Woodcroft-Brown v Timbercorp Securities Ltd & Ors [2011] VSC 427

CORPORATIONS - Appeal - Managed investment scheme - Product disclosure statement - Disclosure of prescribed information by Responsible Entity - Meaning of 'significant risk' - Whether a risk ceases to be a 'significant risk' if it is capable of being managed - Whether risks that are being managed are required to be disclosed - Whether information contained in Annual Reports and ASX announcements required to be included in the product disclosure statement - Whether directors had knowledge of information about a 'significant risk' - Whether non-disclosures relied upon - Appeal dismissed - ss 674, 675, 1013C, 1013D, 1013E, 1013F, 1022B of the Corporations Act 2001 (Cth).

MISLEADING AND DECEPTIVE CONDUCT - claims under s 1041H(1) of the Corporations Act 2001 (Cth) - Considerations relevant to assessing whether representations misleading and deceptive - Whether representations relied upon - Appeal dismissed.

1 Timbercorp Securities Ltd, a member of the Timbercorp Group, operated and was the Responsible Entity for horticultural and forestry managed investment schemes ('MISs'). Timbercorp Finance Pty Ltd (another member of the Group) would lend money to investors so that they could invest in the MISs.

2 In 2009 the Timbercorp Group collapsed and went into liquidation. At the time of collapse there were 33 registered MISs and three unregistered private scheme offers. As a result of the collapse, the majority of MISs could not be carried out to completion, meaning the investments were of limited or no value. Following the collapse, liquidators also commenced recovery actions against investors who had borrowed money from Timbercorp Finance. Timbercorp Finance has outstanding loans to over 14 500 investors, totalling $477.8 million.

3 The appellant, Mr Woodcroft-Brown, commenced proceedings on his own behalf and on behalf of persons who, at any time during the period between 6 February 2007 and 23 April 2009, acquired or held an interest in a MIS of which Timbercorp Securities was the Responsible Entity. At a later stage, the trial judge ordered that the trial include a case advanced on behalf of 'early investors' who acquired or held investments prior to 6 February 2007. Evidence on breach, causation and reliance on behalf of these early investors was led from Mr Van Hoff, a group member who invested in MISs before and after 6 February 2007 and financed the majority of his investments with money borrowed from Timbercorp Finance. The proceeding was conducted as a group proceeding under Part 4A of the Supreme Court Act 1986 (Vic).

4 The appellant argued that had certain matters been disclosed, he would not have invested in the MISs or borrowed money from Timbercorp Finance. The evidence of Mr Van Hoff was led in support of a corresponding claim on behalf of the early investors. The appellant sought declaratory relief, damages and/or compensatory orders, including an order that the appellant and the group members were not liable for repayment of the loans from Timbercorp Finance.

5 The defendants to the proceeding were Timbercorp Securities, Timbercorp Finance and the three persons who, at the relevant times, were directors of Timbercorp Securities, Timbercorp Finance and Timbercorp Ltd (the holding company of the Timbercorp Group) ('the Directors').

6 At trial, the appellant argued that Timbercorp Securities failed to disclose in its Product Disclosure Statements ('PDSs') information about significant risks, or risks that might have had a material influence on the decision to invest, in breach of its disclosure obligations under the Corporations Act 2001 (Cth) ('Corporations Act'). The appellant also argued that the PDSs given to investors contained false or misleading statements.

7 In addition, the appellant argued that the declarations made by the Directors in two scheme financial reports were false or misleading and in breach of the Corporations Act, Australian Securities and Investments Commission Act 2001 (Cth) ('ASIC Act') and the Fair Trading Act 1999 (Vic) ('FTA').

8 The 2nd - 4th respondents denied these allegations. They also claimed, by notice of contention, to have taken reasonable steps to ensure that the PDSs would not be defective, which is a defence under s1022B(7) of the Corporations Act.

9 The trial judge found, inter alia, that the respondents were not required to disclose the risks identified by the appellant, that there had been no misleading or deceptive conduct and, in any case, that there had been no relevant reliance by the appellant, or Mr Van Hoff, on the alleged non-disclosures or representations. The trial judge also made several adverse findings about the way the appellant conducted his case.

10 The appellant now appeals against the decision and orders of the trial judge. The appellant seeks that some of the common questions be answered in the group members' favour and other questions and matters be remitted. The respondents have also filed notices of contention.

11 Beginning in 1992, the Timbercorp Group ('the Group') operated a number of horticultural and forestry MISs. It invested in excess of $2 billion on behalf of about 18 500 investors. Using a combination of debt and equity, the Group would acquire and develop land into plantations and orchards to generate a long term revenue stream from management fees and licence fees and would sell interests in the project to investors. The land and its developments would then be sold either into a property trust where the Group would retain some of the equity in the asset, or it would be sold to a third party buyer, usually on a sale and leaseback arrangement.

12 The Group also generated profit by lending finance to investors, usually up to 90 per cent of their investment. The Group would also raise funds by securitising its loan book and using the loans as security for finance bonds and bank facilities.

13 To fund the infrastructure and working capital of the projects, the Group would sell assets, raise equity, securitise loans and arrange debt facilities. During the relevant period the Group had finance facilities with the Commonwealth Bank, ANZ, HBOS and Westpac.

During the relevant period, the Group's financiers entered into or renegotiated facilities, extended repayment dates, increased facility amounts and, when necessary, modified covenants to avoid a breach. Facilities were extended within their term or as the end of the term approached.

During the relevant period, Timbercorp made presentations to its bankers and kept its banks informed of relevant developments, including the tax announcement and the cancellation of asset purchases following the collapse of Lehman Brothers.

15 The first sign of trouble for the Group was identified as being a tax announcement made on 6 February 2007. That announcement was to the effect that a draft Taxation Ruling was being prepared which would mean that investors in non-forestry MISs would no longer be able to claim upfront deductions for contributions to the MISs ('the tax announcement'). Six weeks later the ATO announced that the contributions would remain tax deductible to the end of the 2007/2008 financial year.

16 The Group responded to the tax announcement by commencing a legal test case against the ATO.

17 Following the tax announcement the Group engaged Goldman Sachs JBWere to undertake a strategic review. That review was provided to the Group on 30 March 2007. The key findings were set out in the judgment of the trial judge.[1] The report indicated on current form that the Group's earnings would be 'broadly negative for three years.'[2] During this period the Group conducted a strategic planning workshop and in June 2007 the Group prepared a confidential internal strategic plan entitled 'Grow to 2012'. The main objective of that plan was to align the Group's profit and cash flow so as to enable the Group to pay its dividends. The Group also commenced negotiations with Macquarie Bank about a possible acquisition of the Timbercorp Group by the Bank, which ultimately did not occur.

18 On 12 November 2007 the Group obtained a report from its auditors, Deloitte Touche Tohmatsu. The report noted the impact of the tax announcement and that the Group, on the most conservative scenario, would continue to be profitable though at lower levels after 30 June 2008. The Group also commenced negotiations with third parties, Munchmeyer Petersen Capital AG in relation to the sale and leaseback of certain properties (Boort and Carina) and Harvard Management Company in relation to forestry assets.

19 On 15 September 2008 Lehman Brothers collapsed in the United States, leading to the effective closure of global markets. The next day Munchmeyer terminated negotiations to acquire the Boort and Carina properties. Sometime after, Harvard also ended negotiations in relation to the forestry assets. The trial judge identified the collapse of Lehman Brothers as the reason why the deals did not proceed.[3] On 27 November 2008, the Group hired Goldman Sachs JBWere to undertake a process to sell assets.

20 In November 2008, in a report to the Audit, Risk and Compliance Committee ('ARCC'), the auditors expressed reservations about the business as a 'going concern', referring to a working capital deficiency of $82.8 million.

21 On 30 December 2008 Timbercorp Ltd issued its Annual Report. The trial judge described the Annual Report as presenting an 'apparently healthy position'.[4] The Annual Report contains a declaration by the Directors

to the effect that there were reasonable grounds to believe that the company would be able to pay its debts as and when they became due and payable, and that in the directors' opinion, the financial statements and notes complied with accounting standards, and gave a true and fair view of the financial position and performance of the company and of the consolidated entity.[5]

22 The Annual Report also contained an independent audit report from Deloitte. The audit report expressed the opinion that the financial report was in accordance with the Corporations Act but also said:

Without qualifying our opinion, we draw your attention to Note 1 in the financial report which indicates that the consolidated entity, in the absence of waivers, would have breached certain bank covenants at balance date. The consolidated entity has, subsequent to year end, obtained waivers for the breach of covenants as at 30 September 2008 and varied future covenants and terms. This includes an undertaking to sell selected assets and apply a portion of the proceeds to reduce debt. These factors, along with other mitigating factors being relied on by management to address these issues, are as set forth in Note 1 'Going Concern'. In the event that the mitigating factors as disclosed in Note 1 do not eventuate as management anticipate, there exists a material uncertainty about the company's and consolidated entity's ability to continue as going concerns and whether they will realise assets and extinguish their liabilities in the normal course of business and at the amounts stated in the financial report.[6]

23 In their annual directors statement, the Directors noted that the Group would have been in breach but for waivers of certain covenants by its bankers. The Directors also prepared their reports on the basis that the Group would continue as a going concern, citing a number of factors. 'The directors noted that should the proposed asset sales not proceed as planned, or only proceed in part, they were confident of the continued support of the Group's bankers, subject to agreement on alternative acceptable plans.'[7]

24 The Group managed to maintain bank support until April 2009, when it collapsed and entered into voluntary administration. Administrators were appointed on 23 April 2009 and creditors resolved to wind up the Group on 29 June 2009.

25 The trial was conducted over 24 days. The trial dealt with common questions and only looked at individual loss, reliance and causation in relation to the appellant and Mr Van Hoff. Evidence was given by various lay witnesses including the appellant, Mr Van Hoff and various Timbercorp directors.

26 The parties also called forensic accounting witnesses. Mr Dicks, a partner in PPB Advisory, gave evidence as an expert forensic accountant for the plaintiff, Mr Hill, of McGrathNicol Forensic, gave evidence on behalf of the Directors and Mr Honey, chartered accountant, gave evidence on behalf of Timbercorp Finance. After preparing independent reports, the experts prepared and filed a joint report. The trial judge found that the evidence of these experts was 'crucial'.[8]

27 The trial judge delivered extensive reasons rejecting the appellant's claims and then proceeded to hear argument regarding the answers to the common questions and costs. Those matters were dealt with in the trial judge's further reasons.[9] The judge then made orders dismissing the claims of the appellant and Mr Van Hoff and regarding costs.

28 There were, in effect, two threads to the appellant's case before the trial judge. One was a non-disclosure case. The other was a misrepresentation case.

29 Turning to the non-disclosure case, it was necessary for the appellant to establish that there was an obligation to disclose certain matters under either s 1013D or s 1013E of the Corporations Act. These sections provide:

Sect 1013D Product Disclosure Statement content - main requirements

(1) ... a Product Disclosure Statement must include the following statements, and such of the following information as a person would reasonably require for the purpose of making a decision, as a retail client, whether to acquire the financial product:

...

(c) information about any significant risks associated with holding the product ...

Sect 1013E General obligation to include other information that might influence a decision to acquire

... a Product Disclosure Statement must also contain any other information that might reasonably be expected to have a material influence on the decision of a reasonable person, as a retail client, whether to acquire the product.

30 Thus, s 1013D is concerned with information about any significant risk. Section 1013E is concerned with information that might reasonably be expected to have a material influence on the decision to acquire the product. Once the appellant satisfied the requirements of either s 1013D or s 1013E, there was a second step, the obligations arising by virtue of s 1013C(2) of the Corporations Act. It provides:

(2) The information required by sections 1013D and 1013E need only be included in the Product Disclosure Statement to the extent to which it is actually known to:

(a) the responsible person; and

(b) in the case of a sale Statement - the issuer of the financial product; and

(c) any person named in the Statement as an underwriter of the issue or sale of the financial product; and

(d) any person:

(i) named in the Statement as a financial services licensee providing services in relation to the issue or sale of the financial product; and

(ii) who participated in any way in the preparation of the Statement; and

(e) any person who has given a consent referred to in section 1013K in relation to a statement included in the Statement; and

(f) any person named in the Statement with their consent as having performed a particular professional or advisory function; and

(g) if any of the above persons is a body corporate - any director of that body corporate.

31 The effect of that section is to qualify the disclosure required under ss 1013D and 1013E by not requiring disclosure under those sections to the extent the information concerned is not known by the disclosing party. As the respondents put it, the section provides that information need only be included under s 1013D or s 1013E to the extent to which it is actually known to the responsible person, here Timbercorp Securities, or to any director of Timbercorp Securities.

32 A further step was meeting the requirements of s 1013F(1) of the Corporations Act. This section provides:

(1) Despite anything in section 1013D or 1013E, information, or a statement containing information, is not required to be included in a Product Disclosure Statement if it would not be reasonable for a person considering, as a retail client, whether to acquire the product to expect to find the information in the Statement.

33 Hence, s 1013F(1) provides that information is not required to be included in the PDS unless it is reasonable for the individual to expect the information to be included in the statement. As the respondent put it, the task of the appellant was to show that the matters upon which he sought to rely fell outside s 1013F(1).

34 The risks which the appellant submitted ought to have been disclosed pursuant to these sections were referred to as the 'structural risk' and the 'adverse matters'. The appellant argued that information about the structural risk ought to have been included in each PDS issued after April 2000 and information about the adverse matters ought to have been disclosed as and when they occurred.

35 The structural risk was pleaded as a risk that the Group might fail because of insufficient cash, with a consequential risk to the viability of the schemes managed by Timbercorp Securities.[10] At trial, the appellant alleged that the factors upon which the cash flow of the Group depended included:

• A failure by other project members to make project contributions to Timbercorp Securities or to repay loans to Timbercorp Finance;
• The capacity of the Timbercorp Group to obtain and/or service external funding; and
• The availability to the Timbercorp Group of securitisation of loans.[11]

36 The adverse matters were matters alleged to have put the business of the Group at a heightened risk of failure. The two adverse matters principally relied upon were the tax announcement and the global financial crisis ('GFC') and its resulting impact on the availability of credit. Other adverse matters were the near insolvency of the Group in 2008 and the breach of the Group's loan covenants.

37 These matters were considered by the trial judge:

The plaintiff's formulation of the financial structure risk, as pleaded, turns upon the ability of the Timbercorp Group to manage its cash. The risk, as formulated by the plaintiff, requiring disclosure, was the grower's exposure to risks associated with the ability of Timbercorp to maintain a sufficient cash flow to enable Timbercorp Securities to meet scheme costs and expenses. That is an element of the performance risk or institution risk. I have found that information about the performance risk was disclosed in the Product Disclosure Statements employed by the Group throughout the Relevant Period. I am not persuaded that the information about that risk as formulated by the plaintiff was required to be disclosed by Timbercorp Securities, whether as a significant risk, under s 1013E or pursuant to its continuing disclosure obligation. Further, information about the financial circumstances of the Group, bearing upon its ability to maintain a sufficient cash flow, was generally available. That information was not required to be included within Product Disclosure Statements or otherwise provided to potential or existing investors by reason of a statutory obligation imposed on Timbercorp Securities.

