R v Cassidy

Corporations Act 2001 (Cth) Crimes Act 1900 (NSW) Crimes Act 1914 (Cth) LEGISLATION CITED : Crimes (Sentencing Procedure) Act 1999 (NSW) Criminal Appeal Act 1912 (NSW) Insurance Act 1973 (Cth)

Cameron v The Queen (2002) 209 CLR 339 DDP v Bulfin (1998) 4 VR 114 DPP (Cth) v El Karhani (1990) 21 NSWLR 370 Johnson v The Queen (2004) 78 ALJR 616 Pearce v The Queen (1998) 194 CLR 610 R v Adler [2005] NSWSC 274 R v Cartwright (1989) 17 NSWLR 243 R v Chu NSWCCA 16 October 1998 R v Corner NSWCCA 19 December 1997 R v Ellis (1986) 6 NSWLR 603 CASES CITED : R v El-Rashid NSWCCA 7 April 1995 R v Hallocoglu (1992) 29 NSWLR 67 R v Kearns [2003] NSWCCA 367 R v Pantano (1990) 49 A Crim R 328 R v Pont (2000) 121 A Crim R 302 R v Rivkin [2004] NSWCCA 7 R v Strano [2002] NSWCCA 531 R v Thomson and Houlton (2000) 49 NSWLR 383 R v Waqa (No 2) [2005] NSWCCA 33 R v Williams [2005] NSWSC 315 Wong and Leung v The Queen (2001) 207 CLR 584

Regina PARTIES : Terence Kevin Cassidy

P Roberts SC with I Bourke (Crown) COUNSEL : P Byrne SC

Commonwealth Director of Public Prosecutions SOLICITORS : Tillyard Callanan

• 55 - IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

JUDGMENT 1 HIS HONOUR: The Offender pleaded guilty on arraignment to the following two charges in an indictment which was presented by the Director of Public Prosecutions for New South Wales charging that: 1. On or about 19 August 1999 at Sydney in the State of New South Wales (he) did, with intent to obtain for CIC Insurance Limited ("CIC") a financial advantage namely authorisation from the Australian Prudential Regulation Authority ("APRA") for CIC to continue business as an insurer, make a statement in writing to APRA, namely a Quarterly Statement of Assets and Liabilities for CIC, which was false or misleading in a material particular and was made with reckless disregard as to whether it was true or was false or misleading in a material particular. ( Crimes Act 1900 (NSW) s 178BB(1)) 2. On or about 22 November 1999 at Sydney in the State of New South Wales (he) did, with intent to obtain for CIC Insurance Limited ("CIC") a financial advantage namely authorisation from the Australian Prudential Regulation Authority ("APRA") for CIC to continue business as an insurer, make a statement in writing to APRA, namely a Certificate of reporting Approach and Compliance and accompanying yearly statutory accounts and statements for CIC, which was false or misleading in a material particular and was made with reckless disregard as to whether it was true or was false or misleading in a material particular. ( Crimes Act 1900 (NSW) s 178BB(1))

