Statutes - interpretation - The managing director and chief executive officer of the State Bank of South Australia was sued for damages for negligence and breach of fiduciary duties in connection with a transaction by which the bank acquired the whole of the issued share capital of a life assurance company - the defendant raised by way of defence, s29 of the State Bank of South Australia Act, which provides that no liability attaches, inter alia, to a director for an act or omission "done or made, in good faith, and in carrying out, or purporting to carry out, the duties of his office" - consideration of the meaning of the phrase "good faith" - separate question addressed as to whether the section applied at all when the bank was the plaintiff - held that the section was of application, but that the defendant failed to discharge the onus of proof that he acted in "good faith". State Bank of South Australia Act 1989 s29; Corporations Law s1318; Trustee Acts56, referred to. State of South Australia and Anor v Barrett and Ors Perry J, 8 July 1994, unreported, judgment No 4650; Barrett and Or: v State of South Australia and Anor (1994) 63 SASR 208 (Full Court); Cannock Chase DC v Kelly (1978) 1 All ER 152; Mogridge v Clapp (1892) 3 Ch 383; Australian Growth Resources Corporation Pty Ltd (Receivers and Managers Appointed) v Van Reesema and Or: (1988) 13 ACLR 261; (1988) 142 LSJS 164; Nocton v Lord Ashburton (1914) AC 932; Mid Density Development: Pty Ltd v Rockdale Municipal Council [1993] FCA 408; (1993) 116 ALR 460, discussed.

HRNG ADELAIDE, 4-7, 11-14 March 1996 #DATE 29:3:1996

Counsel for plaintiffs: Mr B R Martin QC with him

Solicitors for plaintiffs: Crown Solicitor's Office

Counsel for defendant:
Mr D G Howard with him Mr J Goldberg

JUDGE1 PERRY J This action arises out of the purchase in March 1988 by the State Bank of South Australia as it then was ("the bank"), from APA Holdings Ltd ("APA") of the whole of the issued share capital of Oceanic Capital Corporation Ltd ("Oceanic").

2. I will refer to the transaction as "the Oceanic acquisition".

3. The plaintiffs, being the State of South Australia and the bank, sued nine defendants.

4. The first eight defendants were at the relevant time the board of directors of the bank. The eighth defendant, Timothy Marcus Clark was managing director and also occupied the office of chief executive officer. The ninth defendant, FAI General Insurance Company Limited ("FAI"), was sued as the insurer of the other defendants.

5. The relief sought against FAI was a declaration that pursuant to a policy of insurance it was obliged to indemnify the other defendants, with the exception of Mr Marcus Clark, with respect to their liability to the plaintiffs, should a judgment be pronounced against them (See J.N. Taylor Holdings Ltd (In Liquidation) and Anor v Alan Bond and Ors (1993) 59 SASR 432).

6. By an order made on 14 February 1996, the plaintiffs' claim against the defendant FAI was struck out, and leave was given to the plaintiffs to discontinue their claim against the first to seventh defendants, the plaintiffs' claims against all of those defendants having been settled. Included in the settlement were three other persons who had been joined as defendants by counterclaim.

7. This meant that when the action proceeded to trial it did so against the defendant Mr Marcus Clark only.

8. Put shortly, the claim against Mr Marcus Clark, which by the time of the trial stood at an amount in excess of $90 million, was based on allegations that he acted in connection with the Oceanic acquisition negligently and in breach of the fiduciary duties which the plaintiffs asserted that he owed to them.

The State Bank 9. The bank was incorporated by the State Bank of South Australia Act 1983 ("the Act"). Its incorporation resulted from the amalgamation of the State Bank, established by the State Bank Act 1925, and the Savings Bank of South Australia, which had been established in 1875.

In 1994, by virtue of the State Bank (Corporatisation) Act, (Act No 17 of 1994, the relevant provisions of which came into effect on 1 July 1994) the bank was renamed the "South Australian Asset Management Corporation". For convenience, I will continue to refer to it either as "the bank" or "the State Bank".

The board, as the governing body of the bank (S14(1) of the Act), consists of not less than six nor more than nine persons appointed by the Governor as directors of the bank (S7(2)). The directors are paid a remuneration determined by the Governor (s10).

The bank is, by virtue of s19(1) to "carry on the general business of banking and is vested with all such powers as are necessary for that purpose". S19(3) sets out a broad range of powers which the bank may exercise. I do not pause to enumerate those powers, as there is no suggestion that the Oceanic acquisition and the steps taken by the bank in respect of that transaction were other than within power.

However, it is necessary to have regard to s19(3) which provides that, without limiting the generality of the provisions conferring upon the bank the power to carry on the general business of banking, it may: "... (h) Issue, buy, sell and otherwise deal with securities (including debentures and inscribed stock); ...."

Securities are defined in s3 to include: "... shares, stock, debentures, bonds and unsecured notes."

The bank's power to acquire shares is subject to the limitation which finds expression in s19(7), namely: "The Bank shall not acquire more than 10 per centum of the issued shares of a body corporate without the approval of the Treasurer."

The liabilities of the bank are guaranteed by the Treasurer (s21(1)). S16(2) provides that the chief executive officer is, "subject to the control of the Board, responsible for the management of the Bank".

S15 of the Act is as follows: "(1) In its administration of the Bank's affairs, the Board shall act with a view to promoting- (a) the balanced development of the State's economy; and (b) the maximum advantage to the people of the State, and shall pay due regard to the importance both to the State's economy, and to the people of the State of the availability of housing loans.

(2) The Board shall administer the Bank's affairs in accordance with accepted principles of financial management and with a view to achieving a profit.

(3) The Board and the Treasurer shall, at the request of either, consult together, either personally or through appropriate representatives, in relation to any aspect of the policies or administration of the Bank.

(4) The Board shall consider any proposals made by the Treasurer in relation to the administration of the Bank's affairs and shall, if so requested, report to the Treasurer on any such proposals."

Other sections of the Act which assume importance having regard to the issues in the case are s11, dealing with the disclosure by a director of any direct or indirect pecuniary interest he or she might have in a proposal before the board, and s29, which, inter alia, creates an immunity in favour of a director with respect to any liability which otherwise might attach to the director "for an act or omission done or made, in good faith, and in carrying out, or purporting to carry out, the duties of his office". I will refer more particularly to those sections later in this judgment.

Mr Marcus Clark first came to South Australia in 1984. He was previously employed in Victoria, for some two or three years, as general manager of Westpac Banking Corporation. Before then, for some ten years or so he had been employed as director and general manager of the Melbourne head office of Commercial Bank of Australia (T1439).

From February 1984 he was engaged in the merger of the State Bank with the Savings Bank. His appointment as managing director and chief executive officer of the new entity both date from the date upon which it commenced trading, that is, 1 July 1984.

Mr Marcus Clark was answerable only to the board of directors. All other officers of the bank, including the chief general manager, Mr Matthews, were answerable directly or indirectly to him\ (See organisational chart, exhibit 9D1269).

Senior management included the general manager, information systems and subsidiary companies, Mr James Macky, and the chief manager, finance and planning, Mr Kevin Copley.

Mr John Bannon, who was at the relevant time Premier of South Australia and Treasurer, gave evidence as to two aspects of the matter. They were the relationship of the bank vis a vis the government of the day, and the function which he performed in his capacity as Treasurer in giving approval to the Oceanic acquisition pursuant to s19(7) of the Act.

As to the relationship of the bank vis a vis the government, Mr Bannon was at pains to point out: "Both the parliamentary debate and the form of the legislation emphasised very strongly that the bank should operate on a commercial basis." (T1304).

He went on to observe that while the bank needed to keep the Treasurer of the day informed of its activities and progress, the management and operation of the bank was in the hands of the board. He saw this arm's length relationship as an essential feature of its operation. He said: "... it was felt that the bank could not succeed unless it was perceived in the market place as being a commercial entity and commercially driven and not subject to the whims or controls of the political party or government of the day." (T1305).

While I accept his evidence, the policy of the government in that respect could not, of course, operate so as to distort the nature of the relationship of the bank vis a vis the government which either expressly or by implication should be regarded as arising by reason of the provisions of the Act.

It is, however, unnecessary to pursue that aspect of the matter further as certain cross-claims raised by the remaining defendants, based on an alleged failure on the part of the Treasurer to carry out his function in accordance with his statutory obligations pursuant to s19(7) of the Act, do not arise for consideration following the settlement recorded between the plaintiffs and those defendants, there being no such allegation raised by Mr Marcus Clark.

THE WITNESSES 28. The plaintiffs called Mr Macky and Mr Copley, who were the representatives of the bank who had the most to do with the negotiations with APA which led up to the agreement to purchase the Oceanic shares. They also prepared the papers for the meetings of the executive committee and board of directors which considered, and ultimately sanctioned, the transaction.

29. The plaintiffs also called Mr Neil Newman, who was at the relevant time secretary to the board of the bank. He gave evidence of the procedures adopted by the board, particularly with respect to the agenda papers and minutes. He was present at the meetings of the board. He had little or no independent recollection of what transpired at the meetings of the board with respect to the Oceanic acquisition. But his evidence served to satisfy me as to the accuracy of the minutes of the critical meetings, and also as to certain matters of which there is no record in the minutes, which, if they had been raised, he would have recorded.

30. Apart from Mr Bannon, the only other witnesses called by the plaintiffs were two accountants.

They were Mr Brian Morris who had furnished reports before the trial and who gave evidence as to the quantification of the plaintiffs' alleged loss, and Mr Anthony Coleman who gave evidence explaining and amplifying the contents of his written valuation which was tendered in evidence, being a valuation of Oceanic as at the date of its acquisition by the bank.

32. Both Mr Morris and Mr Coleman are highly qualified and experienced. I have no hesitation in accepting their evidence. Indeed, it was not placed under serious challenge by Mr Marcus Clark.

33. Mr Marcus Clark gave evidence, and called Mr Dennis Vickery.

34. Mr Vickery was an executive director, described as the investment director, of APA. He gave evidence of dealings with Mr Macky and Mr Copley during the course of his negotiations with the bank. It was clear from his evidence that he now has very little recollection of the preliminaries to the transaction. Furthermore, I had the distinct impression that his evidence was coloured by a caution born out of fear of what he thought he might be drawn into. I accept the thrust of his evidence so far as it goes, but it did not throw any real light on the central issues in the case.

35. Most of the evidence given by Mr Macky and Mr Copley was consistent with the evidence of Mr Marcus Clark. On some important issues, however, there were serious conflicts between Mr Macky and Mr Copley on the one hand and Mr Marcus Clark on the other. Apart from the need to resolve those conflicts, it is necessary to address the credence to be given to the evidence of Mr Marcus Clark, particularly where he deposed to his state of mind at the relevant time.

36. Both Mr Macky and Mr Copley, when giving evidence, appeared somewhat defensive, and at times over-emphatic. Given the circumstances, this does not necessarily reflect on their credit. I accept them as witnesses of truth. Where their evidence and that of Mr Marcus Clark conflict, I prefer their evidence to his.

37. Furthermore, I am not prepared to accept Mr Marcus Clark's evidence on certain aspects of the transaction as to which only he could speak. In particular, it will be seen that I do not accept his evidence as to his state of mind, as to his awareness of the conflict of interest in which he was placed, nor as to his denial of having pressured Mr Macky and Mr Copley to secure the purchase.

38. In reaching the various findings of fact to which I go on to refer, it can be assumed, therefore, that I accept the evidence consistent with those findings and reject the evidence which is not. In most instances this involves an acceptance of the evidence of Mr Macky and Mr Copley in preference to that of Mr Marcus Clark.

THE EQUITICORP GROUP 39. Equiticorp Holdings Ltd ("Equiticorp Holdings") is a company incorporated in New Zealand which traded through a number of wholly owned subsidiary companies as an investment company and financier. Equiticorp Finance Group Ltd ("Equiticorp Finance") was a wholly owned subsidiary of Equiticorp Holdings. Equiticorp Australia Ltd ("Equiticorp Australia"), which was incorporated in New South Wales, was in turn a wholly owned subsidiary of Equiticorp Finance.

40. In January 1985, Mr Marcus Clark was appointed a director of Equiticorp Holdings. That company held the meetings of its board of directors, which Mr Marcus Clark regularly attended, in Auckland New Zealand. He was also a director of Equiticorp Finance and two other companies in the group, namely, Equiticorp Industries Ltd and Equiticorp Tasman Ltd (T1356, T1375).

41. Mr Marcus Clark was appointed a director of Equiticorp Holdings in January 1985. He ceased to be a director of that company as of 2 August 1988.

42. I refer in due course to the evidence which demonstrates that, to the knowledge of Mr Marcus Clark, in late 1987 and early 1988 the Equiticorp group was in a parlous financial position.

43. Mr Marcus Clark undertook a specific role in Australia with respect to the Equiticorp group of companies. In particular, as he put it in the course of his evidence, he was expected to contribute "an Australian perspective" to the deliberations of the board, and he agreed that matters which could "put the company at risk from Australia" were a matter of concern to him (T1425).

