reasons were advanced: a liquidation was likely to be value-destructive of the group's assets; the level of claims in a liquidation was likely to be greater; the costs of liquidation would be substantial, especially if there were to be (as Mr Anderson believed) substantial litigation; and there would be a substantial time cost to creditors because any dividend was likely to be delayed. 916 The affidavit elaborated on these reasons. Mr Anderson also referred to the fact that the Octaviar Group had paid its small creditors whilst, at the same time, seeking to treat major creditors equitably. In this connection, Mr Anderson referred to the standstill proposal that had been floated with large creditors under which: the creditors would forego further interest and agree to take no recovery or enforcement proceedings for the period of the standstill; the group would make an initial pro rata distribution of the cash it had among the participating creditors; and the group, under the supervision of 333 Capital, would continue to realise its assets as and when appropriate, with further distributions made when funds became available. 917 Mr Anderson said that as a result of various issues raised by creditors in respect of this proposal, 333 Capital was developing a revised proposal under which creditors would be offered a choice between: an immediate cash payment in return for cancellation/acquisition of their debts; retaining a longer-term exposure to the Octaviar Group; or some combination of these features. 918 Mr Anderson elaborated on why it was in the interests of creditors to agree to such a proposal. He concluded the affidavit by stating that, by the time of the hearing appointed for the winding up applications (9 and 10 September 2008) he expected that he would be able to inform the Supreme Court of the precise terms of the proposal(s); the extent to which the proposal(s) had been accepted; and the timetable for implementing the proposal(s). 919 I record for later reference that Mr Anderson's affidavit also drew attention to the fact that on 24 June 2008, Wellington Investment Management Limited (formerly MFS IM, the responsible entity of PIF) (WIM) had commenced proceedings in the Supreme Court of Queensland against OL, OA and OPI Pacific Finance Limited seeking compensation in relation to the investments which had been made as part of the PIF transaction. In those proceedings, it was alleged that the office-holders of WIM had breached their obligations to exercise reasonable care and diligence in relation to the investments and to act in the best interests of PIF and had failed to ensure that WIM complied with the Corporations Act and its constitution. The proceeding also included allegations that the transactions were unapproved related party transactions. The commencement of this proceeding was the culmination of investigations conducted over some months by OL and WIM, which commenced in late March 2008. 920 A revised proposal was forwarded by OIN to the noteholders on 17 July 2008. It involved the noteholders agreeing to amend the Terms of Issue so that it would provide for the noteholders to receive a cash payment in exchange for cancellation of their notes or to remain as a noteholder on amended terms. 921 In the meantime, on 18 July 2008, the respondent's solicitors obtained earlier hearing dates for the winding up applications (24 and 25 July 2008). This was met with resistance by the defendant companies. 922 Further, on 21 July 2008, the solicitors for Challenger (who also held notes under the OIN Trust with a face value of $41.48 million, representing approximately 11.89% of the notes on issue) wrote to the respondent's solicitors, stating (amongst other things): We note from releases to the Australian Stock Exchange that your client has brought an application for Octaviar Limited to be wound up in Insolvency. That application was due to be heard in September 2008. We are instructed that application will now be heard by the Supreme Court of Queensland on 24 and 25 July 2008. We note that your client has not formally asked the Noteholders whether they believe that winding up Octaviar Limited will be in the best interest of Noteholders, and as discussed below, Noteholders have recently been presented with an alternative to winding up, which they need to further consider and which may result in a better financial outcome for the Noteholders. We are instructed that Challenger, along with the other Noteholders, recently received an offer from Octaviar Investment Notes Limited in respect of a proposed amendment to the terms of the Notes (the Offer). The Offer would enable Noteholders to either accept a cash payment or remain as a Noteholder on the amended terms. It is an offer which our client is giving careful consideration, and which we expect other Noteholders are also giving careful consideration. It is also an offer which our client will require some time to evaluate. The Offer is open for acceptance by Noteholders until 11 August 2008. If your client is successful in the application for Octaviar Limited to be wound prior to the Noteholders having an opportunity to consider the merits of the Offer, your client will be depriving the Noteholders of the opportunity to give the Offer appropriate consideration. In Challenger's view, it would be more appropriate for your client's application to be heard a reasonable period of time after 11 August 2008. By that time, it would be apparent whether or not the Noteholders are minded to accept the Offer made by Octaviar Investment Notes Limited. Accordingly, Challenger requests that the Public Trustee of Queensland: 1. seek to adjourn the winding up application until a reasonable period of time after 11 August 2008 in order that it can be established whether or not the Noteholders wish to accept the Offer; and 2. prior to proceeding with any application to wind up Octaviar Limited, formally ascertain the views of the Noteholders (by calling a meeting of Noteholders as provided for by clause 19 of the Trust Deed) as to whether or not the Noteholders wish the Public Trustee of Queensland to press the winding up application. In the event that your client is not willing to accede to these requests, which our client considers to be in the best interests of all Noteholders, we request that this letter be drawn to the attention of the Court during the course of the winding up application commencing on 24 July 2008. 