Australian Securities and Investments Commission v Hellicar

HIGH COURT OF AUSTRALIA

FRENCH CJ,
GUMMOW, HAYNE, HEYDON, CRENNAN, KIEFEL AND BELL JJ

Matter No S176/2011

AUSTRALIAN SECURITIES AND INVESTMENTS
COMMISSION  APPELLANT

AND

MEREDITH HELLICAR  RESPONDENT

Matter No S177/2011

AUSTRALIAN SECURITIES AND INVESTMENTS
COMMISSION  APPELLANT

AND

MICHAEL ROBERT BROWN  RESPONDENT

Matter No S178/2011

AUSTRALIAN SECURITIES AND INVESTMENTS
COMMISSION  APPELLANT

AND

MICHAEL JOHN GILLFILLAN  RESPONDENT

Matter No S179/2011

AUSTRALIAN SECURITIES AND INVESTMENTS
COMMISSION  APPELLANT

AND

MARTIN KOFFEL  RESPONDENT

Matter No S175/2011

AUSTRALIAN SECURITIES AND INVESTMENTS

COMMISSION  APPELLANT

AND

GREGORY JAMES TERRY  RESPONDENT

Matter No S180/2011

AUSTRALIAN SECURITIES AND INVESTMENTS
COMMISSION  APPELLANT

AND

GEOFFREY FREDERICK O'BRIEN  RESPONDENT

Matter No S181/2011

AUSTRALIAN SECURITIES AND INVESTMENTS
COMMISSION  APPELLANT

AND

PETER JOHN WILLCOX  RESPONDENT

Matter No S174/2011

AUSTRALIAN SECURITIES AND INVESTMENTS
COMMISSION  APPELLANT

AND

PETER JAMES SHAFRON  RESPONDENT

Australian Securities and Investments Commission v Hellicar
Australian Securities and Investments Commission v Brown
Australian Securities and Investments Commission v Gillfillan
Australian Securities and Investments Commission v Koffel
Australian Securities and Investments Commission v Terry
Australian Securities and Investments Commission v O'Brien
Australian Securities and Investments Commission v Willcox
Australian Securities and Investments Commission v Shafron
[2012] HCA 17
3 May 2012
S176/2011 to S179/2011, S175/2011, S180/2011 to S181/2011 & S174/2011

ORDER

In matter S174/2011:

1.Appeal allowed with costs.

2.Set aside the orders of the Court of Appeal of the Supreme Court of New South Wales made on 17 December 2010 in Matter No 2009/00298416, in which Peter James Shafron was appellant and Australian Securities and Investments Commission was respondent.

3.Remit the matter to the Court of Appeal for determination of so much of the appeal and cross-appeal in that matter as relates to penalty.

4.The costs of the proceedings in the Court of Appeal are to be in the discretion of that Court.

In matters S175/2011 and S180/2011:

1.Appeal allowed with costs.

2.Set aside paragraphs (a), (b), (c) and (e) of the orders of the Court of Appeal of the Supreme Court of New South Wales made on 17 December 2010.

3.Remit the matter to the Court of Appeal for determination of:

(a)so much of the appeal to that Court as relates to relief from liability and penalty; and

(b)the cross-appeal to that Court in relation to costs.

4.The costs of the proceedings in the Court of Appeal are to be in the discretion of that Court.

In matters S176/2011, S177/2011, S178/2011, S179/2011 and S181/2011:

1.Appeal allowed with costs.

2.Set aside paragraphs (a), (b), (c) and (e) of the orders of the Court of Appeal of the Supreme Court of New South Wales made on 17 December 2010.

3.Remit the matter to the Court of Appeal for determination of so much of the appeal to that Court as relates to relief from liability and penalty.

4.The costs of the proceedings in the Court of Appeal are to be in the discretion of that Court.

On appeal from the Supreme Court of New South Wales

Representation

S J Gageler SC, Solicitor-General of the Commonwealth and A J L Bannon SC with R T Beech-Jones SC and S E Pritchard for the appellant (instructed by Clayton Utz Lawyers)

J T Gleeson SC with R S Hollo SC and R J Hardcastle for the respondents in S176/2011 to S179/2011 (instructed by Atanaskovic Hartnell Lawyers)

A S Bell SC with S M Nixon for the respondent in S175/2011 (instructed by Blake Dawson Lawyers)

P M Wood with M S Henry for the respondent in S180/2011 (instructed by Arnold Bloch Leibler)

T Jucovic QC with R C Scruby for the respondent in S181/2011 (instructed by Kemp Strang Lawyers)

B W Walker SC with R P L Lancaster SC and N J Owens for the respondent in S174/2011 (instructed by Middletons Lawyers)

Notice:  This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.

CATCHWORDS

Australian Securities and Investments Commission v Hellicar
Australian Securities and Investments Commission v Brown
Australian Securities and Investments Commission v Gillfillan
Australian Securities and Investments Commission v Koffel
Australian Securities and Investments Commission v Terry
Australian Securities and Investments Commission v O'Brien
Australian Securities and Investments Commission v Willcox
Australian Securities and Investments Commission v Shafron

Corporations – ­­Duties and liabilities of directors and officers – Contraventions of civil penalty provisions of Corporations Act 2001 (Cth) ("the Act") – Corporation released misleading announcement to Australian Stock Exchange ("ASX") – Australian Securities and Investments Commission ("ASIC") brought proceedings against respondents (and others) for contraventions of the Act – Section 180(1) of the Act required directors and officers to act with degree of care and diligence that reasonable person in that position would exercise – ASIC alleged directors contravened s_180(1) by approving draft announcement not materially different from misleading announcement released to ASX – ASIC alleged company secretary and general counsel of corporation contravened s 180(1) by not advising board that draft announcement was misleading – Whether directors approved draft announcement.

Evidence – ASIC tendered minutes of board meeting recording tabling and approval of draft ASX announcement – Minutes subsequently approved – ASIC did not call corporation's solicitor, who had supervised preparation of draft minutes and attended board meeting – Whether ASIC owed respondents a "duty of fairness" in its conduct of litigation – Whether ASIC breached putative duty by not calling solicitor – Whether proper consequence of any such breach was to discount cogency of ASIC's case – Whether board minutes sufficient evidence to prove directors' approval of draft announcement.

Words and phrases – "cogency of proof", "duty of fairness", "obligation of fairness", "onus of proof", "satisfaction on the balance of probabilities".

Corporations Act 2001 (Cth), ss 180(1), 251A, 1317L.
Evidence Act 1995 (NSW), s 140.
Judiciary Act 1903 (Cth), ss 64, 79, 80.

FRENCH CJ, GUMMOW, HAYNE, CRENNAN, KIEFEL AND BELL JJ.

The principal issues

1. The Australian Securities and Investments Commission ("ASIC") may apply[1] for a declaration of contravention of civil penalty provisions of the Corporations Act 2001 (Cth) ("the Corporations Act")[2], pecuniary penalty orders[3], compensation orders[4] and orders disqualifying a person from managing corporations for a period[5].  In proceedings in which declarations of contravention, pecuniary penalty orders and disqualification orders were sought, ASIC alleged that the defendants who are the present respondents had each breached his or her duty as a director or an officer of a listed public company.  ASIC alleged, and the directors denied, that the directors had approved the company's releasing to the Australian Stock Exchange ("the ASX") an announcement that was misleading.  The minutes of the board meeting, confirmed at a subsequent board meeting, recorded the tabling of a draft announcement and its approval by the board.

   [1]Corporations Act 2001 (Cth) ("the Corporations Act"), s 1317J(1).

   [2]Civil penalty provisions are identified in s 1317E(1).

   [3]s 1317G.

   [4]s 1317H.

   [5]ss 206C, 206E.

2. ASIC's witnesses were found to have no actual recollection of relevant events at the meeting (a meeting which had occurred more than seven years before they gave their evidence at trial).  The defendants submitted that ASIC did not prove that a draft announcement had been tabled at the meeting or approved by the board.  The draft announcement that had been prepared just before the board meeting had not been included in the papers the board members were sent and was altered by management after the board meeting without reference to the board.  The minutes of the board meeting were shown to be inaccurate in some respects.  The company's solicitor, who had attended the meeting and supervised the preparation of draft minutes for the meeting, was not called by ASIC to give evidence.