2 He also pleaded guilty to one count on an indictment presented by the Director of Public Prosecutions for the Commonwealth charging that: On or about 24 November 2000, being a director of HIH Investment Holdings Limited ("HIHIH") and of FAI Insurances Limited ("FAI"), was reckless and failed to exercise his powers and discharge his duties for a proper purpose in that he executed a series of documents concerning an application by HIHIH for shares in FAI which he knew had been backdated to 23 June 2000, and was reckless as to the consequences of signing those documents. ( Corporations Act 2001 s 184(1)) 3 The agreed statement of facts in relation to the State offences was to the following effect: " CONTRAVENTION OF CRIMES ACT 1900, S. 178BB Cotesworth Letter of Credit - Pledged Assets OVERVIEW Cassidy's role in the HIH Group 1. The HIH Insurance Group came into existence in 1995, when CE Heath Casualty and General Insurance Ltd acquired the CIC Insurance Group. Terence Kevin Cassidy ("Cassidy") was the Group Financial Controller of CE Heath from the late 1970s until 1986, when he assumed the role of Managing Director (Australia). In 1995 he became the Managing Director (Australia) of the HIH Insurance Group, and he continued in that role until 2001. 2. Insurance business in Australia may only be carried on by a company authorised to do so under the Insurance Act 1973 ("the Act"). There were three main authorised insurers in 1999 within the HIH Insurance Group: CIC Insurance Limited ("CIC"), HIH Casualty and General Insurance Limited ("C&G") and FAI General Insurance Company Limited ("FAIG"). Cassidy was at the relevant times a director of each of these three authorised insurers. He had been a director of C&G since 1977, and became a director of CIC and FAIG upon the acquisition of those entities by HIH in 1995 and 1999 respectively. 3. In 1999 Cassidy, who held a Bachelor of Economics degree from the University of Sydney, possessed extensive experience in the areas of insurance and corporate finance and investments. He had a close working relationship with Mr Dominic Fodera ("Fodera"), Chief Financial Officer of HIH, and with Mr Ray Williams ('Williams"), Chief Executive Officer of HIH. Fodera and Williams were also directors of HIH, C&G and CIC. 4. An informal reporting process existed between Williams, Fodera and Cassidy, with contact often occurring on a daily basis. It was also usual practice for Williams, Fodera and Cassidy to meet and discuss issues prior to Audit and Board Meetings. Acquisition of the Cotesworth syndicates 5. In October 1998 HIH acquired the Cotesworth Group Limited and its subsidiaries ("Cotesworth"), a Lloyd's of London managing agency and corporate syndicate based in the United Kingdom. Lloyd's of London required HIH to either deposit funds at Lloyd's or to arrange for banks to provide letters of credit to guarantee the obligations of the Cotesworth syndicates. 6. HIH made arrangements for letters of credit to be issued by Westpac and Societe Generale Australia Limited ("SG") to support the obligations of the Cotesworth syndicates. The letters of credit were secured by indemnities from companies within the HIH group, including the authorised insurers, and supported by securities owned by the authorised insurers. The effect of these financial arrangements was that the securities lodged by the authorised insurers were subject to charges in favour of Westpac and SG for the ultimate benefit of the Cotesworth syndicates. 7. By 30 June 1999 CIC had thus provided a total of $129 million (face value) in cash deposits and securities pledged to Westpac and SG to secure the obligations of the Cotesworth Group. Regulation of authorised insurers under the Act 8. Under the system of regulation applicable in Australia in 1999, an entity's authorisation to carry on insurance business was subject under the Act to minimum solvency conditions. These conditions required that the value of the entity's assets should at all times exceed the amount of its liabilities by not less than the greater of $2 million, 20% of its premium income during its last financial year, or 15% of its outstanding claims provision as at the end of its last financial year - s 29(1)(b). 9. An authorised insurer was required by the Act to lodge quarterly returns and yearly accounts with the Australian Prudential Regulation Authority ("APRA") and the yearly accounts were required to be audited - s 44 and s 47. These accounts were to include a statement of assets and liabilities. The purpose of these accounts was to ensure that authorised entities complied with minimum solvency requirements. 10. Section 30(1) of the Act provided that some assets could not be counted by an authorised entity for the purpose of the minimum solvency calculations, including an asset "charged for the benefit of a person other than the body corporate to the extent that it is so charged" - s 30(1)(c). CIC's Quarterly and Annual APRA returns for the period ending June 1999 11. On or about 24 August 1999, CIC's Quarterly APRA return for the three month period ending 30 June 1999 was lodged with APRA. Cassidy and CIC's company secretary, Mr Fred Lo ("Lo"), co-signed each page of the return on or about 19 August 1999. This return included Form 302 - a Statement of Assets and Liabilities encumbered or charged or subject to a floating charge or contingent liability. 12. The APRA return lodged by CIC and signed by Cassidy and Lo on or about 19 August 1999 was false in that Form 302 recorded the value of assets encumbered or charged for the benefit of third parties as nil. It did not disclose the $129 million in assets encumbered for the ultimate benefit of the Cotesworth syndicates. 13. On or about 22 November 1999, CIC's Annual APRA return for the period ending 30 June 1999 was lodged with APRA. Cassidy and Lo signed the Form 100 Certificate of Reporting Approach and Compliance on or about 22 November 1999. 14. The Annual APRA return included Form 102(i) (Minimum Solvency Requirements) and Form 103 - a Statement of Assets and Liabilities encumbered or charged or subject to a floating charge or contingent liability. 15. The Annual APRA return lodged by CIC and signed by Cassidy and Lo on or about 22 November 1999 was false in that the $129 million fixed interest securities that had been pledged by CIC to support the obligations of the Cotesworth syndicates had not been disclosed and excluded on Form 102(i). 16. Form 103 was also false in that it did not disclose the $129 million charged assets as statutory exclusions. As recorded on Form 103, the value of assets encumbered or charged was nil. 17. Had the $129 million in encumbered fixed interest securities been disclosed and excluded from the solvency calculations in Form 102(i), as it should have been, CIC would have recorded a deficiency of $111,861,000, rather than the surplus of $17,139,000 which it declared. Disclosure of the true (encumbered) nature of the assets pledged to support the Cotesworth syndicates would have resulted in CIC disclosing its failure to comply with the minimum solvency requirement. CIRCUMSTANCES OF THE OFFENCE Cassidy's knowledge of pledged assets, securities and the minimum solvency requirement 18. As Group Financial Controller of CE Heath from the late 1970s until 1986, Cassidy acquired considerable experience in financial transactions and securities, and was one of the persons responsible for signing the returns for all of the Group's licensed entities as required under the Act. The requirements of section 30(1) of the Act did not change between that period and 1999. Cassidy was familiar with and understood the provisions of the Act including the minimum solvency requirement, the need to lodge quarterly and annual returns and the need to disclose and exclude assets charged for the benefit of third parties. 19. The assets of CIC which had been pledged to secure the letters of credit were pledged via the system provided by Austraclear Limited. Cassidy was one of the Group's authorised signatories to Austraclear Limited ("Austraclear") for both CIC and C&G. He had co-signed C&G's and CIC's applications for Austraclear membership. Austraclear, a wholly owned subsidiary of the Sydney Futures Exchange, provides a service to members by which debt securities may be sold and on sold within the financial market. Austraclear holds those debt securities for its members, registers, encumbers and transfers those securities within the system, and provides a settlement procedure for transactions involving the transfer of those securities. Cassidy was also one of the Group's authorised signatories to the Reserve Bank Information Transfer System (RITS), which allows members to, inter alia, mortgage the assets deposited by corporate entities within the system. 20. Cassidy was experienced by 1999 in considering the effect of assets pledged to support letters of credit on an authorised entity's solvency margin. In 1989 he directed an employee to determine a method of pledging assets to secure letters of credit issued for C&G while protecting C&G's solvency margin. He subsequently authorised the pledging of assets by a New Zealand subsidiary to secure C&G's letters of credit, as New Zealand's then insurance legislation did not exclude for regulatory solvency purposes assets of a licensed insurer which were pledged to secure letters of credit. Cassidy reviewed the 1989 transaction in 1996. 21. In 1996 Cassidy was one of the persons appointed by the C&G Board to prepare, complete and execute the documentation on behalf of C&G to give effect to an agreement with Westpac to obtain letters of credit for C&G. On 6 November 1996 Cassidy signed a verification certificate on behalf of C&G, annexing minutes of a meeting of directors of C&G, which he had attended, at which it was resolved to accept the offer and to warrant the relevant matters. There is no evidence as to who in fact prepared the documents. 22. Cassidy was familiar with financial arrangements involving negative pledges and understood the characteristics of a negative pledge. He was involved in a number of financial transactions during the 1990s in which negative pledges were variously given over the assets of subsidiary companies or required by subsidiary companies over the assets of third party borrowers to secure loans provided by the subsidiaries. Cotesworth letters of credit - negotiations and documentation 23. HIH commenced negotiations in early November 1998 with Westpac and SG to secure letters of credit to support the underwriting obligations of Cotesworth in the UK. As early as 4 November 1998, HIH had advised SG that it required an £88 million standby letter of credit. 24. The officers within HIH who had primary responsibility for negotiating the financial arrangements concerned with the issue of the letters of credit were Mr William Howard, General Manager Finance ("Howard") and Lo. Following discussions with these persons and with Fodera, Cassidy was aware that the financial arrangements involved with the letters of credit could have implications for the solvency requirements of the authorised insurers. Westpac 25. Westpac advised HIH by letter of 23 November 1998 that it had approved the provision of a £60,000,000 letter of credit on behalf of the Cotesworth Group Limited. As well as requiring that the facility be secured by a pledge over at least £35,000,000 in cash or qualified securities to be held in Austraclear or RITS, Westpac required indemnification. 26. On or around 5 November 1998 in a then unrelated transaction, Cassidy and Lo had signed a guarantee and indemnity to Westpac on behalf of HIH Underwriting and Agency Services Limited and HIH, guaranteeing the obligations of HIH America Insurance Services Inc, HIH Underwriting and Agency Services Limited, and HIH. That guarantee and indemnity concerned a $US14,000,000 loan provided by Westpac to HIH America Insurance Services Ltd. Under the terms of the Cotesworth letter of credit arrangement, C&G was required to complete a third party indemnity specific to the Cotesworth transaction. Rather than creating new guarantees for the Cotesworth transaction, HIH Underwriting and Agency Services Limited and HIH agreed in writing to amend the earlier agreement so as to include a guarantee of C&G's liability under the Cotesworth indemnity. 27. Cassidy, as a director of HIH Underwriting and Agency Services Limited, signed the minutes of a meeting of its board of directors of 24 November 1998 regarding the proposed Cotesworth transaction. Lo and Fodera also attended that meeting (Fodera attending by telephone). The minutes record that the board resolved to authorise Cassidy and Lo to sign Westpac's offer letter of 23 November 1998 and to execute all relevant ancillary indemnity and guarantee agreements to give effect to the acceptance of the Cotesworth letter of credit and to enable the issue of that letter of credit. 28. Cassidy, as a director of C & G, signed the minutes of a meeting of its board of directors of 24 November 1998 regarding the proposed Cotesworth transaction. Lo and Fodera also attended that meeting (Fodera attending by telephone). The minutes record that the board resolved to authorise Cassidy and Lo to sign Westpac's offer letter of 23 November 1998 and to execute all relevant ancillary indemnity and guarantee agreements to give effect to the acceptance of the Cotesworth letter of credit and to enable the issue of that letter of credit. 29. Cassidy and Lo duly signed the relevant documentation, accepting Westpac's LOC offer and amending the 5 November 1998 guarantee and indemnity. The terms of this agreement were obviously inconsistent with the characterisation of the securities as being subject to a mere negative pledge. SG 30. On 23 November 1998 SG wrote to HIH and offered it finance described as a performance guarantee facility for £30 million, comprising £15 million to be secured and £15 million unsecured. 31 The terms of the offer required HIH to provide acceptable security, defined as including Australian government or state government securities, or cash deposited with SG. In the event that HIH provided Australian government securities as acceptable security, SG required HIH to execute mortgage documentation in favour of SG. HIH was also required to execute a letter of deposit and set off, and pledge documentation in form and substance satisfactory to SG relating to SG's possession and control of the acceptable security. The offer could only be accepted by HIH delivering to SG a cheque representing the establishment fee, and documentation satisfying the conditions precedent. The provision of cash security was not an option for HIH. 32. Cassidy and Lo signed the letter of deposit and set off on 25 November 1998. Pursuant to that agreement, Cassidy and Lo agreed to establish an account and to deposit the initial deposit of £16 million by 27 November 1998. They further authorised SG to appropriate the whole or part of the deposit balance towards satisfaction of the liabilities. Liabilities were defined to include any liability or obligation owed to SG by HIH under the performance guarantee facility provided to the Company pursuant to the letter of offer of 23 November 1998. This documentation thus stated that SG was at liberty, in the event of a default, to apply the charged funds to discharge Cotesworth's liabilities. The terms of this document are obviously inconsistent with the characterisation of those funds as being subject to a mere negative pledge. 33. On 25 November 1998, Lo wrote to SG regarding the SG letter of offer of 23 November 1998 for a standby letter of credit for £30,000,000, and attached various documents including: - duly signed deposit and set-off; - duly signed issue notice; - cheque for the establishment fee; - company records as required by SG; and - drafting amendments suggested by Minter Ellison. 34. Cassidy signed the issue notice on 25 November 1998, thereby giving SG notice that HIH required a letter of credit to be issued on behalf of Cotesworth Capital Limited on 27 November 1998 to the value of £30 million. Pledging of securities in November 1998 Westpac 35. On 26 November 1998 HIH advised Westpac of the securities C&G and CIC had currently pledged to Westpac for existing letters of credit, and the securities it would pledge to Westpac for the Lloyds letter of credit. The amount of securities to be pledged to Westpac totalled AUD$53 million. 36 On 26 November 1998, CIC pledged $48 million of securities, encumbered in Austraclear, to Westpac for the Cotesworth letter of credit. 37. On 26 November 1998, C&G pledged $5 million of securities, encumbered in Austraclear, to Westpac. 38. On 27 November 1998, Westpac issued a standby letter of credit to Lloyds on behalf of Cotesworth to the value of £54,157,500. SG 39. On 27 November 1998, CIC pledged a total of $36 million of fixed interest securities, encumbered in Austraclear, to SG. 40. As at 27 November 1998, CIC had pledged a total of $84 million of fixed interest securities, encumbered in Austraclear, to support the Cotesworth letters of credit. 41 Between December 1998 and June 1999, demands by Westpac for the amount pledged to be increased caused this figure to rise to $129 million. HIH Board Meeting 2 December 1998 42. On 2 December 1998, Cassidy attended a Board meeting of HIH. The package of papers presented to each of the directors for this meeting contained a paper prepared by Lo entitled "Letters of Credit - Cotesworth Capital Limited". Lo's paper noted that letters of credit were issued by Westpac and SG on 27 November 1998 for and on behalf of Cotesworth, and that HIH needed to provide a performance guarantee in the event that the letters of credit were drawn down and Cotesworth was unable to indemnify the banks. Lo's paper set out the amount of securities secured to support the letters of credit from Westpac and SG. Lo's paper also noted "security on the secured commitment was provided through the pledge by HIH of a portfolio of government and semi--government securities acceptable to the issuing banks". 43. The paper contains a handwritten note made by Cassidy during the Board meeting that states: "Cash security on letters of credit". Cassidy was aware at 2 December that CIC and C&G had pledged the said securities. 44. The minutes of the 2 December 1998 Board meeting record that Fodera advised that letters of credit in favour of Lloyds totalling £84.16 million had been issued by Westpac and SG for and on behalf of the company and that the letters of credit were required as a security deposit to support Cotesworth Capital Limited's underwriting operation in line with its business plan. The Board resolved to ratify the action of management in securing the letters of credit. Conversations with Lo and Fodera 45. Various HIH officers other than Cassidy had, at different times, adverted to the possible exclusion of assets of the authorised insurers which secured the Cotesworth letters of credit. On 4 November 1998, Howard sought legal advice from Stuart Johnson ("Johnson") of Minter Ellison about pledged assets and the regulator's solvency rules. Johnson provided oral advice to Howard later that day that, depending on the actual documentation, a 'charge' may include a pledge. This advice was not passed on to Cassidy. 46. On 20 November 1998, Lo sought legal advice from Johnson as to the difference between a pledge with a power of sale, and an equitable mortgage. Johnson provided oral advice to Lo later that day that there was no real difference between a pledge and an equitable mortgage, as a pledge effectively created a mortgage. This advice was not passed on to Cassidy. 47. In November 1998 Cassidy had conversations with Fodera and Lo and was told in each case that "the letter of credit is a form of negative pledge". Cassidy was surprised by the explanation. It was inconsistent with his own knowledge as to the security required by financial institutions for letters of credit and his understanding of the nature of a negative pledge, and it was inconsistent with the documentation which he had signed on behalf of HIH on 25 November 1998. 48. In registering surprise at these explanations, Cassidy adverted to the possibility that such advice may have been wrong. However, he chose to make no enquiries to satisfy himself as to the accuracy of these explanations. 49. In 1999, either when signing CIC's APRA Quarterly Return for the three month period ending 30 June 1999 (signed on 19 August 1999) or when signing CIC's APRA Annual Return for the period ending 30 June 1999 (signed on 22 November 1999), Cassidy was sufficiently aware of the possibility that the assets pledged by CIC had to be excluded for solvency purposes and were not a negative pledge to again ask Lo about the nature of that encumbrance. Cassidy was again told by Lo that the assets were subject to a negative pledge. Cassidy again registered surprise at that explanation. However, despite his advertence to the possibility that this explanation may have been wrong, and to the consequence that CIC's assets may not have been admissible for regulatory solvency purposes, Cassidy chose to make no further enquiries and proceeded to sign the APRA Returns. Cassidy's state of mind in August and November 1999 50. In addition to Cassidy's state of mind identified in paragraphs 47 48 and 49, Cassidy was aware that at the time of signing the Quarterly and Annual returns that the proper classification of the securities pledged was critical to the licensed insurer's ability to meet the minimum solvency requirement. He knew that in each case there was no disclosure of and exclusion of assets pledged by CIC to support the Cotesworth, letters of credit. 51. Cassidy signed both the Westpac and SG documentation that imposed the requirement that securities be pledged in Austraclear to support the Cotesworth letters of credit. Cassidy knew that CIC and C&G had pledged securities in support of the letters of credit provided to Cotesworth by Westpac and SG. 52. Cassidy was aware that the pledges constituted the secured component of the transactions with Westpac and SG. 53. Cassidy appreciated that the exclusion of the pledged assets meant excluding assets to the value of at least £54 million or approximately $110 million; and that this was likely to affect the solvency of the company or companies pledging the assets. 54. Cassidy understood the annual return had a significant role in the assessment by the regulator of the long term viability of the licensed insurer.