923 The solicitors for Challenger sent a further letter to the respondent's solicitors on 21 July 2008. In their second letter, they repeated Challenger's position that the noteholders should be afforded an opportunity to weigh up the alternatives of accepting OIN's revised proposal or supporting the winding up applications. They expressed the view that the liquidation analysis in OIN's revised proposal appeared to be overly optimistic and that, by pressing on with the winding up applications, the respondent would not be protecting the interests of noteholders. The letter concluded by stating that, if the respondent proceeded with the winding up applications, Challenger would suffer serious financial harm, for which it reserved its right to seek compensation from the respondent. 924 Mr Jenkins gave evidence that, in the period up to 24 July 2008, the respondent was alone in pressing for the winding up applications to be heard at that time, apart from some support from the Australian Taxation Office which had served a statutory demand on 17 June 2008. Mr Jenkins said that all other major creditors (including major noteholders) opposed the winding up applications proceeding because they needed more time to consider the revised proposal. 925 On 23 July 2008, Mr Korda made an affidavit which was filed in the winding up proceedings and in which he disagreed with a number of aspects of Professor Gray's solvency analysis. 926 When the winding up applications were called on for hearing on 24 July 2008, a number of major creditors sought and obtained leave to appear. However, in the immediately preceding period, the respondent was informed that a replacement trustee had been found - Trust Company Fiduciary Services Limited (TCFS). TCFS said that it would only accept the appointment if the winding up applications were either dismissed or adjourned. It said that, if appointed as trustee, it would call a meeting of noteholders for the purpose of considering a resolution which expressed their wish that the companies not be wound up. 927 By that time, the respondent had come to the view that he would consent to an adjournment of the winding up applications given the creditor (including noteholder) opposition that had been expressed (and, I infer, would have been expressed by the creditors appearing on 24 July 2008), and the fact that TCFS had indicated that it wished to pursue a different strategy. In consequence, the winding up applications were adjourned, but on the basis that certain undertakings were provided. 928 Ultimately, TCFS did not take up the appointment as trustee of the OIN Trust. 929 The winding up applications came back to the Supreme Court on 9 September 2008. One group of noteholders who appeared at that time expressed their non-acceptance of the revised proposal and their desire that the winding up applications proceed without delay. In light of that fact, the defendant companies asked that the applications stand down for a brief period. The respondent was concerned that, if that happened, the companies would thereupon resolve to appoint administrators, which might affect the determination of the relation back date. He immediately sought, and was granted, an interim injunction restraining the companies from appointing administrators. In fact, the companies did resolve to appoint administrators, but subject to the interim injunction being dissolved. 930 On 12 September 2008, the Supreme Court made orders preserving the relation back date referable to the winding up applications that had been filed on 4 June 2008. This assuaged the respondent's concerns. The interim injunction was then dissolved, with the consequence that the appointment of the administrators took effect. 931 Ultimately, the administrations were terminated after the respondent obtained orders in the QSC DOCA proceeding (see [540] above) setting aside the deed of company arrangement that had been proposed by Fortress. On 18 December 2008, liquidators were appointed to OIN and OIB. On 31 August 2009, liquidators were appointed to OL and OA.

Consideration and conclusion 932 The question posed in this section of the reasons proceeds from my findings and conclusions summarised at [833]-[834] above in relation to the position as at 31 January 2008. It prompts a consideration of the hypothetical position of the respondent as at mid-February 2008 (or 29 February 2008) and whether circumstances would have changed materially in the two week (or four week) period following 31 January 2008, such as to lead the respondent to conclude, reasonably, that OIN and the Guarantors should be wound up, even though no notice calling in the notes had been given by that time. 933 Given my findings and conclusions as to the position as at 31 January 2008, it seems to me that an investigative accountant advising the respondent as at mid-February 2008 (or as at 29 February 2008) would not have been in a position that was really different to the position in which the respondent's actual advisers found themselves at the time - hence the importance of my summary of facts in the immediately preceding paragraphs of this section. In other words, at this point in time - either at mid-February 2008 or 29 February 2008 - the counterfactual world and the real world converge. 934 Approached on this basis, I am not persuaded that the respondent, acting reasonably, would have applied to wind up OIN and the Guarantors in mid-February 2008 or by no later than 29 February 2008, for a number of reasons. 935 First, I am not persuaded that, in the intervening period between 31 January and mid-February 2008 or 29 February 2008, and on the information then available, an investigative accountant would have identified a material Event of Default or reached a substantially more definite view as to the solvency of OIN and the Guarantors. The investigative accountant would not have been in a materially different, let alone better, position than, say, Mr Hall who was engaged to advise the respondent and who was plainly of the view that the respondent needed further information from the Octaviar Group to understand the financial position of the group members, as well as advice from competent lawyers about the respondent's legal options at the time regarding enforcement of his rights and obtaining more information. In Borrelli 2, Mr Borrelli himself recognised that the input of lawyers would be required, although, as I have stated, the applicant's chronology - compressed as it is - does not appear to cater for the timing of this step. 936 The structure of the Octaviar Group was, undoubtedly, complex and, as Mr Hall recognised, understanding the interrelationships between the group companies and coming to an understanding as to the solvency of particular group members was far from straightforward. This position is confirmed by Mr Jenkins' evidence, which I have summarised above. I am satisfied that, in all likelihood, the same view would have been held by the investigative accountant posited by the applicant. 