44. At some time prior to October 1987, Equiticorp Australia created a "loan facility" between it and a company then known as Unity Corporation Ltd. Unity Corporation Ltd was one of a group of companies controlled by a Mr Carter. By a change of name, Unity Corporation became APA. As I have already explained, Oceanic was a wholly owned subsidiary of APA.

45. It is admitted on the pleadings that between December 1987 and 31 March 1988, APA was indebted to Equiticorp Australia in the sum of approximately $A27 million. In particular on 31 March 1988 it was indebted to Equiticorp Australia in the sum of $27,652,315.20. That sum was repayable by APA to Equiticorp Australia on that day, that is, on 31 March 1988.

46. Repayment of the moneys lent by Equiticorp Australia to APA was secured, inter alia, by a charge over APA's shareholding in Oceanic. From reports in the press and possibly other sources of information Mr Marcus Clark and the senior management of the bank knew by the end of 1987 that APA, and indeed the Carter group of companies, was experiencing serious liquidity problems.

THE OCEANIC ACQUISITION 47. Late in 1987, a Mr Peter Johnson, employed by a merchant bank known as Campbell Capital Corporation, rang Mr Marcus Clark to say that Campbell Capital was representing Mr Carter who was "considering selling Oceanic".

Mr Marcus Clark accepted the suggestion of Mr Peter Johnson that the latter send to him a document described as an "information profile" (Exhibit 9D79). Mr Marcus Clark duly received the document. It is dated 10 December 1987. He was interested in the possibility of securing Oceanic.

He moved quickly. He rang Mr Murray Boyte of Equiticorp in Sydney. Under cover of a letter dated 16 December 1987, Mr Boyte sent to Mr Marcus Clark what he described as "CIBC's valuation on the Oceanic management rights and APA Life Assurance Limited" (Exhibit 9D81).

Mr Marcus Clark took the letter from Mr Boyte and its enclosures, together with the information profile to Mr Macky. He asked Mr Macky to look at the material and to let him have his views as to a possible purchase of the Oceanic shares.

It was just before or just after Christmas 1987 that Mr Macky found time to look at the documents. The evidence is not entirely clear as to what passed between Mr Macky and Mr Marcus Clark after the former had looked at the documents, but it seems likely that Mr Macky said nothing to discourage Mr Marcus Clark from pursuing the matter.

Events gathered momentum. On 8 and 9 February 1988, Mr Macky attended in Sydney with Mr Copley and another bank officer, Mr Guille. Their instructions were to meet the people involved in Oceanic, and to see whether the acquisition of it was worth pursuing.

They met first with Mr Vickery, and then met with executives of Oceanic. They obtained some financial statements. At that stage they only had information supplied to them by the vendor or by Oceanic. There had been no opportunity for any independent investigation of Oceanic's financial position.

Apparently they were given a consolidated balance sheet as at 30 December 1987. Mr Macky and Mr Copley worked through that document. They adjusted some of the figures by deducting items which they thought would not be of value to a purchaser. After allowing for the adjustments, they came to a total of net assets of $54,342,914 (Exhibit 9D142, attachment 4, page 2).

Following their return to Adelaide, Mr Macky, Mr Copley and Mr Guille prepared a report for submission to the bank's executive. The report is dated 15 February 1988 (Exhibit 9D142).

The report spoke of the trip to Sydney and the impression which the three bank officers had gained on that trip. It gave an explanation of what they described as the "core business" of Oceanic which was the "development and management of investment savings and life insurance products". They comment in the report that: "... the State Bank group is developing its own funds management capacity and is increasingly marketing investments and insurance type products to its clients. The overall market for these products is significant and is perceived as a major strategic development for the Bank."

They stated that while there were "certainly some issues that need clarification, we believe that this is an opportunity well worth pursuing". (emphasis added)

It is important to note certain reservations expressed in the report. They are: "It is our opinion that certain assets are over-valued. Accordingly, amended figures are also included. These amendments reduce the shareholders' funds from $81.9 million to $58.4 million and are considered to be more realistic. Details of the adjustments made are included in the attachment. ..... Should approval to proceed be received, and the price submitted be acceptable, we would propose a detailed examination of the financial records be undertaken by suitably experienced accountants to check that the accounts accurately portray the financial position of the group at this time. ...... Overall, our assessment of the company is that while there are certainly some issues that need clarification, we believe that this is an opportunity well worth pursuing."

Their recommendation was: "1. The Board of Directors approve in principle the Bank entering into negotiations for the purchase of a 100% interest in Oceanic Capital Corporation Limited for a price to be determined in the range of $50 million to $60 million.

2. The following steps be taken to achieve this process:- (a) Managing Director to seek the approval of the Treasurer; (b) Managing Director to discuss the matter with the Chairman and Chief Executive of SGIC to advise them of our intention and to assure them we do not intend entering their market.

Subject to a successful outcome of (a) and (b):- (c) Commission an independent valuation by Consulting Actuaries and Accountants; (d) ... (e) Before proceeding to purchase, obtain the final approval of the Board."

The report was submitted to a meeting of the executive committee on 16 February 1988 (Minutes, exhibit 9D154, T1130, T1164). Mr Marcus Clark attended the meeting. It was also attended by Mr Macky, Mr Copley and Mr Guille, together with a number of other senior officers of the bank.

Mr Macky presented the paper to the committee. The minutes (Exhibit 9D154) record the following: "The General Manager, Information Systems and Subsidiary Companies presented a paper recommending approval in principle for the Bank to enter into negotiations for the purchase of Oceanic Capital Corporation Ltd for a price to be determined in the range of $50m-$60m ...

It was agreed to recommend to the Board approval in principle of the Bank entering into negotiations for the purchase of a 100% interest in Oceanic Capital Corporation Ltd for a price of between $50m and $60m, subject to - - A satisfactory independent valuation by Consulting Actuaries and Accountants. - Negotiation of a suitable service agreement and remuneration package with the key executives of the company. - Final approval of the Board."

The same paper, in the same terms as that which had been supplied to the executive, was re-engrossed and re-addressed to the board of directors. It became the recommendation of the executive committee to the board that it approve in principle the bank entering into negotiations for the purchase of the Oceanic shares at a price in the range of $50 million to $60 million. The recommendation was subject to the same qualifications which were expressed in the paper submitted to the executive committee and carried into the executive committee's resolution.

A meeting of the board of directors considered the report on Wednesday 17 February 1988. Mr Marcus Clark was present, together with Mr Lewis Barrett, who chaired the meeting, and five other directors.

Mr Macky was also in attendance. He presented the report on the Oceanic acquisition. Mr Marcus Clark took part in the discussion and voted in favour of the board's resolution (This was admitted on the pleadings. See More Explicit Statement of Claim paragraphs 33 and 35, and Defence paragraphs 18 and 20).

That resolution is recorded in the minutes of the meeting in the following terms (Exhibit 9D156): "IT WAS RESOLVED to approve in principle that the Bank enter into negotiations for the purchase of a 100% interest in Oceanic Capital Corporation Ltd for a price of between $50m and $60m subject to - - A satisfactory independent valuation by Consulting Actuaries and Accountants. - Negotiation of a suitable service agreement and remuneration package with the key executives of the company. - Final Board approval."

Following the board meeting, it was Mr Macky who was largely responsible for taking the steps necessary to give effect to the resolution of the board. In doing so, he was assisted by Mr Copley.

Mr Macky's evidence was (T1272) that about a week after the board meeting of 17 February 1988, he and Mr Copley went to Sydney where they met Mr Pitcher of Peat Marwick Hungerford, accountants ("Hungerfords"). Mr Macky was unable to say what arrangements were actually made, but there was an intention that Mr Pitcher meet with officers of APA and Oceanic. Mr Macky and Mr Copley also met Mr Hughes of Mercer Campbell Cook and Knight Pty Ltd, auditors ("Mercers"), who were, it appears (T1273) already in the process of preparing and auditing accounts.

Mr Macky was questioned in cross-examination as to the matter in these terms (T1274): "Q. In essence, then, the inquiries that you were able to make on 23 and 24 February tended, I think, to confirm your view that the accounts of Oceanic were substantially correct. A. They confirmed the view that it was still worth pursuing, initially: but we still needed work done by both accountants and actuaries ...

Q. What I am putting to you is that nothing that was put to you by Mr Pitcher or the person from Mercers with whom you had discussions caused you to believe that the figures in the balance sheet of Oceanic needed at that time any further adjustments other than those which Mr Copley had made and referred to in the attachments accompanying your paper to the executive committee and to the board of mid February. A. I don't think that's quite correct. The report to the board notes in the second paragraph that 'We will be looking at an initial payment of 45 million with 10 million held back'. I think that indicates quite clearly that we had enough concern that there were still areas that needed to be investigated, that we were not satisfied absolutely that $55 million was the figure, that there were still matters that needed to be investigated, and that there was a margin of perhaps 10 million - the areas that needed further investigation might involve as much as $10 million. Q. Was that on advice from Mr Pitcher. A. Certainly his advice was part of our coming to that figure, yes."

The report to the board there referred to is a report as to the outcome of the discussions, particularly those held with Mr Pitcher (See Macky T1250). After discussing the matter with him, it was thought that the offer should perhaps be for $55 million. This would comprise an initial payment of $45 million, and a further $10 million after detailed investigation of the accounts of Oceanic had been completed.

The board was brought up to date with this development at its meeting held on 25 February 1988. The meeting was again attended by Mr Marcus Clark, Mr Macky and Mr Copley (Macky T1250). The board minute (Exhibit 9D176) is in the following terms: "Approval in principle was given by the Board on 17th February 1988 for the Bank to enter into negotiations for the purchase of Oceanic Capital Corporation Ltd and the General Manager, Information Systems and Subsidiary Companies and Chief Manager, Finance and Planning presented the Board with an update of negotiations.

The Bank was currently formalising arrangements to make an offer of $55m, subject to those conditions set out at the Board meeting on 17th February 1988 ... with an initial

payment of $45m and the remainder being paid after satisfactory completion of investigations of the company's affairs by consulting actuaries and accountants.

The Bank had met with SGIC and also Treasury, and neither party had raised objections to the Bank entering into this transaction.

The Board noted the progress in negotiations for the purchase of Oceanic Capital Corporation Ltd."

Mr Macky wasted no time in communicating an offer to APA in the terms as noted by the board. However, in Mr Macky's letter to Mr Vickery of 25 February 1988 in which the offer was made of $55 million payable as to $45 million "on the signing of the agreement for sale and purchase" with the balance of $10 million "payable on the satisfactory completion of the terms and conditions as set out below", an alternative was put. This was that the whole $55 million be paid on the signing of an agreement for sale and purchase, provided that securities acceptable to the bank "reasonably valued at over $10 million" be lodged with the bank pending satisfactory completion of the terms and conditions (Exhibit 9D184).

Such of the terms and conditions set out in the letter as are relevant for present purposes were expressed as follows: "1. SBSA Board and owner's final approval.

2. Reports verifying balances and valuations in the accounts being received from:- (a) consulting actuaries (b) investigating accountants (c) property valuers appointed by SBSA.

3. The price being based on assets less liabilities at 30th September 1987 plus profits from 1st October 1987 to 31st January 1988 adjusted upwards or downwards as a consequence of a final net asset figure as determined by the investigations of the accountants, actuaries and property valuers with no revaluations of assets being applied by the vendor.

The offer was expressed to remain open until Monday 29 February 1988.

By letter of 1 March 1988 (Exhibit 9D209A), APA advised Mr Macky that the offer was not accepted. By letter of the same date (Exhibit 9D204) (it is not clear which letter came first) Mr Macky withdrew the offer on behalf of the bank.

As the matter stood at 1 March 1988, although the evidence is not entirely clear, it does not appear that a great deal of work had been done either by Mr Pitcher or by Mr Hughes.

Mr Copley's evidence was that, despite the fact that the offer put in the letter of 25 February to APA (The letter is actually addressed to Unity Corporation Ltd) contemplated $45 million being paid before completion of any valuation of the company, he thought that "the intention was for the independent valuation to have been completed prior to the acquisition being finished". When asked, however, whether anything had occurred to suggest that $45 million was a safe figure to commit themselves to initially, he answered (Copley T1173): "In the discussions that we had with Mr Pitcher in Sydney earlier in that week, that is the figure we had talked with him as being a reasonable amount that should be held ... Q. What had Mr Pitcher had access to, to your knowledge, at that stage. A. I can't be specific, but it was the information that I had received and the calculations that we had done by some of my working papers that I had faxed to him to have a look at before that meeting. Q. But that was basically information that had been given either by APA or Oceanic. A. Yes. XXN Q. So we understand this issue to be that neither you nor Mr Pitcher had had an opportunity to get that information checked out. A. That is correct."

As of the date of the letter from APA of 1 March 1988, the contents of which were passed on to Mr Copley by Mr Macky, Mr Copley's evidence was that work in connection with the matter then ceased (T1176, and see T1215).

There is no evidence of any activity in connection with the matter after 1 March 1988 until about a fortnight later.

By letter of 15 March 1988 (Exhibit 9D238(), Mr Vickery wrote to Mr Macky indicating that they were at that stage "finalising the negotiations with a party which places a value on OCC of $65 million, together with additional benefits for APA". After setting out what he describes as the basic terms of the proposal which he was at that stage considering, he in effect invited the bank to consider increasing its previous offer "closer to the current proposal", and offering in that event that "we would be able to reconsider our position very quickly".