55. Cassidy understood the regulatory solvency requirements were applied to each general insurer entity within the HIH Group. 56. Cassidy was aware that a failure to meet the minimum solvency requirement raised the real risk that CIC may have been required to cease writing insurance business.

Other matters 57. APRA was not informed, as it should have been, of the parlous financial position in 1999 of the authorised insurer CIC. CIC continued to carry on business as an insurer until the collapse of HIH in March 2001. Under the terms of the Act, CIC was in breach of the conditions required for continuing authorisation to conduct insurance business. 58. On 30 November 2000 Cassidy and Fodera co-signed CIC's Special Purpose Financial Report for the year ended 30 June 2000 . This Report discloses, inter alia, the amount of insurance business written by CIC during that twelve month period. 59. Page 13 of that Report states that, for the year ended 30 June 2000, CIC's gross written premium was $517,873,000. An insurer's gross written premium quantifies the total premiums on insurance underwritten by that insurer during a specific period, before deduction of outwards reinsurance claims. 60. Page 20 of that Report states that, for the year ended 30 June 2000, CIC's provision for outstanding claims before discount was $691,473,000. An outstanding claims provision represents the allowance made in the insurer's accounts for the likely cost associated with the settlement of all losses that have been sustained in a period but that, for whatever reason, have not yet been paid. 61. In continuing to write insurance business while in fact in breach of the regulatory solvency condition, CIC contributed to the ever worsening financial position of the HIH group. At the winding-up of HIH on 27 August 2001, the deficiency of the group was estimated to be between $3.6 billion and $5.3 billion, making it one of the largest, if not the largest, corporate failure that Australia has experienced.

4 The agreed statement in relation to these two charges, also records two matters of considerable significance for the sentencing of the Offender as follows: " Personal circumstances

62. Cassidy is 56 years old. He has no prior convictions. 63. Cassidy, through his legal advisors, offered to plead guilty to this offence [that is, Counts 1 and 2] prior to the laying of any charge. He has also offered to give evidence in any proceedings instituted in relation to these matters. To that end Cassidy made two induced statements to officers of the Australian Securities and Investments Commission ("ASIC") on 28 October 2004 (copies annexed). He has provided several other induced statements to ASIC relating to other matters arising from the demise of the HIH group."

5 The agreed statement concerning the Commonwealth offence is to the following effect: "CONTRAVENTION OF CORPORATIONS ACT, S. 184(1) FAI 2000 PREFERENCE SHARES OVERVIEW

Cassidy's role in the HIH Group 1. The HIH Insurance Group came into existence in 1995, when CE Heath Casualty and General Insurance Ltd acquired the CIC Insurance Group. Terence Kevin Cassidy ("Cassidy") was the Group Financial Controller of CE Heath from the late 1970s until 1986, when he assumed the role of Managing Director (Australia). In 1995 he became the Managing Director (Australia) of the HIH Insurance Group, and he continued in that role until 2001. 2. Cassidy was also a director and chairman of the boards of several of the subsidiary companies within the HIH Group including, relevantly, HIH Investment Holdings Limited ("HIHIH") and FAI Insurances Limited ("FAI"). His appointment as a director of FAI occurred on 25 February 1999, immediately after the acquisition of the FAI Insurances Group by the HIH Group. 3. The HIH board included four main committees: the Audit Committee, of which Cassidy was a member from 1992 to 1995 and then attended regularly by invitation from 1995 to October 2000; the Investment Committee, of which Cassidy was a member from 1995 until his resignation as a director of HIH in October 2000; the Reinsurance Committee, of which Cassidy was similarly a member from 1995 until October 2000; and the Human Resources Committee with which Cassidy had no involvement. 4. Cassidy had a close working relationship with Mr Dominic Fodera ("Fodera"), Chief Financial Officer of HIH, and with Mr Ray Williams ("Williams"), Chief Executive Officer of HIH. Fodera and Williams were also directors of FAI and HIHIH. 5. An informal reporting process existed between Williams, Fodera and Cassidy, with contact often occurring on a daily basis. It was also usual practice for Williams, Fodera and Cassidy to meet and discuss issues prior to Audit Committee and board meetings. Cassidy's execution of backdated documents - November 2000 6. On or about 24 November 2000 Cassidy executed the following documents, that were either backdated to, or purported to record events that occurred on, 23 June 2000, in his capacity as a director of the relevant companies: a. Minutes of a meeting of directors of HIHIH, purporting to record a meeting held on 23 June 2000 at which HIHIH resolved to subscribe for redeemable preference shares in FAI and to issue a promissory note for the amount of $200 million ; b. an application for preference shares by HIHIH to the board of directors, FAI Insurances Pty Limited [sic], also signed by Mr Frederick Lo (Company Secretary of HIH) ("Lo"), dated 23 June 2000 ; c. a promissory note from HIHIH promising to pay FAI Insurances Limited $200,000,000 on demand and without interest, dated 23 June 2000 ; d. Minutes of a meeting of directors of FAI, purporting to record a meeting held on 23 June 2000 at which FAI resolved to allot 200 million redeemable preference shares to HIHIH ; and e. a share certificate certifying HIHIH as the holder of 200 million fully paid non--cumulative redeemable preference shares in FAI Insurances Limited, also signed by Lo, and dated 23 June 2000. BACKGROUND

MTN Programme entered into by FAI 7. On 30 May 1997, FAI entered into a domestic and euro medium term note programme as Issuer, with Westpac Banking Corporation as agent ("MTN Programme"). The MTN Programme had a maximum aggregate face value amount of $USI50,000,000. 8. The MTN Programme was subscribed to $US75 million, with notes being issued to institutional investors in Asia. 9. The terms of the MTN Programme defined and provided for Events of Default including, Condition 7.2(k) which in essence provided: (Financial covenants): any breach of the undertakings set out in Condition 7.5 (Undertakings) without remedy within 7 days of FAI becoming aware of the breach, or being made aware by Notice from Westpac Hong Kong. 10. Condition 7.5 required FAI to procure at all times certain things (being the various undertakings referred to in condition 7.2(k)), including at 7.5(a): (Group Shareholders' Funds) Group Shareholders' Funds (including minority or outside interests) of FAI and its consolidated subsidiaries will not be less than A$200 million.

and at 7.5(d) (Auditors) Arthur Andersen, or a firm of similar standing, were to be appointed as auditors of FAI and were to certify annually that FAI was in compliance with the financial undertakings in condition 7.5 ("Auditor's Compliance Certificate"). 11. No event of default occurred where the undertaking in Condition 7.5(a) was breached unless FAI remained in breach for 90 days after notice of the breach was received from the auditors. 12. After an event of default occurred, and at any subsequent time, a Noteholder could declare all moneys owing under the note to be immediately due and payable. 13. FAI also undertook to provide copies of the audited consolidated balance sheet and profit & loss account of FAI and its subsidiaries and the unconsolidated audited balance sheet and profit & loss account of FAI to Westpac. Westpac was required to make those accounts available to the Noteholders. FAI was required to meet this obligation within 120 days after the close of the relevant accounting period. Acquisition of FAI by HIH

14. The operation of this MTN Programme was inherited by HIH when it acquired FAI and its subsidiaries. The acquisition was completed in January 1999. After the acquisition, FAI became a wholly owned subsidiary of HIHIH. HIHIH was itself a wholly owned subsidiary of HIH. 15. Following the acquisition of FAI the HIH Secretariat had responsibility for monitoring the MTN Programme and loan covenants. Lo as Company Secretary had responsibility for the Secretariat. Lo reported to Fodera, who in turn reported to Williams who reported to the board. 16. Although he was a director of FAI, Cassidy was not involved in the monitoring of the MTN Programme or the loan covenants. Consolidated Accounts and Auditor's Compliance Certificate for year ended 30 June 1999 17. A "Detailed Balance Sheet" prepared by HIH for FAI and its subsidiaries for the year ended 30 June 1999, dated 7 September 1999, shows that the Group Shareholders' Funds of FAI and its subsidiaries was A$80.973 million. It was therefore below the A$200 million required under condition 7.5(a) of the MTN Programme. A Profit & Loss statement was also prepared for FAI and its subsidiaries at this time. HIH internal emails show that officers of the Secretariat of HIH, who were responsible for administration of the MTN Programme, were aware of the Group Shareholders' Funds shortfall by at least 22 May 2000. There is no evidence that Cassidy was aware of this shortfall at that time. 18. By early May 2000, Westpac, Hong Kong had advised FAI on a number of occasions that FAI had not yet provided the consolidated balance sheet and profit and loss account of FAI and its subsidiaries for, the year ended 30 June 1999, and that it had not supplied the Auditor's Compliance Certificate. FAI did not at any time thereafter provide the necessary accounts or the Certificate. 19. On 26 May 2000, in a meeting with representatives from Westpac Sydney, officers of HIH (Cassidy not among them) falsely advised Westpac that in relation to the consolidated accounts of FAI and its subsidiaries it would be impossible to reconstruct the accounts and costly in terms of cost and time. During the meeting HIH offered to provide a Letter of Comfort to Noteholders under the MTN Programme, together with the accounts of the parent entity HIH. 20. For the year ended 30 June 1999, therefore, there was a breach by FAI of the undertaking to maintain Group Shareholders' Funds above A$200 million. Further, FAI did not provide the Auditor's Compliance Certificate required, and did not remedy the non-compliance after notice from the agent that the certificate was required. This potentially constituted an event of default. For the year ended 30 June 1999, FAI was, therefore, exposed to the risk of a Noteholder acting on the occurrence of an event of default, presenting the Note to Westpac Hong Kong and the Note becoming due and payable. In that event the Group was vulnerable to cross defaults in other facilities Pre-Audit Committee Meeting, 7 September 2000 21. As at 7 September 2000 Group Shareholders' Funds of FAI and its subsidiaries, for the year ended 30 June 2000, was still below the A$200 million required under Condition 7.5(a) of the notes, and was in fact some A$32.8 million. This was known to the Secretariat of HIH and to the auditors of HIH, Arthur Andersen, by mid September 2000. 22. On 7 September 2000 Cassidy attended a meeting with Williams, Fodera, John Buttle of Arthur Andersen ("Buttle") and Jon Pye of Arthur Andersen ("Pye") at HIH's premises. Buttle and Pye were audit partners of Arthur Andersen. At that meeting according to a note made by Pye, Fodera stated "FAI was insolvent at the time of acquisition". It appears it may have been at this meeting that Cassidy first became aware of the breach of debt covenants.