3. Did the facts that the draft announcement was altered after the meeting and that the minutes were shown to be wrong in some respects, coupled with ASIC's not calling the company's solicitor, entail that ASIC failed to prove that the draft announcement was tabled and approved?  In particular, was the Court of Appeal right to overturn the primary judge's finding that the board had approved the draft announcement on the footing that "the cogency of ASIC's case" was undermined by its failure to call the solicitor when not calling the solicitor was "contrary to [ASIC's] obligation of fairness"?

4. The issues identified arise in appeals brought by ASIC against orders of the Court of Appeal of the Supreme Court of New South Wales[6] (Spigelman CJ, Beazley and Giles JJA) setting aside declarations of contravention, pecuniary penalty orders and disqualification orders made at first instance[7] in respect (among others) of seven non‑executive directors of James Hardie Industries Ltd ("JHIL") – Meredith Hellicar, Michael Robert Brown, Michael John Gillfillan, Martin Koffel, Gregory James Terry, Geoffrey Frederick O'Brien and Peter John Willcox – and in respect of JHIL's general counsel and company secretary – Peter James Shafron.

   [6]Morley v Australian Securities and Investments Commission (2010) 274 ALR 205.

   [7]Australian Securities and Investments Commission v Macdonald (No 11) (2009) 256 ALR 199; Australian Securities and Investments Commission v Macdonald (No 12) (2009) 259 ALR 116.

5. The appeals raise issues of considerable public importance.  Their disposition requires a close consideration of particular aspects of the evidence before the primary judge, his findings of fact, and conclusions of fact reached by the Court of Appeal.  That consideration directs attention to the significance of minutes of meetings of directors as evidence of decisions taken at their meetings.

6. The Court of Appeal was wrong to conclude that ASIC did not prove that the draft ASX announcement in question was tabled and approved at the board meeting.

7. The minutes of the board's meeting were a formal record (subsequently adopted by the board as a correct record) of what had happened at the meeting.  That record was created and adopted close to the time of the events in question.  The minutes were evidence of the truth of the matters recorded – in particular, that a draft ASX announcement was tabled and approved.

8. The minutes were not shown to have recorded falsely that the draft announcement was tabled and approved.  The matters on which the respondents relied as founding an inference, or otherwise demonstrating, that the minute recording the tabling and approval of a draft announcement was false were not inconsistent with the minutes being accurate.  None of those matters required the conclusion that no draft ASX announcement was tabled or the further conclusion that no draft ASX announcement was approved.

9. The Court of Appeal was wrong to hold that ASIC breached a duty of "fairness" by not calling the solicitor.  The Court of Appeal further erred in concluding that a failure to call a witness, in breach of a duty of "fairness", diminished the cogency of the evidence that was called.

10. Other, related issues are raised by an appeal brought by Mr Shafron against certain findings of contravention of s 180(1) of the Corporations Act concerning what advice he should have given the board or JHIL's managing director and chief executive officer. The particular issues raised by Mr Shafron's appeal will be considered[8] separately.

    [8]Shafron v Australian Securities and Investments Commission [2012] HCA 18.

11. The balance of these reasons is organised as follows:

    Some basic facts  [12]‑[19]
    The proceedings  [20]‑[22]
    First instance  [23]‑[29]
    Appeal to the Court of Appeal  [30]‑[35]
    Some undisputed facts  [36]‑[38]
    The respondents' principal arguments  [39]‑[40]
    Proposals for separation  [41]‑[52]
    The central conundrum  [53]‑[64]
    The board minutes  [65]‑[71]
    Why start with the board minutes?  [72]‑[75]
    Alterations to the 7.24 draft announcement  [76]‑[110]
    The inaccuracies in the minutes  [111]‑[116]
    The significance of inaccuracies in the minutes  [117]‑[122]
    Mr Brown and the "correlation evidence"  [123]‑[132]
    Absence of later protest  [133]‑[138]
    A "failure" to call Mr Robb?  [139]‑[146]
    The source and content of the duty of fairness?  [147]‑[155]
    No unfairness in fact  [156]‑[163]
    The cogency of proof  [164]‑[170]
    Conclusion and orders  [171]‑[178]

    Some basic facts

12. Until October 2001 JHIL was the ultimate holding company of the James Hardie group of companies.  JHIL was a listed public company; its shares were listed on the ASX.  Two wholly owned subsidiaries of JHIL, James Hardie & Coy Pty Ltd ("Coy") and Jsekarb Pty Ltd ("Jsekarb"), had manufactured and sold products containing asbestos.  Each of Coy and Jsekarb was subject to claims for damages for personal injury suffered by those who had come in contact with its asbestos products.

13. In 2001 the board of JHIL expected that there would be further claims made against Coy and Jsekarb.  The board of JHIL decided to restructure the James Hardie group by "separating" Coy and Jsekarb from the rest of the group.  This was to be done by JHIL establishing a foundation (the Medical Research and Compensation Foundation – "the MRCF") to manage and pay out asbestos claims made against Coy and Jsekarb and to conduct medical research into the causes of, and treatments for, asbestos‑related diseases.  Jsekarb and Coy would make a Deed of Covenant and Indemnity with JHIL under which Jsekarb and Coy would make no claim against and indemnify JHIL in respect of all asbestos‑related liabilities and, in return, JHIL would, over time, pay Jsekarb and Coy an amount of money.  New shares would be issued by Coy and Jsekarb to be held by or for the ultimate benefit of the MRCF; JHIL's shares in both Coy and Jsekarb would be cancelled.  A new company, James Hardie Industries NV ("JHINV"), would be incorporated in the Netherlands and that company would become the immediate holding company of JHIL and ultimate holding company of the James Hardie group.

14. On 15 February 2001, the board of JHIL met to consider the separation proposal.  What happened at that board meeting is the focus of these proceedings. 

15. Minutes of the meeting of the directors of JHIL held on 15 February 2001 were confirmed by the board, at a meeting held on 3‑4 April 2001, as a correct record and subsequently "[s]igned as a correct record" by the chairman of the board at or after that April meeting.  All of the directors of JHIL had received the minutes of the February meeting with their board papers for the April meeting.  One of the respondents in this Court, Mr Willcox, did not attend the April meeting; all other respondents did.

16. The minutes of the meeting of 15 February 2001 recorded a number of matters relating to the separation proposal.  They included the board's resolution that "it is in the best interests of [JHIL] to effect the Coy and Jsekarb Separation" and a number of other resolutions relating to the separation.  Critical to the present matters, the minutes recorded:

    "ASX Announcement

    The Chairman tabled an announcement to the ASX whereby the Company explains the effect of the resolutions passed at this meeting and the terms of the Foundation (ASX Announcement).

    Resolved that:

    (a)      the Company approve the ASX Announcement; and

    (b)the ASX Announcement be executed by the Company and sent to the ASX."

17. On 16 February 2001, JHIL sent to the ASX a media release entitled "James Hardie Resolves its Asbestos Liability Favourably for Claimants and Shareholders" ("the final ASX announcement").  The document referred to the establishment of the MRCF.  It said, among other things:

    "The Foundation [MRCF] has sufficient funds to meet all legitimate compensation claims anticipated from people injured by asbestos products that were manufactured in the past by two former subsidiaries of JHIL [Coy and Jsekarb].

    JHIL CEO Mr Peter Macdonald said that the establishment of a fully‑funded Foundation provided certainty for both claimants and shareholders.

    …

    In establishing the Foundation, James Hardie sought expert advice from a number of firms, including PricewaterhouseCoopers, Access Economics and the actuarial firm, Trowbridge.  With this advice, supplementing the company's long experience in the area of asbestos, the directors of JHIL determined the level of funding required by the Foundation.

    'James Hardie is satisfied that the Foundation has sufficient funds to meet anticipated future claims,' Mr Macdonald said."  (emphasis added)

18. The MRCF did not have sufficient funds to meet all legitimate compensation claims which were reasonably anticipated in February 2001 from people injured by asbestos products that were manufactured in the past by Coy and Jsekarb.