937 As the events of the time show, obtaining adequate information from OL would not have been easy. The evidence is that, despite the respondent's assiduous efforts, including making repeated requests for information through his solicitors and appointing an auditor, satisfactory information only came to be provided, progressively, after court orders had been obtained. I have no reason to think that circumstances in the counterfactual world would have been different and that, as at mid-February 2008 or 29 February 2008, the investigative accountant would have been in possession of information which, in the real world, the respondent did not have and was not able to obtain over several weeks until he was forced to sue OL and OIN. 938 It is to be remembered that it was only upon publication of the Octaviar Group's half-yearly report on 28 April 2008 that the respondent had the information that enabled him, on advice, to commence proceedings to wind up OIN and the Guarantors. As in the real world, that information would not have been available to an investigative accountant or the respondent in the counterfactual world in mid-February 2008 or by no later than 29 February 2008. 939 It is also to be remembered that, throughout February 2008 and up to at least 17 March 2008, when the solvency statement was given, OIN's and OL's directors were asserting, with the benefit of financial and legal advice, that OIN and OL were able to pay their debts as and when they became due and payable. I am satisfied that the hypothetical investigative accountant at the time would not have neglected those statements. He or she would have taken those statements into account, perhaps with a degree of scepticism, but nevertheless realising that further investigation of the financial position of OIN and the Guarantors was both warranted and required in order for him or her to come to a better understanding and sure conclusion in respect of their solvency. I am satisfied that, in all likelihood, he or she would have advised the respondent accordingly. 940 I am not persuaded therefore that, on the applicant's counterfactual case, the respondent would have had a sound and proper basis as at mid-February 2008 or by no later than 29 February 2008 to immediately apply to wind up OIN and the Guarantors, on the information that would have been available to the investigative accountant at that time, even though the investigative accountant would likely have harboured concerns about the solvency of OIN and the Guarantors. 941 Secondly, as at mid-February 2008 or 29 February 2008, the respondent, acting reasonably, would have been conscious of the risk that unnecessary or precipitous action on his part - such as commencing winding up proceedings on a basis later found to be unsound - might bring about the collapse of the Group, with consequent damage to the noteholders and other creditors, when that outcome could be avoided. The evidence shows that those who were, in fact, advising the respondent at the time, held these concerns. That caution was justified at the time, although with hindsight it might be argued that, ultimately, it was unnecessary. I am not persuaded, however, that the hypothetical investigative accountant at the time would have held a different view or advised the respondent differently. 942 Thirdly and relatedly, as at mid-February 2008, the respondent, acting reasonably, would have recognised that completion of the partial sale of Stella was in prospect. On 19 February 2008, Mr Korda advised the respondent's solicitors that the sale of Stella was contingent on a declaration of solvency being given by OL's directors. I am satisfied that, at around the same time, the investigative accountant posited by the applicant would have inquired about the partial sale of Stella, which had been announced on 4 February 2008, and would have been provided with substantially the same information that Mr Korda, in fact, provided to the respondent's solicitors on 19 February 2008. Thus, I am satisfied that, as at mid-February 2008, the investigative accountant would have proceeded on the assumption that the sale was contingent on a declaration of solvency being given and that if the respondent had applied to wind up OIN and the Guarantors as at mid-February 2008, this could well jeopardise the declaration being given. I am not persuaded that, in those circumstances, and with the information as to the financial position of the group then at hand, an investigative accountant, acting properly, would have advised the respondent to commence winding up proceedings knowing of that risk. The same is true of the position as at 29 February 2008. This was the date on which the sale was completed. 943 As I have recorded, the respondent's solicitors only obtained a copy of the share sale agreement on 18 March 2008. This was provided by Freehills pursuant to the orders made by the Supreme Court of Queensland on 14 March 2008. Apart from the warranties to which I have referred, the share sale agreement contained a provision to the effect that the sale could be terminated by the buyer, Global Voyager, on the occurrence of an Insolvency Event, which included the making of an application which was reasonably likely to result in OL, OA or the seller, MFS Stella Holdings, being placed in liquidation. 944 It will be appreciated, therefore, that, even though the investigative accountant would only have been operating on the information that Mr Korda had given, the terms of the share sale agreement in fact provided the very mechanism by which Global Voyager could have terminated the sale in the event that the respondent applied to wind up OL and the Guarantors. If the sale had gone off for this reason, there is nothing in the evidence to suggest that there was another purchaser in the wings who would have been willing to purchase the same interest at the price and on substantially the terms that had been agreed on 4 February 2008. Indeed, in cross-examination Mr Korda said that, as events transpired, the price that was in fact realised as a result of the sale proceeding to completion was a "fantastic price" for OL because, later, Stella underperformed. 945 Further, if heedless action on the part of the respondent caused the sale of Stella to go off, public knowledge that winding up proceedings had been commenced against OIN and the Guarantors may have affected Stella's ability to continue to trade profitably, with the consequent loss of value of that asset. In evidence in chief, Mr Korda was asked whether he held an opinion about the effect on Stella if any of the companies in the Octaviar Group were to be placed in some form of external administration at this time. He said that this would have resulted in a poor outcome for "stakeholders of the group". He explained his opinion, as follows: Why is that?