Audit Committee Meeting 12 September 2000 23. On 8 September 2000, a meeting of the Board of HIH commenced at 12.45pm and was adjourned at 3.45pm to resume at 2.00pm on 12 September 2000. On 12 September 2000, the Board meeting re-commenced at 2pm and adjourned at 3.15pm. An Audit Committee meeting was held at 3.20pm and concluded at 4.35pm. The Minutes of the Audit Committee meeting show that in addition to the members of the Audit Committee, all of the other members of the Board of HIH were also in attendance. This included Williams, Cassidy, Fodera and Lo. Also present were Buttle, Pye and other officers of HIH. 24. The minutes of the Audit Committee meeting record that Buttle tabled a paper entitled "Summary of 30 June 2000 Audit of Financial Statements", and that he "advised that the major audit issues, including outstanding matters yet to be resolved, were summarised therein". Buttle and Pye took the persons present at the meeting through the document. Copies of the Arthur Andersen paper were distributed to those present in the meeting, including Cassidy. 25. The last page of the paper "Summary of 30 June 2000 Audit of Financial Statements", with a heading"Outstanding Audit Matters", refers to "Compliance with debt covenants". 26. The minutes of the Audit Committee meeting also record that Williams tabled a financial statements questionnaire, which he co-signed with Fodera, in respect of the financial statements for the year ended 30 June 2000. The questionnaire, a report to the board and the auditors, was accepted and countersigned by the Chairman of the Audit Committee. 27. On page 4 of the questionnaire, the question "Have all debt covenants in force during the period been complied with?" was answered "Yes". Audit Committee meeting, 12 October 2000 28. On 12 October 2000, Cassidy attended an HIH Audit Committee meeting which was held preceding a meeting of the board of directors of HIH. The minutes of the Audit Committee meeting show that other members of the board of HIH were also in attendance, including Williams, Fodera and Lo. Buttle, Pye and John Fanning attended on behalf of Arthur Andersen. Robert Martin, HIH Financial Controller, was also present. 29. Arthur Andersen prepared a presentation for the Audit Committee meeting . The presentation document was not provided to those present at the meeting however, Buttle and Pye took those present through the issues. The debt covenant breaches are dealt with on pages 0008 and 0009 of the presentation and were discussed by Buttle and Pye. Page 0008 of the presentation includes the following:

"Facility Undertakings Breach Action $US 75m Shareholder Yes (1999&2000) Potential funds>$200m redeemable preference Shares"

30. Some of the persons present at the meeting, including Robert Martin and Pye, took notes of the Audit Committee meeting. Robert Martin's notes include the following: "Debt covenant breach for FAI", "Redeemable preference shares from FAI $200m to Non- Insurance A/c's", "$200m with debt then need legal opinion", "Net asset $35M Need to be $200M [therefore] Need $170M", "Redeemable Pref. Shares - Andersen Legal & Abela". 31. Pye's note of that meeting record in part: "Debt covenants- FAI legal advice as to whether preference shares can be issued for a receivable." 32. Cassidy was informed that FAI had been in breach of the MTN programme through a shortfall in required Group Shareholders' Funds, possibly as early as 7 September 2000 and certainly by 12 October 2000 during the Audit Committee meeting on that date. Cassidy was also told by at least the 12 October 2000 Audit Committee meeting that there was a breach of the debt covenant at both 30 June 1999 and at 30 June 2000. He was also made aware that the breach was a current and outstanding issue, as the Audit Committee meeting also discussed the proposed remedy: being the issue of 200 million redeemable preference shares in FAI to another company in the Group. Cassidy was aware that the redeemable preference share transaction had the sole purpose of bolstering the Group Shareholders' Funds of FAI and its subsidiaries. 33. Prior to the Audit Committee meeting of 12 October 2000, Buttle had informed Fodera, Pye and others (not including Cassidy) that he was of the view that the redeemable preference share transaction could be shown at balance date, 30 June 2000, and was a relevant item to include in the accounts with a note to the accounts disclosing that the transaction occurred after balance date. Buttle cited an example upon which he formed this view relating to a takeover bid where 90% of shares had been acquired and the acquisition of the remaining 10% was a relevant item to include in the accounts, post balance date. This advice was incorrect. However, the advice did not include any suggestion that the documents which would give effect to the transaction would themselves be backdated. Board Meeting, 12 October 2000 34. The Minutes of the Meeting of the Board of Directors of HIH on 12 October 2000 show the Financial Statements Questionnaire, presented during the 12 September 2000 meeting, was tabled during this meeting and it was resolved that it be accepted and signed by Cohen as Chairman of the Board. 35. On 12 October 2000, following the Board Meeting, Lo sent an email to various persons including Fodera but not Williams or Cassidy which includes the following:

"1. FAI US$75 MTN AA has put forward an idea to boost the net assets of the FAI consolidated accounts through the issue of redeemable preference shares by FAI Insurances Ltd to UAS. This approach his been agreed by the board subject to legal sign-off which we have asked AA to obtain from Andersen Legal. On the tax side, could you liase with Alf Capito to obtain a tax sign-off to ensure there are no major problems... I'd appreciate your advice that both 1 and 2 have been resolved ASAP as the board is anxious to finalise the accounts." 36. On 13 October 2000, Lo sent a facsimile to Gary Ho of Westpac which included the following: "You will see from the above that the FAI business is very much alive and active well past the maturity date of the FRN's. FAI is and will be able to fulfil its obligations under the terms of these FRN's. Indeed we are in discussion with Westpac, Sydney with a view to issuing a letter of comfort by HIH to alleviate any concern that the FRN holders may have." (FRN Holders were the Noteholders under the MTN Programme) Legal advice sought from Andersen Legal 37. Pursuant to that Audit Committee meeting, Lo and Fodera sought legal advice as to whether a company could indeed issue preference shares in consideration for a receivable. Fodera received a letter of advice dated 13 October 2000 from Andersen Legal advising as to whether "...FAI Insurances Limited (ACN 004 304 545) ... is capable of issuing redeemable preference shares for consideration other than immediate payment of cash..." The document bears a print date of 16 October 2000. 38. The advice from Arthur Andersen provided an analysis of FAI's capacity to issue the shares under the Corporations Law. 39. On or about 26 October 2000, Fodera received a further letter of advice dated 25 October from Andersen Legal regarding the issue of the preference shares. The print date on the document is 26 October 2000. Included with this advice were the various draft documents necessary to effect the issue of the preference shares. These draft documents had been left undated by Andersen Legal. This letter from Andersen Legal does not contain advice to the effect that the draft documents which it annexed could be backdated. 40. The letter dated 25 October 2000 annexed draft documents as follows: a. draft minutes of meeting of directors of HIHIH (undated) at which HIHIH resolved to subscribe for redeemable preference shares in FAI, and to issue a promissory note for the amount of $200 million ; b. an (undated) application for preference shares by HIHIH to the board of directors, FAI Insurances Pty Limited [sic] ; c. a promissory note (undated) from HIHIH promising to pay FAI Insurances Limited $200,000,000 on demand and without interest ; d. draft minutes of a meeting of directors of FAI (undated) at which FAI resolved to allot 200 million redeemable preference shares to HIHIH ; and e. a blank ASIC Form 207 (Notification of Share Issue) . The letter also states that a draft share certificate was enclosed. Management representation letter to Arthur Andersen

41. On about 16 October 2000 Cassidy signed a letter ("the management representation letter") of the same date, addressed to Arthur Andersen . The letter was also signed by Williams and Fodera. 42. The management representation letter was prepared "in connection with [Arthur Andersen's] audit of the financial report of HIH Insurance Limited and Controlled Entities for the year ended 30 June 2000". The management representation letter confirmed on the part of the signatories, "to the best of our knowledge and belief, as of the date of the letter, the following representations made to you during your audit", including: "The company and its controlled entities have complied with all aspects of the contractual agreements that would have a material effect on the financial report in the event of non-compliance. In particular, the company and its controlled entities have complied with all debt covenants and financial undertakings except as specifically disclosed to you and, in respect of the events of non-compliance communicated to you (the US$75 million FAI facility), the company and its controlled entities have been in contact with the relevant debt providers and, in the opinion of the directors, these events of non-compliance will not result in an early call for repayment of the related debt facilities. The event of non-compliance has subsequently been remedied by the subscription of $200 million in subordinated redeemable preference shares. " 43. As at the date of the management representation letter, HIH had not disclosed, and did not subsequently disclose, to Westpac Hong Kong or Westpac Sydney that Group Shareholders' Funds of FAI and its subsidiaries as at 30 June 1999 and 2000 was below A$200 million, and that FAI was therefore in breach of condition 7.5(a). Further, non-compliance with condition 7.5(a) of the MTN Programme had not been remedied at the date of the management representation letter by the issue of redeemable preference shares. The draft documents which were subsequently re-typed and then executed by Cassidy and Lo, thereby giving effect to the preference share issue, were not received by HIH from Andersen Legal before 25 October 2000.

Letter of Comfort 44. On 19 October 2000, Williams and Lo signed a "Letter of Comfort and Awareness" which was forwarded to Westpac Hong Kong and to Westpac Sydney. It stated, inter alia, that HIH had no current intention of diluting its shareholding in FAI and that it was HIH's policy to manage and operate its subsidiaries, including FAI, in such a way that they met their obligations. It further stated that HIH followed this policy with respect to FAI. That letter, accompanied by various documents including a copy of HIH and Controlled Entities General Purpose Financial Report for the year ended 30 June 2000, was distributed by Westpac to the Noteholders under the MTN Programme on 13 November 2000, with further advice that HIH was liaising with the auditors, Arthur Andersen, for the issue of their Audit Compliance Certificate for the year ended 30 June 2000, and would forward the Certificate to Westpac, Hong Kong for distribution to the Noteholders. 45. There is no evidence that Cassidy was aware of the fact or the contents of the Letter of Comfort. CIRCUMSTANCES OF THE OFFENCE 46. By 24 November 2000, the draft documents received from Andersen Legal, referred to in paragraph 40 above, were retyped as documents of HIH by Ms Helen Virag, a officer in the Secretariat of HIH. 47. On or about 24 November 2000, Cassidy signed the documents listed in paragraph 6 above in his capacity as a director of HIHIH and FAI. 48. All of the documents referred to in the previous paragraph were either dated 23 June 2000 or purported to record events that occurred on 23 June 2000 and were signed by Cassidy. Two of these documents were also signed by Lo. 49. Contrary to the purported record , Cassidy did not attend a meeting of directors of HIHIH on 23 June 2000 and, further, no meeting of directors of HIHIH took place on 23 June 2000. Cassidy did not at any time attend a meeting of directors of HIHIH at which the resolutions set out in [the Minutes] were passed. 50. Contrary to the purported record , an application for preference shares was not made by HIHIH to FAI on 23 June 2000. 51. Contrary to the purported record , HIHIH did not, on 23 June 2000, issue a promissory note for $200 million in consideration for the issue by FAI of 200 million redeemable preference shares.