19. It was found at trial[9] and on appeal to the Court of Appeal[10] that, in February 2001, the directors of JHIL ought to have known that these statements about the MRCF's funding were misleading in four particular respects.  Neither the finding that the statements were misleading in each of those respects, nor the finding that the directors ought to have known that the statements were misleading, was put in issue in this Court.  The central issue in this Court was whether the Court of Appeal should have found, as it did[11], that ASIC had not proved that a draft of the announcement made to the ASX by JHIL was tabled at the February meeting of the board and had not proved that the directors approved that draft.

    [9](2009) 256 ALR 199 at 259‑260 [320]‑[322], [325], 298 [619]‑[620].

    [10](2010) 274 ALR 205 at 360 [831].

    [11](2010) 274 ALR 205 at 349‑350 [789]‑[796].

    The proceedings

20. In February 2007, ASIC commenced proceedings in the Supreme Court of New South Wales[12] against those who ASIC alleged had been directors and officers of JHIL at relevant times, and against both JHIL and JHINV.  Attention may be confined to the proceedings against directors and officers.  Not all of the natural persons who were defendants at first instance are parties to ASIC's present appeals.

    [12]Corporations Act, s 1337B(2).

21. ASIC alleged, among other things, that those who are the respondents to ASIC's appeals in this Court were directors (or, in the case of Mr Shafron, an officer) of JHIL in February 2001.  ASIC alleged that at the meeting of the board of JHIL held on 15 February 2001 a draft ASX announcement was tabled and approved by the board.  ASIC alleged that the draft announcement had included statements about the sufficiency of the MRCF's funds to meet asbestos claims that were misleading and that the final ASX announcement was not materially different from the draft.  ASIC alleged, among other things, that the directors, by approving the draft announcement, contravened s 180(1) of the then applicable corporations legislation[13] and thus, by operation of relevant transitional provisions[14], s 180(1) of the Corporations Act. That is, ASIC alleged that each director of JHIL who is now a respondent had failed to discharge his or her duties to JHIL with the degree of care and diligence that a reasonable person would exercise if they were a director of a corporation in JHIL's circumstances, and had the responsibilities which the director in question had. ASIC further alleged (among other things) that Mr Shafron, as general counsel and company secretary, should have advised the board that the draft ASX announcement "was expressed in too emphatic terms concerning the adequacy of Coy and Jsekarb's funding to meet all legitimate present and future asbestos claims"[15].

    [13]The Corporations Law of New South Wales set out in s 82 of the Corporations Act 1989 (Cth): Corporations (New South Wales) Act 1990 (NSW), s 7.

    [14]The Corporations Act 1989 (Cth) was repealed by s 3 and item 2 of Sched 1 of the Corporations (Repeals, Consequentials and Transitionals) Act 2001 (Cth) when the Corporations Act 2001 (Cth) commenced. Pursuant to s 1400(1) and (2) of the Corporations Act 2001, a person who had incurred a liability for a breach of s 180(1) of the Corporations Law incurred an equivalent liability for breach of s 180(1) of the Corporations Act 2001.

    [15](2009) 256 ALR 199 at 386 [1271].

22. ASIC sought declarations of contravention, pecuniary penalties and orders disqualifying the respondents from managing corporations.

    First instance

23. After a lengthy trial, the primary judge, Gzell J, found[16] that the present respondents had breached their duties under s 180(1) and subsequently made[17] declarations of contravention and other orders in respect of each of the present respondents.  The primary judge dismissed[18] the applications made by the present respondents to be excused[19] from their breaches and made disqualification orders[20] and pecuniary penalty orders[21] against each of them.

    [16](2009) 256 ALR 199.

    [17](2009) 259 ALR 116.

    [18](2009) 259 ALR 116 at 128 [67], 136 [128], 138 [147].

    [19]Corporations Act, ss 1317S(2), 1318(1).

    [20](2009) 259 ALR 116 at 174 [331], 176 [354].

    [21](2009) 259 ALR 116 at 179‑180 [379], [383], [391].

24. The declaration of contravention that was made in respect of each of Ms Hellicar and Messrs Brown, Terry, O'Brien and Willcox declared that at the February board meeting the director concerned had approved a draft ASX announcement which conveyed, or was capable of conveying, four statements which the director ought to have known were misleading.  Those statements were[22] that:

    (a)the material available to JHIL provided a reasonable basis for the assertion that it was certain that the amount of funds made available to the MRCF would be sufficient to meet all legitimate present and future asbestos claims brought against Coy and Jsekarb;

    (b)JHIL's chief executive officer, Peter Donald Macdonald, believed that it was certain that the amount of funds made available to the MRCF would be sufficient to meet all legitimate present and future asbestos claims brought against Coy and Jsekarb;

    (c)all of the directors, or at least a majority of them, believed that it was certain that the amount of funds made available to the MRCF would be sufficient to meet all legitimate present and future asbestos claims brought against Coy and Jsekarb; and

    (d)JHIL had received expert advice from PricewaterhouseCoopers and Access Economics that supported the statement that it was certain that the amount of funds made available to the MRCF would be sufficient to meet all legitimate present and future asbestos claims brought against Coy and Jsekarb.

    [22](2009) 259 ALR 116 at 195‑196 [475]; (2010) 274 ALR 205 at 353‑354 [803].

25. The declaration made in respect of each of Messrs Gillfillan and Koffel was to the effect that he breached his duties by voting in favour of the resolution without either asking for a copy of the draft announcement or knowing its terms, or by failing to abstain from voting in favour of approval of the announcement[23].

    [23](2009) 259 ALR 116 at 196 [477]‑[478]; (2010) 274 ALR 205 at 361‑362 [839].

26. The declarations made[24] in respect of Mr Shafron hinged about:  first, his not having tendered advice to the board that the draft announcement was "expressed in too emphatic terms" concerning the adequacy of funding and that the draft announcement was misleading; second, his not having advised the board that the advice given by PricewaterhouseCoopers and Access Economics about a cash flow model of funding available to meet asbestos claims was limited and had not verified important assumptions that the advisers had been given and instructed not to consider; and, third, his not having advised the chief executive officer or the board to consider whether some information about the Deed of Covenant and Indemnity to be given by Coy and Jsekarb to JHIL should be disclosed to the ASX.  As noted at the outset of these reasons, issues about all except the first of these contraventions by Mr Shafron will be examined separately.

    [24](2009) 259 ALR 116 at 193‑195 [473]; (2010) 274 ALR 205 at 373‑374 [879].

27. The steps which the primary judge took in deciding to make the declarations of contravention concerning the approval of a draft ASX announcement can be summarised as follows:

    (1)A draft ASX announcement was taken to the board meeting of 15 February 2001 by JHIL's Senior Vice‑President of Corporate Affairs, Mr Greg Baxter[25].

    (2)The draft Mr Baxter took to the meeting was what came to be known as the "7.24 draft announcement" or the "draft ASX announcement" (a draft which Mr Baxter sent by email at 7.24 on the morning of 15 February 2001)[26].

    (3)The 7.24 draft announcement was distributed, at the board meeting, to each director who was physically present when the board considered the separation proposal[27].  They were the chairman, Mr A G McGregor, five non‑executive directors (Ms Hellicar and Messrs Willcox, Brown, Terry and O'Brien) and Mr Macdonald (the chief executive officer of JHIL).  In addition, the 7.24 draft announcement was distributed to Mr Shafron[28] and two representatives of JHIL's lawyers (Allen Allen & Hemsley – "Allens") who attended the meeting:  Mr David Robb and Mr Peter Cameron.

    (4)One or both of Mr Macdonald and Mr Baxter spoke to the 7.24 draft announcement at the meeting[29].  The purpose of distribution and discussion of the draft announcement "was to approve its release"[30].

    (5)The practice of the JHIL board was not to put a matter formally to a meeting as a resolution.  The chairman would summarise the position and directors assented by indicating their approval or remaining silent[31].

    (6)The 7.24 draft announcement was before the board, was considered by the board, and was approved by the board[32].

    (7)Neither of the two directors of JHIL who participated in the meeting by telephone (Messrs Gillfillan and Koffel) raised any objection that he did not have a copy of the 7.24 draft announcement; neither asked for a copy of it; neither abstained from approving the draft announcement[33].

    (8)Those non‑executive directors who were in physical attendance at the meeting (Ms Hellicar and Messrs Willcox, Brown, Terry and O'Brien) breached s 180(1) by assenting to the resolution approving the 7.24 draft announcement[34].