Putting those findings to one side for the moment, the cash flow risk as pleaded was said to be susceptible to grower defaults, the capacity of the Group to obtain and service external funding and its ability to securitise loans. The evidence demonstrated that, even during the more difficult financial period in 2008, grower defaults did not expose the Group to any material risk. Ultimately, the cash flow risk, such at it was, faded to insignificance or did not rise to the level of a material risk for so long as the Group maintained its relationship with its bankers who were providing the majority of its capital requirements. The experts agreed on that issue. The evidence demonstrated that bank support continued and indeed increased throughout 2008. It was not until the end of that year and early 2009 that the willingness of Timbercorp's bankers to continue to provide support became uncertain because fundamental assumptions for their continue support could no longer be reasonably met.

The defendants submitted that disclosure of the tax announcement as an event was not required, but if it was, the event was widely disclosed, in the media, on the Timbercorp website, in ASX releases and in subsequent product disclosure statements. What was not disclosed, in terms, was the information concerning the alleged effect of the tax announcement on Timbercorp's cash flows, revenues and profits and the risk that posed to the ability of Timbercorp Securities to manage the projects through to completion. The evidence demonstrated that while the tax announcement may have had a negative impact on the Timbercorp share price, and on forecast performance in the short term, the actual impact did not threaten the ability of Timbercorp Securities to continue to discharges its contractual responsibilities to scheme investors. Furthermore, the nature and extent of the impact on the business of the Group was the subject of reports made to the ASX and the Annual Reports of the Group. In my opinion, Timbercorp Securities was not required to disclose the generalised information of the kind suggested by the plaintiff so as to qualify its disclosure of the performance risk. That information was not in relation to a significant risk to the ability of Timbercorp Securities to discharge its contractual obligations to scheme investors. It was not information that would be reasonably required by a retail client for the purpose of making an investment decision. It was not information that might reasonably be expected to have a material influence on the decision of a reasonable retail client to invest. Because of financial information about the Group available on its website, Annual Reports, ASX announcements and the material prepared by analysts, the information the plaintiff would have had provided to potential and existing investors was not required because of the operation of s 1013F. Finally, the evidence did not support the contention that the directors had actual knowledge of a risk posed by the tax announcement to scheme investors.[12]

38 The point being that a company may issue a statement in light of a tax announcement which may affect, for example, the share price. However, it is irrelevant when it comes to the question of the ability of the company to meet its commitments. Ultimately, his Honour found that the appellant failed to satisfy or displace the operative effect of s 1013C(2) of the Corporations Act given the absence of actual knowledge by the corporation or its directors. This was due to the way in which the appellant pleaded its case.

39 His Honour made findings of fact. In order to succeed, the appellant needed to demonstrate these findings were not open.

40 In relation to the arguments concerning the pleaded risk, his Honour's reasoning was as follows. First, the risk as pleaded was not one that it could be said per s 1013D that a retail client would reasonably require information about for the purpose of making a decision to acquire the product.[13]

41 Secondly, the risk as pleaded was not a 'significant risk' because the Group had strong cash flows and was not at risk of collapse so long as the Group maintained its relationship with its bankers, which it did until early 2009.[14] His Honour found that the opinion expressed in the joint expert report by the forensic accounting experts provided a complete answer to the risk as pleaded.[15] It said:

All the experts agree that as long as the group's bankers continued to support the group's operations there was no significant risk that the group would not have had the financial capacity to manage any of the schemes through to their contemplated completion.

42 His Honour found that, as long as its bankers supported the Group, there was no real threat to its cash flow. Therefore any structural risk based on the Group's cash flow and particularised threats to its cash flow did not amount to a real threat.

43 Thirdly, information about the risk as pleaded was not of a kind that it would be reasonable for a person considering whether to acquire the product to expect to find in a PDS for the purposes of s 1013F, because that information was generally available.[16]

44 Fourthly, insofar as the risk as pleaded encapsulated the risk 'that a contracting party might fail to discharge all of its contractual obligations due to financial incapacity',[17] that was a risk which it would be reasonable for a person, including a retail client, considering whether to acquire an interest in a scheme to expect to find information about in the PDS for the purposes of s 1013F. Thus his Honour was persuaded that information about that risk was required to be disclosed in PDSs as a significant risk under s 1013D(1)(c).[18]

45 However, his Honour also found that risk was disclosed.

46 Fifthly, the evidence did not support a finding that any of the respondents had actual knowledge of the risk that the Group's bankers may withdraw their support until after the collapse of the Lehman Brothers and the failure of the anticipated asset sale transactions with Munchmeyer and Harvard.[19]

47 In relation to information about the adverse matters, the trial judge held that Timbercorp Securities was not required to disclosed this information for several reasons.

48 First, the adverse matters had no independent status as risks. The only way they might require disclosure was as events which, if left unchecked or unmanaged, might crystallise the pleaded risk into reality.[20]

49 Secondly, even if each adverse matter were properly characterised as a risk pursuant to s 1013D(1), it could not be said that information about them was information that a retail client would reasonably require.[21] Nor could the tax announcement or the GFC be information that might reasonably be expected to have a material influence on the decision of a reasonable retail client to invest for the purposes of s 1013E.[22] Further in relation to the GFC, it posed no discernable risk and there was no actual knowledge of that risk until after the collapse of Lehman Brothers. Furthermore, information about the GFC and its impact was generally available for the purposes of s 1013F.[23]

50 Thirdly, insofar as it was required, information about the adverse matters was disclosed.[24]

51 Fourthly, the adverse matters were successfully managed. Disclosure of events that may be or have been successfully managed is not necessary because the real risk has not yet 'crystallised'.[25] Requiring that such information be disclosed would be unrealistic and oppressive.[26] Furthermore, for the purposes of s 1013F, information about the existence and impact of an event that can be reasonably managed, even if it might cause a catastrophic consequence if left unmanaged, is not information of a kind that would be reasonable to find in a PDS.[27]

52 Fifthly, the Directors did not have actual knowledge that the adverse matters posed a risk that Timbercorp Securities would be unable to fulfil its contractual obligations until the Director's realised bank support became equivocal.[28]

53 Sixthly, the continuous disclosure obligations did not require that information about the adverse matters be disclosed. None of the adverse matters caused material changes to the pleaded risk or constituted a significant event that affected the pleaded risk, but rather were events of the type management deals with day to day and were addressed.[29] It is not until management realises it cannot successfully manage these events to avert the risk 'crystallising' that the continuing disclosure obligations are engaged.[30]

54 As the trial progressed, the appellant developed the proposition that due to its business model, 'the Timbercorp Group was critically dependent on its ability to maintain and increase its borrowings'[31] and that this dependency was a significant risk that should have been disclosed. The respondents took issue with the way in which the appellant sought to develop this proposition during the trial and submitted that it signalled a shift in the appellant's case that went beyond its pleaded case. The trial judge held that the appellant had sought to pursue a case that went beyond that articulated in his pleadings ('the unpleaded case') and quite properly held that he should not be permitted to do so. Significantly, there is no ground of appeal contesting the conclusion of the trial judge in that respect. This is discussed further below at [71].

55 The trial judge held that the appellant's non-disclosure case, as pleaded, failed. His Honour held that Timbercorp Securities was not required to provide information on the structural risk or adverse matters to potential or existing investors.[32]

56 The trial judge also went on to find that even on the appellant's unpleaded case, he did not succeed.[33] His Honour found that the evidence before him did not reveal any unique or particular fragility in the Timbercorp business model.[34] His Honour also found that no evidence was expressly directed to proving or answering the unpleaded case and in particular the expert witnesses 'were not asked to express a view as to whether the business model was fragile, unusual or inherently risky.'[35] His Honour also concluded that information about the Group's business model was generally available and therefore it would not be reasonable to find said information in the PDSs, per s 1013F.[36]

57 Moreover, the PDSs issued during the relevant period disclosed information about the unpleaded risk, insofar as it was required.[37]

58 Section 1022A of the Corporations Act defines a disclosure document or statement (which includes a PDS) as 'defective' if, inter alia, it contains a misleading or deceptive statement. Section 1022B(7) provides a defence if a person took reasonable steps to ensure that a disclosure document or statement would not be defective.

59 The appellant also relied on s 12DA of the ASIC Act which provides:

Section 12DA Misleading or deceptive conduct

(1) A person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive.

(1A) Conduct:

(a) that contravenes:

(i) section 670A of the Corporations Act (misleading or deceptive takeover document); or

(ii) section 728 of the Corporations Act (misleading or deceptive fundraising document); or

(b) in relation to a disclosure document or statement within the meaning of section 953A of the Corporations Act; or

(c) in relation to a disclosure document or statement within the meaning of section 1022A of the Corporations Act;

does not contravene subsection (1). For this purpose, conduct contravenes the provision even if the conduct does not constitute an offence, or does not lead to any liability, because of the availability of a defence.

60 The appellant also relied on s 9 of the FTA, which provides:

Section 9 Misleading or deceptive conduct

(1) A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

61 The appellant alleged that the Timbercorp Group had made two types of false or misleading representations. The first was that the Group was, financially, sufficiently strong that investors would reasonably expect the MISs to be managed for the foreseeable future and that the principal risks associated with the relevant MISs were fully disclosed. The second was that scheme contributions equalled or exceeded the cost of establishing and managing a scheme, in that investors' payments would be 'quarantined' and applied only to their relevant MIS and MIS contributions would be sufficient to fund the relevant MIS ('the financial representations').

62 The trial judge found that the representations as to the Group's strength were too vague and uncertain to be actionable and that there were reasonable grounds for that confidence in any case.[38] His Honour held the mere occurrence of the adverse matters did not make the representations false or misleading because the adverse matters were able to be successfully managed.[39]

63 As to the representations about scheme contributions, his Honour held that they were not made, that they were in fact inconsistent with the PDSs and other generally available information and were inconsistent with the claimed reliance on the strength of the Group by the appellant.[40]

The plaintiff also alleged that the Product Disclosure Statements prepared for schemes sold during the Relevant Period, were misleading or deceptive because they contained financial representations to the effect that the Timbercorp Group was sufficiently strong that investors could reasonably expect that Timbercorp Securities would continue to manage each scheme throughout its term, and that the principal risks associated with each relevant scheme were fully disclosed. The alleged representation, to the effect that Timbercorp was strong, lacked content. The coupling of the expectation of investors was an attempt to qualify the representation by reference to durability - its ability to survive for the duration of the schemes. It was pleaded as a representation about how things would be in the future. That called upon the defendants to justify their expressions of strength and durability. In my opinion they established reasonable grounds for their expressions of confidence and the Group's viability and strength.

As for the alleged representation, to the effect that the principal risks associated with the schemes were fully disclosed, an investor was entitled to assume that the Responsible Entity had complied with its disclosure obligations.

The plaintiff alleged that the financial representations were false or misleading in that from around February 2007 the financial circumstances of the Group were not such that investors could reasonably expect that Timbercorp Securities would be able to manage each relevant scheme throughout its intended term, and that Timbercorp Securities failed to disclose the adverse matters after they occurred, as a substantial risk in connection with each relevant scheme. The first part of the allegation was not supported by the evidence; and I have found that Timbercorp Securities was not required to disclose the information about the adverse matters as formulated by the plaintiff.

The misleading or deceptive conduct case also relied on scheme contributions representations, alleged to have been made by Timbercorp Securities and Timbercorp Finance, to the effect that fees paid by investors equalled or exceeded the true cost of establishment and ongoing management of each scheme, and that their contributions would only be applied to fund the costs of the particular scheme in respect of which they were paid. These allegations were intended to reflect a contention that, as the plaintiff understood the operation of the schemes, payments made by investors would be quarantined from exposure to the fortunes of other schemes, or more particularly, the Group as a whole. The plaintiff complained that his payments were pooled with payments made by investors in other schemes and treated by Timbercorp Securities as its own funds. This allegation was inconsistent with the information contained in the relevant Product Disclosure Statements. It was also inconsistent with an important limb of the plaintiff's case - his claimed reliance on the strength of the Group.[41]

65 The trial judge rejected the appellant's allegations concerning financial representations. In effect, his Honour held that, if the representations were made, they were not misleading because they were supported by reasonable grounds. Significantly, there is no appeal against this finding.

66 The appellant argued that Timbercorp Securities and the Directors made statements in March and September 2008 that were misleading or deceptive. The impugned statements were alleged to be to the effect that there had been no circumstances that had significantly affected, or may have significantly affected, the operations of the relevant MISs, the results of those operations or the state of affairs of the schemes in future financial years. The appellant also argued in the alternative that Timbercorp Finance was liable under the three Acts because the contravening conduct was engaged in on its behalf or because it was knowingly concerned in the contraventions.

67 The trial judge found that the appellant's case failed on causation and reliance.[42] We also observe that the provisions relied on in relation to misleading conduct did not operate in relation to the disclosure obligations in the PDSs per ss 1041H(3) and 1041K(2) of the Corporations Act and s 12DA(1A)(c) of the ASIC Act.

68 In order to make out both the non-disclosure and the misrepresentation case, it was necessary for the appellant to establish that there was reliance placed upon the non-disclosures and the misleading conduct so as to cause entry into the investment product and, therefore, subsequently to cause loss. His Honour did not believe the evidence advanced by the appellant or by Mr Van Hoff on this issue.[43]

69 Of course, the trial judge had the benefit of observing the witnesses first hand and reaching his own conclusions. It is a difficult burden for an appellant to persuade an appellate court to interfere with findings as to credit.

70 Given the way the matters were disposed of, his Honour did not consider any defences available to the respondents under s 1022B(7) or ss 1317S and 1318 of the Corporations Act or any third party or proportionate liability claim.

71 An issue both at trial and on appeal was whether the appellant's case had shifted during the course of the trial so that the appellant pursued a case that went beyond his pleading. The shift concerned the identification of the risks the appellant alleged should have been disclosed. The risks as pleaded are to be found in paras [75A]-[75H] of the Statement of Claim and are supplemented by the further and better particulars provided on 8 April 2011, which set out the information the appellant alleges Timbercorp Securities was required to disclose in relation to these risks. The trial judge found that during the course of the trial, the appellant had materially shifted his conception of the relevant risk and in doing so departed from his pleaded case.