52. Contrary to the purported record of the Minutes , Cassidy did not attend a meeting of directors of FAI on 23 June 2000 and, further, no meeting of directors of FAI took place on 23 June 2000. Cassidy did not at any time attend a meeting of directors of FAI at which the resolutions set out in [the Minutes] were passed. 53. When Cassidy executed these documents, he knew that he was signing documents which were backdated. He further recognised the titles of at least some of the documents which he signed. 54. Cassidy's advertence to the fact that he was executing a series of backdated documents, which prominently bore the figure "$200,000,000" or reference to "200 million" or "$200 million", did not cause him to make enquiries to satisfy himself as to the propriety of signing those documents. 55. Cassidy was reckless as to the possible consequences of his execution of these backdated documents at the time he signed them. CONSEQUENCES OF THE OFFENCE HIHIH Special Purpose Financial Report as at 30 June 2000 56. On or around 28 November 2000, Cassidy, as a director of HIHIH, adopted and signed the Directors' Report and Director's' Declaration to the HIHIH Special Purpose Financial Report for Year Ended 30 June 2000 ("HIH Investment Financial Report"). Note 12, "Controlled Entities" to the HIH Investment Financial Report for Year Ended 30 June 2000 showed the book value of the investment by HIHIH in FAI at 30 June 1999 as $248,963,000. The book value of the investment at 30 June 2000 was shown as $490,686,000, an increase of more than $240,000,000 since 30 June 1999. Note 7, "Accounts payable (current)" to the HIH Investment Financial Report for the year ended 30 June 2000 showed "Amounts owing to related bodies corporate" at 316,295,000 for 30 June 2000 and nil for 30 June 1999. The 316,295,000 includes the $200,000,000 owed to FAI Insurances Limited for the 200,000,000 redeemable preference shares reportedly issued on 23 June 2000. 57. Provision was made in the Directors' Report for "Events Subsequent to Balance Date" to be disclosed. No information was provided about the issue of redeemable preference shares by FAI to HIHIH, which occurred on or around 24 November 2000, and therefore subsequent to the balance date of 30 June 2000. The Director's Report stated: "There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely in the opinion of the directors of the company to affect significantly the operations of the company, the results of those operations or the state of affairs of the company in future financial years". 58. This statement was false to the extent that it did not disclose the preference shares were issued after 30 June 2000, which was a significant circumstance. 59. As part of the Directors' Declaration, the directors of HIHIH declared that: "the financial statements and notes give a true and fair view of the financial position as at 30 June 2000 and performance of the company for the twelve months then ended". It was resolved in the meeting in which the HIH Investment Financial Report was adopted that, in the opinion of the directors, "the balance sheet was drawn up so as to give a true and fair view of the state of affairs of the company as at the end of the financial year" 60. Buttle's advice had been that the transaction could be included in the companies' accounts as at the 30 June 2000 balance date with an appropriate note to the accounts disclosing the fact that the transaction had occurred after the balance date. However, Cassidy was not present when the auditor's advice was given and, while not recalling the solution generally proposed by the auditor, perceived it as an issue about which he would not have to concern himself; so he is not likely to have placed reliance on it and to have been mistaken as to its effect. FAI Insurances Limited Special Purpose Financial Report as at 30 June 2000 61. On or around 30 November 2000, Cassidy as director of FAI Insurances Limited adopted and signed the Directors' Report and Directors' Declaration to the FAI Insurances Limited Special Purpose Financial Report for the Year Ended 30 June 2000 ("FAI Financial Report"). 62. The share capital as at 30 June 2000 was shown as $369,897,000. Note 17 showed issued capital as at 30 June 2000 included 200 million redeemable preference shares as part of the total. Under the heading "Movement of Issued Capital during the year", and the sub-heading "Redeemable preference shares", an issue of 200 million shares was shown as at 30 June 2000, with a closing balance of 200 million shares. The value of the issue of those shares was shown as $200 million. Note 6, "Receivables (current)" to the FAI Financial Report for the year ended 30 June 2000 showed "Amounts owing by related bodies corporate" at 356,423,000 for 30 June 1999. The 356,423,000 includes the $200,000,000 owed to FAI Insurances Limited by HIHIH for the 200,000,000 redeemable preference shares purportedly issued on 23 June 2000. 63. The initial proposal by Arthur Andersen for the issue of the redeemable preference shares recommended the incorporation of a note to the relevant accounts disclosing that the transaction had occurred after balance date, that is 30 June 2000. A member of the firm of Arthur Andersen produced a draft note to the accounts to give effect to the note disclosure aspect of the issue of the redeemable preference shares.

64. No disclosure was made, in the notes to the FAI Financial Report, that the shares were issued after the balance date of the report but the effect of the issue was reflected in the report at balance date. 65. Provision was made in the Directors' Report for "Significant Events after Balance Date" to be disclosed. No information was provided about the issue of redeemable preference shares by FAI to HIHIH, which occurred on or around 24 November 2000, and therefore subsequent to the balance date of 30 June 2000. The Directors' Report stated: "Other than the abovementioned [description of the Allianz joint venture], the directors of the Company have not become aware of any matter or circumstance that has arisen since the end of the financial year, which is not otherwise dealt with in the financial statements, that has significantly affected or may significantly affect the operations of the Company, the results of those operations or the state of affairs of the Company in subsequent financial years". 66. As part of the Directors' Declaration, the directors of FAI declared that: "the financial statements and notes give a true and fair view of the financial position as at 30 June 2000 and performance of the company for the twelve months then ended". FAI & Controlled Entities Special Purpose Financial Report at 30 June 2000 67. On or around 30 November 2000, Cassidy signed the Directors' Report and Directors' Declaration to the FAI Insurances Limited & Controlled Entities Special Purpose Financial Report for the Year Ended 30 June 2000 ("FAI Group Financial Report"). 68. The FAI Group Financial Report did not contain comparative figures showing the FAI Group's financial position as at 30 June 1999. Note 1 to the FAI Group Financial Report stated: "the financial statements have been prepared in accordance with applicable Accounting Standards, with the exception of ... the requirements of all Accounting Standards to disclose comparative information ..." 69. The share capital of FAI Group was shown at 30 June 2000 as $369.9 million. The note to the share capital entry, Note 20, showed the issued capital included 200 million redeemable preference shares, with a value of $200 million. Under the heading "Movement of Issued Capital during the year", and the sub-heading "Redeemable preference shares", an issue of 200 million shares was shown as at 30 June 2000, with a closing balance of 200 million shares. The value of the issue of those shares was shown as $200 million. No note was included in the FAI Group Financial Report disclosing the fact that the preference share issue occurred after the relevant balance date of the report. Note 7, "Receivables (Current)" to the FAI Group Financial Report for the year ended 30 June 2000 showed "'Amounts owing by related bodies corporate" 305,900,000. The 305,900,000 includes the $200,000,000 owed to FAI Insurances Limited by HIHIH for the $200,000,000 redeemable preference shares purportedly Issued on June 30 2000. 70. The Total Shareholders' Equity of the FAI Group as at 30 June 2000 was shown in the FAI Group Financial Report as $252.2 million. This figure included the $200 million value of the redeemable preference shares issue. 71. Provision was made in the Directors' Report for "Significant Events after Balance Date" to be disclosed. No information was provided about the issue of redeemable preference shares by FAI to HIHIH, which occurred on or around 24 November 2000, and therefore subsequent to the balance date of 30 June 2000. The Directors' Report stated: " Other than the abovementioned [description of the Allianz joint venture], the directors of the parent entity have not become aware of any matter or circumstance that has arisen since the end of the financial year, which is not otherwise dealt with in the financial statements, that has significantly affected or may significantly affect the operations of the consolidated entity, the results of those operations or the state of affairs of the consolidated entity in subsequent financial years". 72. This statement was false to the extent that it did not disclose that the preference shares were issued after 30 June 2000. 73. As part of the Director's Declaration, the directors of FAI declared that: "the financial statements and notes give a true and fair view of the financial position as at 30 June 2000 and performance of the company for the twelve months then ended". 74. This statement was false to the extent that the financial statements incorporated the preference shares issue as part of the financial position of FAI as at 30 June 2000. Importance of the Facility to HIH 75. As at 30 June 2000 the FAI US$75 million MTN Programme was the largest external borrowing of the HIH Group. 76. By reason of the events set out above the Noteholders were denied the opportunity to consider whether they could, and if so would exercise their contractual entitlements and take steps with a view to demanding repayment of the whole of the amount then owed pursuant to the MTN Programme. Issue of the Annual Accounts 77. On or about 13 September 2000 HIH had advised the ASX its accounts would be lodged around the 20 October 2000. HIH had an extension to lodge accounts with ASIC to 31 October 2000. The accounts of HIH were dated 16 October 2000 although signed by Williams and Geoffrey Cohen on a later date, probably 19 October 2000. Auditor's Compliance Certificate 78. Arthur Andersen provided a certificate , dated 30 November 2000, stating that FAI was in compliance with the financial undertakings set out in condition 7.5 of the Notes as at 30 June 2000. The calculations of covenant compliance for the purpose of the certificate were stated to have been "extracted from the audited consolidated financial statements of FAI Insurances Limited" (referred to above as the FAI Group Financial Report). The certificate also stated "nothing came to our attention that caused us to believe that FAI Insurance Limited has not satisfied the financial undertakings above, as at 30 June 2000". Use of Financial Reports and compliance certificate 79. On or around 11 January 2001 HIH forwarded copies of the FAI Group Financial Report, FAI Financial Report and Auditor's Compliance Certificate to Westpac, pursuant to FAI's obligations under the MTN Programme to provide copies of its consolidated and unconsolidated audited annual balance sheet and profit and loss account and Auditors Compliance Certificate to Westpac. 80. On or around 15 January 2001, Westpac forwarded copies of the FAI Group Financial Report, FAI Financial Report and Auditor's Compliance Certificate to Noteholders, pursuant to the terms of the Notes. 81. The FAI Financial Report and the FAI Group Financial Report Group reflected the issue of the 200 million redeemable preferences shares as at 30 June 2000. Further, the FAI Group Financial Report did not contain comparative figures for 30 June 1999. Consequently, the Noteholders were not provided with information concerning the FAI Group Shareholders' Funds as at 30 June 1999. 82. No further information was provided to Westpac or the Noteholders regarding the Financial Reports of FAI and the FAI Group up to 15 March 2001 when the HIH Group was placed in provisional liquidation. APPOINTMENT OF LIQUIDATOR 83. On 15 March 2001, when the provisional liquidators were appointed, the Noteholders had not been repaid any monies the subject of the MTN Programme. One of the liquidators, Mr Alexander Macintosh, has stated as at 15 November 2004 that, in his view, the prospect of the Noteholders recovering any monies is very slight."

