Trilogy Funds Management Limited v Sullivan

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 604 of 2012

BETWEEN: TRILOGY FUNDS MANAGEMENT LIMITED (ACN 080 383 679) AS THE RESPONSIBLE ENTITY FOR THE PACIFIC FIRST MORTGAGE FUND (ARSN 088 139 477)

JUDGE: WIGNEY J DATE: 18 december 2015 PLACE: SYDNEY

REASONS FOR JUDGMENT Introduction and overview [1] inelUCTABLE facts [15] The Fund and the responsible entity [17] Officers of City Pacific [20] Constitution of the Fund [28] Product Disclosure Statements [40] Compliance Plan [41] Lending Manual [46] Credit Committee [49] The Saddleback land [53] Zoning prior to acquisition by AGA [54] 2004 - Establishment of the AGA Facility and initial acquisitions of the Saddleback land [61] 2005 - Further Saddleback acquisitions and increases to the AGA facility [66] September 2005 - The SVP report [71] October 2005 - Further increase in the AGA Facility [84] AGA re-agitates the 1989 and 1992 rezoning approvals [88] City Pacific's purported implementation of the SVP recommendations and report to ASIC [92] Deed of Cross-Collateralisation [97] The AGA facility - March 2006 to July 2006 [99] March 2006 Valuation [100] Request for an updated valuation [108] May 2006 - Advances over the AGA facility limit [111] The Updated March 2006 Valuation [117] Purported increase of the AGA facility limit to $29 million [119] August 2006 - Backdated letter of offer [133] August to December 2006 - Further advances [138] August to December 2006 - Board papers [141] December 2006 and January 2007 - Increase of the AGA facility limit to $44.87 million or $55 million [149] December 2006 to July 2007 - Further advances beyond the facility limit [168] Default by AGA [178] Sale of AGA Security Properties [182] Default by other Gore entities [185] Statutory SCHEME AND duties owed by the Respondents [186] Duty of care and diligence - Relevant principles [199] Duty to take steps to ensure compliance [218] KEY Issues and contentions [224] Issue 1 - Contraventions relating to the "interim" approval of an increase of the AGA facility limit to $26 million [226] Issue 2 - Contraventions relating to advances between 28 April 2006 and 23 August 2006 [232] Issue 3 - Contraventions relating to advances between 23 August 2006 and 10 January 2007 [240] Issue 4 - Contraventions relating to the increase of the AGA facility limit to $44.87 million [245] Issue 5 - Contraventions relating to advances made between 11 January 2007 and 1 July 2007 [251] Issue 6 - Did the Fund suffer any damage resulting from any contraventions? [258] Issue 7 - Did Trilogy, on behalf of the Fund, fail to mitigate any loss or damage? [266] Issue 8 - Should the respondents be exonerated? [270] Other issues [272] The Briginshaw standard and s 140 of the Evidence Act [278] The Constitution, Compliance Plan and Lending Manual [282] The 80 percent LVR Requirement [290] The Valuation Requirement [297] The Lending Manual Issue [301] CREDIT FINDINGS [314] Mr Sullivan [316] Mr Swan [331] Mr Donaldson [343] Mr McCormick [350] COMPLIANCE, corporate governance and the svp report [365] findings in relation to the VALUe of the saddleback land [408] Findings in relation to issue 1 - the $26 million approval [425] Factual findings - Mr McCormick [433] Factual findings - Mr Sullivan [447] Contraventions by Mr Sullivan and Mr McCormick in relation to the $26 million facility [459] Findings in relation to issue 2 - advances between 28 April 2006 and 23 August 2006 [464] Factual findings - Mr Sullivan and Mr McCormick [465] Factual findings - Mr Swan and Mr Donaldson [470] Conclusions in relation to contraventions in relation to advances made in the period 28 April 2006 to 23 August 2006 [494] Findings in relation to issue 3 - advances in the period 24 august 2006 to 10 January 2007 [502] Findings in relation to Mr Sullivan and Mr McCormick [506] Contraventions by Mr Sullivan and Mr McCormick [525] Findings in relation to Mr Swan and Mr Donaldson [527] Findings in relation to issue 4 - the approval to increase the AGA facility limit to $44.87 million [539] Factual findings [542] Factual findings in relation to Mr McCormick [574] Factual findings in relation to Mr Sullivan [577] Factual findings in relation to Mr Donaldson [584] Factual findings in relation to Mr Swan [596] Contraventions of s 601FD(1)(b) of the Corporations Act [611] Contraventions of s 601FD(1)(f) of the Corporations Act [616] Contraventions of s 601FD(1)(c) of the Corporations Act [625] Findings in relation to issue 5 - advances after 11 January 2007 [626] Factual findings in relation to Mr McCormick [630] Contraventions by Mr McCormick [633] Findings in relation to Mr Sullivan [637] Findings in relation to Mr Swan and Mr Donaldson [645] Summary of contraventions [653] Findings in relation to issue 6 - causation and damage [654] Causation - Relevant principles [661] The parties' submissions in relation to causation [671] Losses resulting from contraventions by Mr Sullivan and Mr McCormick in relation to the approval of the $26 million facility [682] Losses resulting from contraventions by Mr Sullivan and Mr McCormick in relation to advances between 28 April 2006 and 23 August 2006. [687] Losses resulting from contraventions by Mr Sullivan and Mr McCormick in relation to advances between 28 April 2006 and 23 August 2006. [697] Losses resulting from the contraventions by Messrs Sullivan, Donaldson, Swan and McCormick in relation to the approval to increase the AGA facility limit to $44.87 million [701] Losses resulting from the contraventions by Messrs Sullivan, Swan, Donaldson and McCormick in relation to the advances made between 11 January 2007 and 1 July 2007 [706] DID TRILOGY FAIL TO MITIGAGE THE FUND'S LOSSES from the AGA facility? [708] Relevant principles [712] The respondents' case that Trilogy acted unreasonably [722] Rejected opinion evidence [724] No specialised knowledge [728] Opinions not shown to be based on specialised knowledge [737] Opinions based on demonstrably wrong assumptions [744] Discretionary exclusion under s 135 of the Evidence Act [753] The alleged unreasonable failure to mitigate [759] Allegations of impropriety and improper purpose [772] Realisation of other security properties [789] Trilogy's case in relation to mitigation [799] Conclusion - Did Trilogy act unreasonably in realising the Saddleback land? [836] Causation - the "hypothetical loans" submission [840] Consideration [846] Issue 8 - should any of the respondents be exonerated? [861] Relevant principles [865] Mr Sullivan [875] Mr McCormick [880] Mr Donaldson [884] Mr Swan [893] Conclusions in relation to exoneration [898] Pleaded defences taken to be abandoned [906] Quantum of compensation and interest [907] Cross-claims [923] A note in relation to delay [924] conclusion, Disposition and orders [928]

Introduction and overview 1 This is a tale of a rapacious Gold Coast property developer with grandiose plans, a compliant and obliging valuer who lacked independence, and a responsible entity of a managed investment scheme the officers of which appeared unable or unwilling to say "no" to the developer, or to otherwise exercise appropriate care and diligence to ensure compliance with the scheme's mandated policies and procedures. In the end, the developer failed and the security property was found to be worth many millions of dollars less than both its supposed valuation and the outstanding loan. The scheme and its members were left significantly out of pocket. Did the officers of the responsible entity breach their statutory duties when they approved increases to the developer's loan facility? Or when they failed to prevent further advances being made to the developer that took the loan well over its approved limit? Are the officers liable to make good any losses arising from any such breaches? 2 In September 2004, a registered managed investment scheme then called the Pacific First Mortgage Fund (Fund) agreed, through its then responsible entity, City Pacific Limited (City Pacific), to lend $3.25 million to a company called Atkinson Gore Agricultural Pty Limited (AGA). The purpose of the loan was to enable AGA to purchase some parcels of agricultural land in an area known as "Saddleback" in the Gold Coast hinterland near the township of Canungra, Queensland (the Saddleback land). Whilst the existing zoning of the Saddleback land permitted only rural pursuits, it would appear that AGA had grand plans to subdivide and develop the land. AGA was associated with the well-known and, at least at that time, apparently successful property developer, Mr Craig Gore. 3 The initial AGA loan facility was increased in December 2004 and May, June and October 2005 to enable AGA to purchase additional parcels of land in the Saddleback area. The AGA loan facility was secured by mortgages over the Saddleback land purchased by AGA. As would be expected, valuations of the Saddleback land that had been, or was to be, purchased were commissioned and provided to City Pacific. Each of the valuations relevant to the initial loan and the increases to the facility limit in December 2004 and May, June and October 2005 valued the land on the basis that its highest and best use was for rural pursuits as a holding proposition pending future subdivision approval. 4 As at October 2005, the approved AGA facility limit was $17.89 million. The Saddleback land owned by AGA that secured the AGA loan facility at that time was valued at $24.975 million in September 2005. 5 These proceedings primarily concerned two further extensions or increases to the AGA loan facility and a number of drawdowns and advances made under the facility from April 2006 to July 2007. 6 The first extension or increase to the facility was purportedly approved in either late July 2006, or more likely August 2006. That purported approval involved a "provisional" increase of the facility limit to $50 million pending the occurrence of certain events, and in the interim an increase to either $36 million or $26 million. The documentation created in relation to this extension or increase to the AGA facility, including the letter of offer to AGA, falsely represented that the increase was approved in late April 2006. 7 It would appear to be tolerably clear that the reason that the documentation was backdated was related to the fact that by August 2006 the balance of the AGA loan facility was well above its approved limit. Since late April 2006 advances continued to be made to AGA despite the fact that the loan facility was fully drawn. 8 The second increase to the AGA facility limit occurred in late December 2006 or early January 2007. It involved an increase of the facility limit to $55 million, though a special condition restricted the limit to $44.87 million until the occurrence of a specified event. Once again, the documentation in relation to this increase to the AGA facility limit was backdated, this time to August 2006. 9 Both the August 2006 and December 2006 increases to the AGA facility limit were approved, or purportedly approved, on the basis of valuations of the Saddleback land that were, to say the least, somewhat questionable. The valuations were questionable because they were based on dubious assumptions that did not reflect the reality of the current zoning of the land. They assumed, in various different ways, that the zoning or permitted uses of the land was such that AGA was permitted to subdivide and develop the Saddleback land. That was despite the fact that, at all times, the zoning of the land permitted only rural pursuits. 10 By late December 2006, or early January 2007, the AGA facility was effectively fully drawn down to the restricted facility limit of $44.87 million. The event that would trigger the increase of the facility limit to $55 million had not occurred. Despite that, and despite the fact that the facility limit was not increased, further advances were made to AGA. By July 2007, the balance of the AGA facility was $54,720,906.81, almost $10 million beyond the approved facility limit. 11 The Saddleback land was never rezoned and never subdivided or developed by AGA. By December 2008, AGA had defaulted under the loan facility, and by February 2009, receivers and managers were appointed to AGA. The Saddleback land was eventually sold by the receivers of AGA for a total gross sum of only $7.627 million. The balance owing by AGA was lost to the Fund. 12 Throughout 2006 and 2007, when the AGA facility limit was increased and advances under the facility continued to be made, Mr Philip Keith Sullivan, Mr Thomas William Swan, Mr Ian William Donaldson and Mr Stephen Anthony McCormick (collectively, the respondents) were senior officers of City Pacific. Mr Sullivan was the Managing Director and Chief Executive Officer. Mr Swan and Mr Donaldson were directors. Mr Donaldson was the Chairman of the board of directors. Mr McCormick occupied executive positions in which he was responsible for managing the lending of the Fund. Each of Messrs Sullivan, Swan, Donaldson and McCormick was a member of the Credit Committee of City Pacific (the Credit Committee). 13 In these proceedings, the new responsible entity of the Fund, Trilogy Funds Management Limited (Trilogy), alleged that each of Messrs Sullivan, Swan, Donaldson and McCormick breached their statutory duties as officers of City Pacific under s 601FD of the Corporations Act 2001 (Cth) (Corporations Act). The alleged breaches relate to the approval, or purported approval, of the increases to the AGA facility in July or August 2006 and December 2006 or January 2007, and the failure to take appropriate steps to prevent the making of advances beyond the approved facility limits from late April 2006 to 1 July 2007. 14 Trilogy claimed that each of Messrs Sullivan, Swan, Donaldson and McCormick should be ordered to compensate the Fund for losses caused by their breaches of duty. Trilogy alleged that the amount of the loss to the Fund was $37,069,053.92, being the total amount advanced to AGA beyond the approved facility limit of $17.89 million as at October 2005.

inelUCTABLE facts 15 Many of the facts relating to the constitution and operation of the Fund, the management of City Pacific, the nature of the Saddleback land and some aspects of the operation of the AGA facility were uncontentious. Most of the basic facts relating to those matters were either admitted or not disputed on the pleadings, otherwise agreed by the parties, or were the subject of uncontested or uncontroversial, mainly documentary evidence. 16 The main factual controversies concerned the following matters: the timing and precise circumstances surrounding the purported interim increase of the AGA facility to $26 million or $36 million in July or August 2006; whether that purported increase complied with Fund's mandated lending policies and procedures; the legitimacy of assumptions that provided the basis for purported valuations of the Saddleback land in March and July 2006 and the knowledge of the respondents in relation thereto; the knowledge and involvement of each of the respondents in relation to advances made to AGA made during the period April to December 2006, being advances that appeared to exceed the approved facility limit; the timing and circumstances surrounding the approval of the increase to the AGA facility limit in December 2006; whether that approved increase complied with the Fund's mandated lending policies and procedures; the legitimacy of a purported valuation of the Saddleback land requested and received in late December 2006; and the knowledge and involvement of each of the respondents in relation to advances made to AGA made during the period January 2007 to July 2007, being advances that again appeared to exceed the approved facility limit. Before addressing those matters of controversy, which involves a close consideration of the evidence given by each of the respondents, it is useful to identify the ineluctable facts that provide the essential background and context in which to consider and determine those issues.

The Fund and the responsible entity 17 The Fund is a unit trust established by a trust deed made on 23 June 1998, as amended from time to time, which serves as the constitution of the Fund (Constitution). The Fund is, and has been since 13 July 1999, a managed investment scheme registered under s 601EB of the Corporations Act. From 13 July 1999 to 6 December 2007, the Fund was known as the City Pacific Mortgage Trust. From 7 December 2007 to 12 August 2009, the Fund's name was changed to City Pacific First Mortgage Fund. 18 City Pacific was the responsible entity of the Fund from 23 June 1998 until about 7 July 2009. As the responsible entity of the Fund, City Pacific was required to operate the Fund as a managed investment scheme and perform the functions conferred on it by the Constitution and the Corporations Act. During the time it was the responsible entity, City Pacific was the manager of the Fund under the Constitution. 19 On around 7 July 2009, City Pacific was removed as the responsible entity of the Fund and was replaced by Trilogy in accordance with an extraordinary resolution passed by members of the Fund pursuant to s 601FM(1) of the Corporations Act. Trilogy has remained the responsible entity of the Fund since that time. Upon the change in the responsible entity of the Fund, the rights, obligations and liabilities of City Pacific became the rights, obligations and liabilities of Trilogy as the new responsible entity of the Fund pursuant to s 601FS(1) of the Corporations Act.

Officers of City Pacific 20 Mr Sullivan was the Managing Director and Chief Executive Officer of City Pacific from 8 August 1997 to 12 November 2008. 21 Mr Sullivan was a man with an extensive background and experience in the property development industry. Since the 1980s, he had been involved in several major property developments on or near the Gold Coast. 22 Mr Sullivan was a member of the Credit Committee of City Pacific at all relevant times from April 2006 to December 2007. The functions and responsibilities of the Credit Committee are considered later. 23 Mr Swan was a director of City Pacific from 8 August 1997. Whilst he was a non-executive director, importantly, he was also a member of the Credit Committee at all relevant times from April 2006 to December 2007. 24 Mr Swan was highly qualified in business, accounting, commercial law and financial services, having acquired various degrees and diplomas over the years from various educational institutions. He had also been a member of a number of professional associations in the accounting, management and tax professions since 1976. 25 Mr Donaldson was a director and the Chairman of the board of directors of City Pacific from 25 May 1998 to 16 December 2008. Like Mr Swan, he was a non-executive director, but was also a member of the Credit Committee at all relevant times from April 2006 to December 2007. He also chaired City Pacific's Audit and Risk Committee. 26 Mr Donaldson had over 57 years of experience in the fields of accounting and commerce. Amongst other things, he had been a partner of a national accounting firm for some 33 years, had been a registered company auditor for over 20 years, had been a director of five other listed public companies, and had been appointed to a number of boards by the Queensland Government. He had been a member of the Institute of Chartered Accountants in Australia for 48 years. He also had extensive experience in the mortgage industry. 27 Mr McCormick was at all material times a senior manager at City Pacific. From around March 2005 to around 30 June 2006, he occupied the position of Lending Manager. Thereafter, and until 31 July 2009, he occupied the position of Group Executive - Property Development. In both these roles, he was essentially in charge of the lending department at City Pacific. He was a member of the Credit Committee at all relevant times from April 2006 to December 2007.

Constitution of the Fund 28 A registered investment scheme is required to have a constitution which complies with s 601GA of the Corporations Act. 29 As required by s 601GA(1)(b) of the Corporations Act, the Constitution contained a number of provisions dealing with the powers of City Pacific, as the responsible entity, in relation to making investments of, or otherwise dealing with, the Fund's property. 30 Clause 2.2 of the Constitution provided that City Pacific held and would at all times hold the Fund's assets on trust for members of the Fund, subject to the provisions of the Constitution and the Corporations Act. 31 Clause 7.1 provided that the role of City Pacific as the manager of the Fund was to hold all assets of the Fund in "Authorised Investments" and "to seek and invest the funds … in Mortgage Investments". 32 Clause 1.1 contained definitions of a number of the important terms or expressions used in clause 7.1. The expression "Authorised Investments" was defined as including "Mortgage Investments", deposits on call or for a term with any bank, bills of exchange (including commercial bills) issues, drawn, accepted or endorsed by any bank or negotiable certificates of deposit issued by any bank, any mortgage investment scheme that is a registered managed investment under the Corporations Act, including a scheme to which City Pacific is the responsible entity, and any "authorised investment" as defined in s 21 of the Trusts Act 1973 (Qld) (Trusts Act). 33 Clause 1.1 also provided that in order for a loan secured by a mortgage over land to be a "Mortgage Investment", the total of all money advanced from the Fund and secured over such land must not exceed either 80 percent of the value of the land that has been valued by an approved valuer, or 95 percent of the value of the land that has been valued by an approved valuer provided the loan is secured by mortgage insurance to a level approved by the manager. "Land" was broadly defined in clause 1.1 as including a freehold estate or interest in real property in Australia and as including buildings, fixtures and fittings (including furnishings) and other improvements erected or installed thereon. 34 Clauses 4.5 and 5.1 of the Constitution contained a number of provisions relating to the duties and responsibilities of City Pacific and its officers. Those duties and responsibilities broadly coincided with various statutory duties under the Corporations Act. 35 Clauses 4.5(b) and 5.1(b) provided that City Pacific and each of its officers would exercise the degree of care and diligence that a reasonable person would exercise if they were in City Pacific's or the officer's position. 36 Clauses 4.5(c) and 5.1(c) provided that City Pacific and each of its officers would act in the best interests of the members and, if there was a conflict between the member's interests and the interests of City Pacific, would give priority to the member's interests. 37 Clauses 4.5(h) and 4.5(j) provided that City Pacific would comply with the "Compliance Plan" and would ensure that all payments out of the assets were made in accordance with the Constitution and the Corporations Act. 38 Under clause 5.1(f), each officer of City Pacific was required to take all steps that a reasonable person would take, if they were in the officer's position, to ensure that City Pacific complied with the Corporations Act, the Constitution and the Compliance Plan. 39 Each of Messrs Sullivan, Swan and Donaldson agreed in their evidence that they were aware of those provisions of the Constitution and understood that each of those provisions remained in force during 2006. That was hardly surprising given that each of them was a director of City Pacific, a member of the Credit Committee and a person with substantial qualifications and relevant experience. There was also no issue that Mr McCormick was aware of his duties under the Constitution as an officer of City Pacific.

Product Disclosure Statements 40 City Pacific issued Product Disclosure Statements (PDS) in respect of the Fund as required by Pt 7.9 of the Corporations Act. The PDS informed prospective investors in the Fund of the essential features of the Fund and its management. The PDS which were current in the period April 2006 to August 2007 included statements that: (a) City Pacific had determined and documented lending guidelines for the approval and management of all loans; (b) City Pacific would limit the investments of the Fund to first Mortgages and cash investments; (c) City Pacific only made investments that provided adequate security for the Fund; (d) prudent lending ratios were maintained for lending by the Fund; (e) the Constitution allowed advances up to 80 percent of security property values as determined by an independent valuer; and (f) all loan applications were carefully considered by the Credit Committee whose members have substantial credit and property development experience.

Compliance Plan 41 A registered managed investment scheme must have a compliance plan that meets the requirements of s 601HA of the Corporations Act. Section 601HA provides that the compliance plan must set out adequate measures that the responsible entity is to apply in operating the scheme to ensure compliance with the Corporations Act and the scheme's constitution. The responsible entity was required to comply with the scheme's compliance plan: s 601FC(1)(h) of the Corporations Act. 42 At all relevant times there was a compliance plan for the Fund (the Compliance Plan) that was signed by each of the directors of City Pacific in accordance with Pt 5C.4 of the Corporations Act and the Constitution. Each applicable Compliance Plan was, from time to time, lodged with the Australian Securities and Investments Commission (ASIC). 43 Each Compliance Plan applicable throughout the period 11 August 2005 to 19 July 2007 provided that City Pacific, as the responsible entity of the Fund, was the "Manager" of the Fund and set out the procedures that were required to be followed in respect of all investments made by the Fund. The mandated procedures included that: (a) all investments of the Fund had to be invested in accordance with the Constitution and the PDS; (b) the Lending Manager of City Pacific was responsible for supervising the investment strategy of the Fund and undertaking the initial assessment of each Mortgage Investment; (c) investments must only be made in Authorised Investments; (d) before any Mortgage Investment was made a valuation had to be obtained; (e) the Credit Committee was responsible for approving all Mortgage Investments; and (f) a Mortgage Investment should be made in accordance with the Manager's mortgage lending guidelines. 44 Each of Messrs Sullivan, Swan and Donaldson agreed, again not surprisingly, that they were aware of those requirements in the Compliance Plan. Mr McCormick was the Fund's Lending Manger. There was no issue that he was aware of those requirements. 45 The Compliance Plan in force from November 2006 provided that no three consecutive valuations of an asset could be conducted by the same valuer unless approved by two members of the Credit Committee; that an acceptable valuation had to be dated not more than three months before the mortgage investment to which it related; and that the Lending Manager was required to certify to the Credit Committee that the valuation was acceptable before the Credit Committee gave consideration to approving the investment.

Lending Manual 46 City Pacific had a mortgage lending manual (Lending Manual). It contained City Pacific's lending guidelines. The existence of the lending guidelines in the Lending Manual was adverted to in both the Compliance Plan and the PDS. 47 It would appear that City Pacific's Lending Manual was significantly updated during 2005 and was, at various times, under review during 2006. There was an issue between the parties about the version of the Lending Manual that was operative at the time of the contentious AGA facility limit increases and advances in 2006 and 2007. It will be necessary to return to that contentious issue later, though ultimately not a great deal turns on it. Suffice it to say at this stage that each version of the Lending Manual included statements to the effect that: (a) it was essential that the operating routines set out in the Lending Manual be followed precisely, because the accuracy and integrity of the management of the Fund's portfolio could only be established through a consistent approach to all processing (section 1.2); (b) it was the role of the Credit Committee, in respect of each proposal for a loan, to determine whether the loan should be approved or declined (section 1.3); (c) all loan proposals together with the supporting information were to be given to the Credit Committee for approval (section 1.3); (d) a valuation of the security property was "our primary credit document" (section 1.4) and "the primary credit assessment tool utilised" (section 10); (e) the valuation report needed to be attached to the loan proposal (section 1.5); (f) when a valuation was received, it was to be read carefully (section 10); (g) if a valuation was conditional upon a certain requirement, that requirement had to be met (section 10); and (h) City Pacific would not settle any loan that had a valuation that did not conform with the requirements of the Lending Manual (section 10). 48 Section 5 of the version of the Lending Manual that was operative throughout much of 2006 set out various categories of loans that could be made by the Fund and the conditions applicable to each category. They included residential property loans (5.1), commercial property loans (5.2), industrial property loans (5.3), retail property loans (5.4), strata-title hotel/apartment suite loans (5.5), strata-title studio apartment loans (5.6), collateral second mortgages (5.7), asset/non-conforming loans (5.8) and construction/development loans (5.9). The asset/non-conforming loan category (category 5.8) appeared to include loans that did not fall within any other category of loan. As will be seen, whilst it was common ground that the AGA facility did not fall within any of categories 5.1 to 5.7 and 5.9, the question whether the AGA facility therefore fell within category 5.8 was contentious. That was important because rural properties that were more than 10 hectares in area were not acceptable security for category 5.8 loans. The Saddleback land compromised a rural property that was more than 10 hectares in area. A later version of the Lending Manual deleted category 5.8.

Credit Committee 49 As indicated earlier, under the Compliance Plan, the Credit Committee was responsible for approving all mortgage investments. The PDS also stated that all loan applications were carefully considered by the Credit Committee and represented that the members of the Credit Committee had "substantial credit and property development experience". The Lending Manual provided that all loan proposals, together with supporting information, including the valuation report, were to be given to the Credit Committee, and that it was the role of the Credit Committee to determine whether a loan proposal should be approved or declined. Each of the respondents was a member of City Pacific's Credit Committee. 50 The role of the Credit Committee was further explained in City Pacific's Credit Committee Charter. The Credit Committee Charter was lodged with ASIC as part of City Pacific's compliance material. The Credit Committee Charter contained the following statements: 1. INTRODUCTION … The Credit Committee of the Company ("Committee") has the ultimate responsibility to the investors in the Schemes for which City Pacific Limited acts as Responsible Entity and Manager. The Committee is dedicated to fulfilling these duties in a lawful and professional manner, and with the utmost integrity and objectivity. Good credit assessment policies and procedures are critical for ensuring that the Committee carries out its duties effectively and efficiently to the benefit of the Company and the investors as a whole. This document outlines the Company's credit assessment policy, which is a written policy document that defines the respective roles, responsibilities and authorities of the Committee, both individually and collectively. As such, it establishes the guidelines within which the Committee members are to operate as they carry out their respective roles. … 3. THE ROLE OF THE COMMITTEE The Committee is ultimately responsible for all matters relating to the credit assessment procedures of the Company. The Committee has responsibility for ensuring that the Company's lending practices are consistent and that all loans and transactions are correctly processed. The Committee meets as and when required to review loan proposals together with the supporting information. Loan proposals to be considered must be given to the Committee for review. The decision to approve or decline a loan rests with the members of the Committee in accordance with the Credit Committee Approval Policy (refer Appendix 3). Loan applications are carefully considered by the Committee whose members have substantial credit and property development experience. (Emphasis added.) 51 The central importance of the Credit Committee could not be doubted. 52 On or around 11 November 2005, the board of City Pacific resolved to adopt a Credit Committee Approval Policy, which provided that the following delegated authorities would apply to all new loans: (a) Less than $5 million: any two members of the Credit Committee; (b) From $5 million to $20 million: any three members of the Credit Committee; (c) From $20 million to $50 million: all members of the Credit Committee; (d) More than $50 million: all members of the Credit Committee plus the board members of City Pacific.

The Saddleback land 53 As outlined earlier, the land that AGA acquired in 2004 and 2005 using loan funds obtained from the Fund was in the area known as "Saddleback" in the Gold Coast hinterland.

Zoning prior to acquisition by AGA 54 The predecessor in title to some of the Saddleback lots later acquired by AGA was a company called Cromview Pty Limited (Cromview). The Saddleback land acquired by Cromview was zoned rural at the time of acquisition. 55 It would appear that at some stage Cromview applied for a rezoning of the land. 56 On or about 13 September 1989, the Beaudesert Shire Council (the Council) notified Cromview that the Council proposed to approve the rezoning of Cromview's Saddleback land from rural to "Special Facilities Zone", subject to 20 specified conditions. A letter dated 13 September 1989 from the Council to Cromview stated that the 1989 rezoning approval was considered to be the maximum development allowed on the property and that no further development beyond the proposed approval would be considered. 57 At the time of the 1989 rezoning approval, the procedures by which land could be rezoned were contained in the Local Government Act 1936 (Qld). It is unnecessary to delve into the intricacies of that Act. Suffice it to say that for land to be rezoned, the relevant council and the relevant Minister were required to take a number of steps. One of those steps was the publication of an Order in Council made by the Governor in Council. That publication, commonly called a "gazettal", was required before a rezoning became legally effective. It was common ground that no such gazettal occurred in the case of the 1989 rezoning approval. The approval conveyed by the Council in its letter dated 13 September 1989 accordingly was never effective. 58 At some stage following the 1989 rezoning approval, Cromview was placed into receivership. In September 1992, the receivers of Cromview applied to the Council for an amendment to the 1989 rezoning approval. That amendment was granted by the Council. In November 1992, the Council notified the receivers of Cromview that it had amended the 1989 rezoning approval by amending some of the conditions attached to it. The Council also granted an extension of time for the 1992 rezoning approval to 15 April 1994. 59 By the time of the 1992 rezoning approval, the rezoning of land was governed by the Local Government (Planning and Environment) Act 1990 (Qld). It is again unnecessary to deal in any detail with the requirements of that Act. As was the case under the previous Act, for land to be effectively rezoned it was necessary for the council and the relevant Minister to take a number of steps. Again, one of the steps was the publication in the Government Gazette of an Order in Council made by the Governor in Council. The rezoning was not legally effective until that gazettal. 60 It was again common ground that the 1992 rezoning approval did not reach the gazettal stage. Accordingly, the land owned by Cromview which was the subject of the 1989 and 1992 rezoning approvals remained zoned "rural" at all relevant times.

2004 - Establishment of the AGA Facility and initial acquisitions of the Saddleback land 61 In early 2004, AGA took a number of steps to enable it to borrow money from the Fund for the purpose of acquiring land in the Saddleback area. 62 In early March 2004, AGA sought and obtained a valuation, on a current market value basis, from PRP Valuers and Consultants Gold Coast Pty Ltd (PRP) in relation to approximately 394 hectares of land in the Saddleback area. The valuation report by PRP was dated 5 March 2004 and headed 'Valuation of a Rural Site 'Saddleback' - Darlington Range Road and Toe Holt Road, Canungra QLD 4275'. 63 The land which was the subject of the March 2004 PRP valuation comprised Lot 36 Crown Plan W311683, Lot 48 Crown Plan W312309 and Lot 10 RP 866564 in the County of Ward, totalling 394.185 hectares gross area. PRP expressed the opinion that the current market value of the land was $5.9 million. That valuation was based on the fact that the highest and best use of the land was for "rural pursuits as a holding proposition pending future subdivision approval". Importantly, the March 2004 PRP valuation took into account that the Saddleback land that was being valued was part of a larger parcel of land that was the subject of the 1989 and the 1992 rezoning approval. It noted that the larger parcel had since been split up and that the land was zoned rural. 64 On 30 June 2004, AGA applied for a loan from the Fund. On 14 July 2004, City Pacific, as the responsible entity of the Fund, wrote to AGA and offered a total facility of $3.25 million to AGA secured by a first registered mortgage over the land that was to be acquired. That offer was accepted by AGA on 9 September 2004. 65 Following the initial loan and initial Saddleback acquisitions, AGA applied to City Pacific to increase the loan facility to enable it to purchase an additional 15 parcels of Saddleback land (comprising Lots 1, 2, 7 and 8 on RP 901269; Lots 3, 4 and 9 on RP 901270; Lots 5, 6 and 10 on RP 901271; Lot 8 on Crown Plan W 31574; Lot 17 on Crown Plan W 311369; Lot 45 on RP 36858; Lot 36 on Crown Plan WD 3323; and Lot 371 on Crown Plan WD 3324). On or about 9 December 2004, City Pacific, as the responsible entity of the Fund, offered to provide a total facility to AGA of $9.29 million secured by registered mortgages over the existing lots owned by AGA and the additional 15 parcels of land to be acquired. That offer was accepted, the funds were advanced, and the additional parcels were subsequently purchased by AGA on 21 December 2004.

2005 - Further Saddleback acquisitions and increases to the AGA facility 66 On or about 24 February 2005, City Pacific as the responsible entity of the Fund, offered to provide a total facility to AGA of $8.8 million secured by registered mortgages over the Saddleback land already owned by AGA, and also over a further property, which was to be acquired by AGA, namely, Lot 61 on Crown Plan W312489. That offer was accepted by AGA on 25 February 2005 and the additional properly was subsequently acquired. 67 On or about 28 April 2005, PRP, under instructions from City Pacific, provided a valuation of the Saddleback land that had been acquired by AGA on a current market value basis. The report by PRP was dated 28 April 2005 and headed 'Valuation of a Large Rural Site 'Seven Mountains' - Darlington Range Road and Toe Holt Road, Canungra QLD 4275'. The land which was the subject of PRP's April 2005 valuation was said to comprise 693.6718 hectares gross area. PRP expressed the opinion that the current market value of that land was $19.075 million. This valuation was again based on the fact that the highest and best use of the subject land was for "rural pursuits as a holding proposition pending future subdivision approval". The valuation referred to the 1989 and 1992 rezoning approvals. It noted, however, that the land was nominated as "Regional Landscape and Rural Protection Area" in the draft South East Queensland Regional Plan. This latter consideration led the valuer to note that "we have not allowed for any such potential [for future subdivision] and have undertaken this valuation based on the current rural uses". 68 Shortly after this valuation, the AGA facility was again increased; first to $10.6 million in May 2005, and then to $13.35 million in June 2005. Having regard to the April 2005 PRP valuation, the facility limit represented a loan to valuation ratio (LVR) of 52.8 percent (in May 2005) and 61.1 percent (in June 2005). 69 In September 2005, PRP was instructed to provide a further valuation of the February 2005 Saddleback land, together with six additional lots (Lots 30 and 31 RP 31446, Lot 1 RP 78799, and Lots 34, 35 and 36 RP 36859), comprising a total of 832.5525 hectares gross area (together the September 2005 Saddleback Land). PRP provided a valuation dated 30 September 2005 (the September 2005 Valuation), which valued the September 2005 Saddleback Land at $24.975 million. The basis of that valuation was again that the highest and best use of the land was for rural pursuits as a holding proposition pending future subdivision approval. 70 The September 2005 Valuation included the following important note concerning approvals: The site was part of a larger parcel which was granted a re zoning to "Special Facilities" on 13th of September 1989. The approved uses included a hotel, 18 hole golf course / clubhouse, equestrian centre, retain and tourist centres and 400ow density residential properties. The re zoning contained 20 conditions. The rezoning was not acted on and the parent parcel "split" with other parcels sold off during the 1990's. The zoning has since reverted to Rural.

September 2005 - The SVP report 71 Whilst City Pacific was approving increases to the AGA facility during 2005, it would appear that there were a number of issues concerning the Fund that were exciting the interest of ASIC. On 18 February 2005, ASIC wrote to the directors of City Pacific expressing concerns about the liquidity of the Fund. The letter enclosed a written notice issued under s 912C(1) of the Corporations Act that required City Pacific to give ASIC information about its financial services to assist ASIC in forming a view about the liquidity of the Fund. Following further correspondence in relation to that issue, ASIC advised City Pacific in May 2005 that it had two options available to it. It could either immediately follow the "Non-Liquid Scheme redemption process", or it could engage external experts to review "firstly the loan book and underlying mortgages in the scheme and secondly the liquidity of the scheme". 72 Plainly the "Non-Liquid Scheme redemption process" was not an attractive proposition for City Pacific. The board of City Pacific opted for the second option offered by ASIC. On 20 June 2005, City Pacific engaged SV Partners Pty Limited (SVP) to conduct the review required by ASIC, including a review of the Fund's loan book. The review of the loan book was to involve, for every mortgage loan made by the Fund, an assessment of whether City Pacific had complied with the valuation and security requirements of the Constitution, the Compliance Plan and the Lending Manual. The directors of City Pacific approved the terms of SVP's engagement. 73 On 21 June 2005, ASIC notified City Pacific that its Australian Financial Services Licence (AFSL) had been varied to add a condition that City Pacific must engage an external expert, approved by ASIC, to, amongst other things, "comprehensively review the assets of [the Fund]" and provide a report that included "any specific or general recommendations or comments that the [e]xpert may have in relation to the findings of the review". That development was undoubtedly a most serious issue for City Pacific. City Pacific was required by s 912A(1)(b) of the Corporations Act to comply with the conditions of its AFSL. ASIC had the power under s 915C(1)(a) of the Corporations Act to suspend or cancel City Pacific's AFSL if it did not comply with its obligations under s 912A. The holding of an AFSL was a prerequisite under s 601FA of the Corporations Act for City Pacific to be the responsible entity of the Fund. 74 On 28 September 2005, SVP furnished its report to both City Pacific and ASIC. There could be no doubt that each of Messrs Sullivan, Swan and Donaldson was provided with, or saw, a copy of the SVP report, on or shortly after 28 September 2005. 75 The SVP report was detailed and lengthy. Part A of the report dealt with SVP's findings concerning the liquidity of the Fund. Those findings, whilst undoubtedly important and significant for City Pacific, are not directly relevant to the issues in these proceedings. 76 Part B of the SVP Report dealt with SVP's findings and recommendations concerning the Fund's loan book. The report contained a number of general recommendations, but only one loan-specific recommendation which related to a loan that did not comply with the Constitution and the Compliance Plan. That loan was the AGA facility. The SVP report included the following findings and recommendations concerning the AGA facility: SVP has identified a loan where [City Pacific] has approved lending to 60% of the valuation but where SVP considers the loan is outside all current policy areas. i. SVP's analysis is again based on use of the loan funds, this time for rural land banking at Canungra prior to rezoning of lands from Rural - Regional Landscape & Rural Protection to (the attempted) inclusion in the urban footprint of the recently released South East Queensland Regional Plan. Under asset / non-conforming loans rural properties of not more than 10 hectares are considered acceptable as security. The properties (the [Fund's] security) now total 832.5 hectares. ii. The loan is to Atkinson Gore Agricultural Pty Ltd (Craig Gore / John Atkinson) and approved to $13.35 million (with interest capitalised from date of initial draw down). Recommendation The loan be repaid (refinanced) if it is not confirmed in writing from the relevant government planning authority that the land can be included under the urban footprint of the recently released South East Queensland Regional Plan by 31 December 2005. At the December review SVP also recommends obtaining another valuation from a different valuer to check the analysis of land values in the Canungra area based on permitted uses. This valuation must also be satisfactory for the loan to remain as part of the portfolio. (Emphasis in original.) 77 Section 19 (and Table 19) of the SVP report also identified a number of loans in respect of which SVP recommended that an updated valuation be obtained. One of the loans identified in Table 19 was the AGA facility. The stated purpose of the updated valuation to be obtained in relation to the AGA facility was: "[c]urrent zoning and check analysis of Canungra land values by a different valuer based on permitted uses". The report noted that the updated valuation was "[t]o be requested if loan is not repaid by 31 December 2005". 78 The AGA facility was the only loan in the Fund's loan book that SVP recommended be repaid or refinanced by a particular date if certain conditions were not met. 79 There was one additional general finding or observation included in the SVP report that is relevant to the events that transpired in relation to the AGA facility in 2006. That finding concerned the certification of valuations. SVP noted that the Compliance Plan provided that the lending manager must certify to the Credit Committee that the valuation is acceptable before approval. SVP found, in effect, that this requirement was not being complied with. The SVP report stated: As the lending manager signed off each lending proposal, SVP is advised that the members of the lending committee considered this to indicate the valuation was acceptable; but SVP sighted no specific evidence on file of separate certification. SVP are advised that new processes being introduced will incorporate a specific certification. 80 The "new processes" that SVP was advised were being introduced were in fact later implemented by City Pacific. On 27 October 2005, each of Messrs Sullivan, Swan, Donaldson and McCormick were advised that City Pacific had adopted and implemented a new practice note in relation to valuations. That practice note included a new form of credit proposal that was to be completed by the Lending Manager. The new proposal was required to include the following: VALUATION CERTIFICATION In recommending this proposal, the Lending Manager certifies that the accompanying valuation is acceptable, subject to any qualification listed above. 81 On 5 October 2005, Mr Sullivan and Mr McCormick were sent a draft "matrix", prepared by City Pacific's lawyers, which summarised SVP's recommendations. The draft matrix included SVP's specific recommendation in relation to the AGA facility. The draft matrix also included a column into which was to be inserted the action City Pacific proposed to take in relation to each recommendation and the person or persons at City Pacific who bore the responsibility for taking that action (the action plan). 82 The draft matrix, including the action plan, was reviewed by Mr Sullivan and others. It was finalised and sent to ASIC on 11 October 2005. Copies of the final version of the matrix and action plan were sent to Mr Swan and Mr Donaldson on 11 October 2005. It could not seriously be doubted that each of Messrs Sullivan, Swan, Donaldson and McCormick were well aware of the SVP recommendations concerning the AGA facility and City Pacific's action plan in relation to those recommendations from at least that time. 83 It will be necessary, in due course, to return to the SVP report and City Pacific's response to it. On any view it alerted, or at the very least should have alerted, each of Messrs Sullivan, Swan, Donaldson and McCormick to serious issues concerning the AGA facility, including whether the facility complied with the Constitution, Compliance Plan and Lending Manual, and whether the existing valuation of the Saddleback land held by City Pacific was adequate. The extent to which those issues registered with each of Messrs Sullivan, Swan, Donaldson and McCormick was, however, a matter of some considerable dispute and contention. Each of them gave evidence and was cross-examined at length on that topic.

October 2005 - Further increase in the AGA Facility 84 Within a week of receiving the SVP report, City Pacific approved an increase in the total facility available to AGA to $17.89 million. The increase was specifically approved by each of Messrs Sullivan, Swan, Donaldson and McCormick as members of the Credit Committee. The proposal to the Credit Committee in relation to the increase to the AGA facility limit was prepared by Mr McCormick. The proposal stated that the current value of the security land was $26.775 million "TBV" - meaning "to be valued" or "to be verified". The proposal recommended that the increase be approved "subject to valuation". It is to be noted that the September 2005 Valuation valued the September 2005 Saddleback Land at $24.975 million, not $26.775 million. It is common ground that City Pacific had not been provided with a valuation which valued the Saddleback land at $26.775 million. 85 It would appear that the proposal was not discussed at any meeting of the Credit Committee. Rather, the proposal was circulated for signature to each of the members of the Credit Committee. Mr Swan noted, in an email that conveyed his acceptance of the proposal, that his approval was "subject to … the receipt of an acceptable valuation". 86 Despite the fact that the Credit Committee's approval was subject to the receipt of a valuation confirming the supposed valuation of the security property of $26.775 million, on 6 October 2005, City Pacific communicated its offer to AGA to increase the facility. The offer specified that the loan facility of $17.89 million was to be secured by registered mortgages over the September 2005 Saddleback Land, together with Lot 2 RP 78799 and a Deed of Cross-Collateralisation. AGA accepted that offer on the same day. 87 One additional point to note about this increase to the AGA facility limit was that the maturity date of the loan remained the same. City Pacific's letter of offer specified that the term of the loan was "[r]eview for clearance 9 December 2005". As will be seen, the Credit Committee did not formally review or extend the loan until December 2006.

AGA re-agitates the 1989 and 1992 rezoning approvals 88 On 7 September 2005, AGA wrote to the Council concerning the 1989 and 1992 rezoning approvals. The letter requested that "the Council now proceed to make a final decision" on the approval. That request was repeated in a letter dated 15 November 2005. In that letter AGA requested that "Council now [approve] the 1989 rezoning approval (updated in 1992) in relation to the plateau and [forward] the approval to the State Minister for immediate Gazettal". 89 Unfortunately for AGA, on 13 December 2005, the Council rejected AGA's request to have it revisit the rezoning of the Saddleback land. In its letter to AGA dated 21 December 2005, the Council stated that its reasons for refusing the rezoning of the Saddleback land to "special facilities" zone were that the rezoning: • is contrary to Council's current and future planning intent for the Shire; • will adversely impact upon the Council's preferred pattern of development and orderly planning within the Shire; • is out of sequence in terms of the Council's preferred delivery of infrastructure within the Shire; • will adversely impact upon the amenity of the Shire; • is not in accordance with the preferred pattern of development in the Regional Plan; • will adversely impact upon the amenity and proper functioning of the Canungra township; and • there is no need for the proposed development. 90 On 19 January 2006, AGA filed an appeal in the Planning and Environment Court of Queensland from the decision of the Council to reject its rezoning application. It would appear, for reasons that are not entirely clear, that the appeal related to only three lots of the Saddleback land, amounting to just less than half of the Saddleback land owned by AGA. In any event, as will be seen, AGA did not take any, or any meaningful, steps to prosecute the appeal. It was eventually discontinued by AGA's receivers in 2013. 91 In due course, AGA advised City Pacific that its efforts to revisit and re-agitate the 1989 and 1992 rezoning approvals had been unsuccessful. On 15 February 2006, AGA sent a report to Mr Sullivan and Mr McCormick which summarised the steps AGA had taken to pursue development approvals in relation to the Saddleback land. The report noted that the Council had refused AGA's request to recommend to the minister that the 1989 and 1992 rezoning approvals be gazetted and that the refusal was the subject of an appeal in the Planning and Environment Court of Queensland.

City Pacific's purported implementation of the SVP recommendations and report to ASIC 92 In the latter part of 2005 and into early 2006, there was a degree of internal activity at City Pacific in relation to City Pacific's response to, and implementation of, the SVP report recommendations. Various action plans were prepared and circulated, and strategies were proposed. Despite this internal activity, however, nothing much was in fact achieved in terms of implementing some of SVP's recommendations. In particular, nothing at all had been done to implement SVP's recommendations concerning the AGA facility. As at 31 December 2005, City Pacific had not obtained written confirmation that Saddleback had been included in the Urban Footprint area under the South East Queensland Regional Plan. Nor had it required the AGA facility to be repaid, or obtained a fresh valuation from a different valuer based on permitted uses. 93 On 27 January 2006, ASIC wrote to Mr Sullivan to request a report on the progress of City Pacific's implementation of the SVP recommendations. On 8 February 2006, Mr Sullivan sent ASIC a letter enclosing a "full progress report". Mr Sullivan's letter and the enclosed report were subsequently sent to Mr Swan and Mr Donaldson. In relation to the AGA facility, a table in the enclosed report stated that "[o]n receipt of zoning gazettal and finalised valuation, both imminent, we will review [the] facility". The basis of the statement that a zoning gazettal and finalised valuation were "imminent" is, at best, unclear. Given that the Council had refused AGA's application to have the 1989 or 1992 rezoning applications gazetted, there would appear to have been no basis for the statement that gazettal was "imminent". 94 Perhaps more significantly, the progress report stated as follows in relation to the AGA facility: A Draft valuation prepared by a different valuer (on panel), has been sighted at a substantially higher value. Legal opinion is held from an eminent QC that the 1989 rezoning to 'Special Facilities' is valid for this property. On receipt of zoning gazettal and finalised valuation we will review the facility. Advice that we have received is that the gazettal is now a formality and is imminent. 95 That statement was unquestionably misleading, if not completely false. No valuation by a different valuer had been commissioned, let alone sighted by City Pacific. City Pacific did not hold an opinion from an eminent QC that the 1989 rezoning was "valid". Nor did it hold any advice that gazettal was "a formality and … imminent". Indeed, as already indicated, the Council had already refused AGA's request relating to the approval and gazettal of the 1989 and 1992 rezoning approvals. Mr Sullivan was made aware of this within days of sending the report to ASIC. He did not advise ASIC of that refusal or otherwise seek to correct the statements made in the report to ASIC. 96 The evidence of Messrs Sullivan, Swan, Donaldson and McCormick in relation to City Pacific's non-compliance with the SVP recommendations concerning the AGA facility and the false report to ASIC is considered in detail later. Suffice it to say at this stage that the evidence concerning the knowledge and involvement of each of the respondents in relation to those matters provides important, if not critical, background and context to the events that occurred later in 2006 and 2007 in relation to the AGA facility. If the respondents knew about SVP's findings and recommendations concerning the AGA facility, knew that the recommendations had not been implemented, and knew that ASIC had been misled in relation to the implementation of the recommendations, it could hardly be accepted that they were not aware that there were potentially serious issues or problems with the AGA facility. It could hardly be contended in those circumstances that the respondents saw the AGA facility as just another loan in the Fund's loan book. Rather, one would reasonably expect that each of Messrs Sullivan, Swan, Donaldson and McCormick would, at the very least, approach any proposal to increase the AGA facility with particular caution and care. As will be seen, that is not what occurred.

Deed of Cross-Collateralisation 97 On or around 9 March 2006, City Pacific as the responsible entity of the Fund, as trustee for City Pacific Private Fund (CPPF), and in its own capacity, entered into a Deed of Cross-Collateralisation with the Public Trustee of Queensland as custodian of the Fund, AGA, and a number of companies that, like AGA, were part of the Gore Group of companies. Those companies were Atkgor Investments Pty Limited (Atkgor), Atkinson Gore Group Pty Limited (AGG), Sickle Avenue Pty Ltd (Sickle), Maudsland Pty Limited (Maudsland) and Treetops Pty Limited (Treetops). City Pacific, as the responsible entity of the Fund, had loaned significant amounts of money to each of those companies. With the exception of Atkgor, those loans were still outstanding as at March 2006 and were secured by mortgages over various properties. 98 The effect of the Deed of Cross-Collateralisation was that the loan facilities then in place between City Pacific, in its various capacities, and AGA, Atkgor, AGG, Sickle, Maudsland and Treetops were cross-collateralised. That meant that in the event of default by AGA, City Pacific could have recourse to the properties that secured the loans to Atkgor, AGG, Sickle, Maudsland and Treetops. It is clear, however, that the Deed of Cross-Collateralisation only applied to the loan facilities then in place. In the case of AGA, it only applied in respect of the facility with the limit of $17.89 million that was offered and accepted in October 2005. Once the AGA facility limit was increased and the facility extended, the Deed of Cross-Collateralisation could not, without amendment, operate to provide additional security for the AGA facility.

The AGA facility - March 2006 to July 2006 99 Trilogy's case against the respondents focussed in particular on the events from about March 2006 onwards. In simple terms, Trilogy contended that the AGA facility should never have been increased or extended beyond the limit of $17.89 million approved in October 2005, and that no advances should have been permitted beyond that limit. Trilogy's case was that the two increases to the AGA facility that were approved, or purportedly approved, in 2006 did not comply with the Fund's Constitution, Compliance Plan, PDS and Lending Manual, and that no officer of a responsible entity, exercising the appropriate degree of care and diligence that a reasonable person would exercise if in the officer's position, would have approved the increases. Trilogy also contended that none of the advances made from late April 2006 onwards complied with the Constitution, Compliance Plan, PDS and Lending Manual, and that no officer of a responsible entity, exercising the appropriate degree of care and diligence that a reasonable person would exercise if in the officer's position, would have permitted the advances to be made.

March 2006 Valuation 100 On 7 March 2006, City Pacific as the responsible entity of the Fund instructed PRP to prepare a valuation of the September 2005 Saddleback Land together with an additional lot, Lot 2 RP 78799. The letter of instructions was dated 7 March 2006, addressed to Mr Christopher Kogler of PRP, and signed by Mr Matt Gillam, Assistant Lending Manager. It instructed PRP to value the land the subject of the valuation on the following basis: Site Value AS IS (with current development approval if applicable). The valuation is to reflect the 1989/1992 'Special Facilities' rezoning approval over the Original Saddleback lands. It is to also take into consideration the Canungra Development Control Plan which exists over part of the subject lands. 101 This represented a fundamental departure from previous instructions given to Mr Kogler. It is difficult to interpret this instruction as meaning anything other than an instruction that the valuer was to assume that the 1989/1992 rezoning approval by the Council had been gazetted and was legally effective. That is despite the fact that the rezoning approval had never been gazetted, was legally ineffective and the Council had made it plain to AGA that it refused to revisit or gazette the earlier approvals. 102 On or around 20 March 2006, Mr Kogler of PRP provided City Pacific with a valuation as instructed. For reasons not explained in the valuation itself, the report valued not only the September 2005 Saddleback Land and Lot 2 RP 78799, as instructed, but also two additional lots (Lot 49 RP 31445 and Lot 381 WD 3324). The two additional lots, which were not referred to in City Pacific's letter of instructions, were not then, or at any time, security for the AGA facility. The basis for including these extra two lots in the valuation was never explained. 103 Mr Kogler's report was dated 20 March 2006 and headed 'Valuation of Englobo Development Site 'Seven Mountains' - Darlington Range Road and Toe Holt Road, Canungra QLD 4275' (the March 2006 Valuation). The land which was the subject of the valuation was said to comprise land with a gross area of 886.67 hectares. Mr Kogler, expressed the opinion that the current market value of the March 2006 Saddleback land was $64.1 million. 104 It is clear from the terms of the March 2006 Valuation that Mr Kogler, as effectively instructed, valued the land on the basis that the 1989 or 1992 rezoning approval was legally effective and that development approval had been given in relation to the lots the subject of that rezoning. Only that assumed change in zoning could explain the huge increase of almost $40 million in the valuation from the September 2005 Valuation. 105 Mr Kogler's reasoning in his valuation was also instructive. He noted that the current zoning of the land was "rural" and that its permitted uses were "for agricultural pursuits, mainly cattle fattening and breeding". He also noted that the land had been nominated as a "Regional Landscape and Rural Protection Area" in the South East Queensland Regional Plan. He expressly referred to the fact that the Council had, in December 2005, refused AGA's application to approve and send for gazettal the 1989 or 1992 rezoning approval. Despite that fact, Mr Kogler valued the land that was the subject of the 1989 or 1992 rezoning approval on the basis that AGA "holds the major development approval". He assessed that land as being worth $372,906 per hectare. In contrast, those lots that were not the subject of the supposed rezoning and development approval were valued as being worth $22,500 per hectare on the basis that the current zoning of those lots was "rural". 106 There was no dispute that Mr McCormick received and read the March 2006 Valuation. Nor was there any real dispute that Mr McCormick provided the valuation to Mr Sullivan. 107 The evidence of Messrs Sullivan, Swan, Donaldson and McCormick in relation to the March 2006 Valuation is considered later.

Request for an updated valuation 108 On or about 20 April 2006, City Pacific instructed PRP to prepare an addendum to the March 2006 Valuation. Those instructions were provided by way of letter to Mr Kogler, again signed by Mr Gillam. The letter gave Mr Kogler the following additional instructions: We would be pleased if you could issue an addendum to your valuation report which also expresses the valuation on the following two (2) additional (yet separate) bases: 1. valuation on basis that the development proposal known as Seven Mountains on the lands the subject of this valuation is declared under the State Development and Public Works Organisation Act 1971 as a 'State significance' project; 2. valuation on basis that the lands are included in the "Urban Footprint" area under the SEQ Regional Plan. 109 This was, to say the least, a most unusual instruction in the circumstances. Mr Kogler was effectively being asked to value the Saddleback land on the basis of assumptions that did not reflect reality and may never come to pass. As Mr Kogler himself made clear in the March 2006 Valuation, the Saddleback land had in fact been excluded from the Urban Footprint area under the South East Queensland Regional Plan. It was nominated as "Regional Landscape and Rural Protection Area." Whilst a SEQ Regional Plan Draft Amendment had issued, there was no proper basis to assume that the amendment would include the Saddleback land in the Urban Footprint, particularly given the Council's stance on the development approval in relation to part of the Saddleback land. The March 2006 Valuation also made it clear that a declaration of State Significance was, at that time, simply an alternative avenue which AGA "may investigate". There had certainly been no such declaration. Nor was there any proper basis upon which it could be assumed that such a declaration was likely, let alone imminent. 110 The timing of the request for an updated valuation was also interesting. The request was made at the time the AGA facility had effectively been drawn down to its limit. The available inference is that it was intended that the updated valuation, based on false, or at least highly dubious, assumptions, would support an increase to the facility. As will be seen, however, the updated report was not received until late May 2006. In the intervening period, advances continued to be made to AGA, despite the fact that no increase to the facility limit had been proposed, let alone approved, and despite the fact that the advances took the facility well over its approved limit.

May 2006 - Advances over the AGA facility limit 111 The AGA facility limit, approved in October 2005, was $17.89 million. As at 28 April 2006, the facility had been almost fully drawn. The balance outstanding was $17,744,965.64. 112 On 1 May 2006, capitalised interest of $318,801.68 was added to the principal outstanding under the facility, increasing the balance outstanding to $18,063,767.32. That was outside the limit approved by the Credit Committee in October 2005. 113 On 10 May 2006, AGA requested a drawdown of $1 million. That request was made to Mr McCormick. A Funds Transfer Request form in respect of that drawdown was prepared and in due course signed by Mr Sullivan and Mr McCormick. That was despite the fact that the drawdown resulted in the AGA facility exceeding its approved limit. There was no Credit Committee resolution to increase the limit of the AGA facility to permit the making of that further advance. The further advance was made on 11 May 2006. 114 Following the making of that further advance, further significant advances were made of $592,000, $350,000 and $500,000 on 17, 25 and 26 May 2006 respectively. The latter two Funds Transfer Request forms were signed by Mr McCormick. 115 On 20 June 2006, each of Messrs Sullivan, Swan and Donaldson were sent board papers in advance of a meeting of the board of directors on 22 June 2006. The board papers included a balance sheet for the Fund which recorded, under the heading "Significant advances - May", that $2.4 million had been advanced to AGA in May 2006. The board papers also included a schedule of all loans made by the Fund. That schedule recorded that the balance of the AGA facility was $20.506 million. Similarly, the board papers for the July 2006 meeting of the board of directors included a schedule which recorded the balance of the AGA facility as being $20.691 million as at 30 June 2006, and the board papers for the August 2006 board meeting recorded that the balance of the AGA facility was $22,822,885. Throughout this period, the approved limit of the AGA facility remained at $17.89 million. 116 The question whether Messrs Sullivan, Swan and Donaldson read or reviewed the loan schedules included within the board papers for the board meetings in June, July and August 2006, and were therefore aware that the balance of the AGA facility was above its approved limit of $17.89 million, was contentious and is addressed later.

The Updated March 2006 Valuation 117 Mr Kogler of PRP prepared an amended valuation as instructed by City Pacific in Mr Gillam's letter of 20 April 2006. That valuation (the Updated March 2006 Valuation) was sent to Mr McCormick on 29 May 2006. In the Updated March 2006 Valuation, Mr Kogler expressed the opinion that the current market value of the March 2006 Saddleback land was: (a) $64.1 million on an 'as is' basis "which reflects the 1989/1992 "Special Facilities" rezoning approval"; (b) $102.4 million on the assumption that the land had been declared as State Significant; and (c) $102.4 million on the assumption that the land had been included in the Urban Footprint area under the South East Queensland Regional Plan. 118 As already indicated, and at risk of repetition, none of the assumptions on which those valuations were based reflected reality. The land the subject of the 1989 and 1992 rezoning approvals had not been legally rezoned because the approvals had not been gazetted. The Council had expressly refused AGA's application to have the approval gazetted. The Saddleback land was and remained zoned rural. The development proposal known as "Seven Mountains" had not been declared as a State Significant project under the State Development and Public Works Organisation Act 1971 (Qld) (State Development Act). The land at Saddleback had not been included in the Urban Footprint area under the South East Queensland Regional Plan.