    (9)Each non‑executive director who participated in the meeting by telephone (Messrs Gillfillan and Koffel) breached s 180(1) by failing either to request a copy or familiarise himself with the contents of the 7.24 draft announcement or to abstain from voting in favour of the resolution[35].

    (10)The general counsel and company secretary of JHIL (Mr Shafron) did not advise, but should have advised, the board that the 7.24 draft announcement "was expressed in too emphatic terms concerning the adequacy of Coy and Jsekarb's funding to meet all legitimate present and future asbestos claims and in that respect it [the announcement] was false or misleading"[36].  Failing to proffer advice of this kind was a failure to discharge his duties to JHIL with the degree of care and diligence that a reasonable person would exercise if he or she were an officer of a corporation in JHIL's circumstances, occupied the office of general counsel and company secretary and had the same responsibilities within the corporation as Mr Shafron; it constituted a breach of s 180(1)[37].

    [25](2009) 256 ALR 199 at 240 [193]‑[194].

    [26](2009) 256 ALR 199 at 243 [220].

    [27](2009) 256 ALR 199 at 243 [220]‑[221].

    [28](2009) 256 ALR 199 at 267 [375].

    [29](2009) 256 ALR 199 at 244 [223].

    [30](2009) 256 ALR 199 at 244 [224].

    [31](2009) 256 ALR 199 at 245 [234].

    [32](2009) 256 ALR 199 at 244 [225].

    [33](2009) 256 ALR 199 at 245 [233].

    [34](2009) 256 ALR 199 at 260‑261 [330]‑[336], 262 [341]‑[343].

    [35](2009) 256 ALR 199 at 261‑262 [337]‑[339].

    [36](2009) 256 ALR 199 at 271 [406].

    [37](2009) 256 ALR 199 at 271 [406].

28. At trial, ASIC called two witnesses who had attended the relevant part of the board meeting of 15 February 2001 – Mr Baxter and Mr Stephen Harman, the financial controller of JHIL.

29. Not all non‑executive directors gave evidence at the trial.  Mr Brown, Mr Gillfillan, Ms Hellicar, Mr Koffel and Mr Willcox did (as also did Mr Phillip Morley, the chief financial officer of JHIL and a director of Coy and Jsekarb until 15 February 2001).  Mr O'Brien and Mr Terry did not give evidence.  Neither Mr Macdonald (a defendant in the proceedings) nor Mr Shafron gave evidence.  Neither ASIC nor any defendant called either of the two bankers from UBS Australia (Mr Anthony Sweetman and Mr Ian Wilson) who attended the meeting.  Neither ASIC nor any defendant called Mr Robb of JHIL's solicitors, Allens.  (The other representative of Allens at the meeting – Mr Peter Cameron – had died on 21 February 2006.  The chairman of JHIL, Mr McGregor, had also died before trial.)

    Appeal to the Court of Appeal

30. The present respondents appealed to the Court of Appeal against the declarations of contravention, pecuniary penalty orders and disqualification orders, and against the primary judge's refusal to excuse the contravention.  They submitted that the primary judge should not have found that the draft ASX announcement which ASIC alleged had been tabled and approved at the February board meeting had been either tabled or approved.

31. The Court of Appeal concluded[38] that ASIC did not establish at trial that the 7.24 draft announcement was tabled at the February board meeting or that the non‑executive directors had approved that draft announcement.  The Court of Appeal allowed[39] the appeals by the present respondents.  The Court of Appeal set aside the declarations and orders made against each of the non‑executive directors and ordered that ASIC's proceedings against those parties be dismissed.  In Mr Shafron's case the Court of Appeal set aside the declaration of contravention that had been made in relation to the approval of the draft ASX announcement (and made other orders in connection with issues raised by other contraventions by Mr Shafron that are considered in Mr Shafron's appeal to this Court).

    [38](2010) 274 ALR 205 at 349‑350 [789]‑[796].

    [39](2010) 274 ALR 205 at 429‑430 [1156].

32. The Court of Appeal treated[40] the issues about what happened at the meeting as "not wholly a case of circumstantial evidence, because there is evidence such as the minutes of the meeting", but said:  "None the less, we consider that we should take a similar approach, and so will determine whether ASIC proved the passing of the draft ASX announcement resolution from 'the united force' of all the evidence."

    [40](2010) 274 ALR 205 at 265 [286].

33. The Court of Appeal made a minutely detailed examination in its reasons of all of the evidence that any party to the appeals to that Court suggested might bear upon what should be found to have been said or done at the meeting of the board of JHIL on 15 February 2001.  But as these reasons will demonstrate the matters to which the present respondents pointed in their arguments in the Court of Appeal and again on appeal to this Court as bearing upon what should be found to have been said or done at that meeting were not of equal significance.

34. As noted earlier, ASIC called Mr Baxter and Mr Harman to give evidence about the relevant parts of the February board meeting.  The Court of Appeal concluded[41] that "[n]either Mr Baxter nor Mr Harman had an actual recollection of what occurred at the meeting".  The Court of Appeal accepted[42] that it could not reasonably be doubted that Mr Baxter took a draft announcement to the board meeting of 15 February 2001 and concluded[43] that the particular draft taken was the 7.24 draft announcement.  The Court of Appeal further concluded[44] that it was more probable than not that a copy of the 7.24 draft announcement was given to the two representatives of JHIL's solicitors, Allens – Mr Peter Cameron and Mr Robb – at the February board meeting.  But, as noted, the Court of Appeal was not satisfied[45] that the 7.24 draft announcement was tabled or that the non‑executive directors of JHIL voted in favour of a resolution approving the announcement and its being sent to the ASX.

    [41](2010) 274 ALR 205 at 255 [232].

    [42](2010) 274 ALR 205 at 278 [363].

    [43](2010) 274 ALR 205 at 281 [383], 349 [789].

    [44](2010) 274 ALR 205 at 281 [383].

    [45](2010) 274 ALR 205 at 349‑350 [789]‑[796].

35. The Court of Appeal held[46] that only "[s]ome strength in ASIC's case [lay] in the minutes of the February meeting and their adoption at the April meeting".  The Court of Appeal concluded[47] that although "[t]here was some basis for finding that the draft ASX announcement resolution had been passed … [h]aving regard in particular to the failure to call Mr Robb, with consequences for the cogency of ASIC's case, we do not think ASIC discharged its burden of proof".

    [46](2010) 274 ALR 205 at 349 [791].

    [47](2010) 274 ALR 205 at 350 [796].

    Some undisputed facts

36. Throughout the consideration of the issues argued in these appeals, it will be necessary to keep some undisputed facts at the forefront of consideration.

37. The JHIL board agreed at the meeting of 15 February to the separation of Coy and Jsekarb from the James Hardie group.  The making of that decision, and the terms on which the separation was to be effected, were matters that had to be announced[48] to the ASX.  (Both the decision to separate and the terms on which the separation would be effected constituted information "that a reasonable person would expect to have a material effect on the price or value"[49] of JHIL's shares.)  Mr Baxter took the 7.24 draft announcement about the separation to the meeting.  An announcement about the separation was made to the ASX on the day after the separation decision was made.  (As these reasons later demonstrate, the announcement was made in terms that were not materially different from the draft that Mr Baxter took to the meeting.)  The announcement was misleading.  The minutes of the February meeting recorded the directors' approval of the draft announcement.  In April the directors approved the minutes of the February meeting as an accurate record of what was decided at that meeting.

    [48]Corporations Law, ss 111AB‑111AE, 1001A, 1001D; ASX Listing Rules, r 3.1.

    [49]ASX Listing Rules, r 3.1.

38. If, as the Court of Appeal concluded, no one gave direct evidence of what happened at the February meeting, why should it not be found in the light of these established facts that, as the primary judge found, the 7.24 draft announcement was tabled and approved at the meeting?

    The respondents' principal arguments

39. The respondents submitted in this Court, as they had in the Court of Appeal, that the primary judge was wrong to conclude that the 7.24 draft announcement was tabled or approved at the February board meeting.  They submitted that the 7.24 draft announcement was changed in a number of ways after the board meeting had finished and that those changes would not have been made if it had been tabled and approved.  They submitted that the minutes did not accurately record the order in which matters were considered at the February meeting and that there were other demonstrable errors in the minutes.  (The respondents attributed the subsequent approval of the minutes to the respondents' own want of care.)  And the respondents submitted that the Court of Appeal was right to place the emphasis it did on the circumstance that ASIC did not call Mr Robb to give evidence of what he had seen and heard at the February meeting.