---Well, put it this way: if a - I will either call it an administrator, liquidator or receiver, but some formal insolvency appointment directly into the Stella companies would have a - I think a real disaster. I don't think it would have been able to continue to trade. Why is that? The reason you gave earlier?---Because you're dealing with the public. Your honour, I was the administrator of Travel Land, which was the largest travel company ever in Australia, connected to Ansett, and I think it traded for one day after administration. It was closed down. There's a secondary issue. Just say the administrator, liquidator or receiver was into MFS, not into Stella Group, that would have been less damaging, but there would have been an effect on that business. A negative effect?---A negative effect on that business. And if somebody had filed an application to wind up Octaviar Limited or Octaviar Investment Notes in January, February or March or April 2008, can you recall, having regard to your state of mind then, what your advice to the board would have been in relation to how the company should respond?---Let's have a - a, you know, transparent and open discussion with those creditors about how, if the process - what's happening at the moment, which is, you know, realising assets in the ordinary course of business, trying to sort out issues, would be much better for the stakeholders and the group than putting it into a formal administration, liquidation or receivership. When the Public Trustee did apply to wind up Octaviar your, did you make any recommendation to the board about how to respond?---I - I can't specifically remember, but I know that we spent a lot of time trying to convince the PTQ, or I guess their lawyers, because we didn't have a conversation with PTQ, and the individual note holders, because the PTQ just represents the noteholders, we had ongoing discussions with a number of the significant noteholders about - in an open and transparent way - what was happening with Octaviar. What was your purpose in having those discussions with the noteholders?---To explain to them the situation, and that, you know, if we do a work-out here, you will be better off than a - I will call it liquidation. Did you, in due course, learn that the application to wind up was resisted?---Yes. 946 The applicant sought to discount this evidence by submitting that Mr Korda's primary concern was in relation to the appointment of a liquidator or administrator to the Stella entities rather than to the Octaviar entities, which ultimately owned Stella. The applicant submitted that Mr Korda accepted that the appointment of a liquidator to the Octaviar entities would have had a much lower level of "contagion" effect on the Stella entities. 947 The applicant also relied on Mr Korda's acceptance that public awareness that a company is in trading difficulties also has a "contagion" effect, albeit to a different degree. The applicant submitted that, by February 2008, there was public awareness that the Octaviar Group was in difficulties because of OL's share price collapse on 18 January 2008 and that, even in late January 2008, one television station had mistakenly reported that KordaMentha had been appointed as liquidators of OL. 948 These submissions do not countervail against my acceptance that commencing and pursuing winding up proceedings against OIN and the Guarantors while the sale of Stella was in progress and remained to be completed could have caused significant damage to the Octaviar Group along the lines I have discussed. I am satisfied that the hypothetical investigative accountant would have considered these possibilities and, in all likelihood, brought them to the attention of the respondent. If he or she had not done so, I am satisfied that, in all likelihood, the respondent's solicitors would have done so. They would also have advised the respondent of the risk that he could be held personally responsible for the loss that might be caused in this regard. Indeed, Mr Megson gave advice along these lines to Mr Kelly when he (Mr Kelly) expressed his concern that the sale to Global Voyager might have been at an undervalue. Mr Jenkins' evidence makes clear his view at the time that there was no justification for interfering with the sale of Stella and thereby undertaking the risk of causing further harm to the Octaviar Group's financial position. This view has not been shown to have been in error or unjustified. 949 The applicant submitted that it cannot be inferred that a sale of Stella by a liquidator or administrator would have realised materially less for creditors than the sale which eventually took place, which was at a distressed price in any event. That may be so. But I am satisfied that, in the counterfactual world, the risk of a more disadvantageous outcome would have been real and appreciated by the investigative accountant, or at least the respondent's legal advisers. 950 The applicant further submitted that concerns about the potential impact of a liquidation or administration on the sale value of Stella would need to have been balanced against the advantages of liquidation or administration at that time, in particular the potential for a liquidator or administrator to investigate the PIF transaction. This submission is answered by the fact that I am not persuaded that, either at mid-February 2008 or 29 February 2008, an investigative accountant would have known that the PIF transaction needed to be investigated. From the evidence I have recounted above, it seems that, even within OL and WIM, the matter only came to a head in about late March 2008, when their investigations commenced. Further, it seems that RBS's assessment of the PIF loan portfolio only took place in about February 2008, leading to the Draft Vendor Due Diligence report dated 27 February 2008, referred to in Borrelli 2. There is nothing in the evidence to suggest that this report would have been in the hands of the investigative accountant by 29 February 2008. 951 More generally, throughout February 2008, the respondent's advisers were themselves endeavouring to come to an understanding of the advantages of liquidation (if there was a proper basis for applying to wind up OIN and the Guarantors) and were not able to come to an informed view on the matter. I am not persuaded that, in the counterfactual world, the investigative accountant would have been in a substantially different position or would have held a materially different view. 952 Indeed, knowing of the risks involved in interfering with the completion of the Stella sale, I am not persuaded that, in the counterfactual world, the respondent, acting reasonably, would have applied to wind up OIN and the Guarantors until after the sale was completed (that is, until after 29 February 2008), even if, contrary to the findings I have made above, he had considered there to be a sound basis for commencing winding up proceedings in mid-February 2008 or by 29 February 2008. This finding, alone, is fatal to the applicant's case on causation because it means that winding up orders would not have been made on or by 29 February 2008 before completion of the sale, or shortly thereafter (see further in that regard below). 