Upon this development occurring, I am satisfied that Mr Marcus Clark communicated to both Mr Copley and Mr Macky a strong desire to conclude an agreement with APA.

Mr Copley put it this way (T1176): "I received a visit from Mr Clark in my office ... in which he expressed his enthusiasm for the transaction. Q. Do you remember what he said. A. Yes, along the lines of 'We want this company. Work out how we can make it happen'. Q. Were you given any time frame within which it had to happen ..... A. It was indicated to me either by Mr Clark or by Mr Macky, and I believe Mr Clark, that he was aware of the financial commitment that APA had for 31 March, and we then worked out between us, with Mr Macky's involvement, that if we were to make an offer that would create settlement by

31 March, we could achieve the objective of getting the company."

In cross-examination he said (T1224): "Q. Accepting that Mr Clark used the words that you say, I suggest to you that it was in the context of (1) previous discussions about the good fit of Oceanic in the general strategy of the bank and (2) in the context of the various reservations which had previously been expressed and, in particular, the issue of value. A. No, I think that understates it. ..... Mr Clark's attitude towards it was he had become more enthusiastic than he was before and he was very keen for this to be completed .... It was more enthusiastic at that stage than it had been on 25 February .... it was as much a matter of how it was said as what was said."

The bank responded to the letter of 15 March from Mr Vickery of APA by a letter to him of the same date(Exhibit 9D242). In the response, Mr Macky reiterated that the bank was still prepared to make a cash offer "under the same conditions" as had been outlined in the bank's letter of 25 February 1988, with settlement before 31 March 1988. He went on to say: "However, we emphasise the following: - Given the run down of the funds, the value of the company continues to decline: - In order to settle by 31 March 1988 we would need to have agreed a price by this Friday, 18 March 1988."

He suggested that if APA wished to pursue the matter, Mr Carter and "such other of your board as you wish" should visit the bank before the following Friday.

In response to that letter, Mr Vickery, together with Mr Carter, visited Adelaide on Monday 21 March and the following day, during which the negotiations were pursued.

As to Mr Clark's changed attitude after the letter of 15 March from Mr Vickery, Mr Macky had much the same to say:(T1252) "Q. Prior to those representatives coming to Adelaide, had you spoken to Mr Clark about the matter again, the whole thing having started to rear its head. A. I can't give you a date and time, but I would have done so, but certainly I would have done so. He was my boss and I didn't go into a matter like that without talking to him about it. Q. Are you able to recall whether he expressed any view to you about this time as to what approach you should take: whether he was enthusiastic, half-hearted or whatever. A. I certainly can't put any words to it, but I am quite strong that at some stage just after this letter, or at some stage around this letter, that the attitude towards the

negotiation changed, and my feeling about the negotiation changed that in the very early days Tim had been quite clear that the matter was up to me to decide whether he wanted to proceed with it and whether we wanted to look at it. By the time we got into the second lot of the negotiations when Vickery and Carter actually came to Adelaide to discuss the matter, from then onwards I had the definite view that this was a deal that we had to do: that Kevin and I were really under riding instructions to do the deal. Q. Under riding instructions from whom. A I believe that it came from Tim. However, I can't be specific about the words that he used or the time, but certainly there was a change in the atmosphere that I felt towards the negotiations."

In cross-examination, the following passage occurs (T1279.): "Q. It didn't go any higher than that, did it. It wasn't a situation, for example, of 'I want you to make sure you buy this company'. A. I certainly don't remember a remark being made like that but nevertheless that was the impression that I was under."

He went on to say (T1279) that there was a "culture" in the bank that they had to "get things done", there was "always an attempt to maintain a sense of urgency". In this instance, he felt under more pressure than that, and as had been the case with one other acquisition (of the Myles Pearce organisation), he felt that he was "clearly under a directive to do the job".

One consequence of the resumption of negotiations, under pressure from Mr Clark, within what became a very short time frame, was that the opportunity, in practical terms, to obtain a proper and thorough independent valuation of the Oceanic shares evaporated. Mr Macky's evidence as to that was (T1280-1281): "HIS HONOUR Q. No valuations were, in effect done.

A. That is correct. Q. Did I understand your evidence yesterday to be to the effect that up to a certain point at all events you had fully expected to do that. A. Yes. Q. And from your point of view the reason why it wasn't done is the sense of pressure that you have spoken of. A. Yes. XXN Q. Of course, that sense of pressure - if I can just take that up a little further - there were really two pressures weren't there, one I suggest Mr Clark's enthusiasm to go and

get the deal done, the other the time frame of 31 March which you had implied from the letter of 15 March from Vickery to you. A. Yes. Q. And, of course, there were further delays because this was all occurring on the 15th and it wasn't until the 21st, six days later, admittedly a weekend in between but still six days later, before Vickery and Carter came to Adelaide. A. Yes."

Mr Marcus Clark in his evidence denied that he had put any pressure on Mr Macky and Mr Copley to secure the transaction (T1394). He admitted (T1394), however, that he had become enthusiastic when the "opportunity had re-emerged" to effect the acquisition. He thought that Mr Copley and Mr Macky might have misinterpreted his enthusiasm.

I am satisfied that there was more to it than that. Mr Copley and Mr Macky were experienced men of commerce. Obviously, they had enjoyed a close relationship with Mr Marcus Clark during the course of their service with the bank. Mr Macky had been with the Savings Bank of South Australia since 1981 and continued to be employed by the newly created entity after the merger in 1984.

As I have said, I prefer his evidence and that of Mr Copley to that of Mr Marcus Clark where their evidence conflicts. I believe Mr Macky when he says that he and Mr Copley were "under riding instructions to do the deal".

Mr Macky and Mr Copley duly conferred with Mr Vickery and Mr Carter on 21 and 22 March 1988. There are some differences in recollection (I put it no higher than that) between Mr Macky, Mr Copley and Mr Vickery as to the extent to which Mr Marcus Clark took part in the discussions.

Nothing turns on that aspect of the matter. It is, in any event, clear that Mr Marcus Clark was kept informed of the progress of negotiations, and at one stage drew Mr Carter aside for a discussion which took place in private with him. Mr Marcus Clark said in evidence (T1391) that this discussion involved arrangements to be put in place after the proposed acquisition as to certain share options and service agreements relating to executives then in the employ of Oceanic. There is no evidence to contradict that. Mr Carter was not called.

Be that as it may, the upshot of the further negotiations was the execution on 22 March 1988 of heads of agreement between the bank and APA.

The heads of agreement provided for a purchase price of $60 million, of which $2 million was to be held in escrow by the solicitors for APA against a warranty to be provided by APA that its assets and liabilities "are substantially the same as those contained in the audited accounts of OCCL as at 30 September 1987", and as to other incidental matters. The $2 million was to be paid to APA on 29 April 1988 unless the bank was able to prove a breach of warranty before then. The heads of agreement were expressed to be subject to the final approval of the board of the bank and of the Treasurer, and the preparation of a formal legal contract.

No time was wasted in bringing the matter before the board of the bank. A paper was prepared recommending to the board approval of the transaction in the terms recorded in the heads of agreement.

The board met to consider the matter on 24 March 1988. Again, Mr Marcus Clark was present. The board approved the transaction in terms which reflected the provisions of the heads of agreement, with an additional stipulation as to representation by the bank on the board of Oceanic.

On the same day, Mr Marcus Clark wrote to the Treasurer seeking his approval of the transaction. On 30 March the Treasurer wrote giving his approval.

A formal agreement was drawn up and executed on the day of settlement, that is, 31 March 1988 (Exhibits 9D458, 9D461 and 9D466). On settlement, the following payments were made by the bank: (a) $2 million to Freehill Hollingdale and Page, to be held in escrow against the warranties given by APA. (b) $27,652,315.20 to Equiticorp Australia. (c) $30,347,684.80 to APA, being the balance of the purchase price.

APA provided to the bank a discharge executed by Equiticorp of all obligations owed by Oceanic to it, together with a release of all securities held by Equiticorp in respect of those obligations, which, of course, included the charge over the Oceanic shares (Exhibit 9D452).

Following settlement, Mr Copley was instructed to do whatever he could to obtain reimbursement to the bank of the $2 million held in escrow. Mr Marcus Clark gave the instructions. Mr Copley's evidence was (T1191): "Q. With respect to the exercise that you embarked on over the warranties after settlement, were you given any instruction by anybody that the principal object was to get

the $2 million back. A. That was my major objective at that stage. Q. That is as a result of any instruction. A. Mr Clark did instruct me to achieve what I could ... out of the $2 million, yes."

When he was then asked whether it might not have been more reassuring to the bank to confirm the soundness of the figures which were warranted rather than to set about seeing if they could destroy them, Mr Copley answered (T1192): "A. ... the way in which the second transaction was being put together, no. Q. You just looked at $2 million as a target to get back. A. Yes."

In the result, Mr Copley instructed Mercers to go through the records of Oceanic "with a fine tooth comb to find everything that was adverse to the vendor that would help us in obtaining the return of the $2 million held in escrow".

I find that a surprising attitude, stemming as it did from instructions given by Mr Clark. Apparently, Mr Clark thought it more important to establish that the warranties as to the accuracy of the financial statements which the bank had been given as to the position of Oceanic did not stand up to analysis, than to have the reassurance which would come from verification of their accuracy.

At all events, that exercise resulted in an agreement between APA and the bank that they would split between them the escrow sum, with the result that each took $1 million. That agreement was evidenced by the execution between the parties of a further deed of release (Exhibit 9D629). In the result, the net consideration paid for the Oceanic shares was $59 million.

The purchase of the shares proved to be a disastrous transaction from the bank's point of view. The evidence adduced at the trial was that at the date of settlement of the transaction, that is, 31 March 1988, the true value of the total shares on issue was in the range of $17.2 million to $21 million.

MR MARCUS CLARK'S KNOWLEDGE AND INVOLVEMENT 108. Although he had been present at board meetings of Equiticorp Holdings in October and November 1987 which approved changes in the loan facility between Equiticorp and APA, Mr Marcus Clark said in evidence that he was not aware of the nature of the security held by any part of the Equiticorp group from APA. But he said that there was a paragraph in the April 1988 board papers of Equiticorp which alerted him to the fact that the Carter loan (being the loan to APA Holdings) had been paid off. His evidence was (T1399): "Q. What would you have done had it come to your attention at any time during the course of negotiations, and indeed, leading up to the time of settlement on 31 March 1988, that in fact there would be a release of securities by Equiticorp and the payment of some funds amounting, I think, to $27.5 million to that company as a result of the bank purchasing Oceanic from Unity Corp (APA). A. Immediately I had become aware of the transaction where funds were paid directly from the bank to Equiticorp, I would perceive a conflict of interest. If it had come up before the board had voted on the transaction, I would not have been in the room. Had it come to my attention after the transaction had been signed and before completion, I would have immediately gone to the chairman."

109. In my opinion, that evidence was born out of a desire to distance himself from any suggestion that he was aware all along of the conflict of interest which existed between his relationship with Equiticorp and his relationship with the bank, a conflict of interest which he chose to conceal. Not only am I satisfied that he was aware of the conflict and that he deliberately did not bring it out into the open, but I am equally certain that he was anxious that the acquisition of Oceanic proceed for the benefit of the Equiticorp group.

110. In explaining the reasons why I have reached that conclusion, it is convenient to commence with a reference to agenda papers which came into Mr Marcus Clark's possession as a result of his attendances at meetings with the board of Equiticorp Holdings in October and November of 1987.

111. A report to the members of the board of Equiticorp Holdings in late October 1987 (Exhibit 9D8200) included a reference to the fact that the current facility with Unity Corporation Ltd (which it noted was to become APA Holdings Ltd) was increased from $19 million to $24 million "reducible to $19 million upon flotation of Oceanic Financial Services Ltd".

112. The minutes of the meeting ( Exhibit 9D8297) recorded a resolution approving the additional advance, on the undertaking of the chairman "to ensure that existing assets of APA ... remain with the company".

113. In board papers tabled at the meeting of the board of Equiticorp Holdings in November 1987, a schedule headed "Summary of Exposures" (Exhibit 9D8334, page

30. included a reference to Unity Corporation, shown as owing a balance of $24 million against a limit of $30 million, the stated maturity date being 31.03.88. Mr Marcus Clark admitted that he put a ring around that item which appeared in a long column of entries to do with various borrowers.

114. In January 1988, Mr Marcus Clark attended a meeting of the board of directors of Equiticorp Holdings in New Zealand. The board papers include a memo from the chairman (Exhibit 9D8340) which included the observation:

"In two major falls this year, the New Zealand stock market has experienced its largest decline ever, and in fact has shown a decline greater than that at the time of the 1929 stock market crash. In particular, companies such as Equiticorp had been hard hit because they had been perceived to be investment companies."

115. The board papers indicate in other ways that the Equiticorp group was undergoing a difficult period.

116. Mr Marcus Clark made notes on the board papers. He made a list of various assets of the group which, after deducting goodwill, came to $325 million from which he wrote off $200 million, leaving a balance of $125 million. He agreed in evidence (T1371) that this was a "hard nosed estimate" of the net asset value of the Equiticorp group. He went on to say (T1372): "A. ... the reason why I did that calculation: because it was very important to me to not be associated with the company if I thought it was insolvent or could be seen to be insolvent. Q. So you had the usual concern of a director as to a company whose fortunes were looking down. A. Yes."