40. Before dealing with these arguments there are some matters of history to which reference must be made.

    Proposals for separation

41. Since as early as 1996, the board of JHIL had been considering and taking some steps towards a corporate restructuring of the James Hardie group.  As part of that restructuring, JHIL's directors had been considering separation of "the asbestos litigation poison pill" from the "operating assets" since at least December 1999.

42. In April 2000, the board was told that the restructuring could be disrupted or hindered if the separation was seen as "James Hardie abandoning its responsibilities to claimants".  Thereafter the board considered separation proposals at several meetings.  It is enough to direct attention to the board meetings of January 2001 and February 2001.

43. A detailed paper was put to the board in January 2001 considering "the establishment of a stand alone trust company to manage the asbestos liabilities in the James Hardie Group".  The objective of establishing the trust was described as being that "[a]sbestos liabilities would be effectively, but not completely, separated from [JHIL]".  The paper recorded that JHIL then accounted for asbestos liabilities "by providing for the expected costs of known claims" (emphasis added).  But as the paper also recorded, when Australian Accounting Standards Board, Provisions and Contingencies, Exposure Draft No 88, December 1997 ("ED88") became effective – then expected to be in March 2003 – it seemed "probable" that JHIL would have to provide "for at least the minimum amount of the expected future liability" and "significant disclosure concerning the nature and extent of potential future asbestos liabilities will have to be made" (emphasis added).

44. The proposal put to the board at its January meeting – the "net assets model" – proceeded from the premises (noted[50] by the Court of Appeal) that "the maximum quantum of funds available to Australian asbestos claimants is the existing net assets of [Coy] and Jsekarb" and that "[t]here is no sound rationale for increasing the net assets of [Coy] and Jsekarb and thereby expanding this quantum of funds available to claimants".  Accordingly, the proposal put to the board was that JHIL give its shares in Coy and Jsekarb to a trust and that the net assets of Coy and Jsekarb be applied by the trust to meeting existing and future asbestos claims.  In addition, JHIL would give $2 million to the trust for research into asbestos‑related diseases.

    [50](2010) 274 ALR 205 at 224 [79].

45. The board paper for the January meeting explained, under the heading "Risks", that "[t]he creation of the Trust would … carry with it the message that JHIL would not support [Coy] and Jsekarb in the event that funds prove to be insufficient".  It also said that the "effect of the Trust and associated arrangements" may be subject to "attack", including through legislation by which JHIL was "declared liable for all of the asbestos related liabilities of its subsidiaries" or by the freezing of JHIL's assets "pending undertakings [being given] suitable to" government.

46. A slide presentation made to the board at its January meeting emphasised the same concerns, saying, under the heading "Key Risks":  "Separation per se not problematic, issue is statement not to support Coy".  The presentation canvassed the "[p]ossible consequences" and said that the "[l]ikelihood of government action" – "making JHIL liable for conduct of subs" – "cannot be discounted".

47. The January board paper and the slide presentation made to the board at its January meeting each dealt extensively with a "Communications Strategy".  The recommendations made in the board paper about "how to announce any establishment of a Trust" were said to be:

    "developed with the aims of:

    .positioning the initiative as a 'business' news as opposed to a 'general' news story;

    .having financial markets recognise and reward the certainty and finality of separation;

    .attracting as little attention as possible beyond the financial markets;

    .managing fallout and minimising damage to James Hardie's reputation generally; and

    .minimising the potential for government intervention."

    The board paper recorded, under the heading "Timing", that it was recommended that "any announcement be made on Friday 16 February to coincide with the announcement of JHIL's Q3 results and the related management presentations to analysts and business media".  It was said that this would "help us position the Trust as a 'business' story".  As the Court of Appeal noted[51], there was attached to the January board paper a "draft news release" which "can be seen as the beginnings of the draft [ASX] release in issue in these proceedings".  The slide presentation was to the same effect as the board paper.

    [51](2010) 274 ALR 205 at 224 [81]. See also (2009) 256 ALR 199 at 220 [87].

48. The minutes of the January meeting referred to "a stand alone trust company that could support asbestos related medical research and manage the asbestos liability of subsidiary companies".  The minutes recorded that:

    "The directors discussed the trust concept and asked questions of management and advisers.

    The Chairman noted that the concept appeared to have some merit, but that the question of funding for the Company required more work.  He requested management to continue developing the concept and to report progress, particularly in relation to funding, at the February meeting."

    In fact, the board had rejected[52] the net assets model of funding the proposed trust.  As the primary judge recorded[53], "management was sent away to do more work on the separation proposal to ensure sufficient funds were available to meet all present and future asbestos claims" (emphasis added).

    [52](2009) 256 ALR 199 at 221 [89]; (2010) 274 ALR 205 at 226 [91], 228 [99].

    [53](2009) 256 ALR 199 at 221 [89].

49. The matter was again put before the board at its next meeting:  the meeting of 15 February 2001.  Under a new proposal, JHIL not only would "vest" shares in Coy and Jsekarb in the trust that was to be established and give an increased amount of $3 million for research but also would pay, over time, $100 million ($70 million net present value) to Coy and Jsekarb.  In return, Coy and Jsekarb would each indemnify JHIL against any liabilities JHIL incurred in respect of asbestos claims and each promise not to make any asbestos‑related claim against JHIL.  (Coy would also promise to acquire all shares in JHIL from a sole shareholder if certain conditions were satisfied.  This was referred to at trial as the "put option"[54], but that aspect of the proposal was not in issue in the appeals to this Court and need not be noticed further.)  The payment of $100 million over time and the promises by Coy and Jsekarb were to be provided for in the Deed of Covenant and Indemnity.

    [54](2009) 256 ALR 199 at 208 [18].

50. The board papers for the February meeting were sent to directors in early February and included a paper by Mr Macdonald (the chief executive officer of JHIL) recommending that JHIL "Implement Separation by creating a Foundation now".  As with the January proposal, the paper recorded Mr Macdonald's recommendation that the JHIL board agree to the creation of the MRCF at its meeting on 15 February "for announcement, together with JHIL's Q3 results, on Friday 16 February".  Mr Macdonald concluded his paper by saying that "James Hardie needs to act now".  The reason he gave for the urgency was that the new accounting standard (ED88) was now likely to be promulgated before the end of JHIL's financial year (which ended on 31 March).  (As noted earlier in these reasons, the board had been told at its January meeting that the new standard would adversely affect the company's accounts by requiring provision for not only present but also expected future asbestos liabilities.)

51. Attachments to the board paper identified what were described as "separation issues" and a "communication strategy".  The "communication strategy" recorded that "[o]ur central communications conundrum is that we will not be able to provide key external stakeholders with any certainty that the funds set aside to compensate victims of asbestos diseases will be sufficient to meet all future claims".

52. At the February meeting, a series of slides was presented to the board.  One slide, entitled "Update on Board paper", recorded that "[s]ince we issued the Board paper, we have continued to investigate and analyse the key risks and fine‑tune our key messages and strategy".  The slides showed that the amount to be contributed over time by JHIL to Coy and Jsekarb was $112 million (with a net present value of $72 million).  The board papers distributed earlier in the month had said that the amount would be $100 million (with a net present value of $70 million).  Under the heading "Fund life expectancy/sensitivity" reference was made to the key assumptions that had been used in modelling the availability of funds to meet expected claims and it was said:  "Surplus most likely outcome".  Two of the "[k]ey messages" set out in another slide were that "[t]he Foundation expects to have enough funds to pay all claims" and that "[t]he position of claimants is substantially improved because the Foundation provides much greater certainty that compensation will be available to meet all future claims".  And many of the slides were devoted to identifying how the company would (as one slide put it) "'sell' the proposal to external stakeholders".

    The central conundrum

53. The directors denied that they had approved any draft ASX announcement at the February board meeting.  That is, the directors denied that they had approved the 7.24 draft announcement, which said that the MRCF would have "sufficient funds to meet all legitimate compensation claims" anticipated and was "fully‑funded".