953 Fourthly, on 19 February 2008, OL, through Mr Korda, had raised its "standstill" proposal. I am satisfied that this would have been discussed with the investigative accountant, as it was with the respondent's advisers at the time. Like the respondent's advisers at the time, the investigative accountant would have wanted more information to come to an informed understanding as to whether the proposal would yield a better outcome for noteholders than a possible liquidation of OIN and the Guarantors. Such an understanding would not have been formed by mid-February 2008 or by no later than 29 February 2008 or, indeed, in the immediately succeeding period. 954 Mr Korda gave evidence that it was his view in late January/early February 2008 that there was a prospect of OL reaching an accommodation with the group's creditors. The applicant disputed the correctness of this view. It relied on, amongst other things, Challenger's conduct in late January 2008. I have dealt with that particular matter at [538] above and rejected the applicant's submission that an inference should be drawn that there was no meaningful prospect of Challenger agreeing to a standstill or compromise at that time. Moreover, the evidence makes perfectly plain that Challenger wanted to pursue its consideration of a standstill or compromise with OL even in the face of the respondent's commencement of the winding up proceedings. 955 It is convenient at this point to deal with oral evidence given by Mr Borrelli when he was asked about his recommendation concerning the winding up of OIN and the Guarantors. He said: MR BORRELLI: I think that recommendation would really have two aims. One is to protect PTQs position as a creditor of MFS or MIN. Really two - twofold. One is if you're expecting - two reasons for that. (1) is if you are expecting other creditors to move, then there's no sense in PTQ not moving. It should take the same steps to protect its position, but also there are - there's at least one transaction that may warrant a closer look if the company is wound up, or it may actually be a reason to pursue a winding up, which was the PIF transaction. And then you would start thinking about time limits in relation to back dates. So I think it would be important to draw a line in the sand by moving - by moving on with a winding up petition at that stage. (2), and perhaps more practically at that point in time, if this group of companies isn't seeing its state of affairs for what it is, or is trying to avoid them, or is not working on a credible restructuring proposal as an alternative to a winding up by this stage, then you will need something like a winding up petition in order to focus their attention where it should be focused. 956 It can be seen that Mr Borrelli considered that a recommendation for winding up would have had two aims. The first would have been to protect the position of noteholders because of steps taken by other creditors, and to investigate transactions (specifically the PIF transaction) with a view to securing a relation back date. The second was to focus the attention of the Octaviar Group on pursuing a credible restructuring proposal. 957 Later, he made clear that, in making his recommendations, he had not "dismissed a restructuring". In this connection he said: … I think my point is that, by the end of - or in January, and even up until the end of January, we've seen nothing about a restructuring proposal. Sure, we've appointed 333 Capital and that would indicate that some work - well, you would hope that some work is being undertaken in respect of a restructuring proposal. But as at the end of January there isn't a hint or a … or anything else of a restructuring proposal and that's something that a winding up petition or a statutory demand or depending which route PTQ decides to go, will focus - will focus their - their attention. Now, whether PTQ then proceeds with that course - with that course of action is entirely a matter for PTQ. And the directors have it well within their ability to sit down with PTQ and say, "Hey guys, this is what we're doing. This is what we expect to happen in the coming weeks. This is what we expect the restructuring proposal to look like. This is where the resources are going to come from it." And if PTQ is convinced it has the ability, it would … that petition all, more realistically, enter into some standstill arrangement. … 958 The respondent submitted that Mr Borrelli's view that a winding up application would focus the Octaviar Group's attention to "where it should be focused", and that such an application could be withdrawn, was "a very different recommendation" to the one made in Borrelli 2. He submitted that Mr Borrelli's oral evidence marked a shift from his position in Borrelli 2 to one where a winding up application would be used to focus the Octaviar Group's attention on, and to expedite, a restructuring plan. The respondent submitted that this evidence showed that, as at mid-February 2008, winding up was not the inevitable outcome (as the applicant argued) and that Mr Borrelli's acceptance of this fact was fatal to the applicant's case that a winding up order would have been made by 29 February 2008. 959 The respondent also submitted that it was fanciful to suggest that, at this time, a winding up application was needed to focus OL's attention to developing a restructuring proposal. After all, that was one of the reasons why OL engaged 333 Capital in January 2008. 960 The respondent submitted further that he would have been ill-advised to bring winding up proceedings against OIN and the Guarantors with a view to withdrawing them, if appropriate. In this connection, Mr McCann said: … On the point of withdrawing the winding up application I think the milk is spilt, as it were, by then. Withdrawing the application cannot undo the damage which would be done in terms of sale transactions or the response of directors who may, in the face of it, appoint voluntary administrators or take some other form of action. So I don't think that a withdrawal could be considered as a lever that you can relax and say, "Well, now we've got your attention, we will pull back from winding you up and ready for action." The damage is done. So that decision to file a wind up is a very serious decision requiring substantial consideration in circumstances such as this and knowing that its effect is largely irrevocable. 