The Sentencing Principles 6 In sentencing the Offender for the State offences I am to have regard, inter alia, to the following provisions of the Crimes (Sentencing Procedure) Act 1999 (NSW):

3A Purposes of sentencing The purposes for which a court may impose a sentence on an offender are as follows:

(a) to ensure that the offender is adequately punished for the offence, (b) to prevent crime by deterring the offender and other persons from committing similar offences, (c) to protect the community from the offender, (d) to promote the rehabilitation of the offender, (e) to make the offender accountable for his or her actions, (f) to denounce the conduct of the offender, (g) to recognise the harm done to the victim of the crime and the community. … 5 Penalties of imprisonment (1) A court must not sentence an offender to imprisonment unless it is satisfied, having considered all possible alternatives, that no penalty other than imprisonment is appropriate. …. 21A Aggravating, mitigating and other factors in sentencing (1) General

In determining the appropriate sentence for an offence, the court is to take into account the following matters:

(a) the aggravating factors referred to in subsection (2) that are relevant and known to the court, (b) the mitigating factors referred to in subsection (3) that are relevant and known to the court, (c) any other objective or subjective factor that affects the relative seriousness of the offence.

The matters referred to in this subsection are in addition to any other matters that are required or permitted to be taken into account by the court under any Act or rule of law.

(2) Aggravating factors The aggravating factors to be taken into account in determining the appropriate sentence for an offence are as follows: (a) the victim was a police officer, emergency services worker, correctional officer, judicial officer, health worker, teacher, community worker, or other public official, exercising public or community functions and the offence arose because of the victim's occupation, (b) the offence involved the actual or threatened use of violence, (c) the offence involved the actual or threatened use of a weapon, (d) the offender has a record of previous convictions,

(e) the offence was committed in company, (f) the offence involved gratuitous cruelty, (g) the injury, emotional harm, loss or damage caused by the offence was substantial, (h) the offence was motivated by hatred for or prejudice against a group of people to which the offender believed the victim belonged (such as people of a particular religion, racial or ethnic origin, language, sexual orientation or age, or having a particular disability), (i) the offence was committed without regard for public safety, (j) the offence was committed while the offender was on conditional liberty in relation to an offence or alleged offence, (k) the offender abused a position of trust or authority in relation to the victim, (l) the victim was vulnerable, for example, because the victim was very young or very old or had a disability, or because of the victim's occupation (such as a taxi driver, bank teller or service station attendant), (m) the offence involved multiple victims or a series of criminal acts, (n) the offence was part of a planned or organised criminal activity.

The court is not to have additional regard to any such aggravating factor in sentencing if it is an element of the offence.

The mitigating factors to be taken into account in determining the appropriate sentence for an offence are as follows: (a) the injury, emotional harm, loss or damage caused by the offence was not substantial, (b) the offence was not part of a planned or organised criminal activity,

(c) the offender was provoked by the victim, (d) the offender was acting under duress, (e) the offender does not have any record (or any significant record) of previous convictions,

(f) the offender was a person of good character, (g) the offender is unlikely to re-offend, (h) the offender has good prospects of rehabilitation, whether by reason of the offender's age or otherwise, (i) the offender has shown remorse for the offence by making reparation for any injury, loss or damage or in any other manner, (j) the offender was not fully aware of the consequences of his or her actions because of the offender's age or any disability, (k) a plea of guilty by the offender (as provided by section 22), (l) the degree of pre-trial disclosure by the defence (as provided by section 22A), (m) assistance by the offender to law enforcement authorities (as provided by section 23).

(4) The court is not to have regard to any such aggravating or mitigating factor in sentencing if it would be contrary to any Act or rule of law to do so.

22 Guilty plea to be taken into account (1) In passing sentence for an offence on an offender who has pleaded guilty to the offence, a court must take into account: (a) the fact that the offender has pleaded guilty, and (b) when the offender pleaded guilty or indicated an intention to plead guilty, and may accordingly impose a lesser penalty than it would otherwise have imposed. …

23 Power to reduce penalties for assistance provided to law enforcement authorities (1) A court may impose a lesser penalty than it would otherwise impose on an offender, having regard to the degree to which the offender has assisted, or undertaken to assist, law enforcement authorities in the prevention, detection or investigation of, or in proceedings relating to, the offence concerned or any other offence. (2) In deciding whether to impose a lesser penalty for an offence and the nature and extent of the penalty it imposes, the court must consider the following matters: (a) the effect of the offence on the victim or victims of the offence and the family or families of the victim or victims, (b) the significance and usefulness of the offender's assistance to the authority or authorities concerned, taking into consideration any evaluation by the authority or authorities of the assistance rendered or undertaken to be rendered, (c) the truthfulness, completeness and reliability of any information or evidence provided by the offender, (d) the nature and extent of the offender's assistance or promised assistance, (e) the timeliness of the assistance or undertaking to assist, (f) any benefits that the offender has gained or may gain by reason of the assistance or undertaking to assist, (g) whether the offender will suffer harsher custodial conditions as a consequence of the assistance or undertaking to assist, (h) any injury suffered by the offender or the offender's family, or any danger or risk of injury to the offender or the offender's family, resulting from the assistance or undertaking to assist, (i) whether the assistance or promised assistance concerns the offence for which the offender is being sentenced or an unrelated offence, (j) the likelihood that the offender will commit further offences after release. (3) A lesser penalty that is imposed under this section in relation to an offence must not be unreasonably disproportionate to the nature and circumstances of the offence. 7 In relation to the Commonwealth offence I am to have regard, inter alia, to the following provisions of the Crimes Act 1914 (Commonwealth): 16A Matters to which court to have regard when passing sentence etc. (1) In determining the sentence to be passed, or the order to be made, in respect of any person for a federal offence, a court must impose a sentence or make an order that is of a severity appropriate in all the circumstances of the offence. (2) In addition to any other matters, the court must take into account such of the following matters as are relevant and known to the court: (a) the nature and circumstances of the offence; (b) other offences (if any) that are required or permitted to be taken into account; (c) if the offence forms part of a course of conduct consisting of a series of criminal acts of the same or a similar character - that course of conduct; (d) the personal circumstances of any victim of the offence; (e) any injury, loss or damage resulting from the offence; (f) the degree to which the person has shown contrition for the offence: (i) by taking action to make reparation for any injury, loss or damage resulting from the offence; or (ii) in any other manner; (g) if the person has pleaded guilty to the charge in respect of the offence - that fact; (h) the degree to which the person has co-operated with law enforcement agencies in the investigation of the offence or of other offences; (j) the deterrent effect that any sentence or order under consideration may have on the person; (k) the need to ensure that the person is adequately punished for the offence; (m) the character, antecedents, cultural background, age, means and physical or mental condition of the person; (n) the prospect of rehabilitation of the person; (p) the probable effect that any sentence or order under consideration would have on any of the person's family or dependants.

17A Restriction on imposing sentences (1) A court shall not pass a sentence of imprisonment on any person for a federal offence, or for an offence against the law of an external Territory that is prescribed for the purposes of this section, unless the court, after having considered all other available sentences, is satisfied that no other sentence is appropriate in all the circumstances of the case. … 8 In the case of each offence the maximum available penalty was imprisonment for 5 years, while in the case of the Commonwealth offence, a fine of up to $20,000 was available by way of an alternative or additional penalty.

The Nature and Circumstances of the State Offences 9 The objective criminality, in relation to these offences derives from the manner in which the pledges of the CIC assets were treated for the purposes of the Quarterly Statement of Assets and Liabilities, and for the purposes of the Certificate of Reporting Approach and Compliance. 10 Their correct treatment was potentially of significance for the continuation of CIC's operations, since absent compliance with the minimum solvency requirements of the Insurance Act 1973 (Cth), or prompt rectification of any shortfall, there was a risk of APRA suspending or terminating the Company's authority to continue writing business. The relevant documents provided the basis for the review which APRA was expected to make, and any apparent deficiency was inevitably bound to attract attention. 11 The criminality of the Offender which is charged under these counts involved recklessness on his part in signing the relevant documents, when he personally suspected that the advice which he had received from Mr Fodera and Mr Lo as to the treatment of the letters of credit, or perhaps more accurately, of the pledged assets supporting them, was wrong, and in neglecting to make sufficient further and independent inquiry to confirm whether that was or was not so. 12 Where recklessness, involving the making of representations without an honest belief in their truth, is the touchstone of the offence, consideration needs to be given to what was said by me (with the concurrence of Sheller JA and Sully J) in R v Strano [2002] NSWCCA 531 at [64]: "It may be accepted that, in terms of objective criminality, there can be a real difference between the making of false statements which are known to be false and the making of such statements with a reckless disregard as to whether they are true or not. That is so even though the same maximum penalty is available for each form of offence under s178BB. Whether in any given case the difference in objective criminality is significant will, in my view, depend upon the facts of that case, and in particular upon the nature of the representations made, the degree of recklessness involved and the ambit of the loss occasioned ." (Emphasis added). 13 There can be no doubt that in accordance with s 30(1) of the Insurance Act, the fixed interest securities which had been pledged to Westpac and Societé General, to support the underwriting obligations of the Cotesworth Syndicate, should have been treated as having been encumbered or charged for the benefit of a third party. The failure to do so meant that the value of the available assets was overstated by $129 M, effectively turning a deficiency of $111,861,000 into an apparent surplus of $17,139,000. 14 In circumstances where the Offender, as a person who had a degree in economics and considerable experience in the areas of insurance and corporate finance, had doubts as to whether they had been properly treated, and knew of the importance of the documents so far as APRA was concerned, his failure to make diligent inquiries amounts to a serious breach of the duties which attached to his office. 15 The extent of the Offender's criminality in this case is demonstrated by the fact that:

(a) he admitted to being familiar with and to having an understanding of the minimum solvency requirements, and of the need to exclude assets charged for the benefit of third parties;

(b) he had signed the relevant documents giving rise to the securities which were required for the letters of credit, and understood what they involved;

(c) he was aware of the true nature of a negative pledge, and recognised that the transactions here involved did not seem to share the features of such a financial instrument, even though that had been the way in which Fodera and Lo had characterised them in their discussions with him;

(d) he signed the quarterly returns and certificate without taking any further steps to allay his doubts, in circumstances where he knew that they were likely to play a significant role in APRA's assessment of CIC's viability, and that a failure to meet the minimum solvency requirement gave rise to a real risk that it would be prevented from writing further business. 16 As subsequent events showed, there was no intervention by APRA, and CIC continued trading throughout 1999, a year in which it wrote business with gross written premiums in the order of $518M, and made provision for outstanding claims in the order of $691M. By continuing to trade it contributed to the ever worsening position of the HIH group. 17 It is not the Crown case that this event of itself caused the HIH collapse. Nor is it the Crown case that the Offender was the architect of the scheme whereby the letters of credit were secured, or solely responsible for the way in which the quarterly accounts and certificates were completed. 18 Notwithstanding the foregoing, a significant responsibility rests upon directors of insurance companies to ensure that there is a complete and accurate compliance with the requirements arising under the Insurance Act. Policy holders, share holders, and APRA are entitled to expect nothing less, since upon the honesty, integrity and competence of such officers depends the viability of the insurance industry, upon which so many commercial and other activities are in turn reliant. The duties which arise in this respect are an incident of the overriding obligation which is imposed on all company directors to act with proper diligence in the discharge of their office, at the pain of prosecution if they deliberately or recklessly abandon that duty. 19 Although the Offender's criminality arises from recklessness, not involving any form of deliberate deceit, or embezzlement, and did not directly enrich him in any way, the two offences involved in these charges, which are to be regarded as closely interrelated, must still be regarded as having been serious.