72 The shift in the appellant's case at trial was first articulated with the presentation of a document titled 'plaintiff's case in a nutshell' ('Nutshell document') on 10 June 2011, after the trial had been running for approximately three weeks. By this time, the Directors and all but two of the lay witnesses had given evidence and the experts had prepared their joint report. It appears that the Nutshell document was prepared in response to a request from the trial judge that the appellant articulate with some precision the allegations that were the focus of his case. At the time this document was presented to the trial judge, objection was raised by the respondents on the basis that some of the allegations in this document went beyond the pleadings and particulars provided and raised a case they had not come prepared to meet. In particular, the respondents objected to para 21 of that document, which states:

In the circumstances, Timbercorp should have disclosed that the group was critically dependent on its ability to increase its short term borrowings, its ability to continue to raise equity and to sell capital assets in a timely manner. It should have disclosed that if capital or debt markets tightened, there was a real risk that the Timbercorp Group would fail, and the project investments would likely fail with it. That should have been supported by information about the increasing levels of short term debt and the risk that the debt could not be refinanced or replaced.

73 The articulation of this case was further developed in the Outline of the Plaintiff's Closing Submissions dated 2 July 2011. In his outline, the appellant formulated 10 key propositions. Proposition 3 is of particular relevance and reflects very closely a paragraph set out above from the Nutshell document. It states:

At all time during the relevant period, the Timbercorp Group knew that scheme investors were exposed to risks associated with the Timbercorp Group failing during the currency of project terms and in particular that the Timbercorp Group was critically dependent on its ability to maintain and increase its borrowings, its ability to continue to raise equity and to sell capital assets in a timely manner and that if capital or debt markets tighten there was a real prospect that the Timbercorp Group would be at risk, and the grower investments with it.

74 The trial judge found that the plaintiff, when preparing his case for trial, did not set out to prove that the Directors had this knowledge, and found the risk as articulated in this proposition was different from the risk as pleaded. His Honour held:

The structural risk articulated in those paragraphs [[75A]-[75H]] was more aptly described as a cash flow risk. While the description is unimportant, the nature and components of the risk were completely different. The pleaded structural risk was concerned with the exposure of scheme members to the ability of the Timbercorp Group to maintain its cash flow, should members of other schemes fail to make scheme contributions, or because the Group might not be able to obtain or service external debt, or because it could not access funds by securitising investor loans. The financing risk, advanced at trial, was no longer concerned with cash flow from the identified sources. The structural risk had been converted into one concerning anterior matters - the Group's dependency on new capital, in the form of debt and equity. That dependency, the plaintiff argued, made the Group susceptible to adverse changes in the capital markets, such as occurred with the Global Financial Crisis. That was a business model risk which the plaintiff argued made the Group so vulnerable to market forces that it required disclosure in every Product Disclosure Statement.

...

The difficulty for the plaintiff in changing course was that the defendants, and in particular the directors, had fashioned and presented their evidence to establish that they were not aware of any structural risk or other risks as formulated by the plaintiff until late December 2008, when continuing bank support became uncertain. Actual knowledge was an important issue in the case. The disclosure obligation was predicated on actual knowledge of particular risks and information about them. Much of the lay-evidence was directed to establishing that the board had successfully managed risks as they arose, including the events described as adverse matters, and had successfully negotiated banking facilities, and managed cash flow. The evidence was not directed to an analysis of the business model, and the resulting risk enunciated by the plaintiff in Key Proposition (3).[44]

75 The trial also found that the appellant changed the way in which he relied on the adverse matters in that, rather than focusing on their importance as stand alone risks, they achieved their materiality from the financing risk. His Honour held:

The adverse matters were transformed from the status of isolated events, that the plaintiff alleged ought to have been disclosed, into freestanding risks and then back to events that exacerbated or heightened the financing risk, increasing the possibility of the Group's failure. It was that increased risk of failure, according to the plaintiff, that required disclosure of the impact of the adverse events on the Timbercorp Group.[45]

76 The trial judge formed the view that the reformulation of the appellant's case was an attempt to 'sidestep' the opinions found in the joint experts' report which his Honour held was 'a complete answer to the structural risk case as pleaded.'[46] It was agreed by the experts that as long as the Group's bankers continued to support the Group's operations there was no significant risk that the Group would not have had the financial capacity to manage any of the schemes through to their contemplated completion. His Honour held that the 'lack of materiality of investor defaults and the willingness of the banks to increase their level of support for the Group until the end of 2008 had the effect of eroding the content of the structural risk as pleaded and particularised by the plaintiff.'[47]

77 His Honour held that the appellant should be confined to his case as pleaded, both because the expert reports and the joint report were directed to the case as pleaded and because of the way in which the respondents had fashioned and presented their evidence in response to that case.[48]

In my opinion, the change in the plaintiff's formulation of the structural risk, transforming the cash flow risk as pleaded into the financing risk or the fragile business model risk, involved a material change in his case. The defendants rightly complained about the change. While the evidence that was given by the experts and lay-witnesses, including the reliance evidence given by the plaintiff and Mr Van Hoff, might be said to be generally relevant to the new case, it was not directed at addressing the financing risk case and its components. The change that was made by the plaintiff to his case, at trial was perhaps understandable, but it is not permissible. No application to amend was made. Had an application been made it would almost certainly have been refused, given the stage of the trial, the nature of the case and the fact that the defendants had already prepared their evidence to address the components of the cash flow risk, not the financing risk or fragile business model risk.

In any event, the plaintiff's case based upon the financing risk or fragile business model risk was no more persuasive than his case based upon the financial structure risk, although for different reasons.[49]

79 Although the appellant did not appeal against the trial judge's finding that he changed his case at trial, he denied that he did so. On appeal, the appellant submitted that the perceived shift in his case was not a shift in substance but rather emerged as a consequence of the trial judge's use of different tags to describe the various risks. He submitted that the risks identified in paras [75A]-[75F] of his pleading were characterised in a number of different ways by his Honour, variously as the structural risk; the financing risk; the fragile business model risk; the cashflow risk; the performance risk; and the institution risk. The appellant submitted that it is immaterial, when looking at the risks associated with the Group failing to maintain sufficient cash flow to operate the schemes, whether the cash that is required comes from internal funding structures, external debt, capital markets, contributions from investors or somewhere else.

80 He submitted that although the tags used by the trial judge were a convenient way of describing different aspects of the pleaded risks and allowed his Honour to express the complex risks in a simple form, they did not capture the risks identified by the plaintiff in their totality. The appellant submitted that whilst the tags created the impression that the risks in the pleading were distinct and separate, this was an effect of the terminology and did not reflect the substance of the risks as pleaded. The appellant submitted that it was the use of these tags that led his Honour to erroneously perceive a shift in the substance of the plaintiff's case and that in perceiving such a shift, his Honour 'mistook the map for the territory'.

81 In our view, his Honour did not fall into error in this way and was correct to find that the appellant materially shifted his case during trial. Whilst it may be said that the shift to the unpleaded case was not a profound departure from the pleaded case, the shift was significant enough that the evidence led by both the plaintiff and defendants was insufficient to meet it. The experts did not consider, and were not called on to consider, what would be likely to happen to the Group if capital or debt markets tightened. Questions regarding the risks involved in having different complex debt instruments with no single funder; the mismatch between the length of a project's life and the terms of its finance; and the absence of a permanent long-term funding solution and the consequent ongoing need to re-finance, were not included in the list of questions the parties agreed the experts should consider. Nor was there evidence directed to the appellant's reliance upon representations or non-disclosures in relation to the effects on the Group if capital markets tightened. Even if the trial judge found it was open to the appellant to pursue this unpleaded case, it would not have succeeded at trial because it was not supported by, or consistent with, sufficient evidence.

82 So much having occurred, in the submissions before this Court the appellant purported to urge the very case that was not pleaded at trial and which the trial judge rejected. Furthermore, the appellant faces an inherent difficulty. As explained by the trial judge[50] even if the appellant was permitted to advance the unpleaded case it was not supported by the evidence at trial. Thus, it would be wholly inappropriate and unacceptable for this Court to contemplate that case on the appeal.

83 We consider that ground 5[51], which focuses on the management of the alleged external financing risk, squarely raises the unpleaded case which his Honour, correctly in our view, found was foreclosed.

84 In addition to pursuing its unpleaded case on appeal, the appellant's case shifted during the appeal. At the hearing of the appeal, the appellant advanced submissions that were not reflected in his grounds of appeal and which did not reflect the case advanced before the trial judge. The most significant of these was the way in which it was said the appellant and Mr Van Hoff acted in reliance on the PDSs.

85 Whereas at trial the focus of the appellant's submission was on the impression produced by his and Mr Van Hoff's reading of the PDSs and on the role of the non-disclosures and representations complained of in their decision-making process, on appeal, the reliance was said to be indirect in that the appellant and Mr Van Hoff relied on the advice of their financial advisers. This shift appears to be in response to findings of the trial judge that the appellant and Mr Van Hoff did not read the PDSs in any detail, or at all.[52] On appeal, the appellant urged this Court to draw the inference that because the advisers were professionals, their recommendations to the appellant Mr Van Hoff to invest would have been actuated by their reading and consideration of the non-disclosures and representations complained of in the PDSs. This submission fell into the difficulty common to much of the appellant's unpleaded case in that there was no evidence led below as to the extent to which the advisers relied on the representations and non-disclosures in making the recommendations to their clients.

86 In our view, the appellant should be held to his pleaded case on appeal. We draw support for this conclusion from the observations of Austin J in ASIC v Rich.[53] In that case, his Honour set out a number of propositions in relation to the significance of pleadings and particulars which emphasised their fundamental role in defining the scope of evidence to be lead in support of the material facts alleged and in ensuring that the opposing party has the opportunity of meeting the case against them. Significantly, his Honour observed that when litigation is large and complex, with serious consequences for the defendants if the plaintiff succeeds and the parties are required to incur very substantial costs, the imperative to hold the plaintiff to its pleaded case is strengthened.[54] In our view, this is such a case.

87 The appellant has 14 grounds of his appeal, although ground 3 was not pressed at the hearing. All of the respondents have issued notices of contention with six common grounds of contention. The first respondent has an additional ground of contention.

88 Broadly, the appellant takes issue with the trial judge's conclusions as set out above. The appellant submitted that the trial judge misconstrued the meaning of 'significant risk' in s 1013D and misapplied s 1013F and the joint experts' report and should have held that the risks associated with external financing should have been disclosed under s 1013D or 1013E and that the adverse matters required disclosure under s 1013E. The appellant submitted that the trial judge erred in finding that the disclosure that was made was sufficient, and erred in finding that the Directors had no actual knowledge of the risks until after the collapse of Lehman Brothers. The appellant also submitted that the trial judge's analysis of the alleged misrepresentations failed to take into account an ordinary and reasonable reader. Finally, the appellant submitted the trial judge erred in finding there was no reliance on the non-disclosures or representations complained of by the appellant or Mr Van Hoff.

89 The respondents contended that the trial judge should have found that the evidence required the conclusion that there was no significant, or alternatively no discernible, risk that Timbercorp Securities would be unable to perform its management functions during the period throughout which scheme members were exposed to the risk that they may lose the total value of their investment. The respondents also contended that information concerning the pleaded risk, tax announcement and the GFC was information that it would not be reasonable to expect to find in a PDS by reason of s 1013F. The first respondent additionally contended that, having regard to the legislative framework a responsible entity is not required to disclose in a PDS information about risks associated with the responsible entity's financial position.

90 The Directors also identify as an issue on appeal the extent to which the grounds of appeal fall within the appellant's pleaded case.

91 Before turning to the grounds of appeal, it is relevant to set out some of the evidence as to events which were significant in the appellant's case.

92 The trial judge concluded that prior to Lehman Brothers' collapse there was no discernable risk that Timbercorp Securities would be unable to perform its management functions.[55] The first and fifth respondents, by their notices of contention, submitted that the period during which the failure of Timbercorp Securities to perform its management functions exposed each investor to the risk of a total loss of their investment was five years. The appellant submitted that the period of exposure was the life of each scheme, that is, around 20 years for horticultural schemes and around 10 years for forestry schemes. His Honour found it unnecessary to decide this issue. In our view, the conclusion that there was no discernable risk prior to Lehman Brothers' collapse was open on the evidence for both the five year period after the issue of each scheme and the life of each scheme.

93 The Directors led detailed evidence about the periods when each scheme was dependent upon the Group tantamount to the effect that horticultural schemes were designed to be dependent for a period of four to six years and forestry schemes were designed to be dependent for around 10 years. Evidence was led that the Group's strategy was to sell and lease back its scheme land holdings after developing the asset either into a trust partly owned by the Group or to a third party within four years.[56] Furthermore, evidence was led as to the timing for which the Group would have funded most of the capital expenditure for each of the schemes offered to investors after 7 February 2007 and by which each scheme was forecast to be generating significant crop proceeds.

94 This evidence was principally provided by Mr Rabinowicz, CEO of Timbercorp and a director of various companies in the Group, and was not challenged.

95 Thus, the Group's business model was to create valuable capital intensive assets with a long term income stream and then to sell those assets within the period of three to five years. For each horticultural scheme, after five years the consequences of failing were intended to reduce to virtually nothing. For each forestry scheme, from about five years, the consequences of failure were intended to reduce gradually until harvest. The appellant submitted that the proper test would be that a risk of total loss of the investment must be disclosed unless the chance of the risk materialising was negligible.

96 The trial judge considered the position as at September 2007:

On 15 November 2007, the Group released its audited results. The Group's annuity income was $243 million, its EBIT $156 million, and NPAT $66 million. Although the Group reported a negative operating cash flow of $45 million, that did not have regard to cash from securitisation. The Group also announced a dividend of 4c, a further strong indicator of its own assessment of its financial strength.[57]

97 His Honour focussed on the announcement by the Group of a dividend. Putting that fact in perspective, the Group, if struggling with cash, might contemplate not providing a dividend to shareholders. However, the Group declared and paid cash.

98 Considering then the position as at 2008, his Honour dealt with these matters:

Timbercorp reported an increase in total Group revenues, to a record $494.4 million, led by sustained growth in annuity income. New sales of agribusiness managed investment schemes had made a significant contribution to profit. Annuity income comprised fees and rental income generated from payments made by investors in managed investment schemes, and entitlements from maturing schemes.

Timbercorp reported that annuity income had increased 32.1% over the previous year to $321.5 million, and that the contribution to EBIT had increased to $72.6 million. While some one-off negative provisions were mentioned, net assets had increased from $75.8 million to $595.6 million, while net overall debt had increased $71.9 million.

Timbercorp announced a net profit for the financial year ended 30 September 2008 of $44.6 million. The Group had 22,000 hectares of horticultural land, and 98,000 hectares of forestry plantations, under management.