Purported increase of the AGA facility limit to $29 million 119 The fact that the AGA facility had been drawn down beyond the approved facility limit did not go entirely unnoticed. On 11 July 2006, the Fund's compliance auditors, KPMG, wrote to Mr McCormick requesting information in relation to the Fund's mortgage loans. The letter included the following request: We noted five instances (… Atkinson Gore Agricultural …) where the loan drawn at 31 May exceeds the facility limit per the LOO [letter of offer]. … Please review the loan files and provide details of the current situation. 120 The next day, Mr Sullivan and Mr McCormick signed a further Funds Transfer Request form in relation to the AGA facility that authorised a further advance of $475,000 under the facility. That was followed by further Funds Transfer Requests on 17 July 2006 for $750,000 (signed by both Mr Sullivan and Mr McCormick) and on 25 July 2006 for $500,000 and $19,820.75 (signed by Mr McCormick). Those advances put the AGA further outside the approved limit and were not the subject of any documented approval by the Credit Committee. 121 No doubt prompted by the letter from KPMG, on 24 July 2006, Mr McCormick created a file note. That file note bore the date 28 April 2006 and purported to record a meeting that occurred between Mr Sullivan, Mr McCormick and Mr Gore. The body of the file note stated as follows: FILENOTE Date: 28 April 2006 ATKINSON GORE AGRICULTURAL PTY LTD Borrower: Craig Gore Group. Total Facility Approved: $17,890,000 Currently Drawn: $17,744,965 Security: Various Lots "Saddle Back" Darlington Range Rd, Toe Holt Rd, Canungra Englobo land Security Value: $64,100,000 LVR%: 27.91% Background: Facility expired Dec '05 however has been allowed to run on while awaiting fresh valuation to reflect the recognition of a 1988 rezoning approval. The site has been subject to intense interest due to the planned redevelopment into a Golf Course / residential / hotel and world class equestrian centre, facilities are all allowed for under the 1988 approval. Current Position: We now have a fresh Valuation which has the 'as is' as detailed above. The Valuation also places an increased value of $102.4m on either of: 1. Project being declared of 'State Significance' or 2. the lands are included in the Urban footprint under the SEQ Regional Plan. Following a meeting between the writer, CEO and Craig Gore provisional approval was given to increasing the facility to $50m once 1 or 2 above had been received, in the interim the facility would be increased to $36m, an LVR of 56.16%. The increase in the facility would allow for all other loans on the Gore Group to be restructured ensuring the facilities were operating under Cost to Complete in their own right rather than relying on the Groups Cross Collateralised position. A letter of Offer and formal approval to be completed once we have the other Group facilities relevant project costings confirmed by AGG, nb. This is expected by 30 June 2006. Steve McCormick Lending Manager 122 One version of the file note also included a handwritten note in the following terms: Please prepare a short acknowledgment letter informing we will allow facility to go to $26m as an interim measure until formal LOO is issued. 123 It is unclear exactly when that handwritten note was added to the file note. As will be seen, however, ultimately Mr Sullivan appeared to concede that the note was most likely written on or shortly before 23 or 24 August 2006. 124 It should also be noted, in the context of this file note, that 28 April 2006 was the last business day on which the balance of the AGA facility was within its approved limit. The file note bearing this date was signed by both Mr Sullivan and Mr McCormick. Mr Sullivan's signature was in the vicinity of the handwritten note. 125 The evidence of Mr Sullivan and Mr McCormick concerning the circumstances in which this file note was prepared and signed is considered in detail later. Suffice it to say at this stage that the evidence of both men on that topic was manifestly unsatisfactory and, in the case of Mr Sullivan in particular, very unclear. Both Mr Sullivan and Mr McCormick initially maintained that the meeting and approval referred to in the 28 April 2006 file note in fact occurred on or about that date and that the file note was created and signed contemporaneously. Unlike Mr McCormick (and unlike the file note), however, Mr Sullivan did not appear to suggest that there was a meeting with Mr Gore on 28 April 2006. He appeared to indicate that his meeting was with Mr McCormick alone. 126 In any event, it is tolerably clear that there was no meeting on 28 April 2006. Nor was any provisional or interim approval given to a proposal to increase the AGA facility on 28 April 2006. The documentary evidence and the evidence led by Trilogy concerning the metadata associated with the electronic version of this document left no room for doubt that the document was first created on 24 July 2006. In cross-examination both Mr Sullivan and Mr McCormick eventually conceded that they had no actual recollection of the date of the supposed meeting or the date on which the file note was created or signed. Mr Sullivan ultimately submitted that he most likely signed the file note on or shortly before 23 August 2006. 127 The file note was, on any view, manifestly misleading. There is nothing on the face of the document to suggest that it was prepared and signed months after the date it bore. The clear impression conveyed by the file note was that it contemporaneously recorded a meeting that occurred on 28 April 2006 and an approval and instruction given by Mr Sullivan on or very shortly thereafter. The inescapable inference is that this file note was prepared and signed to attempt to mollify the auditors and provide some justification for the fact that the AGA facility had been permitted to be drawn down well over its approved limit. It gave the false or misleading impression that an interim increase to the AGA facility had been approved and documented before the AGA facility had been permitted to exceed its limit. 128 On the same day that he created the file note dated 28 April 2006, Mr McCormick created a second file note. That file note was correctly dated. It stated as follows: FILENOTE Date: 24 July 2006 ATKINSON GORE AGRICULTURAL PTY LTD Borrower: Craig Gore Group. Total Facility Approved: $17,890,000 (Provisional approval granted for $50m, see D/N dated 28 April 2006) Currently Drawn: $22,102,841 Security: Various Lots "Saddle Back" Darlington Range Rd, Toe Holt Rd, Canungra Englobo land Security Value: $64,100,000 LVR%: 34.48% Background: Refer D/N 28/04/06 attached. Current Position: Facility has been allowed to run on with additional draws approved as and when they are submitted. We are still awaiting the updated individual project costings which will enable a formal approval and Letter of Offer to be produced. This is now expected by end of July. Steve McCormick Group Executive Property Development Finance 129 The day after he created these two file notes, Mr McCormick wrote to KPMG in response to the request for information contained in KPMG's letter of 11 July 2006. The letter included the following: Facility Drawn exceeds Facility Limit Sickle Avenue Pty Ltd, Romsey Street Waitara Pty Ltd, Atkinson Gore Agricultural Pty Ltd - These facilities fall within the exposure known as the 'Gore Group'. These facilities are currently being restructured and all securities are cross-collateralised between facilities. Recent drawdowns on each facility reflect the cross collateralised position. In support, we have provisionally approved a restructure of the Atkinson Gore Group facilities that will bring all loans within the Group back into line with their respective Cost to Complete. This is expected to occur pre- 31 July 2006. As part of the restructure, Atkinson Gore Agricultural Pty Ltd will be increased to $50M to facilitate the necessary adjustments across the Group. Refer Diary Note on Atkinson Gore Agricultural. 130 A number of points can be made about this letter. First, there was no evidence that the Gore Group facilities, including the AGA facility, were being restructured. Certainly no proposal to restructure the facilities had been put to and approved by the Credit Committee. Second, no proposal to increase the AGA facility had been put to the Credit Committee. Third, by referring KPMG to the diary note, Mr McCormick misled KPMG. The false impression was conveyed that provisional approval to increase the AGA facility to $50 million had been given on 28 April 2006. 131 On 28 July 2006, a matter of days after Mr McCormick prepared the misleadingly dated file note purporting to record an "interim" increase of the AGA facility, Mr Sullivan and Mr McCormick signed a further Funds Transfer Request authorising a further advance on the AGA facility in the sum of $200,223.02. That advance, when made, took the debit balance of the AGA facility to $23.231 million, almost $5.5 million above its approved limit. No proposal had been put to the Credit Committee to increase the AGA facility limit. 132 Further advances of $500,000 and $202,641.91 were made on 1 August 2006. Mr McCormick signed the Funds Transfer Request in relation to the $500,000 advance. Still further advances of $1 million and $165,000 were made on 14 and 16 August 2006.

August 2006 - Backdated letter of offer 133 Despite the further advances made to AGA during July 2006, purportedly pursuant to the interim increase of the AGA facility limit recorded in the misleading file notes, no formal letter of offer to increase the limit on the AGA facility had been sent to or accepted by AGA. That was remedied in late August 2006, though in a way that was again manifestly misleading. 134 On 23 August 2006, BG Capital Corporation Limited (BGC Corp), a company that was performing due diligence for a prospective purchaser of the Fund's loan book, requested access to a number of City Pacific's loan files. One of the files was the AGA loan file. Mr Sullivan forwarded that request to Mr McCormick and Mr McCormick forwarded it to other officers in the loan department. Mr McCormick advised those officers that he expected that the loan files would be "gone through with a fine toothcomb". Mr McCormick wanted to ensure that the files were "in order". The inescapable inference is that the request by BGC Corp for access to the AGA loan file prompted Mr McCormick to create a letter of offer to AGA in relation to the supposed interim increase. The letter of offer to AGA prepared by Mr McCormick offered to increase the limit of the AGA facility to $26 million. That amount corresponded with the amount referred to in the handwritten note to the backdated 28 April 2006 file note. The body of the letter was in the following terms: We refer to recent discussions to extend the funding arrangements by the CPMT to $26 million. As discussed, the increase was to be reliant upon the 'as is' valuation of the securities totalling $64.1 million. We confirm the current valuation held on file now reflects this amount. We are pleased to offer this increase to the facility as an interim facility until restructuring of the Gore Group facilities has been confirmed and a formal Letter of Offer issued. We advise all other existing terms and conditions as per the Letter of Offer dated 6 October 2005 will remain unchanged. Kindly confirm your acceptance of these terms and conditions by signing and returning this letter to our office. 135 Expert evidence concerning the metadata of the electronic version of the letter supports the inference that the letter of offer was created on 23 August 2006. Like the earlier misleading file note, it was dated 28 April 2006. It was signed by Mr Sullivan and Mr McCormick, and sent by email to AGA in the early evening of 23 August 2006, together with a request that the letter be signed and returned. On 24 August 2006, the letter of offer signed by AGA was returned to Mr McCormick. 136 It should be noted in the context of this letter of offer that, in his evidence, Mr Sullivan initially maintained that he first signed a version of the letter of offer on or about the date it bore, namely 28 April 2006. He claimed that he signed another version of the letter, which included a space for acceptance by AGA, on or about 23 August 2006. Mr Sullivan's evidence in respect of that issue is considered in detail later. Suffice it to say at this stage that Mr Sullivan's account was at best implausible. Perhaps not surprisingly, Mr Sullivan ultimately abandoned that version of events. It is effectively common ground that Mr Sullivan signed the letter on or around 23 August 2006. The letter was not sent to AGA until 23 August 2006. It was signed on behalf of AGA (indicating an acceptance of the terms of the offer) and returned to City Pacific on 24 August 2006. 137 One further point concerning the letter of offer should be made. As can be seen, it confirmed that the terms and conditions specified in the 6 October 2005 letter of offer remained unchanged. Those terms and conditions included that the loan was to be reviewed on 9 December 2015. The term of the loan expired on that date. There had been no review of the loan by the Credit Committee on or before 9 December 2005. No extension of the loan facility had been approved by the Credit Committee.

August to December 2006 - Further advances 138 Within days of sending the backdated letter of offer to AGA, Mr McCormick signed Funds Transfer Requests forms authorising advances of $650,000 (on 28 August 2006) and $350,000 (on 29 August 2006). The balance of the AGA facility as at 31 August 2006 was $25.691 million. With capitalised interest of $232,107.08 added to the balance on 1 September 2006, the AGA facility was effectively fully drawn down to its purported interim limit of $26 million. Despite this, within a week, further advances were made to AGA. Those advances resulted in the balance of the facility exceeding $26 million. Those advances were: • an advance of $500,000 made on 6 September 2006; • an advance of $17,288.30 made on 14 September 2006; • an advance of $500,000 made on 18 September 2006; • an advance of $500,000 made on 25 September 2006; • an advance of $500,000 made on 29 September 2006; • an advance of $500,000 made on 29 September 2006; • an advance of $247,183.44 made on 1 October 2006; • an advance of $650,000 made on 9 October 2006; • an advance of $550,000 made on 10 October 2006; • an advance of $950,000 made on 11 October 2006; • an advance of $350,000 made on 13 October 2006; • an advance of $500,000 made on 17 October 2006; • an advance of $1.5 million made on 18 October 2006; • an advance of $700,000 made on 26 October 2006; • an advance of $1.42 million made on 31 October 2006; • an advance of $301,151.80 made on 1 November 2006; • an advance of $1.1 million made on 8 November 2006; • an advance of $1.3 million made on 15 November 2006; • an advance of $750,000 made on 21 November 2006; • an advance of $1 million made on 29 November 2006; • an advance of $1 million made on 1 December 2006; • an advance of $352,381.76 made on 1 December 2006; • an advance of $1 million made on 13 December 2006; • an advance of $967,283.80 made on 13 December 2006; • an advance of $1,562,745.81 made on 19 December 2006. 139 Mr McCormick signed Funds Transfer Request forms for all those advances other than those made on 25 September, 1 and 13 October, 1 and 15 November, and 1 December 2006. The Funds Transfer Requests for the advances made on 14 September, 13 October, and 21 and 29 November 2006 were also signed by Mr Sullivan. 140 As at 19 December 2006, the balance of the AGA facility was $44.641 million. This was almost $27 million beyond the facility limit approved by the Credit Committee in October 2005. Even accepting the "interim" facility limit increase purportedly approved by Mr Sullivan and Mr McCormick (evidenced in the backdated 28 April 2006 file note and the subject of the backdated 28 April 2006 letter of offer), advances totalling almost $19 million had been made beyond that limit.

August to December 2006 - Board papers 141 During the period August to December 2006, the board of directors of City Pacific met monthly. Board papers were forwarded to each of Messrs Sullivan, Swan and Donaldson prior to the meetings. Those board papers included, amongst other things, a schedule recording the balance of all of the loans made by the Fund. 142 The loan schedule included in the August 2006 meeting board papers recorded that the balance of the AGA facility as at 31 July 2006 was $22.823 million. On 25 August 2006, Mr McCormick sent an email to Mr Swan and Mr Donaldson attaching a copy of the document that recorded the October 2005 Credit Committee approval of the increase of the AGA facility limit to $17.89 million. The email foreshadowed that Mr Swan and Mr Donaldson would be provided with a new proposal "in the next week or so" which would be based on a new valuation. No mention was made of the supposed interim increase of the facility limit to $26 million. As at the end of August 2006, therefore, Mr Swan and Mr Donaldson would have had fairly fresh in their mind that the approved limit of the AGA facility was $17.89 million. 143 The loan schedule included within the September 2006 meeting board papers recorded that the balance of the AGA facility as at 31 August 2006 was $25,690,527. 144 The loan schedule included within the October 2006 meeting board papers recorded that the balance of the AGA facility as at 30 September 2006 was $28,439,922. 145 The loan schedule included within the November 2006 meeting board papers recorded that the balance of the AGA facility as at 31 October 2006 was $35,307,106. The November 2006 board papers also included a one-page balance sheet of the Fund which recorded that, amongst the "[s]ignificant advances" that had been made by City Pacific in October, total advances of $6.8 million had been made to AGA. 146 Perhaps more significantly, the minutes of the November 2006 board meeting, which was attended by each of Messrs Sullivan, Swan and Donaldson, record that there were "[five] deals in the immediate pipeline that will need Board approval, three due to Group exposure and the remainder due to size/group/related party". One of those "deals" was an increase in the AGA facility of approximately $18 million. It would appear that Mr McCormick attended the board meeting and provided information in relation to those proposed loans or loan facility increases. As a result, the attention of each of Messrs Sullivan, Swan and Donaldson was specifically drawn to the AGA facility during the board meeting. It would, in those circumstances, be somewhat surprising if there was no discussion concerning the present balance of the AGA facility. It would be equally surprising if the directors did not look at the loan schedule within the board papers to ascertain the balance of the AGA facility. Yet as will be seen, each of Messrs Sullivan, Swan and Donaldson claimed in their evidence that they either did not closely consider the board papers to ascertain the balance of the AGA facility, or at least had no recollection of so doing. 147 The loan schedule in the January 2007 meeting board papers recorded that the balance of the AGA facility as at 31 December 2006 was $45,990,668.80. That was just over $28 million more than the approved facility limit. 148 The board papers are particularly relevant to the issue whether Mr Swan and Mr Donaldson were aware, or as diligent directors should have been aware, that further advances were being made to AGA during 2006 and were aware, or should have been aware, that the balance of the AGA facility was well over its approved limit. Unlike Mr Sullivan and Mr McCormick, Mr Swan and Mr Donaldson did not sign any Funds Transfer Request forms during this period. Nor were they involved in the events relating to the purported interim increase of the facility limit to $26 million in July or August 2006. Both Mr Swan and Mr Donaldson maintained that they were unaware that further advances were being made to AGA during this period, and were unaware that the facility was operating outside its approved limit. That issue, and the evidence of both Mr Swan and Mr Donaldson in relation to it, is considered later.

December 2006 and January 2007 - Increase of the AGA facility limit to $44.87 million or $55 million 149 It will be recalled that, at the November 2006 board meeting, Mr McCormick reported that a new proposal in relation to the AGA facility was "in the immediate pipeline". It would appear that this proposal did not materialise until late December 2006. Whilst the documentation relating to that proposal and the resulting letter of offer bore the date 9 August 2006, it was well-nigh incontestable, and was ultimately conceded by each of the respondents, that the documentation was not created and signed until late December 2006 or early January 2007. 150 On 21 December 2006, Mr McCormick sent a letter to Mr Kogler of PRP. The letter, which was dated 30 November 2006, requested Mr Kogler to provide an "updated valuation" for the Saddleback land. The letter stated that it was essential that Mr Kogler "use and undertake procedures, processes, enquiries and examinations that would reasonably be expected of a registered valuer to determine market value of the property". It included the following "special instructions": Please provide an updated 'as is' valuation taking into consideration the recent Steve [sic] Government regulatory changes. 151 The letter did not provide any detail of the regulatory changes that Mr Kogler was supposed to take into account. 152 Mr Kogler responded by letter on the same day. Indeed, the facsimile transmission imprints on the letter would suggest that he responded within the hour. The contents of the letter should be set out in full. Thank you for your instructions regarding your request to provide an update on the valuation of the 'Seven Mountains' property. I refer to my valuation GC28355 dated 20th March 2006 and the valuation scenarios outlined within that report. Since the date of the valuation some positive changes have been effected to the town planning and legal status of the project. In additional there have been developments relating to the approval process regarding the formalisation of the proposed equestrian use/s on the site (which, as outlined in the valuation, form the 'core' of the integrated uses which are proposed on the site). Town Planning Changes I have reviewed the amendments to legislation passed by the State Government of Queensland on October 31st 2006 regarding the South East Queensland Regional Plan (SEQRP) and its relevance to the project. The amendments to the Regulatory provisions improve the workability of the SEQRP by providing that a project which is declared to be of 'State Significance' will not be subject to the SEQRP. This would allow any 'State Significant Project' to be assessed by the State Government outside the SEQRP and outside the Integrated Planning Act (IPA), of which the SEQRP is a planning instrument. I refer to comments made on Pages 22 and 57 of our valuation report highlighting the importance of these issues to the value of the land and enhanced approval process (s) which may eventuate. Equestrian Use as part of "State Significant Project" I have been provided with numerous documents which relate to the process of gaining approval for the project as an Equestrian Centre, leading to a declaration of the project as 'State Significant'. In summary: • There have been numerous discussions and meetings with the Department of Local Government, Planning, Sport and Recreation since December 2005 regarding the progress of formalising the application for approval of the site and gaining equestrian industry support • These discussions culminated in an Equestrian Design Forum held on the site on 9th November 2006, attended by officers of the Department, numerous project consultants and the Equestrian Federation of Australia (Qld Branch). • On the 12th of December 2006 the Equestrian Federation of Australia resolved to provide their 'complete support to the Seven Mountains to ensure this project is realised at the earliest possible date'. To achieve this, the Federation also resolved 'that it will not be seeking any funding allocation from the State Government pending the completion of this facility provided the State Government lends its support to the facility to ensure it is realised in an efficient time frame. Indeed, it is the Board's intention to ensure that current allocations are channelled by the Department of Sport & Recreation in favour of Seven Mountains which will be a direct benefit to Equestrian Queensland'. Market Considerations After enquiry and analysis, we adopt the view that there have been no substantive market changes since our valuation which would lead us to adopt an alternate Direct Comparison Valuation approach to the value of the site. Conclusion Given the nature of State Government regulatory changes and State Government and Equestrian Industry support to the project for the prime proposed equestrian use, our 'as is' valuation of the project on the basis of that use (as referred to in our March valuation report), of $102,400,000, is confirmed. 153 More will be said about this letter in due course. Suffice it to say that anybody who read it would appreciate that on no view could it be regarded as an "as is" valuation of the Saddleback land based on the current zoning and permitted uses. It was, rather, at best a restatement of the opinion expressed by Mr Kogler in the Updated March 2006 Valuation. That opinion was that if the Saddleback land was declared State Significant the value of the land would be $102.4 million. Any reasonable reader of this letter would appreciate from the vague and generalised statements about the supposed regulatory changes that the Saddleback land in fact had not been declared State Significant. Indeed, it was readily apparent from the letter that the process involved in having the land declared State Significant either had not even commenced, or was in its infancy. 154 At about the same time that the supposed "updated valuation" from Mr Kogler was requested and received by Mr McCormick, Mr McCormick prepared and signed a proposal for the AGA facility to be extended and increased. The proposal stated that the current loan amount was $26 million and that the proposed variation or extension was to increase the loan to $55 million. It stated that the "previous" property value was $64.1 million and that the "current" property value was $102.4 million. The loan purpose was stated to be to "[a]ssist with restructure of associated group entities/interest and finance costs". The proposal also included the following additional information: BACKGROUND INFORMATION Atkinson Gore Agricultural Pty Ltd forms one of the borrowing entities under the "Gore Group" of companies. Craig Gore is an experienced and astute property developer well known to CPL. 13/09/2004 - Original approval for $3.25M to refinance private debt associated with "Saddle Back". LVR at that time 55%. 12/05/2005 - Total facility $10.6M approved to assist with the purchase of additional land and provide for interest and establishment costs on facility. LVR at that time 52.8% 27/06/2005 - Total facility $13.35M approved to assist with the purchase of additional land and provide for interest and establishment costs on facility. New valuation undertaken resulting in LVR of 61.1% 28/04/2006 - Total facility $17.89M approved on updated valuation figure of $64,100,000. The Valuation also places an increased value of $102.4M on either of: 1. Project being declared of 'State Significance' or 2. the lands are included in the Urban footprint under the SEQ Regional Plan. At this time provisional approval was given to increasing the facility to $50M once 1 or 2 above had been received, in the interim the facility would be increased to $36M - and LVR of 56%. Total group borrowings with CPL is in excess of $200M (refer Group Exposure Schedule attached). This falls within Lending Guidelines. REASON FOR VARIATION / EXTENSION The increase in this facility will allow all other loans in the Gore Group to be restructured ensuring all are operating under the Cost to Complete in their own right rather than relying on the groups cross collateralised position. Loan establishment costs and retained interest have also been incorporated into new finance structure. FUNDING TABLE Present Position $23,525,000 Restructure of Group Entities $17,412,000 Planning Costs/Working Capital $ 8,213,000 Finance Costs $ 350,000 Interest (to be retained) $ 5,500.000 Total Facility $55,000,000

RISK / MITIGANTS VARIATION No change - Refer prior applications.

ADDITIONAL SECURITY As part of this proposal additional security by way of a Deed of Variation to Loan is to be taken. SERVICING CALCULATIONS Interest is capitalised. AVENUES OF RECOURSE Given current facility arrangements only involve land banked securities with no construction funding, a takeout by a development funder appears to be a solid first way out. Should this option not materialise, a total refinance of the facility is achievable given current LVR level of <70%. This is also made a more 'bankable' deal by the State Significance current being lobbied by the client to the Qld Government. This is expected to be received late December 2006. As a third and preferably last option, Gore's own financial vehicle WPS has the capacity to take on current debt load and disperse to the market if required. DESCRIPTION OF SECURITY PROPERTY No change to previous submissions. ENVIRONMENTAL ISSUES None known. SPECIAL CONDITIONS Facility will be conditioned to restrict the facility to 70% ($44,870,000) of the current $64,100,000 valuation until such time as State Significance is passed through legislation and the $102,400,000 valuation figure can be relied upon. The Letter of Offer will reflect this condition. CASH FLOW The projected cash flows for the advance have been incorporated into the forward cash flow of the CPMT. A conservative sensitivity analysis has been applied and the cash balances of the Trust remain positive. LIQUIDITY Should the trustee need to realise the mortgage for its market value, then it is reasonable to expect that this could be completed within the following time parameters; 90 days 120 days 150 days 180 days √ - - -

RELATED PARTY TRANSACTION: No If yes, ensure standard memorandum is attached to the loan submission and procedure has been followed as per compliance manual. RECOMMENDATION Given strength and experience of applicant, proposal is recommended as submitted. 155 Mr McCormick signed the proposal alongside the handwritten date 9 August 2006. Mr Sullivan also signed the proposal to indicate his approval of it. His signature also appears alongside the date 9 August 2006. 156 On 22 December 2006, Mr McCormick emailed the proposal to Mr Swan and Mr Donaldson, along with two other loan proposals. Mr McCormick's email said that the proposals were "for you[r] approval" and that the AGA proposal had "been sitting around for awhile and slipped between the cracks … apologies for the delay". Needless to say, the suggestion that the proposal had been "sitting around for awhile" was misleading, if not entirely false. The proposal, as emailed to Mr Swan and Mr Donaldson, contained the handwritten date 9 August 2006 alongside the spaces for their signatures. 157 Mr Donaldson signed the proposal, signifying his approval, almost immediately. He faxed it back to Mr McCormick on 22 December 2006. His signature appears alongside the date 9 August 2006. 158 Mr Swan signed the proposal, signifying his approval, on 11 January 2007. He also signed it alongside the date 9 August 2006, however he added the words "ratified 11/01/07". He emailed the proposals back to Mr Gillam at City Pacific (with a copy sent to Mr Donaldson). In his email, Mr Swan said he had approved the other two loan proposals and ratified the proposal for AGA 159 The evidence of Messrs Sullivan, Swan, Donaldson and McCormick in relation to this proposal is considered in detail latter. A number of points can, however, be made about the document on its face. 160 First, it is unquestionably misleading. It conveys - and was plainly intended to convey - the impression that the proposal was made and approved on 9 August 2006. That clearly was not the case. 161 Second, the proposal stated that the current balance of the AGA facility was $23.525 million. That was false. That was the balance of the facility as at 9 August 2006. The balance of the facility that was reported to the board in the November 2006 board papers was $35.307 million. As at 20 December 2006, the balance of the facility was $44.641 million. 162 Third, the proposal stated that the current maturity date for the loan was 9 December 2006. That was false. The maturity date for the loan was 9 December 2005. It had not been formally extended. 163 Fourth, the proposal did not include any certification by Mr McCormick, as Lending Manager, that an acceptable valuation of the security property had been obtained. The reason for that could perhaps be said to be obvious. There plainly was no acceptable valuation that could possibly support the proposal. 164 Fifth, the proposal stated that the current valuation was $102.4 million. It is, however, readily apparent from the background information contained in the proposal itself, that the valuation of $102.4 million was premised on the land being declared State Significant. That had not occurred. Indeed, the proposal did not state that it had occurred. Even the most cursory reading of the letter from Mr Kogler dated 21 December 2006, or any other valuation held by City Pacific, would have made it plain that there had been no declaration of State Significance, or even a proper basis to believe that one was likely. 165 Sixth, the stated purpose of the extension and increase of the facility was to assist with other loans "in the Gore Group". Consideration of the proposed extension to the AGA facility therefore required some consideration to be given to those other loans. The proposal referred to an attached schedule setting out "Group Exposure". Yet no such schedule was attached. 166 A letter from City Pacific to AGA offering to increase the AGA facility was sent to AGA for signature on 9 January 2007. The letter bore the date 9 August 2006, again giving the entirely misleading impression that the facility increase had been offered and accepted on or about that date. Like the proposal, the letter of offer included a statement that the "[p]resent position" of the loan was $23.525 million, which was the facility balance as at 9 August 2006, not 9 January 2007 when the offer was made. It stated that the offer would remain open until 18 August 2006 - a date that had well passed. It offered a total loan facility of $55 million "[s]ubject to a satisfactory valuation as certified by an approved CPL [City Pacific Limited) panel valuer". It also included the following "special condition": The total drawndown on this facility will be limited to $44,870,000 until confirmation is received that the security property is: 1. declared a 'State Significant Project', or 2. included in the 'Urban Footprint' area under the SEQ Regional Plan. 167 Neither of the events that would have resulted in the facility limit being increased to $55 million ever occurred. Accordingly, the approved facility limit remained at $44.87 million. As will be seen, that limit had already been exceeded by the time the letter was sent to AGA on 9 January 2007.

December 2006 to July 2007 - Further advances beyond the facility limit 168 Between 21 December 2006 and 1 July 2007, City Pacific, as the responsible entity of the Fund, made the following advances to AGA under the AGA facility: • an advance of $1.5 million made on 21 December 2006; • an advance of $1.35 million made on 27 December 2006; • an advance of $421,836.98 made on 1 January 2007; • an advance of $450,000 made on 4 January 2007; • an advance of $350,000 made on 9 January 2007; • an advance of $573.21 made on 9 January 2007; • an advance of $806,865.35 made on 11 January 2007; • an advance of $500,000 made on 18 January 2007; • an advance of $319,000 made on 19 January 2007; • an advance of $850,000 made on 19 January 2007; • an advance of $250,000 made on 23 January 2007; • an advance of $500,000 made on 23 January 2007; • an advance of $160,000 made on 24 January 2007; • an advance of $500,000 made on 25 January 2007; • an advance of $450,000 made on 25 January 2007; • an advance of $250,000 made on 29 January 2007; • an advance of $330,000 made on 30 January 2007; • an advance of $551,400 made on 31 January 2007; • an advance of $492,103.41 made on 1 February 2007; • an advance of $228,000 made on 2 February 2007; • an advance of $500,000 made on 13 February 2007; • an advance of $486,775.95 made on 1 March 2007; • an advance of $531,679.32 made on 31 March 2007; • an advance of $486,014.29 made on 1 May 2007; • an advance of $1.42 million made on 3 May 2007; • an advance of $519,936.25 made on 1 June 2007; • an advance of $650,000 made on 15 June 2007; • an advance of $226,053.25 made on 18 June 2007; • an advance of $513,147.11 made on 1 July 2007. 169 Each of those advances was made in circumstances where the approval of the Credit Committee had not been sought or obtained for any increase in the limit of $44.87 million that had been approved in late December 2006. Each of those advances resulted in the balance of the AGA facility exceeding that limit. Mr McCormick admits that he expressly authorised or approved the making of the bulk of these advances. 170 As had occurred throughout 2006, board papers were prepared and sent to each of Messrs Sullivan, Swan and Donaldson in advance of the monthly board meetings that occurred in the period January to July 2007. The board papers included a schedule that included details concerning the balance of the Fund's loans, including the balance of the AGA facility. 171 The January 2007 board papers reported that the balance of the AGA facility as at 31 December 2006 was $45.991 million. That was over $1 million above the limit approved by each of Messrs Sullivan, Swan, Donaldson and McCormick in late December and early January 2007. The January 2007 board papers were sent to the directors within a fortnight of them approving the facility increase. 172 Board papers for the 14 February 2007 board meeting, which were sent to Messrs Sullivan, Swan and Donaldson on around 10 February 2007, reported that the balance of the AGA facility as at 31 January 2007 was $54,180,344.34 (more than $9 million above the facility limit). 173 Board papers for the 15 March 2007 board meeting, which were sent to Messrs Sullivan, Swan and Donaldson on around 11 March 2007, reported that the balance of the AGA facility as at 28 February 2007 was $55,400,447.75 (more than $10 million above the facility limit). 174 Board papers for the 26 April 2007 board meeting, which were sent to Messrs Sullivan, Swan and Donaldson on around 24 April 2007, reported that the balance of the AGA facility as at 31 March 2007 was $50,887,223.70 (more than $6 million above the facility limit). 175 Board papers for the 17 May 2007 board meeting, which were sent to Messrs Sullivan, Swan and Donaldson on around 12 May 2007, reported that the balance of the AGA facility as at 30 April 2007 was $51,418,903.02 (more than $6.5 million above the facility limit). 176 Board papers for the 19 July 2007 board meeting, which were sent to Messrs Sullivan, Swan and Donaldson on around 16 July 2007, reported that the balance of the AGA facility as at 30 June 2007 was $54,720,906.81 (more than $9.5 million above the facility limit). 177 On 1 July 2007, the Fund advanced the amount of $513,147.11 to AGA under the AGA facility. This amount was equal to the amount of the interest accruing as at 30 June 2007 and was applied in payment of such interest.

Default by AGA 178 On 23 December 2008, City Pacific, as the responsible entity of the Fund, issued a Notice to Remedy Default to AGA demanding payment of the amount of $61,024,777.77, comprising the amount of outstanding principal and interest under the AGA facility. As at that date, the amount of outstanding principal under the facility was $54,959,053.92. 179 On 12 February 2009, City Pacific appointed Mr Mark Korda and Mr John Park of KordaMentha as receivers and managers of AGA. 180 On 7 July 2009, City Pacific was removed as the responsible entity of the Fund and replaced by Trilogy in accordance with an extraordinary resolution passed by members pursuant to s 601FM(1) of the Corporations Act. 181 On 4 August 2011, Trilogy appointed Mr Kenneth Whittingham and Mr Matthew Joiner of PKF as receivers and managers of AGA. Mr Whittingham of PPB Advisory (at that time) was previously appointed as receiver and manager of AGG on 22 April 2010.

Sale of AGA Security Properties 182 Between around February and June 2012, each of the lots of Saddleback land that was held as security for the AGA facility was sold by the receivers of AGA. The following sales were made: • on or about 28 February 2012, Lot 2 on RP 78799 was sold for the amount of $900,000; • on or about 21 May 2012, Lots 34, 35, 36 on RP 36859, Lot 10 on RP 866564, Lot 36 on CP W 311683 and Lot 48 on CP 3122309 were sold for the amount of $3.3 million; • on or about 4 June 2012, Lots 30 and 31 on RP 31446 were sold for the amount of $275,000; • on or about 4 June 2012, Lot 1 on RP 78799 was sold for the amount of $150,000; • on or about 21 June 2012, Lot 45 on RP 36858; Lots 1, 2, 7 and 8 on RP 901269; Lot 17 on CP W 311369; Lot 8 on CP W 31574; Lot 36 on CP WD 3323; Lot 371 on CP WD 3324; Lots 3, 4 and 9 on RP 901270; and Lots 5, 6 and 10 on RP 901271 were sold for the amount of $2.6 million; and • on or about 22 June 2012, Lot 61 on CP 312489 was sold for the amount of $402,000. 183 The gross sum recovered from these sales by the receivers of AGA was $7.627 million. 184 It should be noted in this context, that Messrs Sullivan, Swan and Donaldson contended that in causing the Saddleback land to be sold in individual lots of land zoned rural, Trilogy failed to mitigate any losses it incurred as a result of any contraventions or breaches of duty by Messrs Sullivan, Swan and Donaldson. They argued, in effect, that Trilogy should itself have pursued the Queensland Government to have the Saddleback land declared State Significant so that the land could be sold as a single consolidated parcel at a much higher value. That contention, and the issue of mitigation generally, will be considered later. Suffice it to say at this stage that it would appear tolerably clear that in selling the land as it did, Trilogy and the receivers acted on the basis of independent advice.

Default by other Gore entities 185 Other companies associated with Mr Gore that had borrowed money from the Fund and were parties to the Deed of Cross-Collateralisation also defaulted on their loan facilities. AGG defaulted in late 2008 or early 2009 owing in excess of $60 million under its loan facility. Only approximately $26 million was recovered from the sale of the properties securing the AGG facility. Treetops also defaulted under its loan facility in late 2008 or early 2009 in circumstances where it owed approximately $16 million. Less than $1 million was recovered from the sale of properties held as security in relation to the Treetops facility. Sickle defaulted under its loan facility in January 2009 owing approximately $34 million. Just under $18 million was realised from the sale of security properties held in respect of the Sickle facility.

Statutory SCHEME AND duties owed by the Respondents 186 The Corporations Act has detailed provisions in relation to managed investments schemes. A "managed investment scheme" is defined in s 9 of the Corporations Act as meaning a scheme which has the following features: (i) people contribute money or money's worth as consideration to acquire rights (interests) to benefits produced by the scheme (whether the rights are actual, prospective or contingent and whether they are enforceable or not); (ii) any of the contributions are to be pooled, or used in a common enterprise, to produce financial benefits, or benefits consisting of rights or interests in property, for the people (the members) who hold interests in the scheme (whether as contributors to the scheme or as people who have acquired interests from holders); (iii) the members do not have day-to-day control over the operation of the scheme (whether or not they have the right to be consulted or to give directions) 187 The definition of managed investments scheme excludes a number of entities, funds, or schemes that are likely to have these features and would therefore would otherwise fall within the definition. The excluded entities, funds or schemes include bodies corporate, partnerships with more than 20 members, franchises, regulated superannuation funds and certain retirement village schemes. 188 Chapter 5C of the Corporations Act contains provisions relating to the registration and operation of managed investment schemes. In simplified terms, a managed investment scheme must be registered if it has more than 20 members, or if it was promoted by a person in the business of promoting managed investment schemes: s 601ED(1) of the Corporations Act. Registration is important because a person who operates a managed investment scheme that is required to be registered is potentially guilty of an offence that carries a penalty of up to 200 penalty units or imprisonment for five years, or both: s 601ED(5), s 1311 and Schedule 3 penalty item 163 of the Corporations Act. 189 Section 601EA of the Corporations Act provides, amongst other things, that to register a managed investment scheme, a person must lodge an application with ASIC together with, relevantly, a copy of the scheme's constitution and compliance plan. Under s 601EB of the Corporations Act, ASIC must register the scheme within 14 days of lodgment of the application, unless it appears to ASIC, inter alia, that the constitution and compliance plan do not meet the requirements specified in the Corporations Act. 190 The requirements for a scheme's constitution are set out in Pt 5C.3 of the Corporations Act. Subsection 601GA(1) provides that the constitution of a registered scheme must make adequate provision for, amongst other things, the powers of the responsible entity in relation to making investments of, or otherwise dealing with, the scheme property. The constitution of a registered scheme must be contained in a document that is legally enforceable as between the members and the responsible entity: s 601GB of the Corporations Act. 191 Part 5C.4 of the Corporations Act deals with the requirements of the scheme's compliance plan. Subsection 601HA(1) provides that the compliance plan of a registered scheme must set out adequate measures that the responsible entity is to apply in operating the scheme to ensure compliance with the Corporations Act and the scheme's constitution. Compliance with the plan must be audited by a registered company auditor, an audit firm or an authorised audit company: s 601HG of the Corporations Act. 192 It is obvious that the scheme's constitution and compliance plan are both important documents. Compliance with their terms is fundamental to the proper operation of a managed investment scheme. Those constituent documents are also fundamental to the statutory scheme relating to the regulation of managed investment schemes in Chapter 5C of the Corporations Act. 193 A registered managed investment scheme must have a responsible entity. The responsible entity of a registered scheme must be a public company that holds an AFSL authorising it to operate a managed investment scheme: s 601FA of the Corporations Act. The responsible entity of a registered scheme is to operate the scheme and perform the functions conferred on it by the scheme's constitution and the Corporations Act: s 601FB(1) of the Corporations Act. 194 Subsection 601FC(1) of the Corporations Act sets out the duties of a responsible entity. It provides as follows: In exercising its powers and carrying out its duties, the responsible entity of a registered scheme must: (a) act honestly; and (b) exercise the degree of care and diligence that a reasonable person would exercise if they were in the responsible entity's position; and (c) act in the best interests of the members and, if there is a conflict between the members' interests and its own interests, give priority to the members' interests; and (d) treat the members who hold interests of the same class equally and members who hold interests of different classes fairly; and (e) not make use of information acquired through being the responsible entity in order to: (i) gain an improper advantage for itself or another person; or (ii) cause detriment to the members of the scheme; and (f) ensure that the scheme's constitution meets the requirements of sections 601GA and 601GB; and (g) ensure that the scheme's compliance plan meets the requirements of section 601HA; and (h) comply with the scheme's compliance plan; and (i) ensure that scheme property is: (i) clearly identified as scheme property; and (ii) held separately from property of the responsible entity and property of any other scheme; and (j) ensure that the scheme property is valued at regular intervals appropriate to the nature of the property; and (k) ensure that all payments out of the scheme property are made in accordance with the scheme's constitution and this Act; and (l) report to ASIC any breach of this Act that: (i) relates to the scheme; and (ii) has had, or is likely to have, a materially adverse effect on the interests of members; as soon as practicable after it becomes aware of the breach; and (m) carry out or comply with any other duty, not inconsistent with this Act, that is conferred on the responsible entity by the scheme's constitution. 195 Subsection 601FC(2) of the Corporations Act provides that the responsible entity holds scheme property on trust for scheme members. It follows that the responsible entity is effectively a professional trustee company. 196 Of perhaps most significance to this case is s 601FD of the Corporations Act, which deals with the duties of officers of the responsible entity. Subsection 601FD(1) provides as follows: An officer of the responsible entity of a registered scheme must: (a) act honestly; and (b) exercise the degree of care and diligence that a reasonable person would exercise if they were in the officer's position; and (c) act in the best interests of the members and, if there is a conflict between the members' interests and the interests of the responsible entity, give priority to the members' interests; and (d) not make use of information acquired through being an officer of the responsible entity in order to: (i) gain an improper advantage for the officer or another person; or (ii) cause detriment to the members of the scheme; and (e) not make improper use of their position as an officer to gain, directly or indirectly, an advantage for themselves or for any other person or to cause detriment to the members of the scheme; and (f) take all steps that a reasonable person would take, if they were in the officer's position, to ensure that the responsible entity complies with: (i) this Act; and (ii) any conditions imposed on the responsible entity's Australian financial services licence; and (iii) the scheme's constitution; and (iv) the scheme's compliance plan. 197 Particularly relevant to this matter are the duties referred to in s 601FD(1)(b), (c) and (f) of the Corporations Act. 198 Subsection 601FD(2) of the Corporations Act provides that a duty of an officer of the responsible entity under s 601FD(1) overrides any conflicting duty the officer has under Pt 2D.1. Part 2D.1 of the Corporations Act deals with the duties and powers of directors and other officers and employees of corporations generally. Subsection 180(1), which is in Pt 2D.1, provides as follows: A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they: (a) were a director or officer of a corporation in the corporation's circumstances; and (b) occupied the office held by, and had the same responsibilities within the corporation as, the director or officer.

Duty of care and diligence - Relevant principles 199 The duty of care and diligence owed by an officer of a responsible entity under s 601FD(1)(b) of the Corporations Act corresponds with the general duty of care and diligence owed by officers of all corporations under s 180(1) of the Corporations Act: Australian Securities and Investments Commission v Healey (2011) 196 FCR 291 (ASIC v Healey) at [191]. There are, however, some apparent differences. Before considering those differences, it is useful to outline some relevant principles in relation to the duty under s 180(1) of the Corporations Act (and predecessor provisions) which are likely to apply equally to the duty under s 601FD(1)(b). 200 First, the duty of care and diligence in s 180(1) of the Corporations Act is akin to the common law duty of care and it reflects, and to some extent refines, corresponding obligations under the general law: Australian Securities and Investments Commission v Vines (2005) 55 ACSR 617 at [1070]-[1077]; Vines v Australian Securities and Investments Commission (2007) 73 NSWLR 451 (Vines v ASIC) at [142]; Australian Securities and Investments Commission v Maxwell (2006) 59 ACSR 373 (ASIC v Maxwell) at [99]; Australian Securities and Investments Commission v Rich (2009) 236 FLR 1 (ASIC v Rich) at [7192]; Australian Securities and Investments Commission v Australian Property Custodian Holdings Limited (Receivers and Managers appointed) (in liquidation) (Controllers appointed) (No 3) [2013] FCA 1342 (ASIC v APCH) at [532]. 201 Second, whilst the test for the standard of care in s 180(1) of the Corporations Act is objective, it has some subjective elements. In determining whether a director or officer has exercised reasonable care and diligence, regard will generally be had to the company's circumstances and the director's position and responsibilities within the company. The relevant circumstances include: the type of company involved the provisions of the company's constitution; the size and nature of the company's business; the composition of the board of directors; the particular director's position and responsibilities within the company; the particular function the director was performing; the experience and skills of the particular director; the terms upon which he or she has undertaken to act as a director; the competence of the company's management; the competence of the company's advisors; the manner in which responsibility is distributed between the company's directors, officers and employees; and the circumstances of the particular case: Australian Securities and Investments Commission v Adler (2002) 168 FLR 253 (ASIC v Adler) at [372]; ASIC v Maxwell at [100]; ASIC v Healey at [165]; ASIC v APCH at [533(b)]. 202 Third, the Court is to consider what an ordinary person with the knowledge and experience of the director in question might be expected to have done in the circumstances if he or she were acting on his or her own behalf: ASIC v Adler at [372(4)]; ASIC v APCH at [533(a)]. 203 Fourth, directors are required to take reasonable steps to place themselves in a position to guide and monitor the management of the company. The directors must become familiar with the fundamentals of the business in which the corporation is engaged and are under a continuing obligation to keep informed about the activities of the corporation. Directorial management requires a general monitoring of corporate affairs and policies. The directors should maintain familiarity with the financial position of the corporation: see generally ASIC v Healey at [166]. 204 Fifth, directors are generally entitled to rely upon others, other than in circumstances where they know, or by the exercise of reasonable care, could or should have known, facts that would deny reliance: ASIC v Maxwell at [101]; ASIC v Healey at [167]. 205 As will be seen, the extent to which Messrs Sullivan, Donaldson and Swan were entitled, in all the circumstances, to rely or continue to rely on Mr McCormick and others involved in management and compliance at City Pacific is a significant issue in this matter. Each of Messrs Sullivan, Swan and Donaldson contended that they relied, and were entitled to rely, on Mr McCormick as head of the lending department. They also contended that they were entitled to rely on various external persons or entities, including City Pacific's auditor, KPMG, and members of City Pacific's compliance committee. 206 In ASIC v Adler, Santow J listed some of the factors that might be relevant in considering the reasonableness of reliance or delegation. His Honour said (at [372(11)]): Although reasonableness of the reliance or delegation must be determined in each case, the following may be important in determining reasonableness: (a) the function that has been delegated is such that, "it may properly be left to such officers": Re City Equitable Fire Insurance Co Ltd per Romer J; (b) the extent to which the director is put on inquiry, or given the facts of a case, should have been put on inquiry: Re Property Force Consultants Pty Ltd per Derrington J; (c) the relationship between the director and delegate, must be such that the director honestly holds the belief that the delegate is trustworthy, competent and someone on who reliance can be placed. Knowledge that the delegate is dishonest or incompetent will make reliance unreasonable: Biala Pty Ltd v Mallina Holdings Ltd (1994) 15 ACSR 1 at 62; (d) the risk involved in the transaction and the nature of the transaction: Permanent Building Society v Wheeler (1994) 14 ACSR 109 (although in this case the chief executive officer in question also had a conflict of interest); (e) the extent of steps taken by the director, for example, inquiries made or other circumstances engendering "trust"; (f) whether the position of the director is executive or non-executive: Permanent Building Society v Wheeler per Ipp J, though, in Daniels v Anderson, the majority have moved away from this distinction. 207 Santow JA also summarised the relevant principles in relation to permissible reliance in Vines v ASIC in the following terms (at [731]): The degree of an officer's permissible reliance on others will turn on similar considerations as those that determine the overall standard of care for an individual director. They focus particularly on the characteristics of the company, the skills and experience of the officer concerned and the delegate, and the reasonably anticipated risks entailed in so doing. What is expected here is a level of scrutiny as befits supervision, not the detailed direct involvement that is associated with operational responsibility. Where there is no cause for suspicion nor circumstances demanding critical and detailed attention, it is reasonable for an officer to rely on advice, without independently verifying the information or scrutinising the data or circumstances upon which that advice is based: see Australian Securities and Investments Commission v Adler (2002) 168 FLR 253 at 346-348; 41 ACSR 72 at 166-167. 208 Finally, s 180(1) (and s 601FD(1)(b)) is concerned with whether a director exercised due care and diligence. Merely making a mistake does not demonstrate that due care and diligence was wanting. The standard required of directors is reasonable care and skill, and does not require perfection: ASIC v Healey at [180]. In ASIC v Rich, Austin J said (at [7242]): The statutory issue under s 180(1) is not whether the defendants made mistakes in the process of financial forecasting, and a fortiori, it is not whether they formed opinions different from the opinions of ASIC or even of the court. The statutory issue is whether they failed to meet the standard of care and diligence that the statute lays down. The statute requires the court to apply a standard defined in terms of the degree of care and diligence that a reasonable person would exercise, taking into account the corporation's circumstances, the offices occupied by the defendants and their responsibilities within the corporation. That requires the defendants' conduct to be assessed with close regard to the circumstances existing at the relevant time, without the benefit of hindsight, and with the distinction between negligence and mistakes or errors of judgment firmly in mind. If the impugned conduct is found to be a mere error of judgment, then the statutory standard under s 180(1) is not contravened and it is unnecessary to advert to the special business judgment rule in s 180(2). 209 In ASIC v APCH, Murphy J concluded (at [535]-[537]) that whilst the duty in s 601FD(1)(b) corresponds with the duty in s 180(1), the standard of care under s 601FD(1)(b) will often be higher. His Honour reasoned that this flowed from the fact that the relevant director will be a director of a responsible entity which is acting as a trustee and holding itself out to the public, and being remunerated, as a professional trustee. Murphy J relied, in particular, on the dicta of Finn J in Australian Securities Commission v AS Nominees Limited (1995) 62 FCR 504, where his Honour said (at 517-518): There is, in my view, a substantial question now to be answered as to whether a higher standard is not to be exacted from at least corporate or professional trustees (a) which hold themselves out as having a special or particular knowledge, skill and experience, and (b) which, directly or indirectly, invite reliance upon themselves by members of the public in virtue of the knowledge, etc, they appear so to have. … If it were in fact necessary for me so to do (which it is not), I would be prepared to apply to the trustee companies in these proceedings a standard of care higher than that of the ordinary prudent businessperson. 210 Finn J also considered that the standard of care and caution expected of a corporate trustee must flow through to its directors. His Honour said (at 517): Where the trustee is itself a company the requirements of care and caution are in no way diminished. And here, unlike with companies in general, these requirements have a flow-on effect into the duties and liabilities of the directors of such a company. It was established early … that at least when, and to the extent that, directors of a trustee company are themselves "concerned in" the breaches of trust of their company, they are liable to the company according to the same standard of care and caution as is expected of the company itself: Charitable Corporation v Sutton (1742) 2 Atk 400; 26 ER 642; Attorney-General v Wilson (1840) 10 LJ Ch 53; Joint Stock Discount Co v Brown (1869) LR 8 Eq 381; Fouche v Superannuation Fund Board (1952) 88 CLR 609. 211 Murphy J's conclusion (at [543]) that the standard of care for an officer under s 601FD(1)(b) will often be higher than the corresponding duty under s 180(1) was also based on the fact that scheme members are particularly vulnerable to potential conflicts of interest. Those potential conflicts are: first, the potential conflict between the interests of the responsible entity in obtaining fees and the interests of the scheme members; and second, the potential conflict between the responsible entity's interest in obtaining fees and its duty to act in the best interests of the scheme members and give their interests priority: see also ASIC v Adler at [372(14)]. Murphy J reasoned (at [543]) that this consideration, together with the fact that the responsible entity was a professional trustee, meant that directors of the responsible entity will often be required to "exercise heightened care and caution and be scrupulous in dealing with any conflict of interests and conflict of interest and duty". 212 There is much to be said for Murphy J's analysis and conclusion. In determining the degree of care and diligence required of an officer under s 601FD(1)(b), consideration should be given to the fact that s 601FD is concerned with the duties of officers and directors of very specific companies. Responsible entities are not only required to be public companies, they are also required to hold AFSLs and effectively act as professional trustees. Regard must also be had to the potential for conflicting duties as recognised in ss 601FC(3) and 601FD(2). Those considerations are likely to lead to the need for officers of responsible entities to exercise a higher degree of care and diligence than the standard required of an officer or director under s 180 in respect of a company that does not have the specific features of a responsible entity. 213 There are two other apparent differences between ss 180(1) and 601FD(1)(b), though neither are of any particular significance to the circumstances of this case. 214 The first difference is that, whereas under s 180(1) the director's duty of care and diligence is owed to the company, under s 601FD(1)(b) the duty is owed to, or also to, the scheme members. That was the conclusion reached by Murphy J in ASIC v APCH. His Honour reasoned (at [523]) that this was apparent for four reasons: first, because officers of a responsible entity also owe separate duties under Pt 2D.1 to the responsible entity that are analogous to most of the duties in s 601FD; second, if the s 601FD duties were merely complementary to the Pt 2D.1 duties, rather than being separate duties owed to different obligees, the conflicts of duty that are the subject of s 601FD(2) would not arise; third, the interests of the scheme members are implicitly or explicitly the subject of many of the s 601FD duties; and fourth, scheme members may seek orders under s 1325(2) in relation to contraventions of Pt 5C.2, including s 601FD(2). 215 The second difference between ss 180(1) and 601FD(1)(b) of the Corporations Act is that s 601FD(1)(b) does not have any express "business judgment rule", like s 180(2), which deems the conduct of officers in making business judgments which meet certain specified criteria as having satisfied the relevant duty. The business judgment criteria in s 180(2) are, in summary that the judgment was made in good faith for a proper purpose; that the director did not have a material personal interest in the subject matter of the judgment; that the director informed himself or herself about the subject matter of the judgment to the extent that they reasonably believed to be appropriate; and that the director rationally believed that the judgment was in the best interests of the corporation. The last mentioned criteria is deemed to have been met so long as the belief was not one that no reasonable person in the director's position would hold. 216 In ASIC v APCH, Murphy J concluded that the statutory business judgment rule in s 180(2) does not apply in relation to s 601FD of the Corporations Act. His Honour pointed to the fact that there was no equivalent of s 180(2) in s 601FD; that the note to s 180(2) states that the statutory business judgment rule operates in relation to equivalent duties under general law, but does not operate in relation to duties under any other provision of the Corporations Act; and that s 180(2)(d) provides that, to obtain the protection of the rule, a director must establish that he or she rationally believed that the relevant judgment was in the best interests of the company. That conflicts with the requirement in s 601FD(1)(c) that a director must act in the best interests of the scheme members and give priority to their interests, and that a director's duty under s 601FD(1) overrides any conflicting duty the officer has under Pt 2D.1: see s 601FD(2) of the Corporations Act. 217 There is again, with respect, much to be said for Murphy J's conclusion that the statutory business judgment rule in s 180(2) of the Corporations Act does not apply in respect of the duties the subject of s 601FD of the Corporations Act. Nevertheless, even if the statutory business judgment rule does not expressly apply in the case of s 601FD(1)(b), in considering whether the actions of an officer of a responsible entity which involved a business judgment failed to meet the standard of care and diligence required by s 601FD(1)(b), it is likely that regard would in any event be had to the types of matters referred to in s 180(2) if they existed in the particular circumstances of the case. Whilst the existence of such matters might not operate to deem the s 601FD(1)(b) standard to be met, they would nonetheless be relevant to a consideration of whether the standard was in fact met. As Murphy J put it in ASIC v APCH (at [529]), "the wide range of practical business and management considerations that a director is often required to take into account in deciding where the corporation's interests lie and how they are to be served are relevant to understanding the appropriate standard of care".

Duty to take steps to ensure compliance 218 Subsection 601FD(1)(f) of the Corporations Act requires officers of a responsible entity of a registered scheme to "take all steps that a reasonable person would take, if they were in the officer's position, to ensure" that the responsible entity complies with the Corporations Act, any conditions imposed on the responsible entity's AFSL, the scheme's constitution and the scheme's compliance plan. 219 The duty in s 601FD(1)(f) is likely to overlap, in many respects, with the duty of care and diligence in s 601FD(1)(b). A director who does not take all steps that a reasonable person would take to ensure that the responsible entity's compliance with the Corporations Act and the scheme's constitution and compliance plan, is also likely to have failed to exercise the standard of care and diligence required by s 601FD(1)(b). 220 There is no duty in Pt 2D.1 which is precisely analogous, or which precisely corresponds with, s 601FD(1)(f). In ASIC v Healey (at [191]), Middleton J noted that s 601FD(1)(f)(i) encompasses and supplements the duty in s 344(1) of the Corporations Act, which requires a director of, relevantly, a registered scheme, to take all reasonable steps to comply with, inter alia, Pt 2M.2 or Pt 2M.3 of the Corporations Act. Those Parts deal with financial records and financial reporting. They are not directly applicable to the allegations in this matter. 221 There is no relevant authority relating to the meaning or operation of s 601FD(1)(f) of the Corporations Act. Nevertheless, the following points may be made. First, the relevant duty again involves an objective test, based as it is on what a "reasonable person" would do to ensure compliance. Second, there is a subjective element to the duty, because the reasonable person is taken to be in the particular officer's position. Third, the relevant duty is not merely to take reasonable steps. Rather, it is to take "all" steps that the hypothetical reasonable person would take. 222 Trilogy contended that the duty in s 601FD(1)(f) is not consistent with delegating to others the duty to ensure compliance. That is, however, probably taking the duty too far. There may be some circumstances where a reasonable person in the particular officer's position would, or would be entitled to, delegate some compliance steps to another person. A reasonable person in the officer's position would not, however, be likely to delegate compliance steps to another person if the relevant circumstances were such that the officer was on notice, or should reasonably have been on notice, of facts that suggested that delegation would not ensure compliance. For example, an officer would not be reasonably entitled to delegate compliance steps to a person who had in the past shown him or herself to be unreliable, untrustworthy or negligent. 223 Likewise, if an officer delegated some compliance steps to another person, the officer would cease to be able to rely on the person to whom the steps were delegated if the officer became aware of facts or circumstances that a reasonable person in the officer's position would consider would disentitle reliance. Finally, a reasonable person who delegated some compliance steps to another person would, in most circumstances, also be expected to monitor and supervise the person to whom the compliance steps were delegated, and the actions taken by them. An officer who simply delegated compliance to another person and then ceased to have any involvement in supervising or monitoring compliance is likely to breach the duty in s 601FD(1)(f) of the Corporations Act. Each case would, however, have to be considered on its own facts.

KEY Issues and contentions 224 The pleadings in this matter are extremely lengthy and complex. The evidence, in particular the documentary evidence, relied on by the parties at trial was voluminous. The parties' respective submissions were extremely lengthy (perhaps too lengthy) and raised many and varied issues. Having regard to the way that the matter was pleaded and ultimately proceeded at trial, however, the issues can be simplified and narrowed down to the following eight key issues:

1. Did Mr Sullivan and Mr McCormick contravene s 601FD(1)(b), (c) or (f) of the Corporations Act in purporting to approve an "interim" increase to the AGA facility limit to $26 million in July or August 2006?
2. Did each or any of the respondents contravene s 601FD(1)(b) of the Corporations Act in failing to prevent advances being made to AGA that were above the approved facility limit in the period 28 April to 23 August 2006?
3. Did each or any of the respondents contravene s 601FD(1)(b) of the Corporations Act in failing to prevent advances being made to AGA that were above the approved facility limit in the period 24 August 2006 to 10 January 2007?
4. Did each or any of the respondents contravene s 601FD(1)(b), (c) or (f) of the Corporations Act in approving an increase to the AGA facility limit to $44.87 million or $55 million in December 2006 or January 2007?
5. Did each or any of the respondents contravene s 601FD(1)(b) of the Corporations Act in failing to prevent advances being made to AGA that were above the approved facility limit in the period 11 January 2007 to 1 July 2007?
6. Did the Fund suffer any loss or damage and, if so, did it result from any of the alleged contraventions by any of the respondents if established?
7. If any loss or damage was suffered as a result of any contravention or contraventions by any of the respondents, did Trilogy, on behalf of the Fund, fail to act reasonably to mitigate that loss? This issue is related to, or perhaps even a sub-issue of, issue 6 (causation), but is nonetheless more conveniently dealt with separately.
8. Should any of the respondents be exonerated in respect of any proven contraventions pursuant to s 1317S or 1318 of the Corporations Act? 225 Following is a brief discussion of each of the eight key issues, together with an outline of the parties' contentions in relation to them.