54. That answer to ASIC's case necessarily contained some intrinsic tensions if not outright contradictions.

55. After a process of consideration and development that had gone on for well over a year, the board approved a separation proposal in February 2001.  The board did that having refused to approve a different separation proposal at the immediately preceding board meeting (in January 2001) and having required management to continue to develop the concept "particularly in relation to funding".  It is thus evident that the directors regarded the funding of the MRCF as a centrally important issue and it could not be assumed that the directors approved the separation proposal not having any view about whether the MRCF would have sufficient funds.  The respondents did not suggest to the contrary.

56. Before the February board meeting was held, the company's solicitors prepared (under the supervision of Mr Robb) draft minutes for the meeting which provided for the tabling and adoption of a draft ASX announcement.  That the draft minutes made that provision reflected, first, the company's obligation to make the announcement and, second, the fact that an announcement of this kind would ordinarily be approved by the JHIL board.

57. After the board meeting an announcement was made to the ASX.  The announcement was not identical to the draft that Mr Baxter took to the board meeting but, as will later be shown, it was not different in any material respect.

58. Mr Robb, who had supervised preparation of the draft minutes, attended the February board meeting.  In late March Mr Robb sent a bill to JHIL for work done by Allens in relation to the separation proposal.  The work included "settling various completion documents and board minutes as required by Alan Kneeshaw [the manager of secretarial services for the James Hardie group] for JHIL, Coy, Jsekarb, the Foundation and MRCFI [a wholly owned subsidiary of the MRCF]".

59. Draft minutes of the February meeting (which included reference to the tabling and adoption of a draft announcement) were distributed to all board members with the board papers for the April board meeting and were adopted (apparently without demur) at the April board meeting.  Either those minutes were right to record the directors' approval of a draft announcement or they were not.  By adopting the minutes the board members indicated that they had assented to the several steps recorded in those minutes as having been taken at the February board meeting to approve and effect the separation of Coy and Jsekarb, including the step of approving a draft announcement to the ASX.

60. The directors knew that their approval of the proposal had to be announced to the ASX.  Did they, as they now say, leave to the decision of management the way in which the decision would be announced and leave to the decision of management what would be said about a proposal that all directors knew could be very controversial?  Or did they, as their minutes recorded, approve what was to be said to the market?

61. The principal changes that were made to the separation proposal between the net assets model rejected at the January board meeting and the proposal that was approved at the February meeting were changes to increase the funds that Coy and Jsekarb would have to meet asbestos claims.  The amount of money that JHIL would pay to Coy and Jsekarb was fixed having regard to advice which the board was told at its February meeting had been received from Mr Stephen Loosley, "former NSW Secretary ALP, former NSW Senator, now head of PWC Legal in Sydney":  "to strengthen the adequacy of funding so that we could argue that the most likely outcome was that all claims would be met".  The amount was fixed at a level sufficient to support one of the key messages the board was told was to be conveyed:  that "[t]he Foundation expects to have enough funds to pay all claims".  And the primary judge found[55] that one of the respondents, Mr Brown, asked the chief executive officer of JHIL during the February board meeting, "are you sure there are going to be sufficient funds in the trust?", and was told, "Yes there are.  We have got the best actuarial modelling.  We have shown that we can meet the cash requirements each year.  We are providing enough funds for future claims."  (emphasis added)

    [55](2009) 256 ALR 199 at 234 [148]‑[151].

62. Why would the directors not approve of a statement that said that the MRCF was fully funded and that it would have sufficient funds if that was the basis on which they approved the separation proposal?  Why should the primary judge have concluded, as the respondents in this Court asserted, that the relevant minute of the February board meeting, adopted at the April meeting, was false?

63. As has been noted, the respondents advanced three arguments:  first, that the making of alterations to the text of the 7.24 draft announcement after the board meeting showed that the announcement had been neither tabled at, nor approved by, the board at its February meeting; second, that the minutes of the February board meeting were demonstrably inaccurate in some respects; and finally, ASIC not having called Mr Robb to give evidence, that the Court of Appeal was right to conclude that ASIC had not proved its case.

64. It will be convenient to deal with these arguments in turn.  But it is the minutes of the February and April board meetings that provide the necessary starting point for consideration of the issues which are raised by those arguments.

    The board minutes

65. The text of the relevant part of the February board minutes has been set out earlier in these reasons.  Reference has already been made to the board's approval, at its April meeting, of the minutes of the February meeting as an accurate record and to the chairman's signing the minutes "as a correct record".

66. Section 251A(1) of the Corporations Law provided (and at the time of the trial s 251A(1) of the Corporations Act provided) that a company "must keep minute books in which it records within 1 month: … (b) proceedings and resolutions of directors' meetings". Sub‑section (2) of those provisions provided that the company:

    "must ensure that minutes of a meeting are signed within a reasonable time after the meeting by 1 of the following:

    (a)      the chair of the meeting;

    (b)      the chair of the next meeting."

    Sub‑section (6) provided:

    "A minute that is so recorded and signed is evidence of the proceeding, resolution or declaration to which it relates, unless the contrary is proved."

67. The primary judge found[56] that the minutes of the February meeting were not recorded in a minute book within one month of the meeting.  That finding is not in issue.  The primary judge further concluded[57] that:

    "Since the minutes of the 15 February 2001 meeting were not recorded in a minute book within 1 month, it follows that s 251A(6) was not engaged and the minutes have no special evidentiary value."

    This conclusion, and the construction of the relevant provisions upon which it depended, were not challenged in the argument of the present matters and it is neither necessary nor appropriate to examine those matters further.  Argument of the present appeals proceeded (and these reasons proceed) on the basis that tendering the minutes of the February board meeting worked no reversal of the onus of proof of the matters recorded in the minutes.

    [56](2009) 256 ALR 199 at 216 [56]. See also (2010) 274 ALR 205 at 296 [468].

    [57](2009) 256 ALR 199 at 218 [72].

68. No separate consideration was given by the primary judge, or in the Court of Appeal, to whether s 251A(6) applied to the minutes of the April board meeting. It is, therefore, appropriate to assume that those minutes are not to be treated as evidence of the proceedings to which they relate unless the contrary was proved.

69. The minutes of both the February and April board meetings were admitted in evidence.  Both sets of minutes were admissible as business records[58] and were evidence of the truth of the matters that they represented.  The February board minutes were thus evidence of the facts that a draft ASX announcement was tabled and that it was approved; the April board minutes were evidence of the fact that the board had approved the minutes of the February meeting as an accurate record of proceedings at that earlier meeting.

    [58]Evidence Act 1995 (NSW), s 69.

70. The case which the respondents advanced was that the relevant minute in the February board minutes was false:  no draft ASX announcement was tabled at the meeting; no draft ASX announcement was approved at that meeting.  The case which the respondents advanced entailed that the board's subsequent adoption of the February board minutes as an accurate record of proceedings was also false, in the sense that the minutes that were adopted were not an accurate record of proceedings at and resolutions passed at the February meeting.

71. The respondents' allegations of falsity must be assessed in the light of not only the statutory provisions[59] requiring the keeping of minute books but also those statutory provisions[60] of the Corporations Law and the Corporations Act making it an offence for a person to make or authorise the making of a statement, in a document required by or for the purposes of the Act, that, to the person's knowledge, is false or misleading in a material particular, and an offence to make or authorise the making of such a statement without having taken reasonable steps to ensure that it was not false or misleading. The respondents' arguments that the February and April minutes were false in the relevant respects were arguments that, if accepted, may go so far as to demonstrate that the respondents (other than Mr Shafron) had failed to take reasonable steps to ensure that the company's minute books were not false or misleading.

    [59]s 251A.

    [60]s 1308(2), (4).

    Why start with the board minutes?

72. As has already been noted, the minutes of the board meetings of February and April were evidence of the truth of what they represented.

73. The respondents submitted, in effect, that demonstration of any important error in the minutes cast doubt upon their accuracy in recording that a draft ASX announcement was tabled and approved.  And at a more fundamental level, the respondents' submissions about the significance of inaccuracies in the minutes, alterations to the announcement and the absence of evidence from Mr Robb depended upon the proposition that the minutes were no more than one of several circumstances which bore upon the task of inferring (from the combined weight of the evidence) what had been said and done at the meeting.  At times the respondents' submissions, and the reasoning in the Court of Appeal, veered towards the proposition that ASIC had had to prove at trial that the minutes were an accurate record.  That was not the ultimate issue in the trial.  Rather, the issue was, having regard to the nature of ASIC's claims and the respondents' defences, the nature of the subject‑matter of the proceeding and the gravity of the matters which ASIC alleged[61], did ASIC establish, on the balance of probabilities, that (as the minutes recorded) the 7.24 draft announcement was tabled and approved by the board?