The 2008 Annual Report announced that annuity income was expected to increase to more than $360 million in the following year, and then to more than $400 million in 2010. New business sales were claimed to have been strong in 2008, with three project offerings attracting $119 million in new investment. Timbercorp's almond project had sold out, the forestry project was over subscribed, and Timbercorp had achieved its highest ever sales for an olive project. The report noted, however, that the total new business revenues, and related EBIT contribution, was down 16.3% and 12.7% respectively, due mainly to reduced horticultural project offerings in 2008.[58]

99 Thus, when looked at overall, the financial position of the operation was seen to be strong and profitable. Importantly, as at 30 September 2008, there was no indication of any risk by reason of financial circumstances to the Group's capacity to discharge its obligations in relation to the management of the projects.

100 It is relevant to consider the support afforded by the bankers of the Group at the relevant period. His Honour addressed these matters:

Assuming an equivalence between the concept of significance risk employed by the experts, and the statutory requirement for the disclosure of significant risks in Product Disclosure Statements, the opinion expressed by the experts provided a complete answer to the plaintiff's structural risk case as pleaded. Furthermore, the evidence did not support the proposition that there was actual knowledge on the part of the relevant entities or their directors, of that structural risk. It was not until the last quarter of the 2008 calendar year, following the collapse of Lehman Brothers and after the proposed sale of forestry assets to Harvard Management Company failed to proceed, that banker support wavered. Even then, banker support continued into the new year, with the banks providing Timbercorp with an opportunity to dispose of assets.[59]

The lack of materiality of investor defaults and the willingness of the banks to increase their level of support for the Group until the end of 2008, had the effect of eroding the content of the structural risk as pleaded and particularised by the plaintiff.[60]

102 It is apparent then, at the end of 2008, that the bankers for the Group were prepared to increase support. As late as November 2008, the CBA agreed to vary loan covenants and extend expiry dates into 2009.[61] The evidence before the trial judge revealed that the facilities were added to or increased over time. His Honour found there was no sign of the Group having difficulty in securing from capital markets the requisite funding for its activities.

103 One of the significant financiers for the Group was ANZ. Evidence was led from Mr Lightfoot, Director, Research and Analysis at ANZ during the 2007-2008 period, who in that role prepared credit applications and reviews in relation to ANZ's institutional banking customers which included Timbercorp Finance and other companies in the Group. An annual review was conducted by the ANZ Bank just after the tax announcement. Mr Lightfoot observed that the review coincided with a request by the Goup that ANZ participate in a new three year syndicated loan facility with significant increases. Mr Lightfoot considered that whilst the government's announcement of its intentions in relation to non-forestry schemes would have a 'reasonably material effect on new sales of such schemes' he said he had 'no heightened concerns at this time about Timbercorp's credit quality'. Mr Lightfoot further observed that the 'customers' underlying projects remained sound and well managed.

104 Mr Lightfoot also gave evidence that there was a substantial review conducted in the middle of 2008. His evidence was:

The recommendation was that the customer's underlying credit position remained sound. No adjustment was required to the internal credit rating. The credit committee resolved to adjust the credit rating down one notch and to carry out another full grade risk review on receipt of the full year audited accounts in November 2008.

105 Hence, in late November 2008, after the Lehman collapse, ANZ undertook the full review of the Group that had been foreshadowed. Mr Lightfoot gave evidence that at that time:

I still took the view that Timbercorp's high quality assets which were still generating fees suggested that ANZ should continue to support the customer, although I accepted that it was very difficult to assess the probability of the necessary asset sales to third parties proceeding to execution in the then current market.

106 The credit review was carried out and the credit committee resolved to approve the refinancing even at that stage of November 2008.

107 There was agreement among the expert witnesses to the effect that, as long as the Group's bankers continued to support its operations, there was no significant risk that the Group would not have had the financial capacity to manage any of the schemes through to their contemplated completion.

108 The trial judge noted that the experts' report (at para [7.2.1]) provided a complete answer because, whilst the bank support evaporated eventually after the Lehman collapse, before that time, there was no reason to conclude that it would not be continued on an indefinite basis. In light of that, the experts' opinion was that there was no significant risk that the Group would not have had the financial capacity to manage any of the schemes through to their contemplated completion, that is, for the full term.

109 At the relevant time the Group had little difficulty in raising equity. His Honour observed:

The board may have anticipated a potential problem with the sale of the Boort and Carina properties. It took steps to explore a capital raising in December 2007. On 26 July 2007, the board had resolved that the Group should investigate a hybrid capital raising to provide funds for future development and for liquidity purposes to safeguard the company in the event that a planned asset sale or other capital management activity is delayed or is unable to be completed on acceptable terms. Eventually Timbercorp resolved to issue ordinary shares and raised $56.4 million from institutional investors in December 2007. It seemed to have little difficulty raising the equity.[62]

110 There was then the matter of asset sales, they being part of the ordinary program of the Group for realisation and release of capital expended upon the schemes. Two properties were identified for sale being the Boort (an olive development) and Carina (an almond development) properties. His Honour held:

On 17 April 2008, shortly after securing bank facility extensions, including the CBA facility linked to the Boort property until 8 March 2010, the Group deferred the sale of the Boort and Carina properties to December 2008. A Corporate Development Report dated 17 April 2008 explained that, although the Group had funding from CBA for the transaction, the unit price was depressed. As the Group was unwilling to pay a higher rent, the transaction simply did not stack up. CBA had already advanced funds against the asset, and so funding for the acquisition of the asset by the Primary Infrastructure Fund could simply be viewed as a change of borrower.[63]

111 Thus, there was no urgency or imperative for the Group to sell the properties. It was a proposed sale that did not proceed and was deferred.

112 In early 2008, the Group began to investigate the prospect of selling its forestry land. At one point an interested party expressed interest and, if the transaction had proceeded, it would have yielded a cash release of $225 million.[64] His Honour noted that the experts agreed that the Lehman collapse was a significant event in that it affected asset sales and credit markets.[65] His Honour also observed that the Boort and Carina properties had been the subject of German interest.[66] While the transactions were not followed through, it is apparent that they were on the edge of proceeding when the Lehman collapse occurred.[67] The prospective purchasers' funding dried up and neither transaction proceeded. However, up to the Lehman collapse, all the indicators were that asset realisation would have occurred in the ordinary course.

113 It was relevant in the assessment of the Group's funding position to consider funding available through the securitisation process. In submissions, the appellant focussed on the circumstance that Timbercorp Finance funded 90 per cent of grower investments itself. Thus, it was submitted, as business grew the requirements of Timbercorp for its own funding also grew. However, Timbercorp had a securitisation facility in place with the ANZ Bank. Through that facility Timbercorp was able to securitise the grower finance which it provided and receive recoupment to the extent of 75 per cent of the outlays under the securitisation facility.[68] Thus, the net effect was that the funding was laid off through the securitisation process. The Group did not have to fund 90 per cent of the investments made by growers over time.

114 Mr Rabinowicz noted in his evidence that in the report in years ended 30 June 2000, 2006, 2007 and 2008 Timbercorp's operating cash flow was negative. Mr Rabinowicz also noted the evidence of Mr Dicks that from 2006 to 2008 Timbercorp generated cash deficiencies of $88 million from its operations. Mr Dicks said this occurred primarily because of the increase in net grower loans by Timbercorp Finance. Nevertheless, Mr Rabinowicz, whilst accepting that the analysis of Mr Dicks was correct, said that the statements 'failed to match the reality of the business in terms of what cash was available to Timbercorp'. Mr Rabinowicz also observed that Mr Dicks' analysis excluded the cash Timbercorp received from loans securitisation and borrowings. He noted that the cash was available and used in the ongoing funding of Timbercorp's business.

115 The evidence of Mr Rabinowicz was important in this respect. He said:

When Timbercorp Group's business activities are properly understood, financing cash inflows from TFL's securitization and borrowings should not be viewed any differently from operating cash flows from new scheme sales and annual receipts of rent, license fees and management fees. That is so because the ordinary business of the Timbercorp Group was to develop MISs and to offer loans to investors to invest in those MISs, which loans were funded either by securitization or by other third party borrowings. In this way the Timbercorp Group was in effect factoring its grower loans to turn its operating revenues into cash.

In consequence the $88 million operating cash deficiencies for the Timbercorp Group from 2006 to 2008 should be viewed in conjunction with TFL's securitization and borrowings financing cash inflow for the same period which totalled approximately $114 million. Doing so gives total positive cash inflows of approximately $26 million for the period.

116 Thus, there was a positive cash flow rather than a negative one as suggested by the appellant.

117 It is also relevant to consider what were termed 'grower defaults'. The trial judge found that grower defaults did not impair the cash flow:

A further matter relied upon by Mr Dicks to support his opinion that, at 30 September 2008, the Group were showing signs of financial difficulty was

An 83% and 68% increase in the provision for doubtful debts in 2007 and 2008 respectively.

Under cross-examination Mr Dicks had his attention directed to an internal memorandum from the Chief Financial Officer to the Chief Executive Officer dated 16 July 2008 which contained an analysis of loan arrears. In January 2007 the loan amount in arrears represented 2.12% of the total loan book, rising slightly throughout the first half of 2007, then levelling at around 2% until the end of that year; rising to 2.61% in April and May, and then settling to 2.51% in June 2008. Mr Dicks agreed that the change in loan arrears was not material. He had expressed his opinion about the increase in the provision for doubtful debts by analysing the dollar amount in arrears without comparison to the overall loan book in order to assess materiality from a balance sheet perspective.

Other factors relied upon by Mr Dicks in expressing his opinion as to when the Group began to show signs of financial difficulty were:

(f) Total borrowings increased by 39% from $671 million in FY06 to $936 million in FY08. The most significant increase occurred in FY07, where borrowings increased by 29% to $864 million.

(g) The group was reliant on its bankers to continue to support the group through increased borrowings. There was evidence of covenant breaches as early as September 2007, which were waived by the banks.

(h) The group was highly geared (60% debt to capital ratio) during the period FY06 to FY08, compared to the industry average of 36%.

(i) With the exception of 31 March 2008, the group had a working capital ratio deficiency for each six month period from 31 March 2007 to September 2008. A further concern to Mr Dicks was the significant difference between TFPL's current assets and its current liabilities in both 2007 and 2008.

(j) To prevent potential breaches of covenants, the group requested various amendments to bank covenants during the period September 2007 to September 2008. In particular, the group was nearing breaches of interest cover ratios in FY07, and then breaching the interest cover ratio covenant in FY08 before this covenant was revised to a lower threshold.

The evidence disclosed that in late September 2007 one of the Group's lead bankers, HBOS, was informed that while the Group believed that it would comply with shareholder funds, gearing and interest cover covenants, it was likely to slightly exceed its leverage ratio covenant. The directors recognised a risk of non-compliance and notified to the bank. Notwithstanding the possible breach, the bank increased its level of support for the Group. In 2008 there was another occasion on which breaches of loan covenants were contemplated, arising out of the consequence to the Group from the anticipated sale of its forestry assets to Harvard Management Company. The risk of breach was recognised and the directors sought waivers from its bankers in relation to interest cover ratios and leverage ratios. They recognised that the sale would crystallise a loss based upon a difference between the book value of the assets and sale price. Mr Dicks seemed unaware of the background circumstances to the anticipated breaches. He said that he did not have the relevant material at his disposal and had been under time pressure; yet he was willing to express opinions as to the significance of the breaches or anticipated breaches to the balance sheet as events demonstrating financial difficulty.

The lack of materiality of investor defaults and the willingness of the banks to increase their level of support for the Group until the end of 2008, had the effect of eroding the content of the structural risk as pleaded and particularised by the plaintiff.[69]

118 The fifth respondent drew the attention of the Court to documents in the public domain. Whilst acknowledging that this material was largely on the periphery of the appeal it was said to nevertheless complete the picture. We were taken by the parties to the 2007 Annual Report for Timbercorp Ltd. There the Deputy Chief Executive Officer stated:

Timbercorp has consistently sought to improve the sustainability of the company through diversify business and revenue streams over a number of years. Diversifying from forestry investments to include horticulture and reducing the reliance on annual new sales revenue to recurrent annuity style revenues are prominent examples. This strategy of diversification has proven beneficial for Timbercorp. This was evidenced by a full year net profit of $65.7 million, which demonstrated considerable resilience in the year that presented many challenges both regulatory and environmental.[70]

119 In the Report there were references to total revenue increases of a record amount of $453 million. There was also a reference to another area described as 'industrial operations' growing at a rate of 13.9 per cent. There were then references to increased profits expanding to $390 million and the second highest level of new sales on record of $143 million. The Report went on to state:

As we consolidate our current position, capitalizing on the new provisions for forestry MIS and the extension of taxation treatment of non-forestry MIS, we expect the profit outlook in the short term to be flat to modest growth. The consolidation phase will allow the company to move past the cash drag that was associated with our rapid growth in capital assets over the past three years.[71]

In 2008 a slow down in capital asset growth and the planned sale of assets will further strengthen our cash position and will improve cash flows over the medium term. Our view of sustainability extends beyond the financial health of the company to the environment.[72]

121 The appellant effectively submitted that a potential investor would need to have a corporate investigative capacity to understand the risks. So much is not borne out by the text of the Annual Report itself. In addition, the potential investor had access to the website. It included an ASX announcement and announcements by Timbercorp concerning the position taken by the Australian Taxation Office.

122 There was also other material available by way of research and analyst reports.

123 The appellant emphasised in the course of their submissions that the investors were interested in the long term, not merely the short term. So much was accepted by the respondents. However, the point was made that the consequence of investing in these types of products was that they were an investment product which had a life, depending on whether it was forestry or horticulture, of a considerable number of years. The fact that the product was of a long term nature was plainly disclosed. The PDSs identified the term of the loan and all the documentation, upon entering into a loan, identified the relevant period. It was acknowledged by the respondents that there was no identification of the risk asserted by the appellant, though they submitted this was because there was no need to make such disclosure. First of all, the joint expert report (at para [7.2.1]) related to the full term of the projects, that is, the duration. Secondly, the focus need only have been on the first five years in any event, that being the initial period of dependency of the projects before they became self supporting. It is relevant to note that, when the projects were sold to investors, under the business model, the development of the project had already started, that is, the project was sold when it was underway rather than by attracting funds and commencing a Greenfields project. In this sense there was a partial maturity when investors bought in. Subsequently, over the next few years there was a period of dependency until harvest proceeds came through. At that phase, the scheme necessarily did not yield sufficient income to sustain itself. However, at about five years it became self sustaining.

124 The trial judge considered and delivered various findings with respect to the existence of material in the public domain and its accessibility to the appellant, which were not challenged on appeal.[73]

His Honour:

(a) erred in construing the expression "significant risk" in section 1013D(1)(c) by reference to both the consequence of the risk and the likelihood of its occurring; and

(b) should have held that, on a proper construction of section 1013D, a risk is significant within the meaning of section 1013D(1)(c) if it has important consequences to a person who is making a decision whether to acquire a financial product as a retail client.