961 I do not find Mr Borrelli's reasoning (quoted at [955] above) to be persuasive on this question. 962 As to Mr Borrelli's first reason, the respondent could only commence winding up proceedings if there was a proper basis for doing so. He could not commence those proceedings simply out of a desire to protect the interests of the noteholders or as a means to investigate transactions. In any event, on my findings, there were no transactions which, at that time, would have come to the investigative accountant's attention as transactions that needed to be investigated by a liquidator or other external controller. I observe that, even when, in his affidavit filed in the winding up proceedings, Mr Anderson revealed the proceedings commenced by WIM in relation to the PIF transaction, noteholders and other creditors continued to press for an adjournment of the winding up proceedings to allow them time to consider OL's revised proposal. Finally, as I discuss below, on the evidence before me, other creditors were not "moving" as Mr Borrelli suggested - at least not in the sense of taking legal proceedings against OL and group companies to enforce their claims. 963 As to Mr Borrelli's second reason, OL's attention to developing a restructuring proposal or "work out", such as its initial "standstill" proposal, did not need to be "focused" at this time. The evidence shows that OL had been giving active consideration to such a proposal and, by mid-February 2008, was raising it with the major creditors. 964 Further, I accept that the respondent would have been ill-advised to bring winding up proceedings against OIN and the Guarantors without the genuine purpose of pursuing them to final relief. As Mr McCann said, commencing such proceedings is a serious matter. In fairness to Mr Borrelli, I do not think that he was intending to suggest otherwise. However, the point is that bringing such proceedings for an ulterior purpose would be an abuse of process. Such proceedings, if improperly or unjustifiably commenced, could cause significant damage to the party against whom they are commenced. I am satisfied that the respondent's legal advisers would have informed the respondent of that fact, if he had not already been aware of it. 965 Apart from these matters, I accept the respondent's submission that Mr Borrelli's oral evidence on this question marks a shift in the recommendation given in Borrelli 2. His evidence does not support the applicant's case that, by 29 February 2008 or shortly thereafter, winding up orders would have been made against OIN and the Guarantors. Mr Borrelli's oral evidence in this connection recognises that, in the counterfactual world, outcomes other than winding up were equally possible as at that date. 966 Before leaving the question addressed in this section of the reasons, there are further matters I should address. 967 The first matter is the applicant's reliance on: the Octaviar Group's debt position as at 31 January 2008, based on Mr Borrelli's analysis in Borrelli 2 (a matter which is disputed in the evidence), including Mr Borrelli's evidence about claims made by creditors; and Mr Borrelli's evidence that, as at mid-February 2008, there was a very large disparity between the estimated value of assets available to the Octaviar Group and its liabilities (a proposition as at mid-February 2008 that was not established on the evidence and was disputed by Mr McCann); a lack of "sustainable" funding available to continue operations (a proposition as at mid-February 2008 that was not established on the evidence but which is now known); the lack of a viable restructuring proposal or an indication that one would be forthcoming (a fact that is contrary to the evidence, although OL's proposals were not ultimately accepted); the lack of substantial assets or business upon which to base a restructuring (a proposition as at mid-February 2008 that was not established on the evidence and was disputed by Mr McCann); concerns regarding the ability and integrity of the Octaviar Group's management (a proposition as at mid-February 2008 that was not established on the evidence); and the need to investigate the PIF transaction (a proposition as at mid-February 2008 that was not established on the evidence), as reasons why an investigative accountant would have recommended in mid-February 2008 that OIN and the Guarantors be wound up. 968 As the evidence makes clear, no creditor in the real world took that step. This casts doubt on the validity of the demands which had been made at that time and remained unsatisfied, or indicates that such creditors, like the respondent, were unsure of the solvency of companies in the Octaviar Group, or considered that it was not commercially rational, at that time, to actively pursue recovery against those companies by winding up proceedings. Not even the Deputy Commissioner of Taxation as at mid-February 2008 (or, indeed, as at 29 February 2008) took that step to enforce OL's tax liabilities for the year ended 30 June 2007. He only took preparatory steps in that regard when he served a creditor's statutory demand on 17 June 2008. Whatever their reasons may have been, the fact that other creditors did not take the step which, in its case on causation, the applicant says the respondent should have taken and would have taken, supports the contrary conclusion to which I have come. 969 The second matter is the applicant's reliance on the respondent's pleading of the QSC Directors statement of claim in the QSC Directors proceeding in which the respondent alleged that, had he called in the notes and had the demand not been satisfied, he would have applied to have OIN and the Guarantors wound up, with the consequence that winding up orders would have been made by no later than 16 January 2008. I have already noted some difficulties with that pleading: not all the pleaded deficiencies concerning the quarterly reports would likely have led to the respondent calling for early repayment of the notes, and the case on causation pleaded in the QSC Directors statement of claim cannot be sustained because it relies on alleged failures in February 2008 as grounding the making of winding up orders on either 1 December 2007 or 16 January 2008. 