Issue 1 - Contraventions relating to the "interim" approval of an increase of the AGA facility limit to $26 million 226 The first issue concerns the actions of Mr Sullivan and Mr McCormick in purporting to approve (and then offering AGA) an "interim" increase of the AGA facility limit to $26 million. The increase was purportedly approved at some time in July or August 2006, though the file notes recording the purported approval, and the resulting letter of offer, were backdated to 28 April 2006. The issue, in simple terms, is whether, in purporting to approve the facility increase and offering AGA an "interim" facility limit of $26 million, Mr Sullivan and Mr McCormick: (a) failed to take all steps that a reasonable person would take, if they were in the position of Mr Sullivan and Mr McCormick, to ensure that City Pacific complied with the Constitution and the Compliance Plan and thereby contravened s 601FD(1)(f) of the Corporations Act; and/or (b) failed to exercise the degree of care and diligence that a reasonable person would exercise if they were in the position of Mr Sullivan and Mr McCormick and thereby contravened s 601FD(1)(b) of the Corporations Act; and/or (c) failed to act in the best interests of the members of the Fund and thereby contravened s 601FD(1)(c) of the Corporations Act? 227 The question whether Mr Sullivan and Mr McCormick contravened s 601FD(1)(f) hinges, at least in the first instance, on whether the purported approval of the interim increase of the AGA facility limit to $26 million complied with the Constitution, the Compliance Plan and the Fund's other policies and procedures in relation to the making of mortgage loans. If it did not, the next question is what Mr Sullivan and Mr McCormick knew about the facts and circumstances surrounding the purported approval and what they could or should have done in the circumstances to ensure compliance. 228 In simple terms, Trilogy contended that the purported approval of the "interim" increase to the facility limit did not comply with the requirements of the Constitution, the Compliance Plan, the PDS and the Lending Manual for many reasons. The reasons included: first, the approval was not supported by a valuation of the Saddleback land based on its current zoning; second, the limit of $26 million exceeded 80 percent of the value of the Saddleback land based on its current zoning; third, the Saddleback land was not an approved form of security within the lending guidelines in the Lending Manual for loans of the type that the AGA facility was; and fourth, there was inadequate security and imprudent lending ratios in respect of the loan. Relevant also was that the purported approval to increase the AGA facility limit was never put to the Credit Committee and appears to have been given after advances beyond the limit previously approved by the Credit Committee had already been made. Trilogy contended that both Mr Sullivan and Mr McCormick knew, or if they had exercised appropriate care and diligence would have known, all of the facts and circumstances that meant that the approval did not comply with the Fund's compliance policies and procedures. Yet they went ahead with the approval notwithstanding. 229 Even if the purported approval did comply with the Constitution, Compliance Plan and the Fund's other lending procedures, it does not necessarily follow that Mr Sullivan and Mr McCormick did not, in any event, contravene s 601FD(1)(b) or (c) of the Corporations Act. If, for example, as Trilogy contended, the Updated March 2006 Valuation that purportedly supported the increase to the facility limit was based on false assumptions, and if, as a result, the LVR of the increased facility in fact exceeded 80 percent, the increased facility may not have been in the best interests of the Fund. Mr Sullivan and Mr McCormick may also have failed to exercise reasonable care and diligence in approving the increase in those circumstances. Likewise, the fact that Mr Sullivan and Mr McCormick never ensured that the increase to the facility limit was approved by the Credit Committee, and the fact that the purported approval appears to have been backdated to give the impression that it had been given before the approved facility limited had been exceeded, may be relevant to a consideration of whether Mr Sullivan and Mr McCormick contravened s 601FD(1)(b) or (c) of the Corporations Act. 230 Mr Sullivan's case in relation to this issue was that he was misled by Mr McCormick into believing that the approval was "indicative" only and was subject to board approval. Otherwise, he appeared to accept that City Pacific's mandated loan approval process was not complied with because, amongst other things, the approval did not go to the Credit Committee. 231 Mr McCormick ultimately appeared to accept that both the file note and the letter of offer were backdated. He contended that they were backdated so as to "tidy up" the loan file prior to audit or the due diligence being conducted by the prospective purchaser of the loan book. He appeared to contend that such tidying up of loan files was common at City Pacific. Otherwise, he appeared to maintain that the approval of the increase to the AGA facility limit to $26 million was justified by the March 2006 Valuation of $64.1 million. He accepted that there was no Credit Committee approval for the increase, but provided no reason or justification for this failure to comply with the approval procedures required by the Compliance Plan. He simply claimed that he was "comforted" by other aspects of the AGA facility.

Issue 2 - Contraventions relating to advances between 28 April 2006 and 23 August 2006 232 The second issue is whether, in failing to take steps to prevent advances being made to AGA by City Pacific, as the responsible entity of the Fund, in the period from 28 April 2006 to 23 August 2006, each of Messrs Sullivan, Swan, Donaldson and McCormick, as officers of City Pacific, failed to exercise the degree of care and diligence that a reasonable person would exercise if they were in their positions as officers, and thereby contravened s 601FD(1)(b) of the Corporations Act? 233 The significance of the date, 28 April 2006, is that all advances made after that date exceeded the AGA facility limit approved by the Credit Committee in October 2005. The significance of the date, 23 August 2006, is that this was the date that Mr Sullivan and Mr McCormick purported to offer to increase AGA's loan facility to $26 million (by letter dated 28 April 2006). 234 In the case of Messrs Sullivan, Swan and Donaldson, the resolution of this issue depends largely on two factual questions. The first question is whether they either knew, or would have known had they exercised appropriate care and diligence, that advances were being made to AGA after 28 April 2006 which took the AGA facility beyond the facility limit approved by the Credit Committee in October 2005. If they did know, or should have known, that such advances were being made, the second question is whether they took any, or any reasonable steps, to prevent the advances being made. 235 Trilogy contended that each of Messrs Sullivan, Swan and Donaldson knew that advances were being made to AGA after 28 April 2006, and knew that those advances were beyond the limit set by the Credit Committee, of which each of them was a member, in October 2005. In the case of Mr Sullivan, Trilogy pointed, in particular, to the fact that he signed a number of Funds Transfer Request forms between 28 April 2006 and 23 August 2006. Trilogy also pointed to the fact that each of Messrs Sullivan, Swan and Donaldson were provided with board papers which recorded the balance of the AGA facility. In the alternative, Trilogy contended that each of Messrs Sullivan, Swan and Donaldson would have discovered that advances outside the approved limit were being made to AGA had they exercised the degree of care and diligence that a reasonable person would exercise if, like them, they were directors of City Pacific and members of the Credit Committee. A reasonable person in their positions would, at the very least, have taken the time to read the loan schedules that were provided to them in the board papers. 236 Trilogy's case was that it was within the power of each of Messrs Sullivan, Swan and Donaldson, as directors and members of the Credit Committee, to take steps to prevent further advances being made to AGA. Yet they took no steps to prevent the advances. 237 Each of Messrs Sullivan, Swan and Donaldson contended that they did not know that advances were being made to AGA, and did not know that the AGA facility limit was being exceeded. They contended, in effect, that Mr McCormick was on a frolic of his own and misled or deceived them. They maintained that they exercised appropriate care and diligence, but were nevertheless kept in the dark by reason of the actions of Mr McCormick. 238 The case against Mr McCormick is somewhat different given that there is no question that he knew that the advances were being made. Trilogy contended that Mr McCormick well knew that the advances were outside the limit approved by the Credit Committee. That was demonstrated by, amongst other things, Mr McCormick's actions in backdating the documentation of the purported increase of the facility to $26 million. 239 Mr McCormick's case in relation to these advances was somewhat difficult to understand. He noted that he did not authorise all of the advances made during this period. He claimed that therefore the persons who did authorise them must have been "comfortable with the rationale behind allowing these advances". He did not contend that he did not know that these advances were being made, or that he was not in a position to prevent them from being made. Indeed, he contended that, despite the absence of Credit Committee approval, the advances were in the best interests of the members of the Fund. In that respect, he claimed that and he took "comfort from the Cross-Collateralised Gore Group position". He also claimed that he was very busy.

Issue 3 - Contraventions relating to advances between 23 August 2006 and 10 January 2007 240 The third issue is whether, in failing to take steps to prevent advances being made to AGA by City Pacific, as the responsible entity of the Fund, in the period from 24 August 2006 to 10 January 2007, each of Messrs Sullivan, Swan, Donaldson and McCormick, as officers of City Pacific, failed to exercise the degree of care and diligence that a reasonable person would exercise if they were in their positions as officers and thereby contravened s 601FD(1)(b) of the Corporations Act? 241 The significance of the date, 24 August 2006, is that all advances made after that date exceeded the facility limit of $26 million purportedly approved by Mr Sullivan and Mr McCormick in July or August 2006. The significance of the date, 10 January 2007, is that this was the day before Mr Swan signed the proposal to increase AGA's loan facility to $44.87 million. Mr Swan was the last signatory. Messrs Sullivan, Donaldson and McCormick had all signed the proposal, and thereby approved it, on or around 22 December 2006. 242 As with issue 2, in the case of Messrs Sullivan, Swan and Donaldson, the resolution of this issue depends largely on the question whether they either knew that advances were being made to AGA after 23 August 2006, which took the facility beyond the approved limit or, alternatively, whether they would have ascertained this if they had exercised reasonable care and diligence. Trilogy again contended that each of Messrs Sullivan, Swan and Donaldson either knew, or with appropriate care and diligence ought reasonably to have ascertained, that advances were being made to AGA during this period, and that the AGA facility was accordingly operating beyond its limit. Trilogy pointed in particular to the fact that each of Messrs Sullivan, Donaldson and Swan received board papers throughout the relevant period that included details of the balance of the AGA facility. 243 Messrs Sullivan, Swan and Donaldson again maintained that they did not know that advances were being made to AGA above the facility limit and that they acted with an appropriate degree of care and diligence. They again essentially blamed Mr McCormick. 244 Mr McCormick's case in relation to these advances, as was the case with the advances made in the period between 28 April and 23 August 2006, appeared to be that, despite the fact that the advances resulted in the balance owing under the facility well exceeding the approved limit, and despite the absence of Credit Committee approval, the advances were nonetheless in the best interests of the members of the Fund. He did not suggest that he did not know that these advances were being, or had been, made. Nor did he deny that he was in a position to, but did not, prevent these advances from being made. He again pointed to the fact that he was very busy during this period.

Issue 4 - Contraventions relating to the increase of the AGA facility limit to $44.87 million 245 This issue concerns the actions of Messrs Sullivan, Swan, Donaldson and McCormick in approving the increase of the AGA facility limit to $44.87 million (or $55 million). Approval to the proposed increase was given in late December 2006 (or in Mr Swan's case in early January 2007), however the proposal was backdated to 9 August 2006. The issue, in simple terms, is whether, in approving the increase of the limit of the AGA facility to $44.87 million, Messrs Sullivan, Swan, Donaldson and McCormick: (a) failed to take all steps that a reasonable person would take, if they were in the position of Messrs Sullivan, Swan, Donaldson and McCormick, to ensure that City Pacific complied with the Constitution and the Compliance Plan and thereby contravened s 601FD(1)(f) of the Corporations Act; and/or (b) failed to exercise the degree of care and diligence that a reasonable person would exercise if they were in the position of Messrs Sullivan, Swan, Donaldson and McCormick, and thereby contravened s 601FD(1)(b) of the Corporations Act; and/or (c) failed to act in the best interests of the members of the Fund and thereby contravened s 601FD(1)(c) of the Corporations Act? 246 The resolution of this issue depends, to a large extent, on what each of Messrs Sullivan, Swan, Donaldson and McCormick knew, or ought reasonably to have known, about the valuation figures upon which the proposed facility limit increase was premised. Relevant too is the fact that the proposal was backdated and contained a number of other evident discrepancies. 247 In simple terms, Trilogy contended that the actions of each of Messrs Sullivan, Swan, Donaldson and McCormick in approving an increase to the AGA facility to $44.87 million in late December 2006 (or early January 2007 in the case of Mr Swan) contravened s 601FD(1)(b), (c) and (f) of the Corporations Act. The crux of Trilogy's case was that the approval of this facility failed to comply with the Constitution, the PDS, the Compliance Plan and the Lending Manual because the facility was not supported by an acceptable valuation based on the current zoning and current permitted uses of the Saddleback land. Trilogy submitted that the letter that Mr McCormick procured from Mr Kogler in late Dedcember 2006 was not a valuation and in any event was based on manifestly false assumptions. The earlier valuations obtained from Mr Kogler, including the Updated March 2006 Valuation, were also not acceptable and did not provide a proper basis for the loan. Trilogy contended that the true "as is" valuation of the Saddleback land was, at most, the September 2005 Valuation of $24.975 million. Alternatively, the correct valuation figure was $16.735 million. That was the value of the Saddleback land in the opinion of the exert valuer called by Trilogy at the trial, Mr James Eden. Obviously neither of those valuation figures was capable of supporting any increase to the AGA facility above $17.89 million, let alone an increase of the scale proposed. 248 In approving the increase to the AGA facility in such circumstances, Trilogy contended that each of the respondents failed to take all steps that a reasonable person would take to ensure that City Pacific complied with the Constitution and the Compliance Plan, failed to exercise the degree of care and diligence that a reasonable person would exercise if they were in the position of the respondents, and failed to act in the best interests of the members of the Fund. 249 The case advanced on behalf of Messrs Sullivan, Swan and Donaldson in relation to this issue was to effectively shift the blame to Mr McCormick. They contended that there was in fact no approval because the proposal that they signed contained facts that were "deliberately and radically false" and that the proposal was "a[n] instrument of fraud" by Mr McCormick. They also appeared to contend that, even if their signing of the proposal amounted to an approval, it did not contravene the requirements of the Constitution and Compliance Plan because it was supported by the Updated March 2006 Valuation. 250 Mr McCormick contended that the approval of the increase in the AGA facility complied with the requirements of the Constitution and Compliance Plan because the valuation received from Mr Kogler was an "as is" valuation. Therefore the facility limit, as approved, complied with the 80 percent LVR requirement. He appeared to contend that he believed at the time that the assumptions relied on by Mr Kogler's in his March 2006 and December 2006 valuations were valid assumptions. In that regard, he claimed that he was misled or lied to by Mr Gore, who told him that the proposed Saddleback project had been declared State Significant.

Issue 5 - Contraventions relating to advances made between 11 January 2007 and 1 July 2007 251 In the case of Mr McCormick, the issue is whether, in approving or authorising the advances made during this period, each of which exceeded the approved facility limit of $44.87 million, Mr McCormick: (a) failed to take all steps that a reasonable person would take, if they were in the position of Mr McCormick, to ensure that City Pacific complied with the Constitution and the Compliance Plan and thereby contravened s 601FD(1)(f) of the Corporations Act; (b) failed to exercise the degree of care and diligence that a reasonable person would exercise if they were in the position of Mr McCormick and thereby contravened s 601FD(1)(b) of the Corporations Act; and/or (c) failed to act in the best interests of the members of the Fund and thereby contravened s 601FD(1)(c) of the Corporations Act? 252 There would appear to be no dispute that Mr McCormick approved or authorised the advances made during this period. The only issue would appear to be whether the facility limit remained at $44.87 million, or had increased to $55 million. If it remained at $44.87 million, it is clear that advances exceeded the approved limit. In such circumstances, Trilogy contended that Mr McCormick's actions in approving or authorising the further advances meant that he breached his statutory duties. 253 Mr McCormick contended that the advances made during this period were not above the approved limit. He contended that the approved limit was $55 million because the valuation of $102.4 million provided by Mr Kogler was an "as is market value" of the Saddleback land. 254 As for Messrs Sullivan, Swan and Donaldson, the issue is again whether, in failing to take steps to prevent advances being made to AGA by City Pacific as the responsible entity of the Fund in the period from 11 January 2007 to 1 July 2007, each of them failed to exercise the degree of care and diligence that a reasonable person in their positions would exercise and thereby contravened s 601FD(1)(b) of the Corporations Act? 255 Messrs Sullivan, Swan and Donaldson did not dispute that all advances made after 11 January 2007 exceeded the facility limit of $44.87 million approved by them, as members of the Credit Committee, in late December 2006 and early January 2007. As with issues 2 and 3, the resolution of this issue depends largely on the question whether Messrs Sullivan, Swan and Donaldson either knew that advances were being made to AGA after 11 January 2007 which resulted in the facility limit being exceeded, or alternatively, whether they would have ascertained that fact if they had exercised reasonable care and diligence. 256 Trilogy contended that each of Messrs Sullivan, Swan and Donaldson either knew, or with appropriate care and diligence ought reasonably to have ascertained, that advances were being made to AGA during this period and that the AGA facility was operating well beyond its limit. Trilogy again relied on the fact that each of Messrs Sullivan, Swan and Donaldson received board papers during the relevant period that included details of the balance of the AGA facility. Trilogy also relied on the fact that each of Messrs Sullivan, Swan and Donaldson should have paid particular attention to the AGA facility during this period given the unusual circumstances surrounding the December 2006 increase to the AGA facility limit, including that the proposal had been backdated. 257 Messrs Sullivan, Swan and Donaldson, on the other hand, again maintained that they did not know that advances were being made to AGA above the facility limit and that they acted with an appropriate degree of care and diligence. They claimed that Mr McCormick was responsible for making these advances and that Mr McCormick concealed the further advances from them.

Issue 6 - Did the Fund suffer any damage resulting from any contraventions? 258 The fourth issue only arises if issues 1 to 5 are determined in Trilogy's favour and it is found that any of Messrs Sullivan, Swan, Donaldson or McCormick contravened s 601FD of the Corporations Act as alleged. The issue is whether the Fund suffered any loss or damage which resulted from those contraventions. 259 Trilogy's case in respect of this issue was simple. It contended that had care and diligence been exercised by Messrs Sullivan, Donaldson, Swan and McCormick, or if the Constitution and the Compliance Plan had been complied with, no advances would have been made to AGA beyond the approved limit of $17.89 million set by the Credit Committee in October 2005. All advances made after that date were lost and never recovered by the Fund. The amount recovered from the sale of the security properties was only $7.627 million, well less than $17.89 million. Trilogy therefore contended that the respondents were liable to compensate it for the difference between the total amount outstanding on the AGA facility and $17.89 million. 260 Messrs Sullivan, Swan, Donaldson and McCormick each contended that, even if they did contravene s 601FD of the Corporations Act as contended by Trilogy, the Fund did not suffer any loss or damage as a result of any such contraventions. 261 In relation to the purported approval of the increase of the AGA facility limit to $26 million, Mr Sullivan contended that, even if he contravened s 601FD of the Corporations Act by approving that increase, it did not cause any loss because by the time he signed the file note and letter of offer, funds up to that limit had already been advanced to AGA by Mr McCormick. The approval was therefore not productive of any loss. 262 In relation to the approval of the increase to the AGA facility limit to $44.87 million, Messrs Sullivan, Swan and Donaldson contended that the formal letter of offer to AGA in relation to this increased facility was not binding on City Pacific. That was because it was not only signed by Mr McCormick, but also signed and sent before Mr Swan had approved the proposal. They also contended that the letter of offer was "a joint fabrication by multiple conspiring fraudsters", including Messrs McCormick, Gore and Gillam, and was therefore not enforceable. In their submission, Mr McCormick would, in any event, have continued to advance money to AGA throughout 2007 even if they had not approved the increased facility limit in December 2006 or January 2007. The approval was therefore not productive of any loss, even if in approving the increased facility limit they contravened s 601FD of the Corporations Act. 263 In relation to the contraventions relating to advances to AGA that were above the approved limits, Messrs Sullivan, Swan and Donaldson contended that, even if they had found out that Mr McCormick was making those advances, they would not necessarily have removed Mr McCormick from his post. Therefore, Mr McCormick would have been in a position to continue to make further advances in any event. 264 In the alternative, Messrs Sullivan, Swan and Donaldson submitted that if they had discovered that Mr McCormick was making these advances to AGA, they would in any event have been faced with the difficulty that the Fund was significantly exposed to the Gore Group. The advances to AGA that occurred after late April 2006 were being applied to enable the completion of other Gore Group projects. In those circumstances, they contended that City Pacific would have faced a dilemma. City Pacific could have continued to make advances to the other Gore Group companies, other than AGA, so as to enable them to complete their projects. If that course was chosen, City Pacific or the Fund would eventually have lost those funds when the other Gore Group companies subsequently defaulted. Alternatively, they could have stopped lending to any of the Gore Group companies. That would simply have hastened the collapse of the entire Gore Group. Either way, the Fund would have made losses. Those losses, however, did not result from any contraventions by them. 265 In relation to causation generally, Messrs Sullivan, Swan and Donaldson also contended, in effect, that none of the alleged contraventions, even if made out, were productive of any loss because even if City Pacific had not made any advances to AGA beyond the October 2005 limit of $17.89 million, City Pacific would have made similar loans to other prospective borrowers. That would have continued until City Pacific all but ceased lending activities after the onset of the global financial crisis. The so-called "hypothetical loans" that would have been made would also inevitably have been lost to the Fund as a result of the global financial crisis. In other words, if the money had not been lent to AGA, it would have been lent to other entities who would, like AGA, have eventually defaulted. In the respondents' submission, "had the impugned advances [to AGA] not been made it would not have materially altered the financial history of the Fund".

Issue 7 - Did Trilogy, on behalf of the Fund, fail to mitigate any loss or damage? 266 Messrs Sullivan, Swan and Donaldson contended that the circumstances and manner in which Trilogy, as the new responsible entity of the Fund, arranged the sale of the Saddleback land after AGA's default amounted to a failure to mitigate any loss suffered as a result of any contravention or contraventions by them. 267 Trilogy sold the Saddleback land that was held as security in respect of the AGA advances as separate rural lots. Messrs Sullivan, Swan and Donaldson contended that it would have been reasonably prudent for Trilogy to attempt to procure a declaration of State Significance in respect of the Saddleback land from the Queensland Government before selling the land as separate lots with a rural zoning. Trilogy did not, in the respondents' submission, even explore that possibility. They contended that selling the Saddleback land as separate rural lots in those circumstances amounted to a "fire sale." Indeed, Messrs Sullivan, Swan and Donaldson even went so far as to contend that Trilogy deliberately went out of its way to sell the Saddleback land at an undervalue to bolster its claim against Mr Sullivan and thereby dash his plans to retake control of the Fund. In that context, serious allegations of misleading and deceptive conduct were levelled against officers of Trilogy. 268 Messrs Sullivan, Swan and Donaldson contended that, based on Mr Kogler's valuation, Trilogy could have realised somewhere in the order of $102 million for the Saddleback land if a declaration of State Significance was obtained. In those circumstances, there would have been no loss to the Fund. 269 Trilogy's response was that Trilogy's mitigation "defence" did not properly arise and that, in any event, Trilogy acted reasonably and justifiably in selling the security properties. Trilogy contended that at all times it acted on the basis of independent professional advice in relation to the sale of the properties. To do as Messrs Sullivan, Swan and Donaldson contended they should have done would have required Trilogy to effectively act as a speculative property developer, which was outside the ordinary course of its business. It also would have involved expending further funds in aid of an entirely speculative enterprise. As for the "conspiracy theory", involving the allegation that Trilogy deliberately sold the land at an undervalue, Trilogy submitted that this allegation was not only unpleaded, but was completely unsupported by the evidence.

Issue 8 - Should the respondents be exonerated? 270 The respondents contended that even if they were found to have contravened s 601FD of the Corporations Act as contended by Trilogy, they at all times acted honestly. They submitted that their contravention or contraventions should be excused under either or both of s 1317S or s 1318 of the Corporations Act because the contraventions were not serious, were mere errors of judgment, and that in all the circumstances it would be unjust and oppressive to order them to pay the amount of compensation sought by Trilogy. 271 Trilogy contended that the Court would not be able to be satisfied that any of the respondents acted honestly, particularly having regard to their involvement in backdating documents and the level of their imprudence and carelessness. As for whether the respondents ought fairly to be excused, Trilogy contended that the respondents' conduct fell well short of the statutory standard of care and diligence, the contraventions were serious, there was impropriety involved, and there was a complete absence of contrition on the part of the respondents. The respondents' conduct also had very serious implications for the members of the Fund. In all those circumstances, Trilogy submitted that exoneration was not appropriate.

Other issues 272 Before specifically addressing these key issues, it is necessary to resolve a number of more general issues. 273 First, there is an issue concerning the proper construction or interpretation of some clauses in the Constitution. There is also a factual issue concerning the Lending Manual. Those issues bear, to an extent, on the question whether the approvals of the increases to the AGA facility and the advances made to AGA throughout 2006 and 2007, complied with the Constitution, the Compliance Plan and the Lending Manual. It is fair to say, however, that these issues are by no means critical or determinative of Trilogy's case that the approvals and advances to AGA failed to comply with the Constitution. 274 Second, there are issues concerning the credit and credibility of a number of each of Messrs Sullivan, Swan, Donaldson and McCormick. It is useful to outline some general findings or observations concerning those credit issues before addressing the factual findings in relation to the key issues. 275 Third, and related in some respects to the first two issues, is the issue of the culture of compliance and corporate governance at City Pacific. The Corporations Act, Constitution and Compliance Plan required City Pacific, as a responsible entity, to have in place a number of formal compliance structures, personnel and procedures. Each of Messrs Sullivan, Swan and Donaldson claimed, in their evidence, that they placed various degrees of reliance on the compliance structures and personnel. That appeared to influence the extent to which Messrs Swan and Donaldson, in particular, involved themselves in the monitoring and oversight of management. A question arises about the effectiveness of City Pacific's compliance structures and personnel at the time of the events in question, and the extent to which it was open to Messrs Sullivan, Swan and Donaldson to rely, without more, on those structures and personnel. There is also a question about the state of corporate governance generally at City Pacific at the relevant time. 276 A body of evidence that appeared to bear significantly on those issues was the evidence relating to the SVP report and City Pacific's response to it. The evidence concerning the SVP report is important for at least four reasons. First, the SVP report itself exposed a number of issues concerning compliance at City Pacific. The fact that those issues were not picked up by City Pacific's own compliance structures and personnel was telling. Second, as will be seen, the attitude taken by City Pacific to the SVP report, and in particular the recommendations made in relation to the AGA facility, appears to have been symptomatic of the somewhat parlous state of corporate governance at City Pacific. Third, at the very least the SVP report should have put both senior management and the board of City Pacific on notice of potential issues about the AGA facility. Indeed, on one view, the SVP report should have set alarm bells ringing loudly at City Pacific concerning the AGA facility. Yet if any of Messrs Sullivan, Swan, Donaldson and McCormick were to be believed, they were largely deaf to the sound of those alarm bells. 277 The fourth issue that requires some consideration concerns the value of the Saddleback land throughout the period from October 2005. The increases to the AGA facility that were approved, or purportedly approved, in July or August 2006 and December 2006 were based, or purportedly based, on valuations from Mr Kogler of PRP that suggested that the value of the land had increased significantly. There is an issue whether those valuations were proper or acceptable "as is" valuations, or whether they were based on unrealistic or erroneous assumptions about the zoning or permitted uses of the land. Indeed, it must be said, there is an issue whether the valuations prepared by Mr Kogler in 2006 were bona fide independent valuations at all. Trilogy relied on a report by a valuer, Mr James Eden, to establish the value of the Saddleback land as at April and August 2006.

The Briginshaw standard and s 140 of the Evidence Act 278 It is clear from this brief outline of the key issues and contentions that many of them involve serious allegations of breach of duty by Messrs Sullivan, Swan, Donaldson and McCormick. Equally, Messrs Sullivan, Swan and Donaldson make serious allegations against Trilogy and its officers in the context of their contention that Trilogy failed to mitigate its loss. The consequences of findings being made against Messrs Sullivan, Swan, Donaldson and McCormick in relation to the pleaded contraventions are likely to be severe, including potentially very large compensation orders. The nature of the causes of action, the nature and subject matter of the proceedings (allegations of serious contraventions of the Corporations Act) and the gravity of the matters alleged, are all matters that the Court must take into account in determining whether the claims have been proved on the balance of probabilities: s 140(2) of the Evidence Act 1995 (Cth) (Evidence Act). 279 Section 140 of the Evidence Act in large measure encapsulates in statutory form the relevant observations of Dixon J (and the equivalent observations of Rich J) in Briginshaw v Briginshaw (1938) 60 CLR 336 (Briginshaw), including the following frequently cited passage (at 362): … reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters "reasonable satisfaction" should not be produced by inexact proofs, indefinite testimony, or indirect inferences. 280 The so-called Briginshaw standard is apposite to the circumstances of this case. The nature of the allegations and the gravity of the consequences mean that a close examination and careful weighing of all the evidence and facts proved as a basis for inference is warranted. All of the factual issues that require determination by the Court have been approached on that basis. 281 It should be noted in this context, however, that nothing in s 140 of the Evidence Act or Briginshaw suggests that "reasonable satisfaction" in relation to serious allegations cannot be reached on the basis of primarily documentary evidence. Messrs Sullivan, Donaldson and Swan were critical of the fact that Trilogy's case was primarily documentary. In many cases, however, documentary evidence can prove to be more reliable than the unaided recollection of events by witnesses, particularly when those events occurred some time ago. That is particularly the case where the recollections of witnesses have been shown to be defective, dishonest or otherwise lacking in credibility. In many respects, this was such a case.

The Constitution, Compliance Plan and Lending Manual 282 The basic terms of the Constitution, the Compliance Plan and the Lending Manual have been outlined earlier. There are, however, some contentious issues concerning them that need to be resolved. 283 Before addressing those issues, the importance of the scheme constitution and compliance plan to the statutory scheme in the Corporations Act in relation to managed investment schemes should again be emphasised. A managed investment scheme cannot be registered under the Corporations Act if it does not have a constitution and compliance plan which comply with the detailed requirements in ss 601GA and 601HA of the Corporations Act respectively. Relevantly, the constitution must make adequate provision for the powers of the responsible entity in relation to the making of investments of, or otherwise dealing with, scheme property. The compliance plan must set out adequate measures that the responsible entity is to apply in operating the scheme to ensure compliance with the Corporations Act and the scheme's constitution. Plainly the contents of both documents are fundamentally important to the proper operation of the statutory scheme and the protection the statutory scheme is intended to afford to members of managed investment schemes. 284 In general terms, however, the evidence reveals that, at least when it came to the AGA facility, City Pacific's officers generally paid scant regard to the contents of the Fund's Constitution and Compliance Plan and other documents, such as the PDS and Lending Manual, that explained how the assets of the Fund would be invested and what guidelines were required to be followed before investments were made. Whilst each of the respondents agreed that they were aware of many of the important provisions in the Constitution, the Compliance Plan, the PDS and the Lending Manual, it was readily apparent from their evidence that, when it came to the AGA facility, they either overlooked or disregarded key requirements or considerations set out in those documents. 285 Part of Trilogy's case against each of the respondents was that they failed to take all reasonable steps to ensure that City Pacific, as the responsible entity for the Fund, complied with the constituent documents, in particular the Constitution and the Compliance Plan. That aspect of Trilogy's case in turn depended, at least in part, on three basic propositions concerning the constituent documents. 286 The first proposition was that the Fund could only invest its funds in mortgage investments where the total of the money advanced did not exceed 80 percent of the value of the security property as valued by an approved valuer (the 80 percent LVR requirement). That proposition was, in Trilogy's submission, supported by the terms of the Constitution and the PDS. Trilogy contended, in effect, that all advances made under the AGA facility after 28 April 2006 failed to meet the 80 percent LVR Requirement. 287 The second proposition was that the Compliance Plan, when read together with the PDS and the Lending Manual, provided that loans were required to be approved by the Credit Committee and that, before approving a loan proposal, the Credit Committee was required to receive and consider a valuation of the security property from an approved valuer which was no more than three months old (the Valuation Requirement). Trilogy contended, in effect, that all advances made under the AGA facility after 28 April 2006 failed to meet that requirement. All the advances made after that date resulted in the AGA facility exceeding the facility limit approved by the Credit Committee in October 2005. No proposal to increase the facility limit was put to or approved by the Credit Committee until late December 2006. The purported "interim" approval of the increase of the facility limit to $26 million was never put to the Credit Committee and was not supported by a proper valuation in any event. The approval, by the Credit Committee (Messrs Sullivan, Swan, Donaldson and McCormick), of the increase to the AGA facility limit to $44.87 million in late December 2006 (or early January 2007 in the case of Mr Swan) did not meet the valuation requirement because the loan proposal put to the Credit Committee at that time was not supported by a proper valuation that satisfied the requirements of the Compliance Plan. 288 The third proposition was that the AGA facility did not comply with the terms of the Lending Manual because the AGA facility was an "asset/non-conforming loan" under clause 5.8 of the Lending Manual. It did not fall under any of the other categories of loan referred to in the Lending Manual (the Lending Manual Issue). Rural properties that were larger than 10 hectares (24 acres) were not acceptable security properties for category 5.8 loans. Thus, the Saddleback land, in Trilogy's submission, was not an acceptable security within the guidelines in the Lending Manual. 289 The respondents contended that the constituent documents, properly construed, did not support any of these three propositions. It is necessary to consider this issue before addressing the specific issues relating to the increases to the AGA facility and the advances made after 28 April 2006.

The 80 percent LVR Requirement 290 The respondents' contention in relation to this alleged requirement was that the Constitution did not provide that City Pacific was confined to investing in mortgage investments as defined. Rather, City Pacific was authorised to hold the assets of the Fund in "Authorised Investments". The definition of "Authorised Investments" included any "authorised investment" as defined in s 21 of the Trusts Act. That section provided that a trustee may, unless expressly forbidden by the instrument creating the trust, invest trust funds in "any form of investment". Thus, the respondents contended that, under the Constitution, City Pacific's authority to invest the assets of the Fund was effectively unrestricted. Because the Constitution did not expressly forbid City Pacific from investing the funds in any particular type of investment, City Pacific could invest the assets of the Fund in any way it chose. It was not restricted to mortgage investments, which by definition involved the 80 percent LVR Requirement. 291 Whilst it may perhaps be accepted that there is a degree of ambiguity and lack of clarity in the drafting of clause of 7.1 of the Constitution, the respondents' contention in relation to the operation of clause 7.1 is rejected. It is based on an erroneous reading of clause 7.1 of the Constitution and ignores the terms of the Compliance Plan and the PDS. The evidence also indicated that at the time the relevant AGA advances were being made the respondents themselves recognised that mortgage loans by the Fund had to meet the 80 percent LVR Requirement. To that extent, the respondents' contention was somewhat contrived and artificial. 292 Whilst clause 7.1 of the Constitution provided that City Pacific's role was to "hold" all of the Fund's "assets" in "Authorised Investments", it also provided that its role was to "seek and invest" the "funds" of the Fund in "Mortgage Investments". Thus, clause 7.1 appeared to draw a distinction of sorts between holding assets and investing funds. Read in context, including in the context of the other constituent documents, including the Compliance Plan and the PDS, clause 7.1 would appear to suggest that, when City Pacific received funds invested by members, its role was to initially hold those assets in Authorised Investments. It was then required to seek out and invest those funds in Mortgage Investments. To read the clause otherwise would mean that the second part of the clause would effectively have no work to do. On the respondents' construction of clause 7.1 of the Constitution, City Pacific could "seek and invest" the funds of the Fund in "any investment". 293 The respondents' construction of clause 7.1 of the Constitution is also not supported by the terms of the Compliance Plan and the PDS. The Constitution required City Pacific to comply with the Compliance Plan (clause 4.5(h)). The Compliance Plan, in turn, provided that all investments of the Fund had to be invested in accordance with the Constitution and the PDS (section 9). Whilst the PDS appeared to accept that the funds of the Fund could be invested in a wide range of investments (which is perhaps consistent with the respondents' construction of clause 7.1 of the Constitution), it also provided that City Pacific would limit the Fund's investments to "[l]oans secured by registered first Mortgages and cash investments" (section 2.3). The reference to "first Mortgages" must sensibly be read as a reference to "Mortgage Investments" as defined in the Constitution. That is supported by the fact that the PDS also referred, in that context, to the fact that the "Mortgage Trust constitution allows advances up to 80% of security property". It would follow that under the PDS, the only non-cash investments that would be made by the Fund would be in Mortgage Investments. 294 The effect of the respondents' construction of clause 7.1 of the Constitution would be that the detailed provision in the Compliance Plan, the PDS and the Lending Manual concerning the requirement of adequate security, prudent lending ratios, the need for valuations, and the assessment and approval of Mortgage Investments would be effectively rendered nugatory. That is because, on the respondents' reading of clause 7.1, City Pacific could sidestep all those provisions because it was authorised to hold the Fund's assets in "any investment". If that were so, City Pacific could make unsecured loans, or loans secured by a mortgage but with a LVR greater than 100 percent because, despite all the detailed provisions in the Compliance Plan, PDS and Lending Manual, such a loan was permitted by the Constitution because it was "any investment". 295 Plainly a construction of clause 7.1 of the Constitution that allows it to be sensibly read with the other important scheme documents, and that gives all the provisions of the other scheme documents some work to do, is to be preferred. The Constitution, the Compliance Plan and the PDS also have to be considered in the context of a statutory scheme which is designed to afford some protection to persons who invest in managed investments schemes. The respondents' construction of clause 7.1 is hardly consistent with the statutory scheme. Indeed it would make a mockery of it. 296 In any event, because the Constitution required compliance with the Compliance Plan, and the Compliance Plan required investments to be in accordance with the PDS, and the PDS represented, in effect, that the only non-cash investments that would be made would be mortgage investments with a LVR of up to 80 percent, the effect was that the Constitution only permitted investments in Mortgage Investments.

The Valuation Requirement 297 The respondents appeared to accept that all investments, including extensions or increases to existing investments, had to be approved by the Credit Committee. They also appeared to accept that the process of approval by the Credit Committee involved the provision of a loan proposal to the Credit Committee, together with supporting information. The respondents, however, took issue with the proposition that the supporting information included the valuation. The respondents also contended that the Compliance Plan did not require the Credit Committee to read any valuation referred to in, included with, any loan proposal. They appeared to suggest that only the Lending Manager was required to read or consider the valuation. 298 The respondents' contention in that regard, however, largely ignored the terms of City Pacific's Lending Manual. The Compliance Plan provided that any Mortgage Investment was required to comply with City Pacific's "mortgage lending guidelines" (section 9). The PDS also provided that City Pacific had "determined and documented lending guidelines for the approval and management of all [l]oans". There could be little doubt that the Lending Manual comprised City Pacific's mortgage lending guidelines as required by the Compliance Plan and as referred to in the PDS. 299 Section 1.4 of the Lending Manual provided that a valuation of a security property was the "primary credit document" and that "[n]o loan is approved unconditionally until receipt of an independent valuation report from an approved [p]anel [v]aluer". It is, in those circumstances, not surprising that section 1.5 of the Lending Manual provided that the valuation report needed to be attached to the loan proposal. Section 10 of the Lending Manual, as well as reaffirming that the valuation was "the primary credit assessment tool utilised", provided that a valuation had to be read carefully. Whilst it is true that section 10 does not specify who was required to read the valuation, given the primacy of the valuation in the loan assessment process, it is difficult not to infer that the persons who made up the body that was required to approve loan proposals, the Credit Committee, were required to read it. 300 In any event, in the particular circumstances of this matter, the duty of care and diligence owed by each member of the Credit Committee would almost certainly have required them to take at least some steps to check or verify, if not carefully consider, the valuation or valuations that were said to support the proposal to increase the AGA facility limit that was put to the Credit Committee in December 2006. That issue is considered further below. It is sufficient to note at this stage that this plainly did not happen.

The Lending Manual Issue 301 This issue involves the resolution of two matters of controversy. The first involves the proper construction of section 5 of the Lending Manual that was in force throughout much of 2006. The second is a factual issue about when the revised Lending Manual, which altered section 5, came into effect. 302 Section 5 of the Lending Manual that was in force throughout much of 2006 was headed "Lending Guidelines". As already indicated, it referred to nine different categories of loans, together with specific provisions relating to each category. The loan categories included residential property loans (section 5.1), commercial property loans (section 5.2), industrial property loans (section 5.3), retail property loans (section 5.4), strata-title hotel/apartment suite loans (section 5.5), strata-title studio apartment loans (section 5.6), collateral second mortgages (section 5.7) and construction/development loans (5.9). 303 It would appear to be common ground that the AGA facility did not fall within any of those categories. The question is whether that meant that the AGA facility was a category 5.8 loan, being the category that dealt with "asset/non-conforming loans". The significance of that issue was that, as already indicated, if the AGA facility did fall within that category, the Saddleback land was not acceptable security. As a result, the Lending Manual requirements were not complied with in relation to the AGA facility. 304 It will be recalled that SVP was of the opinion that section 5.8 of the Lending Manual related to loans where the security property did not fall into any of the other categories. It characterised the AGA facility as a facility where loan funds were used for "rural land banking" and found that, as the security property exceeded 10 hectares, the AGA facility was "outside all current policy areas". 305 When it received the SVP report, City Pacific did not directly challenge that aspect of SVP's analysis of section 5 of the Lending Manual. Nor did it directly challenge SVP's conclusion that the AGA facility was an "asset/non-conforming loan" and fell outside the guidelines in the Lending Manual. The effect of the respondents' contention concerning the Lending Manual Issue was that, whilst they may not have directly said so at the time, SVP did get it wrong. 306 The respondents contended that section 5.8 of the Lending Manual was not a "catch-all" category that picked up loans that did not fall within the other loan categories. Rather, in their submission, category 5.8 loans related to "low document" loans. The AGA facility accordingly did not fall within category 5.8. The respondents contended that section 5 of the Lending Manual simply provided guidelines in relation to nine types of commonly occurring lending situations. The AGA facility did not fall within any of those situations. As a result, in the respondents' submission, no guidelines applied to it. 307 There is no doubt that section 5 of the Lending Manual, in the form it was in during much of 2006, lacked clarity. There was no precise or detailed definition of the types of loans that fell into each category (with the possible exception of category 5.9 which dealt with construction/development loans), though most of the category descriptions were fairly self-explanatory. That cannot be said to be the case in relation to category 5.8 loans. The description "asset/non-conforming loans" was by no means self-explanatory and there was no other definition of the types of loans that fell within it. It was certainly not evident that it related to "low document" loans, as the respondents contended. Nor was it necessarily clear that it was a "catch-all" section that covered all loans not within the other sections, though that is one possible interpretation flowing from the description "non-conforming". 308 It is ultimately unnecessary to resolve this question of construction. Two points should, however, be emphasised. First, as has already been made clear, it was common ground that the AGA facility did not appear to fall within any of the other categories of loans which were covered by section 5 of the Lending Manual. Even if the respondents are correct and the AGA facility did not clearly fall within category 5.8 loans, that itself should have been a matter of concern for City Pacific at the time. On that construction, the AGA facility was entirely outside the guidelines in the Lending Manual. That did not appear to trouble any of Messrs Sullivan, Swan, Donaldson or McCormick at the time of the receipt of the SVP report. 309 Second, as already noted, when they reviewed and responded to the SVP report, none of the Messrs Sullivan, Donaldson, Swan or McCormick challenged SVP's interpretation of category 5.8 loans, or SVP's conclusion that the AGA facility was a non-conforming loan and therefore fell outside all policy areas. Nor did any of them take steps to clarify the meaning of section 5 of the Lending Manual, including category 5.8 loans. Whilst Mr Sullivan, in an email to City Pacific's Compliance Plan auditor, KPMG, claimed, in very general terms, that the loans the subject of SVP's recommendations were within City Pacific's Compliance Plan and lending requirements, he did not specifically refer to the AGA facility or SVP's finding that it was an "asset/non-conforming loan". Perhaps more significantly, in his response to ASIC, Mr Sullivan expressly accepted SVP's recommendations and said that they would be implemented. Implicit in that response was an acceptance that the AGA facility was outside the guidelines in the Lending Manual. Notwithstanding this, nothing at all was done to bring the AGA facility within the Lending Manual guidelines. 310 The respondents also relied on a version of the Lending Manual that bore the date 28 September 2006. They contended, in effect, that this version of the Lending Manual was in force on the date it bore. This version of the Lending Manual had no equivalent to category 5.8 loans dealing with "asset/non-conforming loans". Instead, it had a new category of "land bank loans" (section 5.2), which appeared to pick up SVP's characterisation of the AGA facility as involving rural land banking. 311 There are difficulties with the respondents' contentions in relation to this later version of the Lending Manual. First, the only copy of this version of the Lending Manual that was in evidence was an electronic copy that was attached to an email dated 14 February 2007. Expert evidence concerning the metadata of that document established that, consistent with the content of the email to which it was attached, the document was first created on 30 January 2007. Second, there was no reliable documentary evidence that established that the later version of the Lending Manual was approved or in force on the date it bore. Third, the evidence concerning the genesis of this version of the Lending Manual was somewhat unsatisfactory and unreliable. There did not appear to be any formal process for approving amendments to the Lending Manual. The evidence of both Mr Sullivan and Mr McCormick about the date when this version of the Lending Manual was approved and in force was at best speculative. 312 It is ultimately unnecessary to resolve the factual question concerning the date upon which this version of the Lending Manual was approved and in force. Even if it was in force on 28 September 2006, the point remains that the AGA facility remained outside the guidelines in the Lending Manual throughout much of 2006. In addition, one of the guidelines for the new category of "land bank loans" in this later version of the Lending Manual was that the LVR was not to exceed 80 percent of the current market valuation. For reasons dealt with in detail later, the AGA facility did not meet that guideline in September 2006 or at any later time. All of the purported valuations of the Saddleback land after the September 2005 Valuation were based on assumptions that were known not to reflect the actual zoning and permitted uses of the land. Nor did they comply with other requirements in the Compliance Plan. 313 It should be emphasised again that these findings concerning the Constitution, the Compliance Plan and the Lending Manual are by no means critical to Trilogy's case that Messrs Sullivan, Swan, Donaldson and McCormick breached their statutory duties. They are certainly not critical to Trilogy's case that each of the respondents failed to exercise the required standard of care and diligence in relation to the AGA facility and the advances made to AGA.

CREDIT FINDINGS 314 Whilst the evidence relating to the key events and circumstances involving the AGA facility was largely documentary, many of the key factual issues turn on the credibility and reliability of the evidence of Messrs Sullivan, Swan, Donaldson and McCormick. That is because many of the issues involve questions concerning their knowledge, beliefs, intentions and explanations concerning the relevant events and circumstances. To that extent, Trilogy's case was partly circumstantial and depended on inferences that it contended should be drawn from the facts and circumstances established by the mostly documentary evidence. 315 Each of Messrs Sullivan, Swan, Donaldson and McCormick swore a number of affidavits. Their evidence concerning some of the critical events was challenged in cross-examination. Trilogy submitted that much of their evidence was unsatisfactory, unreliable and should not be accepted. Before addressing the specific factual issues and the evidence of each of Messrs Sullivan, Swan, Donaldson and McCormick relating thereto, some general findings concerning the credibility and reliability of each of these witnesses should be recorded.

Mr Sullivan 316 Mr Sullivan was a most unsatisfactory and unimpressive witness. That conclusion flows from a number of considerations. 317 First, Mr Sullivan revealed himself to be a witness who was prepared to emphatically swear to a particular version of events, only to subsequently vary that version to take into account evidence that was inconsistent with it. He was often required to then shift ground further when pressed in cross-examination. A particular example was Mr Sullivan's evidence concerning the increase of the AGA facility to $26 million that supposedly occurred in April 2006. 318 Mr Sullivan's evidence concerning the purported approval of the increase to the AGA facility to $26 million is addressed in detail later. Suffice it to say at this stage that Mr Sullivan initially claimed that he signed the file note and letter to AGA on the dates that they bore. He subsequently claimed that he signed two versions of the 28 April 2006 letter, one version on 28 April 2006 and one in August 2006. Mr Sullivan's evidence was that the copy of the letter he signed on or about 23 August 2006 was a "tidy up for the due diligence", because the letter he said he signed on 28 April 2006 did not have a space for acceptance by AGA. This evidence appeared to be an attempt to explain the metadata evidence led by Trilogy that revealed that the electronic version of the 28 April 2006 letter was not created until August 2006. 319 Despite the inherent implausibility of that account, Mr Sullivan emphatically maintained it when first pressed about it in cross-examination. He also maintained that he signed the file note on the date it bore, thus maintaining the line that he had in fact approved an increase to the AGA facility, or at least an "indicative" increase, in April 2006. Ultimately, however, Mr Sullivan was forced to effectively concede that his evidence concerning the date on which he signed those documents was a reconstruction and that he had no actual recollection of signing the documents on 28 April 2006. The final submissions made on Mr Sullivan's behalf were premised on the proposition that Mr Sullivan most likely signed the 28 April 2006 file note and letter to AGA on or shortly before 24 August 2006. The suggestion that he signed anything on 28 April 2006 was abandoned. The submissions conveniently ignored Mr Sullivan's shifting account of the events in question. In his submissions, Mr Sullivan also introduced the allegation that Mr McCormick had misled him and concealed the dates of the documents. That submission was entirely unsupported by, and indeed was largely inconsistent with, Mr Sullivan's sworn evidence. 320 Second, Mr Sullivan's demeanour during cross-examination was at times most unimpressive. He was often initially trenchant and emphatic about some matters when they were first touched on during questioning. When pressed, he often became belligerent. For example, when initially confronted with Trilogy's evidence concerning the metadata relating to the documents dated 28 April 2006, he simply claimed that the evidence was wrong. When pressed in relation to documentary evidence that appeared to contradict his version of events, he often became evasive. In relation to events and documents that were difficult for him to explain, he frequently resorted to claims that he could not recall the circumstances in which the document was created, or the event occurred. One clear example of this concerned City Pacific's response to the SVP report. Mr Sullivan's evidence concerning the letter he sent to ASIC in relation to the implementation of SVP's recommendations is dealt with in detail below. It was most unsatisfactory. 321 Third, Mr Sullivan's evidence was demonstrated to be unreliable in relation to a number of key matters. Three examples suffice to illustrate this point. The first, which has already been addressed, was Mr Sullivan's initial claim that the file note and letter dated 28 April 2006 were in fact created and signed on or around the date that they bear. The second example concerned Mr Sullivan's knowledge that in December 2005 the Council refused to approve or revisit the 1989 rezoning application in relation to the Saddleback land. Mr Sullivan initially claimed that he did not become aware of that fact until 2013. When confronted with documentary evidence that suggested that he did in fact become aware of the Council's refusal in February 2006, he was forced to acknowledge that his affidavit evidence in that regard was false. The third example concerned the dating of the proposal to increase the AGA facility in late 2006. That proposal was created and signed by Mr Sullivan and Mr Donaldson in late December 2006, and by Mr Swan in early January 2007. However the date 9 August 2006 was written alongside each of their signatures. In his affidavit evidence, Mr Sullivan claimed that he did not know whether the 9 August date was on the document when he signed it. If it was, he said that he did not know why he did not change it. Yet when pressed in cross-examination, he ultimately agreed that the date was on the document when he signed it, that he knew that he was signing a backdated document, and that he knew that as a result the document conveyed a false or misleading impression that the proposal was approved on 9 August 2006. 322 Fourth, numerous aspects of Mr Sullivan's evidence were manifestly implausible. Mr Sullivan's implausible evidence concerning the two different versions of the 28 April 2006 letter has already been referred to. Mr Sullivan also maintained that the offer to increase the AGA facility in that letter was merely "indicative" and non-binding. He was, however, unable to point to anything in the letter to support that assertion. 323 There are two other examples of implausible evidence concerning the increase to the AGA facility that supposedly occurred in April 2006 that are worth mentioning. 324 The first example was Mr Sullivan's claim that, after signing the file note and letter, both dated 28 April 2006, he expected that the lending department would have prepared a formal loan proposal to put to the Credit Committee. Mr Sullivan no doubt recognised that the increase to the AGA facility reflected in those documents was required to be approved by all members of the Credit Committee. Yet he did nothing to ensure that any such proposal was prepared. Given that he was a member of the Credit Committee, he must surely have realised that no proposal was prepared or put to the Credit Committee in the months that followed the purported approval of this increase. 325 The second example concerned Mr Sullivan's evidence relating to the Funds Transfer Request forms that he signed in May and July 2006. Mr Sullivan faced a number of difficulties arising from his signing of those forms. If, as he claimed, he had agreed only to "indicatively" increase the AGA facility in April 2006, subject to it being formally put to and approved by the Credit Committee, he must have appreciated when he signed the Funds Transfer Request forms in May and July 2006 that no such formal approval had been sought or given. If, on the other hand, there was not even an indicative increase to the facility in April 2006, and the documents purporting to record the increase were created in late July 2006, Mr Sullivan must have appreciated that the payments he was authorising by signing those forms put the AGA facility well above its approved limit. 326 In that context, Mr Sullivan claimed that he only ever received the first page of Funds Transfer Request forms. The first page of the form does not refer to the facility limit. Mr Sullivan claimed that it was not part of his duty to request information about the facility limit when he was signing such forms. He also claimed that in signing those forms, he was not certifying that all documents necessary to support the funds transfer were held by City Pacific, despite the fact that the forms clearly recorded that that was exactly what he was certifying. The implicit, if not explicit, suggestion by Mr Sullivan was that, when he signed those forms, he did not know one way or another whether the advances that he was authorising put the AGA facility beyond, or further beyond, its approved limit. Given the size of the advances that were being authorised, and Mr Sullivan's prior direct involvement with the AGA facility, in particular, in the context of the SVP report, that suggestion was manifestly implausible. The evidence that he was only provided with, and only required, the first page of the Funds Transfer Request form was equally implausible. 327 Fifth, important aspects of Mr Sullivan's evidence were simply unsatisfactory. The clearest example was Mr Sullivan's evidence concerning City Pacific's response to the SVP report. The evidence concerning that topic will be addressed in detail shortly. It is sufficient in this context to note that it was and is indisputable that Mr Sullivan was directly responsible for implementing SVP's recommendations in relation to the AGA facility, that City Pacific did not implement those recommendations, and that City Pacific misled ASIC in relation to the implementation of SVP's recommendations relating to the AGA facility in its report provided to ASIC under cover of a letter signed by Mr Sullivan on 8 February 2006. Mr Sullivan was either unable or unwilling to provide anything that even approached a satisfactory explanation for this. 328 A further example of unsatisfactory evidence by Mr Sullivan was his evidence concerning the December 2006 approval to increase the AGA facility limit. Mr Sullivan was unable to give anything approaching a satisfactory explanation for the backdating of the loan proposal prepared in late December 2006. His explanation for signing another backdated document, the backdated letter to AGA offering the $26 million facility, namely that it was "a tidy up for due diligence," was probably close to the truth, but was obviously unsatisfactory for other reasons. Implicit in that evidence was the suggestion that it was acceptable for a chief executive officer of a responsible entity to sign documents that gave a false impression of the date they were created and signed so as to "tidy up" a loan file. "Tidy up" in that context actually meant mislead or deceive the auditors. 329 In closing submissions, counsel for Mr Sullivan appeared to concede that much of Mr Sullivan's evidence was unsatisfactory. He made the somewhat extraordinary submission that much of Mr Sullivan's evidence, in both his affidavits and in cross-examination, was a reconstruction from the documents and should be "taken with a grain of salt." That was somewhat of an understatement 330 Ultimately, it is not possible to conclude otherwise than that Mr Sullivan was not an honest or reliable witness in relation to the key factual issues concerning the conduct of the AGA facility during 2006 and 2007. Much of his evidence was self-serving and sought to deny or deflect responsibility onto others for his manifest failings in relation to the conduct of the AGA facility. He was a man prepared to lie about his knowledge of and involvement in key events so as to extricate himself from blame or responsibility.

Mr Swan 331 Mr Swan initially presented as an honest and credible witness. Unfortunately for him, however, his credibility and reliability began to unravel when he attempted to explain or justify what, on his version of events, was his very limited, indeed almost non-existent, role as a director and member of the Credit Committee when it came to approval and oversight of loans such as the AGA facility. His credibility was tested further still when he attempted to explain his approval, in January 2007, of the backdated proposal to increase the AGA facility limit to $44.87 million or $55 million. 332 As for Mr Swan's attempt to minimise his role and responsibility in relation to the approval and oversight of loans, two matters warrant specific mention. The first concerns valuation reports. Mr Swan knew that the Compliance Plan and the PDS stressed the importance to the loan approval process of the receipt of an acceptable valuation report. Yet on his evidence, he never once sought, or received, a copy of a valuation report. It would seem that he simply accepted what was said in the loan proposal about the valuation. Indeed, the general tenor of his evidence was that he generally simply accepted the Lending Manager's recommendation, particularly if the loan proposal had already been approved by Mr Sullivan. One wonders what purpose was to be served by having Mr Swan on the Credit Committee at all given his supposedly limited role or involvement in the loan approval process. 333 Mr Swan's lack of any meaningful input in the approval process, at least on his version of events, was demonstrated by his approval of the October 2005 loan increase to the AGA facility. The loan proposal made it clear that the proposed increase was not supported by a valuation and that the proposed increase was "subject to valuation". Mr Swan's approval of the increase was expressly subject to the receipt of an acceptable valuation. Yet, on his account, he never took any steps to check, let alone ensure, that an acceptable valuation was received in the months that followed. This supposed inactivity must also be considered in light of the fact that only weeks or months later, Mr Swan, as a director of City Pacific, was specifically put on notice by the SVP report of issues concerning the AGA facility and the valuation of the Saddleback land. He was reminded of the conditional approval again in August 2006, when he was asked to sign the loan proposal (having previously only given his approval by email). Even then, he took no steps to ascertain whether an acceptable valuation had been received. 334 The second aspect of Mr Swan's attempt to minimise his role in supervision or oversight of the Fund's loan book concerned the board papers. It will be recalled that the board papers included details of loan advances made in the preceding month, and the balance of each of the loans made by the Fund. That included the AGA facility. Mr Swan's evidence was that, despite the recommendations in the SVP report concerning the AGA facility, despite the fact that his approval of the AGA facility in October 2005 was conditional (a fact of which he was reminded in August 2006) and despite a specific reference to a forthcoming proposal in relation to the AGA facility in the November board papers, he did not notice from the board papers, or at least it did not register with him, that the balance of the AGA facility was well over its approved limit throughout 2006. This was despite Mr Swan's extensive qualifications and experience in accounting, management reporting and risk management. 335 The credibility and reliability of this aspect of Mr Swan's evidence is at least open to doubt. The impression gained was that Mr Swan was attempting to minimise his role in, or responsibility for, scrutinising loan proposals and valuations, and monitoring loans, so that he could claim that he remained entirely ignorant of what was happening in relation to the AGA facility throughout 2006 and 2007. His evidence was not convincing. 336 The main difficulty for Mr Swan, however, was his evidence concerning the proposal to increase the AGA facility which he signed in January 2007. Mr Swan's attempt to explain his limited scrutiny of this backdated proposal lacked plausibility and credibility, as did his evidence seeking to explain why he did not ensure that it was correctly dated. His evidence in relation to that issue was such that it cast doubt on the credibility and honesty of his evidence generally. 337 The problems for Mr Swan in relation to this proposal were manifest. First, the mere fact that he was, in late December 2006 or early January 2007, being asked to sign a proposal that was dated so as to represent that he had approved the proposal in August 2006 should itself have rung alarm bells. It might reasonably be expected that he would scrutinise the proposal more carefully given that circumstance alone. Second, the AGA facility had been the subject of a specific recommendation in the SVP report. One would have thought that this might also come to mind when Mr Swan was presented with the proposal. Third, Mr Swan accepted that he understood that the approved limit of the AGA facility at the time was $17.89 million. Yet the proposal stated that the current loan amount was $26 million and the current balance of the AGA facility was $23.525 million. Mr Swan was unable to give any credible explanation for why that did not put him on notice that the facility was already above its approved limit. Fourth, the proposal referred to a provisional approval that was supposed to have been given on 28 April 2006 and a supposed "updated valuation figure" of $64.1 million. Mr Swan was supposedly ignorant of the provisional approval, yet he raised no question about it. The proposal did not contain a certification of the valuation by the Lending Manager. Mr Swan did not see, or ask to see, the valuation. Fifth, three days after signing this proposal, Mr Swan was given board papers that revealed that the balance of the AGA facility to be $45.991 million. 338 Despite all these "red flags", on Mr Swan's version of events he signed the proposal without query or demur. Given Mr Swan's experience and qualifications, that is very difficult to accept. 339 There are at least three other aspects of Mr Swan's evidence in relation to this proposal that warrant mention here because they bear significantly on Mr Swan's credibility as a witness. First, when he signed the document on 11 January 2007, he wrote the words "ratified 11/01/07" He did not, however, delete the date 9 August 2006 that had already been written in the box adjacent to his signature. In his email to Mr Gillam attaching the signed loan proposals, Mr Swan drew a distinction between his ratification of the AGA proposal and his approval of the other two proposals. Mr Swan was, however, unable to give any plausible explanation in cross-examination about what he was in fact purporting to ratify. He denied that he was retrospectively approving the proposal, or ratifying the approval of the other members of the Credit Committee. What then was he ratifying? 340 Second, in an apparent effort to explain his approval of this proposal in the absence of any certification of the valuation as required by the Compliance Plan, Mr Swan suggested that he was signing this document as a member of the board, not as a member of the Credit Committee. That suggestion was not only implausible, but would not, in any event, provide any real (as opposed to technical) explanation for why Mr Swan approved the proposal in the absence of any certification of the valuation. 341 Third, Mr Swan claimed that he did not recall any heightened sense of awareness concerning the AGA facility when he reviewed the board papers only three days after signing this proposal. He maintained that he did not look at the AGA loan balance in the board papers. Those aspects of Mr Swan's evidence reflected adversely on Mr Swan's credibility and reliability as a witness. 342 One final point should be made concerning Mr Swan's evidence. Overall, Mr Swan professed to have almost a complete lack of recollection about the AGA facility, except when it came to matters that might absolve him of any responsibility in relation to it. It is difficult to avoid the conclusion that Mr Swan's professed lack of any recollection concerning this significant loan was entirely self-serving and not credible. It cast significant doubt on the honesty and reliability of Mr Swan's evidence generally.