126 In essence the ground was concerned with the construction of the expression 'significant risk' in s 1013D(1)(c). His Honour held:

The Act does not contain a definition of significant risk. That is understandable because the identification and nature of risks as significant will vary from product to product. The plaintiff's characterisation of significant risk was a risk to which a reasonable investor would be likely to attach significance. The plaintiff submitted that the question should be framed as to whether an investor's decision might reasonably influenced by the information. He submitted that such an approach was consistent with Timbercorp's own definition of materiality in its due diligence planning documents. As a generalisation, I am inclined to agree with the plaintiff's formulation, so far as it goes, because of the relationship between what an investor would reasonably require, or not reasonably expect as the case may be, and the particular categories of information required to be included in the Product Disclosure Statements. The plaintiff's definition was not, however, very helpful, when it came to identifying what particular information was required to be disclosed in a given case, and in relation to what risks. The legislative framework is a little more complex, requiring a multifaceted analysis.[74]

There is much to be said for the approaches adopted by the plaintiff and the defendants. Plainly, the risks required to be disclosed must be real in the sense that there is a probability of occurrence and a consequence that is measurably significant. On the other hand, the bookends to the disclosure obligation, found in the prefatory words of s 1013D(1), require a consideration of the decision-making process by a retail client to acquire the financial product. Thus, the degree of probability of occurrence and the level of possible consequence are to be adjusted by reference to what a person would reasonably require to make a decision, and what would not be reasonable for such a person to expect to find in the Product Disclosure Statement.[75]

The plaintiff and the defendants devoted a good deal of attention to the statutory regime requiring disclosure, and in particular the requirement in s 1013D(1)(c) to include within a Product Disclosure Statement, information about any significant risks associated with the holding of the product. Ultimately, the differences between the parties as to the meaning of significant risk were immaterial to the outcome. Even accepting the meaning of those words advanced by the plaintiff, the requirement did not extend to providing the information which the plaintiff alleged should have been provided.[76]

129 Effectively, the appellant submitted that the trial judge should only have considered the consequences for the investor of the risk occurring and should have ignored the probability or improbability of an occurrence in the assessment of the significance of the risk. The appellant made a number of points. First, that the trial judge in his construction did not give due attention to the focus of the legislation on the needs of the retail client. Secondly, that the judge subdivided the risks so narrowly as to deprive them of any substance. For example, it was said that the judge created definitions of different types of risks such as structural risk, fragile business model risk, cash flow risk, performance risk, institution risk and financial structure risk. Thirdly, the appellant submitted that the extent of the likelihood of the occurrence of an event is only one aspect of the significance of the risk associated with its occurrence. It was argued that the fact that an event is unlikely to occur does not prevent the risk of it occurring or from it being a significant risk.[77] Fourthly, the appellant relied on the concept of 'materiality'.[78] The appellant submitted that a 'low degree of probability may nevertheless involve a significant risk, if it is not so low as to be insignificant.'[79] Furthermore, the appellant submitted that, unless the risk was 'remote or seriously unlikely', the material event should have been disclosed.[80] In any case, the appellant emphasised that the Group's internal documents assessed the risk as 2/5, meaning it was recognised as a high risk and not merely minimal or hypothetical.[81] Fifthly, the appellant submitted that the application of the test by the trial judge demonstrated that his Honour adopted an inappropriately high threshold where the risk of the collapse of the Group was considered low due to its financing arrangements. This view in turn led his Honour to conclude that disclosure was not required until after the collapse of Lehman Brothers.

130 The trial judge recognised that the risk must be significant to the investor in making a decision. Significant risk involves both probability and consequence. 'Significant' means important or notable and 'risk' means exposure to chance of hazard or loss.[82] It would constitute an incorrect approach to look only at consequence when the very definition of risk involves the notion of chance, meaning probability.

131 His Honour's analysis[83] reveals an approach of taking into account the elements of probability, consequence and the perspective of the investor. In our view there was no flaw. Furthermore, placing undue emphasis upon consequence without probability would lead to an inappropriate focus on 'significance' (to the investor) and inadequate attention to 'risk'. In addition, the approach of the appellant sets the bar too low and does not pay sufficient heed to the meaning of 'significant' which is important or notable. If the approach of the appellant is adopted the expression 'significant' is diluted, even denigrated, and, as already expressed, the word 'risk' plays next to no role at all.

132 Ultimately, whether a particular circumstance is judged to be a 'significant risk' will involve a consideration of a range of issues. His Honour was correct when he said the definition was intended to be a flexible requirement tailored to the type of product involved and its particular circumstances.[84] Amongst the constellation of issues in weighing 'significant risk', there is the probability of the occurrence, the degree of impact upon investors, the nature of the particular product and the profile of the investors together with other matters. The constellation or group of issues is not closed and will vary depending upon particular circumstances.

His Honour:

(a) erred in holding that a risk is not "significant" within the meaning of section 1013D(1)(c) if the risk is capable of successful management and is being managed; and

(b) should have held that on a proper construction of section 1013D, a risk is significant within the meaning of s. 1013D(1)(c) whether or not it is capable of being managed, but only ceases to be significant if the risk of its not being successfully managed is negligible.

134 This ground is also associated with the construction of s 1013D but also invokes matters associated with management of risk. In essence, it was submitted that the trial judge was in error in holding that a risk is not significant if the risk is capable of successful management and is being managed. However, scrutiny of his Honour's reasons reveals that the judge did not consider management of risk for the purposes of construction of the section. Rather, his Honour considered management as a matter of evidence and concluded that, if there were to be a successful management of circumstances, that may intercept the potential emergence of a risk of significance. However, if there is successful interception while the risk endures it has not become a significant risk. Thus, the appellant misconstrued the way in which his Honour approached the topic. In addition, the appellant under the rubric of this ground argued that the trial judge should have held that a risk is significant whether or not it is capable of being managed and only ceases to be significant if the risk of it not being successfully managed is negligible.

135 His Honour gave seven reasons why the adverse matters were not required to be disclosed, whether analysed as stand alone events or, as risks, or as events which escalated the structural risk. In particular, his Honour observed that the Group was successfully managing those adverse matters as occurred so as to avoid the crystallisation of the performance risk until after the collapse of Lehman Brothers.[85]

136 The appellant also submitted that a risk which is being managed is a risk nonetheless and that the judge's approach involved a conclusion that a risk is not a risk until it becomes an immediate probability. Further, the appellant submitted that the correct test was that the way in which a risk is managed may or may not prevent it from materialising but unless it can be said that the chance of the risk materialising in the relevant timeframe is negligible, then it is reasonable for the investor to expect to be informed of the risk.

137 In our view the trial judge did not allow management of a risk, as a matter of construction, to expunge the possible existence of the risk itself. His Honour noted the argument of Timbercorp on that point[86] and agreed with it.[87]

138 The submission of the appellant isolates or disengages the interpretation of the section from the facts. As the respondents submitted, the appellant's argument was to the effect of urging a proposition that a risk is significant if it is non-negligible, which is incorrect, for non-negligibility and significance are not synonyms. They deal with very different concepts and set the bar at different heights.[88]

139 In effect, the appellant's argument is tantamount to stripping the expression 'significant' of its meaning and replacing it with a notion of non-negligibility. Plainly the section does not contemplate that ordinary, run of the mill risks be disclosed. The requirement is set differently. In any event, and of high relevance, were his Honour's findings on the facts, which were not only that the risk was not important but that the risk was not significant.[89] We highlight in particular his Honour's observations:

The other adverse matters did not feature prominently, if at all, in final submissions. The near insolvency event said to have occurred in early 2008 was too vague and indefinite as to require disclosure. The plaintiff submitted that Timbercorp Securities should have issues Supplementary Product Disclosure Statements, or included in subsequent Product Disclosure Statements, information to the effect or substance that since early 2008 the Group had been in significant financial difficulty and that there was a risk that it would not be able to perform its management obligations. Insofar as the performance risk was addressed by the continuing and apparently sound relationship between Timbercorp and its bankers, any financial difficulty, whatever that may mean, was not relevantly material to the performance risk. In any event, the evidence does not support the proposition that, prior to the collapse of Lehman Brothers, the Group's financial position was such as to give rise to a discernible risk that Timbercorp Securities would be unable to perform its management functions.[90]

140 We also can find no error in his Honour's view that the risk will not cease because an event is 'managed':

The risk will not cease to exist because an event is managed, avoiding a materialisation of the risk. Events that occur, which might, if they remain unchecked, cause the performance risk to crystallise into catastrophe, are not risks as such. That is a fundamental misconception in the plaintiff's case. They are events which may be capable of management to avoid the possible consequences. The plaintiff's own formulation of the adverse matters as risks, reveals his fundamental misconception. What the plaintiff would have Timbercorp Securities disclose to investors was information about how the event might elevate the possibility that Timbercorp Finance may not be able to perform its obligations to investors, but without any mention of the likelihood, because there was no place in the plaintiff's formulation for remedial action by the board to manage the event and risk.[91]

141 Finally, we observed that the argument arising under ground 2 was not canvassed before his Honour. It was a new argument on the appeal. Nevertheless, his Honour was prescient in his reasoning in this respect.

His Honour:

(a) erred in failing to consider the meaning and effect of s. 1013E in relation to the question of whether any of the pleaded risk and adverse matters should have been disclosed in a PDS;

(b) should have considered whether any of the pleaded risk or adverse matters should have been disclosed pursuant to s 1013E.

His Honour:

(a) erred in:

(i) construing s.1013F(2) to mean that if information was generally available within the meaning of sections 674 and 675, the information did not need to be included in a PDS;[92]

(ii) failing to have regard to the full terms of s.1013F(2);

(b) should have:

(i) held that, on a proper construction of s.1013F(2), the fact that information was generally available within the meaning of sections 674 and 675 was no more than one of a number of matters to be taken into account in considering the effect of s.1013F(l);

(ii) considered the other matters set out in s.1013F(2) in relation to the effect of s1013F(l).

145 This ground was concerned with the construction of s 1013F.

146 Section 1013F provides that information is not required to be included in a PDS if it would not be reasonable for a retail client, considering whether to acquire the product, to expect to find the information in the statement. In considering whether or not it would be reasonable for such a retail client to expect to find the information in the statement, certain matters 'may be taken into account', not limited to: the nature of the product including its risk profile; the extent to which the product is well understood by those who commonly acquire those products; things such persons may reasonably be expected to know; if the product is an ED security[93], the effects of Chapter 2M and ss 674 and 675; the way the product is promoted, sold, distributed; other matters in regulations. This is not an exhaustive list of matters which may be taken into account in deciding whether or not it would be reasonable for a retail client to expect to find that kind of information in a statement. So much was accepted by the parties.

Sect 674 Continuous disclosure -- listed entity bound by a disclosure requirement in market listing rules

(2) If:

(a) this subsection applies to a listed disclosing entity; and

(b) the entity has information that those provisions require the entity to notify to the market operator; and

(c) that information:

• (i) is not generally available; and

(ii) is information that a reasonable person would expect, if it were generally available, to have a material effect on the price or value of ED securities of the entity;

the entity must notify the market operator of that information in accordance with those provisions.

Sect 675

(2) If the disclosing entity becomes aware of information:

(a) that is not generally available; and

(b) that a reasonable person would expect, if it were generally available, to have a material effect on the price or value of ED securities of the entity; and

(c) either:

• (i) if those securities are not managed investment products - the information is not required to be included in a supplementary disclosure document or a replacement disclosure document in relation to the entity; or

(ii) if those securities are managed investment products - the information has not been included in a Product Disclosure Statement, a Supplementary Product Disclosure Statement, or a Replacement Product Disclosure Statement, a copy of which has been lodged with ASIC; and

(d) regulations made for the purposes of this paragraph do not provide that disclosure under this section is not required in the circumstances;

the disclosing entity must, as soon as practicable, lodge a document with ASIC containing the information.

148 The appellant submitted that the trial judge should not have taken into account ss 674 and 675 because the interests in the projects were not always ED securities and were not ED securities at the time the PDSs were issued, but only became ED securities when 100 investors subscribed. The appellant also submitted that the trial judge should not have taken into account whether material is 'generally available', or at least should have given it less weight in his analysis, because of the nature of the financial products and given that they were in the context of illiquid investments. Under the circumstances, it was the other matters listed in s 1013F(2) that should have been taken into account or given more weight.

149 The appellant further submitted that the trial judge erred in finding that information concerning the financial position of Timbercorp was 'generally available' and thus it was not reasonable to expect it to be found in the PDS. His Honour held that this information was generally available in the annual reports and ASX releases. The appellant submitted that the documents referred to were directed at shareholders and not directed at retail clients and therefore were not likely to come to their attention. The test, he asserted, is not whether an interested person could access the information.

150 Finally the appellant contended that, in any event, the information contained in the documents did not provide information about significant risks in a clear, concise and effective manner as required by s 1013C(3).

151 The fifth respondent (supported by the first respondent) also submitted, by notice of contention, that it would not be reasonable to expect to find information about the financial structure risk, the tax announcement and the GFC in a PDS under s 1013F because it was contained in ASX releases, information on the Timbercorp website, Timbercorp's financial reports, research and/or analyst reports and/or media reports. Similarly, the fifth respondent contended that the trial judge's decision to dismiss the claims for failure to make continuous disclosure of the tax announcement and GFC under ss 1017B and 675 should be affirmed for the same reasons.

152 The trial judge considered ED securities and the effect of ss 674 and 675.[94] Then his Honour said:

The relevance of the foregoing short excursion into the concept of ED security and its significance to the issues in this proceeding, is in the limiting effect of s 1013F and the application of s 1017B. In relation to its limiting effect upon what must be included within a Product Disclosure Statement, Chapter 2M, a factor that may be taken into account, is a more direct pathway than the elaborate arguments advanced by the defendants concerning the operation of ss 675 and 676. That is because the most relevant information that may be said to be generally available is found in the Annual Reports of Timbercorp, its consolidated accounts, the directors report and the auditors report. That material, published to the ASX, ASIC and the world, described and contained information about the Group business model, cash flows, debt levels, debt and finance instruments, assets, asset sales, strategic changes, adverse events including the tax announcement, the emerging credit crisis, the going concern issues, the operating income and working capital positions and other information that would inform an investor about the performance risk, should the investor be interested.[95]

153 Thus, his Honour identified various relevant financial information that was generally available and concluded that it was information that would inform an investor.