117. On the same agenda papers as those upon which Mr Marcus Clark noted his revised estimate of the net asset position of the Equiticorp group, he made a further note which reads (Exhibit 9D8340): "TMC Responsibilities

1. Bank - Protect against loss 5. Family """ 3. Wife """ 4. Alan - Advise - see him succeed 2. E - Responsible

• Prudent Mgt - Shareholder/Creditor/Staff 6. Self - Reputation - Protect

That series of notes, and Mr Marcus Clark's evidence as to the circumstances in which he made them (See his evidence at T1369-1374. At T1372 he said: "I tried to place my concerns about Equiticorp in my own personal scene"), make it clear that he entertained a high level of concern as to the position of the Equiticorp group in early 1988.

I am satisfied from that and other passages of evidence that Mr Marcus Clark well knew early in 1988, if not before, that the Equiticorp group was performing badly. Indeed, the concerns which he had as to the position of Equiticorp stemmed from November of 1987 (T1350. He said that the stock market crash of October 1987 had an immediate adverse effect on the Equiticorp group. Elsewhere (T1368) he agreed that the liquidity difficulties of the Equiticorp group were of "great magnitude").

By the February 1988 board meeting, he had formed the intention to resign, which he communicated to the chairman of directors, Mr Hawkins (T1358), who persuaded him to stay on for the time being (Mr Marcus Clark eventually resigned in August 1988).

Mr Clark maintained during the course of his cross-examination that the connection between Equiticorp and Oceanic did not occur to him when the question of the Oceanic acquisition first arose in December of 1987. I quote later a passage in his cross-examination (T1424) which throws considerable doubt upon that assertion. In any event, that denial does not stand analysis against his actions in seeking from Mr Boyte of Equiticorp a copy of a valuation of Oceanic. As will be seen, I do not accept that denial.

These matters must be considered against the background of Mr Clark's evidence that he was the only Australian director of Equiticorp Holdings. I have already referred to his particular role in watching investments by the company in Australia.

He said in cross-examination (T1425): "XXN Q. As soon as this deal was suggested, that is, the possibility of a sale of Oceanic, it occurred to you that there was a connection through the Carter group to Equiticorp because of the loan facility. A. Yes. Q. It was something with which you were obviously concerned, that is, the adequacy of security of debts for Equiticorp. A. Yes. Q. It is a fact that the Carter group or APA's asset - namely, Oceanic - was security for the debt had been brought to your attention in October/November of 1987. A. Yes."

In his statement given to the Auditor-General, Mr K.R. McPherson, enclosed with a letter from Mr Marcus Clark's solicitors dated 29 January 1992, appears the following passage (Exhibit 9D1220A): "At the time of the negotiations for the acquisition of Oceanic I would have been aware that Equiticorp had a loan facility in place with APA/ Unity. Equiticorp board approval of such a facility was invariably based on a

detailed submission, which I would have seen. Further, the monthly Equiticorp board reports included regular reporting

of the status of ... (error in translation - SCALE editor) ... siggnificant amount, given his estimation of the net asset worth of the Equiticorp group of $125 million.

Mr Marcus Clark's family investment in Equiticorp was not insubstantial. His estimate given during the course of evidence was that after the 1987 share market crash, the shares, of which his family held 500,000, were trading at "around about a dollar" (T1430).

Added to the matters to which I have referred is the evidence which I have accepted as to the pressure which he brought to bear upon Mr Macky and Mr Copley to complete the Oceanic acquisition. Of further note was the haste with which that exercise was proceeded with when APA's interest in the proposed transaction was revived in mid-March.

The firm conclusion to which I am drawn is that Mr Marcus Clark deliberately withheld from the board, from the executive committee and from the other officers of the bank with whom he was dealing the existence of the conflict of interest in which he was placed. That conflict arose by reason of his position as a director and shareholder of Equiticorp Holdings, and his position as a director and chief executive officer of the bank.

In the former capacity he was concerned to ensure the timely repayment of the approximately $27 million owed by APA to Equiticorp Holdings subsidiary, Equiticorp Australia, knowing that APA had liquidity problems. That concern conflicted with his duty as a director of the bank to ensure that the acquisition of the Oceanic shares proceeded in a truly arm's length fashion, after proper investigation of the value of the shares to be acquired.

Of course, his duty extended not only to disclosing the conflict in which he was placed, but also to refrain from taking part in the deliberations which led to the decision to proceed with the acquisition. It also extended to making full disclosure of his position to the Treasurer, when application was made to the Treasurer for the latter to give his approval pursuant to s19(7) of the Act.

I would not go so far as to find that he was necessarily aware that the shares to be acquired were not worth the money which the bank agreed to pay for them. He may well have thought that they represented value for money. But that is nothing to the point. To find that he knew that the shares were not worth the purchase price would be to transform the breach of fiduciary duty which, as will be seen, I find he committed, into dishonesty. The bank does not allege dishonesty.

In what is described as a supplementary statement to the Auditor-General given in January 1992 (Exhibit 9D1220A), Mr Marcus Clark said: "At the time of the negotiations for the acquisition of Oceanic I would have been aware that Equiticorp had a loan facility in place with APA/Unity. Equiticorp board approval of such a facility was invariably based on a detailed submissions, which I would have seen ...

As I recall, the loan facility to APA/Unity was adequately secured and provided a good yield to Equiticorp as lender ...

At the time, I did not perceive a conflict of interest between my role as an Equiticorp director and a State Bank CEO/director for the simple reason that, given that Equiticorp was not at risk and would be repaid its debt one way or another, the acquisition by SBSA of Oceanic did not assist Equiticorp in any way that brought it into conflict with the interests of State Bank. In hindsight, I acknowledge (as I did in evidence at page 8) that there was a technical conflict of interest which should have been disclosed to the board. I note that Messrs Macky and Copley were aware of the Equiticorp debt prior to settlement of the Oceanic transaction, and as they did not mention this fact in any of the board papers, I can only assume that they also failed to appreciate that this technical conflict should have been disclosed. I believe that State Bank records will show that we at State Bank were particular about disclosing potential conflicts, and this was certainly my own personal philosophy. There was no secret at State Bank about my involvement with Equiticorp, which was well known to the board and to senior management.

I note that I passed on to Mr Macky the complete letter from Murray Boyte which is on an Equiticorp letterhead, and obviously I would have advised Mr Macky of the Equiticorp involvement. I would (respectfully) suggest that handing over the Equiticorp letter from Boyte is inconsistent with any view that I was trying in some way to disguise the Equiticorp connection. That was never my style, and in any event, any such subterfuge would have been futile - as is evidenced by the fact that Messrs Macky and Copley became aware of the Equiticorp charge over the APA/Unity assets.

It seems (again with respect) that any suggested conflict is technical - so long as the State Bank board was aware of the material facts. In this connection the relevant material fact was that APA/Unity was obliged to repay a substantial debt in March 1988 which it was unable to do without selling assets of one sort or another. That fact was clearly and fully disclosed to the State Bank board."

In the first place, the observation made in the earlier extract which I have cited from the statement, "I would have been aware that Equiticorp had a loan facility in place with APA/Unity", does not indicate the full state of his awareness. I am satisfied for the reasons which I have already given that he knew that APA owed Equiticorp Australia of the order of $27 million and that it was due to be repaid on 31 March 1988.

As to the observation "As I recall, the loan facility to APA/Unity was adequately secured and provided a good yield to Equiticorp as lender", again, I am satisfied for the reasons already expressed by me that he was aware that part of the security given by APA to Equiticorp Australia was a charge over the Oceanic shares. He may have thought that the security was adequate, but there is a significant difference between having adequate security and obtaining timely payment. Absent some injection of funds into APA such as would arise from a purchase of the Oceanic shareholding by the bank, he was aware that there were difficulties in ensuring timely payment by APA of its indebtedness to Equiticorp.

He says, "Approval of such a facility was invariably based on a detailed submission". He also indicated that he contacted Murray Boyte to ask for a copy of any valuation of Oceanic assets "because such valuations are routinely obtained prior to advancing money to any client". Together, these support other evidence in the case which leaves me in no doubt that he was aware that a charge over the Oceanic shares was part of the security offered by APA to Equiticorp Australia. It is hardly likely that a "detailed submission" in support of the approval of a loan facility would fail to identify the subject matter of the security which was being offered. And it is equally inconceivable that some attempt would not have been made by Equiticorp to value the security.

As I have already found, I do not think that he contacted Murray Boyte to ask "if he had any valuations" of Oceanic, but to obtain a copy of the valuation which he knew was in the latter's hands. That this was so is borne out by his evidence given before the Royal Commission, which he admitted to having given during the course of his cross-examination before me. He said in evidence before the Royal Commission that when he spoke to Murray Boyte his words were, as best as he could then recollect, "I seem to recall you have a valuation. Would it be proper for the bank to have access to that valuation?" (T1428).

He asserts that "at the time I did not perceive a conflict of interest between my role as an Equiticorp director and a State Bank CEO/director".

What he says in that part of his statement to the Auditor-General may be contrasted with the following passage in his evidence (T1424): Q. Quite clearly, if you sat back and thought about it in

October 1987, you would have realised that the interest of APA in Oceanic - that is, its asset Oceanic was part of the

security factor for Equiticorp. Do you agree. A. Yes. Q. So if you had thought about it in February or March of 1988, if you had thought about it or gone back in your papers, you would have known or realised that the vendor of Oceanic had to settle with Equiticorp as part of its deal. A. Yes."

Notwithstanding that passage of evidence, he went on to say that those matters did not occur to him when the possibility of the Oceanic acquisition arose in December of 1987. I do not accept that evidence. The overwhelming weight of evidence is in favour of the view that Mr Marcus Clark was well aware all along both of the Equiticorp Australia involvement with APA and the existence of the security afforded by the charge over the Oceanic shares.

The words in his statement that he "did not perceive a conflict of interest" because he thought that Equiticorp was not at risk, sidesteps the question of timely payment by APA to Equiticorp. I am satisfied that he was well aware of the fact that the chances of APA repaying the debt on time to Equiticorp Australia would be enhanced by the proposed transaction.

When he says in the statement that he noted that "Messrs Macky and Copley were aware of the equity debt prior to settlement of the Oceanic transaction", I am satisfied on the evidence before me that their first knowledge of it was only immediately prior to settlement on 31 March 1988. Their evidence makes it clear that such knowledge did not exist at the time when the critical decisions were being made by the executive and by the board.

Mr Copley's evidence was (T1156): "Q. ... What was the first knowledge you had of any involvement of an Equiticorp entity. A. About two days or three days prior to 31 March when I was in Sydney for ... the arranging of a settlement, and Freehills, who were acting for the vendor, advised this was the way they wanted the cheques to be drawn. Q. At that time - that is, in February/March of 1988 - were you aware of any interest that Mr Clark or his family held

He went on to say that it was some time later before he became aware that Mr Marcus Clark or his family had an interest in Equiticorp.

Mr Macky's evidence was that although he was aware in February or March of 1988 that Mr Marcus Clark was a director and shareholder in Equiticorp, he was "absolutely not" aware of the debt to Equiticorp prior to settlement on 31 March 1988. Nor was he aware before that time that part of the proceeds of the sale were to go to Equiticorp (T1257).

I am prepared to accept that there were previous dealings between the bank and Equiticorp which resulted in an awareness amongst the board of directors, or at least some of them, of Mr Marcus Clark's involvement with Equiticorp. But there is no evidence upon which I could be satisfied that any member of the board was aware of Equiticorp Australia's involvement with APA or that any part of the consideration for the purchase of the Oceanic shares would be diverted to any member of the Equiticorp group.

When Mr Marcus Clark acknowledges "in hindsight ... that there was a technical conflict of interest which should have been disclosed to the board", the word "technical" understates the importance of the matter. Indeed, the whole of the statement to the Auditor-General reads as though it is a carefully edited account designed to sanitise Mr Marcus Clark's involvement in the transaction.

On the whole of the evidence, I am satisfied that Mr Marcus Clark well knew of the conflict and deliberately did not disclose the conflict to the board, the executive and to the bank officers with whom he was dealing, and did not refrain from voting in favour of the transaction, when he well knew that he was duty bound to do both of those things. I can only assume that his motive in doing so was in order to avoid raising a matter which might have stood in the path of the acquisition proceeding. Strictly, however, the question of his motive is irrelevant (I refer later to the passage in the judgment of Mason J in the Hospital Products case 156 CLR at 103 where he observed that the existence of a breach of the conflict rule "excludes the relevance of an inquiry into the actual motives of the fiduciary").

NEGLIGENCE 147. Recent appellate decisions in Australia have gone a long way towards clarifying and re-expressing the duty of care owed by directors of a company vis a vis the company in terms more closely reflecting contemporary attitudes. Notable amongst those decisions is that of the Court of Appeal of New South Wales in Daniels and Ors v AWA Ltd (1995) 16 ACSR 607 and that of the Full Court of the Supreme Court of Western Australia in Permanent Building Society (In Liq) v Wheeler and Ors (1994) 14 ACSR 109.