970 I make the following additional observations in this connection. The allegations made in the QSC Directors statement of claim are just that. What is more, they are allegations made about hypothetical events and include conclusions based on these events. The applicant would have me take all these allegations as admissions of fact binding on the respondent in the present proceeding. I hold significant reservation that these allegations are, in substance, admissions of fact. But, whatever their status might be, they are simply part of the evidential fabric of the case. They cannot rule the day, particularly when it is evident on the face of the QSC Directors statement of claim that the pleaded conclusions (the respondent would have obtained winding up orders on 1 December 2007 or 16 January 2008) are based on fallacious reasoning contained in the pleading itself. Further, these pleaded conclusions do not accord with my own view as to what would have been known, based on all the evidence before me. I am not bound to act on admissions - if, in this case, the relevant allegations in the QSC Directors statement of claim be admissions - when I doubt their correctness: Danberg v Danberg [2001] NSWCA 87; (2001) 52 NSWLR 492 at [160]; Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd [2007] FCA 794; (2007) 160 FCR 321 at [49]. 971 The third matter is that, although in Borrelli 2 Mr Borrelli recognised that the recommendations he would have made would have been considered by the respondent with the benefit of legal advice, the applicant's evidence is silent on the legal advice that would have been given. However, I do have evidence of the advice that the respondent's solicitors were giving him at the time. As reflected in my discussion above, I have no reason to think that, in the counterfactual world, the nature and content of the legal advice that would have been given would have differed substantially from the advice that the respondent's solicitors actually gave at the time. 972 The fourth matter concerns Mr Joseph's evidence on this question. In Joseph 3, Mr Joseph opined that, that had he been acting as the trustee of the OIN Trust, and had he obtained Borrelli 2, he would have followed Mr Borrelli's recommendations, including his recommendation to wind up OL (I take Mr Joseph to mean OIN and the Guarantors) in February 2008. However, nowhere does Mr Joseph give attention to the fact that, at this crucial time, completion of the partial sale of Stella was pending and a standstill proposal was on the table for consideration. I do not accept that it would have been reasonable for the respondent to arrive at a decision to apply to wind up OIN and the Guarantors in mid-February 2008 or by no later than 29 February 2008 without giving earnest consideration to each of these matters and how they might affect the interests of the noteholders.

Would an order for the winding up of OIN and the Guarantors have been made by 29 February 2008 or shortly thereafter? 973 The applicant's case on causation is ultimately directed to establishing that, but for the respondent's alleged breaches of duty, orders winding up OIN and the Guarantors would have been made no later than 29 February 2008, the date on which the sale of Stella was completed or, alternatively, shortly thereafter. Although this finding is fundamental to the applicant's case on causation, it can now be dealt with relatively briefly. 974 My consideration of this question proceeds on the assumption that, contrary to the findings I have made in the preceding section of these reasons, the respondent, acting reasonably, would have applied in mid-February 2008 or after the completion of the sale of Stella on 29 February 2008 to wind up OIN and the Guarantors. This means that, in doing so, he would have concluded, on reasonable grounds, that he had a sound and proper basis to take that step on the information available to him at that time, including through the investigative accountant. It also means that, on reasonable grounds, he would have discounted the risk that his actions might jeopardise completion of the partial sale of Stella (if steps were taken in mid-February 2008) and that he had reached the conclusion, once again on reasonable grounds, that winding up was in the best interests of noteholders, notwithstanding the standstill proposal that OL had advanced at the time. 975 Assuming that winding up proceedings against OIN and the Guarantors would have been commenced on 15 February 2008, it is fanciful to think that winding up orders would have been made by 29 February 2008 or shortly thereafter. It is even more fanciful to think that winding up orders would have been made on or shortly after 29 February 2008 if those proceedings had been commenced by no later than 29 February 2008: see the particulars to para 91 of the FASOC read with para 87.1. Even though, on the assumptions made in the previous paragraph, the respondent would have concluded, on reasonable grounds, that he had a sound and proper basis for bringing those proceedings, I am not persuaded that OIN and the Guarantors would have shared that position. Indeed, far from it. Based on the Octaviar Group's response when the respondent did commence winding up proceedings on 4 June 2008, the likelihood is that OIN and the Guarantors would have vigorously opposed any proceedings commenced either in mid-February 2008 or by no later than 29 February 2008. At this time, OL was asserting that the Octaviar Group was solvent. It was also advancing, through 333 Capital, its standstill proposal and discussing that proposal with all the major creditors, not just the respondent, in an attempt to work out the group's financial difficulties. 976 The applicant has not adduced evidence as to when the winding up applications, if filed on 15 February 2008 or by 29 February 2008, would have been returned in the Supreme Court of Queensland. When the respondent filed his winding up applications on 4 June 2008, his solicitors sought to have the matters returned as quickly as possible. They contacted one of the two Commercial List judges at the time, who gave them a first return date of 20 June 2008, just over two weeks after filing. The relative urgency of the proceedings in mid-February 2008 or as at 29 February 2008 would not have been greater than in June 2008. Using the actual winding up proceedings as a guide, the likelihood is that, if the proceedings had been filed on 15 February 2008, they would have been given a first return date after 29 February 2008. Obviously, if such proceedings had been filed after 15 February 2008, the first return date would have been later again. 977 Even if an earlier return date could and would have been obtained, I do not accept that a final hearing would have been held at that time. As the proceedings would have been contested, directions would have been made on the first return date to bring the matter into readiness for hearing as contested applications. A reasonable period of time would have been allowed for OIN and the Guarantors to file evidence. This would have been measured in weeks, not days, given the size and complexity of the Octaviar Group and the fact that solvency would have been in issue. 