154 Then the trial judge said that what was required to be disclosed in the PDS was the 'performance risk', which his Honour said was in fact disclosed. Hence a finding of fact was made against the appellant. The implication from the finding of fact was that any other information about that risk was available, should a person be interested, in the announcements published on the ASX, ASIC and to the world on the Group's website.[96]

155 The arguments based on the sections are misconceived because it remains that the trial judge did not regard the matters in those sections as decisive. More relevant was Chapter 2M and the fact that matters were in the public domain. In any event, his Honour applied a correct construction and reached the right conclusion when he said that all of the published material on the website and in the Annual Reports was never said to be inaccurate.[97]

156 Indeed, there is nothing conceptually wrong in the approach by the judge of examining the availability in public documents of detailed financial data. It is difficult to contemplate how, as a matter to be taken into account in determining what a retail investor would reasonably expect to find in the PDS, it would not be relevant that the very information is available in the Annual Report, which itself is publically available.

157 Section 1013D(1)(c) is concerned with information about any significant risk associated with holding the product. The section is not concerned with the articulation of the risk itself, but information about it. To accurately provide information about the so-called financing risk would effectively require the non-selective disclosure of the entire accounting information such as is contained in the Annual Report. Anything less than that, of necessity, carries the danger of inclining towards a debatable conclusion.

His Honour:

(a) erred in holding that, because the risks associated with external financing identified by the Timbercorp Group in its internal documents were subject to management strategies and processes, they were not significant risks within the meaning of s.1013D(l)(c);

(b) should have held that:

(i) the risks associated with external financing identified by the Timbercorp Group could have important consequences for retail investors and were significant risks within the meaning of s.1013D(1)(c), or that information regarding the risks so identified was material to a decision of a person whether to acquire as a retail client an interest in a scheme within the meaning of s.1013E;

(ii) the mere fact that the risks were the subject of management strategies did not cause them to cease to be significant within the meaning of s.1013D(1)(c), or have the consequence that information regarding the risks was not material to a decision of a person whether to acquire as a retail client an interest in a scheme; and

(iii) the risks so identified should have been disclosed in each relevant PDS, and, because of the failure to disclose, each relevant PDS was defective within the meaning of s.1022A.

159 The appellant submitted that the trial judge perpetrated error in holding that the risks were not significant risks because the risks associated with external financing were subject to management strategies and processes. Two observations are immediately prompted. First, his Honour made no such findings. Secondly, it is tantamount to the appellant relying on an unpleaded case.

160 On its proper construction, s 1013D requires the disclosure of a risk with important consequences to the investor as considered from the perspective of the investor. When there is a low probability of occurrence, but nonetheless its consequences are sufficiently serious, then a risk may require disclosure. The fact that such a risk is capable of management or being managed does not obviate the need to disclose the risk unless the likelihood is that management will not prevent the risk materialising. On its face, the appellant may be taken to accept the consequences test but also to adopt a minutiae or triviality test. Plainly this would be inconsistent with the significance test. In most respects this ground is inconsistent with ground 1.

161 The trial judge held that information about the performance risk (that is the threat to scheme members because Timbercorp Securities might be unable to discharge its management obligations) was required to be disclosed in the PDS as a significant risk.[98]

162 His Honour further found that the adverse matters alleged by the appellant were 'events or circumstances that, if left unmanaged, might have caused that risk to materialise.'[99] Upon having identified the risk that an event might occur and adversely affect the business if left unchecked, his Honour found that the Directors in fact planned management strategies to address those very risks.[100] Importantly, his Honour found that it was not until management realised that an event may not be capable of successful management to avoid crystallisation of the performance risk that it was under an obligation to inform investors pursuant to its continuing disclosure obligation, that is to say, it became a significant risk.[101]

163 The appellant relied upon a large volume of internal documents to illustrate the Group's appreciation of risk. It was argued that the risks were significant risks to investors especially because they were locked in to the investments which were illiquid and long term. They were said to be risks to be disclosed before the risks became inevitable. Furthermore, the appellant argued that such risks were the kind that would be significant to intending investors because they had the capacity to wipe out their investment. The appellant also submitted that the risks were recognised as far back as 2004 and that, although they were being managed, they were becoming more difficult to manage after the tax announcement and the GFC.

164 On the evidence, the problem was managed. There was a scaling down of business. There was no embarking upon new horticultural projects. These approaches addressed what was described by Mr Rabinowicz in an email when the tax announcement was made, where he said 'it's bad'. Thus, there was an observation that things were 'bad' in light of the tax announcement. However, nothing flowed through the system such as might cause actual elevation of the risk that Timbercorp Securities might not perform management functions. This is because of the steps taken by the Group. There was enough cash so long as the Group had bank support to allow it to do all that was required of it. With that in mind, the observation by Mr Rabinowicz about 'badness' is basically a general observation which would apply if there was a prospect that Timbercorp Securities might not perform its management function. When looked at as part of the totality of the circumstances and the steps taken by the Group's management, whatever incipient risk may have existed, it never reached the level of becoming a significant risk.

165 The question may be postulated this way: was it a requirement of the Corporations Act that there be some disclosure of this matter, regardless of the extent and nature, insufficiency or excess of disclosures on other topics? The answer falls into the negative. It would be erroneous to conflate the interests of shareholders and the interests of investors. The two do not run together. To demonstrate the point, investors might not receive an anticipated increase in dividend yield because the Group reduces its activities to some extent in light of the tax announcement. For example, the Group may not expand and thereby fail to enhance profits and reduce capacity for increased dividends. That would be bad for shareholders. Nonetheless investors are not stakeholders in the Group. The investors are third parties with whom the Group deals. What would be bad for investors would be if the consequences of the tax announcement were that the Group might falter in the due discharge of the obligations it had undertaken to manage the various projects. Nothing of that nature was disclosed because the Group managed the consequences. As his Honour put it, managing risk does not eliminate the risk.[102]

166 Plainly the trial judge did not find that because risks are subject to management they do not require disclosure. It always comes back to whether it is a significant risk or a circumstance that is material.

167 In any event, the appellant's argument was undermined by a concession in his written submission that 'while the risk associated with funding was managed until early 2009, and the Group was comfortable with the level of risk, from the perspective of the investor, the exposure of the Group (and the growers' interests in the schemes) to the risk should have been disclosed.'

168 Given that Timbercorp Securities, or its directors had to have actual knowledge of the particular risk as being a significant risk, not merely that it ought to have had knowledge, the concession is damaging. Furthermore, there was nothing revealed in the examination of the internal documents to disclose that the Group's actual knowledge of a significant risk from the perspective of the investors should nonetheless have been disclosed. There was nothing wrong with the judge's approach. It was open to the judge to find that, given the proper identification of the risk, whether pleaded or unpleaded, from the perspective of the investors and having regard to the strategies the Group was employing, the particular risk, namely, failure to have cash to operate the schemes or even the institutional risk of failure, was not significant to prospective investors in terms of a combination of probability and consequence. Ultimately, the finding was a factual one which was open to the judge.

His Honour:

(a) erred in holding that because the Timbercorp Group was managing the adverse matters, TSL was not obliged to disclose those matters in a relevant PDS or otherwise; and

(b) should have held that:

(i) on a proper construction and application of s.1013E, the adverse matters required disclosure as being material to a decision of an investor to acquire a product, namely an interest in a scheme;

(ii) because the adverse matters were not disclosed in any relevant PDS, each relevant PDS was defective within the meaning of s.1022A.

170 Many of the matters arising under this ground have already been canvassed particularly with respect to ground 5. It focuses upon adverse matters, namely, the argument that because the Group was managing the adverse matters, Timbercorp Securities was not obliged to disclose those matters. The adverse matters are the tax announcement or, more precisely, the impact of the tax announcement and the impact of the GFC.

171 His Honour concluded that there was no prospect of Timbercorp Securities not continuing to meet its obligations under the contracts with growers and, thus, there was no significant risk or a matter of materiality requiring disclosure. So much was largely based upon the joint experts' report. His Honour found:

At trial, the adverse matters only really achieved a status as events that heightened the financing risk. Even with the advent of the cash flow risk in February 2011, the significance of the adverse matters, as standalone events or consequences requiring disclosure, had diminished. They were elevated into risks by the plaintiffs particulars delivered in April. Whether analysed as standalone events, or as risks, or as events which escalated a structural risk, they did not require disclosure in the form alleged by the plaintiff, whether in a Product Disclosure Statement or otherwise, to potential or existing investors in managed investment schemes promoted and operated by Timbercorp Securities.[103]

172 The appellant asserted that his Honour treated the adverse matters as non-risks. Plainly the judge considered that if they were risks they were not disclosable in any event. His Honour stated:

There are a number of reasons why that is so. First, the adverse matters, as pleaded, were events that, if left unchecked or unmanaged, might crystallise the performance risk into a reality. They had no independent status as risks. Second, information about the performance risk was disclosed. Third, the adverse matters, as events requiring management, were in fact managed. To require disclosure of each such event, as the plaintiff would have it, without regard to the capacity of the board to manage the event, and without regard to the fact that it was successfully managed, is to divorce reality and common sense from the disclosure obligation. If, for example, an event occurred which threatened the very existence of the business, but the board had the opportunity and ability to manage the risk, and successfully did so, the threat to the Group would be averted. The performance risk would, of course, remain unchanged. But its crystallisation into a catastrophe for the schemes had been avoided. It is, after all, a fundamental role of corporate management to manage events which may impact adversely on the business.[104]

173 Ultimately, his Honour concluded that the adverse matters did not require disclosure because they were events of the kind 'that management is required to grapple with on a day to day basis.'[105]

174 Ground 7 is concerned with the failure of projects for performance reasons. The appellant states:

His Honour:

(a) erred in finding that the actual disclosure by TSL in the relevant PDSs, that:

"Anything that affects our ability to meet our obligations under the [relevant project documents], and the ability of the Land Owner to meet its obligations under the Sub-lease, could also constitute a risk to Growers" was a sufficient disclosure of the risk that the projects may fail because the Group might fail; and

(b) should have held that the actual disclosure by TSL did not constitute information regarding a significant risk within the meaning of s.1013D or alternatively was insufficient disclosure of information regarding a significant risk within the meaning of s.1013D.

175 Of course this ground is predicated on the point that there was an obligation to disclose. His Honour found that the performance risk had been disclosed generally in the following terms:

Anything that affects our ability to meet our obligations under the Almond Lot Management Agreement and the Subleases and the ability of the Land Owner to meet its obligations under the Sublease, could also constitute a risk to Growers.[106]

176 The appellant described this disclosure as the 'anodyne disclosure'. Essentially, his Honour found that there was a disclosure of the performance risk or the general risk but what the appellant in fact relied upon was a different risk.

His Honour:

(a) erred in holding that, because the adverse matters were not risks, there was no obligation on TSL to disclose them under Part 7.9 of the Act; and

(b) having held that the adverse matters may have elevated the likelihood that the Group would not be able to manage the schemes, erred in failing to consider whether information about the adverse matters was material to a decision of a person whether to acquire an interest in a scheme; and

(c) should have held that:

(i) the fact that the adverse matters may have elevated the likelihood of a disclosed risk occurring had the consequence that information regarding the adverse matters was material to a decision of a person whether to acquire an interest in a scheme;

(ii) information regarding the adverse matters should have been disclosed in each relevant PDS; and

(iii) because of such non-disclosure, each relevant PDS was defective within the meaning of s.1022A.

179 The appellant argued that the trial judge wrongly construed the adverse matters only as events which escalated a risk, rather than as a risk in themselves. However, this argument misconstrued the approach the judge actually adopted. His Honour expressed the primary view that the adverse matters were escalating factors rather than risks in themselves. He ultimately concluded that they did not require disclosure.[107] These matters have been essentially considered under the rubric of ground 6.

180 His Honour gave seven reasons for his approach. In doing so he looked at the practical position in light of the event, the impact of the event and whether it became a risk of significance. He concluded that there was no significant risk and no materiality. His Honour held:

The fifth reason why the information about the structural risk and adverse matters did not require disclosure, assuming for present purposes that each adverse matters was properly characterised as a risk, characteristic or feature for the purpose of s 1013D(1) (and in my opinion they are not), are the prefatory words. They make it clear that only such of the information about significant risks or significant characteristics and features as a person would reasonably require for the purpose of making a decision to acquire the product must be provided in the Product Disclosure Statement. In my opinion, it cannot be said that the information as formulated by the plaintiff about the structural risk and the adverse matters, insofar as the event occurred, was information that a retail client would reasonably require.[108]

181 The ground alleged by the appellant assumes that his Honour gave only one reason for reaching the conclusion he did. We consider his Honour gave proper consideration to the matter and concluded that there was no obligation to disclose.

His Honour:

(a) erred in holding:

(i) that the fact that information concerning the Group's financial position was available in Annual Reports of Timbercorp Limited and in ASX releases of Timbercorp Limited meant that it was generally available to potential investors in schemes within the meaning of sections 674 and 675;

(ii) in the alternative, in holding that the fact that information concerning the Group's financial position in Annual Reports of Timbercorp Limited and in ASX releases of Timbercorp Limited was generally available within the meaning of s.674 and 675, meant that it was unreasonable for a retail client to expect such information to be included in a PDS, if provision of the information was otherwise required by s.1013D or s.1013E;

(b) should have held:

(i) that information concerning the Group's financial position in Annual Reports of Timbercorp Limited and in ASX releases of Timbercorp Limited was not "generally available" to investors in schemes within the meaning of sections 674 and 675;

(ii) alternatively that, having proper regard to the provisions of s.1013F(2) and taking into account the nature of the investments and the way in which the investments were promoted and sold, should have held that it would not be unreasonable for a person considering whether to acquire an interest in a scheme to expect to find in a PDS for the scheme information concerning the Group's financial position so far as it concerned the pleaded risks and/or the adverse matters.

183 In our view no error is disclosed under this ground. In summary, the analysis of his Honour involved a factual finding applied in the context of s 1013F(2) of the Corporations Act. The matters articulated in this ground have otherwise been dealt with under preceding grounds.

184 This ground may be reduced to the proposition that the trial judge should have found that it was reasonable to expect information in the PDSs concerning the pleaded risks and the adverse matters in light of the nature of the investments involved and the way in which those investments were promoted. Thus, the approach pulls together matters to which his Honour gave close and careful attention. It cannot be said that his Honour's conclusions were not open to him or that he was in error in reaching the conclusion he did in light of the material available in the public domain.

185 Given these findings, and those set out above in relation to ground 4, it is unnecessary to consider the first and fifth respondents' notices of contention in relation to this ground.

186 These grounds were concerned with the experts' joint opinion. The grounds provided:

His Honour, having accepted that the risks referred to in paragraph 75F to 75R of the Statement of Claim were addressed in the joint report of the experts:

(a) erred in failing to take proper account of the joint expert opinion that project investors were exposed to the risks referred to in paragraphs 75A to 75R of the Statement of Claim; and

(b) should have held that:

(i) the project investors were exposed to the risks alleged in paragraphs 75A to 75R of the Statement of Claim;

(ii) the risks so identified were significant risks associated with holding a product, or that information regarding the risks was material to a decision of a retail client to invest in a product;

(iii) the risks ought to have been disclosed in each Product Disclosure Statement; and

(iv) because of the non-disclosure each PDS was defective within the meaning of s.1022A.