Mr Donaldson 343 Like Mr Swan, Mr Donaldson initially presented as a credible and honest witness. Also like Mr Swan, however, Mr Donaldson's façade of credibility crumbled somewhat when he sought to explain or rationalise how it was, on his version of events, that he remained entirely unaware of any issues concerning the AGA facility throughout 2006, and how he came to sign, without query or apparent concern, the backdated approval to increase the AGA facility limit in December 2006. 344 The starting point for Mr Donaldson's difficulties was his evidence concerning the SVP report. Mr Donaldson initially claimed that he only became aware of the SVP report recommendations when these proceedings began. When pressed, he acknowledged that he read the recommendations when he received a copy of the report, but "not thoroughly". He also acknowledged, albeit somewhat reluctantly, that he read, or "most likely" read, the correspondence concerning City Pacific's action plan and response to ASIC in relation to the SVP recommendations. Whilst initially he claimed that he never became aware of the specific recommendation in relation to the AGA facility, he later conceded that he knew that the AGA facility was one of only a handful of loans that had been singled out by SVP. He also appeared to acknowledge that he had approved the board's response to the recommendation relating to the AGA facility. The inconsistent evidence given by Mr Donaldson in relation to the SVP recommendations, and his apparent attempt to distance himself from them, reflected adversely on Mr Donaldon's credibility and reliability as a witness generally. 345 Mr Donaldson also gave inconsistent and implausible evidence concerning another recommendation made by SVP. That recommendation, which was accepted and implemented by City Pacific, was that the Lending Manager be required to certify to the Credit Committee that the valuation received in relation to the loan proposal was acceptable. Mr Donaldson appeared to accept that he was aware of that requirement. Initially, Mr Donaldson claimed that he believed that the certification requirement was met if the Lending Manager simply signed the proposal. When it was pointed out to him that this was the very practice that had been criticised by SVP, Mr Donaldson then appeared to suggest that he was not required to ensure that the certification requirement had been satisfied. He appeared to claim that he, as a member of the Credit Committee, did not need to satisfy himself that the proposal had been certified because a requirement that the Credit Committee do something did not mean that every member of the Credit Committee had to comply. Rather, it was a "collective responsibility", and independent directors, like him, were entitled to rely on the other members of the Credit Committee. When pressed further, however, Mr Donaldson said that he simply overlooked the change in practice. He claimed that most loan proposals included a certification, and that he did not notice it when the AGA loan proposal did not include a certification. 346 Mr Donaldson's evidence concerning his consideration of the loan balances that formed part of the financial reports that were included in the board papers was equally unsatisfactory. His evidence was that he read the "totals", but not the "detail", and he claimed that, despite his considerable experience in accounting and commerce, he believed that the financial reports were "very difficult to interpret". He maintained that the loan balances were only included in the board papers to support the calculation of the liquidity of the Fund, and that he did not use the financial reports for any other purpose. He did not consider that he was required to read the individual loan balances. As a result, he said that he was not in a position to determine whether any loan exceeded its approved limit. Given Mr Donaldson's experience, this evidence was, at best, implausible. 347 Like Mr Swan, however, the main difficulties for Mr Donaldson concerned his evidence in relation to the backdated loan proposal that he signed in late December 2006. He effectively accepted that, in signing the document next to the date 9 August 2006, he was falsely representing that the proposal was approved on that date. He claimed, however, that he did not regard it as a false representation. It was simply "fixing an innocent problem", and that he "rationalised that there could be no problem". He suggested that his rationalisation was related to some "external event" that he was unable to recall or elaborate on, but that nonetheless he had a "bad feeling in the stomach about [the] predating". Ultimately, he was simply unable to give any plausible explanation for signing the document as he did. 348 Even worse, when pressed about the detail included in the proposal, including the figures for the facility limit and the current balance, he claimed that he did not "study" the document, and that there were parts of the document that he did not read because the figures would not have meant anything to him. That claim strained credulity. He made no inquiries concerning the facility limit or current balance and did not see, or ask to see, any valuation justifying the valuation figure of $64.1 million. He seemed to initially accept that he simply overlooked the fact that there was no certification by the Lending Manager that there was an acceptable valuation, though he subsequently said that he thought that he "had it" with the Lending Manager's signature on the proposal. 349 Given Mr Donaldson's considerable experience in accounting, auditing and commerce, his claimed lack of scrutiny of this proposal was highly implausible, all the more so given that he knew that he was effectively being asked to backdate the approval of it. It reflected adversely on his credit as a witness.

Mr McCormick 350 Mr McCormick was a dishonest and deceitful man, and an untruthful and unreliable witness. 351 It is sufficient to refer to three aspects of Mr McCormick's evidence to illustrate his dishonesty and unreliability as a witness: first, his evidence concerning the supposed "interim" increase in the AGA facility to $26 million that he documented so as to suggest that it occurred on 28 April 2006; second, his evidence concerning the proposal to increase the AGA facility which he put to members of the Credit Committee for approval in late December 2006, but backdated to suggest that the approval had occurred in August 2006; and third, Mr McCormick's supposed inability to recollect the terms of virtually any conversation he had with Mr Sullivan in relation to the AGA facility throughout 2006. 352 Mr McCormick gave hopelessly implausible and inconsistent evidence in relation to the purported increase of the AGA facility to $26 million. In his affidavit, he referred to the letter signed by him and Mr Sullivan dated 28 April 2006 as an "indicative letter of offer" or a "terms sheet" that was never formalised into an approved loan. He did not give any indication in his affidavit that the letter was not signed or sent until August 2006. Nor does he refer in his affidavit to the file notes dated 28 April 2006 and 24 July 2006 that purported to relate to that offer, or suggest that he met with either Mr Sullivan or Mr Gore in relation to the proposal to increase the facility limit. He simply said, instead, that he permitted the AGA facility to go over the approved limit "on [his] own authority". 353 It should be noted, in relation to Mr McCormick's affidavit, that those parts that deal specifically with the AGA facility were drafted by Mr Sullivan's solicitor shortly prior to the trial. That came about following a meeting between Mr McCormick, Mr Sullivan and Mr Sullivan's solicitor which was arranged at the request of Mr Sullivan or his solicitor. Mr Sullivan reimbursed Mr McCormick for the cost of flying to the Gold Coast from New Zealand for that meeting. Mr McCormick, who was not legally represented at the time, recognised, as a result of advice he had received from his former solicitor, that there were potential difficulties in the same solicitor acting for Mr McCormick and Mr Sullivan due to a potential conflict of interest. In those circumstances, the involvement of Mr Sullivan's solicitor in the drafting of these important parts of Mr McCormick's affidavit was, to say the very least, somewhat unusual. 354 When cross-examined in relation to the events concerning the purported increase of the AGA facility limit to $26 million, Mr McCormick initially appeared to suggest that he and Mr Sullivan did meet with Mr Gore on 28 April 2006 as recorded in the file note dated 28 April 2006. No doubt conscious of the metadata evidence tendered by Trilogy, however, Mr McCormick readily acknowledged that the file note was not created until 24 July 2006. He denied that the file note was deceptive. When subsequently taken through the documentary trail, Mr McCormick ultimately conceded that the meeting could not have taken place before 29 May 2006, when the Updated March 2006 Valuation was received. Eventually he conceded that he could not say when the meeting took place. His initial evidence concerning the date of the meeting was at best a reconstruction. At worst it was deliberately false. On any view, the file note dated 28 April 2006 was manifestly misleading and deceptive. It, together with the 24 July 2006 file note that referred to it, and the letter to AGA dated 28 April 2006 that offered the increased facility, were plainly created to deceive City Pacific's compliance auditor and the persons carrying out due diligence. 355 Mr McCormick's evidence concerning the meeting and the creation of those documents lacks credibility, plausibility and reliability. At least five considerations compel the rejection of this evidence. First, Mr Sullivan, in his evidence, said nothing about any meeting with Mr McCormick and Mr Gore about increasing the AGA facility to $26 million. Mr McCormick's evidence concerning that meeting was accordingly uncorroborated by any evidence other than the misleading file note itself. Second, Mr McCormick said nothing about the meeting in his affidavit. Third, Mr McCormick's evidence about the meeting was inconsistent and unreliable in terms of when the meeting was supposed to take place. Fourth, Mr McCormick's purported recollection of the meeting stands in stark contrast to his inability to recall virtually any other conversation he had with Mr Sullivan on the topic of the AGA facility throughout the balance of 2006. And finally, the mere fact that Mr McCormick was prepared to create manifestly misleading documentation in relation to the purported approval of the increase to the facility limit casts doubt on just about anything Mr McCormick had to say about the topic. 356 Mr McCormick was plainly prepared to give untruthful evidence concerning the events surrounding this purported increase to the facility to avoid the suggestion that the file notes and letter were deceptive. 357 Much the same can be said concerning Mr McCormick's evidence about the backdated approval to increase the AGA facility that he circulated to the other members of the Credit Committee, Messrs Sullivan, Swan and Donaldson, in late December 2006. Mr McCormick's affidavit evidence concerning that topic was, to say the very least, unsatisfactory. As with the purported April 2006 increase in the AGA facility, those parts of Mr McCormick's affidavit that dealt with the purported August 2006 increase were drafted by the solicitor who acted for Messrs Sullivan, Swan and Donaldson. 358 In his affidavit, Mr McCormick effectively acknowledged that advances beyond the approved limit of the AGA facility were permitted to be made throughout 2006, and that proper procedures were not followed. He asserted that this was an oversight, but then, somewhat implausibly, claimed that he had no memory of the events and could only speculate based on the documents. Despite his supposed lack of recollection, he acknowledged that the 9 August 2006 proposal that he had prepared contained a false date (he referred to the document as being "postdated") but maintained that there was no "intention to fudge or deceive". Given his supposed lack of recollection of the events, this assertion could perhaps be characterised as amounting to no more than speculation. 359 In cross-examination, Mr McCormick sought to characterise the backdated proposal he presented to the Credit Committee members in late December 2006 as "tidying up paperwork". He suggested that the backdating of proposals for that purpose was not unusual. Mr McCormick was being untruthful in seeking to characterise the backdated proposal as simply "tidying up paperwork". That suggests that the proposal had in fact been put to the Credit Committee and approved on 9 August 2006. That plainly was not the case. When pressed, Mr McCormick eventually conceded that the backdated proposal conveyed a false impression. His evidence included the following. HIS HONOUR: Mr McCormick, the simple proposition is this: that as at 21 December 2006, the approved limit of this facility was $17 million thereabouts. You created a bundle of paperwork on 21 December that purported to relate to an approval up to 44 million, 55 million, whatever. By that stage, the facility had been drawn down up to somewhere in the vicinity of 40 million. Right?---Yes. And you've referred on a number of occasions to tidying up the file, or tidying up the loan file, or regularising the documentation. What you were doing was putting in place documentation to suggest that the approval - an approved limit - an approval had gone up til $44 million back in August of 2006. Right?---Yes, that's right, your Honour. So that it would seem that all of those advances that had occurred between August and December had, in fact, been within the limit, that is, within the approved limit?---Yes, your Honour, but --- Which was an entirely false---? ---But there were a whole lot of --- It was entirely false, wasn't it?---There were notes and file notes on the way through recording that. No, no. Just listen to my question. That was entirely false, because it had never been approved to that limit, had it?---No, it hadn't been. So you were putting in place a bundle of documents to give a completely false impression about what had occurred between August and December. Right?---Well, yes, if you put it that way, but there were other notes on the way through. HIS HONOUR: Yes. And the reason this had happened is because you, in consultation with Mr Gore, had allowed the facility relating to the saddleback land to be drawn down on to advance funds relevant to some other developments that Mr Gore was involved in. Right?---Correct. And you had to, as at December, put in place documentation, including valuations, to justify what had happened. Right?---Well, that's when they occurred, yes. 360 It is unclear what "notes and file notes" Mr McCormick was referring to in this exchange. It would appear, however, that he was referring to handwritten notes made and signed by Mr McCormick on a number of Funds Transfer Request forms between May 2006 and July 2006. Those notes were plainly made to justify advances that would take the facility beyond the approved limit, and represented that the AGA facility was in the process of being increased to $50 million, or in one case that approval had been given to increase the facility limit. Those notes provided no justification for the backdated loan proposal. Indeed, they were equally false and misleading. The AGA facility was not in the process of being increased, at least in accordance with proper procedures, and had certainly not been approved when those notes were made. 361 There were numerous other difficulties with the backdated proposal. It represented that the current facility limit was $26 million. That was false, because the "provisional" or "interim" increase (to use the expressions used by both Mr Sullivan and Mr McCormick) of the facility limit to $26 million had, to Mr McCormick's knowledge, never been put to or approved by the Credit Committee. The proposal also represented that the current balance of the AGA facility was $23.525 million. That was also false. That was the balance as at 1 August 2006. By the time the proposal was prepared and sent to the Credit Committee in late December 2006, the balance was almost $45 million. The proposal stated that the current valuation of the Saddleback land was $102.4 million, though the proposal contained no certification of the acceptability of that valuation. Of course, as Mr McCormick well knew, there was no acceptable valuation that supported that figure back in August 2006. Indeed, there was no valuation capable of justifying that figure in late December 2006. For the reasons given later, on no view could Mr Kogler's letter dated 21 December 2006 be considered to be an acceptable valuation. It was nothing short of fanciful. 362 Mr McCormick was unable to provide any plausible or credible explanation for those falsities in the proposal. Such explanations that he did give simply demonstrated his lack of credibility as a witness. 363 The third aspect of Mr McCormick's evidence that demonstrated that he was an untruthful and unreliable witness was his claim that he did not recall any conversations with Mr Sullivan about the AGA facility during 2006. His claim that he had no recollection of any discussions with Mr Sullivan in relation to the proposal he presented to Mr Sullivan in late December 2006 was particularly implausible given the nature of the proposal and the circumstances which brought it about. Mr McCormick's evidence in that regard was plainly dishonest. The only reasonable inference to be drawn was that he was endeavouring to protect Mr Sullivan. 364 In the end result, the deficiencies and problems with Mr McCormick's evidence were such that any explanations or excuses he provided in relation to the conduct of the AGA facility, other than those supported by contemporaneous and credible (not backdated) documents, simply cannot be believed.

COMPLIANCE, corporate governance and the svp report 365 The Compliance Plan provided for the appointment of a Compliance Officer. The Compliance Plan provided that the Compliance Officer was responsible for, amongst other things, establishing an effective compliance culture, conducting an annual review of valuations of the Fund's assets, conducting a half-yearly review of valuation procedures and reporting the results of that review to the board, conducting a quarterly review of procedures relating to the payments out of the assets of the Fund and reporting the results of that review to the board. 366 City Pacific outsourced the position of Compliance Officer. It appointed Mr Stuart Russell and Ms Lisa Arnold of the firm Financial Services Consulting to provide compliance services to City Pacific. There was evidence that the Compliance Officer did furnish reports to the board. On one occasion, those reports referred to breaches of the Compliance Plan that had been identified by the Compliance Officer. As will be seen, however, it appears that the Compliance Officer failed to identify the compliance deficiencies identified by SVP. In particular, it appears that the Compliance Officer never identified any of the issues concerning the AGA facility. 367 Subsection 601JA(1) of the Corporations Act provides that the responsible entity of a registered scheme must establish a compliance committee if less than half of the directors of the responsible entity are external directors. The compliance committee is required to have at least three members, and a majority of them must be external members: s 601JB(1) of the Corporations Act. The functions of the compliance committee are to monitor to what extent the responsible entity complies with the scheme's compliance plan and to report to the responsible entity any breach of the Corporations Act or the scheme's constitution of which the committee becomes aware or suspects. 368 City Pacific established a compliance committee in accordance with the Corporations Act (the Compliance Committee). There is evidence that the Compliance Committee met, considered reports from the Compliance Officer, discussed breaches that had been identified and reported to the board. One minute of the Compliance Committee, dated 21 March 2006, referred to the AGA facility in the context of the policy in relation to related party loans. It does not, however, appear that the Compliance Committee identified any of the compliance issues that were identified by SVP. In particular, it does not appear that the Compliance Committee ever identified the specific issues concerning the AGA facility at any time during 2006. 369 Subsection 601HG(1) of the Corporations Act provides that the responsible entity of a registered scheme must ensure that at all times a registered company auditor, an audit firm, or an authorised audit company, is engaged to audit compliance with the scheme's compliance plan. Within three months after the end of a financial year of the scheme, the auditor of the compliance plan must examine the scheme's compliance plan, carry out an audit of the responsible entity's compliance with the compliance plan, and give the responsible entity a report that states the auditor's opinion in relation to compliance with the compliance plan: s 601HG(3) of the Corporations Act. 370 As already adverted to, City Pacific's compliance plan auditor was KPMG. There was some evidence that KPMG picked up various issues in relation to City Pacific's compliance in the course of its audits. For example, as has already been seen, in July 2006 KPMG raised some specific queries with Mr McCormick in relation to a number of City Pacific's loans, including the AGA facility. Mr McCormick's response to that query was revealing. The query raised by KPMG was whether a number of loans, including the AGA facility, were operating above their approved limit. Mr McCormick's response was not to fess up to KPMG that the AGA facility was, in fact, operating above its facility limit. Nor did he seek to justify that fact in any way. Rather, he created the misleading file note that suggested that approval had been given to increase the limit of the AGA facility to $26 million in late April 2006. It would seem that this was enough to satisfy KPMG. It was only when it subsequently appeared that the company conducting due diligence for the prospective purchaser of City Pacific's loan book sought to inspect the AGA loan file that Mr McCormick had to take the further step of preparing a backdated letter of offer to AGA to give the appearance that the loan had not operated above its approved limit. Mr Sullivan obliged and assisted the "tidy up" of the loan file by signing the backdated letter. 371 That evidence perhaps sheds some light on the question of how it came to pass that KPMG apparently failed to identify that the AGA facility was effectively operating outside its approved limit at virtually all times after late April 2006. KPMG was misled by Mr McCormick and Mr Sullivan. The available inference becomes even clearer when regard is had to the events of late December 2006 and early January 2007, when each of Messrs Sullivan, Swan, Donaldson and McCormick were prepared to sign a backdated loan proposal without demur or query. Plainly the intention was, once again, to give the appearance of regularity. It may be inferred that this was because Mr Sullivan and Mr McCormick, at least, were aware of the possibility that KPMG may conduct a year-end compliance audit. 372 The affidavit evidence of Messrs Sullivan, Swan and Donaldson contained some general evidence concerning the systems and structures in place at City Pacific to ensure compliance. They referred, in very general terms, to the roles of the Fund's compliance plan auditor, KPMG, the Compliance Officer, Mr Russell, and the Compliance Committee. Each of Messrs Sullivan, Swan and Donaldson maintained, in their defence to the alleged contraventions concerning the AGA facility, that they relied on KPMG, the Compliance Officer and the Compliance Committee, to identify and report to them any discrepancies or irregularities in relation to the AGA facility. Their evidence on that issue, however, was in very general terms and never extended much beyond mere assertion. They gave no evidence of specific instances of reliance on their part, or pointed to any documentary evidence that corroborated their claims of reliance. Given their evidence, considered in more detail later, concerning the cursory treatment they supposedly gave to the board papers, it was difficult, to say the least, for them to claim that they relied on any minutes of the Compliance Committee, or reports from the Compliance Officer, that may have found their way into the board papers. 373 There must also be real doubts about whether any of the respondents were able to simply rely on KPMG, the Compliance Officer and the Compliance Committee to identify potential breaches of the Compliance Plan arising from the AGA facility. Those doubts arise from at least three events. First, in the case of each respondent, doubts arise from the evidence concerning the SVP report and City Pacific's response to it. Second, in the case of Mr Sullivan and Mr McCormick, doubts arise from the evidence concerning the backdated file note and backdated letter of offer in relation to the $26 million facility. Third, in the case of each respondent, doubts arise from their knowledge of and involvement in the backdated proposal to increase the AGA facility limit to $44.87 million or $55 million in December 2006. 374 The evidence concerning the backdated approvals, or purported approvals, of the increase of the AGA facility limit to $26 million (in August 2006) and $44.87 million or $55 million (in December 2006) is considered in detail later. Suffice it to say here that it is difficult to see how the respondents could genuinely say that they relied on KPMG, the Compliance Officer and the Compliance Committee in circumstances where, by their complicity in backdating documents, they took steps to conceal breaches or discrepancies from external scrutiny. 375 As for the SVP report, the uncontested facts in relation to the SVP report, and the purported implementation of SVP's recommendations by City Pacific, have already been summarised. The specific findings and recommendations relating to the AGA facility have already been referred to. In addition to those specific findings and recommendations, the overall tenor of the SVP report was that there were a number of issues in relation to compliance at City Pacific. Amongst its general findings, SVP made the following observations concerning compliance at City Pacific: While SVP considers that the Responsible Entity has had the interests of unitholders as a primary concern, the level of growth experienced by the Trust was not matched by a similar increase in the level of management required to ensure policies and procedures laid down by the Board were complied with and improved. The detailed comments made in this Part of the Report reflect that view. … Generally, SVP's view is that loan administration procedures have been lacking. … An integral part of the lending operations associated with the Trust is the valuation process. Although SVP's view is that in light of the values set out in valuations obtained by the Responsible Entity, and subject to a number of conditions as stated elsewhere in this Report, there appears to be adequate security for the loans as at 30 June 2005, the processes and procedures around the valuation activity require ongoing improvement. SVP identified some instances where it is unclear whether the Responsible Entity could or should rely on the valuations that were obtained. There were three occasions identified where valuation reports had been relied upon which had not been addressed to the Responsible Entity/Custodian. It will be noted that SVP has recommended updated valuation reports for a number of loans and that the the view expressed in the Report about the adequacy of security is subject in part to the outcome of those updated valuations; and to a full and recorded analysis of those valuation reports being undertaken. … On many occasions, decisions appear to have been made without fully recording the reasons for them or the fact that they have been made. While acknowledging that part of the success of the Trust to date has been its flexibility, more structure is required as the Trust develops. 376 In relation to loan administration procedures, SVP made the following general findings: SVP has identified non-compliance with policies, procedures and processes to varying degrees of materiality and which on their own, or in certain combination, should not be fatal to collection of a loan. SVP specifically mention documented analysis of valuations and the management of progressive loan draw down against development program (time) and a properly assessed "cost to complete" discipline. SVP is unable to predict if any combination of past decisions that do not comply with policy frameworks would have an adverse impact on the collection of a loan. … For this reason the mortgage portfolio would benefit from applying the policy framework in a more disciplined manner than what has occurred in the past. SVP has observed this is now already occurring in practice. 377 SVP's general findings concerning compliance at the very least must have put City Pacific's management and directors on notice that City Pacific's own internal and external compliance bodies, personnel and procedures had not been particularly effective. In particular, City Pacific's existing compliance regime had failed to identify instances in the past, identified by SVP, where there had been non-compliance with the Compliance Plan or where loan administration procedures had been generally lacking. 378 There could be little doubt that the SVP report and recommendations became a major issue for City Pacific. The appointment of SVP was essentially forced upon City Pacific by ASIC. It became a condition of City Pacific's AFSL. The SVP report and City Pacific's response to it turned out to be an extremely costly exercise for City Pacific, and required extensive input from management and external lawyers and advisers. It was also a matter that plainly required attention and scrutiny at board level. Management and advisers gave the appearance of diligent concern and generated much sound and light. Various matrices setting out the SVP recommendations were prepared and circulated, as were matrices setting out City Pacific's proposed responses and plan of action. 379 It is, however, illuminating to consider exactly what was actually done in relation to loan administration procedures and the AGA facility in response to the SVP report. A number of points may be made. 380 First, SVP advised that, in its view, loan administration procedures at City Pacific had been lacking, in particular insofar as valuations were concerned. One of the major recommendations in that regard concerned the requirement for the lending manager to certify in the loan proposal that the valuation received by City Pacific in respect of the security property was acceptable. Certification by the lending manager required the lending manager, amongst other things, to review and analyse the valuation assumptions. The certification was required to be separate from the lending manager's sign-off of the lending proposal. It was required before approval was sought from and given by the Credit Committee. City Pacific agreed to act on that recommendation and eventually amended the Lending Manual to require such a separate certification. 381 Regrettably, however, as events transpired, the implementation of this recommendation was not given effect to in relation to the one AGA loan proposal that was prepared and submitted to the Credit Committee after the SVP report. That was the proposal that was put to the Credit Committee in December 2006, but backdated to suggest that it had been put to and approved by the Credit Committee in August 2006. That proposal contained no separate certification by the Lending Manager that there was an acceptable valuation. That may well have been because there was simply no way that the Lending Manager, Mr McCormick, could possibly have genuinely regarded the valuation assumptions in Mr Kogler's valuation to be even remotely acceptable. In any event, when the members of the Credit Committee approved the proposal, they did so without raising any query whatsoever about the absence of a certification. 382 In short, the SVP recommendation and the resulting amendment to the Lending Manual were essentially ignored by the Credit Committee. 383 The evidence of Messrs Sullivan, Swan and Donaldson in respect of that matter is addressed in detail later. Suffice it to say at this stage that their evidence concerning the absence of the certification in the proposal was most unsatisfactory. None of them gave an even remotely acceptable explanation for how they managed to ignore or overlook that deficiency in the proposal, given that it was the very deficiency that had so recently been the subject of a specific finding and recommendation by SVP. 384 Second, in that part of the SVP report that dealt with whether the Fund's loans complied with the Constitution and the Compliance Plan, the AGA loan was the one loan that was singled out as not complying. Whilst SVP's view that the AGA loan was "outside all current policy areas" appeared to turn, to an extent, on SVP's interpretation of section 5.8 of the Lending Manual, nonetheless it raised specific issues concerning the AGA facility. Perhaps more significantly, SVP made specific recommendations concerning the AGA facility. The recommendations were: first, that the loan be repaid or refinanced by 31 December 2005 if confirmation was not received that the Saddleback land could be included in the Urban Footprint of the South East Queensland Regional Plan; and second, that at the December 2005 review, a valuation be obtained from a different valuer to check the analysis of land values based on permitted uses. 385 It was an incontestable fact that neither of those recommendations were acted on by City Pacific. Confirmation that the Saddleback land could be included in the Urban Footprint of the South East Queensland Regional Plan was never received, let alone by 31 December 2005. Yet no steps were ever taken to require the repayment or refinance of the AGA facility. A different valuer was never retained to value the Saddleback land. All the valuations that were subsequently received in relation to the Saddleback land were obtained from the same valuer, Mr Kogler, and contained highly dubious assumptions concerning the permitted uses. 386 None of the respondents even attempted to explain how that sorry state of affairs came about. 387 Third, the immediate response to the SVP report by Messrs Sullivan, Swan, Donaldson and McCormick revealed that the concerns raised by SVP about the AGA facility had no apparent impact on them. Within a week of the receipt of the SVP report, they approved an increase to the AGA facility in circumstances where the supposed value of the Saddleback land referred to in the proposal was not even the subject of a valuation, let alone a valuation from a different valuer. Whilst Mr Swan noted that his approval was subject to the receipt of a valuation, he never took any steps to ensure that an acceptable valuation was received. Thus, SVP's concerns about the AGA facility and the valuation of the Saddleback land based on permitted uses apparently either fell on deaf ears, or were deliberately ignored by the Credit Committee. 388 Fourth, it was an incontestable fact that Mr Sullivan misled ASIC in relation to the implementation of SVP's recommendations concerning the AGA facility. Mr Sullivan's evidence in respect of that matter was manifestly unsatisfactory. As has already been observed, it reflected adversely on Mr Sullivan's credit generally. 389 The full progress report enclosed with Mr Sullivan's letter to ASIC dated 8 February 2006 had been the product of considered discussion and revision by management. In relation to SVP's recommendation concerning the AGA facility, the report stated that "[a] Draft valuation prepared by a different valuer … has been sighted at a substantially higher value". Someone made a considered decision to insert the words "by a different valuer" in the final draft of the report. That statement was unquestionably false, as Mr Sullivan ultimately conceded in cross-examination. No consideration was ever given to retaining a different valuer to value the Saddleback land. No draft report from a different valuer ever existed. Mr Sullivan was unable to provide any explanation, let alone a reasonable or plausible explanation, for how that manifestly false statement could be included in such an important report to ASIC. Given the seriousness of the issue, and Mr Sullivan's responsibility and involvement in the implementation of the recommendations concerning the AGA facility, it is extremely difficult to see how this could have been the product of mere oversight on Mr Sullivan's part. 390 Nor was Mr Sullivan able to give a reasonable explanation for how he came to report to ASIC that City Pacific held a legal opinion from an "eminent QC" that the 1989 rezoning approval was "valid" and that City Pacific had received advice that zoning gazettal is "a formality and is imminent". Mr Sullivan attempted to justify these statements on the basis that a barrister, Mr Stephen Fynes-Clinton, had apparently given advice at some stage to AGA (not City Pacific) about the status of the 1989 rezoning approval in relation to the Saddleback land. Mr Sullivan, however, could not recall ever reading that advice. Had he read it, of course, he would have appreciated that it said nothing about the gazettal of the rezoning approval being either a formality or imminent. There was simply no basis for that statement in the report to ASIC. Mr Sullivan must have realised this when, within a very short time after sending the report to ASIC, he became aware that the Council had refused to proceed to have the rezoning gazetted. Yet he made no attempt to correct the misleading statement made in the report. 391 The only reasonable inference is that Mr Sullivan either knew that the statements made to ASIC about the AGA facility were false and misleading, or was recklessly indifferent to whether they were accurate. The inference of mere oversight on Mr Sullivan's part is implausible. Either way, it is clear that as a result of the SVP report and the manoeuvrings involved in City Pacific's response to it, Mr Sullivan knew, at the very least, that there was a serious issue with the AGA facility. Yet rather than ensuring that SVP's recommendations were actually acted upon, which it was plainly within his power to do, Mr Sullivan chose to simply fob off ASIC by telling them what he believed it wanted to hear without any regard to the truthfulness and accuracy of the report. 392 How did Mr Sullivan manage to do this given that SVP's report and the implementation of its recommendations was a serious issue that was considered and discussed at board level? A copy of the report to ASIC was provided to Mr Swan and Mr Donaldson. What did they know and what did they do to satisfy themselves that the report was accurate? There are really only two possibilities: either Mr Swan and Mr Donaldson, were, like Mr Sullivan, prepared to mislead ASIC rather than actually implement SVP's recommendations concerning the AGA facility; or Mr Swan and Mr Donaldson provided no effective oversight or independent scrutiny in relation to that serious issue and simply left it to management. If the evidence of Mr Swan and Mr Donaldson was to be believed, it was the latter scenario. They effectively did nothing. 393 The overall effect of Mr Swan's evidence in relation to the implementation of SVP's recommendations was that, whilst the SVP report was a very serious issue that was considered and discussed at board level, he left it entirely to management to deal with. He himself made no inquiries to ensure that the recommendations concerning the AGA facility were implemented. Rather, he simply assumed that if there were any problems, the board would be informed. He effectively claimed to have no recollection of any discussions with management, or at board level, about that issue. 394 Mr Swan endeavoured to play down SVP's specific findings and recommendations in relation to the AGA facility on the basis that they were based on SVP's view that the loan did not "fit … into a category neatly" and that management had disagreed with that view. Mr Swan does not suggest that he gave any independent consideration to whether SVP's view was correct or not. 395 He also endeavoured to explain his lack of involvement with matters such as the implementation of the recommendations concerning the AGA facility on the basis that the greater concern for him and the board was the liquidity issue. The liquidity issue and ASIC's response to it was undoubtedly a serious issue that warranted attention at the highest level. It did not follow, however, that Mr Swan was entitled to turn a blind eye to other aspects of the SVP report and its implementation. 396 Mr Swan ultimately agreed that he was aware of SVP's recommendation that the AGA facility be repaid by 31 December 2005 if certain conditions were not met. He did not, however, consider that it was incumbent on him as a director (or a member of the Credit Committee who had recently approved an increase to the AGA facility) to inquire of management whether those conditions had been satisfied or if the loan had been repaid. Nor, it appears, did he turn his mind to that question when he received board papers, throughout 2006, that revealed not only that the AGA facility had not been repaid, but that further significant advances had been made to AGA. 397 In short, and to put the matter bluntly, on his version of events, Mr Swan himself did nothing whatsoever to satisfy himself, as a director of City Pacific, that SVP's recommendations had in fact been implemented. That appeared to be the case both in relation to the SVP recommendations generally, and the specific recommendations in relation to the AGA facility. 398 Mr Donaldson's evidence concerning his role or involvement in relation to the implementation of SVP's recommendations was much the same as Mr Swan's evidence. Initially, he effectively denied knowing about, or "registering", SVP's recommendations concerning the AGA facility. When it became obvious, from the documentary evidence put to Mr Donaldson in cross-examination, that the SVP report and City Pacific's responses to it had been discussed at board level, Mr Donaldson belatedly acknowledged that he "would have" become aware of the recommendations, including that a valuation from a different valuer be obtained, and that the loan be repaid if certain conditions were not met. Mr Donaldson did not, however, make any inquiries, or consider himself as being obliged to conduct any inquiries, about whether a valuation from a different valuer had in fact been obtained, or whether the conditions had been satisfied or the loan repaid. He maintained that those "matters were delegated to parties who were carrying these things out". 399 As with Mr Swan, the upshot of Mr Donaldson's evidence was that, despite the fact that the SVP report and recommendations were sufficiently serious and important to be considered at the board level, he did nothing himself to ensure that the recommendations were in fact acted on. He simply assumed that management "handled those matters correctly". When pressed, however, he effectively denied having any recollection about any actual discussions with management, including Mr Sullivan, in relation to the AGA facility and SVP's recommendations in relation to it. 400 The evidence of both Mr Swan and Mr Donaldson concerning the implementation of SVP's recommendations concerning the AGA facility was in many respects unpersuasive and lacked credibility. Nevertheless, assuming, for present purposes, that the evidence of both Mr Swan and Mr Donaldson in relation to the SVP report were to be accepted, were they justified in simply delegating responsibility for the SVP report and its implementation to management? Were they entitled to uncritically assume that management had properly responded to and implemented the SVP recommendations without any oversight or scrutiny on their part? Given the seriousness of the issues raised in the SVP report, the importance of the recommendations, the involvement of ASIC, the amount of money involved in the AGA facility alone, the position of City Pacific as a professional trustee in relation to the assets of the Fund, and the duties and responsibilities of Mr Swan and Mr Donaldson as officers of City Pacific, the answer to those questions must be "no". More was required. 401 The SVP report was impliedly, if not expressly, critical of aspects of City Pacific's loan administration procedures and compliance with the Constitution and the Compliance Plan. That amounted to a criticism of management. In all the circumstances, it was not sufficient for Mr Swan and Mr Donaldson to unquestioningly and uncritically rely on management to deal with those criticisms. Whilst it may not have been necessary for Mr Swan and Mr Donaldson to have had the "detailed direct involvement that is associated with operational responsibility", what was required was "a level of scrutiny as befits supervision": Vines v ASIC at [731]. 402 Trilogy did not allege any breach of duty on the part of Messrs Sullivan, Swan, Donaldson and McCormick in relation to the response to the SVP report. Nevertheless, the evidence concerning the SVP report was significant for at least two reasons. 403 First, it revealed significant weaknesses in corporate governance at City Pacific. It revealed a management team, headed by Mr Sullivan, that was prepared to mislead ASIC rather than implement SVP's recommendations concerning a large loan that did not appear to comply with a number of City Pacific's loan administration policies and procedures. It also revealed, at best, an almost complete absence of any oversight or scrutiny of management by the independent or non-executive directors in relation to that issue. 404 Second, the evidence concerning the SVP report provided critical background and context in which to consider the events that occurred in relation to the AGA facility throughout 2006 and into 2007. In particular, the evidence concerning the SVP report must be considered in addressing the evidence of Messrs Sullivan, Swan and Donaldson to the effect that they did not know that advances continued to be made to AGA above its approved facility limit during 2006 and 2007, and had no reason to make inquiries, or even read the board papers, with a view to ensuring that the conduct of the AGA facility complied with City Pacific's lending guidelines and constituent documents. On any view, Messrs Sullivan, Swan and Donaldson must have known that the AGA facility was not just a regular loan amongst the many in City Pacific's loan book. Not only was it a large loan, but it was a loan that had been singled out by an independent expert as a non-complying loan. It had been the subject of specific and unequivocal recommendations. 405 It is unnecessary to discuss in any detail Mr McCormick's evidence in relation to the SVP report. The short point is that he was aware of the findings and recommendations concerning the AGA facility, but did nothing whatsoever to ensure that the recommendations were acted on. He never sought or obtained a valuation from a different valuer. He took no steps to have the AGA facility repaid or refinanced on or after 31 December 2005 when none of the conditions referred to in the SVP report were satisfied. He claimed that he had no recollection of any discussions with Mr Sullivan concerning those matters. Mr McCormick's only explanation for not doing anything regarding the SVP recommendations was that he believed that someone in "treasury" had a different view to SVP about what Lending Manual category the AGA facility fell within. That, of course, provided no good reason or justification for completely ignoring the recommendations. 406 Mr McCormick was also aware of SVP's recommendation that loan proposals contain a separate certification by the lending manager in relation to the acceptability of the valuation. He was aware that this recommendation was implemented by changes to the Lending Manual. Notwithstanding that, he ignored the recommendation and new procedure when it came to the AGA facility. He included no such certification in the backdated proposal to increase the AGA facility limit to $44.87 million or $55 million which he prepared in late December 2006. Given that he included the certification in other proposals he prepared at the same time, it can only be inferred that Mr McCormick deliberately ignored that procedure in the case of the AGA proposal. 407 It is difficult to escape the conclusion that Mr Sullivan and Mr McCormick acted together in deliberately ignoring, or taking no steps to implement, SVP's recommendations concerning the AGA facility. For whatever reason, they decided that they would not, or could not, require AGA to repay the facility. They deliberately chose not to retain a different valuer because they well knew that a valuation from a truly independent valuer would not support the size of the AGA facility. Those inferences are supported by the evidence that Mr Sullivan and Mr McCormick acted together in relation to the purported approval of the increase to the facility limit to $26 million in July or August 2006.

findings in relation to the VALUe of the saddleback land 408 Both the purported approval of the "interim" increase to the AGA facility to $26 million in July or August 2006, and the increase of the AGA facility limit to $44.87 million (or $55 million) in late December 2006 or early January 2007, were supposedly supported by the increased value of the Saddleback land. The increase of the facility limit to $26 million was supposedly supported by a valuation (the March 2006 Valuation) that valued the land at $64.1 million. The increase of the facility limit to $44.87 million (or $55 million) was supposedly supported by a valuation (either the Updated March 2006 Valuation or Mr Kogler's letter of 21 December 2006) that valued the land at $102.4 million. 409 Some observations have already been made about the valuations that supposedly underpinned those increases to the AGA facility limit. More will be said about them later. Suffice it to say at this stage that each of them was based on assumptions concerning the zoning and permitted uses of the Saddleback land that had no sound basis. They effectively assumed that the 1989 or 1992 rezoning approval had been gazetted and was therefore legally effective, or that the land had been included in the Urban Footprint of the South East Queensland Regional Plan, or that the land had been declared State Significant. None of those things had occurred. Nor was there any basis for assuming that they were likely to occur in the foreseeable future. 410 What then was the value of the Saddleback land throughout 2006 and into 2007? Was it any higher than the value attributed to it in the September 2005 Valuation, namely $24.975 million. 411 Trilogy contended that the value of the Saddleback land held as security by City Pacific on behalf of the Fund throughout 2006 was $16.735 million. In that respect, it relied on the expert valuation evidence from a registered valuer, Mr James Eden. 412 The respondents did not lead any valuation evidence. Messrs Sullivan, Swan and Donaldson contended, however, that Mr Eden's report was "fundamentally flawed" because he took an incorrect approach to the concept of "highest and best use". 413 In his report, Mr Eden indicated that he valued the land on the basis of its "highest and best use". Mr Eden indicated that this concept was defined by the Australian Property Institute as meaning "the use from among reasonably probable and legal alternative uses, found to be physically possible, appropriately justified and financially feasible which results in an optimum value for the asset valued". 414 In relation to the highest and best use of the Saddleback land, Mr Eden noted that during 2006 the land was zoned "Rural", was not located within the Urban Footprint of the South East Queensland Regional Plan, and that the regional plan took precedence over local authority zoning plans with regards to potential urban uses for the land. He also noted, in accordance with his instructions, that there were no development approvals in place. He concluded as follows: As a result of the above factors, I do not consider that in valuing the property for first mortgage security purposes the highest and best use as some form of residential type use development site could be adopted and I consider that its highest and best use would be the break up of the holding and selling it as either individual allotments or parcels where there were access or service constraints. 415 The criticism of Mr Eden by Messrs Sullivan, Swan and Donaldson appeared to be (though it was put in various different ways) that Mr Eden was required to take into account the "possibility" that the zoning of the land would change. Mr Eden gave the following evidence in cross-examination: First of all, sir, when you were preparing your valuation of the Saddleback, it - in order to do a proper job, it would have been necessary for you to consider the possibility that the zoning of the land would change; isn't that right?---Not to do an as is valuation. We can only do that based on the facts in front of us, based on the zoning and - at present. So you say that it was quite acceptable for you to simply neglect the possibility of it being rezoned in preparing your valuation; is that right?---I think without any strong town planning advice, you couldn't look at any alternate. … MR YOUNG: Well, I will happily incorporate that in the question, your Honour. So are you saying that unless you had strong town planning advice to the effect that rezoning would occur in relation to the land that it was appropriate for you when preparing your valuation to simply neglect the scenario of a rezoning?---That's correct. I see. You didn't think it was a job for you to consider any possibility of rezoning without such advice, is that right?---That's correct. I think when you're undertaking a mortgage security valuation you've got to take into regard the facts in front of you. And you didn't think it was appropriate at least without strong town planning advice in front of you to consider that there could be a purchaser who was a developer that would be prepared to pay more money for the property because that developer thought that there was a potential for rezoning, is that right?---No, I - could you repeat that question again, sorry? And so you didn't think that it would - I withdraw that. Are you also saying, sir, that unless you had strong town planning advice at the time of preparing your valuation that rezoning would occur that you could simply neglect the possibility that there was a developer who might purchase the land and be prepared to pay more for the land because the developer thought that rezoning might take place later?---I think a developer would be in the same situation as part of his due diligence and he would want strong town planning advice as well. So you thought that you could without the strong planning advice yourself simply neglect that scenario, not take that into account in any way when preparing your valuation, is that right?---For mortgage purposes on an as is basis, yes. 416 Mr Eden's requirement of "strong town planning advice" before he took into account the possibility that the land might be rezoned could possibly be criticised as being conservative. It does not follow that his approach was fundamentally flawed, or that his valuation of the Saddleback land was wrong. 417 In Commonwealth Custodial Services Ltd as Trustee for Burwood Trust Fund v Valuer-General (NSW) (2006) 148 LGERA 38, Biscoe J explained the concept of highest and best use in the following terms (at [15]): There is no statutory definition of "highest and best use". It has been described in the High Court as "the most advantageous purpose for which [the land] was adapted": Spencer v Commonwealth (1907) 5 CLR 418 at 441 per Isaacs J. It "is the present value alone of such advantages that falls to be determined": Cedars Rapids Manufacturing & Power Co v Lacoste [1914] AC 569 at 576 per Lord Dunedin. In Park v Allied Mortgage Corp Ltd [1995] NSW ConvR 55-753 at [70] Hill J said: "As Spencer's case itself makes clear the valuation must proceed by reference to the best use of the property. For this purpose the valuer will take into account not only the present use to which the land is applied, but any more beneficial use to which it may reasonably be applied. This is the process which a purchaser negotiating to purchase the property would undertake. Thus, it is not inappropriate in valuing property to take into account a potential development of the property, for among the range of hypothetical purchasers can be assumed to be a person who would undertake such a development as would maximise the usage of the land." In Adelaide Clinic Holdings Pty Ltd v Minister for Water Resources (1988) 65 LGRA 410 at 415 (SC/SA) Jacobs J said: Common experience shows that land ideally suited for commercial development will fetch a higher price per unit of area than residential land, but it does not follow that the highest and best use of all land is a commercial use, for the highest and best use means exactly what it says - the most advantageous use of the subject land having regard to planning and all other relevant factors affecting its present and future potential. The first task of the valuer is to determine what that use is and then to value the land on that basis. It is not appropriate to determine the highest and best use by reference only to value. 418 This passage was approved by the Court of Appeal of Victoria in ISPT Pty Ltd v Melbourne City Council (2008) 20 VR 447; [2008] VSCA 180 at [40]. It was also referred to with apparent approval by Beech J in McKay v Commissioner of Main Roads (No 7) [2011] WASC 223 at [156]. Beech J went on to say (at [157] - [158]): In Mount Lawley (2004), the Full Court said as follows: The skill of the valuer lies in assessing (in this case) the market value of the reserved Mount Lawley land, had it been offered for sale on 7 May 1996. That value would reflect the highest and best use to which the land could be put, consistent with its zoning: Boland v Yates at [271]. As we have noted, in carrying out the valuation the valuer will take into account any potential the land may have for a higher and better use than permitted by the current zoning. In so doing the valuer should exercise an independent judgment about the likely perception of such matters in the relevant market [184]-[185]. Thus if the most profitable use of the land is one not permitted by its current zoning, the concept of highest and best use requires the potential of the land to be used for that more profitable use, after necessary planning approval, to be taken into account. It does not require or permit an assumption that the necessary planning approval will be forthcoming. The prospects of such approval as determined on the evidence, viewed from the perspective of the hypothetical parties, will bear on the assessment of the value of that potential use. 419 The effect of Mr Eden's evidence was that he would only take into account any potential the land may have for a higher and better use than permitted by the current zoning if that potential was supported by "strong town planning advice". It is not entirely clear that such a conservative approach is supported by the authorities, which appear to take a slightly more flexible approach. Nevertheless, the authorities also make it clear that there is no statutory definition of "highest and best use", and that it is a matter for the skill and independent judgment of the valuer. It is also clear that it does not require or permit an assumption that the necessary planning approval will be forthcoming 420 It follows that the attack on Mr Eden's methodology or approach to highest and best use is rejected. That approach was perhaps conservative, but not flawed, let alone fundamentally flawed. It was open to Mr Eden to use his skill and independent judgment as a valuer in assessing the highest and best use of the Saddleback land as he did. 421 In any event, in the circumstances here, the attack on Mr Eden's valuation never went beyond the theoretical or hypothetical. In cross-examination, no attempt was made to put to Mr Eden any particular facts and circumstances relating to the Saddleback land which may have changed his mind about the highest and best use of the land. It was never put to him that his assessment of the highest and best use of the Saddleback land was wrong because of the existence of some particular facts or circumstances. There was and is therefore no basis for rejecting Mr Eden's valuation based on his assessment of the highest and best use of the Saddleback land. 422 As already noted, the respondents did not lead any competing valuation evidence. 423 In all the circumstances, Mr Eden's valuation should be accepted. 424 It follows that at all times from 28 April 2006 onwards the balance owing by AGA to the Fund exceeded the value of the Saddleback land. The question whether the Constitution required a LVR of 80 percent is therefore somewhat academic. On any view the advances made to AGA after 28 April 2006, the purported approval of the "interim" increase to the facility limit to $26 million, and the approval of the increase to the facility limit to $44.87 million (or $55 million) were objectively imprudent and not in the best interests of the members of the Fund. They did not comply with the Constitution or the Compliance Plan. The only real question is whether the respondents knew that to be the case, or whether they would have known that had they exercised the required standard of care and diligence.

Findings in relation to issue 1 - the $26 million approval 425 Having regard to the way that the evidence ultimately emerged at trial, the issue whether Mr Sullivan and Mr McCormick contravened s 601FD(1)(f) and (b) of the Corporations Act by approving the so-called April 2006 AGA facility became somewhat of a "red herring". That was so for a number of reasons. 426 First, Trilogy's pleaded case hinged on the allegation that Mr Sullivan and Mr McCormick approved the increase of the AGA facility to $26 million on or about 28 April 2006. Whilst Mr Sullivan and Mr McCormick initially claimed that the approval did in fact occur on 28 April 2006, the evidence clearly demonstrated that no such approval was given on 28 April 2006. Ultimately, neither Trilogy nor Mr Sullivan suggested otherwise. If the increase in the facility to $26 million was approved, that occurred on or around 23 August 2006. 427 Second, Mr Sullivan and Mr McCormick both effectively contended that there was no binding approval to increase the AGA facility to $26 million. They sought to characterise their approval as amounting to no more than an "indicative" or "non-binding" offer. In his evidence, Mr Sullivan appeared to maintain that there had been no approval to increase the facility to $26 million because for that to occur, a formal proposal was required to be put to and approved by the Credit Committee. That never occurred. Thus Mr Sullivan appeared to effectively concede that any purported approval to increase the AGA facility to $26 million did not comply with the Constitution, the Compliance Plan or the Lending Manual. Mr Sullivan did not contend that he took any steps to ensure that the formal approval process was complied with. His point was that there was no approval. 428 Likewise, Mr McCormick effectively conceded that none of the steps required to formally approve an increase to the AGA facility to $26 million were ever taken. He took no steps to ensure compliance with the Compliance Plan. He never even prepared a proposal to put to the Credit Committee in respect of the purported increase to the AGA facility limit. 429 Third, by the time that the increase to the facility limit was purportedly approved by Mr Sullivan and Mr McCormick on or around 23 August 2006, significant advances had already been made above the facility limit of $17.89 million which had been approved by the Credit Committee in October 2005. By 23 August 2006, when the 28 April 2006 file note and letter were most likely signed by Mr Sullivan and Mr McCormick, the balance of the facility was already in the vicinity of $26 million. At the very most, therefore, the purported approval amounted to nothing more than a purported ratification, or ex post facto approval, of advances already made beyond the approved limit. 430 It would follow that, as a practical matter, the Fund may not have suffered any direct loss as a result of the purported approval, because the advances almost up to the purported $26 million limit had already been made. The more significant issue that arises in relation to the advances made between 28 April 2006 and 23 August 2006 is whether, by permitting those advances to be made in circumstances where there had been no approved increase to the AGA facility limit, Mr Sullivan and Mr McCormick contravened s 601FD(1)(f) and (b) of the Corporations Act. 431 Nevertheless, the purported approval of the increase in the AGA facility limit to $26 million is not irrelevant. In many respects, the conduct of Mr Sullivan and Mr McCormick in relation to this purported approval supported the inference that they well knew that advances were being made after 28 April 2006 that resulted in the facility limit being exceeded. It also set the scene for their conduct in relation to the AGA facility throughout the balance of 2006 and into 2007. 432 In addition, contraventions of s 601FD(1)(f) and (b) arising from this purported approval may have resulted in losses suffered by the Fund, albeit not in relation to advances made prior to the purported approval. As considered in detail later in the context of issue 6, the evidence suggests that had Mr Sullivan not been prepared to give his imprimatur to what was effectively a purported retrospective approval of advances already made above the approved limit, it is unlikely that Mr McCormick would have continued to permit advances to be made to AGA after 23 August 2006. Mr Sullivan's approval effectively gave Mr McCormick the "green light" in relation to later advances. There was certainly no evidence that Mr Sullivan told Mr McCormick not to authorise any further advances.

Factual findings - Mr McCormick 433 The following factual findings should be considered in the context of the outline of ineluctable facts detailed earlier and the findings made in relation to the SVP report and City Pacific's responses to it. 434 As at 28 April 2006, the AGA facility was fully drawn. The facility limit approved by the Credit Committee in October 2005 was $17.89 million and the outstanding balance on 28 April 2006 was $17.74 million. Despite that, and despite the fact that no approach was made to the Credit Committee, further drawdowns on the facility were requested and approved. Those drawdowns meant that the AGA facility was operating outside its approved limit. 435 There is no doubt that Mr McCormick was aware of and approved the drawdowns that took the facility beyond its limit. He admitted as much in his evidence. He signed Funds Transfer Request forms for most of the advances. It can be inferred, based on Mr McCormick's position and his level of involvement with the AGA facility, that he was at least aware of, and most likely arranged and approved, those advances where he had not signed the Funds Transfer Request forms. 436 The available and compelling inference is that Mr Gore was pressing Mr McCormick for further funds and, for whatever reason, Mr McCormick was unable or unwilling to refuse those requests on behalf of the Fund. The question whether Messrs Sullivan, Swan and Donaldson, or any of them, knew that the AGA facility was operating outside its approved limit in the period 28 April 2006 to 23 August 2006 is addressed later. One thing, however, is abundantly clear. That is that no proposal to increase or extend the AGA facility limit was prepared or put to the Credit Committee until late December 2006. Mr McCormick knowingly and intentionally sidestepped the proper procedures set out in the Compliance Plan and Lending Manual. 437 It is not entirely clear why Mr McCormick did not follow the proper procedures and put a proposal to the Credit Committee to increase the facility before allowing these further advances to be made. In his affidavit evidence, he suggested that he was concentrating on restructuring the loans to the entire Gore Group. In his oral evidence he suggested that City Pacific did not have the "information we were looking for". The "information" Mr McCormick was referring to was presumably confirmation that the Saddleback land had actually been rezoned or declared State Significant, and therefore could properly be revalued at a higher figure. It is clear from various emails between Mr McCormick and Mr Gore that Mr McCormick was pressing Mr Gore to provide confirmation and evidence that the proposed project on the Saddleback land had been declared State Significant. No such evidence was forthcoming. 438 Perhaps the real reason why Mr McCormick did not follow the proper procedures and seek the approval of the Credit Committee in respect of this facility limit increase was that he believed that any formal proposal to increase the facility, if properly scrutinised by the Credit Committee, would not support any increase. That is because any increase to the AGA facility limit was not supported by an acceptable "as is" valuation based on current zoning. 439 Whilst the Updated March 2006 Valuation, which was received on or around 29 May 2006, purported to value the property on an "as is" basis at $64.1 million, even the most cursory reading of that valuation would have revealed that it was based on a false or misleading assumption concerning the zoning of the Saddleback land. Mr Kogler was instructed to value the Saddleback land on the basis that the current ("as is") zoning was to "reflect the 1989/1992 "Special Facilities rezoning approval" that had not lapsed, and that the zoning permitted "a major tourist and residual project." Mr Kogler effectively concluded on the basis of his instructions that the 1989/1992 rezoning approval was "the current active legal approval." That was despite the fact that by this time it was well-known that the Council had refused to gazette the rezoning approval and the rezoning was therefore legally ineffective. 440 Mr Kogler also ascribed a value of $102.4 million to the Saddleback land on the basis that the land was declared a "State Significant" project or included in the "Urban Footprint" area under the South East Queensland Regional Plan. It was clear, however, that neither of those events had occurred. Mr McCormack knew that, or at least knew that, despite his requests, Mr Gore had been unable or unwilling to provide any evidence that either of those events had occurred 441 There could be no doubt that the Updated March 2006 Valuation by Mr Kogler was not an acceptable valuation that could be relied upon by City Pacific. It was not an "as is" valuation based on current zoning. At best it relied on conditions that had not been met. Section 10 of the Lending Manual provided, amongst other things, that if "a valuation is conditional upon a certain requirement, it should be met". It also provided that City Pacific "will not settle any loan that has a valuation that does not conform with the requirements" of the Lending Manual. The Compliance Plan provided, in effect, that loans were required to be made in accordance with the Lending Manual. 442 As it turned out, of course, Mr McCormick need not have worried that the Credit Committee might have knocked back any formal proposal to increase the AGA facility based on deficiencies in the valuation. That is because, as the events of late December 2006 ultimately revealed, none of the members of the Credit Committee were likely to have given any genuine consideration to any loan proposal in relation to the AGA facility in any event. Certainly none of them were likely to have asked to see, let alone read, any valuation that purported to support an increase to the facility. That issue will be returned to in due course. 443 Two things eventually forced Mr McCormick's hand. The first was the query raised by KPMG about facilities, including the AGA facility, that appeared to be exceeding their approved limit. The second was the request by BGC Corp for access to loan files, including the AGA loan file, for the purposes of its due diligence. Faced with the prospect of external scrutiny of the AGA facility and loan file, Mr McCormick had two choices. He could formalise the situation by following proper procedures and submitting a proposal to the Credit Committee for an increase to the facility. That course would have required him not only to reveal to the Credit Committee that the facility had been operating above its approved limit for a number of months, but to also justify the increase by reference to an acceptable valuation. The alternative course was to create the false impression that the facility limit had been increased. 444 Mr McCormick chose the latter alternative, namely, the falsification of the loan file. He appears to have done that in two steps. 445 The first step, which appears to have been prompted by the KPMG query, was the creation of file notes on 24 July 2006 which suggested that "provisional approval" had been given on 28 April 2006 to increase the AGA facility limit to $50 million if the Saddleback land was declared State Significant or included in the Urban Footprint. In the interim the facility limit would be increased to $36 million. Mr McCormick sent a copy of his supposed "diary note" to KPMG under cover of a letter dated 25 July 2006. Mr McCormick also made handwritten notes on a number of the Funds Transfer Request forms in respect of advances made after 28 April 2006 which suggested that the advances were approved as part of this interim measure. 446 The second step appears to have been prompted by the due diligence request by BGC Corp to inspect the AGA loan file. It may be inferred that Mr McCormick formed the view that the file notes were not sufficient if the loan file was to be inspected. If that occurred, it would be readily apparent that the AGA facility formally expired in December 2005 and that there was no formal documentation recording that City Pacific had offered, and AGA had accepted, a loan facility with a limit that supported the advances that had already been made. A letter of offer that had been accepted by AGA was needed to regularise - or "tidy up", to use the expression used by both Mr Sullivan and Mr McCormick in their evidence - the loan file.

Factual findings - Mr Sullivan 447 Whilst Mr McCormick may have been the officer of City Pacific who was primarily responsible for the facilitation or making of the advances to AGA after 28 April 2006, there could be little doubt that Mr Sullivan knew about and either expressly or impliedly authorised at least some of the advances that resulted in the AGA facility operating above its limit. Amongst other things, he signed Funds Transfer Request forms authorising advances on 11 May 2006 and 12, 17 and 28 July 2006. 448 Mr Sullivan claimed that, in signing those Funds Transfers Request, forms he did not become aware that the advances would take the AGA facility above its approved limit. Mr Sullivan's evidence was that when he was asked to sign a Funds Transfer Request form, he was only presented with a single page that did not include details of the facility limit. He also claimed that in signing a Funds Transfer Request form, he was not certifying that all documents necessary to support the advance were held by City Pacific. 449 Mr Sullivan's evidence that he did not know that advances were being made during the period 28 April 2006 to 23 August 2006 is rejected, as is his submission based on his evidence concerning the Funds Transfer Request forms. It is implausible that only a single page (the first page) of Funds Transfer Request forms were provided to Mr Sullivan when he was asked to sign them. The first page of the Funds Transfer Request form is almost entirely bereft of any meaningful detail about the relevant loan facility such as to permit the authorising officer to determine whether the funds transfer should be authorised. The space for the signatures on the Funds Transfer Request form is directly below the words "[w]e certify that all documents necessary to support this transfer are held by us". It is difficult to see how anyone could sign that form below that certification without considering the information in the other supporting or accompanying pages. The Funds Transfer Request system or procedure could not sensibly or reasonably operate if the supporting material was not provided to the prospective signatories. 450 Mr Sullivan's claim that he only received the first page was also not only entirely uncorroborated, but was also contrary to the evidence of Mr McCormick, whose evidence was that the practice was to provide all the supporting pages or material. 451 In any event, Mr McCormick's evidence was that he only advanced funds to AGA over the approved limit in this period with Mr Sullivan's approval. That evidence, which was by no means implausible, was also supported by inferences flowing from the documentary evidence. First, Mr Sullivan signed the very first Funds Transfer Request (dated 11 May 2006) which took the facility above its approved limit. Second, Mr Sullivan in due course signed the file note and letter of offer, both backdated to 28 April 2006. He did so apparently without demur or query, other than that he only approved an interim increase to $26 million, not the $36 million that Mr Cormick had recorded in his false file notes. 452 It is difficult to see why Mr Sullivan would be willing to sign the backdated documents if he did not know that the advances had already been made. He well knew that the backdating was necessary to give the false impression that approval had been given, and the letter of offer had been signed and sent, on 28 April 2006, before the facility limit had been exceeded. There could be little doubt that Mr McCormick's reference to "interim" or "provisional" approval of an increase to the facility limit was a reference to Mr Sullivan approving the advances. 453 For the reasons already referred to, Mr Sullivan's evidence in relation to the signing of the letter of offer dated 28 April 2006 was implausible, inconsistent and lacked credibility. The unchallenged evidence concerning the metadata of the electronic version of the letter dated 28 April 2006 demonstrated that the letter was first created on 23 August 2006. Mr Sullivan's evidence that he signed an earlier version of that letter, without the part of the letter that provided for an acceptance signature by AGA, on or around 28 April 2006, was not corroborated by any contemporaneous documents and was highly implausible. It was a false reconstruction of events by Mr Sullivan to try to justify and explain why he would sign a backdated letter of offer. It is worth noting that, in his final submissions, Mr Sullivan abandoned any suggestion that he signed a version of the 28 April letter on 28 April 2006. In his written submissions, Mr Sullivan positively asserted that it was most likely that he signed the letter of offer on 24 August 2006 and the file note dated 28 April 2006 containing the handwritten note shortly beforehand. 454 There could be no doubt that the letter of offer to AGA dated 28 April 2006 was prepared by Mr McCormick and signed by both Mr Sullivan and Mr McCormick with the intention of creating the misleading impression that AGA had been offered, and had accepted, a loan of $26 million on 28 April 2006, and that the advances that had been made from that time were therefore within the facility limit. 455 There are two other important aspects of the evidence of Mr Sullivan in relation to the offer of the $26 million facility to AGA that must be dealt with. The first is the suggestion that this offer was merely an "indicative" or "non-binding" offer. The second is Mr Sullivan's claim that he was misled by Mr McCormick when he signed the letter of offer. 456 As for the first of these matters, Mr Sullivan's evidence that the offer to AGA was merely "indicative" and "non-binding" was false. As Mr Sullivan eventually conceded in cross-examination, there was nothing whatsoever in the letter which suggested that the offer of the loan facility was either "indicative" or "non-binding". The letter contained all of the essential terms of the offer, even if further formal documentation of the loan may have been expected: Masters v Cameron (1954) 91 CLR 353. 457 There is a simple explanation for why Mr McCormick sought to characterise the approval to increase the AGA facility to $26 million as a "provisional" or "interim measure", and for why Mr Sullivan sought to falsely characterise the letter of offer as an "indicative" and "non-binding" offer. That explanation is that both Mr Sullivan and Mr McCormick realised that the Compliance Plan provided that any increase of the AGA facility to $26 million was required to be approved by the Credit Committee and the Credit Committee Charter provided that such a loan or increase was required to be approved by all four members of the Credit Committee. The increase of the AGA facility limit to $26 million was never the subject of a proposal to the Credit Committee, let alone one that complied with the Lending Manual. The approval of the Credit Committee was never sought nor given. None of the well-documented procedures that were required to be followed for such a loan were complied with in respect of this loan offer. 458 Mr Sullivan submitted that he was misled by Mr McCormick when he signed the 28 April 2006 letter. That claim is found only in his final submissions. It is not supported by any evidence. As already dealt with at length, Mr Sullivan's evidence was that he signed the letter of offer on 28 April 2006 and signed another copy, with provision for acceptance, on or around 23 August 2006 so as to "tidy up" the loan file. He said nothing whatsoever about being misled by Mr McCormick. It is also not entirely clear how Mr Sullivan claims that he was misled. Even the most cursory reading of the letter of offer indicates that it is not in any way merely indicative. There is nothing in the letter to suggest that it was, or was intended to be, non-binding. The date on the letter was obvious. The apparent suggestion that a chief executive officer of Mr Sullivan's standing would sign a letter such as this without reading it is fanciful. For the reasons already given, the clear inference from the evidence is that Mr Sullivan well knew that the letter was intended to mislead anyone who inspected or audited the AGA loan file into believing that no advances had been made over the approved limit because an offer of a $26 million facility had been made and accepted on 28 April 2006.