    [61]Evidence Act 1995 (NSW), s 140(2); cf Briginshaw v Briginshaw (1938) 60 CLR 336 at 361‑362 per Dixon J; [1938] HCA 34.

74. Witnesses who gave evidence at trial of what had happened at the meeting described conversations and events that had taken place many years earlier.  The record of events at the February board meeting that was made closest to their occurrence was the minutes as they were adopted at the April board meeting.  With the evidence that Mr Baxter gave about his taking the 7.24 draft announcement to the board meeting (a fact not now in dispute) the force of the minutes was that the 7.24 draft announcement was approved.  Absent evidence to the contrary, ASIC proved its case by tendering the minutes.

75. What the respondents sought to establish was that other evidence founded an inference that the minute recording approval of a draft announcement was false.  It was the respondents' case that depended upon inference; ASIC's case did not.  Hence the need to start with the minutes.  To treat the minutes, as the Court of Appeal did, as just one of a number of circumstances that bore upon the issue of fact failed to recognise the nature of the evidence that ASIC adduced and the nature of the argument that the respondents sought to advance.

    Alterations to the 7.24 draft announcement

76. The respondents gave great emphasis in their submissions in this Court, as they had at trial and on appeal to the Court of Appeal, to the way in which ASIC had pleaded its case.  ASIC identified the relevant contraventions by reference to the 7.24 draft announcement.  The respondents submitted, and it is to be accepted, that the trial was conducted on the footing that ASIC alleged that the directors had assented to a particular form of text – the 7.24 draft announcement – not on a footing that the directors had assented to particular messages being conveyed (whatever their form) that were messages capable of conveying particular misrepresentations.  Thus, so the respondents submitted, the fact that management, with or without assistance from Allens, thought it open to them to change the text of the 7.24 draft announcement after the meeting (as they did) pointed against the board having approved the text which ASIC alleged had been tabled at the meeting and approved by the board.

77. The final text of the announcement sent to the ASX differed from the text of the 7.24 draft announcement in several respects.  The 7.24 draft announcement was itself a revision of an earlier draft.  The revisions to that earlier draft were made by Mr Baxter.  At 7.24 am on 15 February 2001, Mr Baxter sent the revised draft back to its author (with text boxes on the draft showing the changes he had made) and he told the author:

    "here are my comments on the news release – no doubt we can refine further later today – this is the version I will take to the Bd meeting".  (emphasis added)

78. Copies of a draft ASX announcement in the form of the 7.24 draft announcement (but without the text boxes appearing on the copy which Mr Baxter had sent at 7.24 am) were produced to ASIC from the files at Allens, JHIL's solicitors, and the files of a company in the Brierley group of companies (BIL Australia Pty Ltd – "BIL"), a group which held a substantial shareholding in JHIL, and a group with which two of the respondents – Mr O'Brien and Mr Terry – were associated.  Allens produced two copies of the draft, each with handwritten comments of Mr Robb and one with comments presumed[62] to be by Mr Peter Cameron.  ASIC relied on the fact that Allens and BIL had the 7.24 draft announcement as showing that the 7.24 draft announcement had been distributed to those who attended the February board meeting.  That other directors had not produced a copy of it was explained by the practice of those other directors who gave evidence at the trial not to keep copies of board papers[63].  That JHIL did not have the 7.24 draft announcement in its files was explained by the evidence of Mr Donald Cameron (another company secretary of JHIL) that only the final version of any ASX announcement was kept by the company, all earlier drafts being destroyed[64].

    [62](2009) 256 ALR 199 at 240 [197].

    [63](2009) 256 ALR 199 at 242 [208]‑[210].

    [64](2009) 256 ALR 199 at 242 [209]; (2010) 274 ALR 205 at 280 [378]‑[379].

79. ASIC's submission that production of the 7.24 draft announcement by Allens and BIL demonstrated that the representatives of Allens and BIL who attended the February meeting received the document there should be accepted.  The Court of Appeal found[65] that the two Allens lawyers were given the draft at the February meeting.  The submission advanced by some respondents that the document might have come into the possession of BIL after the meeting does not accommodate the fact that the 7.24 draft announcement was soon superseded.  The alternative explanations for BIL having a copy of the document advanced by the respondents (founded on Mr O'Brien of BIL having "separate lines of communication outside of JHIL Board meetings with management and in particular Mr Macdonald" or upon the possibility that the document had come to BIL during later proceedings[66]) were speculative and improbable.  And once it is decided, as it was both at trial and on appeal to the Court of Appeal, that Mr Baxter took the 7.24 draft announcement to the February board meeting, it is not readily to be supposed, in the light of its production by Allens and BIL, that Mr Baxter kept the document with his other papers and did not distribute it to those who attended the meeting.  The primary judge was right to hold that the 7.24 draft announcement was distributed at the meeting. 

    [65](2010) 274 ALR 205 at 281 [383].

    [66](2010) 274 ALR 205 at 279 [375].

80. Two further drafts of the ASX announcement were made:  one at about 9.35 am on 15 February (after the board meeting had started at 9.00 am) and the other at about 7.42 pm on that day.  Subject to one qualification, the final ASX announcement was substantially in the form of this last draft.  The qualification that must be made is that the final announcement said that the MRCF would commence operations with assets of $293 million; the draft created at 7.42 pm had said $285 million.  Such other differences as there were between the last draft and the final announcement are immaterial.

81. The Court of Appeal concluded[67] that some of the differences between the 7.24 draft announcement and the draft produced at 7.42 pm were "unexceptional".  Others, the Court of Appeal said[68], were of "more significance", an expression which, in the context in which it was used, must be understood as referring to the significance the Court attributed to the changes in determining whether the 7.24 draft announcement had been tabled and approved, not as referring to any question about what representations the 7.24 draft announcement or the final ASX announcement conveyed.

    [67](2010) 274 ALR 205 at 271 [321].

    [68](2010) 274 ALR 205 at 271 [321].

82. The changes that were made to the body of the 7.24 draft announcement to arrive at the final ASX announcement are most easily identified by reproducing its text, striking through the deletions and underlining what was inserted:

    "James Hardie Industries Limited (JHIL) announced today that it had established a foundation to compensate sufferers of asbestos‑related diseases with claims against two former James Hardie subsidiariesthe company and fund medical research aimed at finding cures for these diseases.

    The Medical Research and Compensation Foundation (MRCFFoundation), to be chaired by Sir Llewellyn Edwards, will be completely independent of JHIL and will commence operation with assets of $293284 million.

    The Foundation haswill have sufficient funds to meet all legitimate compensation claims anticipated from people injured by asbestos products that were manufactured in the past by two former subsidiaries of JHIL.

    JHIL CEO, Mr Peter Macdonald said that the establishment of a fully‑funded Foundation provided certainty for both claimants and shareholdersthe best resolution for all stakeholders.

    'The establishment of the Medical Research and Compensation Foundation provides certainty for people with a legitimate claim against the former James Hardie companies which manufactured asbestos products,' Mr Macdonald said.

    'The Foundation will concentrate on managing its substantial assets for the benefit of claimants.  Its establishment has effectively resolved James Hardie's asbestos liability and this will allow management to focus entirely on growing the companysolely on asbestos for the benefit of claimants allowing James Hardie to pursue its very exciting growth prospects for the benefit of all shareholders.'

    A separate fund of $3 million has also been granted to the Foundationset aside for scientific and medical research aimed at finding treatments and cures for asbestos diseases.

    The $293284 million assets ofvested into the Foundation includes a portfolios of long term securitiescommonly traded shares, a substantial cash reserve, properties which earn rent and insurance policies which cover various types of claims, including all workers compensation claims.

    Fund manager, Towers Perrin has been appointed to advise the Foundation on itsmanage the Foundation's investments, which will generate investment income and capital growth.