The Nature and Circumstances of the Commonwealth Offence 20 This offence arose out of the same general set of circumstances which led to the sentencing of Ray Williams for Count 3 on the indictment, which was presented against him. There is, however, a difference in their objective criminality, and questions of parity have little relevance save in a very general sense. 21 Mr Williams was sentenced for his wilful failure, as the Chief Executive of HIH to make proper or adequate inquiries as to whether there had been compliance with the conditions of the MTN Programme, when signing and releasing the letter of comfort, which contained false information. The Offender's criminality was of a different order, and involved a serious breach of his duty as a Director of HIHIH and FAI in so far as he executed, in that capacity, the five documents referred to in para 5 of the statement of facts, which he knew either to be backdated, or to record the holding of meetings of the two companies, which had not been held and which, contrary to the minutes which he signed, had not been attended by him. 22 While the redeemable preference share issue did restore the group shareholder's funds of FAI to an amount in excess of the A$200M required under the MTN Programme, it did not have that effect at the time at which the transaction was recorded in the minutes, or in the various documents that were prepared in connection with that issue. They presented an untrue statement of the companies' affairs and in so far as they were taken into account for the annual accounts and associated declarations, they had the consequence that those documents were similarly misleading. 23 This follows from the fact that the Director's Report, and the Director's Declaration to the HIHIH Special Purpose Financial Report for the year ended 30 June 2000, was signed by the Offender in November 2000, without any mention of the fact that the issue of Redeemable Preference shares by FAI to HIHIH had occurred after the balance date. 24 There were similar omissions from the Director's Report and Director's Declaration to the FAI Insurances Limited Special Purpose Financial Report, and from the Director's Report and Declaration to the FAI Insurances Limited and Controlled Entities Special Purpose Financial Report for the same financial year. 25 Copies of the reports and of the Compliance Certificate issued by the Auditor, were provided to Westpac as agents for the noteholders who were, as a result, effectively deprived of information of potential importance. By the time that the Provisional Liquidators were appointed, on 15 March 2001, the noteholders had not received any repayments. The prospect of them recovering their investment is considered to be very slight. 26 Whether a timely discharge of the earlier default, or a correct recording of the meetings and documentation which was involved in the issue, and in the Annual Accounts and associated declarations, would have led to noteholder action, and to a return of their investments, or of any significant part thereof, is unascertainable and, in any event, is not to the point. 27 The Offender's objective criminality lies in the fact that:

(a) he was aware from at least 12 October 2000, and possibly from 7 September 2000, that FAI had been in breach of its undertaking as at 30 June 1999 and at 30 June 2000;

(b) he was aware that, had this been known to the noteholders who had subscribed $75M under the programme, this could have led to demands for repayment, with a consequential risk of cross default on other borrowings;

(c) he knowingly signed minutes that were incorrect, and knowingly signed other documents which had been backdated, with reckless disregard for the consequences. 28 In mitigation of the seriousness of this offence, similarly to the State offences, it is not contended by the Crown that it was the cause of the collapse of HIH, or that the Offender was the architect, either of the issue of the preference shares to HIHIH in return for its promissory note, which was most probably little more than a window dressing exercise of no value. Nor is it part of the offence that the Offender acted, in the way that he did, with a specific intention of denying to noteholders the opportunity to review their subscriptions, in the light of the breach of the covenant; or with a specific intention of allowing the accounts of FAI, and its subsidiaries, to misrepresent their true financial condition, although in fact what was done did have these consequences. 29 Why the documents were backdated was not satisfactorily explained, since there was evidence that Mr Buttle of Arthur Andersen had incompetently advised Fodera, a director of FAI and HIHIH, and Chief Financial Officer of HIH, and others, but not the Offender, that the redeemable preference share transaction could be shown at balance date, 30 June 2000, and included in the accounts, along with a note disclosing that it was a post balance date transaction. 30 Although this advice was clearly erroneous, and in fact incapable of rational comprehension, it did not include any suggestion that the documents should be backdated. Nor did the advice which was subsequently provided by Andersen Legal, who prepared the draft documents that were required for the transaction, and which confirmed the legality of issuing redeemable preference shares in return for a receivable, that is the promissory note, rather than an immediate payment of cash. 31 In the face of Mr Buttle's advice, it is not at all clear why a decision was made to backdate, or even who made the decision. While an inference is open that someone realised that the advice was wrong, and that to give an appearance of the shortfall having been rectified, documents had to be prepared that falsely attributed the transaction as one that had occurred before the balance date. However, absent any evidence of the circumstances giving rise to the backdating, beyond the bare statement in the agreed facts that the draft documents were retyped and, it would appear, dated, by another member of the HIH staff, I am unable to draw any inference which would be adverse to the Offender in this respect. His criminality accordingly stands to be measured upon the basis that he knowingly signed minutes which falsely represented the holding of meetings that did not occur, and other documents associated with the transaction which were similarly wrongly dated, was reckless in doing so, and was heedless as to the possible consequences. 32 It is somewhat strange, and indeed of concern, that, being aware that the preference share issue had not occurred by 30 June, yet had been taken into account, the auditors nevertheless failed to require that there be a note to the accounts, or to make any inquiry. However so far as this was suggested to be a mitigating circumstance by counsel for the Offender, I fail to see why that should be so. Similarly, I fail to see why any mitigation arises from the fact of the auditor's erroneous advice to other executives, of which the Offender was unaware, or from the fact that he had no role in the issue of the "management representation letter", which was sent to the auditors, although it had earlier been prepared by them, or in the "letter of comfort and awareness" that was sent to Westpac. His criminality stands to be judged by what he did, and by his failure to make proper inquiry. 33 I reject the overall submission which was advanced on the Offender's behalf, that by the time that the documents were signed, the transaction was a fait accompli. That is not correct. While other executives had discussed the proposal, it was not put into effect until the relevant documents were signed. They then provided the basis for the misrepresentation which was taken up in the accounts which followed their execution, without any warning, to those who came to see them, that FAI's breach of the covenant had continued up to and after the balance date. His conduct cannot, in those circumstances, be dismissed as insignificant or as equivalent to that of a mere amanuensis, or of someone placing his signature mistakenly on a document without any awareness of its significance. 34 The fact that there were others who might be said to have borne a greater responsibility, and hence culpability, for this deceptive transaction, does not mitigate his own criminality. It may be accepted that the culpability of all of those involved is not equal, but my concern in these proceedings is with that of this Offender. 35 Although the offence did not involve any allegation of deliberate dishonesty, or of the more serious form of criminality that is involved in cases of fraud or embezzlement, and did not personally enrich the Offender in any way, nevertheless it amounted to a significant departure from the exacting standards of honesty and diligence in corporate governance, upon which the market economy is reliant. 36 The accuracy and regularity of company minutes, and the correct representation of any commercial transaction in its documentation, are of great importance, not only to the parties who are immediately affected, but also to auditors, investigators and regulators who have the responsibility of checking or verifying corporate compliance. There can be no excuse for falsifying entries or transactions, particularly where the result of so doing is to affect, in any way, the rights of third parties.

Personal Background 37 The Offender is aged 56 years, and has no prior convictions. He had been involved in the financial and insurance industry for a period in excess of thirty years, having risen to the very responsible office of the Managing Director of HIH, before the offences. He is a married man with four children, living in a stable relationship. He ceased paid employment in June 2001 following the HIH collapse, and his self managed superannuation funds and savings are the source of the family's income. He does not have any problems with substance abuse, or any physical or psychiatric condition which may have contributed to his offences, or which might have any particular relevance for sentencing. 38 Character references were provided from one of his daughters, a solicitor who had previously acted for HIH, and from Martin Braden. Together they attest to his integrity and honesty. They also show that he has always been very supportive of his family and that he has expressed shame and remorse for the offences, which they considered out of character for him. 39 Although good character is not quite as significant as a mitigating factor in relation to white collar crime (R v El-Rashid NSWCCA 7 April 1995 at 3 per Gleeson CJ and Regina v Rivkin [2004] NSWCCA 7 at [410]), it still has a relevance for the reasons discussed in Cameron v The Queen (2002) 209 CLR 339, and also in so far as it is important for the question of personal deterrence and the likelihood of re-offending.