Contraventions by Mr Sullivan and Mr McCormick in relation to the $26 million facility 459 In these circumstances, in purporting to approve the $26 million facility to AGA and, perhaps more importantly, in offering this loan facility to AGA on or about 23 August 2006, both Mr Sullivan and Mr McCormick contravened s 601FD(1)(f) of the Corporations Act. They failed to take all steps that a reasonable person would take, if they were in the positions of Mr Sullivan and Mr McCormick, to ensure that City Pacific complied with the Constitution and the Compliance Plan. Amongst other things, they failed to ensure that the purported approval of the increase in the AGA facility was supported by an acceptable "as is" valuation based on current zoning, or that the facility limit met the 80 percent LVR Requirement (or the requirement of a "prudent lending ratio"), or that the Saddleback land provided adequate security for the increased facility, or that a proposal for the increase in the AGA facility limit was put to and approved by the Credit Committee as required by the Compliance Plan and the Lending Manual. 460 In purporting to approve and offering AGA the $26 million loan, both Mr Sullivan and Mr McCormick also failed to exercise the degree of care and diligence that a reasonable person would exercise if they were in the position of Mr Sullivan and Mr McCormick respectively. They therefore contravened s 601FD(1)(b) of the Corporations Act. In summary, the failures of Mr Sullivan and Mr McCormick to exercise the required degree of care and diligence is demonstrated by the following matters: (a) purporting to approve the increase to the AGA facility limit in circumstances where they knew that advances up to that limit had already been made in the absence of any reference to or approval by the Credit Committee; (b) purporting to approve the increase to the AGA facility limit in the absence of any acceptable valuation and in circumstances where, on the existing valuation, the balance of the loan was outside a LVR of 80 percent; (c) purporting to approve the increase to the AGA facility limit in circumstances where both Mr Sullivan and Mr McCormick knew that the external expert that ASIC had required City Pacific to appoint, SVP, had recommended that the AGA facility be repaid or refinanced by 31 December 2005 if it had not been confirmed that the Saddleback land had been included in the Urban Footprint of the South East Queensland Regional Plan, and that at the December 2005 review another valuation be obtained from a different valuer to assess the analysis of land values in the Canungra area based on permitted uses; (d) creating false and misleading documents to suggest that AGA had been formally offered, and had accepted, the loan facility of $26 million on 28 April 2006; and (e) failing to take any steps to ensure that the procedures in the Compliance Plan and the Lending Manual were followed in relation to the offer of the $26 million facility, including all the failures referred to earlier in the context of the contravention of s 601FD(1)(f) of the Corporations Act. 461 In all the circumstances, a reasonable person in the position of Mr Sullivan and Mr McCormick, exercising care and diligence would not have approved any increase to the AGA facility limit. Rather, the reasonable person would have taken all necessary steps to ensure that no further advances were made to AGA and that the AGA facility was either repaid or refinanced as recommended by SVP. 462 It also follows inescapably from these factual findings that the purported approval of the extension or increase of the AGA facility to $26 million was not in the best interests of the members of the Fund. Mr McCormick and Mr Sullivan accordingly contravened s 601FD(1)(c) of the Corporations Act. That conclusion follows for tehe same reasons as those given in relation to the contraventions of s 601FD(1)(f) and (b). 463 The question whether these contraventions caused loss or damage to the Fund is addressed later in the context of issue 6.

Findings in relation to issue 2 - advances between 28 April 2006 and 23 August 2006 464 Issue 2 overlaps to a considerable extent with issue 1. Both relate, in one way or another, to the advances that were made between 28 April 2006 and 23 August 2006 which resulted in the balance of the AGA facility increasing from $17.89 million to approximately $25 million. The significance of the date 28 April 2006 is that this was essentially the last day that the AGA facility operated within the limit approved by the Credit Committee in October 2005. The significance of the date 23 August 2006 is that this is the day that City Pacific offered AGA the extended or increased loan facility of $26 million, albeit in a letter backdated to 28 April 2006. Whereas issue 1 is concerned with on the conduct of Mr Sullivan and Mr McCormick in relation to the purported approval and offer of the loan facility to AGA with an increased limit of $26 million, issue 2 is concerned with Trilogy's contention that, in failing to take steps to prevent the advances made to AGA during the period 28 April 2006 to 23 August 2006, Messrs Sullivan, Swan, Donaldson and McCormick breached their duty to act with care and diligence.

Factual findings - Mr Sullivan and Mr McCormick 465 The relevant factual findings in relation to the advances insofar as Mr Sullivan and Mr McCormick are concerned have already been referred to in the context of issue 1. 466 Not only did Mr McCormick fail to take steps to prevent advances being made to AGA in the period 28 April 2006 to 23 August 2006, he facilitated and approved or authorised those advances being made. He also well knew that the advances took the AGA facility above its approved limit. 467 For his part, Mr Sullivan expressly approved (by signing a Funds Transfer Request form), an advance of $1 million on 11 May 2006. For the reasons already given, it may be inferred that he implicitly, if not expressly, authorised the other advances that were made to AGA during this period. He certainly knew that they were being made and did nothing to stop them. Mr Sullivan well knew that the advances made during this period took the balance of the AGA facility well beyond its approved limit. 468 The fact that both Mr Sullivan and Mr McCormick knew that the advances took the facility above its approved limit explains why they subsequently signed the misleadingly backdated letter of offer. Both Mr Sullivan and Mr McCormick also well knew that the procedures required by the Compliance Plan and the Lending Manual had not been complied with in relation to those advances. 469 There is no question that Mr Sullivan, as the Chief Executive Officer, and Mr McCormick, as the Lending Manager, could have taken steps to prevent the making of these advances if they had chosen to do so. There is no doubt that the advances would not have been made if Mr Sullivan and Mr McCormick had not expressly or impliedly authorised and approved them.

Factual findings - Mr Swan and Mr Donaldson 470 The more difficult factual issues concern Mr Swan and Mr Donaldson. 471 The first question is whether they not only knew that these advances were being made, but also knew that they were being made in circumstances which meant that the AGA facility limit had been exceeded. If they did not know either of those matters, the question becomes whether they would have become aware of them if they had exercised the degree of care and diligence that a reasonable person in their positions would exercise. 472 The second question, which really only arises if the first question is determined adversely to Mr Swan and Mr Donaldson, is what a reasonable person in the position of Mr Swan and Mr Donaldson could and should have done to prevent the advances being made. 473 There is no evidence that Mr Swan and Mr Donaldson were in any way directly involved in facilitating or approving any of the advances that were made to AGA in this period. Trilogy did not submit otherwise. Since both Mr Swan and Mr Donaldson were non-executive directors, it would not ordinarily be expected that either of them would have been involved in facilitating or approving individual advances pursuant to a loan facility, even having regard to the fact that they were members of the Credit Committee. 474 Trilogy's case that Mr Swan and Mr Donaldson either knew, or should with care and diligence have known, that advances were being made to AGA above the approved facility limit, was essentially based on two facts established by the evidence. The first fact was that both Mr Swan and Mr Donaldson, as members of the Credit Committee who had approved the AGA facility in October 2005, were aware that the approved limit of the AGA facility was $17.89 million. The second fact was that the board papers that were provided to Mr Swan and Mr Donaldson during the period recorded that the AGA loan balance exceeded that amount. 475 The evidence of both Mr Swan and Mr Donaldson, on the other hand, was in essence that, whilst they reviewed the board papers that were sent to them during this period, they did not review the detail concerning individual loans or loan balances. They also pointed out that the board papers did not contain information about the individual loan facility limits. They contended, therefore, that even if they did see the AGA loan balance in the board papers, it would not necessarily have registered with them that it was operating outside the approved limit. Both Mr Swan and Mr Donaldson maintained that they did not review the board papers with a view to checking whether the individual loans were operating within their limits. They said that they expected that, if loans exceeded their limits, this would be brought to their attention by management. They were more concerned with broader or more fundamental issues, such as the Fund's liquidity. They both claimed that they were not aware that advances were made during this period that took the AGA facility over its approved limit. 476 Despite the concerns earlier expressed about the credibility and reliability of aspects of the evidence of Mr Swan and Mr Donaldson, it cannot be comfortably concluded that Mr Donaldson and Mr Swan knew that advances were being made during this period that resulted in the AGA facility operating outside its approved limit. There is no good reason to disbelieve their evidence on this point. 477 It is true that, if Mr Swan and Mr Donaldson had carefully read the balance sheet and loan schedule that was amongst the board papers each month, they could have ascertained the balance of the AGA facility. It is also true that both had considerable qualifications and experience in accounting, finance and management. They would have had no difficulties comprehending the content of the financial statements and loan schedules. Equally, if they had thought carefully about it, they might have remembered that months earlier they had approved a facility limit for the AGA facility of $17.89 million. If they had linked that recollection to the figure in the balance sheet recording the current balance of the AGA facility, it would have been apparent to them that the balance was over the approved limit. 478 In the circumstances, however, it is unrealistic to think that either Mr Swan or Mr Donaldson in fact went through that sort of thought process, at least during the period May 2006 to August 2006. That is so for a number of reasons. 479 First, the board papers were often quite lengthy and detailed. Unless there was some good reason to do so, it would not necessarily be expected that the non-executive directors would descend into the fine detail of individual loan accounts. That is particularly the case when there was no discussion at the meetings that required them to consider the detail of individual loans. 480 Second, the level of detail provided in the board papers in relation to individual loan accounts was not extensive and not particularly helpful. In particular, the financial information provided with the board papers did not include details of the approved limits of the loan facilities. The only detail provided was the current loan amount and the repayments made over the preceding six months. 481 Third, during this period the Fund had approximately 70 loans on its books. Whilst AGA was one of the larger loans, and entities associated with Mr Gore were together the largest block of borrowers, it does not necessarily follow that non-executive directors like Mr Swan and Mr Donaldson would necessarily have remembered the approved facility limit of the AGA facility, particularly given that the facility limit had been approved some months earlier in October 2005. 482 Fourth, there was nothing in the board papers for the months of June, July and August 2006 that would otherwise alert Mr Swan and Mr Donaldson to the fact that the AGA facility was operating above its approved limit. Nor do the minutes of the board meetings suggest that there was any discussion at the meetings concerning the AGA facility. 483 Fifth, there was no good reason, at least in this period, why Mr Swan and Mr Donaldson were not entitled to rely on management, and in particular Mr Sullivan and, through him Mr McCormick, to bring to their attention any issues, problems or irregularities in relation to individual loan facilities. There is no suggestion that either Mr Sullivan or Mr McCormick drew the attention of Mr Swan or Mr Donaldson to any issue or irregularity in relation to the AGA facility. Indeed, it is open to infer that Mr Sullivan and Mr McCormick intentionally kept those details in relation to the AGA facility from Mr Swan and Mr Donaldson. That inference is perhaps supported by the fact that they made a conscious decision not to put the question of the increase of the AGA facility limit to $26 million before the Credit Committee as they should undoubtedly have done. Mr McCormick's evidence was that he did not tell Mr Swan and Mr Donaldson about the advances to AGA during this period, and that he was attempting to deceive them as to the true state of affairs of the AGA facility. There is no sound basis for rejecting this aspect of Mr Cormick's evidence. 484 The one possible qualification, or matter of concern, in relation to the position of Mr Swan and Mr Donaldson during this period arises from the SVP report. As discussed in some detail earlier, because the AGA facility had been singled out by SVP as a loan that was "outside all current policy areas", it was by no means an ordinary run-of-the-mill loan as far as the Fund was concerned. It warranted the further attention of the directors of City Pacific. For the reasons already given, the evidence of both Mr Swan and Mr Donaldson in relation to the SVP report and City Pacific's response to it, was not altogether satisfactory. It is difficult to accept that they were not alive to the possibility of potential issues concerning the AGA facility in the period April 2006 to August 2006. It is difficult not to accept that the AGA facility warranted closer scrutiny by them compared to most of the Fund's other loan facilities. 485 But does it follow that the evidence of Mr Swan and Mr Donaldson concerning their state of knowledge about the AGA facility during this period should be rejected? Does it follow that it should be inferred that Mr Swan and Mr Donaldson were in fact aware that advances were being made to AGA during this period that meant that the facility was operating over its limit? On balance, and having regard to the Briginshaw considerations referred to earlier, the answer is "no". The evidence concerning the SVP report, considered together with the evidence concerning the board papers, does not, without more, support an inference of actual knowledge on the part of Mr Swan and Mr Donaldson. 486 The more difficult question is whether Mr Swan and Mr Donaldson would have become aware that advances made to AGA during this period had taken the AGA facility beyond its approved limit if they had exercised the degree of care and diligence that a reasonable person would exercise if they were in the positions of Mr Swan and Mr Donaldson. On balance, the answer to this question is also "no". That is so for essentially the same reasons given for accepting that Mr Swan and Mr Donaldson did not in fact know that advances over the limit had been made in this period. Whilst a careful and diligent non-executive director of a responsible entity, such as City Pacific, could no doubt have ascertained the current state of the AGA facility from the board papers, it does not necessarily follow that a non-executive director exercising reasonable diligence would thereby necessarily have come to discover or appreciate that the AGA facility was operating outside its approved limit. 487 The critical consideration is delegation and reliance. Mr Swan and Mr Donaldson were non-executive directors. They were entitled to rely on management, and Mr Sullivan and Mr McCormick in particular, to bring to their attention any problems or irregularities in relation to operational issues relating to individual loans. 488 Even the most careful and diligent non-executive director of a responsible entity the size of City Pacific would not necessarily keep abreast of the state of individual loan accounts. Rather, they would rely on management to monitor individual loans. Even the most careful and diligent non-executive director of a responsible entity the size of City Pacific would not necessarily recall the approved facility limit of each of the Fund's 70 loans, or even the facility limits of the larger loans. Therefore, they would not necessarily appreciate, from the board papers alone, whether individual loans were operating within their approved limits. They would rely on management to draw their attention to any loans not operating within their approved limits. 489 During the period April 2006 to August 2006, Mr Swan and Mr Donaldson had no good reason to believe that Mr Sullivan and Mr McCormick were not honest, trustworthy and competent. Reliance on them and their judgment in relation to such matters at this stage was not unreasonable. 490 That is so even in the face of the SVP report, and despite the somewhat unsatisfactory evidence given by both Mr Swan and Mr Donaldson about it. 491 Whilst the SVP report was undoubtedly a serious matter that required some degree of oversight by the board, including the non-executive directors, it was open to Mr Swan and Mr Donaldson to accept the assurance of management that the issues raised by SVP had been properly responded to and that SVP's recommendations were being implemented. The board approved the implementation of SVP's recommendations. The non-executive directors, including Mr Swan and Mr Donaldson, would also have been aware that management had retained external lawyers to assist in City Pacific's dealings with ASIC. Whilst the letter Mr Sullivan wrote to ASIC which reported on City Pacific's implementation of SVP's recommendations was unquestionably misleading insofar as the AGA facility was concerned, there is no evidence that Mr Swan and Mr Donaldson knew that to be the case. It is open to infer that they too were misled by this response. 492 Mr Donaldson and Mr Swan had no good reason, at least at this stage, to second-guess Mr Sullivan's assurances to ASIC and no compelling reason to conduct further specific investigations themselves into the state of the AGA facility. The situation may have been different if they were required to make a decision in relation to the AGA facility in their capacities as members of the Credit Committee during this period. During this period, however, Mr Swan and Mr Donaldson were not required themselves to make any decisions concerning the AGA facility. They were not specifically tasked with implementing, or overseeing the implementation, of SVP's recommendations in relation to the AGA facility. 493 Even if Mr Swan and Mr Donaldson became aware, or should, as careful and diligent directors, have become aware of the fact that the AGA facility was operating outside its limit, there is another problem with Trilogy's case in relation to advances made during this period. That problem is that Mr Swan and Mr Donaldson may only have become aware of those advances after they, or at least some of them, had been made. If that was the case, there is nothing that they could have done to prevent the advances from being made. For example, if Mr Swan and Mr Donaldson only became aware of the impugned advances as a result of their consideration of the board papers for the August 2006 board meeting, by that time almost all of the advances had already been made. They could not have prevented them from being made. The most that could be said is that they could have taken steps to prevent further advances being made.

Conclusions in relation to contraventions in relation to advances made in the period 28 April 2006 to 23 August 2006 494 In failing to prevent City Pacific from making advances to AGA during the period 28 April 2006 to 23 August 2006, Mr Sullivan and Mr McCormick failed to exercise the degree of care and diligence that a reasonable person would exercise if they were in the position of Mr Sullivan and Mr McCormick. They therefore contravened s 601FD(1)(b) of the Corporations Act. 495 The failure of Mr Sullivan and Mr McCormick to exercise the required degree of care and diligence is demonstrated by the same matters addressed above in the context of the contravention of s 601FD(1)(b) of the Corporations Act arising from the approval and offer of the $26 million facility to AGA. Suffice it to say that they permitted advances to be made to AGA during this period in circumstances where the AGA facility limit had been exceeded and no proposal had been put to the Credit Committee. They also knew that SVP had raised issues concerning the AGA facility, that SVP had made recommendations concerning the AGA facility that had not been complied with, and, perhaps most importantly, that City Pacific did not hold an acceptable "as is" valuation for the Saddleback land that would support any increase to the existing facility limit. In light of all those matters, careful and diligent officers in the position of Mr Sullivan and Mr McCormick would not only have prevented any further advances being made to AGA during this period, but would have taken steps to have the AGA facility repaid. 496 Trilogy has, however, failed to make out its case that Mr Swan and Mr Donaldson contravened s 601FD(1)(b) of the Corporations Act in relation to the advances made to AGA during this period. For the reasons already given, the evidence does not demonstrate, to the required standard, that either Mr Swan or Mr Donaldson were aware that advances were being made to AGA during this period that resulted in the facility limit being exceeded. Nor would a careful and diligent non-executive director in their positions necessarily have ascertained that fact. Even if a careful and diligent director would have ascertained that advances to AGA had been made during this period, they would not necessarily have discovered that the advances took the AGA facility beyond its approved limit. 497 It should be emphasised, in this context, that the breaches by Mr Sullivan and Mr McCormick of their statutory duty of care and diligence in relation to the advances made to AGA during this period have nothing whatsoever to do with any business judgment made by them in relation to the AGA loan facility. It may have been the case, though neither Mr Sullivan nor Mr McCormick said as much in their evidence, that the advances were made because Mr Sullivan and Mr McCormick had faith in AGA's Saddleback development proposal, or in Mr Gore's supposed acumen as a property developer. It may have been the case, and there are at least some suggestions of this in the evidence of Mr McCormick, that further advances on the AGA facility were made so that Mr Gore could complete and sell other developments. This, in turn, may have facilitated a restructuring of the overall indebtedness of the Gore Group of companies. 498 Even if the evidence supported any of those matters, it would nonetheless have been largely immaterial. That is because the failure to exercise care and diligence on the part of Mr Sullivan and Mr McCormick here involved a failure to take any steps to ensure that advances made by City Pacific, effectively as trustee of the funds invested by members of the Fund, were made in accordance with the proper mandated and published policies and procedures of City Pacific. In any event, even if Mr Sullivan and Mr McCormick actually entertained the belief that further advances to AGA were in the best interests of the Fund, it is extremely doubtful that a reasonable person in the positions of Mr Sullivan and Mr McCormick could reasonably have held such a belief. That is so particularly in light of the SVP report and the highly dubious valuations of Mr Kogler. A reasonable person in the position of Mr Sullivan and Mr McCormick, with their experience, would have immediately seen through Mr Kogler's 2006 valuations. They would have seen that the valuations were contrived, based on at best dubious assumptions and did not in truth support the further advances to AGA beyond the October 2005 approved limit. 499 A reasonable person in the position of Mr Sullivan, as Chief Executive Officer, and Mr McCormick, as Lending Manager, exercising the degree of care and diligence, would ensure that all mortgage loans made by City Pacific on behalf of the Fund would be conducted in accordance with the Constitution, the Compliance Plan, the terms of the PDS and the Lending Manual. Where a mortgage loan had been approved by the Credit Committee in accordance with the Compliance Plan, that would mean ensuring that only advances within the approved facility limit were made. Care and diligence would require that any proposal to make advances beyond the facility limit would be referred to the Credit Committee and only approved if the proposal met the requirements laid down in the Compliance Plan and the Lending Manual. That would require the proposal to be supported by an acceptable valuation and that the loan to balance fell within the mandated LVR, or at least that prudent lending ratio was maintained. Mr Sullivan and Mr McCormick did none of those things. 500 There is simply no point in responsible entities, such as City Pacific, having constitutions, compliance plans, lending manuals and other policy and procedure documents if executive officers, such as Mr Sullivan and Mr McCormick, simply thumb their noses at their contents in favour of their own business judgments or discretion. Such conduct would set at nought the detailed provisions of the Corporations Act that require responsible entities to have acceptable constitutions and compliance plans in order to be registered. 501 There could be little doubt that, from late April 2006, Mr Sullivan and Mr McCormick were effectively prepared to disregard the terms of the Constitution, the Compliance Plan, the Lending Manual and other published policies and procedures in relation to the AGA facility. Certainly they failed to exercise the care and diligence that a reasonable person in their positions would exercise. And as will be seen, that attitude and conduct persisted throughout 2006 and into 2007.

Findings in relation to issue 3 - advances in the period 24 august 2006 to 10 January 2007 502 Issue 3 raises the same issues as issue 2, though it concerns advances made during a different period, namely 24 August 2006 to 10 January 2007. Trilogy's pleaded case was that in failing to take steps to prevent advances being made by City Pacific to AGA during this period, each of Messrs Sullivan, Swan, Donaldson and McCormick failed to exercise the degree of care and diligence that a reasonable person would exercise if they were in the position of those officers and thereby contravened s 601FD(1)(b) of the Corporations Act. The crux of Trilogy's case was that all advances made to AGA during this period were above the approved limit of the AGA facility. Indeed, the advances made to AGA during this period were even beyond the provisional or interim facility limit purportedly approved by Mr Sullivan and Mr Swan in July or August 2006. 503 As at 24 August 2006, the situation in relation to the AGA facility was that City Pacific had offered, and AGA had accepted, a loan facility with a limit of $26 million. As has already been demonstrated, however, that loan facility was not put before or approved by the Credit Committee, contrary to the Compliance Plan, the Lending Manual and associated policies and procedures. As a result, on one view, the approved limit of the AGA facility, at least from the perspective of City Pacific, remained at $17.89 million. In any event, by 24 August 2006, when the offer was made and accepted, the $26 million limit had already been reached. No further proposal for an increase to the AGA facility limit was put to or approved by the Credit Committee until late December 2006. No offer of an increase to the AGA facility was made until 9 January 2007. Accordingly, all advances made by City Pacific to AGA during the period 24 August 2006 to 10 January 2007 were outside the approved limit, whatever the status of the 24 August 2006 approval and offer. 504 As with issue 2, there are essentially three key questions in relation to the alleged contraventions in relation to this period. First, did Messrs Sullivan, Swan, Donaldson and McCormick know that advances were made to AGA during this period and that those advances resulted in the AGA facility operating well outside its approved limit? Second, if they did not know that fact, would a reasonable person in their position, exercising care and diligence, have become aware of that fact. Third, if they did become aware, or if they would have become aware, had they exercised care and diligence, did they, by failing to prevent the further advances being made, fail to exercise the care and diligence that a reasonable person would exercise if in their position? 505 As with issue 2, it is necessary to consider the position of Mr Sullivan and Mr McCormick separately to the position of Mr Swan and Mr Donaldson.

Findings in relation to Mr Sullivan and Mr McCormick 506 The starting point in relation to Mr Sullivan and Mr McCormick is that, for the reasons already given, as at 24 August 2006 they knew that advances had been made to AGA in the period since late April 2006 that went beyond the approved facility limit of $17.89 million. They also knew that those further advances had already taken the balance of the facility up to $26 million, and that no proposal had been put to the Credit Committee approving a $26 million facility, let alone a facility for more than that. They accordingly knew that any advances made after 24 August 2006 would take the AGA loan over and above the facility limit, whether it be $17.89 million or $26 million. 507 Mr McCormick was plainly aware that City Pacific continued to advance funds to AGA during the period 24 August 2006 to 10 January 2007. He did not suggest otherwise in his evidence or submissions. He prepared, or caused to be prepared, and signed the majority of the Funds Transfer Request forms for the advances made during this period. He expressly or implicitly approved or authorised all the advances made during this period. He certainly did nothing to stop them. 508 Mr Sullivan also signed Funds Transfer Request forms for sizable advances made on 14 September, 13 October, and 21 and 29 November 2006. For the reasons already given, Mr Sullivan's evidence that he only saw and signed a single page of the Funds Transfer Request forms is rejected, as is his evidence that he did not know that those advances were made in circumstances where the facility limit would be or had already been exceeded. That evidence was not plausible and not credible. 509 The inference that Mr Sullivan well knew that advances beyond the facility limit were being made during this period is inescapable for a number of reasons. 510 First, the AGA facility was clearly on Mr Sullivan's radar given the terms of the SVP report and City Pacific's response to it. 511 Second, Mr Sullivan had been involved, with Mr McCormick, in offering to increase the AGA facility to $26 million (without seeking approval of the Credit Committee) and knew that the balance of the facility was already up to that limit at that stage. This was an additional reason why Mr Sullivan was likely to have had the AGA facility under extra scrutiny. 512 Third, in those circumstances, any suggestion by Mr Sullivan that he did not read or appreciate the significance of information concerning the balance of the AGA facility in the board papers for the period September 2006 to January 2007 is implausible to say the least. Likewise, any suggestion that he did not read and consider the detail in the documents accompanying the Funds Transfer Request forms that he signed is not credible. That information plainly revealed that the facility was operating beyond its approved limit 513 Fourth, in late December 2006, Mr Sullivan signed the backdated proposal to the Credit Committee to increase the AGA facility to $44.87 million. For the reasons referred to earlier and later in the context of issue 4, Mr Sullivan was well aware that the backdating of the proposal was intended to give the false impression that a facility limit of $44.87 million had been approved on 9 August 2006, and that therefore the advances made after that time were within the facility limit. It is fanciful to suggest that Mr Sullivan would have signed the backdated proposal without demur or query if he did not already know that the facility had been operating well beyond its approved limit since at least August 2006. 514 There is no doubt that both Mr Sullivan and Mr McCormick were in positions that would have allowed them to prevent any advances being made to AGA during the period from 24 August 2006 to 10 January 2007. Not only did they fail to take any steps to prevent further advances being made during that period, they effectively approved and facilitated the making of the advances that were made. 515 The evidence is clearest in relation to Mr McCormick. That is because, during this period, he signed most of the Funds Transfer Request forms that were required before the advances could be made. The Funds Transfer Requests were addressed to the custodian for the Fund, the Public Trustee of Queensland, and requested that the custodian transfer the funds to a nominated account. The signatories to the Funds Transfer Request forms certified, on behalf of City Pacific, that City Pacific held all documents necessary to support the transfer. 516 Mr McCormick, in his evidence, did not deny that as Lending Manager he facilitated and approved the advances during this period. Nor did he deny that the proper approval processes under the Compliance Plan and the Lending Manual were not followed in relation to these advances. He claimed, however, that this was as a result of oversight by the City Pacific "lending department", including himself and Mr Gillam. 517 That claim is rejected. There was no oversight in relation to these advances. Mr McCormick well knew that the AGA facility was operating above its approved limit. He made no attempt to seek formal approval from the Credit Committee in relation to the advances. The reason for that had nothing to do with oversight, or overwork, or any of the other excuses that Mr McCormick proffered in his evidence. The simple fact is that Mr McCormick well knew that any formal proposal to increase the AGA facility was doomed to fail if properly scrutinised. As discussed in more detail below in the context of the backdated December 2006 proposal, the fundamental problem in relation to any proposed increase to the AGA facility was the absence of any acceptable valuation of the Saddleback land, properly valued on an "as is" basis having regard to the actual zoning and permitted uses of the land, that was capable of supporting the existing level of the AGA loan during this period, let alone any increase to it. 518 In relation to Mr Sullivan, the inference that he effectively approved the making of further advances to AGA during this period, despite the absence of any approval from the Credit Committee, and despite the fact that the facility was operating above its approved limit, is compelling. It flows from the same evidence and facts that support the inference that he knew that the advances were being made during this period. Not only did Mr Sullivan sign a number of Funds Transfer Request forms in relation to advances to AGA during this period, but the evidence of his relationship with Mr McCormick and his conduct and stance in relation to the AGA facility throughout 2006 supports the inference that he implicitly, if not expressly, authorised and permitted Mr McCormick to make advances to AGA above the AGA facility limit throughout 2006. Why else, it might be asked rhetorically, would he willingly sign the backdated letter of offer to increase the facility limit to $26 million in August 2006, and the backdated proposal to increase the facility limit to $44.87 million in December 2006, other than to cover-up what he already well knew? 519 Mr Sullivan's evidence that he did not know of, or approve, the making of advances to AGA during this period is rejected as implausible and untruthful. For the reasons already given, Mr Sullivan was not a credible witness in relation to the events relating to the AGA facility during 2006. 520 Under cross-examination by Mr Sullivan's counsel, Mr McCormick agreed with the proposition that he was attempting to deceive Mr Sullivan about the true state of affairs in relation to the AGA facility. He also agreed with the proposition that he never told Mr Sullivan that he was advancing money to AGA in excess of the approved limit, though he maintained that Mr Sullivan was aware of the purported approval and offer to increase the facility limit to $26 million. He also maintained that he made Mr Sullivan aware of the advances through the drawdown requests that were being signed off. 521 Mr McCormick's acceptance of the proposition that he attempted to deceive Mr Sullivan and did not tell him that advances above the facility limit were being made during this period is rejected as untruthful, implausible and not credible. As has already been discussed in some detail, Mr McCormick's credibility in relation to this claim is completely undermined by his feigned inability to recall virtually any conversation that he had with Mr Sullivan during 2006. The evidence in relation to the purported increase of the facility limit to $26 million reveals that the relationship between Mr Sullivan and Mr McCormick was such that, perhaps understandably, Mr McCormick was unwilling to allow advances to be made above the approved limit of $17.89 million without Mr Sullivan's approval or authorisation. The evidence, considered as a whole, supports the inference that this aspect of the relationship between Mr Sullivan and Mr McCormick, and that state of affairs, persisted throughout 2006 and into 2007. The suggestion that Mr McCormick made these advances on a frolic of his own, and without the implicit, if not express, approval and authorisation of Mr Sullivan is simply not plausible. 522 Even if, contrary to these findings, Mr Sullivan did not know about, and did not approve, the making of the advances to AGA during this period, there could be no doubt that had Mr Sullivan exercised the degree of care and diligence that a reasonable person would exercise if they were in his position, he would have become aware of the advances. He would also have taken steps that were within his powers as Chief Executive Officer to prevent the making of the advances. 523 A reasonable person in Mr Sullivan's position, exercising care and diligence, would have known and appreciated that, by late August 2006, the AGA facility was already above its approved limit of $17.89 million and had reached the limit of the purported increase of the facility limit of $26 million. It would therefore be obvious that, in the absence of any Credit Committee approval to increase the facility limit, any advances made after late August 2006 would put the facility beyond its limit. A reasonable person in Mr Sullivan's position, exercising even the most basic care and diligence, would in those circumstances have immediately realised that any Funds Transfer Request forms that they were asked to sign in relation to the AGA facility meant that the facility was operating above its limit. 524 That alone would have put the reasonable person on notice about the AGA facility, even putting aside the past history of the AGA facility, including the SVP report and the events leading up to the purported increase of the facility limit to $26 million in July or August 2006. A reasonable person in Mr Sullivan's position in those circumstances would also have read the board papers and no doubt ascertained that further advances were being made to AGA during the period. There could be no doubt that a reasonable person in Mr Sullivan's position exercising care and diligence would, in those circumstances, use their powers as chief executive officer to put an immediate stop to any further advances to AGA. Of course, none of that occurred.

Contraventions by Mr Sullivan and Mr McCormick 525 In failing to prevent City Pacific from making advances to AGA during the period 23 August 2006 to 10 January 2007, Mr Sullivan and Mr McCormick failed to exercise the degree of care and diligence that a reasonable person would exercise if they were in the position of Mr Sullivan and Mr McCormick. They therefore contravened s 601FD(1)(b) of the Corporations Act. The failure of Mr Sullivan and Mr McCormick to exercise the required degree of care and diligence is demonstrated by the same matters addressed above in the context of the contraventions of s 601FD(1)(b) of the Corporations Act arising from the approval and offer of the $26 million facility to AGA, and the making of advances to AGA during the period 28 April 2006 to 23 August 2006. 526 In short, and at risk of repetition, they permitted advances to be made to AGA during this period in circumstances where the AGA facility was well beyond its approved limit and no proposal had been put to the Credit Committee. They also knew that SVP had raised issues concerning the AGA facility, that SVP had made recommendations concerning the SVP facility that had not been complied with and that City Pacific did not hold an acceptable "as is" valuation for the Saddleback land that would support any increase to the existing facility limit. Careful and diligent officers in the position of Mr Sullivan and Mr McCormick would not only have prevented any further advances being made to AGA during this period; they would have taken positive steps to have the AGA facility repaid.

Findings in relation to Mr Swan and Mr Donaldson 527 As was the case with issue 2, the position of Mr Swan and Mr Donaldson in relation to the advances made during this period is different and more difficult for Trilogy. Whilst Mr Swan and Mr Donaldson were members of the Credit Committee, they were non-executive directors and were not involved in the day-to-day management of City Pacific and the affairs of the Fund. There was no direct evidence that they were involved in any way in the making of any of the advances during this period, or even knew that they were being made. 528 As was the case with issue 2, the main question is whether it can be inferred that they were aware from the board papers that advances over the facility limit were made during this period. If not, the question becomes whether, in failing to discover that advances were being made to AGA above the approved AGA facility limit during this period, they failed to exercise the degree of care and diligence that a reasonable person in their positions would have exercised. If they either knew, or ought to have known, that such advances were being made during this period, in failing to prevent the making of those advances, did they fail to exercise the degree of care and diligence that a reasonable person in their positions would have exercised? 529 For essentially the same reasons as those given earlier in the context of issue 2, it cannot be comfortably or reasonably inferred that Mr Swan and Mr Donaldson had actual knowledge that advances were being made to AGA during the period 23 August 2006 to 10 January 2007 which put the facility above its approved limit. Nor can it be safely concluded that, in failing to discover and prevent the making of any such advances, Mr Swan and Mr Donaldson failed to exercise the degree of care and diligence that a reasonable person would exercise if they were in the position of Mr Swan and Mr Donaldson. 530 Trilogy's case against Mr Swan and Mr Donaldson in relation to the advances made during this period again essentially relied on the board papers that were provided to them in advance of the board meetings in September, October and November 2006. Those board papers included loan schedules that revealed the balance of the AGA facility as at August, September and October 2006. In each case, the balance was well above the approved limit of $17.89 million. Had Mr Swan and Mr Donaldson read those loan schedules, and specifically the line item relating to the AGA facility, and then cast their mind back to October 2005, when they approved the $17.89 million limit for the AGA facility, they would have appreciated that the AGA facility was operating well above that approved limit. 531 The case for Mr Swan and Mr Donaldson was again that, whilst they generally perused the board papers, they did not necessarily look at individual line items, such as the balances of specific loan facilities. Their consideration of the board papers did not descend to that level of detail unless it was necessary for the business to be transacted at the meeting. Nor, in their submission, was there anything in the board papers, or anything discussed at any of the board meetings, that suggested that any of the loan facilities, including the AGA facility, were operating above their approved limits. 532 Trilogy relied on two additional circumstantial facts as supporting an inference that Mr Swan and Mr Donaldson knew, or ought reasonably to have known, that the AGA facility was operating above its limit. First, there was evidence that on 25 August 2006, Mr McCormick sent Mr Swan and Mr Donaldson an email in which he asked them to sign the October 2005 proposal to increase the AGA facility to $17.89 million. Mr McCormick pointed out that whilst the proposal had been "actioned" in October 2005, it had at the time only been signed by him and Mr Sullivan. It needed to be signed by all members of the Credit Committee. The email also adverted to the fact that a new proposal and new valuation for the AGA facility was to be sent to Mr Swan and Mr Donaldson in the "next week or so". 533 Second, Trilogy relied on evidence that suggested that there was specific mention of the AGA facility at the November 2006 board meeting. The evidence was that, at that meeting, Mr McCormick stated that there would be a proposal to increase the AGA facility by $18 million that Mr Swan and Mr Donaldson would be asked to approve at some time in the following weeks. Trilogy submitted that the 25 August 2006 email and the reference to the AGA facility at the November 2006 board meeting was sufficient to draw the attention of Mr Swan and Mr Donaldson to the approved limit of the AGA facility. In Trilogy's submission, having had their attention drawn to the AGA facility, care and diligence would have required Mr Swan and Mr Donaldson to check the balance of the loan facility in the board papers. 534 Those additional matters do not, however, significantly advance Trilogy's case against Mr Swan and Mr Donaldson in relation to advances made to AGA during this period. 535 The board papers alone do not support the proposition that Mr Swan and Mr Donaldson were effectively put on notice that the balance of the AGA facility was above its approved limit. Nor did the failure of Mr Swan and Mr Donaldson to ascertain that fact from the board papers amount to a failure to exercise the degree of care and diligence that a reasonable person would exercise if in their positions. Whilst the balance of the AGA facility revealed by the loan schedule in each of the board papers was quite high, Mr Swan and Mr Donaldson were nonetheless entitled, at least up to the events of late December 2006, to rely on management, in particular Mr Sullivan and Mr McCormick, in relation to the conduct of individual loan accounts. For the reasons given earlier, whilst the SVP report had specifically identified AGA as a potential issue for the board, Mr Swan and Mr Donaldson were entitled to believe, and had no real reason to disbelieve, that the SVP recommendations had or were being attended to by management. Nothing occurred in the period August 2006 to December 2006 which disentitled them from reasonably relying on management in relation to the conduct of the loan book generally or the AGA facility specifically. 536 The 25 August 2006 email and the mention by Mr McCormick of a prospective proposal to increase the AGA facility limit at the November 2006 board meeting were not sufficient to put Mr Swan and Mr Donaldson on notice that there was an issue or problem with the AGA facility, let alone that the AGA facility was operating over its approved limit. It may have been different if Mr Swan and Mr Donaldson had been asked or required to make any decisions about, or even give any specific consideration to, the AGA facility during this period. However they were not required to give any particular attention to the AGA facility. They were simply asked to sign a proposal they had previously approved in October 2005, and given notice of a proposal that they might need to consider at some time in the future. Neither of those matters were of much significance in the circumstances. 537 It is true that, at least on their evidence, the lack of attention and scrutiny given by Mr Swan and Mr Donaldson to the board papers is somewhat disturbing, particularly given their qualifications and experience. On their evidence, it is difficult to see what, if any, value they added to the overall guidance and management of City Pacific and the Fund. It is indeed difficult to see much point in appointing such men of apparent experience to boards of companies, such as City Pacific, if they do little more than skim over the board papers and rely on management. Nevertheless, up until the events of late December 2006, there was no real cause for suspicion nor circumstances demanding the critical and detailed attention of Mr Swan and Mr Donaldson in relation to the AGA facility. Whilst, with the benefit of hindsight, the disparity between the approved AGA facility limit of $17.89 million and the line item for the balance of the AGA facility in the loan schedules within the board papers might seem obvious, it cannot be inferred that the disparity was obvious to Mr Swan and Mr Donaldson in the actual circumstances that existed in the period August 2006 to December 2006. 538 It follows that Trilogy has failed to make out its case that Mr Swan and Mr Donaldson contravened s 601FD(1)(b) of the Corporations Act in relation to the advances made to AGA during the period 23 August 2006 to 10 January 2007. For the reasons already given, the evidence is not such that it can be safely inferred that either Mr Swan or Mr Donaldson were aware that advances were being made to AGA during this period that resulted in the facility limit being exceeded. Nor would a careful and diligent non-executive director in their positions necessarily have ascertained that fact and taken steps to ensure that no further advances were made. In those circumstances, Mr Swan and Mr Donaldson did not fail to exercise the care and diligence that a reasonable person would exercise if they were in the their positions, in relation to the advances made to AGA during this period.

Findings in relation to issue 4 - the approval to increase the AGA facility limit to $44.87 million 539 Most of the primary facts in relation to the December 2006 proposal to increase the AGA facility to $44.87 million and its approval by each of Messrs Sullivan, Swan, Donaldson and McCormick were ultimately not in dispute. The following findings should be considered in conjunction with the earlier recitation of the ineluctable facts concerning the approval of this proposal. 540 Trilogy's case, to a certain extent, rested on the manifestly inadequate, if not false and misleading, purported valuation that Mr McCormick procured from Mr Kogler in late December 2006 so as to justify the facility limit increase. The obvious problems with that purported valuation, together with other apparent discrepancies and inadequacies in the proposal itself, not to mention its backdating, meant that the proposed increase in the facility limit did not comply with the Constitution, the Compliance Plan or the Lending Manual. In approving the proposal in those circumstances, Trilogy contended that each of the respondents failed to take any reasonable steps to ensure that City Pacific complied with the Constitution and the Compliance Plan and failed to exercise care and diligence. 541 As it turned out, in their evidence, each of Messrs Sullivan, Swan and Donaldson ultimately sought to distance themselves from the purported valuation that Mr McCormick relied on to support the proposal. None of them claimed to have relied on Mr Kogler's December 2006 valuation in approving the proposal. Given its terms, that is perhaps not surprising. Rather, each of Messrs Sullivan, Swan and Donaldson claimed, in effect, that they simply relied on Mr McCormick and the terms of the proposal itself. To that extent, they attempted to shift all the blame onto Mr McCormick and to maintain that they acted reasonably. In their final submissions, however, somewhat surprisingly, Messrs Sullivan, Swan and Donaldson appeared to contend that the purported valuation did support the proposal and that the approved loan facility had a LVR of less than 80 percent. For his part, Mr McCormick relied on the purported valuation as supporting the proposed loan increase.

Factual findings 542 Before dealing with the contested facts and issues in relation to the December 2006 proposal and approval, it is useful to recap and summarise the basic factual findings in relation to the state of the AGA facility at that time. This puts the events of late December 2006 and early January 2007 in context. Ten ineluctable facts stand out. 543 First, the last or most recent valuation of the Saddleback land that valued the land on the basis of its actual "as is" rural zoning was the September 2005 Valuation which valued the land at $24.975 million. 544 Second, the SVP report drew specific attention to issues concerning the valuation and zoning of the Saddleback land and expressed the view that the AGA facility was outside the Fund's "current policy areas". SVP was an independent expert that City Pacific was effectively compelled by ASIC to appoint to consider, amongst other things, City Pacific's loan book and compliance with the Constitution and the Compliance Plan. SVP specifically recommended that the AGA facility be repaid if the Saddleback land was not confirmed to be included under the Urban Footprint of the South East Queensland Regional Plan by 31 December 2005. It also recommended that a valuation be obtained from a different valuer. Each of the respondents was aware of the SVP report and its recommendations. 545 Third, the last or most recent facility limit approved by the Credit Committee was $17.89 million. That facility limit was approved by each of Messrs Sullivan, Swan, Donaldson and McCormick in early October 2005, within days of the receipt by City Pacific of the SVP report. The approval given by the Credit Committee in October 2005 was premised on the Saddleback land being valued at $26.775 million. No such valuation existed at the time the proposal was approved. Whilst this valuation figure was supposed to be subsequently verified, no valuation valuing the land at $26.775 million was ever received. Nor did any member of the Credit Committee ever make any subsequent enquiries to ascertain whether any such valuation was received. 546 Fourth, as at 31 December 2005, none of the SVP recommendations had been implemented by City Pacific. No confirmation that the land had been included in the Urban Footprint of the South East Queensland Regional Plan was received. No steps were taken to have the loan repaid or refinanced. No attempt was made to obtain a valuation from a new valuer. In February 2006, Mr Sullivan misled ASIC in relation to the implementation of SVP's recommendations concerning the AGA facility in a letter that was copied to the board of directors of City Pacific. 547 Fifth, in March 2006, Mr Kogler, the valuer at PRP who had been responsible for all previous valuations of the Saddleback land, was instructed to value the Saddleback land effectively on the basis that a rezoning approval given by the Council in 1989 and amended in 1992 was legally effective, notwithstanding the fact that the approval was never gazetted, was therefore legally ineffective, and the Council had subsequently refused AGA's application to progress the rezoning to the gazettal stage. Then, in April 2006, Mr Kogler was instructed to update the March 2006 Valuation on an even more artificial basis. He was effectively instructed to assume that the proposed Saddleback project had been declared State Significant and the land had been included in the Urban Footprint of the South East Queensland Regional Plan. Neither of those events had occurred. Nor was there anything that suggested that either of those events was likely to occur in the near future. Anyone who took the time to read the March 2006 Valuation and the Updated March 2006 Valuation, or who conducted even the most cursory inquiries concerning the zoning and permitted uses of the Saddleback land, would have appreciated that Mr Kogler's valuations were based on manifestly unrealistic and misleading assumptions. They were not worth the paper they were written on. 548 Sixth, from 28 April 2006, the AGA facility was permitted to exceed the approved limit. Mr Sullivan and Mr McCormick, by signing Funds Transfer Request forms after that date and throughout 2006, permitted numerous advances to be made to AGA that took the balance of the loan well beyond the approved limit. Those advances were not approved by the Credit Committee. No proposal to increase the facility limit was put to the Credit Committee for approval. 549 Seventh, anyone who had taken the time to carefully and diligently read the financial information provided to the directors in the board papers compiled for the purposes of meetings of the board of directors could have ascertained that significant advances were being made to AGA throughout 2006 and that the balance of the loan was well beyond $17.89 million. Each of Messrs Sullivan, Swan and Donaldson maintained that they did not read the fine detail of the financial information that was put before the board. Mr Donaldson and Mr Swan maintained that they relied on management. 550 Eighth, in July 2006, the Fund's compliance plan auditors drew the attention of Mr McCormick to the fact that the balance of the AGA facility was outside the facility limit. In August 2006, a firm conducting due diligence on behalf of a prospective purchaser of the Fund's loan book asked Mr Sullivan if it could inspect the AGA loan file. 551 Ninth, in July and August 2006, Mr McCormick prepared, and Mr Sullivan in due course signed, documents that gave the misleading impression that the AGA facility limit had been increased to $26 million on 28 April 2006. That was done to mislead the compliance plan auditor, in the first instance, and then the firm conducting due diligence. The purported approval, by Mr Sullivan and Mr McCormick, of the increase of the AGA facility limit to $26 million did not, on any view, comply with City Pacific's mandated loan policies and procedures. Amongst other things, it was not approved by all members of the Credit Committee. The increase was also not supported by an acceptable valuation and did not maintain a prudent lending ratio. 552 Tenth, by December 2006, the balance of the AGA facility, as reported to the board in the board papers, was $45,990,668.80. That was approximately $27 million above the limit approved by the Credit Committee in October 2005, and almost $20 million more than the $26 million facility limit purported to be approved by Mr Sullivan and Mr McCormick, but not the Credit Committee, in July or August 2006 (though backdated to give the impression that this approval had occurred in April 2006). 553 It is readily apparent from this short summary that, by December 2006, there were serious and fundamental problems with the AGA facility. That was not lost on Mr McCormick. Email correspondence between him and AGA during the latter part of 2006 showed an increasing sense of concern and desperation, if not panic, on the part of Mr McCormick. He was pressing Mr Gore to provide confirmation and evidence that the Saddleback land had in fact been declared State Significant, or had been included in the Urban Footprint of the South East Queensland Regional Plan, so as to justify an increased valuation that would support a loan of the magnitude that the AGA facility had already reached. That confirmation was not forthcoming. The correspondence also revealed that Mr McCormick was conscious that any external scrutiny of the AGA loan would reveal the fundamental problems. Something had to be done. 554 Eventually, Mr McCormick, who was apparently unable to obtain any meaningful assistance from Mr Gore, took matters into his own hands. On 21 December 2006, he instructed Mr Kogler to provide an updated "as is" valuation "taking into consideration the recent Steve [State] Government regulatory changes". In his evidence, Mr McCormick was unable to recall exactly what the supposed regulatory changes were. They were not spelt out in the letter of instructions. Nevertheless, the response from Mr Kogler was swift. Within half an hour, Mr Kogler sent Mr McCormick a two-page letter purporting to be an update or confirmation of the Updated March 2006 Valuation of $102.4 million. 555 Mr Kogler's letter of 21 December 2006 was nothing short of fanciful, if not bordering on fraudulent. 556 The following points can be made about the letter. 557 First, the September 2005 Valuation prepared by Mr Kogler valued the Saddleback land at $24.975 million on the basis that the highest and best use of the land was for rural pursuits as a holding proposition pending future subdivision approval. As at 21 December 2006, the zoning of the Saddleback land had not changed at all from the position as at September 2005. The Council had emphatically resisted and rejected any attempt by AGA to reinvigorate and pursue the 1989/1992 rezoning approval. Whilst an appeal from that refusal had been initiated, it does not appear to have been pursued with any vigour or diligence. There was certainly no evidence to suggest that the appeal was going anywhere. The Saddleback land had not been declared State Significant. The land had not been declared to be part of the Urban Footprint of the South East Queensland Regional Plan. There was no evidence that either of those matters were seriously in prospect, let alone likely to occur as at 21 December 2006. Indeed, there was nothing to suggest that any formal steps towards either of those matters had even been initiated. 558 Second, the valuation purportedly confirmed in Mr Kogler's letter was an increase of almost $77.5 million from the September 2005 Valuation. The valuation represented an increase of $38.3 million from the March 2006 Valuation prepared by Mr Kogler. That valuation valued the Saddleback land on the basis that AGA held the "major development approval" arising from the 1989/1992 rezoning approval. It assumed that the approval was legally effective. Mr Kogler's 21 December 2006 letter makes no reference to the 1989/1992 zoning approval. He seems to have given up on that aspect of the matter. Mr Kogler's Updated March 2006 Valuation valued Saddleback at $102.4 million on the assumption that the land had been declared as State Significant and/or had been included in the Urban Footprint of the South East Queensland Regional Plan. Staggeringly, in his 21 December 2006 letter, Mr Kogler effectively converted that assumption into reality. 559 The basis upon which Mr Kogler converted the assumption in the Updated March 2006 Valuation into reality for the purposes of his 21 December 2006 letter were at best flimsy and at worst preposterous, if not bordering on fraudulent. To be sure, the following supposed "developments" were said by Mr Kogler to support an increase of the valuation of the Saddleback land by $77.5 million. First, there had supposedly been some unspecified amendments to some unspecified legislation relating to the South East Queensland Regional Plan which improved the "workability" of that plan. Second, Mr Kogler had been provided with documents (it is not clear by whom, or what they were) which supposedly indicated that there had been discussions and meetings with the Department of Local Government, Planning, Sport and Recreation regarding the "progress of formalising the application for approval of the site and gaining equestrian industry support". It is not clear who attended those meetings. In any event, if anything that statement revealed that no formal application of any sort had even been made as at 21 December 2006. Third, there had been an Equestrian Design Forum held on the site on 9 November 2006. The significance of that forum was not further explored by Mr Kogler. Fourth, the Equestrian Federation of Australia had resolved to support the Seven Mountains Project. It is not known what clout the Equestrian Federation may have had with the Queensland Government. 560 Mr Kogler, of course, did not give evidence. The clear and inescapable inference that flows from his March 2006 reports (including the Updated March 2006 Valuation), his 21 December 2006 letter and his communications with Mr McCormick is that, at least when it came to AGA and Mr Gore, Mr Kogler lacked the objectivity and independence that would ordinarily be expected of a registered valuer. He appears to have been Mr Gore's valuer of choice. The reason for that seems to have been fairly obvious. Mr Kogler appears to have been willing to prepare reports on the basis of assumptions that did not reflect reality or, in the case of the letter of 21 December 2006, on the basis of the most flimsy evidence, so long as they came up with a figure that supported Mr Gore's loan application. Mr McCormick, it seems, came to appreciate this of Mr Kogler. It is for that reason he approached Mr Kogler on 21 December 2006. The fact that Mr Kogler was able to produce a letter within half an hour says much about the relationship between Messrs Kogler, Gore and McCormick, and much about Mr Kogler's objectivity. 561 Any objective reader of Mr Kogler's 21 December 2006 letter would have seen it for what it was. All the more so if the reader had any experience in property development or mortgage finance. It is perhaps for that reason that each of Messrs Sullivan, Swan and Donaldson ultimately disclaimed any reliance whatsoever on the 21 December 2006 letter, at least in their evidence. Mr McCormick, having procured the letter from Mr Kogler, and having prepared the proposal to the Credit Committee based on it, had to stick by it. 562 The proposal that Mr McCormick prepared for approval by the Credit Committee was also, on its face, problematic to say the very least. It contained a number of discrepancies that would or should have been apparent even on the most cursory consideration of its contents. 563 First, the proposal represented that the current approved limit of the AGA facility was $26 million. That was false, or at least misleading. The last approval given by the Credit Committee in relation to the AGA facility was the October 2005 approval which set a limit of $17.89 million. The approval for the facility to be increased to $26 million purportedly given by Mr Sullivan and Mr McCormick in July or August 2006 was not put to the Credit Committee and, at least on their version of events, was at most "provisional" or "interim". 564 Second, the background information included in the proposal misleadingly referred to provisional approval having been given on 28 April 2006 to increase the limit to $50 million upon confirmation of the land being declared State Significant or included in the Urban Footprint of the South East Queensland Regional Plan, and $36 million in the interim. Again, no such provisional approval was ever given by the Credit Committee, the reference to 28 April 2006 was false and the supposed interim limit of $36 million was incorrect as the facility ultimately offered to AGA was only for $26 million. 565 Third, the first page of the proposal represented that the "previous" value of the Saddleback land was $64.1 million and the "current" value was $102.4 million. The previous value must have been intended to be a reference to either the March 2006 Valuation, or the Updated March 2006 Valuation. For the reasons already given, those valuations were based on assumptions about the permitted uses of the land that did not reflect the actual zoning and permitted uses of the land. Neither of those valuations had ever been submitted to the Credit Committee before, or even referred to in any past proposal to the Credit Committee. The "current" value was either a reference to the conditional valuation referred to in the Updated March 2006 Valuation, or a reference to Mr Kogler's letter of 21 December 2006. Enough has already been said about the credibility of the valuation figure referred to in that letter. 566 Fourth, the background information stated that the valuation figure of $102.4 million depended on the Saddleback land being declared State Significant or being included in the Urban Footprint under the South East Queensland Regional Plan. Nowhere in the proposal was it stated in terms that either of those events had occurred or were even in prospect. There was, however, a further reference to State Significance in a "Special Condition" contained in the proposal. That special condition limited the facility to "70% ($44,870,000) of the current $64,100,000 valuation until such time as State Significance is passed through legislation and the $102,400,000 valuation figure can be relied upon.". Thus, the background information itself cast doubt on the supposed current valuation figure of $102.4 million which was included on the front page of the proposal. The reference to State Significance being "passed through legislation" was at best unclear. The limit of $44.87 million referred to in the special condition had effectively already been exceeded by the time the proposal was prepared and put to the Credit Committee. 567 Fifth, the proposal did not include any certification by the Lending Manager that an acceptable valuation of the property had been received. The need for a specific certification to that effect before a proposal was approved was a specific recommendation contained in the SVP report that City Pacific had implemented in the Lending Manual. Mr McCormick had obviously decided to ignore it. 568 Sixth, the previous LVR was stated as being 40.6 percent, and the current LVR was said to be 53.7 percent. Those figures would appear to have been based on the specified previous and current valuations. They were accordingly as doubtful and dubious as the valuation figures themselves. 569 Seventh, the "[p]resent [p]osition" of the facility - the current balance - was stated to be $23.525 million. That statement was misleading. That was the balance of the facility as at 9 August 2006. When the proposal was prepared and sent to the Credit Committee in late December 2006, the balance of the facility was already $46.141 million. That would have been apparent to anyone who had read the loan schedules that were included in the board papers for the board meetings held between May and December 2006. 570 Eighth, the purpose of the loan was stated to be to "allow all other loans in the Gore Group to be restructured". That would suggest that any proper consideration of the proposal would have required consideration of the overall exposure to the Gore Group. The proposal referred to an attached schedule that supposedly included details of the group exposure. No schedule was attached to the proposal or provided to the Credit Committee. It is not clear if one even existed. There was no evidence that any proposal to restructure the Gore Group loans was ever put to the Credit Committee. 571 Ninth, when the proposal was presented to the members of the Credit Committee, the date 9 August 2006 had already been handwritten alongside the space for their signatures. There could be no doubt whatsoever that the proposal had been prepared with the deliberate intention of misleadingly representing that the proposal had been put to and approved by the Credit Committee on 9 August 2006. Mr Gillam, who appears to have prepared the proposal on Mr McCormick's instructions, even went to the trouble of creating a "footer" to the document that contained the date 9 August 2006. 572 Tenth, there was no meeting or discussion between the members of the Credit Committee in relation to the proposal. Nor was any such meeting or discussion ever intended. 573 As has already been touched on, the evidence of each of Messrs Sullivan, Swan, Donaldson and McCormick in relation to this proposal was, to say the very least, unsatisfactory in many respects. It is unnecessary to rehearse the findings already made in relation to that evidence.