His Honour:

(a) erred in finding that the statement in the joint expert report that there was no significant risk of the Timbercorp Group being incapable of continuing to manage the projects through to completion while it had the support of its bankers was a complete answer to the part of the Plaintiff's case relating to risks associated with cash flow and availability of external financing; and

(b) should have held that:

(i) the statement is not inconsistent with the existence of the pleaded risks or adverse matters;

(ii) properly understood, the statement carried the implication that the pleaded risks would crystallise if the Timbercorp Group lost the support of its bankers;

(iii) the pleaded risks and adverse matters ought to have been disclosed in each Product Disclosure Statement; and

(iv) because of the non-disclosure each PDS was defective within the meaning of s.1022A.

187 The experts concluded that there was a risk.[109] Paragraph [14.2.1] of the joint report stated:

Mr Dicks and Mr Hill are both of the opinion that Growers were exposed to the risks associated with the inability of the Group to maintain cash flows sufficient to meet scheme expenses with these cash flows including the items listed in sub paragraphs (i), (ii) and (iii) in paragraph 75F of the Fifth Further Amended Statement of Claim as well as a number of other cash flow sources.

188 However, the mere identification of the existence of a risk does not elevate it to the nature or quality of risk required under the statute. But, in any event, it is inappropriate to consider the joint expert report, in particular para [14.2.1], in isolation. It needs to be considered in the context of para [7.2.1] where all the experts agreed that there was no significant risk that the Group would not have the financial capacity to manage any of the schemes through to their contemplated completion so long as the bankers continued their support.[110] For the reasons already stated, the expert opinion disposes of the significant risk point. Thus, his Honour was not in error in failing to take proper account of that part of the joint expert opinion. Quite the contrary. His Honour took express account of the overall opinion by reference to para [7.2.1] of the expert report. The risk which para [7.2.1] states is not a significant risk was the pleaded risk to which para [14.2.1] in turn refers. It could not be said that his Honour was ignorant of and rejected the consequences of what the two experts had expressed as their view at para [14.2.1].

189 Under ground 11 the appellant complained about the treatment of para [7.2.1]. We note that the trial judge did not rely exclusively on what was said by the experts. He made his own findings as to the absence of significant risk and the absence of material influence. His Honour then observed what the experts said on that point and noted it was in itself a complete answer. Thus, his Honour reached a separate, carefully formed point of view.

190 Relevantly, the appellant accepted that until the occurrence of the adverse events there was a reasonable basis for the assumption that the banks would continue to support the Group. Yet the evidence revealed there was no diminution or reduction of support for the Group by the banks after the occurrence of the adverse events and before the Lehman collapse. The evidence need not be repeated. There was a strong underpinning in the evidence and the trial judge's findings for the view expressed by the experts that, up to the Lehman collapse, there was a full financial capability in the Group to perform its obligations in light of the support from its bankers. There is no foundation to grounds 10 and 11.

His Honour erred in concluding that directors of TSL had no knowledge of anything requiring disclosure until late 2008 after the collapse of Lehman Brothers.

192 This ground dealt with actual knowledge on the part of Timbercorp Securities and its directors. The trial judge approached the matter of actual knowledge on the basis that it is necessary to show there is not merely knowledge of the facts and circumstances but that there is knowledge about the risk flowing from the facts and circumstances.

The difficulty for the plaintiff in changing course was that the defendants, and in particular the directors, had fashioned and presented their evidence to establish that they were not aware of any structural risk or other risks as formulated by the plaintiff until late December 2008, when continuing bank support became uncertain. Actual knowledge was an important issue in the case. The disclosure obligation was predicated on actual knowledge of particular risks and information about them. Much of the lay-evidence was directed to establishing that the board had successfully managed risks as they arose, including the events described as adverse matters, and had successfully negotiated banking facilities, and managed cash flow. The evidence was not directed to an analysis of the business model, and the resulting risk enunciated by the plaintiff in Key Proposition (3).[111]

Relevantly, the actual knowledge which must be shown for disclosure under s 1013D is knowledge of the information about any significant risks associated with holding the product. Timbercorp Finance submitted that it is necessary to show that there was actual knowledge that the risk was significant within the statutory meaning.[112]

195 Hence, the key factor was knowledge of the information that was required to be disclosed, which must be tied to the risk's materiality. Thus, the question is not whether the Directors knew about the tax announcement, rather, whether the Directors had actual knowledge of a significant risk flowing from the tax announcement. Clearly on the facts there was no actual knowledge on the part of the Directors prior to the Lehman collapse. This was a finding of fact by the judge. His Honour carefully analysed the evidence. He found that each Director gave evidence of that person's own belief as to the absence of a meaningful risk. So much was accepted by the judge. It would seem necessary that the appellant satisfy us that it was not open to the trial judge to accept that evidence. In other words, it would be necessary for his Honour to have disbelieved the Directors in order for this ground to succeed.

196 There was evidence from Mr Lightfoot. There was also evidence as to matters that prospective parties Goldman Sachs JBWere and Macquarie Bank were looking at with a view to making an offer. None of these parties saw a risk. As the respondents argued, it would be passing strange if others scrutinising the Group, having access to internal material and assessing its position missed the risk yet the Directors should have seen it and did in fact see it. Importantly the argument is one of actual knowledge.

197 Section 1022B(7) of the Corporations Act provides that if the Directors or a person were otherwise liable, then that person is not liable if they took reasonable steps to ensure that the disclosure document or statement would not be defective. The Directors relied on that subsection at trial. The trial judge did not find it necessary to decide the point.

As mentioned above, s 1013C(2) provides that information required to be disclosed in a product disclosure statement is that which is actually known to the responsible entities. The defendant submitted that actual knowledge included knowledge of the information about the significant risks identified by the plaintiff. What is apparent from the review of the facts is that the evidence of board consideration of the events as they occurred in and after 2007, and their management of those events, is inconsistent with the requisite knowledge namely, that the events and circumstances highlighted by the plaintiff posed a risk that Timbercorp Securities would be unable to perform its contractual obligations. It was not until the directors realised that bank support was equivocal, because it depended upon asset sales that were unlikely to take place, that it may be concluded that the board must have realised that there was a significant risk that Timbercorp Securities would fail and be unable to continue to manage the scheme.[113]

199 This factual finding was critical in relation to actual knowledge.[114]

200 There was a discussion on the appeal as to whether or not the tax announcement was unexpected.

201 We were directed to the evidence of Mr Rabinowicz where he gave evidence of a presentation given to both ANZ and Westpac regarding a syndicated loan facility. Mr Rabinowicz said:

The presentation outlined the Timbercorp business model included financial forecast and cash flows on two scenarios. In the first scenario Timbercorp would not offer horticultural MIS beyond 2008 and in the second it would not offer horticultural MIS post 30 June 2007.

202 In cross examination Mr Rabinowicz said he believed that, whilst the tax decision would reduce the Group's accounting profits by preventing future MIS sales from 2008 and therefore most likely reduce its share price, it would improve the Group's future cash position. He said further in cross examination that he did not at any time consider there was 'even a remote possibility' that the Group would fail as a result of the tax decision. He was also asked about potential concerns by the banks. He said:

I don't know whether the banks were going to be worried or not. We had spent some considerable time before the announcement with the banks telling them we believed that the tax office announcement or the tax office would announce at it did. We told them we believed there would be at least some form of transition. We previously told the banks that we believed there would be at least some form of transition. We previously told the banks what be believed would be the impact on the business in terms of profit and more importantly, cash flow and we kept sort of updating that information and updating them on efforts, including lobbying and other decisions we had heard from government.

203 Furthermore, there was evidence from Mr Murray, the Chief Financial Officer of Timbercorp Ltd. He said:

I believe that a change in tax policy of the kind described in the tax announcement had been looming for about two years and from memory it had been discussed in newspapers prior to its announcement. I recall it being acknowledged as a possibility in both the equity analyst market and also the financial advisor groups. I recall that there were investor presentations in 2006 which foreshadowed the tax announcement. Timbercorp had been briefing analysts on the possibility of such announcement for a long time. Once the tax announcement had been made it came as no surprise.

204 In summary, therefore, the evidence showed that there was no significant risk of the Group collapsing or the banks withdrawing their support as a result of the tax announcement. Further, that was the view and stated knowledge of the Directors.

205 There was also the issue of whether there was a significant risk or a heightened risk following this announcement in the sense that was it likely in the mind of the Directors that the decision would stand. The evidence disclosed that Mr Hance, CEO of Timbercorp Ltd until 2008 and a director of various companies in the Group, and the directors considered on the basis of specialist taxation advice that the announcement by the ATO was incorrect. The view was that the ATO considered that horticulture should be disallowed because the growers were not carrying on a business and so the Directors considered it likely that the decision would be overturned. Mr Hance gave evidence expressly on point. There was other evidence by Mr Rabinowicz on this point.

206 Prior to the tax announcement on 6 February 2007 there had been a meeting of the board of Timbercorp at which Mr Rabinowicz informed the members the ATO was considering a change in the tax arrangements. At that time the Group had committed approximately $50 million in expenditure for projects in 2008. New financial modellings showed there would not be any projects sold after 1 July 2007.[115]

207 Mr Rabinowicz was specifically cross examined about his email where he used the expression 'it's bad'. He said:

What I was proposing to do was to explain to them what the announcement meant to the business and what we were doing about it and if you are asking me what I meant by 'it's bad', it was a reference to the fact it was immediate, that there was a very short period not allowing for transition.[116]

208 Mr Hance gave evidence that the tax announcement was not a shock 'in the sense this was something we thought would never happen, it was a shock it happened that day.'[117]

209 The evidence of both Mr Rabinowicz and Mr Hance was extensive on this entire topic.

210 His Honour did not conclude that the Directors actually knew of any risk that required disclosure. Indeed, there was a lot of information to suggest that no one else appreciated the risk the appellant alleged including auditors, bankers, market analysts and rating agencies. In one sense, the appellant's case was substantially argued with the benefit of hindsight. We do not consider the ground is made out. Furthermore, if it were necessary, we would regard the Directors as having a good defence under s 1022B(7) as was submitted in the 2nd - 4th respondents' notice of contention. However, given the findings above, it is not necessary to decide the point, nor to decide the other issues raised by that notice.

211 There are three additional observations to make with respect to the Directors and their evidence. First, the 'Nutshell document' which was the encapsulation of the fragile business model case was produced after the Directors had given evidence and, also, after the experts' reports had been prepared. Secondly, there was no criticism in his Honour's reasons either of the conduct of the Directors or of the evidence which they gave. To the contrary, the trial judge found that the Directors performed their duties in good faith and with a genuine desire to comply with their statutory obligations.[118] Thirdly, it was never put to Messrs Hance, Rabinowicz or anyone else in senior management that the Directors had caused the PDSs to be defective or that these processes were inadequate, insufficient or defective in ensuring that reasonable steps were taken to ensure that the PDS complied with the statute. These matters were covered extensively in the evidence, in particular that of Mr Hance.

In his analysis of whether the "financial representations" and "project contributions representations" were misleading or deceptive, His Honour erred by failing to consider the effect of each PDS on an ordinary and reasonable reader.

213 It will be recalled that the 'financial representations' were that the financial position of the Group was sufficiently strong so that they could be reasonably expected to manage the schemes through to their completion and that all principal scheme risks had been disclosed. The 'project contributions representations' were that scheme contributions would only be applied to fund each recent scheme and would be sufficient to fund each scheme by meeting or exceeding the cost of establishing and maintaining the scheme.

214 Counsel for the appellant submitted that whether the representations were misleading or deceptive depended upon the effect of the representations upon the persons to whom the representations were addressed, not upon the mental state of the person making the representations. The section of the public at which the representations were aimed were said to be members of the investing public. Counsel also submitted that the combination of what was said and what was left unsaid might be misleading or deceptive.[119]

215 In our opinion, whether the financial representations were misleading or deceptive did depend at least in part upon the mental state of the maker of the representations, for the representations would ordinarily be understood as statements of opinion. Such statements are not apt to mislead if the opinion is genuinely and reasonably held by the maker of the statements. Whether the representations were statements of opinion depended on how they were apt to be understood by ordinary and reasonable investors to whom the representations were addressed, but once they were so characterised, their tendency to mislead or deceive did depend upon the mental state of the makers of the representations. [120] Further, the obligation to disclose risks to the schemes depended upon actual knowledge of the risks. The respondents met the allegations with detailed evidence of their management of the business risks, in particular the ability of the respondents to manage the events that occurred in and after 2007 such as the taxation announcement and the credit crisis, and the state of mind of the Directors as to the financial health of the Group and its future prospects. It was entirely appropriate for the trial judge to have regard to this evidence in order to determine whether the alleged representations were misleading or deceptive.

216 Similarly, we think that the project contribution representations did require an examination of the state of mind of the representors. The representations concerned events to occur in the future. In general terms such representations made without reasonable grounds are taken to be misleading or deceptive.[121] In the present case the representations were misleading or deceptive if there was no intention on the part of the Group that the funds subscribed to each scheme would be quarantined. The representations also arguably implied that there was in place a regime that quarantined the funds subscribed to each scheme. Accordingly, the representations could be seen to require analysis of both the intentions of the scheme organisers and the system in place for dealing with monies subscribed by investors.

217 The trial judge said that the representation as to the continuing strength of the Group 'lacked content' and that the respondents had established reasonable grounds for their expressions of confidence in the Group's viability and strength. In our opinion, his Honour's conclusions were correct. Further, it is apparent that his Honour did not simply analyse the representations from the standpoint of the respondents, but examined their likely effect upon the class of investors to whom the PDSs were addressed.

218 The alleged representations as to the financial strength of the Group were extremely vague and general. The ability of the Group to manage the schemes through to their completion, or at least until each scheme became self supporting in the sense that its income exceeded its outgoings, depended principally upon the Group retaining the support of its bankers to supply the Group's capital needs. The experts retained by the appellant and the respondents agreed that so long as the bankers continued to support the operations of the Group, there was no significant risk that the Group would not have the financial capacity to manage the schemes through to their completion.

219 The evidence established that the Directors were not aware of the risks formulated by the appellant until late December 2008, when the continued support of the Group's bankers became uncertain. The appellant did not allege that the financial information supplied by the respondents was inaccurate or misleading, rather that the representations as to the financial strength of the Group became misleading or deceptive when the adverse matters occurred. The trial judge found, however, that the respondents reasonably believed in the capacity of the Group to successfully manage the impact of the adverse events.