978 The proceedings actually commenced by the respondent were initially allocated final hearing dates in September 2008, but the respondent's solicitors were subsequently able to secure earlier dates of 24 and 25 July 2008, just over a month after the first return date of 20 June 2008. This indicates that, had winding up proceedings been filed on 15 February 2008, and had all other things been equal, it is not likely that a final hearing would have been before late March or early April 2008. Once again, the obvious conclusion is that if the proceedings had been filed after 15 February 2008, the likely final hearing would have been even later than late March or early April 2008. 979 None of this takes into account the attitude of the major noteholders. As the evidence reveals, when the winding up proceedings actually commenced by the respondent came on for hearing on 24 and 25 July 2008, the major noteholders wanted them to be adjourned so that OL's revised proposal could be considered within a timeframe they considered to be reasonable and appropriate in the circumstances. As I have noted, this was even with the knowledge, obtained through Mr Anderson's affidavit, that proceedings had been commenced in relation to the PIF transaction. The applicant sought to discount this fact by submitting that the proceedings in question "did not concern the fraud of OL officers in misappropriating PIF funds". I am not persuaded, however, that this characterisation of the PIF transaction (if it be a correct characterisation) was a matter known as at 29 February 2008 or in the immediately succeeding period. What was known was the fact that the proceedings involved allegations that the transactions were unapproved related party transactions. One would have thought that creditors of the Octaviar Group would have seen those allegations as reflecting adversely on the group's financial position and the competence and reliability of its management. 980 In all the circumstances, it seems reasonable to conclude that, had winding up proceedings been commenced against OIN and the Guarantors in mid-February 2008 or even by no later than 29 February 2008, the major noteholders would have exhibited a similar attitude to the adjournment of a final hearing listed in late March or early April 2008 (or even later) as they did in July 2008 - namely, that further time was required to consider the prospect that the Octaviar Group could work out its financial difficulties by a suitable proposal to creditors. Ultimately, however, I do not need to dwell on that matter because, on any view, it is plain beyond reasonable argument that winding up orders would not have been obtained by 29 February 2008 or shortly thereafter. 981 There is a final aspect to this question. As I have recorded earlier in these reasons, the applicant argued that, in the face of a winding up application, OL's directors would, themselves, have moved to appoint an administrator under s 436A of the Corporations Act by 29 February 2008 or shortly thereafter. The applicant submitted that this scenario was "perhaps most likely". 982 I do not accept that submission. It is not supported by the evidence. The effect of Mr Korda's evidence was that, if winding up applications had been filed at this time, he would not have recommended that OL appoint administrators. Rather, he would have recommended that discussions be had with creditors to persuade them that it would be much better for the creditors and other stakeholders of the Octaviar Group that the group be allowed to sort out its financial problems by realising assets in the ordinary course of business. This evidence is supported by the events that actually happened. As at mid-February 2008, OL was engaging with the group's major creditors, including the respondent and the major noteholders, with a view to persuading them to accept the standstill proposal. When the respondent did file the winding up applications in June 2008, the defendant companies did not move immediately to appoint administrators. Their immediate response was to resist the winding up applications. The companies filed affidavits by Mr Anderson and Mr Korda which argued that the creditors would be better off accepting OL's revised proposal (which was then being formulated) rather than proceeding to wind up the companies. The major creditors, including the major noteholders, were persuaded that time should be given to allow the revised proposal to be fully formulated and then considered by them. It was only in September 2008 that OL's directors resolved to appoint administrators. This was some three months after the respondent filed the winding up applications, and when OL must have realised, as events had then unfolded, that its revised proposal would not be accepted.

DEFENCES 983 The respondent has raised three defences: he relied upon the auditors of OL and OIN, information supplied by OL and OIN, and information and advice provided by PwC, as he was entitled to do under the Trust Deed, and is not liable for loss or damage occasioned by such reliance; he relied on the fact that the auditors of OL and OIN had not advised him of any matters that may be materially prejudicial to the noteholders, as they were obliged to do under s 313 of the Corporations Act; and he acted honestly and reasonably and ought to be excused from liability under s 76 of the Trusts Act 1976 (Qld) or s 85 of the Trustee Act 1925 (NSW). 984 I do not propose to determine these defences for two reasons. 985 First, on the findings I have made, the respondent did not breach his duties as alleged, and the applicant's case on causation fails in any event, for the multiple reasons I have discussed. Therefore, it is unnecessary for me to embark on a consideration of each defence. Indeed, to do so would be a work of supererogation. 986 Secondly, the defences only arise for consideration if my findings and conclusions on the applicant's case on breach and causation are in error. If error is demonstrated, leading to different conclusions on breach and causation, then the defences will need to be considered in light of the findings of the Full Court, as then expressed.

CONCLUSION AND DISPOSITION 987 The applicant's case on breach and causation fails, with the result that the proceeding should be dismissed. I can see no reason why costs should not follow the event. However, there might be complexities of which I am unaware that mean that the making of final orders might not be as straightforward as I apprehend. In the circumstances, I will leave it to the parties to bring in agreed orders giving effect to my reasons. This should be done by 4.00 pm on 13 June 2018. If agreement cannot be reached, the parties should send a joint communication to my Associate outlining where the disagreement lies. I will then determine what course should be adopted. I certify that the preceding nine hundred and eighty-seven (987) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.