Factual findings in relation to Mr McCormick 574 Mr McCormick was ultimately responsible for preparing the proposal. In his affidavit evidence, he suggested that the proposal was supported by Mr Kogler's 21 December 2006 valuation. He maintained that he considered that letter to be an "as is" valuation of the Saddleback land of $102.4 million. His evidence was that this valuation was arrived at by Mr Kogler "through a different mechanism", apparently being the planning law developments referred to in the letter. The suggestion that an experienced lending manager like Mr McCormick could genuinely believe Mr Kogler's letter to be a credible and bona fide "as is" valuation is fanciful. In cross-examination, Mr McCormick was unable to give any credible evidence to support his claim that he believed this letter to constitute an "as is" valuation capable of supporting the loan proposal. He was unable to say what "planning law developments" had occurred to justify the supposedly massive increase in the value of the property. He ultimately conceded that he no longer regarded Mr Kogler's letter to be a valuation. His evidence that he believed it was at the time is rejected as a falsehood. 575 Nor was Mr McCormick willing or able to give any credible evidence explaining any of the discrepancies in the proposal itself. The best that Mr McCormick could come up with was that the proposal was "sort of tidying up paperwork" and that backdating approvals was not unusual. He ultimately accepted that the proposal gave a completely false impression of the AGA facility at the time it was prepared. 576 Mr McCormick's half-baked attempts to explain or justify the proposal were, at best, implausible and, at worst, untruthful. The reality is that, as he had done in July 2006, Mr McCormick was prepared in December 2006 to falsify the AGA loan file to cover-up the fact that advances had continued to be made to AGA over the preceding months, which took the loan well above its approved limit. Mr McCormick well knew that the valuations for the Saddleback land did not support a loan of $26 million, let alone a loan of $44.87 million or $55 million. He knew that the Saddleback land had not been rezoned, had not been declared State Significant and had not been included in the Urban Footprint under the South East Queensland Regional Plan. He accordingly knew that Mr Kogler's purported valuations were based on false and unrealistic assumptions, and were, at best, hypothetical. He therefore knew that, on any view, the loan to AGA the subject of the proposal did not meet City Pacific's lending criteria as set out in the Constitution, the Compliance Plan, the PDS and the Lending Manual. He was nonetheless prepared to put the proposal up to the other members of the Credit Committee for their approval. He was, to an extent, banking on the fact that the other members of the Credit Committee either well knew what he was up to, or would not care, or at the very least would not give the proposal any independent scrutiny whatsoever. Mr McCormick was safe to proceed on that basis.

Factual findings in relation to Mr Sullivan 577 Mr Sullivan's evidence in relation to the circumstances in which he came to approve and sign the proposal was no better than Mr McCormick's. In his affidavit evidence, Mr Sullivan claimed that the proposal was handed to him not by Mr McCormick, but by another officer from City Pacific's loan department, Mr Alistair McCosh. Mr McCosh told him that the proposal had "fallen through the cracks" and that "[w]e have a letter confirming $102M, but we are only going to 70% of $64M". Mr McCosh also showed Mr Sullivan Mr Kogler's letter of 21 December 2006. Mr Sullivan's evidence was that "[r]elying on that letter and consistent with the conservative approach I had adopted in April 2006, I considered that it was reasonable to increase the facility from 40% of $64.1M (namely $26M) to 70% of $64.1M (namely $44.87M)". The reference to $64.1 million was a reference to the valuation figure in the March 2006 Valuation that Mr Sullivan said that he had seen. The reference to April 2006 was a reference to Mr Sullivan's purported approval of an increase of the facility limit to $26 million. As has already been seen, the increase of the facility limit to $26 million was never put to the Credit Committee and Mr Sullivan did not give any such approval in April 2006. 578 In his affidavit evidence, Mr Sullivan accepted that he signed the proposal on 21 December 2006, but made no attempt to explain why he signed it next to the date 9 August 2006. He gave no indication of having given the loan proposal any further scrutiny. 579 In cross-examination, Mr Sullivan suggested that he only read the first page of the proposal and did not read "all the details" because he was "pretty familiar with the details of the transaction". Exactly how he obtained that familiarity was somewhat unclear. It may have been from the brief explanation given by Mr McCosh, though Mr Sullivan subsequently referred to "documentation that was floating around". Given the size of the proposed loan, if Mr Sullivan was to be believed, his cursory consideration of the proposal was extraordinary. 580 Mr Sullivan ultimately accepted that by signing the proposal he was falsely representing that he had approved it on 9 August 2006. He admitted that he knew this at the time. Mr Sullivan also said that he did not make any inquiry to ascertain the balance of the AGA loan facility as at 21 December 2006. He claimed that he understood that the facility would have been at around the "26 million mark". 581 In relation to the valuation of the Saddleback land, Mr Sullivan said that he understood the reference in the proposal to the "previous" value of $64.1 million was a reference to Mr Kogler's March 2006 "hypothetical valuation". He did not, however, ask to see a copy of that valuation. As for Mr Kogler's letter of 21 December 2006, Mr Sullivan appeared to retreat from his affidavit evidence that he relied on that letter. He said that the letter gave him "comfort" to increase the loan to 70 percent of the $64.1 million valuation "on an interim basis". Given that Mr Sullivan claimed to have only read the first page of the proposal, and not the detail or background information on the later pages, it is unclear how he was aware that this was in fact the proposal. Mr Sullivan claimed that he did not notice that the proposal did not contain the Lending Manager's certification in relation to the valuation and did not consider that this was relevant. 582 If Mr Sullivan's evidence concerning his consideration of this proposal is accepted, the lack of any proper scrutiny of the proposal is remarkable. The proposal involved the increase of a loan facility by almost $20 million. This was in respect of a loan facility that had already been singled out by SVP as potentially problematic. Yet if Mr Sullivan's evidence is to be believed, he read only the first page of the proposal, neglected to read the "detail", did not ask to see, but nonetheless relied on, an earlier "hypothetical valuation" (the March 2006 Valuation) and took "comfort" from Mr Kogler's letter of 21 December 2006 which, on its face, was manifestly deficient and could not seriously have been regarded as a valuation at all. 583 The reality is that Mr Sullivan well knew what Mr McCormick was up to in preparing this proposal. He well knew that it was a false and misleading document created to "tidy up" the loan file so that, if scrutinised by City Pacific's compliance auditor or any other external party, it would appear that the Credit Committee had approved a facility limit of $44.87 million or $55 million on 9 August 2006. "Tidy-up" in that context meant mislead. It was necessary to mislead the auditor because Mr Sullivan well knew that over the previous months, AGA had been permitted to draw down on the facility so that, by 21 December 2006, the balance of the facility exceeded the approved limit by over $20 million. As an experienced property developer, Mr Sullivan well knew that the proposal was not supported by any proper valuations of the Saddleback land. It could not have escaped Mr Sullivan's attention, given his experience, that Mr Kogler's March 2006 Valuation and his letter of 21 December 2006 were not worth the paper they were written on.

Factual findings in relation to Mr Donaldson 584 In his affidavit evidence, Mr Donaldson accepted that he signed the proposal on 22 December 2006 alongside the date 9 August 2006. He did not recall why he did not change that date. He claimed that he signed the proposal as a member of City Pacific's board of directors for a number of reasons, including that the proposal was for a loan that exceeded $50 million. Mr Donaldson said virtually nothing in his affidavit in relation to any scrutiny that he gave to the loan proposal. He does not suggest that he saw, or asked to see, Mr Kogler's letter of 21 December 2006. He said that at the time he signed the proposal, he had not seen either the March 2006 Valuation or the Updated March 2006 Valuation. He claimed that he "relied strongly" on Mr Sullivan and Mr McCormick to advise him if there were any "problems or issues" with the proposal and that none of them advised him of any problems. The impression one gets from Mr Donaldson's affidavit evidence is that he gave the proposal absolutely no independent scrutiny whatsoever. That is despite the fact that it was for a very large increase to an existing loan and that the proposal was obviously backdated. 585 In cross-examination, Mr Donaldson accepted that when he received the proposal attached to an email from Mr McCormick he knew that he was being asked to sign a proposal that had been backdated. That concerned him, but he did not ask Mr McCormick why the proposal was backdated. Mr Donaldson gave confused and confusing evidence in an attempt to explain why he signed the proposal next to the date 9 August 2006. That evidence has been discussed earlier. It reflected very poorly on Mr Donaldson's credibility as a witness. He was ultimately unable to give any rational explanation for how he came to sign the proposal containing, as it did, a false date. 586 Mr Donaldson initially accepted that he understood that the limit for the AGA facility remained at $17.89 million throughout 2006. When initially taken to the part of the proposal that recorded the current loan amount as being $26 million, Mr Donaldson said that this meant nothing to him. He subsequently accepted that he understood that this was the approved limit. He claimed, however, not to have appreciated at the time that the amount stated on the proposal was more than the amount that he had approved as a member of the Credit Committee. He did not make any inquiry as to how the limit had become $26 million. 587 In relation to the valuation figures, Mr Donaldson confirmed that he had not seen any valuation that valued the Saddleback land at $64.1 million or $102.4 million. Nor did he ask to see any valuation, or make any inquiries or ask any questions about those valuation figures. 588 Mr Donaldson's evidence concerning the fact that the proposal did not contain the Lending Manager's certification of the value of the land was somewhat inconsistent and confusing. Mr Donaldson had earlier confirmed that he was aware of the SVP recommendation that there be a separate certification by the lending manager in relation to the valuation. He believed that recommendation had been implemented. When questioned about the absence of any certification on this proposal, Mr Donaldson initially said that the absence of any certification was not clear to him. He then said that he overlooked the absence of a certification. Then he claimed that he thought that he had the certification because the Lending Manager had signed the first page of the proposal. That evidence was inconsistent with his earlier evidence concerning the specific SVP recommendation on that very issue. 589 Mr Donaldson was also questioned about the discrepancies in the proposal. He claimed either not to have read or studied parts of the proposal, or not to have appreciated some of the detail contained in it. For example, when the discrepancy between the statement on the front page of the proposal that the current loan was $26 million, and the statement on the second page that interim approval had been given to increase the limit to $36 million was pointed out to him, Mr Donaldson claimed not to have read that part of the proposal. Likewise, he claimed not to have read that part of the proposal that recorded the current balance of the facility. That figure, of course, was also greater than $17.89 million, the amount that Mr Donaldson had earlier agreed he believed was the approved limit of the facility. Mr Donaldson's evidence was as follows: Yes, but I - I - I've been open and honest, and said that there were parts that I did not read, because the figures would mean nothing to me, because I did not have a complete knowledge of the loan book and could not be expected to as an independent director. 590 That is a somewhat startling admission for a man of Mr Donaldson's qualifications and experience who was considering a proposal to increase a loan facility by over $20 million. The suggestion that the figures would have meant nothing to him was nothing short of nonsense. 591 Overall, the impression gained from Mr Donaldson's evidence was that he gave the proposal no independent scrutiny at all. On his own evidence he did not read the entire document. He made no attempt to analyse the information contained in the proposal, made no inquiries in relation to any of the information, asked to see no supporting documents such as valuations, and asked no questions of anyone. He did not notice or appreciate the obvious discrepancies between this proposal and the loan that he had approved as a member of the Credit Committee in October 2005, and either did not notice or did not appreciate any of the other discrepancies and inconsistencies within the proposal itself. Given the nature of the proposal, and given that the AGA facility had earlier been singled out by SVP as a problematic facility, that lack of scrutiny was nothing short of extraordinary. 592 There are essentially three possible explanations for Mr Donaldson's lack of scrutiny of this proposal. The first is that he did not see it as part of his duty or responsibility to independently scrutinise or analyse the proposal. He simply accepted the recommendation and relied on the fact that others had approved it. The difficulty with that possible scenario is that it leaves unexplained Mr Donaldson's willingness to sign the proposal even though it was obviously backdated. One would have thought that this fact alone would have prompted Mr Donaldson to look more closely at this particular proposal. In any event, if this scenario be the case, Mr Donaldon's conduct amounted to a serious dereliction of his duties and responsibilities as a director of a responsible entity of a large managed investment scheme. It amounted to a total disregard of his duties and responsibilities as a member of the Credit Committee under the Compliance Plan and the Lending Manual. If he was not required to scrutinise, analyse and form an independent view about loan proposals, what was the point of him being on the Credit Committee? 593 The second possible explanation is that Mr Donaldson knew that this proposal was nothing more than an exercise in covering up the fact that advances had already been made to AGA that took the balance of the loan well above its approved limit. That would perhaps explain why Mr Donaldson did not query the backdating and did not (on his evidence) scrutinise the proposal, notice the apparent issues and discrepancies in the information contained in the proposal, or ask any questions. That, of course, would make Mr Donaldson a party to Mr Sullivan's and Mr McCormick's deceit. 594 The third possible scenario lies somewhere between the first two. This scenario is that Mr Donaldson was aware of issues concerning the AGA facility, both as a result of the SVP report and perhaps as a result of discussions that occurred at the November board meeting when proposed "deals" that were in the "pipeline" were raised by Mr McCormick. In any event, as has been seen, the issues and discrepancies with the AGA facility were readily apparent from even a cursory reading of the proposal. The obvious backdating of the proposal also obviously raised concerns for Mr Donaldson. Yet rather than independently scrutinizing and analysing the proposal and raising those issues with the other members of the Credit Committee, Mr Donaldson simply turned a blind eye to the issues and discrepancies. If that was the case, it would again amount to a serious dereliction of Mr Donaldson's duties as a director and member of the Credit Committee. 595 The difficult in determining which of these three scenarios was the most likely is that, for the reasons already given, Mr Donaldson's evidence concerning the circumstances in which he came to sign and approve the proposal in December was not full, frank and honest. The evidence he did give was implausible and not credible. Given that each of the scenarios would involve a serious departure from the standards of care and diligence required of an officer in Mr Donaldson's position, it is perhaps unnecessary to decide which scenario was the most likely. On balance, however, the third scenario was perhaps the most likely.

Factual findings in relation to Mr Swan 596 The evidence and position of Mr Swan was in many respects similar to that of Mr Donaldson. Mr Swan's affidavit evidence said very little about the circumstances and basis upon which he approved the proposal. Mr Swan was sent the proposal on 22 December 2006 as an attachment to an email from Mr McCormick which suggested that the proposal had "slipped between the cracks". Mr Swan did not sign the proposal immediately. On his return from leave in January 2007, Mr Swan received an email from Mr Gillam reminding him about the proposal. He signed the proposal on 11 January 2007 and wrote "ratified 11/01/07" next to his signature. He said he did that because "the document itself showed the date 9 August 2006 on the same line where my signature was to go". Mr Swan's affidavit evidence about signing the proposal was as follows: When I reviewed the three-page AGA document on 11 January 2007, I noted that it had already been signed by each of Messrs Gillam, McCormick, Sullivan and Trathen, apparently on 9 August 2006. Three of those as I understood it (McCormick, Sullivan and Trathen) were members of the Credit Committee. It is difficult for me now in 2013 to be precisely sure what went through my mind in January 2007 as to the basis on which I was being asked to sign, and did sign, this document. However, in the light of the 30 November 2006 Board minute, I believe that my understanding was that my signed approval was being sought as a member of the Board, on the basis that the upper end of the facility was now capable of reaching above $50M. 597 Like the other signatories to the proposal, Mr Swan did not cross out the date 9 August 2006 which appeared adjacent to the box where he placed his signature. Unlike the other signatories, Mr Swan added the word "ratified" and the date 11 January 2007, so at least there was some indication that he did not sign it on 9 August 2006. The use by Mr Swan of the word "ratified" was, however, puzzling. In signing the proposal, Mr Swan was indicating his approval of the proposal. Mr Swan was not ratifying anything. Specifically, he was not ratifying an approval he had given on 9 August 2006. Nor was he ratifying a decision made by others on 9 August 2006, though that appears to be what Mr Swan believed he was doing. 598 In cross-examination, Mr Swan explained his use of the word "ratified" on the basis that he understood that he was acknowledging that the other members of the Credit Committee, other than Mr Donaldson, had approved the proposal on 9 August 2006. The difficulty for Mr Swan, however, is that he had no basis for the belief or understanding that the proposal had been approved by others on 9 August 2006, other than that the document contained that date next to their signatures. That date was also included next to his signature. Mr Swan did not ask, Mr McCormick, or anyone else, why he was being asked to sign a document dated 9 August 2006, or what Mr McCormick meant by the statement that the proposal had "slipped between the cracks". Nor did he take up the suggestion in Mr McCormick's email that he could contact Mr Gillam who would be able to answer any questions. Mr Swan claimed in his evidence that he did not recall any heightened awareness concerning the proposal arising from the fact that he was being asked to sign what appeared to be a backdated document. That claim stands in stark contrast to Mr Donaldson's evidence and is, to say the very least, surprising and difficult to accept. 599 At the time that he signed the proposal, Mr Swan believed that the approved limit for the AGA loan was $17.89 million. In his evidence, however, he maintained that it did not concern him that the proposal recorded that the current loan amount was $26 million. He "simply [did not] consider that position". Nor, it seems, did he recall turning his mind to the fact that the proposal stated that the "present position" of the loan was $23.525 million. The fact that this indicated that advances had been made over the approved limit was, on Mr Swan's evidence, not evident to him. 600 In relation to the valuation figures on the proposal, Mr Swan's evidence was that he never saw a valuation in relation to the Saddleback land, did not know upon what basis the valuation of $64.1 million referred to in the proposal had been prepared, including the zoning of the land upon which the valuation was based, and did not make any inquiries about the basis of the valuation or the zoning of the land. That was despite the fact that he had "in the back of [his] mind" the concerns expressed by SVP and its recommendations about the valuation of the Saddleback land. Mr Swan was aware that the valuation of the land in October 2005 was $26.775 million. The dramatic increase in the valuation to either $64.1 million or $102.4 million apparently did not concern him or give him cause to initiate any inquiries about the basis of the valuation. 601 Overall, the impression gained from Mr Swan's evidence, if believed, was that he did not turn his mind at all to the valuation of the Saddleback land when he considered the proposal. In the circumstances, that is very difficult to accept. Less than one year earlier, SVP had singled out the AGA facility and raised issues concerning the valuation and current zoning of the Saddleback land. Whilst it is perhaps plausible that Mr Swan accepted the assurances of management at the time that they were dealing with the SVP recommendations, including in relation to the AGA facility, it is not plausible that the issues raised by SVP in relation to the AGA facility, and in particular the zoning and valuation of the Saddleback land, would not have come to the very forefront of Mr Swan's mind when he read the proposal. 602 If, as he claimed, Mr Swan read the proposal, the significant and largely unexplained increase in the valuation since October 2005 would or should alone have prompted some level of concern. The level of concern would have been heightened by the limited and somewhat inconsistent explanation given in the background information about the valuation, which raised zoning issues relating to a potential declaration of State Significance and inclusion of the land in the Urban Footprint of a development plan. It would or should have been heightened still further by the reference in this part of the proposal to the supposed approval of a provisional increase of the facility limit to $50 million, and an interim increase to $36 million, purportedly given on 28 April 2006. It is difficult to accept that Mr Swan did not turn his mind to the fact that as a member of the Credit Committee he should have been, but was not, consulted about any such purported approval. 603 Also on the question of the valuation of the land, Mr Swan gave somewhat confusing and inconsistent evidence about the fact that the proposal did not include any certification given by the Lending Manager that the valuation was acceptable. Mr Swan agreed that in the ordinary course he understood that such certification was required by the Lending Manager, but appeared to suggest that it was not incumbent on him to ensure that there was any such certification. He then suggested that he simply missed the fact that the proposal did not contain any certification. Then he appeared to claim that he was signing the proposal as a member of the board, not as a member of the Credit Committee, and therefore the requirement that the valuation be certified by the Lending Manager did not apply to him. Finally, he retreated to the position where he claimed that he did not recall being aware that there was no certification. He agreed, however, that he did not make any inquiry of Mr McCormick about whether he had certified that the valuation was acceptable. 604 It should perhaps be noted in this context that Mr Swan's oral evidence concerning his consideration of the proposal in late December 2006 or early January 2007 stood in stark contrast to the evidence in his affidavit relating to his usual practice or procedure in relation to the consideration of loan proposals. Mr Swan's affidavit evidence included the following: No lending transaction could be undertaken without an independent certified valuation ("ICV") on the subject real property, and the provision of conforming documentation to the Custodian via the Fund's lawyers. Once an ICV and other necessary material had been obtained, the relevant Lending Manager ("LM") (either Mr McCormick or one of his colleagues) would send a Loan proposal recommendation ("LPR") to the CrC [Credit Committee] (of which I was a member) for review, either by email or in a physical meeting. The executive would also confirm that he had certified the ICV as acceptable under the CP [Compliance Plan]. Whether the LPR was received by email or discussed at a physical meeting, the other members of the CrC could and did request (from Mr McCormick) answers to any specific concerns we may individually have had, or request further information (if considered necessary). 605 If his oral evidence was to be believed, plainly Mr Swan did not follow what he had said in his affidavit was the ordinary system or procedure when it came to the December 2006 proposal. If Mr Swan was to be believed, his actions in relation to the proposal amounted, at best, to a serious dereliction of his duties as a director of City Pacific and a member of the Credit Committee. On his own evidence, beyond reading parts of the proposal, Mr Swan did not independently scrutinise any aspect of the proposal. And it would appear that even his reading of the document was at best cursory. He made no attempt to reconcile the information in relation to the approved facility limit and the outstanding balance, and made no attempt to understand the basis of the valuations referred to in the proposal. There was certainly no critical evaluation of the information. He made no attempt to ensure that the Lending Manager had certified that there was an acceptable valuation. He did not ask to see any valuation. He did not speak with anybody or ask any questions. This lack of scrutiny and analysis, if accepted, would be startling, particularly considered in light of the fact that Mr Swan was conscious of the recommendations made by SVP in relation to the AGA facility and the requirement that the Lending Manager certify the acceptability of the valuation, and the fact that he was being asked to sign a document that appeared to be backdated. 606 Ultimately, it is difficult to accept Mr Swan's evidence in relation to his approval of the proposal. It was implausible and not credible. 607 As was the case with Mr Donaldson, there are two other possible scenarios. 608 The first is that Mr Swan was aware of what Mr McCormick and Mr Sullivan were up to. That is, at least by December 2006, Mr Swan had ascertained that loans had been made to AGA beyond the approved facility limit and the backdated proposal was intended to cover up that fact. He was prepared to go along with that plan to avoid scrutiny by the Fund's auditors. If that was the case, it would have involved a serious dereliction of Mr Swan's duties. 609 The second, and perhaps more likely scenario, is that Mr Swan was aware of issues surrounding the AGA facility. It could scarcely be accepted that Mr Swan had forgotten about SVP's findings and recommendations concerning the AGA facility. The issues and discrepancies concerning the AGA facility were, in any event, apparent from even a cursory reading of the proposal, particularly by a person of Mr Swan's experience and qualifications. The fact that the proposal was backdated, a fact that did not escape Mr Swan's attention, would have focussed Mr Swan's attention on the issues and discrepancies. Yet as was the case with Mr Donaldson, Mr Swan chose to simply close his eyes to the issues and discrepancies rather than rock the boat. He signed the proposal, but wrote "ratified" on it so as to suggest that the decision was in fact made by others. 610 On any view of the evidence, Mr Swan's actions in relation to this proposal involved a serious departure from the standards of care and diligence required of a person in his position.

Contraventions of s 601FD(1)(b) of the Corporations Act 611 The factual findings in relation to the conduct and state of mind of each of Messrs Sullivan, Swan, Donaldson and McCormick in relation to approving the increase of the limit of the AGA facility to $44.87 million (or $55 million) support the conclusion that each of them failed to exercise the degree of care and diligence that a reasonable person would exercise if they were in their positions as officers of City Pacific. Each of them therefore contravened s 601FD(1)(b) of the Corporations Act. 612 This conclusion is perhaps clearest in the case of Mr Sullivan and Mr McCormick. That is because they well knew that the proposal was not supported by any remotely acceptable "as is" valuation and was only really being pushed through the Credit Committee to cover-up the fact that advances well beyond the AGA facility limit had already been made. They knew that, putting aside Mr Kogler's "hypothetical" March valuations and the obviously deficient 21 December 2006 letter, the "as is" valuation based on the actual zoning and current permitted uses of the Saddleback land was $24.975 million (the September 2005 Valuation), which was well less than the new loan limit the subject of the proposal. Even if, as was submitted on behalf of Messrs Sullivan, Swan and Donaldson, there was no requirement in the Constitution, the Compliance Plan or the Lending Manual, for mortgage loans to have a LVR of 80 percent or less, it could not possibly be suggested, on the basis of the information known to them, that the Saddleback land provided adequate security for the proposed loan, or that the proposed loan maintained a prudent lending ratio. They well knew that the proposed increase to the AGA facility flew in the face of the SVP report recommendations concerning the AGA loan and was, on almost any view, highly imprudent if not reckless in all the circumstances. 613 In relation to Mr Swan and Mr Donaldson, the conclusion that they failed to exercise the required degree of care and diligence flows from their almost complete failure to conduct any independent analysis or scrutiny of the proposal. Having regard to the nature of their positions, the nature of the loan proposal they were called upon to consider and approve, and the circumstances in which the proposal was put to them, a reasonable person would have conducted at least some analysis and scrutiny of the proposal. Had either of them conducted even the most cursory analysis or scrutiny of the proposal, the inconsistencies and deficiencies would have been readily apparent, as would the fact that the proposed facility increase was, to say the very least, most imprudent. 614 A reasonable person in the position of Mr Swan and Mr Donaldson would, at the very least, have read, analysed and cast a critical eye over the detail of the proposal. That alone would have put the reasonable person on notice of a number of significant discrepancies and inconsistencies in the proposal itself. Having regard to those discrepancies, a reasonable person would, at the very least, have inquired as to the current balance of the loan. A reasonable person would, in all the circumstances, have refrained from approving the proposal until the lending manager gave the required certification in relation to the valuation as required by the Lending Manual (and as recommended by SVP). Even if that certification was forthcoming, a reasonable person, in all the circumstances, would have asked to see the valuation or valuations referred to in the proposal and questioned the lending manager in relation to that valuation or those valuations. That is particularly so having regard to the very large increase in the valuation of the property reflected in the figures in the proposal. A reasonable person would, at the very least, have ensured that the valuations were based on the current zoning and permitted uses of the Saddleback land. A reasonable person would have questioned the lending manager about why the proposal was backdated. 615 Mr Swan and Mr Donaldson did none of those things. Had they done any of those things, they would have ascertained the true state of affairs about the AGA facility and the true value of the Saddleback land and would not, and could not, have approved the proposal.

Contraventions of s 601FD(1)(f) of the Corporations Act 616 The factual findings in relation to the actions of the respondents in relation to the December 2006 proposal also support the conclusion that each of them contravened s 601FD(1)(f) of the Corporations Act. Each of them failed to take all steps that a reasonable person would take, if they were in the positions of the respondents, to ensure that City Pacific complied with the Corporations Act, the Constitution and the Compliance Plan. 617 As far as the Corporations Act is concerned, s 601FC(1)(b) required that City Pacific exercise the degree of care and diligence that a reasonable person would exercise if they were in City Pacific's position. For essentially all the reasons given above in the context of the s 601FD(1)(b) contraventions, none of the respondents took any real steps, let alone all steps, that a reasonable person in their positions would take to ensure that City Pacific exercised care and diligence in respect of the proposed increase to the AGA facility. 618 Subsections 601FC(1)(c), (h) and (k) also provide that City Pacific was also required to act in the best interests of the members of the Fund, to comply with the Compliance Plan, and to ensure that all payments out of the Fund's property were made in accordance with the Constitution and the Corporations Act. The factual findings against each of the respondents supports the conclusion that they did not take any real steps, let alone all steps, that a reasonable person in their positions would take to ensure that City Pacific complied with those requirements. 619 As for acting in the best interests of the members of the Fund, it is difficult to see how the increase of the AGA facility limit as proposed could possibly have been in the best interests of the members of the Fund. It is sufficient, in that context, to refer to the fact that the very large increase to the AGA facility limit was unsupported by any reasonable or acceptable valuation. For the reasons already given at length, even the most cursory consideration of the March 2006 and Updated March 2006 Valuations and Mr Kogler's letter dated 21 December 2006 would reveal to anyone with any experience in property development or mortgage finance that they were not genuine or bona fide "as is" valuations prepared by an independent valuer based on the actual zoning of the land and reasonable assumptions. Indeed, the available inference is that they were prepared by a valuer who was prepared, at the behest of either the prospective borrower or the lender, to provide any valuation that would support the proposed loan. The only acceptable valuation held by City Pacific was the September 2005 Valuation that valued the Saddleback land at $24.975 million. That was less than the proposed loan facility. That alone is sufficient to support the finding that the proposed facility increase was not in the best interests of the members of the Fund. 620 For the reasons already given, none of the respondents took all steps that a reasonable person in their positions would take to ensure that the proposed loan was in the best interests of the members of the Fund. The available inference is that Mr Sullivan and Mr McCormick were prepared to approve the increased facility limit no matter what. They did not give a moment's thought to the best interests of the members of the Fund. As for Mr Swan and Mr Donaldson, for the reasons already given, their failure to conduct even the most basic scrutiny or analysis of the proposal supports the finding that they took no steps to ensure that the proposed facility increase was in the best interests of the members of the Fund. 621 As for compliance with the Constitution, the Compliance Plan, the PDS and the Lending Manual, the factual findings support the conclusion that none of the respondents took all steps that a reasonable person in their positions would take to ensure that in approving and making the proposed loan to AGA, City Pacific complied with its constituent documents or lending guidelines. For the reasons detailed earlier, the Constitution, particularly when read in conjunction with the Compliance Plan, the PDS and the Lending Manual, specified at least two requirements in relation to the proposed loan to AGA. The first requirement was that City Pacific held an acceptable valuation of the Saddleback land on the basis of its current zoning and permitted uses. The second requirement was that the loan was to have a LVR of 80 percent or less, or at the very least that a prudent lending ratio was maintained. Neither requirement was satisfied in relation to the loan the subject of the December 2006 proposal. None of Messrs Sullivan, Swan, Donaldson or McCormick took all steps that a reasonable person in their positions would take to ensure that those requirements were satisfied. 622 For the reasons already given, the March 2006 Valuation, the Updated March 2006 Valuation and the 21 December 2006 letter from Mr Kogler were not acceptable valuations based on the current zoning and permitted uses of the Saddleback land. In the case of the March 2006 Valuation and the Updated March 2006 Valuation, they were based on assumptions or conditions that had not been met. The 21 December 2006 letter could not seriously be considered to be a valuation, let alone a valuation based on current zoning and permitted uses. Mr Sullivan and Mr McCormick must have known that to be the case. Mr Swan and Mr Donaldson took no steps to ensure that City Pacific held acceptable valuations. They did not require the Lending Manager to certify that an acceptable valuation was held. Nor did they make any inquiries, ask any questions, or seek to see the valuations. For the reasons already given, a reasonable person in their position would have taken those steps at the very least. 623 Perhaps recognising the requirement of a LVR of 80 percent or less, the December 2006 proposal pretended that, if granted, the facility limit would have a ratio of 70 percent. That was based on the supposed current valuation of $64.1 million. For the reasons already given, there was no acceptable valuation that valued the property at $64.1 million on the basis of current zoning and permitted uses. The LVR referred to in the proposal was accordingly entirely baseless. Indeed, the only acceptable valuation of the Saddleback land on the basis of its current zoning and permitted uses that was held by City Pacific (the September 2005 Valuation) valued the land at less than the proposed loan. 624 For the reasons already given, none of Messrs Sullivan, Swan, Donaldson or McCormick took all steps that a reasonable person in their position would take to ensure that the LVR was met.

Contraventions of s 601FD(1)(c) of the Corporations Act 625 For the reasons already given in the context of the contraventions of s 601FD(1)(b) and (f), the factual findings support the conclusion that each of the respondents contravened s 601FD(1)(c) of the Corporations Act. In approving the increase to the AGA facility limit to $44.87 million, each of the respondents failed to act in the best interests of the members of the Fund.

Findings in relation to issue 5 - advances after 11 January 2007 626 As has been seen, the December 2006 proposal approved by the Credit Committee comprised of Messrs Sullivan, Swan, Donaldson and McCormick included a special condition to the effect that the AGA facility would be restricted to $44.87 million "until such time as State Significance is passed through legislation". That, of course, never occurred. The AGA facility limit therefore remained at $44.87 million. Messrs Sullivan, Swan and Donaldson did not contend otherwise. 627 Mr McCormick, on the other hand, maintained that the facility limit was $55 million. Mr McCormick's submission on that point appeared to be based on three contentions. First, that the special condition would be "triggered" upon receipt of an "as is" valuation that valued the land at $102.4 million. Second, that Mr Kogler's letter constituted an "as is" valuation and therefore triggered the special condition. Third, Mr McCormick and the lending department believed that the loan limit was $55 million. 628 Each of those contentions can be dealt with shortly. The first contention ignores the terms of the special condition. The wording of the special condition made it plain that the $102.4 million "valuation figure" could not be relied upon unless and until State Significance was passed through legislation. That also answers Mr McCormick's second contention. Mr Kogler's purported valuation of $102.4 million could not be relied on because State Significance had not passed through legislation. In any event, for the reasons already given, the suggestion that Mr Kogler's valuation was an "as is" valuation is fanciful. As for Mr McCormick's third contention, the belief of Mr McCormick and the lending department was and is irrelevant. In any event, Mr McCormick did not entertain that belief. If he did, why did he include the special condition in the letter of offer that he signed and sent to AGA on 9 January 2007? If, as Mr McCormick claimed, Mr Kogler's 21 December 2006 letter had already triggered the special condition referred to in the proposal, the facility limit was already $55 million and the special condition was otiose. 629 Contrary to Mr McCormick's submission, the approved limit of the AGA facility remained at $44.87 million throughout 2007.

Factual findings in relation to Mr McCormick 630 The obvious reason why Mr McCormick maintained that the AGA facility limit was $55 million and not $44.87 million was that the limit of $44.87 million was exceeded almost immediately. Indeed, that limit was exceeded even before the December 2006 proposal had been finally approved by Mr Swan's signature on 11 January 2007. It was certainly exceeded by the time Mr McCormick sent, and AGA accepted, the offer of a facility for that amount. As at 20 December 2006, the balance of the AGA facility was $44,640,668. On 21 December 2006, Mr McCormick approved an advance to AGA of $1.5 million and on 27 December 2006, he approved an advance of $1.35 million. Those advances took the balance of the AGA facility over the "restricted" limit referred to in the special condition. Mr McCormick must have been aware of that when he signed and sent the letter of offer to AGA on 9 January 2007. 631 Mr McCormick expressly approved a number of other large advances to AGA in January, February, May and June 2007. A number of other advances to AGA were also made during that period. Given Mr McCormick's role in the lending department, and given the level of his direct involvement with the AGA facility, there could be no doubt that Mr McCormick was aware of all the advances to AGA and, at the very least, gave his implicit approval to them. He certainly did nothing to prevent any further advances being made. On Mr McCormick's version of events, he was proceeding on the basis that the facility limit was $55 million, so he had no reason to prevent them being made. He admitted in his evidence that he caused advances to be made to AGA throughout the first half of 2007 until the balance of the facility came up to around $55 million. 632 Each of the advances made during the period 21 December 2006 to 1 July 2007 took the AGA facility over its approved limit. Each of them failed to meet the conditions and requirements of the Constitution, the Compliance Plan, the PDS and the Lending Manual. The approval of the Credit Committee was not sought or given in relation to any of these advances. That was necessary because they took the balance of the AGA facility above the approved limit. For the reasons already given, each of the advances took the LVR of the AGA facility well beyond 80 percent. Indeed, given that the value of the Saddleback land based on its actual zoning and permitted uses was, at best, the value given in the September 2005 Valuation, each of the advances resulted in the balance of the AGA facility further exceeding the value of the Saddleback land. For that reason alone the advances were not in the best interests of the members of the Fund.

Contraventions by Mr McCormick 633 These factual findings support the conclusion that in approving, authorising or at the very least permitting the advances made to AGA in the period from 11 January 2007 to 1 July 2007, Mr McCormick contravened s 601FD(1)(b), (c) and (f) of the Corporations Act. 634 In relation to s 601FD(1)(b) of the Corporations Act, in approving or authorising, or at the very least failing to prevent, the making of advances to AGA during this period, Mr McCormick failed to exercise the degree of care and diligence that a reasonable person in Mr McCormick's position would exercise. In all the circumstances, a reasonable person in Mr McCormick's position, exercising care and diligence, would have done everything in their power to ensure that any advances beyond the approved limit were not made. A lending manager would plainly be in a position to stop the making of advances in those circumstances. 635 In relation to s 601FD(1)(c) of the Corporations Act, in approving or authorising, or at the very least failing to prevent, the making of advances to AGA during this period, Mr McCormick failed to act in the best interests of the members of the Fund. For the reasons already given, the advances could not on any view have been in the interests of the members of the Fund in all the circumstances. 636 Finally, in relation to s 601FD(1)(f) of the Corporations Act, in approving or authorising, or at the very least failing to prevent, the making of advances to AGA during this period, Mr McCormick failed to take all steps that a reasonable person in Mr McCormick's position would take to ensure that City Pacific complied with the Corporations Act, the Constitution and the Compliance Plan. For the reasons already given, the advances were clearly contrary to the terms of the Constitution and the Compliance Plan. A reasonable person in Mr McCormick's position would have prevented the making of these advances in those circumstances.

Findings in relation to Mr Sullivan 637 Even if Mr Sullivan did not either explicitly or implicitly approve the making of the further advances to AGA during the period from 11 January 2007 to 1 July 2007, there is no doubt that, as Chief Executive Officer, he was in a position to prevent the advances being made. He did nothing to prevent the further advances being made. The only real question is whether Mr Sullivan was aware, or ought reasonably to have been aware, that the advances were being made. 638 Mr Sullivan claimed that he was not aware of the advances made to AGA during this period and was not aware that the AGA facility was operating above its approved limit during this period. That evidence is rejected as being entirely implausible and lacking any credibility. 639 The starting point is the findings of fact that have already been made in relation to Mr Sullivan's state of knowledge and involvement in the conduct of the AGA facility throughout 2006. In short, he knew that advances were being made to AGA over and above the approved facility limit throughout 2006. He also knew, as a result of the SVP report and his involvement in City Pacific's response to it, that there were real issues in relation to the AGA facility. He knew that SVP's recommendations in relation to the AGA facility had not been implemented. He misled ASIC about that fact. He effectively aided and abetted Mr McCormick, or at the very least was prepared to go along with Mr McCormick's actions, in covering up the fact that the AGA facility had been allowed to exceed its approved limit: first, by purporting to give provisional or interim approval to the increase to the facility limit to $26 million and by signing documents that gave the impression that the approval had been given on 28 April 2006; and second, by signing, in late December 2006, the backdated proposal to increase the facility limit to $44.87 million. He knew in late December 2006, when he signed the backdated proposal, that the AGA facility was effectively already up to that limit. He knew, as an experienced property developer, that Mr Kogler's purported valuations of the Saddleback land throughout 2006 were highly dubious and contrived. 640 Mr Sullivan's knowledge of and involvement in all of those matters must, at the very least, have put him on notice that the AGA facility was problematic and needed to be closely watched. His knowledge of all those matters must have put him on notice of the likelihood, if not inevitability, that Mr McCormick would continue to facilitate and approve advances to AGA during 2007. Yet if Mr Sullivan was to be believed, he did not read the board papers prepared for board meetings during the first half of 2007 which clearly disclosed that further advances were being made to AGA. Nor did he inquire of Mr McCormick or anyone else in the lending department about the balance of the AGA facility. For a chief executive officer with Mr Sullivan's experience and knowledge, that scenario is utterly implausible. 641 Within a matter of weeks of having signed the backdated proposal in late December 2006, Mr Sullivan was provided with board papers for January 2007. Even the most cursory reading of the financial statements included in the board papers would have revealed that the facility limit approved by Mr Sullivan and the other members of the Credit Committee had already been exceeded by $2 million by the end of December 2006. Worse still, the board papers for the February and March 2007 board meetings revealed that the approved AGA facility limit had been exceeded by more than $9 million as at the end of January 2007 and more than $10 million by the end of February 2007. In all the circumstances, the suggestion that this could have escaped Mr Sullivan's attention is fanciful. 642 Mr Sullivan's evidence concerning his state of knowledge and belief in relation to the AGA facility in the first half of 2007 is simply not to be believed. Mr Sullivan was not an honest or credible witness generally, and certainly was not giving honest and credible evidence on that issue. Indeed, the available inference is that he well knew that these advances were being made and gave his implicit, if not explicit, approval or authority to Mr McCormick and others in the lending department to make the further advances to AGA during 2007. To the extent that Mr Sullivan and Mr McCormick suggested otherwise in their evidence, that evidence is rejected as untruthful and unreliable. 643 Even if Mr Sullivan's evidence on this issue was to be believed, and it is accepted that he did not read the board papers or take any other step to ascertain the balance of the AGA facility during 2007, it almost goes without saying that his failure to take such steps in all the circumstances amounted to gross negligence. In all the circumstances, no reasonable person in Mr Sullivan's position would have failed to take steps to keep track of the balance of the AGA facility to ensure that no advances beyond the facility limit were made. Mr Sullivan was plainly on notice of serious issues in relation to the AGA facility and serious issues in relation to Mr McCormick's activities in relation to it. Given Mr McCormick's past history in relation to the AGA facility, that Mr Sullivan was well aware of, Mr Sullivan had no basis for relying on or trusting Mr McCormick in relation to the AGA facility. A reasonable person in his position, acting with even a modicum of care and diligence, would have closely monitored the balance of the AGA facility throughout 2007 to ensure that no further advances were made and the approved balance was not exceeded. On Mr Sullivan's version of events, he did nothing. 644 Those factual findings support the conclusion that, in failing to prevent the further advances to AGA during the period 11 January 2007 to 1 July 2007, Mr Sullivan contravened s 601FD(1)(b) of the Corporations Act. He failed to exercise the degree of care and diligence that a reasonable person would exercise if they were in his position. In all the circumstances, a reasonable person in Mr Sullivan's position, exercising care and diligence, would have done everything in their power to ensure that advances to AGA beyond the approved limit were not made. A chief executive officer would plainly be in a position to stop the making of advances in those circumstances.

Findings in relation to Mr Swan and Mr Donaldson 645 Trilogy's case against Mr Swan and Mr Donaldson in relation to the advances made to AGA during the period from 11 January 2007 to 1 July 2007 again rested largely on the fact that both Mr Swan and Mr Donaldson received board papers throughout the period that included the balance of each of the Fund's loans, including the loan to AGA. The evidence of both Mr Swan and Mr Donaldson in relation to the board papers has been considered earlier. Mr Swan said that when he received the board papers he would generally review the balance sheet for the Fund and the loan repayment schedule that set out the current balance of the Fund's loans. He claimed, however, that whilst he may have seen that advances had been made to AGA, that did not "register any concern" with him. Mr Donaldson also read the balance sheet and may have noticed that advances had been made to AGA. 646 The difference in relation to this period, however, is that, by reason of the events of late December 2006 and early January 2007, both Mr Swan and Mr Donaldson had good reason to more carefully scrutinise the board papers generally and the AGA loan balance specifically. In short, they were on clear notice that they could no longer trust or rely on Mr Sullivan, Mr McCormick and others in the lending department, such as Mr Gillam, in relation to the AGA facility. 647 Mr Donaldson and Mr Swan had, in December 2006, been presented with and asked to sign a backdated loan proposal in relation to AGA, with the only explanation for the backdating being that the proposal had "slipped between the cracks". Even putting aside the backdating, the proposal itself was not only fairly extraordinary, but contained obvious signposts or "red flags" in relation to serious issues and problems with the AGA facility. The increase to the facility was in excess of $20 million. The supposed increase in the valuation of the Saddleback land which purportedly supported the increase to the loan facility was, on one view, about $40 million and, on another, almost $80 million. There were obvious discrepancies and deficiencies in the information in the proposal, including information about the approved limit, the present position and the basis of the supposed valuation. The AGA facility had earlier been specifically identified in the SVP report as a potentially problematic loan. All of those matters would, or should, have put Mr Swan and Mr Donaldson on notice that they needed to keep a very close eye on the AGA facility throughout 2007. In all the circumstances, they could not simply rely on Mr Sullivan or Mr McCormick to bring any issues concerning the AGA facility to their attention. 648 Within a matter of weeks of signing-off on the backdated proposal, Mr Swan and Mr Donaldson, both men with extensive qualifications and experience in accounting, commerce and corporate governance, received board papers that revealed that the AGA facility was already $2 million over the limit they had just approved. Within two to three months, they had received board papers that revealed that the AGA facility was between $9 million and then $10 million over the facility limit they had so recently approved. That information was not in any sense difficult to identify or decipher from within the board papers. Any suggestions to the contrary by either Mr Swan or Mr Donaldson are rejected as implausible and not credible. It would not have been in any sense onerous for them to have analysed the loan schedule, particularly given their qualifications and experience. If they had looked at the list of loan balances, and the AGA loan balance specifically, it could not seriously be suggested that the information would not have "register[ed] any concern", as may have been the case before December 2006. 649 In all the circumstances, there are only two alternative factual findings available. The first is that, contrary to their evidence, both Mr Swan and Mr Donaldson did read the board papers, and the list of the Fund's loans specifically, and did see and appreciate that the AGA facility was operating outside its limit, but for whatever reason did nothing about it. In that scenario, the failure by Mr Swan and Mr Donaldson to take any step to prevent further advances being made to AGA was a failure to exercise the care and diligence that would be expected of them given their positions. In their positions as directors and members of the Credit Committee, plainly Mr Swan and Mr Donaldson were in a position to prevent further advances being made to AGA above the facility limit. 650 The second and alternative finding is that Mr Swan and Mr Donaldson either did not read the list of the Fund's loans in the board papers or did not see or appreciate that the AGA facility was operating well outside its limit. As a result, they failed to ascertain that further advances were being made to AGA that took the facility beyond its approved limit, and as a result failed to take any steps to ensure that did not occur. In that scenario, given the events of December 2006 and the features of the AGA facility that must have been apparent to both Mr Swan and Mr Donaldson by this time, the failure by Mr Swan and Mr Donaldson to read and analyse the AGA loan balance in the board papers was a failure to exercise the care and diligence that would have been expected of them given their positions. 651 Both Mr Swan and Mr Donaldson called in aid the fact that they were non-executive directors, the fact that they relied on management and the fact that City Pacific's activities were also the subject of scrutiny by a compliance committee and external auditors. In all the circumstances, and particularly given that they had been party to the backdating of the December 2006 proposal, they were not entitled to call in aid reliance on management or external persons or bodies, such as the auditors. For the reasons already given, the explanations given by both Mr Swan and Mr Donaldson in their evidence concerning the backdating of the December 2006 proposal were most unsatisfactory. At the very least, they had every reason to suspect, if not believe, that the backdating of the proposal was intended to paper over a problem in the AGA loan file that would otherwise be apparent to anyone, including external parties, who inspected the AGA loan file. 652 Those factual findings support the conclusion that, in failing to prevent the further advances to AGA during the period 11 January 2007 to 1 July 2007, both Mr Swan and Mr Donaldson contravened s 601FD(1)(b) of the Corporations Act. They failed to exercise the degree of care and diligence that a reasonable person in their positions would have exercised. In all the circumstances, a reasonable person in the position of Mr Swan and Mr Donaldson, exercising care and diligence, would have ascertained that the AGA facility had exceeded its approved limit and thereafter done everything in their power to ensure that no further advances to AGA beyond the approved limit were made. Whilst they were non-executive directors, they were members of the Credit Committee and, in any event, would have been in a position to stop the making of advances in the circumstances.

Summary of contraventions 653 Before addressing issue 6, which is whether the Fund suffered loss or damage as a result of the respondents' contraventions of s 601FD of the Corporations Act, it would be useful to summarise the findings that have been made in relation to the contraventions. The following contraventions have been made out by Trilogy.

1. Mr Sullivan and Mr McCormick contravened s 601FD(1)(b), (c) and (f) of the Corporations Act in purporting to approve an increase to the AGA facility limit to $26 million in July or August 2006.
2. Mr Sullivan and Mr McCormick contravened s 601FD(1)(b) of the Corporations Act in failing to prevent advances being made to AGA that were above the approved facility limit in the period 28 April 2006 to 23 August 2006.
3. Mr Sullivan and Mr McCormick contravened s 601FD(1)(b) of the Corporations Act in failing to prevent advances being made to AGA that were above the approved facility limit in the period 23 August 2006 to 10 January 2007.
4. Each of Messrs Sullivan, Swan, Donaldson and McCormick contravened s 601FD(1)(b), (c) and (f) of the Corporations Act in approving an increase to the AGA facility limit to $44.87 million or $55 million in December 2006.
5. Each of Messrs Sullivan, Swan, Donaldson and McCormick contravened s 601FD(1)(b) of the Corporations Act in failing to prevent advances being made to AGA that were above the approved facility limit in the period from 11 January 2007 to 1 July 2007.

Findings in relation to issue 6 - causation and damage 654 Subsection 601FD(3) of the Corporations Act provides that a person who contravenes, or is involved in a contravention of, s 601FD(1), contravenes s 601FD(3). Subsection 601FD(3) is a "corporation/scheme civil penalty provision": ss 1317DA and 1317E(1)(g) of the Corporations Act. 655 Subsection 1317H(1) of the Corporations Act provides as follows: A Court may order a person to compensate a corporation or registered scheme for damage suffered by the corporation or scheme if: (a) the person has contravened a corporation/scheme civil penalty provision in relation to the corporation or scheme; and (b) the damage resulted from the contravention. The order must specify the amount of the compensation. 656 Trilogy, as the responsible entity of the Fund, has standing to apply for a compensation order under s 1317H: see s 1317J(2) of the Corporations Act. 657 Given that it has been found that each of the respondents has contravened s 601FD(3) of the Corporations Act and therefore contravened a corporation/scheme civil penalty provision, the question arises whether in terms of s 1317H(1), the Fund suffered any damage which "resulted from" any of those contraventions. 658 Subsection 1325(2) of the Corporations Act provides, inter alia, that the Court may, on the application of a person who has suffered loss or damage because of conduct of another person that has engaged in a contravention of Chapter 5C (which includes s 601FD) make such order or orders as the Court thinks appropriate against the person who engaged in the conduct if the Court considers that the order or orders concerned will compensate the person who made the application, in whole or in part for the loss or damage. 659 The question, expressed in terms of s 1325(2) is whether the Fund suffered any damage "because of" any of the contraventions of s 601FD(3) of the Corporations Act by the respondents. 660 It is doubtful that there is any meaningful or material distinction between the causation question raised by s 1317H of the Corporations Act ("resulted from") and the causation question raised by s 1325(2) of the Corporations Act ("because of"). The causation question here will be addressed primarily in terms of s 1317H of the Corporations Act.

Causation - Relevant principles 661 In Adler v Australian Securities and Investments Commission (2003) 179 FLR 1 (Adler v ASIC), Giles JA (with whom Mason P and Beazley JA agreed) said the following (at [709]-[710]) in relation to the meaning of "resulted from" in s 1317H of the Corporations Act: In my opinion, the words "resulted from" in s 1317H are words by which, in their natural meaning, only the damage which as a matter of fact was caused by the contravention can be the subject of an order for compensation. Like the word "by" in s 82 of the Trade Practices Act 1974 (Cth) (see Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 at [38]-[42]), they should be given their ordinary meaning of requiring a causal connection between the damage and the contravening conduct, free from the strictures of analogy with equitable claims against fiduciaries. ASIC submitted that the limited class of applicants for compensation orders distinguished this provision from s 82 of the Trade Practices Act, but I do not see that as a material distinction. It submitted that in Marks v GIO Australia Holdings Ltd, Henville v Walker (2001) 206 CLR 459 and I & L Securities v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 it was recognised that general law principles could be useful guides. That is correct, but in doing so the High Court made clear that the ordinary meaning of the words of the statute had primacy. Section 185 of the Act underlines that the statutory duties in ss 180-183 are additional to and stand free of a director's common law and equitable duties. 662 It follows that in considering the question of causation in the context of s 1317H of the Corporations Act, the words "resulted from" must be given their ordinary meaning. Whilst general law principles of causation may provide useful guides, the ordinary meaning of those words must be given primacy. Damage will have "resulted from" a contravention if, as a matter of fact, there was a "causal connection between the damage and the contravening conduct"; or put simply, the damage was caused by the contravention. 663 In Adler v ASIC, Giles JA also referred to Marks v GIO Australia Holdings Limited (1998) 196 CLR 494 (Marks) and the potential applicability of a "but for" test of causation, even if that may not be the exclusive test and that further inquiry may be necessary. In Marks, which concerned the test for causation in s 82 of the Trade Practices Act 1974 (Cth) (Trade Practices Act), McHugh, Hayne and Callinan JJ indicated, without deciding, that the "but for" test, which had been found wanting in other areas of the law, might not be an exclusive test for the purposes of s 82 either. Their Honours said (at [42]) that in considering, for the purposes of s 82 of the Trade Practices Act, whether loss or damage had been caused by contravening conduct: It follows, then, that a comparison must be made between the position in which the party that allegedly has suffered loss or damage is and the position in which that party would have been but for the contravening conduct. And even this inquiry may not conclude the question. Analysing the question of causation only by reference to what is, in essence, a "but for" test has been found wanting in other contexts and it may well be that it is not an exclusive test of causation in this area either. But that is not a question which we need to consider in this case. For the moment it is enough to say that s 82 requires identification of a causal link between loss or damage and conduct done in contravention of the Act. (Footnotes omitted.) 664 Issues of causation involve normative considerations. The question of causation cannot be divorced from the legal framework that gave rise to the cause of action. In some circumstances the legal framework might dictate a finding of a causal connection where no more was established than that damage followed breach of a legal norm. In Henville v Walker (2001) 206 CLR 459 (Henville v Walker), McHugh J said (at [103]) in that context: In the second class of case, the damage will not have occurred because of the laws of nature but because a person has acted to his or her detriment by reason of or following some conduct of the defendant. The conduct may be an act, an omission, a statement or a suggestion. But it will not be regarded as causally connected with the detriment if it provides no more than the reason why the person acted to his or her detriment. If the defendant intended the person suffering a detriment to act in the general way that he or she did, the common law will invariably hold that a causal connection existed between the conduct and the detriment. But if the conduct merely provides the reason why the person acted, it will not be sufficient to establish a causal connection unless the purpose of the legal norm that the defendant has breached is to prevent persons suffering detriment in circumstances of the kind that occurred. 665 Where questions of causation arise in a statutory context, the statutory purpose is the primary source of the relevant legal norms: I & L Securities Pty Limited v HTW Valuers (Brisbane) Pty Limited (2002) 210 CLR 109 at [25]-[26]. In considering causation in a statutory context, therefore, it is relevant to have regard to the purpose of the statutory cause of action or statutory provision that has been contravened. 666 In Travel Compensation Fund v Tambree (2005) 224 CLR 627 (Tambree), Gleeson CJ said (at [30]): Section 68 of the Fair Trading Act, in its application to a contravention of s 42, gives rise to the same questions as does s 82 of the Trade Practices Act 1974 (Cth) in its application to a contravention of s 52 of that Act. In recent cases, this Court has pointed out that, in deciding whether loss or damage is "by" misleading or deceptive conduct, and assessing the amount of the loss that is to be so characterised, it is in the purpose of the statute, as related to the circumstances of a particular case, that the answer to the question of causation is to be found. (Footnote omitted.) 667 Gummow and Hayne JJ said (at [45]): It is now clear that there are cases in which the answer to a question of causation will differ according to the purpose for which the question is asked. As was recently emphasised in Allianz Australia Insurance Ltd v GSF Australia Pty Ltd, it is doubtful whether there is any "common sense" notion of causation which can provide a useful, still less universal, legal norm. There are, therefore, cases in which the answer to a question of causation will require examination of the purpose of a particular cause of action, or the nature and scope of the defendant's obligation in the particular circumstances. (Footnotes omitted.) 668 The question of causation raised in this matter, therefore, requires an examination of the purpose of the provisions contravened by the respondents and the particular facts and circumstances surrounding the duties or obligations contravened. Was the purpose of the legal norm created by s 601FD to prevent persons suffering detriment in circumstances of the kind that occurred here? 669 There could be little doubt that the provisions in Chapter 5C of the Corporations Act, and s 601FD specifically, are protective in nature. The purpose is to provide protection to members of managed investment schemes by imposing duties and responsibilities on officers of responsible entities. As Murphy J put it in ASIC v APCH (at [526]), the "scope of the s 601FD duties must be considered in light of the vulnerabilities inherent in the position of the members as beneficiaries of a trust and (as will often be the case) the fact that the [responsible entity] holds itself out to the public and is paid as a professional trustee". 670 The contraventions by each of the respondents in this matter all involve, in one way or another, the failure by the respondents to take appropriate steps, or the failure to exercise care or diligence, in respect of the AGA loan facility and particular advances made to AGA purportedly pursuant to that loan facility. In those circumstances, and having regard to the statutory context and purpose, the question whether there is a causal link between the contraventions and any loss or damage suffered by the Fund, can be approached, at least in the first instance, by considering what would or would not have happened in relation to the AGA facility if the respondents had not breached their duties and had instead taken the required steps, and exercised care and diligence, in relation to that facility. In simple terms, were losses suffered by the Fund in relation to the AGA facility as a result of the failures by the respondents to take the required steps, or exercise care or diligence? What position would the Fund be in if the respondents had not breached their duties?

The parties' submissions in relation to causation 671 Trilogy's submissions in relation to causation were simple and straightforward. In simple terms, it contended that if the respondents had not breached their duties under s 601FD of the Corporations Act, money that was advanced by the Fund to AGA after 28 April 2006 would not have been advanced. That money was all lost to the Fund. It follows, on Trilogy's argument, that but for the contraventions, the money would not have been advanced and would not have been lost. 672 In the case of Mr Sullivan and Mr McCormick, Trilogy contended that had they exercised care and diligence, and taken reasonable steps to ensure compliance with the Constitution, the Compliance Plan and the associated documents, there would have been no advances made to AGA beyond the October 2005 facility limit of $17.89 million. Accordingly, all advances made beyond that limit (being all advances made after 28 April 2006) resulted from the contraventions by Mr Sullivan and Mr McCormick. All of the advances made beyond that limit were ultimately not recovered by the Fund and were therefore lost to the Fund. Those losses therefore resulted from the contraventions by Mr Sullivan and Mr McCormick. 673 Trilogy's case against Mr Swan and Mr Donaldson was essentially the same. Trilogy has however, failed to make out its case in relation to all but the contraventions in relation to the approval of the December 2006 proposal to increase the AGA facility limit and contraventions in relation to the failure to prevent advances being made after 11 January 2007. In those circumstances, Trilogy's case was essentially that if Mr Swan and Mr Donaldson had exercised care and diligence and taken reasonable steps to ensure compliance with the Constitution and the Compliance Plan, no advances would have been made to AGA on or after 11 January 2007. All of the advances made to AGA after that time were lost to the Fund. Accordingly, the losses arising from those advances resulted from the contraventions by Mr Swan and Mr Donaldson. 674 The submissions made on behalf of Messrs Sullivan, Swan and Donaldson in relation to causation were complex and multifaceted. Mr McCormack did not make any separate submissions in relation to causation, though he did adopt some of the general submissions advanced on behalf of Messrs Sullivan, Swan and Donaldson. The submissions made on behalf of Messrs Sullivan, Swan and McCormick may be summarised as follows. 675 First, it was submitted that the contraventions of s 601FD by Mr Sullivan in relation to the purported approval of the increase of the AGA facility limit to $26 million did not result in any loss to the Fund. That was because Mr Sullivan purported to approve the increase to the facility, and signed the letter of offer, on or shortly before 24 August 2006. By that time, advances had already been made to AGA that resulted in the AGA facility being almost completely drawn down up to the purported limit of $26 million. In other words the approval was an ex post facto approval. Accordingly, no advances were made as a result of the purported approval of this increase to the facility limit. Advances made after the purported approval exceeded the new facility limit and were not a result of the purported approval. 676 Second, it was similarly submitted that the contraventions of s 601FD of the Corporations Act by each of Messrs Sullivan, Swan and Donaldson in relation to the approval of the increase of the AGA facility limit to $44.87 million (or $55 million) did not result in any loss to the Fund. That was because, by late December 2006 or early January 2007, when the proposal was approved, the AGA facility was again almost fully drawn down to the new facility limit. The approval was again an ex post facto approval. Accordingly, no advances were made pursuant to the purported approval of the increase to the facility. All advances made after the purported approval exceeded the new limit and were not a result of the approval. 677 Third, it was submitted that no loss resulted from the failures by Messrs Sullivan, Swan and Donaldson to detect that advances were being made over and above the AGA facility limit. So far as the argument was able to be understood, it proceeded as follows. Even if it was discovered that Mr McCormick was making advances to AGA over the approved limit, Mr McCormick would not have been removed from his post because it would have been assumed by the lending department that the advances were just a mistake. Thus Mr McCormick would have been free to continue to make further advances over and above the facility limit. Thus, so it was argued, the losses would have been suffered in any event. They were not the result of the contraventions arising from the failure to detect the loans made above the facility limit. 678 Alternatively, if Mr McCormick was removed from his position, City Pacific would have faced a dilemma about what to do with the other loans to the Gore Group companies. It would have discovered that it had two choices. It could either have made further advances to the other Gore Group companies to allow them to complete their developments. If that option was pursued, further advances would have been made and ultimately lost in any event. The second option was to make no further advances. If that option was pursued, the Gore Group facilities would ultimately have failed and the Fund would have suffered further losses. This again was said to demonstrate that the losses were not caused by the failure to detect that advances were being made over the approved facility limit. They would have been suffered anyway. 679 Fourth, it was submitted that Trilogy had failed to prove that the advances made to AGA beyond the October 2005 facility limit were lost to the Fund. So far as it is possible to understand the argument in support of that submission (the Progress Draws submission), it appeared to proceed as follows. It was contended that the evidence suggested that the advances made to AGA were used to complete other Gore Group company developments. That was ultimately to the benefit of the Fund, because it resulted in the enhancement of the value of other developments held as security for loans to other Gore Group companies. Thus, any shortfall on the AGA facility resulting from the further advances was offset by a reduction in the Fund's losses on other loan facilities. 680 Fifth, it was submitted that Trilogy failed to mitigate the Fund's losses. That argument is dealt with separately as issue 7. 681 Sixth, it was submitted that if the further advances were not made to AGA, City Pacific, on behalf of the Fund, would have made different loans to different entities from the funds that would otherwise have been loaned to AGA (the Hypothetical Loans submission). If those hypothetical loans were repaid, further loans would have been made. Ultimately, when the global financial crisis occurred, the hypothetical loans would have been defaulted on. The Fund would accordingly have lost the money in any event. The Hypothetical loans submission is dealt with separately later.