Early formulations of the scope of directors' duties which refer to a requirement to exercise a level of skill not greater than might reasonably be expected from persons with the director's knowledge and experience (Lagunas Nitrate Co v Lagunas Syndicate (1899) 2 Ch 302 per Lindley MR at 435) have been displaced by a more objective formulation expressed as a "general requirement that they exercise reasonable care in the performance of their office" (The AWA case (supra) per Clarke and Sheller JJA at 668).

This does not mean that the particular experience or skills which a director has or holds himself or herself out as having, should not be taken into account.

The predominantly objective requirement now imposed by the law finds expression in s232(4) of the Corporations Law which requires an officer of the corporation, which expression includes a director, to exercise "a reasonable degree of care and diligence in the exercise of his or her powers and the discharge of his or her duties".

In this case, the Corporations Law is not of application as the bank is not a corporation to which the Corporations Law applies. Furthermore, I am dealing here with the duty of care owed by an executive director rather than that owed by a non-executive director. Mr Marcus Clark was both managing director and chief executive officer.

Although the Corporations Law is not of application, counsel for the plaintiffs pointed to the statutory provisions such as s16(2) of the State Bank of South Australia Act 1983 (Pursuant to which the chief executive officer is, subject to the control of the board, responsible for the management of the bank) and s15(2) (Pursuant to which the board is to administer the bank's affairs in accordance with accepted principles of financial management and with a view to achieving a profit). He submitted that these provisions oblige the chief executive officer of the bank to answer to a standard of care and competence in the discharge of his or her duties no lower than, and possibly higher than, that owed by the chief executive officer of a company incorporated under the Corporations Law.

The plaintiffs also drew attention to the service agreements signed by Mr Marcus Clark pursuant to which he undertook to "diligently and faithfully serve" the bank in the capacity of its chief executive officer (Exhibits 9D1 and 9D6).

In my opinion, the nature and scope of the duties owed by Mr Marcus Clark were no less onerous than those which would be owed by an officer holding a similar position in a company incorporated under the Corporations Law.

A most helpful discussion of the division of function and responsibility between non-executive directors, executive directors and the chief executive officer appears in the judgment of Rogers CJ, Comm D in the AWA case at first instance when he said ((1992) 10 ACLC 933 at 1014): "Another division of function is between non-executive directors and the chief executive officer or managing

director. Generally, a Chief executive is a director to whom the board of directors has delegated its powers of management of a corporation's business. Usually the Chief Executive is employed under a contract of service which will either include an express term or, in the absence of an express term, an implied term that the chief executive will exercise the care and skill to be expected of a person in that position. The degree of skill required of an executive director is measured objectively."

In determining the level of care and skill which might fairly have been expected of Mr Marcus Clark in discharging his duties with respect to the Oceanic acquisition, rather than having regard to the statutory provisions which applied to his office, or the terms of his contract of service which defines his duties only in the most general terms, it is more important to have regard to the realities and practicalities of the position which he held.

As the chief executive officer and managing director of a large bank, he was obliged to bring to bear an appropriate level of skill having regard to the responsibilities which that office entailed. No doubt, as is the case with all large corporations, it was necessary for him to delegate responsibility for the operation of different functions of the bank, in circumstances where no further oversight could be expected. But he must unquestionably be regarded as responsible for the overall control of the operations of the bank, both in a day to day sense and in giving effect to the broader policies spelt out in the Act and by the board of directors.

Furthermore, it is clear that the board of directors looked to him and relied upon him not only to provide to the board full and accurate information as to all of the matters which it was proper for the board to consider, but to see to it that any specific decisions of the board were implemented in a way which did not expose the bank to unnecessary risk.

Although the administration of the bank's affairs was to be "in accordance with accepted principles of financial management and with a view to achieving a profit" (S15(2) of the Act), this did not mean that in its pursuit of profit either the board or the chief executive officer could properly expose the bank to unnecessary risks.

There is no question but that the requirements of his office imposed upon Mr Marcus Clark a duty to act in accordance with the highest standards of competence and integrity applicable to the banking industry.

Here the bank was contemplating a share acquisition involving a consideration of up to $60 million. Mr Macky agreed in evidence that during his time with the bank, there had never been a purchase of that magnitude before (T1242). Mr Copley's evidence was that he had never been associated with an acquisition involving $50 million before (T1194). Mr Marcus Clark acknowledged more than once during the course of his evidence that the Oceanic acquisition was an important issue or matter.

Mr Marcus Clark took in hand the supervision of the steps taken towards the acquisition, and was personally involved in the transaction from beginning to end. He gave the instructions for each step to be taken, and was responsible for placing the material relating to it before the board of directors.

Reliable information as to the value of the entity to be acquired was central to the task. Mr Marcus Clark's own evidence was (T1438): "Q. The value that might be ascribed by an independent valuer to an entity is of fundamental importance, is it not, in a consideration of the purchase of an entity such as Oceanic. A. Yes. Later, he said (T1447. And see also T1452): "Q. Do you agree that in order to carry out that part of your duty to ensure that the price was fair and reasonable in all the circumstances that you, in fact, needed an independent valuation by an independent actuary/accountant who was qualified to do so. A. Yes."

When he said (T1453) that he thought that an independent valuation had occurred, I do not believe him. If he had thought so, the first thing one might expect him to do would be to ascertain what value had been given. There is no evidence from any source that he ever made such an enquiry.

Elsewhere, he observed that if he had known that the value was as low as that ascribed to the shares by Mr Coleman, he would not have advised the board to go ahead with the purchase (T1435).

The importance of an independent valuation was recognised in the resolution of the board of directors of 17 February 1988 which required, inter alia, "a satisfactory independent valuation by consulting actuaries and accountants".

This was never done. It is no answer to say that the terms as finally approved by the board did not require it to be done, or that in the rush to have the transaction completed before 31 March 1988 there was insufficient opportunity for it to be done.

In the first place, there was time for such a valuation to be performed. Even if the bank might have been hard pressed to have it done by 31 March (even this is a dubious proposition. Mr Hughes and Mr Pitcher had already done some work, and Mr Coleman's estimate of a fortnight for a due diligence enquiry, which I refer to later, was presumably an estimate applicable to accountants working from scratch), the date for settlement of APA's debt to Equiticorp Australia was not written in stone. There was no reason to think that some short postponement of the obligation to repay could not have been negotiated on commercial terms, particularly if Equiticorp could be satisfied that there was a genuinely interested purchaser of the Oceanic shareholding at a figure more than sufficient to cover the amount due.

In any event, while the bank was no doubt a willing purchaser and while there were reasons of synergy why the acquisition of a business enterprise such as that conducted by Oceanic was consistent with the strategic long term objectives of the bank, it was under no compulsion to buy.

The plain fact of the matter is that it should not have proceeded with the purchase without a satisfactory independent valuation being first obtained. Responsibility for the failure to obtain such a valuation rests with Mr Marcus Clark. His failure to see to this basic requirement was negligent. The bank is entitled to recover damages against him for that negligence, subject only to the considerations which arise with respect to s29 of the Act. I come to those in due course.

BREACH OF FIDUCIARY DUTY 171. It is an elementary principle of law that a director of a company is in the position of a fiduciary: see Australian Growth Resources Corporation Pty Ltd (Receivers and Managers Appointed) v Van Reesema and Ors (1988) 13 ACLR 261 at 268, (1988) 142 LSJS 164 at 172 per King CJ: "The relationship of a director to the company is fiduciary in character."

It is equally clear that the existence of the fiduciary relationship may give rise to an equitable duty of care on facts which at the same time give rise to a tortious duty of care (Permanent Building Society (In Liquidation) v Wheeler and Ors (1994) 14 ACSR 109 per Ipp J at 156).

In the Permanent Building Society case Ipp J observed: "It is essential to bear in mind that the existence of a fiduciary relationship does not mean that every duty owed by a fiduciary to the beneficiary is a fiduciary duty. In particular, a trustee's duty to exercise reasonable care, though equitable, is not specifically a fiduciary duty: Equity Doctrines and Remedies, 3rd Ed, Meagher Gummow and Lehane 131. Similarly in my opinion, a director's duty to exercise reasonable care, though equitable (as well as legal) is not a fiduciary obligation." ((1994) 14 ACSR 109 at 157: see also at 158)

However, even accepting that analysis, the nature of Mr Marcus Clark's relationship with the bank was such that true fiduciary duties, that is, fiduciary duties other than the duty to exercise care and skill, arose. He was obliged to exercise the "powers and discretions conferred upon him bona fide in the interests of and for the benefit of the company as a whole" (See Australian Growth Resources Corporation Pty Ltd (Receivers and Managers Appointed) v Van Reesema and Ors (1988) 13 ACLR 261 per King CJ at 268, 142 LSJS 164 at 172, citing Richard Brady Franks Ltd v Price [1937] HCA 42; (1937) 58 CLR 112 per Latham CJ at 135). While traditional formulations of the rule are to the effect that the fiduciary may not place himself or herself in a situation where his or her duty and his or her interest conflict, it was observed by Mason J in Hospital Products Ltd v United States Surgical Corporation and Ors that ((1984) [1984] HCA 64; 156 CLR 41 at 103): "... the fiduciary's duty may be more accurately expressed by saying that he is under an obligation not to promote his personal interest by making or pursuing a gain in circumstances in which there is a conflict or a real or substantial possibility of a conflict between his personal interests and those of the persons whom he is bound to protect: Aberdeen Railway Co v Blaikie Bros (1854) 1 Macq 461 at 471. By linking an obligation not to make a profit or take a benefit to a situation of conflict or possible conflict of interest the proposition, in accordance with the authorities, (a) excludes the relevance of an inquiry into the actual motives of the fiduciary; and (b) excludes restitutionary relief when the interest of the fiduciary is remote or insubstantial. ..."

There may, of course, be conflicting fiduciary duties where the director is a director of more than one company. In R v Byrnes and Ors ((1995) [1995] HCA 1; 130 ALR 529. See also Commonwealth Bank of Australia and Anor v Smith and Anor [1991] FCA 375; (1991) 102 ALR 453), two respondents to an appeal to the High Court were charged under s229(4) of the Companies (South Australia) Code which made it an offence for an officer of a corporation to make "improper use of his position as such an officer" to gain a direct or indirect advantage for himself or for any other person "or to cause detriment to the corporation".

The respondents Byrnes and Hopwood were both directors of two companies, Magnacrete Ltd and Jeffcott Investments Ltd. The following passage in the joint judgment of Brennan, Deane Toohey and Gaudron JJ is apposite (130 ALR at 540): "Each of Byrnes and Hopwood was in a position of conflicting fiduciary duties: they were directors of both Magnacrete and Jeffcott. The interests of those companies did not necessarily coincide. ... A company is entitled to the unbiased and independent judgment of each of its directors (Imperial Mercantile Credit Association v Coleman (1871) LR 6 Ch App 558 at 567-8; Victors, Ld (in liq) v Lingard (1927) 1 Ch 323 at 330; Richard Brady Franks Ltd v Price [1937] HCA 42; (1937) 58 CLR 112 at 137). A director of a company who is also a director of another company may owe conflicting fiduciary duties (Ford v Andrews [1916] HCA 29; (1916) 21 CLR 317 at 322). Being a fiduciary, the director of the first company must not exercise his or her powers for the benefit or gain of the second company without clearly disclosing the second company's interests to the first company and obtaining the

first company's consent. Nor, of course, can the director exercise those powers for the director's own benefit or gain

without clearly disclosing his or her interest (Liquidators of Imperial Mercantile Credit Association v Coleman (1873) LR 6 HL 189 at 205-7) and obtaining the company's consent (Chan v Zacharia [1984] HCA 36; (1984) 154 CLR 178 at 198, 204; [1984] HCA 36; 53 ALR 417; Hospital Products Ltd v United States Surgical Corp [1984] HCA 64; (1984) 156 CLR 41 at 103-4; [1984] HCA 64; 55 ALR 417). A fiduciary must not exercise an authority or power for the personal benefit or gain of the fiduciary or a third party (By "third party", we mean a party whose interests are not coincident with the interests of the fiduciary's beneficiary) to whom a fiduciary duty is owed without the beneficiary's consent."

Here, Mr Marcus Clark, as a director of Equiticorp Holdings and as a director of the bank, owed duties to two companies (or, more accurately, a company and a statutory corporation) whose interests did not necessarily coincide.

Equiticorp Holdings had an interest in securing the timely repayment by APA of the $27 million loan by Equiticorp Australia to APA. The bank, on the other hand, had an interest in acquiring the Oceanic shares owned by APA at a price which was not excessive after a proper valuation could be made and considered.

Mr Marcus Clark owed a duty to ensure that no more was paid by the bank to APA, if a transaction for the acquisition of the shares was to proceed, than they were worth. However, as a director of Equiticorp Holdings, he had an interest in securing a position where the bank paid to APA before 31 March 1988 the highest amount which it could be persuaded to pay for the Oceanic shares. The larger the payment to APA, the more effective would be the enhancement of APA's ability to discharge the loan due by it to Equiticorp Australia.