220 As to the project contribution representations, the trial judge held that the alleged representations were inconsistent with the information contained in the product disclosure statements and were inconsistent with the financial representation as to the financial strength of the Group. The PDSs disclosed that one or more of the companies in the Group would be responsible for undertaking capital works and that the contributions made by investors were to defray operating expenses in order to be tax deductible.

221 The appellant sought to employ the concept of tax deductibility to found the project contribution representations, asserting that it was difficult to see how an investor could expect a tax deduction in respect of payments which were not tied to the scheme in which the investment was made. The PDSs, however, made clear that payments by investors were made to Timbercorp, which in turn discharged obligations with respect to each scheme. The tax deductible payment was the payment made to Timbercorp.

222 Counsel for the appellant submitted that the trial judge erred in that he failed to consider the impression which the PDSs would have had upon a relatively unsophisticated investor. We do not consider that his Honour's reasons disclose that he unduly elevated the understanding and experience of the investors.

223 In any event, the criticism is to be viewed in light of the fact that the only two investors to give evidence were both knowledgeable and sophisticated. The appellant was a qualified engineer and a successful businessman and engaged primarily in property development by means of a number of companies. The appellant was familiar with the share market and was computer literate. He understood balance sheets and profit and loss statements. Mr Van Hoff was the sole shareholder and director of a company that conducted a transport business. Mr Van Hoff had been in the business for some 22 years. He had a portfolio of shares and a self managed superannuation fund.

224 We are unable to see how the assertion that his Honour failed to consider the effect of the project contribution representations upon ordinary investors or, as the appellant styled them, 'relatively unsophisticated investors', could undermine his Honour's findings or lead to the conclusion that they were erroneous or without foundation. The claim failed for reasons which did not turn upon the perceptiveness, sophistication or knowledge of the investors.

225 Given these findings, it is unnecessary to consider the fifth respondent's notice of contention in relation to this ground.

His Honour erred in finding that there was no relevant reliance by the Plaintiff or Mr Van Hoff on the alleged non-disclosures by concluding that:

(a) the sole driver for their decision to invest was the tax-effective nature of the projects and that they were indifferent to the content of documents; and

(b) there was a necessary inconsistency between reliance on the strength of the group, and the assumption that projects were quarantined one from another.

227 In order to recover damages pursuant to s 1022B(2)(c) or s 1041I(1) for breach of s 1022A or s 1041H, a plaintiff 'must establish that he relied on the misleading or deceptive conduct, or the false or misleading statement or that he would have acted differently if the material omission had been disclosed',[122] in other words, the vice aimed at by the legislation 'is not issuing misleading prospectuses, but misleading investors by issuing misleading prospectuses.'[123]

228 The case advanced by the appellant required him to establish that the alleged representations constituted a decisive consideration in the decision to invest in the Timbercorp scheme. As Gaudron J said in Kenny & Good v MGICA:[124]

When a person claims to have taken, or refrained from taking, a particular course of action in reliance upon another's representation, the critical question, assuming the representation is one that might reasonably be relied upon, is whether, but for that representation, he or she would have taken that action. In that context, 'but for' does not signify a sine qua non or causative factor which, although necessary, is not sufficient to produce the result in question. Rather, it signifies the decisive consideration or one of the decisive considerations for taking the course of action in question.

229 The appellant and Mr Van Hoff were the only investors to give evidence. Their witness statements recorded that they read the PDSs and stated their reliance on the representations in terms which were virtually identical and which echoed the allegations in the statement of claim. Unsurprisingly, the trial judge said that he placed little reliance on this formulaic evidence.

230 In the course of his cross-examination, the appellant said that on 14 June 2007 a financial adviser came to his house with documents relating to three investment schemes. The appellant was concerned to reduce his liability to tax on a profit of about $500,000. The appellant estimated that the meeting lasted from one and a half to two hours. He conceded that he had limited opportunity to read the PDS. The transcript recorded the following cross-examination:

An hour and a quarter's meeting is not really adequate time, is it, to digest the PDS? - Well, not to drill down into it in great detail.

There were also other investments that Mr Larkin was recommending, was there not? - There was.

So he was also recommending, if you go back to the statement of advice of page 3, the FEA Plantations Project 2007? - Yes.

And he was also recommending the Gunns Plantations Project 2007? - Yes.

And each of those had PDS associated with them? - Yes.

So just to give me some form of idea, the volume of material that he was bringing to this meeting late on 15 June which was about an hour and a quarter was several hundreds of pages of material? - Yes.

The witness said that he would not have sat down and read every word of the PDS. He said, 'I would have skimmed through them, reading them, understanding the gist, picking out important items in them and they very much appeared to be similar type of documents'.

I am not persuaded that the plaintiff read any of the Product Disclosure Statements in any detail. He simply did not have the time to do so. He had a loan application form to complete and there were discussions. All of this is consistent with the proposition that the plaintiff acted on the recommendation of [the financial adviser], motivated by his anxious desire to obtain a tax deduction, after selecting the offering that required urgent attention that evening. The actual content of the product disclosure statement or the absence of information, was not what induced the plaintiff to invest in the project or actuated him in any meaningful way. It was a matter of selecting a project to provide him with the required tax-relief. I have no doubt that the financing option - 12 month free interest - was an inducement.[125]

232 In May 2008, the appellant became aware that he faced a tax liability of about $1 million. At a meeting, which lasted some two hours, the plaintiff and his financial adviser discussed five investment schemes. The trial judge said:

The evidence given by the plaintiff about his attention to the detail contained in the statements, and his having read them at all, does not persuade me that his review of the 2007 Almond scheme documents or the 2008 scheme documents was more than a perfunctory glance, if that.[126]

Accordingly, said his Honour, 'I do not accept the plaintiff's evidence of reliance'.

233 The witness statement of Mr Van Hoff, like that of the plaintiff, was a repetition of the pleaded case and was stigmatised by the trial judge as 'generalised, formulaic and unhelpful'. In cross-examination, Mr Van Hoff admitted that he did not read each product disclosure statement carefully or completely. He said:

I read part of [the product disclosure statements], but I've not read the whole of 40-50 pages of it because, look, who reads a product disclosure statement fully like that? ... I can't remember going through any specific part of it but, I read a little of it ...

234 The trial judge concluded that Mr Van Hoff was not induced to invest by the product disclosure statements. He said:

I am not satisfied that Mr Van Hoff read any of the Project Disclosure Statements in any detail. He may have glanced at some parts, but he was willing to invest without a careful consideration of the documents. That undermines his evidence insofar as he relied on the content of the documents or the absence of the information contained in them. He did not look to the Product Disclosure Statements as a source of information to assist him in his decision to invest in Timbercorp schemes. He chose the schemes on the basis of advice from his accountant and, perhaps Mr Weaver, in search of tax-relief.[127]

235 Counsel for the appellant submitted that there was no inconsistency between investing with a view to obtaining a tax-deduction and investing to obtaining income. He submitted that it makes no sense to throw away money in order to obtain a tax deduction. Tax costs a taxpayer his marginal rate of tax; a failed investment costs the entire amount outlaid. While it may be accepted that the appellant and Mr Van Hoff were not indifferent to whether their investments would be profitable, it does not follow that their hope of profit was derived from any representation made by the respondents. Counsel next submitted that the information in the alleged representations was important to an investor who wanted to obtain a return on his investment and thus it was to be inferred that the representations were relied upon by the plaintiff and Mr Van Hoff. We consider the inference advanced by the appellant could not survive the effect of the evidence given by the witnesses.

236 In our opinion, it has not been demonstrated that the trial judge erred in finding that the representations alleged by the appellant did not induce the appellant and Mr Van Hoff to invest in the Timbercorp schemes. The fact that the appellant and Mr Van Hoff were anxious to obtain tax deductions was relevant to the question of reliance. It is, we think, evident that his Honour did not reach his conclusion as to the issue of reliance simply because he thought that the investors wished to obtain tax deductions. The trial judge examined the evidence given in chief and in cross-examination carefully and at some length. Findings as to credit played an important role in the determination of the issue of reliance. There are certain constraints attending this Court's review of findings of that kind. In order to overturn his Honour's findings, it must be demonstrated that there are incontrovertible or uncontested facts at odds with the judge's findings[128] or that the evidence taken as a whole was such as to render the findings glaringly and improbable or that there has been some misuse of the advantage of seeing the witnesses possessed by the trial judge.[129] No error of that kind has been established.

237 Both the appellant and Mr Van Hoff retained financial advisers who identified schemes providing taxation deductions, advised the investors and arranged meetings at which documents were signed and monies were contributed by the investors. The appellant and Mr Van Hoff said they relied on the advice they were given by their advisers.

238 Faced with the difficulties posed by the investors' evidence-in-chief parroting the pleadings and the revealing answers given by them in cross-examination, counsel for the appellant fell back on the argument that, although the financial advisers did not give evidence, it was to be assumed that they had carefully read the PDSs issued by the Group, relied upon the representations in the statements set out in the statement of claim and relayed the beliefs that they so formed to the appellant and Mr Van Hoff, who were induced by that advice to invest in each scheme. We decline to make the series of assumptions advanced by the appellant. In the absence of evidence, the steps taken by the advisers to acquire information about the various schemes they were promoting and their mental processes lie in the realms of speculation.

239 The complaint in paragraph 14(b) of the grounds of appeal is that the trial judge erred in finding that there was no reliance by the appellant as there was a necessary inconsistency between reliance on the strength of the Group and the assumption that each scheme was quarantined one from another. Again, this consideration does not appear to have dictated the judge's conclusion that there was no reliance, but rather operated as one of a number of considerations, not the least of them being the effect of the investor's evidence taken as a whole. In any event, in our opinion, the propositions which emerged from the evidence are in conflict. If the schemes were structured so that each was self-supporting, the financial strength or weakness of the administrator of the schemes was beside the point.

240 In summary, the appellant failed to demonstrate that the factual conclusions the trial judge made upon the application of correct legal test were not open to his Honour to find. The appellant is not able to overcome the factual finding about the Directors' actual knowledge of risk and, further, the finding that neither of the plaintiff witnesses actually relied on the PDSs in any event. Thus, the appellant argued that the Directors ought to have known even if they did not and that the investors' advisors would have read the PDSs and thus were susceptible to the omissions or the misrepresentations whilst no evidence from advisors was called. The appellant faced great difficulty.

241 Finally, we note that the first respondent submitted that the kind of information about risk of which s 1013D of the Corporations Act is concerned with is information about risk associated with the holding of the product and not the financing risk of the responsible entity.[130] It was submitted that those risks are addressed in other parts of the Corporations Act and by different disclosure regimes. It was further said that the specific disclosure obligations in s 1013D need to be read in that context. The trial judge held that performance risk, the risk that a person might fail to discharge his contractual obligations due to financial incapacity, ought be disclosed in the PDS.[131] In light of our conclusion it is not necessary to decide the point.

242 It follows that none of the grounds succeed. We dismiss the appeal.

[1] Woodcroft-Brown v Timbercorp Securities Ltd & Ors [2011] VSC 427 ('Reasons').

[8] The trial judge's findings in relation to the joint report are the subject of grounds 10 and 11 of the appeal and are discussed below at [186].

[9] Woodcroft-Brown v Timbercorp Securities Ltd & Ors (No 2) [2011] VSC 526.

[10] Reasons [24]. The trial judge also referred to this as a 'cash flow risk' [58], a 'performance risk' [50], and at [52]-[53] as one kind of institution risk per Brookfield Multiplex Ltd v International Litigation Funding Partners Pte Ltd (2009) FCAFC 147.

[11] Statement of claim paras [75F]-[75R].

[14] Reasons [34], [36]-[37], [48], [51], [62], [246], [550]-[551].

[16] Reasons [72], [190]-[191], [269]-[271], [550], [552]-[554].

[19] Reasons [48], [51], [555]-[560].

[22] Reasons [552] (in relation to the tax announcement), [553]-[554] (in relation to the GFC).

[24] See para [44].

[34] Reasons [39]-[40], [256]-[257], [308]-[400].

[35] Reasons [40]; see also [38]-[40], [78]-[79], [218], [236]-[257], [308], [332].

[43] See para [230]-[231], [234].

[51] This ground is set out at para [158].

[52] See Reasons [608]-[612] (in relation to the plaintiff), [640]-[643] (in relation to Mr Van Hoff).

[53] [2009] NSWSC 1229; (2009) 236 FLR 1 [158]-[169].

[61] Reasons [541]; the Court was also provided with a tabulation of the facilities held by Timbercorp over time. This document reveals an increase in existing facilities: the CBA Forestry up to $52 million dollars, the Securitization Program limit up to $125 million.

[68] Reasons [338]. Evidence in this regard was given by Mr Hance.

[70] Timbercorp Limited Annual Report 2007, 9.

[73] Reasons [576], [579], [580], [619]-[620].

[77] See Rogers v Whitaker [1992] HCA 58; (1992) 175 CLR 479.

[78] Lift Capital Partners Pty Ltd v Merrill Lynch International [2009] NSWSC 7; Francis v CPI Graphics [2011] NSWSC 317.

[80] Australian Securities and Investments Commission v Healey (2011) FCR 291.

[89] Reasons [399], [552], [557].

[92] See Reasons [179], [180], [271], [551].

[93] ED securities, short for 'enhanced disclosure securities' are defined in the Corporations Act as having the meaning given by s 111AD.

[102] Reasons [148]-[150]; see also [140] above.

[109] Mr Honey did not address the matters pleaded in [75A]-[75G] but gave no evidence contradicting this analysis.

[110] This paragraph states: All the experts agree that as long as the group's bankers continued to support the group's operations there was no significant risk that the group would not have had the financial capacity to manage any of the schemes through to their contemplated completion.

[114] See also Reasons [48], [552].

[115] A summary of the evidence of Mr Hance as set out at Reasons [450].

[119] See Fraser v NRMA (1995) 55 FCR 452, 467.

[120] ASIC v Fortescue Metals Group Ltd [2011] FCAFC 19; (2011) 190 FCR 364 [112], [113] (Keane CJ).

[121] See Corporations Act s 769(1); FTA s 4.

[122] Gardiner v Agricultural and Rural Finance Pty Ltd [2007] NSWCA 235 [142] (Handley AJA).

[123] Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2008] NSWCA 206; (2008) 73 NSWLR 653, 664 (Giles JA).

[124] [1999] HCA 25; (1999) 199 CLR 413, 425.

[128] Fox v Percy [2003] HCA 22; (2003) 214 CLR 118, 128, 139, 165-6; Devries v Australian National Railways Commission [1999] HCA 3; (1999) 160 ALR 588; Warren v Coombes [1979] HCA 9; (1979) 142 CLR 531, 551.

[129] Whisprun Pty Ltd v Dixon [2003] HCA 48; (2003) 200 ALR 447, 472.

[130] This point was raised in the first respondent's notice of contention.