Losses resulting from contraventions by Mr Sullivan and Mr McCormick in relation to the approval of the $26 million facility 682 Trilogy's case was that but for the contraventions by Mr Sullivan and Mr McCormick of s 601FD(1)(b), (c) and (f) of the Corporations Act, the "interim" increase of the AGA facility to $26 million would not have been approved and no advances would have been made above the existing facility limit of $17.89 million. The difficulty for Trilogy, however, is that by the time Mr Sullivan and Mr McCormick purported to approve the increase to the facility limit, and then offered AGA the $26 million loan facility, advances up to that limit had already been made. The file note and letter of offer were both backdated to give the impression that the approval and the offer had been made before the existing facility limit of $17.89 had been exceeded. 683 It follows that the advances that were made between 28 April 2006 and 23 August 2006 that took the balance of the facility from just under $17.89 million (the approved facility limit) to just under $26 million (the purported "provisional" or "interim" facility limit) were not the result of the contraventions arising from the purported approval of the increase of the facility limit to $26 million. No losses directly resulted from those contraventions. 684 It is, however, clear that if Mr Sullivan and Mr McCormick had complied with their statutory duties under s 601FD(1)(b), (c) and (f) of the Corporations Act, they would not have approved an interim or provisional increase of the AGA facility limit and, more importantly, would not have sent the letter of offer to AGA offering a facility of up to $26 million on 23 August 2006. AGA accepted that offer on 24 August 2006. The submission by Mr Sullivan that this did not result in a binding contract is rejected. But for the purported approval of this $26 million facility by Mr Sullivan and Mr McCormick, and the offer and acceptance of the $26 million facility, it is highly unlikely that any further advances would have been made to AGA after 24 August 2006. If Mr Sullivan had refused Mr McCormick's proposal that resulted in the offer of the $26 million facility, it is highly unlikely that Mr McCormick would have arranged or approved any further advances to AGA after that date. If Mr Sullivan had acted in accordance with his statutory duties, not only would he have refused Mr McCormick's proposal to increase the AGA facility limit, he would have ensured that no further advances were made to AGA. 685 It follows that the balance of probabilities is that the losses incurred by the Fund arising from advances made to AGA after 24 August 2006 resulted from the contraventions of s 601FD(1)(b), (c) and (f) of the Corporations Act by Mr Sullivan and Mr McCormick in relation to the purported approval of the increase of the AGA facility limit to $26 million. As will be seen, losses arising from the advances made after 24 August 2006 also resulted from the contraventions of s 601FD(1)(b) by Mr Sullivan and Mr McCormick resulting from their failure to prevent advances being made over the facility limit in the period 24 August 2006 to 10 January 2007. The actual loss suffered by the Fund from those advances is consider later in that context. 686 The general causation arguments advanced by Mr Sullivan are addressed in the next section dealing with the losses arising from the contraventions by Mr Sullivan and Mr McCormick in relation to the advances made to AGA in the period 28 April to 23 August 2006.

Losses resulting from contraventions by Mr Sullivan and Mr McCormick in relation to advances between 28 April 2006 and 23 August 2006. 687 If Mr Sullivan and Mr McCormick had not failed to exercise the degree of care and diligence that a reasonable person in their position would exercise, none of the 16 advances that City Pacific made to AGA on behalf of the Fund between 28 April 2006 and 23 August 2006 would have been made. If Mr Sullivan and Mr McCormick had acted with care and diligence, they would have ascertained that the advances were contrary to the Constitution, the Compliance Plan and the Lending Manual and were imprudent and not in the best interests of the members. They would have accordingly prevented them from being made. 688 The advances made during this period totalled $6,945,561.17. They resulted in the balance of the AGA facility exceeding its approved limit of $17.89 million. All of those advances were ultimately lost to the Fund. The amount recovered from the sale of the Saddleback land that was held as security for the AGA facility was well less than the approved facility limit of $17.89 million. 689 The submission by Mr Sullivan (and Mr Swan and Mr Donaldson in relation to advances made in later periods) that this loss did not result from his contravention because the advances would have been made in any event is rejected. The submission that the lending department would have assumed that the making of advances over the facility limit was simply an error and that Mr McCormick would have been left free to continue to make advances over the limit has no basis in the evidence. It amounts to nothing more than speculation and conjecture. 690 It was within Mr Sullivan's power to stop the making of any further advances to AGA. If he had acted with care and diligence he would have exercised that power. If he had exercised that power, the advances would not have been made. He did not make any attempt to stop further advances being made to AGA. Indeed, he impliedly, if not expressly, approved the making of further advances by Mr McCormick. 691 Likewise, the submission that City Pacific would in any event have continued making advances to AGA for the purpose of allowing other Gore Group companies to complete other developments has no foundation in the evidence and is rejected. It is based on pure speculation. It is true that documents prepared by Mr McCormick stated that this was the purpose of the further advances to AGA. There is, however, no evidence that either Mr Sullivan or Mr McCormick ever gave any consideration to the question whether further advances to AGA for that purpose complied with the Fund's Constitution, Compliance Plan or Lending Manual. There is no evidence that further advances to AGA were in the best interests of the Fund, or the members of the Fund, on the basis that they were necessary to allow other Gore Group companies to complete other developments or to allow a reconstruction or reorganisation of the Fund's overall exposure to the Gore Group. There is no evidence that the Fund faced a "dilemma" in relation to the making of further advances to AGA as a result of the state of the Fund's loan facilities with other Gore Group companies. There is no evidence that Mr Sullivan ever turned his mind to the existence of any such dilemma. He simply denied knowing about the advances made to AGA during this period. 692 The Progress Draws submission made on behalf of Mr Sullivan (and Mr Swan and Mr Donaldson in relation to advances made in later periods) is also rejected. It has no foundation in the evidence. Whilst documents prepared by Mr McCormick stated that the further advances made on the AGA facility were for the purpose of allowing other Gore Group entities to complete other developments, there is no evidence that the funds advanced were in fact used for that purpose. Likewise, whilst documentation prepared by Mr McCormick referred to a proposed restructure, there was no evidence that any proposed restructure was ever put to the Credit Committee, let alone carried out. 693 The most that Mr Sullivan (and Mr Swan and Mr Donaldson) could point to in relation to the Progress Draws submission was some fairly ambiguous statements or notes on a handful of Funds Transfer Request forms. Whatever may have been said by Mr McCormick in relation to the purpose of the advances, or whatever may have been recorded on some Funds Transfer Request forms, there was no evidence that the funds advanced to AGA were in fact applied in such a way that they enhanced the value of other developments held as security for loans to the other Gore Group companies, or that any shortfall on the AGA facility resulting from the further AGA advances was offset by a reduction in the Fund's losses on other loan facilities. The evidence revealed that the Fund suffered a massive loss in respect of the other Gore Group loans. The principal outstanding on the AGG, Sickle and AGG Treetops facilities, prior to the realisation of the security properties, was $111,278,319.24. The gross proceeds from the sales of the security properties held in respect of those facilities was $45,139,500. The suggestion that the further advances on the AGA facility in some way reduced the losses on those other facilities in any material sense is, in the circumstances, speculative if not fanciful. 694 Finally, the "last resort" submission by Messrs Sullivan, Swan and Donaldson, being the submission that Trilogy had not proved that the funds advanced on the AGA facility had in fact been paid or had "left the Fund's benefit" is rejected. It was never in dispute at trial that the advances made on the AGA facility were in fact paid to or at the direction of AGA. Having regard to the admitted facts, the suggestion that Trilogy had to prove that the cheques drawn as a result of the Funds Transfer Request forms had in fact been cashed is rejected. Loan statements that were in evidence also indicated that the advances had in fact been made. 695 The failure to mitigate and the Hypothetical Loans submissions are dealt with separately later. 696 Subject to the consideration of those submissions, it is concluded that the loss of $6,945,561.17 arising from the advances made during the period 28 April 2006 to 23 August 2006 resulted from the relevant contraventions by Mr Sullivan and Mr McCormick of s 601FD(1)(b) of the Corporations Act.

Losses resulting from contraventions by Mr Sullivan and Mr McCormick in relation to advances between 24 August 2006 and 10 January 2007 697 The findings in relation to the losses suffered by City Pacific as the responsible entity of the Fund arising from the advances made during the period 24 August 2006 (the day after the purported approval of the interim increase of the facility limit to $26 million) and 10 January 2007 (the date of the approval of the increase of the facility limit to $44.87 million) are essentially the same as the findings in relation to the advances made in the period 28 April 2006 to 23 August 2006. 698 If Mr Sullivan and Mr McCormick had not failed to exercise the degree of care and diligence that a reasonable person in their position would exercise, none of the 34 advances that City Pacific made to AGA on behalf of the Fund between 23 August 2006 and 10 January 2007 would have been made. Those advances totalled $24,022,552.18. They resulted in the balance of the AGA facility exceeding its approved limit. All of these advances were ultimately lost to the Fund. The amount recovered from the sale of the Saddleback land that was held as security for the AGA facility was well less than the approved facility limit of $17.89 million which was in place up until 10 January 2007. 699 For the reasons just given, the general arguments advanced on behalf of Mr Sullivan to the effect that those losses would have been suffered by AGA irrespective of his contraventions is rejected. So too is the Progress Draws submission. 700 Subject to the failure to mitigate and Hypothetical Loans submissions, which are to be considered separately, it is concluded that the loss of $24,022,552.18 arising from the advances to AGA made during the period 24 August 2006 to 10 January 2007 resulted from the relevant contraventions by Mr Sullivan and Mr McCormick of s 601FD(1)(b) of the Corporations Act.

Losses resulting from the contraventions by Messrs Sullivan, Donaldson, Swan and McCormick in relation to the approval to increase the AGA facility limit to $44.87 million 701 Trilogy's case was that but for the contraventions by Messrs Sullivan, Donaldson, Swan and McCormick of s 601FD(1)(b), (c) and (f) of the Corporations Act, the increase of the AGA facility to $44.87 million would not have been approved, City Pacific, as the responsible entity of the Fund, would not have entered into the $44.87 million facility with AGA and no advances would have been made under that facility. As was the case with the contraventions relating to the $26 million facility, however, the difficulty for Trilogy was that by the time the Credit Committee approved this particular proposal and the letter of offer was sent to AGA, advances up to the facility limit had already been made. Trilogy specifically claimed that the losses resulting from the contraventions relating to the approval of this facility were losses arising from the advances made to AGA during the period 24 August 2006 to 10 January 2007. The difficulty for Trilogy is that by the time Mr Swan, as the final Credit Committee signatory, approved the proposal, those advances had already been made. 702 It follows that it cannot be concluded that losses flowing from the advances made to AGA during the period 24 August 2006 to 10 January 2007 resulted from the contraventions relating to the approval of the $44.87 million facility. 703 It does not, however, follow that no losses resulted from these contraventions. If Messrs Sullivan, Swan, Donaldson and McCormick had complied with their statutory duties in relation to the proposal to increase the AGA facility limit to $44.87 million, they would not have approved the proposal. Indeed, far from approving the proposal, they would, in all the circumstances, have refused to extend the AGA facility and would have demanded immediate repayment of, at the very least, all advances that had been made above the approved facility limit. They certainly would not have permitted the letter of offer to AGA offering a facility of up to $44.87 million (and potentially $55 million) to have been sent to AGA on 10 January 2007. 704 But for the approval of the proposal to increase the AGA facility to $44.87 million by the Credit Committee and the resulting offer of that facility to AGA, it is highly unlikely that any further advances would have been made to AGA after 10 January 2007. If the Credit Committee had refused to approve the proposal, as they plainly should have in the exercise of their statutory duties, it is highly unlikely that Mr McCormick would have facilitated or approved any further advances to AGA after 10 January 2007. If Messrs Sullivan, Swan, Donaldson and McCormick had acted in accordance with their statutory duties, not only would they have refused the proposal to extend and increase the AGA facility, they would have ensured that no further advances were made to AGA. 705 It follows that the balance of probabilities is that the losses incurred by the Fund arising from advances made to AGA after 10 January 2007 resulted from the contraventions of s 601FD(1)(b), (c) and (f) of the Corporations Act by Messrs Sullivan, Swan, Donaldson and McCormick in relation to the approval of the increase of the AGA facility limit to $44.87 million (and potentially $55 million). In any event, as will be apparent from what follows, the advances made after 10 January 2007 resulted from other contraventions by Messrs Sullivan, Swan, Donaldson and McCormick.

Losses resulting from the contraventions by Messrs Sullivan, Swan, Donaldson and McCormick in relation to the advances made between 11 January 2007 and 1 July 2007 706 If Messrs Sullivan, Donaldson, Swan and McCormick had not failed to exercise the degree of care and diligence that a reasonable person in their position would exercise, none of the 23 advances that City Pacific made to AGA on behalf of the Fund between 11 January 2007 and 1 July 2007 would have been made. Those advances totalled $11,520,974.93. Those advances resulted in the balance of the AGA facility exceeding its approved limit of $44.87 million. All of those advances were ultimately lost to the Fund. But for the contraventions by Messrs Sullivan, Swan, Donaldson and McCormick of s 601FD(1)(b) (and, in Mr McCormick's case, also s 601FD(1)(c) and (f)) of the Corporations Act in failing to prevent those advances, that loss would not have been incurred. 707 The submission that this loss would have been incurred in any event, and irrespective of the contraventions by the respondents, has been considered earlier in the context of the contraventions arising from the advances made in the period 28 April 2006 to 23 August 2006. That submission is rejected. The same is the case with the Progress Draws submission. That submission is rejected for the reasons earlier given.

DID TRILOGY FAIL TO MITIGAGE THE FUND'S LOSSES from the AGA facility? 708 There was no dispute that AGA defaulted under the AGA facility, that initially City Pacific and then Trilogy appointed receivers and managers to realise the Saddleback land that was held as security, and that in 2012 the various lots of Saddleback land were sold by the receivers. The gross sum recovered from the sales was only $7.627 million. That was, of course, significantly less than the amount owing by AGA. It was also significantly less than Mr Kogler's valuations, or purported valuations, that had previously been obtained by City Pacific in mid to late 2006. 709 In their defence to Trilogy's claim, Messrs Sullivan, Swan, Donaldson and McCormick all contended that Trilogy, as the responsible entity of the Fund, failed to properly mitigate the Fund's losses resulting from the AGA facility because it "failed to take proper steps to realise the March 2006 Saddleback Land". This failure was particularised in the pleadings mainly in terms of what the respondents contended Trilogy should not have done. In summary, it was contended that Trilogy should not have sold the Saddleback land as individual rural lots. Instead, so it was argued, Trilogy should have obtained "State Significant Development" and sold or developed the land as an "amalgamated parcel". 710 The case ultimately pursued by Messrs Sullivan, Swan and Donaldson in their extremely lengthy written (and to a lesser extent oral) submissions, ranged well beyond their pleaded case. They advanced an extraordinary hypothesis, based mostly on a patchwork of passages selectively extracted from documents to which no witness was ever taken, to the effect that the Saddleback land was deliberately "sacrifice[d]" and sold in a "fire sale" by Trilogy to thwart the ambitions of Mr Sullivan, or entities or persons associated with him, to regain control of the Fund. Trilogy characterised this aspect of the respondents' case, not without some justification, as amounting to nothing more than a conspiracy theory. 711 Some more will be said about this aspect of the respondents' failure to mitigate case in due course. It should be emphasised upfront, however, that it is not intended to refer to all the documentary evidence and submissions made by the respondents in relation to their case that Trilogy deliberately "sacrificed" the Saddleback land in a "fire sale." That is so for a number of reasons. First, many of these submissions involve serious allegations of impropriety against Trilogy and various persons associated with it. Those allegations were not pleaded or properly particularised in the respondents' defences. Second, the inferences that were said to be available in relation to the motivations of Trilogy and its officers were, for the most part, really nothing more than unfounded innuendo, conjecture or speculation. Third, most of this aspect of the respondents' case was essentially extraneous to what was the real factual issue here: did Trilogy act unreasonably in selling the Saddleback land when and how it did? And fourth, these reasons are already lengthy enough without having to chase a metaphorical bury of rabbits through the labyrinthine warren constructed by the respondents.

Relevant principles 712 The authorities indicate that the common law principles relating to the duty to mitigate, are not directly applicable to actions for compensation under s 1317H of the Corporations Act. The question whether an applicant is entitled to a compensation order under s 1317H, and the amount of the compensation to be awarded, depends on whether any damage suffered by the applicant "resulted from" the relevant contravention or contraventions of the Corporations Act. The meaning of the words "resulted from" and the causation issues that arise from them is a matter of statutory construction: Elna Australia Pty Ltd v International Computers (Aust) Pty Ltd (No 2) (1987) 16 FCR 410 at 418-419. There is, in those words, an "apparent telescoping of what to the common law would be concepts of causation, remoteness and measure of damages": Munchies Management Pty Ltd v Belperio (1988) 58 FCR 274 (Munchies v Belperio) at 286G. 713 The decision of the Full Court in Munchies v Belperio was concerned with the remedy in s 82 of the Trade Practices Act. As already indicated, in Adler v ASIC, it was considered that the causation issues arising from the words "resulted from" in s 1317H of the Corporations Act are similar to those that arise from the words "by conduct" in s 82 of the Trade Practices Act. In Munchies v Belperio, the Full Court referred, with apparent approval, to the following passage (at 287) from the judgment of French J in Pavich v Bobra Nominees Pty Ltd [1988] ANZ ConvR 556: The primacy of the causation principle in s 82 would seem to exclude reliance upon such concepts as mitigation or contributory negligence, unless it can be shown that the applicant's own carelessness or disregard for his or her interest is the cause of all or some part of the claimed loss. It may still be in such a case that the misleading or deceptive conduct complained of may be identified as a sine qua non of the loss claimed. There may come a point, however, where the applicant's own conduct is so dominant in the causal chain as to constitute a novus actus interveniens. It is perhaps simply putting it another way to say that in such a case a selection principle of the kind adverted to [in the Elna Australia case] comes into operation to exclude liability. The criteria for such selection may import concepts analogous to remoteness, mitigation or contributory negligence. 714 In Ackers v Austcorp International Ltd [2009] FCA 432, Rares J said at [229]: Section 82(1) of the Act permits recovery by an applicant for loss or damage notwithstanding his, her or its failure to mitigate or contributory negligence unless the applicant's own carelessness or disregard of his, her or its interests is the cause of some or all of the loss or damage: Munchies Management Pty Ltd v Belperio (1988) 58 FCR 274 at 286G-287C per Fisher, Gummow and Lee JJ applying what French J had said in Pavich v Bobra Nominees Pty Ltd [1988] ANZ Conv R 556 at p 23 … 715 In Henville v Walker, the High Court was concerned with whether damages under s 82 of the Trade Practices Act should be reduced to take into account contributory negligence by the applicant. In that context, McHugh J said (at [140]): Nothing in the common law, in s 52 or s 82 or in the policy of the Act supports the conclusion that a claimant's damages under s 82 should be reduced because the loss or damage could have been avoided by the exercise of reasonable care on the claimant's part. There is no ground for reading into s 82 doctrines of contributory negligence and apportionment of damages. No doubt, if part of the loss or damage would not have occurred but for the unreasonable conduct of the claimant, it will be appropriate in assessing damages under s 82 to apply notions of reasonableness in assessing how much of the loss was caused by the contravention of the Act. But that proposition is concerned with the items that go to the computation of the loss. As I have pointed out, nothing in the judgments of the courts below shows that there was any unreasonable conduct on the part of Mr Henville in incurring costs or raising revenue. (Footnote omitted.) 716 The reasoning in those cases is equally applicable to the question whether the common law doctrine of mitigation of damage should be read into s 1317H of the Corporations Act. 717 It would seem, therefore, that the issue here is not so much whether Trilogy failed to mitigate its loss. Rather, the question is whether any unreasonable conduct by Trilogy in response to, or as a consequence of, the respondents' contraventions resulted in some or all of the Fund's losses. Was Trilogy's conduct in relation to the realisation of the Saddleback land unreasonable? If so, did that unreasonable conduct break the chain of causation from the respondents' contraventions to some or all of the losses suffered by the Fund? 718 Whether the mitigation issues are approached by asking and answering those questions, or by applying the common law concept of failure to mitigate, the first step is to determine whether Trilogy's conduct in realising the Saddleback land was in any relevant sense unreasonable. In that regard, it was common ground that the respondents bore the onus of proving that Trilogy's conduct was relevantly unreasonable. That is certainly the case in relation to the common law concept of failure to mitigate: Karacominakis v Big Country Developments Pty Ltd (2000) 10 BPR 18,235; [2000] NSWCA 313 (Karacominakis) at [187]; Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd [2014] NSWCA 158 (Doppstadt) at [211]. There would appear to be no good reason why the question whether a claimant's conduct was unreasonable in the context of causation arising under s 1317H of the Corporations Act should be approached differently. It would follow that while Trilogy bore the onus of proving that the losses from the AGA facility resulted from the respondents' contraventions, the respondents bore the onus of proving that the Fund's losses (or some of them) in fact arose from Trilogy's unreasonable conduct. 719 Even putting the question of onus aside, unreasonable conduct in this context is not demonstrated by simply showing that the applicant could have taken a different course of action. That is certainly the case in the context of mitigation of damages: Karacominakis at [187]; Doppstadt at [213]. In the context of an alleged failure to mitigate, it has also been held that a plaintiff is not under any obligation to do anything other than in the ordinary course of business, or to sacrifice or risk any proprietary or other rights: Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd [1976] 1 NSWLR 5 at 9; Knott Investments Pty Ltd v Fulcher [2014] 1 Qd R 21; [2013] QCA 067 (Knott v Fulcher) at [45]. 720 In Knott v Fulcher, Muir JA (with whom Holmes JA and Atkinson J agreed) said the following (at [45]) in the context of question of causation that arose in an action for damages under the Trade Practices Act: In considering the reasonableness of the respondents' conduct, principles applicable to mitigation of damages may be thought to have relevance. In that regard it has been held that a plaintiff is not under "any obligation to do anything other than in the ordinary course of business [to mitigate his loss] … [and that] the plaintiff is not required to sacrifice or risk any of his property or rights". In Metal Fabrications (Vic) Pty Ltd v Kelcey, Murphy J, Brooking and Nicholson JJ agreeing, relevantly observed: "The respondents were under a duty only to act reasonably to mitigate their loss. This did not require them to chance their arm further, to risk any capital they might borrow too far or to take steps which would cause their financial ruin, if they failed: see Payzu v. Saunders [1919] 2 K.B. 581; Lesters Leather & Skin Co. v. Home and Overseas Brokers (1948) 64 T.L.R. 569; Clippens Oil Co. Ltd. v. Edinburgh & District Water Trustees [1907] A.C. 291, and Banco de Portugal v. Waterlow & Sons Ltd. [1932] A.C. 452, at p. 506; [1932] All E.R. Rep. 181, at p. 204. As Lord Macmillan remarked in the lastmentioned case, the measures which the sufferer from a breach of contract may be driven to adopt "ought not to be weighed in nice scales". So long as the respondents can be seen to have acted reasonably and justifiably in the circumstances, they should not be debarred from recovering the actual loss flowing to them simply because it is asserted that, by taking some other course, the loss might well have been lower." 721 Finally, in considering whether the conduct of an applicant was unreasonable in this context, "the standard of reasonableness is not high in view of the fact that [the respondents were] the wrongdoer[s]": Karacominakis at [187]; Segenhoe Ltd v Akins (1990) 29 NSWLR 569 at 582; Ryding v Miles [2012] NSWSC 153 at [79].

The respondents' case that Trilogy acted unreasonably 722 The respondents' pleaded case that Trilogy failed to act reasonably to mitigate the Fund's losses on the AGA facility hinged on the proposition that Trilogy could and should have pursued, and indeed obtained, "State Significant Development" in respect of the Saddleback land. Only then should Trilogy have sold the land. The particulars in the respondents' defences were as follows: 2. The Plaintiff should not have: a) maintained a policy and practice of retuning all available liquid capital to unitholders in the Fund thereby leaving itself unable to pursue a declaration state significant development for the Existing Seven Mountains Project or a modified version of it that utilised more of the available land (State Significant Development); b) sponsored a motion (which passed) to change the Constitution to reduce the management fee of the Fund to 1.5% denying it the profit motive and the resources to pursue State Significant Development; c) not have, in determining how to sell, relied on valuations of the land prepared on an "as is" basis and as separate lots, but rather considered the lands as a potential aggregated development opportunity, as suggested by the Updated March 2006 Valuation and other documents that the Plaintiff had in its possession or could have secured had it carried out the investigations called for by the circumstances (see below). d) sold the March 2006 Saddleback Land "as is" (as rural zoned land) rather than obtaining State Significant Development and selling or developing it as an Amalgamated parcel; e) promoted the sale of the March 2006 Saddleback Lands as a sale of rural lots of land; f) not have appointed Brisbane based Barimornie Pastoral Company to sell the March 2006 Saddleback Land; g) sold the March 2006 Saddleback Lands in what amounted, under the circumstances, to a fire sale (specifically over a seven month period), as such methods saturate the market for buyers of that type of property in that particular area in that particular time; 3. The Plaintiff should have pursued State Significant Development. 4. Had the Plaintiff pursued State Significant Development, in a competent manner, it would have in all likelihood have been obtained. 5. Thereafter, once State Significant Development was obtained, the Plaintiff should have: a) sold the March 2006 Saddleback Lands in a single line, as a development prospect, on the upswing of the next Gold Coast development cycle, or b) developed and sold the developed product on upswing of the next Gold Coast development cycle, or c) obtained joint venture partner, and with that partner, developed and sold the developed product on upswing of the next Gold Coast development cycle. 723 Before dealing with the substance of the respondents' case in relation to Trilogy's alleged failure to mitigate, it is necessary to deal with a ruling made at trial in relation to purported expert opinion evidence that Messrs Sullivan, Swan and Donaldson attempted to lead in support of their case.

Rejected opinion evidence 724 At the trial, Messrs Sullivan, Donaldson and Swan sought to tender an expert report of Mr Michael Gerard Robinson. Mr Robinson claimed to be an "expert in the practice of managers of mortgage funds that specialise in financing development projects on the Gold Coast (MGFs)". He claimed to possess specialised knowledge as a MGF, and that the opinions expressed in his report were based on that specialised knowledge. Whilst Mr Robinson's report was extremely lengthy (83 pages) and contained many findings, conclusions and opinions, the two central opinions relied on by Messrs Sullivan, Swan and Donaldson were: first, that Trilogy acted unreasonably in realising the Saddleback land; and second, that had Trilogy acted reasonably, the Fund would have suffered no loss in relation to the AGA loan. 725 Trilogy objected to the tender of Mr Robinson's report. It contended that the report did not meet the criteria for admissibility of opinion evidence based on specialised knowledge in s 79 of the Evidence Act (being an exception to the opinion evidence rule in s 76 of the Evidence Act) and that, even if it did, the Court should nonetheless refuse to admit the report in the exercise of the discretion in s 135 of the Evidence Act. In that regard, it was contended that the probative value of Mr Robinson's opinion evidence was outweighed by the danger that the evidence would be unfairly prejudicial to Trilogy, or might cause or result in an undue waste of time. 726 Trilogy's objection was upheld. Mr Robinson's opinion evidence was ruled to be inadmissible by reason of s 76 of the Evidence Act because it did not fall within the exception in s 79 of the Evidence Act. It was also indicated at the time of that ruling that, even if the report was admissible pursuant to s 79 of the Evidence Act, the Court would nonetheless have refused to admit it under s 135 of the Evidence Act. It was also indicated at the time that the Court's reasons for so ruling would be included in the final judgment. These are the reasons. 727 Putting aside, for the moment, discretionary exclusion under s 135 of the Evidence Act, there were essentially three reasons why the opinion evidence of Mr Robinson was inadmissible; first, because Mr Robinson was not shown to have had "specialised knowledge based on [his] training, study or experience"; second, the opinions expressed in the report were not shown to have been "wholly or substantially based on that specialised knowledge", because the report did not explain how any specialised knowledge possessed by Mr Robinson was applied to the facts, assumed or observed, so as to produce the opinions arrived at; and third, Mr Robinson's central opinion was based on assumptions that were demonstrably incorrect.

No specialised knowledge 728 For Mr Robinson's opinions to be admissible under s 79 of the Evidence Act, it needed first to be shown that he had relevant specialised knowledge based on his training, study or experience. 729 The concept of specialised knowledge "imports knowledge of matters which are outside the knowledge or experience of ordinary persons and which is sufficiently organised or recognised to be accepted as a reliable body of knowledge or experience": Velevski v R (2002) 187 ALR 233 at [82] (per Gaudron J) and the cases there cited; see too [154] (per Gummow and Callinan JJ); cf R v Tang (2006) 65 NSWLR 681 (Tang) at [137] as to whether the body of knowledge must be reliable. The word "knowledge" in this context connotes more than subjective belief or unsupported speculation; it means "any body of known facts or … any body of ideas inferred from such facts or accepted as truths on good grounds": Tang at [138] and [139]. It is necessary for the witness to identify with precision his field of specialised knowledge: R v G (1997) 42 NSWLR 451 at 459 (per Mason P; Stein JA and Sperling J agreeing). 730 Mr Robinson claimed to be an expert in the practice of managers of mortgage funds that specialise in financing development projects on the Gold Coast (MGFs). He claimed to have acquired specialised knowledge on the basis of his experience as a solicitor with a "direct mortgage practice" on the Gold Coast; as the managing director of a "nominee mortgage company for solicitors nominee mortgage practice" on the Gold Coast; and as a managing director of a responsible entity for a managed investment scheme which specialised in investing in development funding on the Gold Coast. 731 There is no doubt that Mr Robinson had worked in those positions, but what exactly was the recognised body of knowledge, in the sense of known facts and accepted truths, that was acquired by Mr Robinson from that experience? 732 Nowhere in Mr Robinson's report is there a clear and understandable articulation of the specialised knowledge that he had acquired as a result of his work experience. The most that could be said, as was effectively conceded by counsel for Messrs Sullivan, Swan and Donaldson, was that the knowledge acquired by Mr Robinson was the knowledge of a MGF. Whilst it could perhaps be said that Mr Robinson had experience in the mortgage finance industry on the Gold Coast, including as a director of a responsible entity of a managed investment scheme, and had acquired knowledge relating to that industry, it remained unclear exactly what that knowledge was: cf NMFM Property Pty Ltd v Citibank Ltd (No 7) (1999) 161 ALR 576 at [6]-[7]. 733 Simply describing the knowledge in terms of Mr Robinson's work experience did not assist. 734 Nor could it seriously be said that the knowledge possessed by a so-called MGF was knowledge that was sufficiently organised or recognised to be accepted as a body (let alone a reliable body) of knowledge or experience. Even the label "MGF" was somewhat dubious. There was, for example, no evidence of any professional organisation or association of MGFs. 735 Mr Robinson's report does contain a series of assertions about his "optimal ability" to read and understand certain things, like development proposals, town planning reports and valuations. He did not, however, claim to have qualifications or experience as a town planner or valuer. Mr Robinson also claimed to have "optimal knowledge" about certain things, such as "all aspects of development funding", but did not explain what that knowledge was. Finally, Mr Robinson claimed to have skills or experience in respect of various esoteric matters, such as an ability to identify competent people in other fields, and an ability to know the attitudes of councils. In truth, however, the only field of specialised knowledge identified by Mr Robinson in his report was the unique "optimal knowledge" he claimed to possess. 736 In all the circumstances, Mr Robinson did not demonstrate that he had relevant specialised knowledge based on his training, study or experience as required by s 79 of the Evidence Act. That alone was sufficient to render his opinion evidence inadmissible.

Opinions not shown to be based on specialised knowledge 737 Even if it was possible to glean from Mr Robinson's report that he in fact possessed specialised knowledge, it was impossible to ascertain how Mr Robinson applied that specialised knowledge to arrive at the opinions he expressed. Indeed, it was impossible to unscramble Mr Robinson's opinions from other findings, conclusions or inferences of fact drawn by Mr Robinson from the material briefed to him. It was, therefore, not possible to determine whether Mr Robinson's opinions were in fact based wholly or substantially on his specialised knowledge as required by s 79 of the Evidence Act. 738 A large part of Mr Robinson's report consisted of broad and sweeping statements about (to give but a few examples) the development cycle ("[a]nyone in the industry who has lived through these troughs in the development cycle on the Gold Coast knows that certain properties, at certain times, simply cannot be sold for the time being except at sacrificial prices" at [69]); or the impact of the global financial crisis on the Gold Coast ("[t]he mortgage funds suffered a series of hammer blows which had never previously occurred" at [86]); or the practice of MGFs where there is an anticipated shortfall from the sale of a security property ("… the MGF facing a shortfall will not be content to simply extract the existing value" but will "strive to create value with the resources at its disposal taking a long-term view" at [125]). If these were opinions, there was nothing to suggest that they were based on any specialised knowledge. 739 An equally large part of his report consisted of inferences or conclusions that Mr Robinson drew from the documents that had been briefed to him. Two examples suffice. First, from two emails apparently received by Mr Gore on the topic of a potential declaration of State Significance (the contents of which are considered in more detail later), Mr Robinson concluded that "it appears clear that the Government was using the State Significant Development Project mechanism as a way to cut through the red tape and legal uncertainty that had bogged down the 1989/1992 approval" (at [254]). Second, a valuation of the Saddleback land obtained by the receiver appointed to AGA in September 2011 (the content of which is considered in more detail later), Mr Robinson concluded or inferred that "Trilogy was aware of the danger that their desire to meet capital repayment schedules … would result in fire sales" (at [279]) and "Trilogy knew that liquidating the Saddleback properties as quickly as they did (within 9 months) was a fire sale" (at [281]). These inferences or conclusion drawn from documents were not shown to have been based on any specialised knowledge possessed by Mr Robinson. The Court was equally able to read and any draw inferences from these documents. 740 Sometimes Mr Robinson drew inferences or made assumptions based on what was not included in his brief. For example, Mr Robinson surmised from the fact that no town planning report had been included in his brief that Trilogy did not retain any town planning consultants to prepare a report and assumed, therefore, that "upon taking over the [F]und Trilogy instructed [the receivers] not to appoint a town planner". As will be seen, that assumption was critical to Mr Robinson's ultimate opinion. It was wrong. 741 Many of the opinions expressed by Mr Robinson were argumentative and could fairly be characterised as simply advocating the case for Messrs Sullivan, Swan and Donaldson. That was particularly the case in the many parts of Mr Robinson's report where he opined on what an MGF would or would not have done if presented with certain facts or documents. Those purported opinions were really just statements about what Mr Robinson would have thought or done in the circumstances. They amounted to little more than "bare ipse dixit": Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 (Makita) at [59]. Again, to give but one example, at [323]-[331] of his report, Mr Robinson considered the Updated March 2006 Valuation prepared by Mr Kogler. After a series of sweeping statements about the nature of relationships between MGFs and developers, and why developers and funders often obtain valuations which assume anticipated planning approvals, Mr Robinson stated (at [328]-[329]): In my opinion a MGF coming across the Hypothetical March 2006 valuation in the loan file would not conclude that it was a bogus and worthless document simply because its conclusions were based on hypothetical planning scenarios. In my opinion a MGF coming across the Hypothetical March 2006 valuation in the loan file would conclude the amalgamated land known as Saddleback was potentially an extremely valuable piece of land … 742 Overall, the opinions expressed in Mr Robinson's report could fairly and accurately be characterised as being "based on a combination of speculation, inference, personal and second-hand views … and a process of reasoning which went well beyond" whatever field of expertise Mr Robinson professed to have: HG v The Queen (1999) 197 CLR 414 (HG v The Queen) at [41] (per Gleeson CJ). Mr Robinson was in truth simply putting the inferences and hypotheses upon which Messrs Sullivan, Swan and Donaldson wanted to rely (HG v The Queen at [43] referring to Clark v Ryan (1960) 103 CLR 486 at 492) or "filter[ing] the facts", or telling the Court what facts it should find: Arnotts Limited v Trade Practices Commission (1990) 24 FCR 313 at 353; Makita at [78]. 743 Those deficiencies with Mr Robinson's report were not just a matter of form or a matter of weight, but went to the admissibility of the opinions expressed by Mr Robinson: Dasreef Pty Limited v Hawchar (2011) 243 CLR 588 (Dasreef) at [42]. The fundamental problem was that the reasoning in Mr Robinson's report failed to reveal any connection between any specialised knowledge he possessed and the opinions he expressed. His opinions therefore did not fall within the exception in s 79 of the Evidence Act and were therefore inadmissible.

Opinions based on demonstrably wrong assumptions 744 An opinion tendered under s 79 of the Evidence Act is inadmissible unless there is evidence, admitted or to be admitted before the end of the tendering party's case, which is capable of proving matters sufficiently similar to the assumptions relied on to render the opinion of value: Dasreef at [102], [127]. An expert's report based on certain assumptions which are not ultimately proved in evidence is irrelevant: Eric Preston Pty Ltd v Euroz Securities Ltd (2011) 274 ALR 705 at [171]; Dasreef at [103]. 745 As already indicated, Mr Robinson inferred "[f]rom the materials included in [his] brief" that Trilogy did not retain any town planning consultants to prepare a report (at [261]). Indeed, he inferred that Trilogy instructed the receivers appointed to AGA not to appoint a town planner. Those findings or inferences were central to Mr Robinson's finding, inference or conclusion that Trilogy failed to "investigate the potential of the site" which was in turn the "crux" of Mr Robinson's opinion that Trilogy departed from the "standard which would have been adopted by a reasonable MGF" (at [292]). 746 Trilogy proved, on the voir dire, that the inference drawn by Mr Robinson that Trilogy had not retained a town planner was wrong. 747 Messrs Sullivan, Swan and Donaldson did not challenge the fact that Mr Robinson's inference about the failure to retain a town planner was wrong. They sought to counter this, however, by seeking to tender a further report from Mr Robinson that sought to deal with the fact that Trilogy had in fact sought and received advice from a town planner. Mr Robinson was briefed with a copy of the town planning report. Remarkably, in his further report Mr Robinson stated that his "original conclusions stand" and in fact had been "bolstered" by, inter alia, the town planning report. 748 The problem, however, was that the further report did not squarely deal with the fact that the "crux" of Mr Robinson's original opinion had turned out to be false. More fundamentally, the further report was infected with exactly the same defects or deficiencies as the first report. Indeed, if anything, the further report made it even clearer that Mr Robinson was nothing more than an advocate for the cause of Messrs Sullivan, Swan and Donaldson. 749 As for the first problem, the crux of Mr Robinson's original opinion was that Trilogy had not commissioned a town planning report. In his further report, Mr Robinson sought to meet the fact that this crucial underpinning of his opinion was false by attacking the town planning report that had in fact been obtained by Trilogy. That did not squarely deal with the problem. The critical fact underpinning Mr Robinson's original opinion was not that Trilogy had obtained a report that was not considered by Mr Robinson to be satisfactory. It was that Trilogy had not sought a report. 750 In any event, Mr Robinson's attack on the report that was obtained by Trilogy simply underlined the problems with his evidence. In short, Mr Robinson attacked the town planning report because he considered that the quote for preparing the report was "too low for what was being asked". From that, he concluded or inferred that certain research he thought should have been conducted had not been conducted. That led Mr Robinson to conclude that the report was "severely limited". 751 None of those inferences, conclusions or opinions concerning the town planning report were shown to have been based on any specialised knowledge that Mr Robinson had acquired by virtue of his work experience. There were simply further examples of Mr Robinson drawing his own inferences and telling the Court what it should find. They were inadmissible. Accordingly the defect in the original opinion expressed by Mr Robinson remained. 752 Trilogy relied on other findings or assumptions made in Mr Robinson's original report that were also proven to be false. It is unnecessary to consider those further matters or the responses to them. Nor is it necessary, given the findings that Mr Robinson did not possess specialised knowledge, and that his opinions had not been shown to be based on specialised knowledge, to determine whether this ground alone was sufficient to lead to the exclusion of Mr Robinson's reports. At the very least, however, it can be said that the defect in Mr Robinson's original report, which was not cured by his further report, significantly undermined the probative value of Mr Robinson's evidence. That is relevant to discretionary exclusion under s 135 of the Evidence Act.

Discretionary exclusion under s 135 of the Evidence Act 753 Given the findings that Mr Robinson's opinion evidence in his two reports was inadmissible by reason of s 76 of the Evidence Act, because it did not fall within the s 79 exception, it was unnecessary to consider discretionary exclusion under s 135 of the Evidence Act. Nevertheless, it was made clear at the time of the ruling that, had Mr Robinson's reports been admissible under s 79 of the Evidence Act, the Court would nonetheless have refused to admit them in the exercise of the s 135 discretion. It is necessary to say something briefly on that point. 754 For the reasons already touched on, it was readily apparent that Mr Robinson's opinion evidence, even taken at its highest and in the absence of cross-examination, was of low probative value. That is because his reports were a mixture of speculation, inferences, and personal and second-hand subjective views. To the extent that the reports contained opinions concerning relevant matters, those opinions were based on Mr Robinson's own inferences and speculation, even though he often referred to them as assumptions. It was well-nigh impossible to unscramble Mr Robinson's opinions from the other inferences, findings and views. The vast bulk of Mr Robinson's reports comprised nothing more than "fact filtering" and advocacy. The probative value of Mr Robinson's evidence was also undermined by reason of the fact that crucial findings or assumptions that underlined his opinions had turned out to be incorrect. Taken at its highest, it is difficult to see that much, if any, weight could possibly have been given to Mr Robinson's opinions 755 On the other hand, the difficulties with Mr Robinson's reports that have just been referred to provided a sound basis for reaching two conclusions about Mr Robinson's reports: first, that if admitted, there was a significant danger that they would cause or result in an undue waste of time; and second, there was a danger that the evidence might be unfairly prejudicial to Trilogy. 756 Those two conclusions are related. They both stem from the fact that, if admitted, and putting aside for the moment the likelihood of specific objection having being taken to significant parts of Mr Robinson's reports, counsel for Trilogy would be faced with almost 100 pages of speculation, inferences, and personal and second hand views of Mr Robinson. Counsel would be faced with the unenviable prospect of having to try to unscramble the inferences, speculation and the assumptions from the genuine opinions (if any) and to cross-examine Mr Robinson in relation to the inferences and speculation that was considered to be wrong or unsupportable. That would undoubtedly have taken a considerable time. 757 It would also have been unfairly prejudicial to Trilogy. The danger that evidence might be "unfairly prejudicial" for the purposes of s 135 of the Evidence Act can arise from procedural considerations, including forensic difficulties in dealing with or responding to the evidence: see for example R v Sing (2002) 54 NSWLR 31; R v Dann [2000] NSWCCA 185 at [37]; Galvin v The Queen (2006) 161 A Crim R 449 at [28], [40] (inability to cross-examine). This was such a case. The unsatisfactory form and content of Mr Robinson's reports put Trilogy at a significant forensic disadvantage. 758 If Mr Robinson's reports were otherwise admissible, the danger that they would have caused or resulted in undue waste of time and been unfairly prejudicial to Trilogy substantially outweighed their probative value such that it would have been appropriate to refuse to admit them under s 135 of the Evidence Act.

The alleged unreasonable failure to mitigate 759 The crux of the respondents' case that Trilogy failed to reasonably mitigate the Fund's losses from the AGA facility was the contention that Trilogy sold the Saddleback land in a manner that amounted to a "fire sale". They contended that Trilogy had a duty to not only investigate how AGA had proposed to develop the Saddleback land, but also a duty to take steps to enhance the value of the Saddleback land by obtaining a rezoning of the land in accordance with the 1989 or 1992 rezoning approval and then completing the development application process. Trilogy was, in the respondents' submission, required to hold and maintain the Saddleback land until those enhancements had been achieved. It could then either sell the Saddleback land as a single "aggregated development opportunity" or develop the land itself, either alone or in a joint venture. 760 Thus, the respondents in effect contended that Trilogy should have continued to pursue the very strategy that AGA and Mr Gore had apparently been pursuing, with absolutely no success, since 2004 or 2005. It should have become a property developer. 761 Even putting aside the evidence relied on by Trilogy concerning the advice that it and the receivers sought and obtained about the prospect and feasibility of the Saddleback land being rezoned, one of the many difficulties for the respondents in respect of this aspect of their case was that they were unable to point to any evidence that indicated that there was any reasonable or realistic prospect that the Saddleback land would be rezoned or could be developed as proposed. 762 The high point of the respondents' case was two emails sent to Mr Gore in early to mid-2008. The first email was sent on 22 February 2008. It was from the Personal Assistant to the Deputy Premier, the Minister for Infrastructure and Planning. That email simply noted that Mr Gore wanted to meet with the Deputy Premier to discuss proposed changes that the State had imposed in respect of the proposed development. It was said that the Deputy Premier would need to approve those changes before declaring the project State Significant. Exactly what the proposed changes were is unclear from the email. It is equally unclear whether any meeting between Mr Gore and the Deputy Premier ever eventuated. 763 The second email was sent to Mr Gore on 19 May 2008. It was from an officer of "Infrastructure Queensland". It stated that the "Seven Mountains project" had been "recommended for approval", though it is not clear to whom or by whom it had been recommended. In any event, the email then included a long list of things that had to be done, or had to occur, before the project was "forwarded for approval". The things that had to be done included things to be done by the applicant and the "Scenic Rim Council". The attitude of the Scenic Rim Council to this was unclear. It was unclear whether all or any of those things could be done or achieved. Even if those things had been achieved, it still remained unclear whether the recommendation would be acted on and approved. Plainly these things had not been achieved and the recommendation had not been made or approved prior to the appointment of the receivers to AGA in February 2009. 764 Neither of those emails provided any real support for the proposition advanced by the respondents that the Saddleback land would be rezoned. Neither of the emails provided any assurance that the proposed Saddleback development would be declared State Significant. And even if the land was declared State Significant, the declaration would by no means ensure that the land would be rezoned or that a development approval would be granted. A declaration of State Significant was, at best, only the first step in a potentially lengthy, complex and expensive process. 765 It was common ground that the relevant "State Significant" process was at the time set out in the State Development Act. The parties disagreed, however, about what the process entailed. Strangely enough, the State Development Act did not in terms refer to a declaration of State Significance, other than in respect of projects relating to mineral or energy resources - which Saddleback plainly was not. The first question, therefore, is what exactly was a declaration of State Significance 766 Needless to say, it is not intended to refer at length to the intricacies of the State Development Act, or the processes or procedures referred to in it. Following is a brief and highly simplified summary of the processes that might have been involved. 767 Trilogy contended that the reference in the various documents to a State Significant declaration was a reference to a declaration by the Coordinator-General under s 26 of the State Development Act that a particular project was a "significant project" for which an environmental impact statement was not required. Such a declaration, if made, might lead to a certain streamlining of the process for approval of a development application. Importantly, however, ultimately the responsibility for the development application remained at all times with the relevant council. Thus, even if the proposed development of the Saddleback land was declared by the Coordinator-General to be a "significant project", it was by no means assured that this would lead to a rezoning. It remained up to the council. If the appeal from the Council's earlier refusal of the rezoning was not pursued or was unsuccessful, or if the Council was not otherwise persuaded to alter its stance, the proposed development would go nowhere, even if declared State Significant. 768 Messrs Sullivan, Donaldson and Swan contended that the reference to a project being declared State Significant was a reference to a declaration by the Minister that a particular project (including a project which had been declared a significant project under s 26) was a "prescribed project" under s 76E of the State Development Act. Such a declaration could then lead to a series of notices being issued to the decision-maker (the council), including a "progression notice" (which, as the name suggests, gave the council a "hurry-up"), a "notice to decide" (which required the council to make its decision within a particular period) or, most significantly "step in notice". A step in notice could only be given after a progression notice or notice to decide. The potential effects of a step in notice included that the Coordinator-General would become the decision-maker. 769 It is by no means clear that Mr Gore or anyone else had taken any step towards seeking a "prescribed project" declaration by the Minister under s 76E of the State Development Act. Indeed, the references to "State Significance" in Mr Kogler's valuations (and the advices of Mr Fynes-Clinton referred to in them) was a reference to a declaration under s 26 of the State Development Act. That also appeared to be the subject-matter of the two emails relied on by Messrs Sullivan, Swan and Donaldson. 770 It is, however, ultimately unnecessary to determine whether what was being referred to in the various documents relied on by Messrs Sullivan, Donaldson and Swan (including the emails sent to Mr Gore in February and May 2008, or the valuations prepared by Mr Kogler) was a "significant project" declaration under s 26 of the State Development Act, or a "prescribed project" declaration under s 76E of the State Development Act. Either way, the evidence did not go so far as to establish that a declaration under either section had been made, or was in prospect, or was even likely to be made. And even if a declaration under either section had been made, that fell a long way short of any assurance that development approval in respect of the project would ultimately be given. 771 As will be seen, the paucity of evidence that there was any real prospect of the Saddleback land being declared to be a significant project, or a prescribed project, and that this would lead to a rezoning of the land and development approval being given in respect of the proposed project, stood in stark contrast to the wealth of evidence that indicated to the contrary. That evidence was in the form of advice received by Trilogy and the receivers who had been appointed to AGA to realise the Saddleback land. The effect of that advice was, in short, that the rezoning of the Saddleback land was either unlikely or fraught with difficulty. That evidence will be addressed in some detail later.

Allegations of impropriety and improper purpose 772 Faced with that difficulty (amongst others) in relation to their failure to mitigate case, the respondents launched an extraordinary attack on the integrity and propriety of Trilogy and persons associated with it in relation to their management of the Fund since Trilogy's appointment as the responsible entity. The point of the attack was apparently to seek to demonstrate that Trilogy's decision to sell the Saddleback land when and in the way it did was both the product of collateral and improper purposes and motivations and the result of other dishonest or deceitful behaviour. The attack culminated in the astonishing submission that Trilogy deliberately "sacrifice[d]" the Saddleback land in a "fire sale" and commenced these proceedings for the ulterior motive of giving credence to, or misleading shareholders about, so-called "litigation units" that were being offered to the Fund's members. 773 None of the conduct and events relied on by the respondents in support of this aspect of their case, and none of the serious allegations levelled against Trilogy or persons associated with it, were the subject of the respondents' pleaded case. None of the serious allegations were the subject of direct evidence, or were obvious from the documents tendered by the respondents. The case theory or hypothesis relied on by the respondents effectively emerged for the first time in oppressively lengthy written submissions after the conclusion of the evidence. Trilogy effectively had no opportunity to file any evidence in relation to those allegations. It would, in the circumstances, be manifestly unfair to Trilogy for the Court to entertain this aspect of the respondents' failure to mitigate case. 774 In any event, for the most part, the inferences that the respondents contended should be drawn from the sequence of events disclosed in the documentary evidence were simply not available or supported by the evidence. That is certainly the case in relation to the ultimate inference that the respondents contended should be drawn, being that Trilogy deliberately sold the Saddleback land in a "fire sale" at a total price that was well less than the price it knew would be obtained if the rezoning of the land was pursued. That inference was not a reasonable or rational inference supported by all the evidence. Indeed, it was illogical and contrary to the evidence. The respondents' submissions based on that inference are rejected. 775 For those reasons, and the reasons given earlier, it is not intended to deal at length with the evidence and submission made by the respondents in support of this aspect of their case. Following is a brief summary. It should be noted that Trilogy appointed another company, Balmain Trilogy Investment Management Pty Ltd (Balmain Trilogy), to manage the assets of the Fund. Balmain Trilogy in turn appointed Balmain NB Corporation Limited (Balmain) as a sub-manager of the assets of the Fund. In the interests of simplicity, the actions of Balmain Trilogy and Balmain will be referred to in the following discussion as the actions of Trilogy. Likewise, officers of Balmain Trilogy and Balmain will be referred to as officers of Trilogy unless some issue turns on their actual position. 776 The starting point for the respondents' hypothesis was the removal of City Pacific as the responsible entity of the Fund. The circumstances in which City Pacific was removed no doubt resulted in considerable ill-will between officers of City Pacific, in particular Mr Sullivan, and the new responsible entity and entities and persons associated with it. Indeed, there could be little doubt that the enmity that Mr Sullivan felt and feels towards Trilogy and persons associated with it persists today. It coloured or permeated the allegations and submissions advanced on his behalf. 777 The respondents contended, or hypothesised, that Trilogy made an incorrect assessment of the Fund's position at the time of the "takeover". In the respondents' submission, Trilogy optimistically believed that it could remediate and build up the Fund and eventually bring in new investments. This optimism led it to reduce the management fee for managing the Fund's assets from 2.5 percent to 1.5 percent. Upon taking control of the Fund, the respondents contended that Trilogy reached the opinion or conclusion that the state of the Fund's assets were far worse than expected. In particular, Trilogy realised that the impaired book values of uncompleted developments on security properties were overly optimistic. 778 The respondents contended that Trilogy's investigation and analysis of the Fund's assets led it to believe that the best way to realise value from some of the assets was to complete uncompleted developments and, in some cases, to pursue rezoning or development applications. This, in turn, led Trilogy to propose and put a resolution to the Fund's members which involved a "new strategy" in relation to asset realisation. That new strategy would permit Trilogy to undertake a "staged development of selected, unimproved assets". A critical plank in this new strategy was, in the respondents' submission, a proposed 20 percent "performance fee". 779 It should be noted that the documentary evidence did provide some support for the respondents' contentions to this point. The evidence did not, however, support some of the hyperbole and negative connotations included in the respondents' submissions about these events. In any event, it was from about this point that the respondents' contentions and allegations became somewhat outlandish. 780 The respondents contended that Trilogy engaged in a campaign to ensure that the new strategy resolution (and in particular the performance fee) was passed by the Fund's "unitholders". That campaign allegedly involved manifestly improper, misleading or deceptive conduct. The allegations levelled against Trilogy by the respondents included, amongst other things: inducing unitholders to sell their units to a "bulk purchaser" (the liquidity offer) who would support the new strategy; "invent[ing]" so-called "litigation units", which involved the allocation of the proceeds of proposed litigation, so as to make the liquidity offer seem more attractive and therefore "chase" the performance fee; and making misleading representations in the Information Memorandum provided to the unitholders in relation to the new strategy resolutions. 781 The new strategy resolution was not passed by the unitholders. Nevertheless, the respondents contended that Trilogy continued to pursue the performance fee. They also contended that Trilogy adopted a strategy to defeat potential challenges by other persons, in particular Mr Sullivan, to wrest control of the Fund from Trilogy. On the respondents' case, that strategy also included manifestly improper conduct. The allegations made by the respondent against Trilogy in this context included: "hyping" the litigation units by making representations to unitholders that inflated the value of the litigation units, including that flagrant and unarguable wrongs had been done to the Fund by City Pacific and Mr Sullivan; "hyping" the value of the litigation units to stave-off unitholder dissatisfaction and a proposed "challenge" by Mr Sullivan; and selling the Saddleback land at a "fire sale" to "hype" the litigation units and defeat the challenge by Mr Sullivan. 782 The respondents went so far as to submit that not only the "fire sale" of Saddleback, but also the commencement and pursuit of these proceedings by Trilogy, was "for the … ulterior purpose of giving continued credence to the supposed value of the litigation units." 783 All of these allegations just referred to were and are baseless. They were not supported by any direct evidence. Nor were they supported by reasonable or rational inferences able to be drawn from the documentary evidence relied on by the respondents. At the very most these serious allegations were the product of "inexact proofs, indefinite testimony, or indirect inferences" (cf Briginshaw at 362), though even that perhaps puts the matter too highly. The allegations never rose higher than bare assertion or speculation. They are rejected. 784 Three further submissions made by the respondents should be touched on before considering Trilogy's response to the respondents' case that it acted unreasonably in relation to the realisation of the Saddleback Land. 785 First, it was submitted that Trilogy failed to investigate the potential for rezoning the Saddleback land. The respondents contended that the only "rezoning initiative" that was considered by Trilogy was the appeal from the Council's decision to refuse to reconsider or gazette the 1989 or 1992 rezoning approvals. 786 Second, the respondents submitted that Trilogy unreasonably failed to pursue the appeal. It was contended that Trilogy never showed any genuine intention to ascertain the prospects of success of the appeal. Third, it was submitted, in effect, that the unreasonable treatment of the Saddleback land by Trilogy was revealed by the contrasting reasonable approach that Trilogy took to other security properties. Trilogy's approach to other security properties included seeking development approval and the funding of the completion of the construction of some developments that had been partially constructed at the time of AGA's demise. 787 The first two submissions were answered largely by the evidence relied on by Trilogy in its response to the respondents' allegations that Trilogy failed to act reasonably to mitigate its losses in relation to the AGA facility. There was evidence that the receivers and Trilogy sought and received professional advice in relation to both the prospects of achieving a rezoning of the Saddleback land and the prospects of success of the appeal. That evidence will be considered in detail shortly. 788 The third submission requires some brief consideration to be given to the evidence relating to Trilogy's realisation of other security properties. The short point is that the evidence revealed that the other properties held as security by Trilogy were materially different to the Saddleback land. The other properties either involved developments that were under way or where there was no apparent issue in relation to the development. In the case of Saddleback, however, the advice sought and received by the receivers and Trilogy did not suggest that there was any realistic prospect of rezoning or development in the foreseeable future.