The potential conflict in the discharge of the fiduciary duties owed to each company was magnified by reason of the holding by Mr Marcus Clark's family of 500,000 shares in Equiticorp Holdings, which gave rise to an indirect pecuniary benefit in circumstances where a substantial cash payment was to be made to one of Equiticorp Holdings's subsidiaries.

This combination of circumstances obliged Mr Marcus Clark, if he was to discharge his fiduciary obligations to the bank, at the very least, both to disclose to the board the position in which he was placed and the fact that Equiticorp stood to gain from any payment to APA. Furthermore, it obliged him to refrain from voting at the meetings of the board of directors at which the matter was considered. Those meetings were the meetings of the board of directors on 17 February, 25 February and 24 March 1988.

It is convenient at this stage to address the question whether there is anything in s11 of the Act which impacts on the findings which otherwise it is appropriate to make with respect to the existence of a fiduciary relationship between Mr Marcus Clark and the bank and his duty of disclosure.

S11 provides: "(1) Subject to subsection (2), a Director who has a direct or indirect pecuniary interest in a proposal before the Board- (a) shall, as soon as he becomes aware of the proposal, disclose the nature of his interest to the Board; and (b) shall not take part in any deliberations or decision of the Board with respect to that proposal.

(2) No disclosure is required under subsection (1)- (a) in respect to an interest that arises by virtue of the fact that the Director is a customer of the Bank (being an

interest that is shared in common with other customers of the Bank); or (b) in respect of an interest- (i) that arises by virtue of the fact that the Director has a shareholding (not being a substantial shareholding within the meaning of Division 4 of Part IV of the Companies (South Australia) Code) in a public company; and (ii) that is shared in common with the other shareholders in that company.

(3) A Director who fails to comply with subsection (1) is guilty of a summary offence and liable to a penalty not exceeding five thousand dollars.

(4) A disclosure made under this section shall be recorded in the minutes of the Board.

(5) Where a Director discloses his interest in a transaction under this section, or his interest in a transaction is not such as need be disclosed under this section- (a) the transaction is not liable to be avoided on any

ground arising from the fiduciary relationship between the Director and the Bank; and (b) the Director is not liable to account for profits derived from the transaction."

There is no doubt that Mr Marcus Clark had, within the meaning of ss(1) "a direct or indirect pecuniary interest in a proposal before the board". No point was taken over the fact that the 500,000 Equiticorp shares in question were part of a "family" holding, and that the precise number actually held in Mr Marcus Clark's name was not disclosed in the evidence. The case was argued on the footing that whatever consequences flow from that shareholding are attributable to Mr Marcus Clark.

Furthermore, to the extent that Equiticorp Australia was the immediate beneficiary of the payment due from APA, it enured for the benefit of Equiticorp Holdings having regard to the fact that Equiticorp Australia was a wholly owned subsidiary, albeit through an intermediate company, Equiticorp Finance.

Given that for those reasons ss(1) is of potential application, the question which must then be addressed is whether or not ss(2) operates to extinguish the obligation to make disclosure.

I mention in passing that although ss(2) appears to be directed only to the question of "disclosure", if ss(2) was otherwise of application, I have no doubt that it should be construed so as to displace as well the prohibition against taking part in any deliberation or decision which might otherwise be imposed by reason of ss(1)(b).

I make the further comment that to give sensible operation to s11 as a whole, it should be read as a code applicable to the procedure to be followed where a director has a direct or indirect pecuniary interest. I say that in the sense that if ss(2) was to operate so as not to require a disclosure in the circumstances postulated in that subsection, no obligation to disclose should be regarded as arising out of any other rule of law, such as the rule applying to fiduciaries. Importantly, however, that is so only where any such obligation might be thought to arise simply by reason of a "direct or indirect pecuniary interest" in a proposal before the board.

I proceed from those preliminary observations to address ss(2).

As to ss(2)(b), no submission was made that Equiticorp Holdings, notwithstanding the fact that it was incorporated in New Zealand, is not a "public company" within the meaning of the subsection. Furthermore, it was not contended that Mr Marcus Clark's family shareholding was not a shareholding "shared in common with the other shareholders" in Equiticorp Holdings.

As to his remuneration as a director of companies in the Equiticorp group, Mr Marcus Clark's evidence was that from memory, he received what I presume to be annual fees of $NZ20,000, with possibly an additional fee for his directorship of Equiticorp Tasman Ltd (T1429). Mr Martin QC of counsel for the bank contended that Mr Marcus Clark's entitlement to director's fees from Equiticorp Holdings gave him a "direct or indirect pecuniary interest" in the proposed acquisition. Mr Howard of counsel for Mr Marcus Clark contended on the other hand that the director's fees did not amount to a sum which could fairly be described as a "pecuniary interest" in the outcome of the proposed acquisition of a large public company.

I am not sure that even a relatively insignificant pecuniary interest can be disregarded for this purpose. But even if it can, the question whether there was a "pecuniary interest" substantial enough to be regarded as within the subsection is not to be determined by reference to the size of that pecuniary interest taken in comparison with the scope of the trading operation of Equiticorp. Rather, whether or not it is an insignificant amount must be looked at from the position of the director to whom the section is otherwise of application.

Viewed in that light, the director's fees were not so small as to fall short of constituting a "pecuniary interest" for the purposes of the application of the section.

At one stage, Mr Howard seemed to be suggesting that in the case of a director remunerated by fees, there would only be a "pecuniary interest" if the receipt of the fees would in some way be better secured if the proposed transaction went ahead. I am by no means satisfied as to the soundness of that process of reasoning. I think that the mere receipt of director's fees, standing apart from any other considerations, is enough to give a director an indirect pecuniary interest in the proposal not "shared in common" with the other shareholders. But even if more has to be proved, the risk of non-payment of director's fees could not be ignored in the case of a company in the position in which Mr Marcus Clark thought it to be when he made the notes as to his concerns as to its position in January 1988.

Not without some hesitation, I come to the conclusion that his receipt of director's fees serve to displace the operation of ss(2). Receipt of any director's fees must lead to the conclusion that the pecuniary interest which Mr Marcus Clark had in the proposal being considered by the board of the bank was not "shared in common with the other shareholders" within the meaning of s11(2)(b)(ii).

Even if I was to be wrong in that conclusion, it seems to me that for other reasons there was an obligation to disclose his interest and to refrain from taking part in the decision of the board, whatever construction of s11 is adopted.

S11 is only of application in circumstances where there is a pecuniary interest of the nature referred to in the section. It has no application to any duties which might arise by reason of other circumstances.

Mr Marcus Clark's position as a director of Equiticorp Holdings, quite apart from his family's shareholding in that company, when considered in conjunction with his position as a director of the bank, gave rise to conflicting fiduciary duties of the kind which I have already described. Those conflicting fiduciary duties were an independent source of an obligation of disclosure and of an obligation to refrain from voting. On no construction of s11 could obligations arising in those circumstances be regarded as being extinguished by reason of the operation of that section.

It follows that s11 does not operate to prevent the conclusion, being a conclusion compelled by the findings which I have made, that in acting as he did, Mr Marcus Clark was in breach of the fiduciary obligations which he owed to the bank.

The observations which I have made as to s11 lead to the conclusion that Mr Marcus Clark was not excused from the necessity to disclose his interest and refrain from voting. Furthermore, he must be regarded as in breach of the section.

This consideration led Mr Martin QC to submit that a breach of the section created a separate course of action, apart from negligence and equitable remedies following breach of fiduciary duties. He did not, however, read any authorities dealing with the circumstances in which breach of a statutory provision of this kind gives might to a civil cause of action, although a reference to some of the authorities was made in passing. Mr Howard for Mr Marcus Clark made no submissions on this aspect of the matter.

It will be seen that I find for the plaintiffs in both negligence and in equity for breach of fiduciary duties. In those circumstances, it is unnecessary to determine the civil consequences of a breach of s11, which is a difficult question best kept for decision in a case where it is fully argued.

I deal with the question of the relationship between a finding of a breach of s11 and the question of "good faith" for the purposes of s29, when I come to consider the latter section.

The remaining question is whether the liability which otherwise attaches to him by reason of that finding is extinguished by reason of the operation of s29 of the Act. I come to that question now.

THE CONSTRUCTION AND APPLICATION OF S29 OF THE ACT 206. The section provides as follows: "(1) No liability attaches to a Director or other officer of the Bank for an act or omission done or made, in good faith, and in carrying out, or purporting to carry out, the duties of his office.

(2) Any liability that would, but for subsection (1), attach to a Director or other officer of the Bank shall attach instead to the Bank."

It became necessary for me to consider during the course of the pre-trial proceedings in the case some aspects as to the construction and application of the section. The question arose in the context of an application to strike out the statement of claim brought by the then ninth defendant FAI.

Put shortly, FAI contended that the statement of claim did not plead matters which would enable the plaintiffs to circumvent the immunity from liability attaching to acts or omissions of the directors by reason of s29. The plaintiffs advert to the section in paragraph 46 of the statement of claim which reads: "In the premises Barrett, Simmons, Bakewell, Byrne, Nankivell, Searcy, Simmons and Marcus Clark did not act in good faith within the meaning of s29 of the Act and are not entitled to any immunity pursuant to that section."

The persons named as well as Mr Marcus Clark were co-directors of the bank.

The argument put in support of the application for an order that the statement of claim be struck out, was advanced against the background of the fact that the plaintiffs neither asserted in the statement of claim that the directors, including Mr Marcus Clark, had with respect to the transaction in question acted dishonestly, or pleaded facts from which a conclusion of dishonesty could be made. FAI contended that in those circumstances the plaintiffs could not succeed.

The steps in the reasoning said to support that proposition were: 1. The onus was on the plaintiffs to prove that the directors were not entitled to the protection otherwise afforded by s29.

2. The absence of good faith is the same thing as bad faith (Counsel for FAI cited Megan LJ in Cannock Chase DC v Kelly (1978) 1 All ER 152 at 156 and Kekewich J in Mogridge v Clapp (1892) 3 Ch 383 at 391 in support of that proposition. See (unreported) judgment No. 4650 at 15).

3. If the plaintiffs do not assert in the statement of claim facts which could support a conclusion of bad faith and eschew any reliance upon an argument that the directors acted in bad faith, they could not discharge the onus of proving that the protection otherwise afforded by s29 did not avail the directors.

In dismissing the application and upholding the statement of claim, while I accepted the argument that the onus was on the plaintiffs to prove that the directors did not act in good faith within the meaning of s29, I held that in order to discharge that onus it was not necessary for the plaintiffs to prove that the directors acted in bad faith, that is, dishonestly.

In reaching that conclusion, I distinguished authorities which FAI relied upon in which judicial dicta might be thought to support the view that "good faith" or "bona fides" could be equated with an absence of bad faith or an absence of "malafides". I observed that those authorities concerned: "... different statutory contexts and did not involve the conduct of directors of a corporation, as to which equitable principles relating to fiduciaries are more analogous. The defendants' contention would involve a rewriting of s29(1). The section does not speak of bad faith, only of good faith. It does not say that liability attaches to a director acting in bad faith. On the contrary, it shields a director from liability with respect to acts or omissions done or made in good faith. The distinction is critical. It has always been the law that in equity a director who exercises his or her powers improperly, that is, for a purpose alien to the purposes for which the power was endowed, may be held to be acting other than bona fide or other than in good faith, even in circumstances in which the director may, in his or her own mind, be acting honestly."

In support of that passage, I referred to a passage in the judgment of King CJ (with whose judgment Cox J agreed) in Australian Growth Resources Corporation Pty Ltd (Receivers and Managers Appointed) v Van Reesema and Ors (1988) 13 ACLR 261 at 268. In that case, King CJ held that a "primary consequence" of the fact that the relationship of a director to a company is fiduciary in character is that the director was bound to exercise the powers and discretions conferred upon him or her "bona fide in the interests of and for the benefit of the company as a whole". He further held that "a fiduciary may be in breach of his fiduciary duties notwithstanding the subjective honesty of his motives" (at 270, citing the well known passage in the judgment of Viscount Haldane LC in Nocton v Lord Ashburton (1914) AC 932 at 954 dealing with equitable fraud or "fraud on a power"). He said (at 271): "A man may misconceive the extent of the obligation which a court of equity imposes on him. His fault is that he has violated, however innocently because of his ignorance, an obligation which he must be taken by the court to have known, and his conduct has in that sense always been called

While conceding that the concept of "good faith" for the purpose of determining the application then before me "must be construed in the context of s29 of the Act and not necessarily in the context of equitable fraud", I went on to observe: "... as I have said, it seems to me that within the statutory context the words must take their colour from the fact that their subject matter is the duty owed to the bank by the directors and other officers of the bank. The fact that good faith normally entails more than honesty in such a context is well entrenched in the law. It would be wrong to construe the section other than with that distinction in mind." (Unreported judgment No. S4650, 8 July 1994, page 190)

I found further support for that conclusion in the decision of the Full Federal Court in Mid Density Developments Pty Ltd v Rockdale Municipal Council [1993] FCA 408; (1993) 116 ALR 460. That case concerned the construction to be given to the exclusion of liability which otherwise might have been imposed on a local government body, having regard to provisions in the Local Government Act 1919 (NSW).