Pleas and Assistance 40 Three documents were tendered, on a confidential basis, comprising a statement from Allen Turton, the Deputy Director of Enforcement for ASIC, a letter from Jan Redfern, Executive Director of Enforcement, and an undertaking signed by the Offender, in accordance with s 21E of the Crimes Act 1914 (Cth). These documents record the circumstances in which the Offender came to provide assistance to ASIC in its inquiries, over a period of 9 months, following delivery of the Royal Commission Report. It details the nature and extent of that assistance so far, and records his undertaking to continue to provide assistance for ongoing investigations, including a commitment to give evidence in relation to such matters and persons as may be nominated by the relevant authorities. 41 It is not appropriate to further disclose the detail of these documents, beyond noting the assessment by ASIC's counsel, solicitors and investigators that the Offender has made a genuine effort to cooperate, and that his assistance has already been valuable in so far as it has disclosed information, or detail, which was not otherwise available, and which will potentially be available if he is needed as a witness. In the ways disclosed in Mr Turton's statement, and in the induced interviews, it has a value variously either in an investigative or evidentiary sense, although it is not suggested that in its absence the prosecution of other relevant offenders would not have had reasonable prospects of success. 42 It is common ground that this past and future assistance is not confined to the Commonwealth offences prosecuted by the Commonwealth Director of Public Prosecutions, but also extends to any proceedings that may be brought by the New South Wales Director of Public Prosecutions in relation to those persons who may have committed offences under State laws, in relation to the affairs of the HIH group. 43 Although this is not a case where the Offender's criminality was only disclosed by reason of his own disclosures, and therefore is not in the R v Ellis (1986) 6 NSWLR 603 category, the acceptance of his own culpability, and preparedness to plead guilty to the three offences charged, must be considered as involving a plea entered at the very first available opportunity, even preceding the formulation of any charges against him. 44 Together these factors confirm genuine contrition and remorse on his part, as well as his acceptance of responsibility and a willingness to facilitate the administration of justice, not only in his own case but in relation to the several other persons who have been, or will hereafter be, charged with offences concerned with the governance of the HIH group, or otherwise associated with suspect transactions concerning it. 45 He is accordingly entitled to a maximum discount for the combined value of the pleas and assistance in relation to all offences, in accordance with the principles established in the well known passage in R v Cartwright (1989) 17 NSWLR 243 at 252-3; and see also Wong and Leung v The Queen (2001) 207 CLR 584; R v Chu NSWCCA 16 October 1998; R v Thomson and Houlton (2000) 49 NSWLR 383; and R v Waqa (No. 2) [2005] NSWCCA 33, as to the range of discount available for these factors, and as to the proper approach, where both is available. 46 In order to comply with s 21E of the Crimes Act 1914 (Cth), and with an eye to the provisions of s 5DA of the Criminal Appeal Act 1912 (NSW), I shall in due course specify the extent of the discount allowed in respect of future promised assistance. 47 So far as, in relation to the State offences, I am required to take into account and to refer to the matters referred to in s 23(2) of the Crimes (Sentencing Procedure) Act, I note that the precise effect of the offences on individual victims is unascertainable, since the ultimate collapse of the HIH group was multifactorial and related to long standing and serious mismanagement by a wide group of persons. The utility of the Offender's assistance has been, and will continue to be, of significance, having been timely; having involved truthful, reliable and complete disclosure; and extending to the giving of evidence in proceedings against others, as well as to admissions in relation to his own offending. No harm has been suffered by him or by his family as a result of his assistance. 48 As the evidence currently stands, and bearing in mind the nature of the activities and the identity of those involved, in relation to which his assistance has been given and promised, I do not foresee any significant risk to himself or to his family arising therefrom, or any occasion for him to suffer any harsher consequences than might otherwise be experienced by an offender in his position. There is no realistic likelihood of him re-offending, and the benefit which he will receive by reason of his assistance is confined to the reductions in the sentence which would otherwise have been passed.

Remorse and Contrition 49 Apart from the remorse and contrition disclosed by the pleas and assistance, I note that the report of the Probation and Parole Service, which confirmed the Offender's suitability for community service and periodic detention, also recorded that the Offender "appears to accept that it was his responsibility to discharge his duties in a professional and ethical manner", and that "a person with his experience possibly should have made further inquiries prior to signing the documents."

Rehabilitation 50 I am satisfied that there is no realistic risk of the Offender re-offending, and that his prospects of rehabilitation are exceedingly high. The present convictions mean that he will be barred from corporate governance for a considerable period, and his age, and the publicity attaching to those connected with HIH in any significant capacity, mean that it is most unlikely that he will again resume any position of authority in the commercial world.

THE SENTENCES 51 In relation to the State offences, none of the aggravating factors referred to in s 21A(2) of the Crimes (Sentencing Procedure) Act 1999, not being an element of the offence, was present. In relation to mitigating factors referred to in s 21A(3) it is not possible to determine whether the factor referred to in sub-para (a) was present. However the factors mentioned in sub-paras (b), (e), (f), (g), (h), (i), (k) and (m) were each present. 52 Each factor has been expressly dealt with elsewhere in these reasons, and together, but most particularly those referred to in sub-paras (k) and (m), justify a significant reduction in the sentences that would be passed in their absence. 53 Virtually identical considerations apply to the Commonwealth offences, in so far as there is nothing of the kind mentioned in s 16A(2) (b), (c), (d) or (e) which would amount to an aggravating circumstance. Otherwise full credit will be given by me for the various factors referred to in sub-paras (f)(ii), (g), (h), (m) and (n) of the section, as elsewhere explained. The question of deterrence both personal (sub-para (j)) and general, the need for adequate punishment (sub-para (k)), and the probable effect of the sentence on the Offender's family (sub-para (p)) have also been taken into account as elsewhere explained.

Deterrence 54 Precisely the same considerations, in relation to general deterrence, apply as were outlined by me in sentencing Mr Williams (R v Williams [2005] NSWSC 315). 55 Although the element of general deterrence is not included in the checklist contained in s 16A(2) of the Crimes Act 1914, it is just as relevant for Commonwealth offences as it is for State offences: DPP (Cth) v El Karhani (1990) 21 NSWLR 370 at 377. 56 It has a particular significance for white collar offences, which are difficult to detect, to investigate, and to prosecute successfully: R v Pantano (1990) 49 A Crim R 328 at 330; and see also R v Corner NSWCCA 19 December 1997 and R v Rivkin [2004] NSWCCA 7 at [423]. 57 In DPP v Bulfin (1998) 4 VR 114, the Victorian Court of Criminal Appeal observed that in cases of this kind, deterrence has a role to play in relation to each component of a sentence. 58 While personal deterrence is of relatively little moment in this case, I am satisfied that it is one which, consistently with the decisions of this court in R v Williams [2005] NSWSC 315 and R v Adler [2005] NSWSC 274, does require the element of general deterrence to be reflected.

Imprisonment or Otherwise? 59 In relation to each of the three offences, sentences of imprisonment are only to be passed if I am satisfied that no other sentence is appropriate. 60 Having regard to the nature and the circumstances of the offences, which involved a serious breach of the trust which was owed by the Offender as Managing Director (Australia) of HIH and as a Director of the other relevant companies, to their shareholders and to those who dealt with them, and the need for a substantial element of general deterrence, I am persuaded that sentences of full time imprisonment should be passed. In this regard, I again emphasise that public confidence in the securities and equities market, which is of vital significance for the Australian economy, depends upon the diligent and careful discharge of Director's duties. In the present context, not only were shareholders and creditors and industry regulators dependant upon their proper discharge. Additionally, policy holders and victims of accidents were potentially placed in circumstances where they might find themselves without any effective avenue of recourse for compensation. 61 Clearly a disposition involving a fine alone, or community service would not be appropriate. Periodic or home detention, it must be accepted, have a considerable element of leniency built into them for the reasons outlined in R v Hallocoglu (1992) 29 NSWLR 67 and R v Pont (2000) 121 A Crim R 302, and would similarly be inappropriate. 62 Although the imposition of a sentence of imprisonment upon a corporate executive, with an extended history of otherwise blameless conduct is likely to have a severe impact upon him, and also upon his family, it cannot be said that there is, in this case, anything of an exceptional nature that would justify some amelioration of sentence. 63 The evidence shows that the family is living on his accrued investments, that his children are all aged over 21 years, and that three of them are employed, while the fourth is a university student. There is no reason to suppose that the nature or conditions of his imprisonment would be more arduous than normal, or that the fact of his assistance, in a case such as the present, would justify any need for him to go onto conditions of protection that might occasion some special hardship. It is in fact likely that, by reason of the nature of the offences, he would serve the entire sentence in conditions of minimum security. 64 I have given careful consideration as to whether the sentences, or some part of them, should be suspended, but again, by reason of the considerations previously mentioned, I have reached the view that such an order would not be appropriate.

Totality 65 Since the Offender is to be sentenced for more than one offence, it is necessary to fix an appropriate sentence for each offence, and then to consider questions of accumulation, concurrence and totality in accordance with the principles established in Pearce v The Queen (1998) 194 CLR 610 and Johnson v The Queen (2004) 78 ALJR 616. 66 The application of these principles is complicated by the fact that the Offender is to be sentenced under the two different sentencing regimes earlier mentioned, a circumstance in respect of which Spigelman CJ said in R v Kearns [2003] NSWCCA 367 at [73]: "73. The approach to be taken to the sentencing task when one has to accommodate two distinct regimes is not an easy one. A similar problem arises with respect to sentencing, even under one regime, for disparate offences tried together, but which are related to each other. This Court should be slow to analyse the particular statements made by a sentencing judge. The judge must accommodate the need to assess separately imposed sentences for each particular offence under different regimes, and the application of the principle of totality, to give appropriate recognition to the effects of the overall sentences imposed in the light of the overall criminality disclosed in the particular trial, on the one hand." 67 The two groups of offences are quite different as to their circumstances and time of commission. They lack any common feature save for the recklessness with which the Offender approached the discharge of his duties. While the sentences which I have in mind in relation to the State offences should be concurrent, I find that there does need to be some accumulation between those sentences and that which I consider appropriate for the Commonwealth offence. 68 By reference to all of these considerations I shall now proceed to pass sentence in this case. 69 Terence Kevin Cassidy, in relation to each of the counts contained in the indictment presented by the Director of Public Prosecutions for New South Wales, I sentence you to fixed terms of imprisonment for 9 months to be served concurrently, to date from today, and to expire on 28 January 2006. I decline to fix a non-parole period by reason of the sentence which I will pass in relation to the Commonwealth count. 70 In relation to the count contained in the indictment presented by the Director of Public Prosecutions for the Commonwealth I sentence you to a term of imprisonment for 12 months, to commence on 29 July 2005, and to expire on 28 July 2006. In relation to that count I make an order that you be released on 28 February 2006, upon your giving security, yourself in the sum of $2500, without surety, by recognisance that you will be of good behaviour for a further period of 2 years from 28 February 2006. 71 I specify that but for the undertaking to give future assistance, the sentence for Counts 1 and 2 would have been fixed terms of imprisonment of 12 months expiring on 28 April 2006, while the sentence for Count 3 would have been one of 18 months imprisonment, expiring on 28 January 2007 with a recognisance release order, in the same terms, to take effect on 28 June 2006, and with the same accumulation as that which I have fixed for the sentences that I have passed. 72 I need to explain to you that the sentence is one involving a total term of imprisonment for 15 months. You will be required to serve a period in custody of 10 months, and will be released on 28 February 2006, subject to you giving security in the sum of $2500, without surety, by recognisance to be of good behaviour for 2 years from that date. You will be required to serve the balance of the sentence of 5 months between 28 February 2006 and 28 July 2006 in the community. 73 If you fail to comply with a condition of that recognisance release order, then an information may be laid before a Magistrate, who may issue a summons requiring your appearance before this Court and, if necessary, a warrant for your arrest in order to secure your appearance. If the Court is then satisfied that you have failed to comply with a condition of that order, without reasonable cause or excuse, it may impose a pecuniary penalty of up to $1000 upon you; or take further action which may include amending the original order so as to extend the period for which you are required to give security to be of good behaviour, revoking the original order and directing that you serve the remainder of the sentence that you have not already served, or passing some alternative sentence which is available under the laws of this State, or taking no action. 74 After you have entered into a recognisance in the terms specified, application may be made by you for its discharge or variation in accordance with the terms of s 20AA of the Crimes Act 1914 (Cth). 75 You do need to understand that in the event of you failing to comply with your undertaking, the Commonwealth or State Directors of Public Prosecutions together, or either of them, may appeal to the Court of Criminal Appeal which may increase the sentences which I have passed so as to remove either in whole, or in part, the benefit which you have received by reason of your undertaking. **********

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