Realisation of other security properties 789 The evidence clearly established that Trilogy adopted different realisation strategies in relation to different security properties. Trilogy categorised some security properties as "long term assets". These were properties "where, to avoid a 'fire sale', the security needs considerable time, effort and management to extract proper value". Some of the strategies for assets categorised as long term assets included holding the properties whilst the planned development approval process or the development itself was completed. 790 In its initial asset review in 2009, Trilogy included the Saddleback land in the "long term" category. By August 2010, however, it would appear that development of the Saddleback land was no longer considered a viable option. That was the case whether or not the unitholders approved Trilogy's so-called "new strategy". That position was even clearer by November 2010. In presentations to unitholders in November 2010, the Saddleback land was only referred to in the context of potential litigation. No reference was made to any particular realisation strategy in relation to the Saddleback land. It was not included within the group of "remaining assets" which required "more work prior to optimal market sales occurring." 791 Messrs Sullivan, Swan and Donaldson contended that the "reasonable" actions of Trilogy in relation to some of the other "long term" security properties stood in stark contrast to what they contended was the unreasonable action in relation to Saddleback. As already indicated, they also contended that the differential treatment of the Saddleback land supported the inference that the strategy in relation to the Saddleback land was the product of an improper scheme that was directed to stave-off an attempt by Mr Sullivan, or persons or entities associated with him, to retake control of the Fund. 792 The difficulty with that submission, however, is that it is readily apparent that the other long term properties were different in material respects to the Saddleback land. 793 For example, some of the properties relied upon by Messrs Sullivan, Swan and Donaldson in support of that submission were properties where buildings had been partially completed. Those properties included: a development on the Gold Coast involving 67 units, 36 of which had not been completed (asset 24 - Ilanah Aqua); an apartment building in Brisbane which included 52 apartments, 4 of which had not been completed (asset 11 - Spring Hill); and a partially completed residential apartment building in Heidelberg, Victoria (asset 22). Not surprisingly, the decision was taken to fund the completion of the construction of the improvements on these properties. 794 There were some properties where Trilogy proposed to pursue development applications to maximise recoveries. For example, Mariner's Cove (asset 32) was a property on the waterfront on the Spit at the Gold Coast adjacent to the Sheraton Mirage. Trilogy proposed to pursue "optimum development approval" for the redevelopment of the site prior to sale. That strategy continued to be pursued after the failed "new strategy" resolution because it only required "time and effort" and "a relatively small capital investment" to procure the development consents prior to sale. There was no indication that Trilogy had received any advice that the grant of the proposed development approval was unlikely. 795 Similarly, Trilogy held security over a number of properties within a large development known as Martha Cove (assets 35, 36, 37, 38, 39 and 40) which was located on the western shores of Port Phillip Bay 60 kilometres south of Melbourne. The properties included a number of marina berths, completed houses, a number of housing lots, land capable of yielding apartments, retirement units and a hotel and land with no approvals in place for development. It would appear from various reports or presentations that there were complex issues in relation to the Martha Cove development. Those issues included that there were "competing" owners of other properties within the development who had inconsistent or conflicting realisation strategies. Trilogy proposed, amongst other things, to acquire the other properties so a consistent approach could be taken to completing the development. Trilogy's strategy included procuring requisite rezoning and development approvals for the land which did not have approvals in place. Whilst the issues in relation to Martha Cove may have been complex, there was nothing in any of the materials to suggest that the completion of the development, including obtaining development approvals, was not feasible. 796 Trilogy also had an interest in a 40 hectares of land located in Carrara on the Gold Coast which was adjacent to a number of prestige housing estates. It would appear that an interim development approval for a residential subdivision had been obtained. For reasons that are unclear from the evidence, the view was taken that the interim development approval was "sub-optimal". Trilogy proposed to "procure the optimal development approval and then move to sell the site upon receipt of the new approval." This strategy continued to be pursued after the defeat of the "new strategy" resolution because it only required "time and effort" and a "relatively small capital investment to procure the development consents." There was again nothing to suggest that Trilogy faced any particular issues in securing the development consents. 797 Overall, the material relied on by Messrs Sullivan, Swan and Donaldson revealed nothing more than that Trilogy had given careful consideration to the difficult question of what realisation strategies should be adopted in relation to the different properties it held security over. It did not have a single strategy. It plainly wanted to avoid any "fire sales". Where warranted, the strategy that was adopted in relation to a particular property or properties involved completing uncompleted developments or holding the property and pursuing development approvals before sale. Much depended on the nature of the particular property, the time, effort and cost involved and, no doubt, the prospects of successfully securing the proposed development approval or approvals. As indicated in the context of the specific examples relied upon by Messrs Sullivan, Swan and Donaldson, in those cases where development approvals were pursued, there was nothing in the evidence to suggest that Trilogy had received advice that there were particular problems or issues involved in securing the proposed development approvals. 798 The strategy that was ultimately adopted in relation to the Saddleback land did not involve pursuing rezoning and development approvals. It does not, however, follow that this was the result of unreasonable or improper conduct on the part of Trilogy. Rather, the available and preferable inference is that a different strategy was adopted because the Saddleback land was materially different to the other "long term" security properties. In particular, and contrary to the central submission made by Messrs Sullivan, Swan and Donaldson, the evidence pointed inescapably to the fact that the prospects of successfully securing rezoning and development approvals in relation to the Saddleback land were at best remote. That is apparent from the advice received by the receivers and Trilogy in relation to the Saddleback land.

Trilogy's case in relation to mitigation 799 Trilogy's case in relation to the realisation of the Saddleback land was, in short, that it acted reasonably because it relied on professional advice received by it or the receivers in relation to the Saddleback land. 800 There was no dispute that, following AGA's default under the AGA facility, receivers and managers were appointed to AGA. In February 2009 City Pacific appointed Mr Korda and Mr Park of KordaMentha. In August 2011, Trilogy removed those receivers and appointed in their stead Mr Whittingham and Mr Joiner of PKF Chartered Accountants. Trilogy called evidence from Mr Whittingham and Mr Joiner. They were not cross-examined. 801 The role of the receivers was important. It was ultimately Mr Whittingham and Mr Joiner who sold the Saddleback land in their capacity as receivers and pursuant to their express power in s 420 of the Corporations Act. Receivers are officers of a corporation. They are therefore subject to the duties under s 180 of the Corporations Act. They are also subject to a specific statutory duty in s 420A(1) of the Corporations Act. That subsection provides as follows: In exercising a power of sale in respect of property of a corporation, a controller must take all reasonable care to sell the property for: (a) if, when it is sold, it has a market value - not less than that market value; or (b) otherwise - the best price that is reasonably obtainable, having regard to the circumstances existing when the property is sold. 802 It was never suggested to Mr Whittingham or Mr Joiner that in exercising their power of sale in respect of the Saddleback land, they failed to take reasonable care to sell the property for not less than the market value, or for the best price reasonably obtainable in the circumstances. Indeed, as has been said, they were not cross-examined at all. Whilst Mr Korda and Mr Park did not give evidence in these proceedings, the respondents did not contend that Mr Korda and Mr Park failed to take reasonable care, or acted unreasonably, whilst they were the receivers. Nor was there any evidence that suggested that they did in any way act unreasonably. 803 Having regard to their statutory duties, it is not surprising that the receivers sought and obtained valuations and advice in relation to the Saddleback land from time to time during the period of their appointment. Following is a brief summary of the advice sought and received by the receivers. 804 The first valuation was sought and received by the initial receivers, Mr Korda and Mr Park. In a valuation report dated 13 March 2009, Herron Todd White expressed the opinion that the market value of the Saddleback land was $15.675 million "as is" and based on gross realisation from sale proceeds, or $10.12 million based on the sale of parcels "in one line". The valuer was instructed to take into account any proposed zoning amendments, development approval, or State Significance declaration. The opinion expressed by the valuer in that regard, however, was that the potential for the proposed Gore development was "very limited" and that "without approvals, lack of services and likely very high development costs … its viability would be very limited". 805 The March 2009 Herron Todd White valuation was subsequently received and reviewed by Trilogy. 806 From mid to late 2009, the initial receivers sought and received advice from solicitors from the large and well-known law firm Minter Ellison in relation to both the potential for the development of the Saddleback land and the prospects of success of the appeal against the adverse zoning decision by the Council. In relation to the first issue, Minter Ellison advised, amongst other things, that it was unlikely that the land would be rezoned and that the "most likely scenario was that the land couldn't be developed". In relation to the second issue, Minter Ellison advised that there were a number of challenges in pursuing the appeal and that, in any event, even if the appeal was successful, securing ministerial approval for the rezoning "would not be an easy exercise because of changes to the regulatory setting". 807 In May 2010, a town planning expert employed by the firm RPS was retained by the receivers to provide a report on the development opportunities and constraints associated with the Saddleback land. The RPS retainer was approved by Trilogy and prepared in consultation with Minter Ellison. The advice received from RPS in respect of the Saddleback land was far from encouraging. 808 RPS initially advised that it was "very unlikely" that the State Government would approve the rezoning of the Saddleback land and that "without approval of the rezoning, the development opportunities were very restrictive". In a later report, dated 22 June 2010, RPS advised that there were three options for development. The first was to break up and sell the land as 26 properties on large rural parcels. The second option involved small scale tourism and recreational development within the Regional Landscape and Rural Production Area of the South East Queensland Regional Plan. The third involved a possible exception provided in the South East Queensland Regional Plan in the areas designated "Rural Precinct". The possibility of pursuing that option was, however, considered to be low for a number of reasons, including the requirement of council approval. 809 RPS also referred to the rezoning appeal. It was noted, however, that even if the appeal was allowed, the rezoning approval would still need to be supported by the Department of Infrastructure and Planning. 810 In their submissions, Messrs Sullivan, Swan and Donaldson criticised the RPS report. They contended, amongst other things, that the report was limited and inadequate, particularly given that the original fee estimate for the report was $35,200, whereas the quote ultimately received and approved was for $11,550. They compare the report unfavourably to a submission prepared in relation to the proposed development some years earlier on the instructions of AGA or Mr Gore. None of those criticisms have any merit. The RPS report speaks for itself. The respondents did not call evidence from an expert town planner in support of their contention that the RPS report was in any way deficient. 811 In early to mid-2010, Trilogy retained a firm of valuers, LandMark White, to value the Saddleback land. In a valuation report dated 1 April 2010, LandMark White expressed the opinion that the market value of the land was $15.445 million. The report referred to the 1989 and 1992 rezoning approvals and the development proposed by AGA or Mr Gore, but noted that this proposal was "not considered the highest and best use … in the current market". It was noted that as the land was not in the Urban Footprint of the South East Queensland Regional Plan it had "limited development potential for residential or any other purpose other than its current agricultural/rural use". 812 LandMark White provided an updated report to Trilogy on 30 June 2010. That report took into account the town planning advice in the RPS report. The valuer expressed the opinion that the 1989 or 1992 rezoning approval did not "currently hold any relevance to [the] future of the land" and that "no weight should be given to [the] approval in relation to the future development potential of the land as the legislative framework has changed". The report valued the land at $12 million. 813 In May 2011, Trilogy sought and received advice from a large real estate agency, Colliers International (Colliers) in relation to Saddleback. Colliers advised, amongst other things, that there were "considerable constraints" to the development of the Saddleback land, that the local community would "strongly object" to the development, that it would be difficult to sell the land to a developer "in the current environment", and that the "best option" would be to sell the Saddleback land as individual rural residential lots as advised by RPS. 814 In September 2011, the receivers obtained a further valuation from LandMark White. The report again noted that the land had "minimal development potential other than for rural and lifestyle purposes" and expressed the opinion that the market value of the land was $15.2 million based on a gross realisation of all 26 lots. A further report received from LandMark White in February 2012 valued various parcels of the Saddleback land as having a combined market value of $10.55 million. 815 Finally, in September 2011, Minter Ellison advised the receivers that the prospects of rezoning were "poor" and that there was "very little chance" that the project originally proposed by Mr Gore would be declared State Significant. 816 The unchallenged evidence of Mr Whittingham was that he was involved in commissioning the valuations from LandMark White. He also gave detailed evidence concerning the steps that he and Mr Joiner, as receivers, took in relation to selecting and instructing real estate agents to market and deal with the sale of the Saddleback land, the amalgamation of a number of the individual lots in accordance with the advice or opinion that had been received from RPS and LandMark White, and other decisions and steps taken in relation to the sale of the properties. 817 Mr Joiner gave unchallenged evidence concerning decisions made and steps taken in relation to AGA's appeal against the Council's decision to refuse to proceed with and gazette the 1989 or 1992 rezoning approval. Mr Joiner considered and acted on the advice of Minter Ellison and counsel in relation to that appeal. Mr Joiner formed the opinion, based on that advice, that the appeal had limited prospects of success and that, in any event, even if the appeal was successful, it would not necessarily lead to a rezoning of the Saddleback land. He gave Minter Ellison instructions to request adjournments of the appeal and eventually to file a notice of discontinuance. Given that Mr Joiner was not cross-examined, it could not be suggested that it was in any way unreasonable for him to act on Minter Ellison's advice in that regard. 818 Messrs Sullivan, Swan and Donaldson submitted that the evidence of Mr Whittingham and Mr Joiner was irrelevant. That was said to be because the receivers did not make the decision to sell the Saddleback land. That decision was made by Trilogy. Messrs Sullivan, Swan and Donaldson contended that the receivers were only involved in making "minor decisions" in relation to the sale of the Saddleback land, and that those decisions were ultimately irrelevant to the mitigation issue. 819 There is no dispute that the receivers did not make the initial decision to sell the Saddleback land. Mr Whittingham's evidence was that the deed pursuant to which he and Mr Joiner were appointed provided that the receivers did not have authority to decide to sell security properties without instructions from Trilogy. He said that he was not party to Trilogy's decision to sell the Saddleback land. That decision was made before his formal appointment on 4 August 2011. It does not follow, however, that the evidence of Mr Whittingham and Mr Joiner was irrelevant or that they only made "minor decisions" concerning the sale of the Saddleback land. Whilst they may not have taken the decision to sell the land, once that decision was taken, there could be no doubt that the receivers acted reasonably and in accordance with their fiduciary and statutory duties in selling the Saddleback land. They instructed and appointed professional valuers, agents and solicitors and acted in accordance with their opinions, advice and recommendations. Messrs Sullivan, Swan and Donaldson did not suggest otherwise. 820 What does follow from the evidence of the receivers, and the submission of Messrs Sullivan, Swan and Donaldson in relation thereto, is that the respondents' case of unreasonableness by Trilogy was essentially narrowed to the decision taken by Trilogy to instruct the receivers to commence the process of selling the Saddleback land. It is necessary, therefore, to consider the evidence relating to that decision. 821 Trilogy called evidence from Mr Marcus Fazzolari in relation to the decisions and actions taken by Trilogy in relation to the realisation of the Saddleback land. Mr Fazzolari was a senior officer of Balmain and Balmain Trilogy. Much of Mr Fazzolari's evidence related to formal or routine matters that turned out to be largely uncontentious. The exception to this was his evidence concerning the decision to sell the Saddleback land. 822 Mr Fazzolari's evidence was that the decisions concerning the realisation of the Fund's assets were the responsibility of the Credit Risk and Investment Committee (CRIC) of Balmain Trilogy. Mr Fazzolari was not himself a member of CRIC, though as a senior officer of Balmain and Balmain Trilogy he regularly attended CRIC meetings and was often the minute taker. Relevant CRIC meeting minutes were in evidence. Following is a brief summary of Mr Fazzolari's evidence in relation to the decision to sell the Saddleback land. 823 When Trilogy took over from City Pacific as the responsible entity of the Fund, Trilogy conducted an asset review. The Saddleback land was initially classified as a "long term hold". The minutes of a CRIC meeting held on 20 October 2009 reveal that the reason that the land was so classified included that it was necessary to conduct due diligence of the proposed project, including commissioning an independent town planning review. CRIC subsequently approved the retainer of RPS (Conics), and in April 2010, a draft report was received from RPS. That draft report was provided to LandMark White for the purposes of receiving an updated valuation. The final RPS report was received in mid 2010. The contents of the RPS report and the updated valuation of Landmark White have already been referred to. 824 According to Mr Fazzolari, the decision to move towards the sale of the Saddleback land was taken in May 2011. Mr Fazzolari's evidence in that regard was based essentially on minutes of CRIC meetings for April and May 2011 and correspondence that occurred at that time with Colliers. The advice received from Colliers, which also took into account the town planning advice of RPS, has already been referred to. The May 2011 CRIC meeting minutes reveal that the decision to sell the Saddleback land was taken following the receipt of the RPS town planning report, the LandMark White valuations and the advice received from Colliers. The minutes of the 20 May 2011 CRIC meeting indicate that the RPS report had been "submitted to selected agents for input into the most likely outcome for [the] realisation of the asset". 825 Mr Fazzolari's evidence was that a decision to sell a specific lot of Saddleback land was first taken by CRIC at a meeting on 12 August 2011. That decision was taken because a specific offer to purchase that lot had been made at a price that was $250,000 above the latest valuation, and advice had been received that the sale of that individual lot would not hinder the sale of the balance of the land. Contracts for the sale of that lot were eventually exchanged in February 2012. 826 Messrs Sullivan, Swan and Donaldson submitted that Mr Fazzolari's evidence that CRIC made the decision to sell the Saddleback land should not be accepted. They point to the fact that that CRIC minutes are "perfunctory in the extreme" and do not expressly record any decision to sell the Saddleback land. Mr Fazzolari himself effectively conceded in cross-examination that he did not recollect any discussions concerning the sale of the Saddleback land at any CRIC meeting. His evidence did not add anything to the CRIC minutes. 827 Three things were said to flow from this. First, it was submitted that there was no evidence that Trilogy relied on any of the valuation, town planning and other advice that had been received by it and the receivers. Second, it was submitted that it should be inferred that the decision to sell the Saddleback land was in fact taken by Mr Ray Fazzolari, who was the co-head of asset management at Balmain Trilogy. Second, it was submitted that because Trilogy did not call evidence from either Mr Ray Fazzolari or anyone else who was in fact involved in the decision making process, it should be inferred that Trilogy did not act reasonably in relation to the sale of the Saddleback land. That inference was said to flow from the decision in Jones v Dunkel (1959) 101 CLR 298 (Jones v Dunkel) at 308. 828 Those submissions are rejected. 829 It may be accepted that the CRIC minutes are brief and do not expressly record a decision to sell the Saddleback land. It may also be accepted that Mr Fazzolari was not a member of CRIC and was not himself directly involved in making the decision to sell the Saddleback land. His evidence did not ultimately add significantly to the documentary record in relation to the decision to sell the Saddleback land. It does not follow, however, that Mr Fazzolari's evidence that the decision was made by CRIC in May 2011 should be rejected, or that it should be inferred that the decision was made solely by Mr Ray Fazzolari because he was the senior manager responsible for the AGA facility. Still less does it follow that it should be inferred that Trilogy acted unreasonably in relation to the sale of the Saddleback land because it did not call Mr Ray Fazzolari. 830 As for the suggestion that the decision to sell the Saddleback land was taken by Mr Ray Fazzalori, as opposed to CRIC, beyond the fact that Mr Ray Fazzolari was the senior manager with responsibility for the AGA facility and therefore the realisation of the Saddleback land, there was simply no evidence that he alone made the decision. In any event, it is not clear at all how that finding, even if it was available, would advance the respondents' case that Trilogy acted unreasonably. 831 Nor does the so-called rule in Jones v Dunkel assist the respondents. That "rule" is frequently overstated and commonly misapplied in the submissions of hopeful litigants. This is such a case. Even if it was accepted that Trilogy did not call any of the officers who were in fact responsible for making the decision to sell the Saddleback land in mid 2011, there are at least three reasons why the rule in Jones v Dunkel does not support, let alone compel, the drawing of an inference that Trilogy acted unreasonably. 832 First, as is clear from the judgment of Windeyer J in Jones v Dunkel (at 321), the rule only applies where a party is "required to explain or contradict" something. The respondents have not pointed to anything that Mr Ray Fazzolari, or any other member of CRIC, was required to explain or contradict in terms of the reasonableness of the decision to sell the Saddleback land in 2011. It is clear that, by that time, Trilogy and the initial receivers had sought and obtained valuations and town planning advice from various professionals. None of the advice received suggested that it would be unreasonable to sell the Saddleback land without expending further time and money pursuing a declaration of State Significance or rezoning of the Saddleback land. Indeed, all of the advice suggested otherwise. 833 Second, even if the rule applies, the most that can be said is that it might lead to an inference that the missing witness would not have assisted that party's case, or that evidence or inferences that might have been contradicted by the missing witness can be more readily accepted. The rule cannot be employed to make up any deficiency of evidence (Jones v Dunkel at 312 per Menzies J) or to convert conjecture or suspicion into inference. It does not permit an inference that the uncalled witness would in fact have been damaging for the party's case. That is how the respondents sought to deploy the rule in this case. They wanted to convert conjecture or suspicion as to why Trilogy did not call evidence from Mr Ray Fazzolari or any other member of CRIC into a positive inference that the decision taken was unreasonable and that the evidence of Mr Ray Fazzolari would have been positively damaging to Trilogy's case. 834 Third, and related to the first two points, the rule does not allow for or permit the drawing of an inference that is not otherwise supported by the evidence (Jones v Dunkel at 312 per Menzies J). Here, the inference that the respondents contend should be drawn was that Trilogy's decision to sell the Saddleback land in mid to late 2011 was unreasonable. For the reasons already touched on, and expanded on later, that inference is not open on the evidence. 835 The documentary evidence supports the inference that in ultimately deciding to sell the Saddleback land in mid-2011, Trilogy relied on the valuations, town planning advice and other advice it and the receivers had received in relation to the Saddleback land. The decision to sell Saddleback was plainly supported by the valuations and advice. The advice was all one way. It would, in the circumstances, have been bizarre for Trilogy not to rely on it. The CRIC minutes of May and July 2011 and the correspondence with Colliers in May 2011 suggested that it did.

Conclusion - Did Trilogy act unreasonably in realising the Saddleback land? 836 It will be apparent from what has already been said that the answer to that question is "no". That is so irrespective of whether this question is approached in the context of the common law principles relating to mitigation of damage, or in the context of the issues of causation that arise in considering whether certain loss or damage "resulted from" a contravention for the purposes of s 1317H of the Corporations Act. It is also the answer irrespective of who bore the onus of proof in relation to the reasonableness of Trilogy's conduct. The respondents appeared to accept that they bore the onus of proving that Trilogy acted unreasonably. If that was so, they have manifestly failed to discharge that onus. If, on the other hand, Trilogy bore the onus of proving that it acted reasonably as an incident of proving causation under s 1317H of the Corporations Act, that onus has been discharged. 837 The respondents' case of unreasonableness by Trilogy rested on the proposition that Trilogy failed to investigate and pursue Mr Gore's original plan for the development of the Saddleback land. But Trilogy and the receivers did investigate the prospects of the land being developed as Mr Gore had proposed. They retained expert valuers, town planners, real estate agents and lawyers to investigate the prospects of rezoning and development. The opinions expressed were unanimous. The prospects were at best uncertain and the process time-consuming and costly. At worst, the prospects were poor or non-existent. The development that Trilogy was supposed to have pursued was in fact a mere pipe dream of Mr Gore's. 838 Based on the advice that it had received, it was reasonable for Trilogy to have taken the decision in 2011 to sell the Saddleback land without pursuing a declaration of State Significance or otherwise pursuing the rezoning of the land (including pursuing the appeal against the Council's rezoning refusal). Once that decision was taken, Trilogy and the receivers acted reasonably and in accordance with the advice they had received, to sell the land in aggregated rural lots. It has not been shown that the sales process or the sales prices were in any sense unreasonable. 839 The respondents' so-called mitigation "defence" is accordingly rejected.

Causation - the "hypothetical loans" submission 840 The respondents contended that Trilogy had failed to prove that any losses suffered by the Fund in respect of the AGA facility "resulted from" their contraventions of s 601FD of the Corporations Act because Trilogy had not shown that it would not have lost those funds anyway. This aspect of the respondents' case was particularised in the following terms in their defences (at [93]): Further or in the alternative in answer to the whole of the Further Amended Statement of Claim and in particular paragraphs 125-140 thereof, the respondents say that if any loss was suffered by the Fund, that loss is greatly diminished in the circumstances that the correct measure of the Fund's loss can only be found by determining the position the Fund would have been in if the advances to AGA in excess of $17,890,000 had not been made. If the advances to AGA in excess of $17,890,000 had not been made, the Fund would not have retained the money not advanced to AGA, but rather would have been loaned out by the Fund on one or more other loans ("the Hypothetical Loans"). In the circumstances that the Fund at the time made many loans which it was unable to recover in full, the likelihood is that part of the money advanced in relation to the Hypothetical Loans would also have been lost. Thus the correct measure of the Fund's loss would take into account the likely contingency that if the advances to AGA in excess of $17,890,000 had not been made, part of the money in question would have been lost by the Fund in any event. Particulars Although it is not possible to identify particular borrowers to whom or projects in relation to which the Hypothetical Loans would have been made, the likely nature and recoverability of the Hypothetical Loans can be inferred from the nature and recoverability of other loans made by the Fund at the time the advances to AGA in excess of $17,890,000 were being made. 841 The respondents relied on the observations by Kirby J in Chappel v Hart (1998) 195 CLR 232 (at 271) in relation to the circumstances in which "apparent causation" may be displaced: 5. Displacing apparent causation: In certain circumstances, the appearance that there is a causal connection between the breach and the damage, arising from the application of the "but for" test and the proximity of the happening of the damage, has been displaced by a demonstration that: (a) The happening of the damage was purely coincidental and had no more than a time connection with the breach; (b) The damage was inevitable and would probably have occurred even without the breach, for example by the natural progression of an undetected, undiagnosed or unrevealed condition, or because the condition presented a life threatening emergency which demanded instant responses without time for the usual warnings and consents; (c) The event was logically irrelevant to the actual damage which occurred; (d) The event was the immediate result of unreasonable action on the part of the plaintiff; or (e) The event was ineffective as a cause of the damage, given that the event which occurred would probably have occurred in the same way even had the breach not happened. (Footnotes omitted.) 842 The respondents contended that the "undetected, undiagnosed or unrevealed condition" in the case of the Fund was a flaw in the Fund's investment strategy. That flaw was said to be investing in property developments with long term realisation horizons in circumstances of an impending global credit bubble. The global financial crisis that occurred in 2008 exposed the previously undetected flaw in the investment strategy and resulted in the collapse of the Fund's investments. The respondents submitted that it followed that the damage suffered by the Fund was inevitable and would have occurred irrespective of their contraventions. 843 The respondents submitted that the Court was required to conduct a "counterfactual exercise" or analysis which involved tracing what would have happened if the Fund had not advanced any funds to AGA over and above the October 2005 limit of $17.89 million. They contended that the evidence revealed that had the money not been loaned to AGA, it would have been swiftly reinvested in other loans (the so-called "hypothetical loans"). Those loans may have been made in respect of existing facilities or new projects. If those hypothetical loans were repaid in full, the Fund would then have made further hypothetical loans. That, in the respondents' submissions, would have continued right up to the time of the onset of the global financial crisis. At that point, the outstanding hypothetical loans would have been lost to the Fund. 844 The respondents endeavoured to support their Hypothetical Loans submission by reference to evidence relating to the Fund's financial performance over the years 2006 to 2008. The analysis of the evidence in that regard was very much at a macro level, rather than by reference to specific loans. For example, the respondents pointed to the fact that the size of the Fund's loan book grew in 2006 and 2007, and that more funds were being advanced than were being repaid. That was said to support the inference that any "excess funds" during that period would not have been returned to the members of the Fund. The respondents also pointed to the fact that the Fund's loan facility with the Commonwealth Bank was not fully drawn down during the period 2006 and 2007. This was said to support the inference that any excess funds would not have been used to repay the Fund's indebtedness to the Commonwealth Bank. 845 The respondents contended that the Fund had made an 84 percent capital loss between 30 June 2008 and 31 December 2013. That calculation was based on a comparison between the net assets attributed to unitholders as at 30 June 2008 ($860,590,950) and the net asset position as at 31 December 2013 ($81,017,912) after taking into account the amount returned to unitholders ($84,023,525). The respondents submitted, on the basis of that calculation, that any loss resulting from the contraventions relating to the AGA facility should be reduced by 84% to reflect the causal reality of the significant losses to the Fund from other loans.

Consideration 846 The respondents' Hypothetical Loans submission is flawed both as a matter of principle and as a matter of fact and evidence. 847 As for the matter of principle, as the earlier discussion of the relevant causation principles in relation to s 1317H of the Corporations Act shows, regard has to be had to the relevant legal norm contravened and the relevant statutory purpose. The relevant statutory purpose of s 601FD of the Corporations Act includes the purpose of protecting or preventing members of managed investment schemes from loss or detriment arising from breaches of duties by officers of responsible entities. In that context, the question whether there was a causal link between the breach of duty and the loss or detriment may be approached by conducting a comparison between the position the registered scheme was in, following the breach, and the position the scheme would have been in if the officers had not breached their duties. 848 In the particular circumstances of this case, the position the Fund is in is that funds were advanced to AGA in the period 28 April 2006 to 1 July 2007 and ultimately lost to the Fund. They were never repaid and never recovered. If the respondents had not breached their statutory duties under s 601FD of the Corporations Act, the funds would never have been advanced to AGA. They would have been retained for the benefit of the Fund and its members. The statutory purpose of s 601FD was to protect managed investment schemes, such as the Fund, and the members of such schemes, from that very kind of loss or damage. In those circumstances, it is not necessary, and indeed it is entirely irrelevant, to undertake a hypothetical analysis of, or to otherwise speculate about, what the Fund might have done with the funds if it had not advanced them to AGA. 849 A similar, though not identical, issue arose in ABN AMRO Bank NV v Bathurst Regional Council (2014) 224 FCR 1; [2014] FCAFC 65. In simple terms, in that case, it was found that a party (LGFS) purchased certain financial products (Rembrandt notes) as a result of the negligence of a ratings agency (S&P). S&P contended that unless LGFS proved what it would have done with the relevant funds had it not purchased the Rembrandt notes, its case in respect of causation must fail. That contention (the "alternative universe contention") was rejected at first instance and on appeal to the Full Court. The Full Court concluded as follows (at [788] per Jacobson, Gilmour and Gordon JJ): … S&P's Alternative Universe Contention is inconsistent with established authority. In Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 at [42], the Court expressed the test as requiring a comparison "between the position in which the party that allegedly has suffered loss or damage is in and the position in which that party would have been but for the contravening conduct" (emphasis added). As is readily apparent, this does not require any speculation about what LGFS would have done with the funds had it not purchased the Rembrandt notes. 850 The same reasoning applies here. The Hypothetical Loans submission is equivalent to S&P's alternative universe contention. The relevant comparison between the position the Fund is in and the position it would have been in if the respondents had not breached their statutory duties does not require any speculation about what the Fund (or City Pacific on its behalf) would have done with the relevant funds had it not advanced them to AGA. It was not incumbent on Trilogy to prove what the Fund (then under the control of a different responsible entity) would have done with the money if it had not been advanced to AGA. Nor should the Court engage in speculation about that matter. That is a sufficient basis for rejecting the Hypothetical Loans submission. 851 In any event, the Hypothetical Loans submission is not supported by the evidence. The contention that the funds not advanced to AGA would have been used to make loans of a similar long term character to the AGA loans (loans for the purposes of property developments with long-term realisation horizons) which would have eventually been lost as a result of the global financial crisis is not supported by the evidence. It is based on nothing more than conjecture and speculation. 852 The reality is that no firm inference or conclusion can be drawn from the evidence as to what the Fund would have done with the funds advanced to AGA during the period 28 April 2006 to 1 July 2007 if they had not been advanced to AGA. There are a number of possibilities. 853 First, the funds may not have been loaned out at all. The Fund may have retained that money in its cash reserves. Under the Constitution, the Fund was able to hold its assets in "Authorised Investments", which included deposits with any bank. There was evidence that at various times during 2006 and 2007, the Fund held cash or cash equivalents of up to $80 million. 854 Second, the funds may have been used to repay amounts owing under the Fund's loan facility with the Commonwealth Bank. There was evidence that the Fund regularly made payments to the Commonwealth Bank to reduce its indebtedness under that facility during that relevant period. Whilst the evidence suggested that the Fund's indebtedness to the Commonwealth Bank may have increased in the latter part of 2006 and into 2007, it does not follow that the Fund would not have used the money otherwise loaned to AGA to reduce its ballooning indebtedness to the Commonwealth Bank. 855 Third, whilst the size of the Fund's loan book may have increased during the relevant period, it does not follow that all funds available to the Fund were loaned out. As already indicated, the Fund retained cash reserves. It is open to infer that, at various times during the relevant period, there were no acceptable loans or loan proposals for the Fund to invest in. 856 Fourth, even if the funds were used to make other "hypothetical loans", it cannot be inferred that those loans would have resulted in defaults and losses to the Fund. The loans may have been made to sound borrowers in respect of successful ventures. They therefore may have been repaid. There was evidence that there were some loans made during 2006 and 2007 that were fully repaid and therefore did not result in any loss to the Fund. 857 Equally, and perhaps more significantly, the so-called "hypothetical loans" may have been made on terms that provided adequate security for the Fund. In such circumstances, even if the borrower defaulted (as a result of the global financial crisis or otherwise), the Fund may not have incurred any, or any significant losses. The evidence did not go so far as to suggest that all mortgage loans made by the Fund during the relevant period were made on terms that provided inadequate security or LVRs. 858 The Hypothetical Loans submissions seems to assume, or be based on, the unproven premise that the hypothetical loans would, like the AGA facility, not comply with the Constitution, the Compliance Plan, the PDS and the Lending Manual. If the hypothetical loans had been made in compliance with those policies and procedures, they would not necessarily have been productive of losses as a result of the global financial crisis or otherwise. 859 The macro or global analysis of the Fund's financial statements put forward on behalf of Messrs Sullivan, Donaldson and Swan was not capable of supporting the hypothesis underlying the Hypothetical Loans Submission. The underlying hypothesis is essentially speculative. 860 The Hypothetical Loans submission is accordingly rejected. As a matter of principle, and as a matter of fact, it does not negate the findings and conclusions otherwise available that the relevant losses incurred on the AGA facility resulted from the respondents' contraventions.

Issue 8 - should any of the respondents be exonerated? 861 Each of the respondents submitted that they should be relieved from any liability arising under s 1317H of the Corporations Act by reason of their contraventions of s 601FD pursuant to either s 1317S or s 1318 of the Corporations Act. 862 Subsections 1317S(1) and (2) of the Corporations Act provide as follows: (1) In this section: eligible proceedings: (a) means proceedings for a contravention of a civil penalty provision (including proceedings under section 588M, 588W, 961M, 1317GA, 1317H, 1317HA or 1317HB); and (b) does not include proceedings for an offence (except so far as the proceedings relate to the question whether the court should make an order under section 588K, 1317H, 1317HA or 1317HB). (2) If: (a) eligible proceedings are brought against a person; and (b) in the proceedings it appears to the court that the person has, or may have, contravened a civil penalty provision but that: (i) the person has acted honestly; and (ii) having regard to all the circumstances of the case (including, where applicable, those connected with the person's appointment as an officer, or employment as an employee, of a corporation or of a Part 5.7 body), the person ought fairly to be excused for the contravention; the court may relieve the person either wholly or partly from a liability to which the person would otherwise be subject, or that might otherwise be imposed on the person, because of the contravention. 863 Subsection 1318(1) of the Corporations Act provides as follows: 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. 864 The relationship between ss 1317S and 1318 of the Corporations Act was considered by Spigelman CJ in Deputy Commissioner of Taxation v Dick (2007) 242 ALR 152; [2007] NSWCA 190. The mysteries of that relationship need not be further explored here. Whilst there may be an issue concerning which of the sections was applicable to these proceedings, it is unnecessary to determine that issue. It was common ground between the parties that the relevant considerations and principles applicable to the two sections were relevantly identical.

Relevant Principles 865 The relevant inquiry under ss 1317S and 1318 of the Corporations Act involves three stages. 866 The first inquiry is whether the applicant for relief acted honestly. The onus of demonstrating honesty rests on the applicant for relief: Australian Securities and Investments Commission v MacDonald (No 12) (2009) 259 ALR 116; [2009] NSWSC 714 (ASIC v MacDonald) at [24]. 867 The Court must be satisfied that the applicant has acted honestly. A mere absence of dishonesty will not suffice: Australian Securities and Investments Commission v Healey (No 2) (2011) 196 FCR 430 (ASIC v Healey (No 2)) at [87]. To be satisfied that an applicant has acted honestly, the Court must be satisfied that the applicant acted without moral turpitude, including without deceit or conscious impropriety and without carelessness or imprudence at a level that negates the performance of the duty in question: ASIC v MacDonald at [22]; ASIC v Healey (No 2) at [88]. 868 The second inquiry is whether, having regard to all the circumstances of the case, the applicant ought fairly to be excused. The considerations that might be relevant to that inquiry are effectively unconstrained. Whilst both sections refer to the person's "appointment", that is plainly only one factor that might be relevant. Whilst it is not particularly fruitful to attempt to provide an exhaustive catalogue of all considerations that might be relevant to the inquiry, the authorities suggest that the following considerations are likely to be relevant. 869 First, the nature of the applicant's "appointment" or office. 870 Second, the degree to which the applicant's conduct fell short of the relevant statutory standards: ASIC v Healey (No 2) at [89]-[90]; Australian Securities and Investments Commission v Vines (2005) 65 NSWLR 281 (ASIC v Vines) at [38]; Advance Bank Australia Ltd v FAI Insurances Ltd (1987) 9 NSWLR 464 at 491. In the case of s 601FD(1)(b) contraventions, the relevant consideration is the extent to which the conduct fell short of the statutory standard of care and diligence for an officer of a responsible entity. 871 Third, the seriousness of the relevant contravention and its potential or actual consequences: ASIC v Healey (No 2) at [89]-[90]. That involves a consideration of the importance of the provision contravened in terms of public policy, the degree of flagrancy of the contravention, and the consequences of the contravention in terms of harm to others: ASIC v Vines at [52]. 872 Fourth, whether the contravention involved any impropriety, such as deceptiveness. 873 Fifth, whether the applicant for relief has shown any contrition. 874 The third stage of the inquiry is whether the applicant for relief should be relieved from liability wholly or in part. To a certain extent, the considerations relevant to the second stage of inquiry merge with this third stage: ASIC v Vines at [44]-[45], [73], [121]; McLellan (in his capacity as liquidator of the Stake Man Pty Ltd) v Carroll (2009) 76 ACSR 67 at [202]-[206].

Mr Sullivan 875 The findings that have already been made in relation to Mr Sullivan's contravening conduct plainly indicate that Mr Sullivan did not act honestly. It is neither necessary nor desirable to repeat those findings at length. Suffice it to say that Mr Sullivan's conduct included signing backdated documents knowing and intending that they would convey a misleading representation concerning the date upon which certain loan approvals and loan offers had been made. That alone amounts to moral turpitude. Mr Sullivan must have known that his conduct in that respect was improper. 876 Beyond that, the very seriousness of Mr Sullivan's contravening conduct and the extent to which it departed from the standards expected and required of a chief executive officer of a responsible entity of a very large managed investment scheme amounts to moral turpitude and therefore a failure to act honestly for the purposes of ss 1317S and 1318 of the Corporations Act. 877 It follows that Mr Sullivan is not entitled to relief under either s 1317S or s 1318 of the Corporations Act because it does not appear to the Court that he acted honestly. 878 In any event, even if it appeared that Mr Sullivan acted honestly, the circumstances of the case all militate against the finding that Mr Sullivan ought fairly to be excused. He held a very senior position in the responsible entity of a managed investment scheme. His departures from the required standards of care, diligence and reasonableness were significant and serious. Section 601FD of the Corporations Act is an extremely important provision in terms of public policy. It is plainly intended to protect vulnerable members of managed investment schemes. Mr Sullivan's contraventions of s 601FD were serious, flagrant and resulted in serious and significant consequences to the Fund and its members. Mr Sullivan has shown no contrition whatsoever. He has strenuously contested these proceedings at every stage and has gone so far as to give untruthful evidence to exonerate himself. 879 Having regard to all those circumstances, it could not be found that Mr Sullivan ought fairly to be excused.

Mr McCormick 880 Almost exactly the same can be said in relation to Mr McCormick. 881 It is readily apparent from the findings that have been made in relation to Mr McCormick's contravening conduct that it could not possibly be found that he acted honestly. It is unnecessary to rehearse those findings. It is sufficient to note that Mr McCormick knowingly and intentionally disregarded, indeed flouted, City Pacific's Constitution, Compliance Plan, and Lending Manual, and then created manifestly false and misleading documents so as to conceal that fact from, amongst others, the Fund's Compliance Plan auditors. On any view, his conduct involved serious moral turpitude if not outright dishonesty. 882 Even if, contrary to that finding, it could be considered that Mr McCormick acted honestly, nonetheless the circumstances of the case are such that he should not fairly be excused. His contravening conduct was extremely serious. It involved serious and significant departures from the required statutory standards of care, diligence and reasonableness. Mr McCormick flouted the important protections that s 601FD is intended to provide to vulnerable scheme members. The results of his contraventions were significant and serious. He has shown no insight whatsoever into his wrongdoing. Nor has he displayed any remorse. 883 It follows that it cannot be concluded that the circumstances of the case are such that Mr McCormick ought fairly to be excused.

Mr Donaldson 884 The circumstances of Mr Donaldson's case are different and more difficult. 885 The first question is whether Mr Donaldson acted honestly. 886 The main issue for Mr Donaldson in terms of his honesty concerns the contravention arising from his approval of the backdated loan proposal dated 9 August 2006. As explained in detail earlier, Mr Donaldson's evidence concerning the circumstances and his state of mind when he approved this proposal was unsatisfactory. He was unable to give a rational or plausible explanation for why he signed the proposal in circumstances where it was obviously backdated. His evidence that he gave the contents of the proposal no close scrutiny, let alone independent or considered analysis, and therefore did not notice the obvious discrepancies and issues in the proposal, was equally problematic and lacked credibility. 887 For the reasons given earlier, the most likely scenario, and the most plausible inference, was that Mr Donaldson knew that there were issues concerning the AGA facility and this proposal in particular. For whatever reason, however, he was prepared to turn a blind eye to those issues without giving the proposal any proper analysis and without even attempting to ensure that the proposal and the extension of the AGA facility complied with City Pacific's policies and procedures or was in the best interests of the Fund or its members. 888 This involved moral turpitude to the point where it cannot be accepted that Mr Donaldson acted honestly. At the very least it involved such a serious departure from the standards required of Mr Donaldson as a senior officer of City Pacific that it negated the performance of his duties. 889 In those circumstances, Mr Donaldson is not entitled to relief under s 1317S or s 1318 of the Corporations Act. 890 In any event, when regard is had to all the circumstances, it cannot be accepted that Mr Donaldson ought fairly to be excused from his liability. For the reasons already given, Mr Donaldson's conduct involved a serious and significant departure from the statutory standard of care and diligence that he was required to observe. The contravention was serious having regard to the importance of s 601FD of the Corporations Act in protecting vulnerable members of statutory schemes. The potential and actual consequences of Mr Donaldson's contraventions were equally serious. This was a very large increase or extension to the AGA facility. The potential for loss to the Fund was large. 891 Finally, it is not accepted that Mr Donaldson displayed any real signs of contrition. It is not accepted that he gave a full, frank or honest account of the circumstances in which he approved the December 2006 proposal. 892 For those reasons, Mr Donaldson should not be excused or relieved of his liability arising from his contravention.

Mr Swan 893 Virtually the same findings and conclusions apply to Mr Swan. 894 As was the case with Mr Donaldson, it is not accepted that Mr Swan gave a full, frank or honest account of the circumstances in which he came to sign and approve the loan proposal dated 9 August 2006. It was implausible that a person with Mr Swan's qualifications and experience would, as he effectively claimed, give this significant proposal no independent or considered scrutiny or analysis, or would not notice the many discrepancies and issues with the proposal itself. Even though he wrote the words "ratified" and the date 11 January 2007 on the December 2006 proposal when he signed it, his explanation for that, and why he did not cross out the date 9 August 2006, was unconvincing. 895 As with Mr Donaldson, the most likely scenario, and the most plausible and probable inference, was that Mr Swan knew that there were issues with the AGA facility and this proposal in particular. Rather than independently and carefully analysing the proposal, and taking steps to ensure that it complied with City Pacific's policies and procedures, he turned a blind eye to the issues and discrepancies, and simply signed the proposal. His conduct in so doing involved significant moral turpitude. So significant was his departure from the required standards of care and diligence that it cannot be concluded that he acted honestly. 896 The circumstances of Mr Swan's case are also such that it cannot be concluded that he ought fairly to be excused. Mr Swan's conduct, on any view, fell well short of the standards of care and diligence that he was required to meet in all the circumstances. His contravention of s 601FD of the Corporations Act was serious and involved significant potential and actual consequences for the Fund. It cannot be accepted that Mr Swan was at all contrite. 897 In all the circumstances, it cannot be accepted that Mr Swan ought fairly to be excused and relieved of liability in relation to his contravention.

Conclusions in relation to exoneration 898 One of the common and central findings made in relation to each of the respondents on the question of whether they should be excused or relieved of liability was that their contraventions of s 601FD of the Corporations Act were serious. That common finding is deserving of some elaboration. 899 Section 601FD of the Corporations Act forms part of the statutory scheme in relation to managed investments schemes in Chapter 5C of the Corporations Act. The obvious statutory purpose of Chapter 5C is to provide an appropriate degree of regulation of managed investment schemes, and the entities and persons who operate and manage them. In simple terms, managed investments schemes involve the holding of assets on trust for the members of the scheme. Responsible entities effectively operate the scheme as professional trustees. The ultimate purpose of the Chapter 5C scheme is to provide a significant measure of protection for members of registered investment schemes. 900 It is perhaps not surprising in those circumstances that Chapter 5C contains detailed and highly prescriptive requirements in relation to registration, the responsibilities and powers of responsible entities and the duties and responsibilities of their officers, the contents of the constitution and compliance plan, and the establishment and functions of a compliance committee. The tightly regulated and highly prescriptive statutory scheme all amounts to nought, however, if officers of responsible entities do not comply with their duties under s 601FD of the Corporations Act. There is, for example, little point in having a comprehensive constitution and compliance plan if the officers of the responsible entity effectively ignore their provisions, or do not take reasonable steps or act with care or diligence to ensure that they are complied with. 901 That is effectively what happened here. The actions of Mr Sullivan and Mr McCormick, in particular, but also Mr Swan and Mr Donaldson, made a mockery of the statutory scheme. 902 Mr Sullivan and Mr McCormick thumbed their noses at the Constitution and the Compliance Plan and other policies and procedures put in place under them. They ignored them and dealt with the Fund's assets as they saw fit. 903 Mr Swan and Mr Donaldson turned a blind eye to Mr Sullivan's and Mr McCormick's disregard of the constituent documents. Even on their own evidence, they did not attentively read important parts of board papers that were provided to them for the purposes of board meetings. More significantly, they simply signed and thereby approved major loan proposals without giving them any independent scrutiny or analysis. If their evidence concerning their scrutiny of loan proposals was to be accepted, it is difficult to see the point of them sitting on the Credit Committee. Indeed, it is difficult to see the point in them being directors. 904 Significantly, all this occurred in circumstances where the Fund's assets, held on trust for its members, were valued at around $1 billion. Messrs Sullivan, Swan, Donaldson and McCormick seemed to have forgotten or ignored the fact that they were making decisions about other people's money. It is doubtful that they would have acted in the same way if it was their money that was being advanced to AGA. 905 In all these circumstances, the seriousness of the respondents' contraventions can be readily appreciated. Relief under either s 1317S or s 1318 of the Corporations Act would be wholly inappropriate in the case of any of the respondents.

Pleaded defences taken to be abandoned 906 In their lengthy and detailed submissions, the respondents did not pursue a number of defences included in the pleadings. Those defences are taken to be abandoned. They include: (a) The defences based on the Deed of Cross-Collateralisation. Those defences included that the security available in respect of advances made under the AGA facility after 28 April 2006 included properties held as security in respect of loan facilities between City Pacific and Atkgor, AGG, Sickle, Maudsland and Treetops. Accordingly, so it was pleaded, any assessment of the LVR of the AGA facility had to be calculated having regard to those additional security properties. It also appeared to be pleaded that the respondents understood and believed that was so. (b) The claim that the cause of any loss suffered by City Pacific or the Fund from the AGA facility was "the GFC of 2008 and thereafter". The onset of the global financial crisis was relied on as part of the Hypothetical Loans submission, but not as a standalone defence to Trilogy's case in relation to causation under s 1317H of the Corporations Act. (c) The allegation that the loss suffered by the Fund under the AGA facility was caused not by the respondents' contraventions of the Corporations Act, but by the failure of the directors of AGA to meet their obligations under the guarantees given by them in respect of the AGA facility.

Quantum of compensation and interest 907 Subsection 1317H(1) of the Corporations Act provides that an order made under s 1317H requiring a person to compensate a registered scheme for damage suffered by the registered scheme that resulted from a contravention or contraventions of a corporation/scheme civil penalty provision (which includes s 601FD) must specify the amount of the compensation. 908 The effect of the findings that have been made against Mr Sullivan and Mr McCormick is that the damage suffered by the Fund that resulted from their contraventions of s 601FD of the Corporations Act was the sum total of all the advances made by City Pacific as the responsible entity of the Fund to AGA from 28 April 2006 to 1 July 2007. The advances made to AGA during this period was an agreed fact ([101], [116] and [126] of the Compendium of Agreed Facts and Facts Not in Dispute). The sum total of the advances was $42,489,088.28. Trilogy accepted, however, that this amount should be reduced by $5,275,000 reflecting repayments that were made by AGA in May and July 2007. 909 The effect of the findings that have been made against Mr Swan and Mr Donaldson is that the damage suffered by the Fund that resulted from their contraventions of s 601FD was the sum total of all the advances made by City Pacific as the responsible entity of the Fund to AGA in the period from 11 January 2007 to 1 July 2007. That sum total of the advances made during that period was $11,520,974.93. Trilogy also accepted that this amount should be reduced by $5,275,000 as a result of the repayments made in May and July 2007. 910 Trilogy contended that the compensation orders should also include interest pursuant to s 51A(1)(a) of the Federal Court of Australia Act 1976 (Cth) (FCA Act). Subsection 51A(1)(a) provides as follows: In any proceedings for the recovery of any money (including any debt or damages or the value of any goods) in respect of a cause of action that arises after the commencement of this section, the Court or a Judge shall, upon application, unless good cause is shown to the contrary, either: (a) order that there be included in the sum for which judgment is given interest at such rate as the Court or the Judge, as the case may be, thinks fit on the whole or any part of the money for the whole or any part of the period between the date when the cause of action arose and the date as of which judgment is entered 911 Practice Note CM 16 - Prejudgment interest provides as follows: 1. Section 51A(1)(a) of the Federal Court of Australia Act 1976 (Cth) provides for the making of orders for the inclusion of interest in judgments. 2 Practitioners and litigants should expect that where, pursuant to section 51A(1)(a), interest in respect of a pre-judgment period is to be included in a judgment, the Court will have regard to the following rates, being rates agreed upon by the Discount and Interest Rate Harmonisation Committee established following a referral by the Council of Chief Justices of Australia and New Zealand: (a) in respect of the period from 1 January to 30 June in any year - the rate that is 4% above the cash rate last published by the Reserve Bank of Australia before that period commenced, and (b) in respect of the period from 1 July to 31 December in any year - the rate that is 4% above the cash rate last published by the Reserve Bank of Australia before that period commenced. 912 Trilogy contended that it was entitled to interest calculated on the basis that a separate cause of action arose in relation to each advance made to AGA that went beyond the October 2005 facility limit of $17.89 million. Thus, for example, interest was payable in respect of the advance of $173,767.32 made on 1 May 2006 from that date until judgment. Similarly, interest was payable on the advance made on 11 May 2006 of $1 million from the date of that payment until judgment. Trilogy calculated the interest on the basis of the guideline interest rate in Practice Note CM16 in the Federal Court Rules 2011 (Cth). 913 Messrs Sullivan, Swan and Donaldson opposed Trilogy's interest claim. They contended that interest pursuant to s 51A of the FCA Act was not appropriate because the compensation orders should reflect any damage suffered by the Fund arising from the fact that it was deprived of the use of the funds that had been advanced to AGA. They submitted that the regime in s 1317H of the Corporations Act precluded the award of interest and only permits the recovery of compensation for the actual loss suffered, which relevantly includes all loss up to judgment. They based this argument on the position taken by the Australian Securities and Investments Commission in Adler v ASIC. It is clear, however, that the Court of Appeal in that case expressed no view as to whether that was the correct approach. 914 Messrs Sullivan, Swan and Donaldson also contended that the Court should not award interest at the rate referred to in Practice Note CM16, but instead should "give regard to the evidence as to the actual loss the Fund would have suffered". They submitted that the Fund did not suffer any loss because if it had not loaned the money to AGA, it would have loaned the money to someone else who would not have repaid it. In this respect, the submission echoed the Hypothetical Loans submission made in the context of causation. 915 The matters raised by Messrs Sullivan, Swan and Donaldson do not constitute a "good cause" for why interest under s 51A of the FCA Act should not be ordered as part of the compensation orders. The fact that Trilogy could have, but did not, claim that the damage suffered as a result of the contraventions included the loss resulting from the fact that the Fund was unable to earn a return by loaning the funds to other borrowers, does not mean that Trilogy cannot seek and obtain an award of damages under s 51A of the FCA Act. Otherwise, the submissions of Messrs Sullivan, Swan and Donaldson relied heavily on the Hypothetical Loans submission. The Hypothetical Loans submission is rejected for the reasons already given. It accordingly provides no good cause for not making an order for pre-judgment interest under s 51A of the FCA Act. 916 The determination of the appropriate amount of compensation order is not materially different to the assessment of damages for a common law claim, such as negligence. The fact that relief is granted in the form of a compensation order rather than a judgment for an amount of damages does not mean that the "compensation regime" of s 1317H of the Corporations Act is any different to the assessment of damages at common law. 917 In Bathurst Regional Council v Local Government Financial Services Pty Ltd (No 6) [2013] FCA 144 (Bathurst v LGFS No 6), Jagot J rejected a contention relevantly the same as the contention made by Messrs Sullivan, Swan and Donaldson in these proceedings. The respondents in that case submitted that the applicants should not be awarded pre-judgment interest because they had not proved any profit they might have made, or any loss suffered, by reason of being kept out of their money by reason of the respondents' negligence. Jagot J referred to Management 3 Group Pty Ltd (in liq) v Lenny's Commercial Kitchens Pty Ltd (No 2) (2012) 203 FCR 283; (2012) 289 ALR 275 (Management 3 Group) where the Full Court said (at [25]) that "[p]re-judgment interest is awarded to compensate an applicant for being kept out of the applicant's money by the respondent's refusal to pay that which the court at trial orders to be paid". Jagot J found that the applicants were entitled to interest pursuant s 51A of the FCA Act even though they had not proved any profit they would have made if they had not been kept out of their money. Her Honour said (at [14]): For these reasons the councils and LGFS are in an equivalent position in terms of my findings. They would not have invested in the CPDO notes and would not have lost their money but for the unlawful conduct of S&P and ABN Amro. Hence, they would have had the use of those funds for the period from investment onwards. Beyond that, the next step in the reasoning process involves hypothesis for the councils not a finding (that is, the hypothesis the councils might have invested rather than spent the money) and neither hypothesis nor finding for LGFS. But I do not accept this means that the councils and LGFS are not entitled to pre-judgment interest to compensate them for the loss of their money. They will have been kept out of their money from the date of cash-out until the date orders are made. On the date of cash-out they lost their principal and their future interest. It is the purpose of pre-judgment interest to compensate them for that loss. They did not need to prove a profit they otherwise would have made. The compensatory purpose extends to the loss of the use of the money they otherwise would have had. That is sufficient to enliven the compensatory purpose unless good cause is shown to the contrary. No good cause is shown. It is just that the councils and LGFS be awarded pre-judgment interest, the relevant starting date, however, being the date of cash-out rather than the date of initial investment. Confining the period of pre-judgment interest in this way is appropriate because the councils and LGFS were out of their money from that date onwards. 918 Exactly the same reasoning applies here. Trilogy is entitled to pre-judgment interest to compensate the Fund for the loss of its money. It was not necessary for Trilogy to prove the profit it would otherwise have made from the use of the money. 919 It is also to be noted that Jagot J found that the relevant commencement date for pre-judgment interest was the "cash-out" date (the date when the councils would have been entitled to cash-out their investments), not the date that the investments were made. The position is somewhat analogous to this case. Whilst the facts and circumstances of Bathurst v LGFS No 6 are not precisely analogous to this case, a similar issue in relation to the commencement date of the interest calculation arises. Trilogy claimed that the commencement date for the interest calculations was the date each advance to AGA was made. The better view, however, is that pre-judgment interest should be calculated on the basis of the total of the relevant advances and should commence on 1 July 2007, not from the date that each separate advances was made. 920 The main reason for this is that a number of the advances that were made during the period 28 April 2006 to 1 July 2007, had the effect of capitalising interest. Those advances were typically made on the first day of the month when interest was due. Under the loan facility, interest was payable monthly in arrears. When monthly interest payments were not made, the interest rate was typically added to the principal outstanding and recorded as a loan advance. The compensation orders to be made will include amounts referable to those advances that had the effect of capitalising interest. It follows that if Trilogy were to receive pre-judgment interest from the date each of the advances were made, it would effectively be compensated twice. 921 As for whether the relevant interest rate for the calculation of pre-judgment interest should be derived from Practice Note CM16, the Full Court in Management 3 Group said as follows in relation to Practice Note CM16 (at [25]): The proper rate of interest to be applied should be the rate prevailing from time to time in the market place which would represent the cost of the money to a successful applicant. The Court has suggested in Practice Note CM16 that that rate is 4% above the cash rate fixed by the Reserve Bank. In our opinion that rate is a rough and ready guide of the prevailing interest rate at any given time and should be applied in relation to pre-judgment interest on any award which has been calculated as at the date that the cause of action arose. 922 It not having been shown that there is "good cause" for not awarding pre-judgment interest under s 51A of the FCA Act, there should be included in the compensation orders interest on the damages found to have resulted from those contraventions. That interest should be calculated from 1 July 2007 and should use interest rates calculated in accordance with Practice Note CM16.

Cross-claims 923 The respondents' cross-claims concerned claims that Trilogy was obliged to indemnify them for their legal costs pursuant to a Deed of Indemnity dated 7 April 2009 (in Mr McCormick's case) and a Deed of Indemnity dated 26 April 2001 (in the case of Messrs Sullivan, Swan and Donaldson). Under the terms of both deeds, and more significantly by reason of s 199A(3) of the Corporations Act, the respondents are not entitled to an indemnity where they have been found liable to compensate Trilogy under s 1317H of the Corporations Act. In light of the findings that have been made in relation to the respondents' liability under s 1317H, it must follow that they are not entitled to an indemnity in respect of their legal costs under the deeds and the cross-claim must be dismissed.

A note in relation to delay 924 There has been a long delay between the hearing of this matter and the delivery of this judgment. That delay is unfortunate and regrettable. It was due, in no small part, to the very large volume of documentary evidence and the extremely lengthy written submissions relied on by the parties. 925 Despite being the subject of specific directions and debate, the final tender bundle of documents filled over 20 lever arch folders and comprised well over 1200 documents and many thousands of pages. Regrettably, the majority of those documents were not referred to, let alone explained by, any witness and were not the subject of any, or any detailed, oral submissions. Many were, at best, referred to in a footnote in the detailed and lengthy written submissions. The relevance of many of them was at best doubtful. 926 The parties' written submissions ran to over 550 pages. The written submissions of Messrs Sullivan, Swan and Donaldson ran to 320 pages (single-spaced with attachments). Even though no directions were made limiting the length of the written submissions, it is doubtful that such lengthy submissions were warranted. Submissions of that length are not always helpful. Indeed, they can sometimes be counterproductive and even oppressive. 927 In any event, the delay between the hearing and judgment is relevant to a consideration of the credibility findings referred to earlier in these reasons. It will be apparent that those credibility findings were primarily based on the recorded and documentary evidence: cf CSR Ltd v Della Maddalena (2006) 224 ALR 1 at [44]-[48]. That said, the demeanour of the witnesses, in particular Messrs Sullivan, Swan, Donaldson and McCormick did play a part in those findings. Despite the delay, there was no difficulty in recalling witness demeanour.

conclusion, Disposition and orders 928 Each of Messrs Sullivan, Swan, Donaldson and McCormick have been found to have contravened s 601FD(1)(b) (c) and (f) of the Corporations Act in approving, or purporting to approve, increases to the AGA facility limit (in the case of Mr Sullivan and Mr McCormick, in July or August 2006 and in December 2006; in the case of Mr Swan and Mr Donaldson, in December 2006) and in failing to prevent advances being made to AGA above the approved facility limit and in circumstances where there was inadequate security (in the case of Mr Sullivan and Mr McCormick, in respect of advances made during the period 28 April 2006 to 1 July 2007; in the case of Mr Swan and Mr Donaldson, in respect of advances made during the period 11 January 2007 to 1 July 2007). 929 It has been found that the Fund suffered damage that resulted from those contraventions. Accordingly, compensation orders should be made pursuant to s 1317H of the Corporations Act against each of the respondents. In the case of Mr Sullivan and Mr McCormick, it has been found that the damage that resulted from their contraventions totalled $37,214,088.28 (being the total of the advances made during the period 28 April 2006 to 1 July 2007 less repayments of $5,275,000). The compensation orders against Mr Sullivan and Mr McCormick should be for that amount, together with interest pursuant to s 51A of the FCA Act calculated at the interest rate arrived at in accordance with Practice Note CM 16 from 1 July 2007 to the date that judgment is entered. In the case of Mr Swan and Mr Donaldson, it has been found that the damage that resulted from their contraventions totalled $6,245,974.93 (being the total of the advances made during the period 11 January 2007 to 1 July 2007 less $5,275,000). The compensation orders against Mr Donaldson and Mr Swan should be for that amount, together with interest pursuant to s 51A of the FCA Act calculated at the interest rate arrived at in accordance with Practice Note CM 16 from 1 July 2007 to the date that judgment is entered. 930 None of the respondents should be relieved of their liability in respect of these s 1317H compensation orders by reason of s 1317S or s 1318 of the Corporations Act. 931 Trilogy sought an order that the respondents pay the costs of the proceedings. None of the respondents made any submissions in relation to costs. There would appear to be no reason why costs should not follow the event. 932 It is proposed to make orders reflecting each of these findings. The appropriate course, however, would be to allow the parties to confer with a view to agreeing on the appropriate form and content of the orders. The matter will be listed for directions on 15 February 2016 at 9.30 am. If the parties agree on the orders, they will be made on that day. In the event that the parties cannot reach agreement on the appropriate orders, the parties should prepare short written submissions (not to exceed, without leave, five pages in length, 1.5 line spacing, size 12 font) in relation to the orders. Those submissions (together with the orders proposed by each party) should be filed and served on or before 10 February 2016. In the event that it is necessary for there to be oral argument in relation to the orders, a date for the hearing of that argument will be set at the directions hearing. I certify that the preceding nine hundred and thirty-two (932) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Wigney.