S582A(1) of that Act provided in part: "A council shall not incur any liability in respect of: (a) any advice furnished in good faith by the council relating to the likelihood of any land being flooded, or the nature or extent of any such flooding; ..."

It was held in that case that the question whether the notion of good faith embraces more than honesty will depend upon the statutory context, and that the statutory context there in question called for more than "honest ineptitude".

From that case I then cited a passage in the judgment of the Full Federal Court which, although lengthy, contains a number of observations pertinent to a consideration of the meaning of the words "good faith". I set it out again (468): "'Good faith' in some contexts identifies an actual state of mind, irrespective of the quality or character of its inducing causes; something will be done or omitted in good faith if the party was honest, albeit careless. See, for example, Smith v Morrison (1974) 1 WLR 659. (Abstinence from inquiry which amounts to a wilful shutting of the eyes may be a circumstance from which dishonesty may be inferred: Jones v Gordon (1877) 2 App Cas 616 at 625; English and Scottish Mercantile Investment Co Ltd v Brunton (1892) 2 QB 700 at 707-8; The 'Zamora' (No 2) (1921)1 AC 801 at 803, 812.) On the other hand, 'good faith' may require that exercise

of caution and diligence to be expected of an honest person of ordinary prudence. This, counsel urged, was what was required by the present statutory context. The appellant then submitted that there was a plain absence of good faith in this sense on the part of the respondent.

In Siano v Helvering 13 F Supp 776 at 780 (1936), Clark J said that the words 'good faith' or their Latin equivalent appear frequently in the law and are capable of, and have received, what he described as 'two divergent meanings'. The first was the broad or subjective view which defines them as describing an actual state of mind, irrespective of its producing causes. The other construed the words objectively by the introduction of such concepts as an absence of reasonable caution and diligence. In the instant case, the court had under consideration a regulation promulgated by the Commissioner of Internal Revenue which used the expression 'failure in good faith to observe and comply with the requirements of all Internal Revenue and other laws relating to any operations under his permit'. The appellant asserted that he had never heard of a particular tax which he had failed to pay. The court said (at 781): 'The government could and perhaps for the completeness of the record should have introduced evidence of the fame (or notoriety, as we said before) of the tax. Even in the absence of such evidence, we think the permittee was under a duty to make inquiry. We place that upon two factors: The nature of taxes, and the lapse of time. Three years and a tax universal to his trade call, in our opinion, for some curiosity. No attempt to satisfy that curiosity smacks to us too much of the ostrich and proportionately too little of good faith.'

See also Lucas v Dicker (1880) 6 QBD 84 at 88; Re Dalton (a Bankrupt); Ex parte Herrington and Carmichael (a firm) v Trustee (1963) Ch 336 at 354-5; Rumsey v R (1984) 5 WWR 585 at 592-3. These cases illustrate that, in a particular statutory context, a criterion of 'good faith' may go beyond personal honesty and the absence of malice, and may require some other quality of the state of mind or knowledge of the relevant actor. An example in this court is Wilde v Spratt (1986) 13 FCR 284 at 292; 70 ALR 171, where s.135(4)(b) of the Bankruptcy Act 1966 (Cth) was in issue; cf Official Trustee in Bankruptcy v Mitchell [1992] FCA 521; (1992) 38 FCR 364 at 371; [1992] FCA 521; 110 ALR 484.

The concept of 'good faith' as understood in various fields of the general law provides further examples. For example, an administrative decision may involve an improper exercise of power on the footing that it is unreasonable in the Wednesbury sense, without there being mala fides. Likewise, the whole doctrine of constructive notice which was developed in equity as appendant to the bona fide purchaser principle, operates by reference to what would have come to the knowledge of the purchaser if he had conducted his activities in the ordinary way; see Consul Development Pty Ltd v DPC Estates Pty Ltd [1975] HCA 8; (1975) 132 CLR 373 at 412-13; [1975] HCA 8; 5 ALR 231.

In the present case, it will be wrong to assume that when used in the relevant legislation the phrase 'anything done

or omitted to be done in good faith' (in s582A(1) of the Local Government Act) and in respect of any advice provided in good faith' (in s149(6) of the EPA Act) operate to leave the respondent liable only in respect of dishonesty.

These provisions, on their face, are designed to strike a balance between (i) the interests of the authority which is funded by public not private funds and which, pursuant to statute, provides the information, and (ii) the interests of the recipient of the information and others reasonably acting upon it where, in the ordinary course, those persons may be expected to incur substantial liability on the faith of what is disclosed by the authority.

Is the individual interest to yield to what might be called the wider public interest unless the conduct of the authority may be stigmatised as dishonest? In our view, the statutes do not bring about that result.

A council is reasonably to be expected to respond to an application for information of a character of the obvious significance of that sought here by recourse to its records. If the council represents that it has done so ('The above information has been taken from the council's records ...') then it still may have been acting in 'good faith' if a real attempt has been made, even though an error was made in the inspection or the results of the inspection were inaccurately represented in the certificate which is issued. It is unnecessary to decide that question on the

However, in our view, in the circumstances of the present case, a party in the position of the respondent cannot be said to be acting in good faith within the meaning of the EPA Act and the 1985 Act, if it issues s149 certificates where no real attempt has been made to have recourse to the vital documentary information available to the council, and the council has no proper system to deal with requests for information of the type in question. Indeed, in the present case, as counsel for the appellant emphasised, the council officer whose responsibility it was to deal with the request for information consciously ignored the very records which would have supplied it.

The statutory concept of 'good faith' with which the legislation in this case is concerned calls for more than honest ineptitude. There must be a real attempt by the authority to answer the request for information at least by recourse to the materials available to the authority. In this case there was a failure to meet that standard."

Although in my decision on the strike-out application I acknowledged that the decision in the Mid Density Developments case involved a very different statutory context, I noted that the Full Federal Court took the view that assistance nonetheless was to be gained by reference to the equitable principles and other examples of situations in which the concept of good faith had been examined in the general law. I went on to conclude: "It must immediately be accepted that conduct which is no more than negligent or careless may not, depending on the circumstances, displace the shield afforded by s29. But once the conclusion is reached, as in my opinion it must be, that the words 'good faith' require more than honesty on the part of the directors or other officers of the bank, it could not be fatal to a statement of claim that it asserts

material facts which fall short of affording a proper basis, taken at its highest, for a conclusion of dishonesty.

Just what level of dereliction of duty may be necessary before the shield afforded by s29 is removed is a matter which can only properly be left to the trial Judge after hearing the evidence (Unreported, judgment No. S4650 at 240."

It was urged upon me at that stage of the case that there might be an honest breach of duty unprotected by s29(1) where there was "gross negligence". However, as to that I observed (Unreported, judgment No. S4650 at 25): "It is inappropriate to attempt to classify or label situations in which an honest breach of duty may nonetheless lie outside the protection given by that section. All that needs to be said at this stage is that there may be an honest breach of duty which, in the circumstances of the case, cannot properly be regarded as an 'act or omission done or made in good faith'."

My decision upholding the statement of claim was taken on appeal to the Full Court which dismissed the appeal. In the course of his judgment in that case, Duggan J (with whose reasons Bollen J agreed) observed ((1994) 63 SASR 208 at 216): "Mr Maurice QC for the ninth appellant and Mr Abbott QC for the director appellants sought to distinguish the role of their clients from that of directors in a public company. Although it was conceded that the appellant directors owed

fiduciary duties to the bank, it was pointed out that they were public officers and they were not subject to the Companies Code. Nevertheless, it must be acknowledged that a clear analogy is to be drawn between the director appellants and ordinary directors. ... In my view, the nature of the fiduciary duties of the appellant directors has sufficient in common with the nature of the fiduciary duties of the directors of corporations under the Companies (South Australia) Code to render relevant the observations made by King CJ (in Australian Growth Resources Corporation Pty Ltd (Receivers and Managers Appointed) v Van Reesema and Ors (supra)) and the Full Federal Court (in Mid Density Developments Pty Ltd v Rockdale Municipal Council (supra))..."

His Honour went on to say (219): "I am not persuaded that in interpreting the meaning and content of the concept of 'good faith' in s29 the learned Judge erred in concluding that the words required more than 'honesty'. Of course on an application to strike out a cause of action it is inappropriate to attempt a general definition of words of such wide import. Mr Abbott QC made extensive submissions as to the ambiguity of the description 'recklessly' where it was used in para 45 of the statement of claim to describe his client's alleged conduct. But as I understand the respondents' case put at its highest it is that the directors acted recklessly in the sense that they must have realised how foolish their actions were and yet they went ahead nevertheless. In other words they completely abdicated their duty to the bank in connection with this transaction. If that is so then I do not think that the proposition that they did not act in good faith is

unarguable. Even if the onus were on the respondent to prove that the appellants were not acting in good faith, I think the learned judge was correct in refusing to strike out the statement of claim."

Duggan J, as did the other members of the court, went on to hold that, contrary to the view which I had reached, the onus was on the defendants to establish what they described as the "defence under s29" (63 SASR per Duggan J at 222, per Bollen J at 209, and per Millhouse J at 210). I am bound by that decision.

I remain of the view that it is inappropriate to use words such a "gross negligence" to describe the circumstances in which a director acting honestly may nonetheless fail to prove that he or she was acting "in good faith". The circumstances in which there may be an absence of good faith such as to disentitle a director from relying upon the protection otherwise afforded by s29, are so varied that they cannot properly be limited to those which might fall within the rubric of the words "gross negligence".

At the time of the strike out application and the appeal from my decision given with respect to that, attention focussed to a large extent upon the position of the non-executive directors, against whom it did not appear that the plaintiffs were asserting a breach of fiduciary duty as opposed to negligence.

However, it seems to me that if a director is acting in breach of his or her fiduciary duty, a breach which, on the authorities, can clearly occur even although the director concerned believes that in "his own lights he may be acting honestly" (Australian Growth Resources v Van Reesema per King CJ, 13 ACLR at 272; 142 LSJS at 177), he could not be regarded as acting in good faith.

With that in mind, I sounded a note of warning in the reasons for judgment which I delivered at that stage of the matter when I said (Unreported, judgment No. S4650 at 26): "I must say, however, that ... I am not persuaded that the position of Mr Marcus Clark as disclosed on the pleadings is the same as that of the other director defendants. I have already drawn attention to the fact that the nature of the allegations against him is rather different, and the allegations of breach of duty rather more extended.

It does seem to me implicit in those allegations that the plaintiffs will be asserting that Mr Marcus Clark was guilty of that breach of duty as a director which is constituted by placing himself in a position where his personal interests and his duties as a director conflicted."

Although that aspect of the matter was not the subject of comment by the Full Court, it seems to me that those observations now come into sharper focus, given that I am only considering a case against Mr Marcus Clark.

Specifically, I am of the view that irrespective of what other circumstances may give rise to a situation in which a director can no longer claim the benefit of the protection otherwise afforded by s29, a director who, as I have held, is in breach of his or her fiduciary relationship to the bank by deliberately failing to make the disclosures which I have found it was incumbent upon Mr Marcus Clark to make, and in taking part in the decision of the board with respect to the transaction, could not be said to be acting in "good faith" within the meaning of the section. Of course, in this case, the same facts which establish a breach of the fiduciary duties imposed by equity, constitute, for the reasons which I have already given, a breach of s11 of the Act. This circumstance adds force to the view which I have just expressed. It would be an odd construction of the Act if a breach of s11, resulting in severe penal consequences, did not operate to disentitle a director or an officer of the protection otherwise afforded by s29.

While what I have said so far would be sufficient to found a rejection of the defendant's contention with respect to s29, in my opinion, the same result should follow if, as opposed to Mr Marcus Clark's breaches of fiduciary duty, the matter was to be determined by a reference to his negligence in failing to see to it that a proper valuation of Oceanic was obtained before the bank agreed to purchase the shares. I have eschewed reliance upon the label "gross negligence". However, the fact remains that there will be cases, of which the Mid Density case (supra) is an example, where the failure to discharge the duty of care required of the director in question is of such a nature that it could not be said that the director is acting in "good faith".

If it is necessary to formulate a test or particular form of words, I would prefer to say that such a circumstance will arise where the director has failed to make a genuine attempt to answer to the standard of care required of him or her.

Gross negligence will normally connote a breach of an objective standard, but there might, nonetheless, be a subjectively genuine attempt to discharge the duty.

For example, an inexperienced junior officer of the bank may be asked to carry out a particular function which is clearly beyond him or her. It might be possible to say that he or she was guilty of gross negligence if that fell to be judged by an objective standard. Nonetheless, that person may have made a genuine attempt to discharge his or her duty, and for that reason may not properly be said to have failed to act in good faith.

Here, I do not think that it could be said that Mr Marcus Clark made a genuine attempt to discharge his role. I do not mean to suggest by that that he necessarily acted "dishonestly". But knowing as he did, having regard to his background and experience, that an independent and proper valuation of the shares in Oceanic was an essential pre-condition to the proper discharge of the duty of care owed by the directors in approving the transaction, he consciously failed to ensure that such a valuation was made. In those circumstances, in my opinion, quite apart from any question of a breach of fiduciary duty, he did not act in "good faith" within the meaning of the section.

That much said, there is another, more fundamental, aspect of the construction of s29 which it is necessary to address.

As I observed in the reasons for ruling delivered by me with respect to the pre-trial strike-out application (Unreported, judgment No. S4650 at 15): "Subsection (2) effects a transfer of liability which otherwise might attach to a director, to the bank. The application of the section when the bank is a plaintiff becomes problematic. On one construction of the section, it could apply only with respect to actions by third parties against a director, and not to actions by the bank. While such a construction might be thought to follow if ss(1) is read together with ss(2), and while not abandoning an argument based on that construction of the section, Mr Quick QC did not press that view upon the Court in answer to the present application. I do not, therefore, consider that aspect of the matter further. It will have to be considered if and when it is raised at a later stage of the case."

That stage has now been reached. It is now necessary for me to rule on the argument which was pursued at the trial that reading its two subsections together, s29 is not of application so as to afford any protection to a director (or for that matter, any other officer of the bank) in the context of an action by the bank against the director or other officer.

There are analogous provisions in other legislation. Some of those provisions have to do with the exercise by public authorities of powers conferred by statute (See, for example, the South Australian Tourism Commission Act 1993s18. And see the discussion as to statutory provisions limiting or qualifying rights of action in such a context in Little v The Commonwealth [1947] HCA 24; (1947) 75 CLR 94 per Dixon J at 108 et seq.).

Another example to which attention was drawn during the course of argument by Mr Howard (T1521) is the provision which is to be found in the Corporations Law, and in particular s1318 (The same provision appeared in the predecessors to the Corporations Law, notably s365(1) of the Companies Act and s535(1) of the Code). S1318(1) provides: "(1) If, in any civil proceeding against a person to whom this section applies for negligence, default, breach of trust or breach of duty in a capacity as such a person, it appears to the court before which the proceedings are taken that the person is or may be liable in respect of the negligence, default or breach but that the person has acted honestly and that, having regard to all the circumstances of the case, including those connected with the person's appointment, the person ought fairly to be excused for the negligence, default or breach, the court may relieve the person either wholly or partly from liability on such terms as the court thinks fit. (2) ..."

The section applies, inter alia, to an officer of the corporation (S1318(4)(a)). Mr Howard also drew attention to s56 of the Trustee Act which provides: "If it appears to the Supreme Court - ... (a) that a trustee is, or may be, personally liable for any

breach of trust (whether the transaction alleged to be a breach of trust occurred before or after the passing of this Act); but (b) that the trustee has acted honestly and reasonably and ought fairly to be excused for the breach of trust, and for omitting to obtain the directions of the said court in the matter in which he has committed such breach, then the said court may relieve the trustee, either wholly or partly, from personal liability for the breach of trust."

Those examples serve to illustrate the fact that the legislature has recognised that in certain circumstances an officer of a company or a trustee or a person exercising statutory powers may be guilty of negligence, breach of trust or other breach of duty which, having regard to the circumstances, ought to be excused. However, I do not find those provisions to be of any real assistance in determining the meaning to be attributed to s29 of the Act. There are obvious differences both in wording and context between s29 and the other statutory provisions to which Mr Howard referred. It is inappropriate to attempt to construe a given Act by reference to the provisions of other statutes.

S29 stands to be construed in the context of the Act as a whole and having regard to whatever may be discerned to be the underlying legislative intent.

I suppose that one purpose sought to be achieved by the section is to avoid persons of appropriate experience and ability being deterred from taking up positions with the bank, particularly as a director, by reason of any resultant exposure to a liability in circumstances when they have acted in good faith.

If the matter is viewed in that light, it would be difficult to perceive any good reason for offering the protection afforded by s29(1) when the acts of the director or other officer of the bank expose them to a liability to a third party, but to deny the protection of the section if the liability is to the bank itself.

It is true that as a general rule the court leans in the direction of giving to the same word, where it appears in different parts of an Act or as is the case here, within the same section, a similar meaning. If the only "liability" which pursuant to ss(2) is one capable of attaching to the bank instead of to the director, and if the same connotation is to be applied to the word where it appears in ss(1), the section would not be of application in this case.

While such an approach has the attraction that it maintains consistency of language, in my opinion, having regard to the evident underlying purpose of the section, the words used in ss(2) should not be given an operation which would confine the generality of the language used in ss(1). While this gives rise to some tension between the two subsections, in my opinion, that construction should be preferred.

The matter may be put in another way. It is more consistent with the evident purpose underlying the section, to give full effect to s29(1) according to its terms, even although to do so bleeds ss(2) of any possible operation in the context of claims against directors or officers by the bank itself, than to read ss(1) down by reference to ss(2). I say that, as it seems to me, as ss(2) is very much a provision in aid of ss(1), in the sense that it is designed to ensure that notwithstanding the protection afforded by ss(1), third parties do not lose a cause of action which they otherwise might have, and may enforce any such cause of action against the bank. It does no violence to the operation of ss(2) in that context, to deny it such an extended operation as to deprive directors (and officers) of the protection otherwise afforded by ss(1), in the event that they should be sued by the bank itself.

Accordingly, there is nothing inherent in s29 which precludes its application to this case, if a proper foundation for its application was otherwise to be made out on the facts.

It follows, then, that however the matter is approached, s29 does not avail Mr Marcus Clark.

THE POSITION OF THE PLAINTIFF THE STATE OF SOUTH AUSTRALIA 251. I have not made any observations as to the separate position of the State of South Australia, which is a co-plaintiff with the bank, in that what I have said so far with respect to negligence and breach of fiduciary duty has been in the context of the relationship of Mr Marcus Clark vis a vis the bank. It seems to me, however, that given the findings which I have made, the State of South Australia is entitled jointly with the bank to a judgment for whatever damages I award. The steps by which I reach that conclusion are as follows.

252. As I have already pointed out, pursuant to s6(3) "the Bank holds its property for and on behalf of the Crown". Furthermore, although the Act does not specifically constitute the bank as an instrumentality of the Crown, ss(4) of the same section presupposes that it is.

253. A consequence of the fact that the property of the bank is held for and on behalf of the Crown is that the Crown is the beneficial owner of that property.

254. It follows that if the result of the actions of Mr Marcus Clark is that the property of the bank has been depleted by reason of a loss of funds amounting to the difference between the price paid for the Oceanic shares and their value, the beneficial interest in the bank's property has been diminished to the same extent.

255. While it is the bank and not any particular officer of the bank which owns the property of the bank for and on behalf of the Crown, it seems to me that the directors of the bank, including Mr Marcus Clark, must, in those circumstances, be regarded as trustees or in a position at least analogous to trustees of that property.

256. Furthermore, there can be no question but that there was a relationship of proximity as between the Crown and Mr Marcus Clark such as to give rise to a duty to take care in the undertaking of any transaction which carried a risk of any loss being suffered by the bank, and consequentially by the Crown.

257. It was clearly within the contemplation of Mr Marcus Clark that any loss suffered in negligently carrying out a transaction on behalf of the bank would eventually be brought home against the Crown as beneficial owner of the property of the bank.

It follows that any judgment pronounced in the matter should be pronounced in favour of both plaintiffs.

DAMAGES 259. The plaintiffs' claim for damages involves two elements. (a) The difference between the value of the shares in Oceanic as at March 1988 and the price paid by the bank at that time for the shares. (b) The ongoing cost of borrowings necessary to service the difference thrown up by the calculation in (a), calculated at compound interest rates for the period between March 1988 and the present time.

I should add that while in some cases where there are parallel duties owed in equity and in tort, there may be a difference in the quantum of the damages recoverable for breach of one or other duty, that is not the case here. This is because the plaintiffs have limited their claim against Mr Marcus Clark to the damages recoverable at common law. That they have done so avoids the need for me, inter alia, to examine the question whether or not breach of an equitable duty of care, as opposed to breach of other kinds of fiduciary duty, gives rise to a right to compensation in equity as opposed to damages measured by reference to the principles applicable to the assessment of damages in tort.

Two witnesses were called by the bank to support its claim for damages. They were Mr Coleman, an actuary, and Mr Morris, a chartered accountant. I have already indicated that they were both highly qualified and that I accept their evidence. Indeed, in the relevant respects it was not placed under challenge.

In his written report, Mr Coleman sets out his opinion as to the market value of the whole of the issued share capital of Oceanic as at 31 March 1988. In view of the fact that no issue is joined as to the valuation which he proffered, it is unnecessary to go into the detail of the basis upon which he assessed the value of the various components represented by the various entities of which Oceanic was the holding company. It is sufficient to note that Mr Coleman assessed the value of the issued Oceanic share capital as at the valuation date in the range of $17.2 million to $21 million, or between 20 cents and 24 cents per share, there being 88,004,000 shares on issue (Exhibit 9D1275 at page 44).

There was nothing in Mr Coleman's report or in his evidence to indicate that a valuation towards one end or the other of the bracket of figures which he offered was more likely. Although Mr Martin QC urged upon me the view that in those circumstances I should adopt either the lower figure or a figure which represents the average of the brackets of figures, that would not accord with principle. Given that the onus is on the plaintiffs to establish on the balance of probabilities the extent of their loss, if one figure is not more likely than another, the highest value (yielding the smallest loss) should be taken. I proceed on that footing.

Mr Morris first gave a report dated 2 February 1996 in which he projected a calculation of loss based, inter alia, on a starting figure of $38 million, that is, the difference between $21 million and the $59 million paid by the bank for the acquisition of the shares. His calculation of the compound interest effect of the bank borrowing $38 million for the period from 31 March 1988 to 5 February 1996 yields a figure of $83,154,288, including the $38 million (Exhibit P25,001).

In a further report (Exhibit P25,002) Mr Morris offered what he described as an "up dated determination of loss". In the first place, this reflected a slight change in the calculations by reason of the fact that he used a 90 day bank bill rate as published by the Reserve Bank of Australia in preference to the rates which he had adopted in his previous calculation, which were supplied by the bank and which were thought to be a combination of Reuters and Reserve Bank rates.

With that adjustment, he calculated the impact of interest during the period beyond 5 February 1996 on a loss based on a fair value of $21 million. On that basis, the rate at which the loss increased was $16,736.52 per day.

It became apparent to me during the course of Mr Morris's evidence that the bank had sold its shareholding in Oceanic, the effective date of the sale being 31 December 1991. When I put it to Mr Morris that if the exercise was to determine what amount of money would be necessary to put the bank in the position it would have been in if the purchase had not taken place, allowing for the proceeds of the resale of the shares, he stated that the calculations he had made would not be adequate to address the loss, which would come "to a much greater number" (T1297).

In one sense, of course, the plaintiffs' loss crystallised upon the resale of the shares. On ordinary principles, from then onwards the calculation of any further loss should have brought into account the proceeds of sale and should have regard to any remaining net shortfall in the context of the bank's trading operation. One would have looked for a calculation of the losses which might be thought to follow from the reduction in the bank's working capital which resulted from the net shortfall.

The resale, however, was at a figure less than Mr Coleman's valuation. Absent any suggestion that the bank failed to minimise its loss, it is obvious that, however the matter was approached, the somewhat simplistic calculation offered by the plaintiffs, which does not take into account the resale, would result in an award of damages less, possibly substantially less, than the amount assessed on any other feasible basis.

No doubt, as a result of a realisation of that fact, Mr Marcus Clark did not challenge either the basis upon which the plaintiffs invited the Court to assess the loss, or the figures proffered by Mr Morris and Mr Coleman.

No issue having been joined at the trial as to those matters, I will proceed to assess the damages on that footing.

In doing so, there is no reason to distinguish between the quantum of the award to be made as between the plaintiffs. It is, of course, only one loss so that the liability is joint, not several, as between the plaintiffs.

After the conclusion of the trial, I called the matter on again briefly to invite submissions from counsel as to what effect should be given to the fact that pursuant to the settlement of the plaintiffs' claim as against the non-executive directors and as against FAI, the State of South Australia (apparently to the exclusion of the bank) received from FAI $2.75 million and from Mr Barrett, one of the non-executive directors, a sum of $43,937, an overall total of $2,793,937.

On the further hearing, counsel for the plaintiffs conceded that credit for the payments should be given as against both plaintiffs, in the event of a judgment in favour of both. This was a proper concession. There is only one loss.

I then admitted, without objection from Mr Howard, a further report of Mr Morris (Exhibit P25,003) which indicates that as at the day upon which these reasons are delivered, that is, 29 March 1996, and after giving credit for the payments to which I have just referred, on the assumption that the fair value of the Oceanic shares on the date of their acquisition by the bank was $21 million, the loss to the bank is $81,225,826.25.

CONCLUSION 276. In the prayer for relief in the statement of claim, the plaintiffs seek various declarations as against Mr Marcus Clark. Having regard to the findings which I have made, the declarations would not carry the matter any further. It is sufficient if I award a money judgment in favour of the plaintiffs for the damages to which they are entitled.

277. The plaintiffs are entitled to judgment against the defendant Mr Marcus Clark in the sum of $81,225,826.25, inclusive of interest. It has not been suggested that interest run on that judgment other than pursuant to the Supreme Court Rules.

278. Before pronouncing judgment, I will hear the parties as to that question and as to costs.