    In establishing the Foundation, James Hardie sought expert advice from a number of firms, including actuaries Trowbridge, Access Economics and PricewaterhouseCoopers, Access Economics and the actuarial firm, Trowbridge.  With tThis advice, supplementinged the company's long experience in the area of asbestos, the directors of JHILand formed the basis of determineding the level of funding required by the Foundationto meet all future claims.

    'The directors of James Hardie isare satisfied that the Foundation haswill have sufficient funds to meet anticipatedall future claims,' Mr Macdonald said.

    The initial $3 million for medical research will enable the Foundation to continue work on existing programs established by James Hardie as well as launch new programs.

    When all future claims have been concluded, the Foundation will convert any remaining assets to cash and these surplus funds will be used to support furtherdonated to a reputable medical and or scientific and medical research organisation involved in work on lung diseases.

    Mr Macdonald said, Sir Llewellyn Edwards, who hasd resigned as a director of James Hardie Industries Limited to take up his new appointment as chairman of the Foundation, has enjoyed a long and distinguished career in medicine, politics and business.  His experience with James Hardie will assist the Foundation to rapidly acquire the knowledge it needs to perform effectively.  Sir LlewHe is a director of a number of organiszations including Westpac Banking Corporation and is also Chancellor of the University of Queensland.^[[69]^]

    The other Foundation directors areinclude Mr Michael Gill, Mr Peter Jollie and Mr Dennis Cooper."

    [69]The last two sentences appeared as a separate paragraph in the final ASX announcement.

83. Who made these changes was not explored by the primary judge[70].  The Court of Appeal observed[71] that the changes were "largely unexplained".  The Court of Appeal referred[72] to Mr Baxter's evidence in chief that he recalled that Mr Robb and he discussed making changes to "the draft JHIL media release" and that he "usually made the changes that [Mr Robb] recommended", but the Court of Appeal made no particular findings[73] about who proposed or made the changes.  Argument in this Court proceeded on the footing that the changes were made by the management of JHIL without reference to the board and that at least some of the changes may have been suggested by either Mr Peter Cameron or Mr Robb of Allens.  The respondents' submissions in this Court, as at trial and in the Court of Appeal, emphasised the fact that changes were made.  That is, as the Court of Appeal noted[74], the respondents submitted that:

    "the evidence of the conduct of management and Allens after the meeting, including changes to the draft ASX announcement, were inconsistent with ASIC's case that an unqualified and unconditional resolution was passed at the February meeting.  …

    ASIC did not allege some kind of approval in principle, leaving open later change."

    [70](2009) 256 ALR 199 at 226‑230 [112]‑[122].

    [71](2010) 274 ALR 205 at 270 [317].

    [72](2010) 274 ALR 205 at 275 [352].

    [73](2010) 274 ALR 205 at 271‑273 [318]‑[337].

    [74](2010) 274 ALR 205 at 271 [319]‑[320].

84. It is enough for present purposes to deal directly with only five of the changes that were made to the text of the 7.24 draft announcement.

85. Reference was made in the second and eighth paragraphs of the announcement to the value of the assets of the MRCF.  The value stated was changed from $284 million to $293 million.  The Court of Appeal said[75] that this was "not a minor matter".

    [75](2010) 274 ALR 205 at 271 [323].

86. In the third and eleventh paragraphs, the word "anticipated" was introduced.  So, the third paragraph of the announcement was changed[76] as follows:

    [76]cf (2010) 274 ALR 205 at 271 [324].

    "The Foundation haswill have sufficient funds to meet all legitimate compensation claims anticipated from people injured by asbestos products that were manufactured in the past by two former subsidiaries of JHIL."

    The fourth paragraph was changed[77] as follows:

    "JHIL CEO, Mr Peter Macdonald said that the establishment of a fully‑funded Foundation provided certainty for both claimants and shareholdersthe best resolution for all stakeholders."

    The tenth paragraph, dealing with advice provided by Trowbridge, Access Economics and PricewaterhouseCoopers, was changed[78] as follows:

    "With tThis advice, supplementinged the company's long experience in the area of asbestos, the directors of JHILand formed the basis of determineding the level of funding required by the Foundationto meet all future claims."

    And the eleventh paragraph was changed[79] as follows:

    "'The directors of James Hardie isare satisfied that the Foundation haswill have sufficient funds to meet anticipatedall future claims,' Mr Macdonald said."

    [77]cf (2010) 274 ALR 205 at 271 [326].

    [78]cf (2010) 274 ALR 205 at 272 [329].

    [79]cf (2010) 274 ALR 205 at 272 [331].

87. The Court of Appeal was of the view[80] that "the subsequent changes detract from an inference that the board passed the draft ASX announcement resolution" (emphasis added).  And the Court of Appeal concluded[81] that the changes which have just been described were "significant" because their making:

    "suggests that making them was thought to be open despite whatever had occurred at the meeting, and thus that whatever had occurred at the meeting was less than the draft ASX announcement resolution.  If a draft news release was before the board, the board did not give it final sign off as an important announcement according to the process described by Mr Baxter, but the final terms of the news release and ASX announcement were left to management."

    [80](2010) 274 ALR 205 at 271 [320].

    [81](2010) 274 ALR 205 at 272 [336].

88. Taken as a whole, the amendments made to the 7.24 draft announcement are properly described as textual rather than substantive.  If particular attention is given to the changes that have been described, none of them altered the sense of what was being said in the document as a whole.  And no party argued in this Court that the primary judge was wrong to conclude, as he did[82], that the 7.24 draft announcement and the final ASX announcement conveyed identical misrepresentations.

    [82](2009) 259 ALR 116 at 189‑190 [472], declarations 1 and 4.

89. As the primary judge found[83], the change in value for the assets of the MRCF was made by the financial controller of JHIL to make the announcement accord with the figure that would be recorded as an extraordinary loss in JHIL's books of account.  Understood in this light the change is unremarkable.

    [83](2009) 256 ALR 199 at 380 [1208].

90. As for the other changes that have been specially mentioned, only two particular points need be made beyond the general observation that the changes were textual and not substantive.  First, although some emphasis was given in argument and in the reasons of the Court of Appeal[84] to the insertion of the word "anticipated" in the third and eleventh paragraphs, that change followed from changing those paragraphs to refer to the funds the MRCF had rather than the funds that it would have.  The insertion of the word "anticipated" was entirely consistent with, and did not alter the sense of, what had been said in the 7.24 draft announcement.  Second, contrary to the view expressed[85] by the Court of Appeal, the changes made to the announcement did not move "[t]he focus of the determination of the level of funding … from the advisers to the directors".

    [84](2010) 274 ALR 205 at 271‑272 [324]‑[325], [331]‑[332].

    [85](2010) 274 ALR 205 at 272 [330].

91. The respondents pointed to some other considerations which they submitted supported the conclusion that the board did not, as ASIC had alleged, approve the 7.24 draft announcement.

92. Mr Baxter gave evidence that significant ASX announcements, like the announcement in issue in these matters, would usually be considered by the board but that, before being sent to the board, a draft announcement usually required "the approval of the CEO, the CFO, General Counsel, and the company's external legal advisers"[86].  In this case, none of Mr Macdonald, Mr Morley (the chief financial officer) or Mr Shafron had seen the 7.24 draft announcement before the February board meeting began.  Nor had Allens seen or approved the draft before the meeting.  Reference was made in this respect to a written policy adopted by JHIL as governing announcements by the company.  The steps which Mr Baxter said would usually be followed were steps that were consistent with the written policy.  The respondents submitted that it was improbable, both in the light of this policy and more generally, that Mr Baxter would have shown the board an incomplete and insufficiently developed document.

    [86](2010) 274 ALR 205 at 268 [303].

93. In addition to these departures from the ordinary procedures followed in relation to ASX announcements, Mr Baxter gave evidence that, if reference was to be made in an announcement to third parties such as Trowbridge, PricewaterhouseCoopers and Access Economics, as was proposed in the 7.24 draft announcement, the consent of those third parties to what was to be said about them would be sought before the announcement was made.  Consent was not sought from any of these third parties until the afternoon of 15 February 2001, after the board meeting had finished.  Mr Shafron sought consent from Trowbridge in an email he sent at 8.12 on the evening of 15 February 2001.  In his email he said that "[t]he wording we propose in the press release simply says that James Hardie got advice from Trowbridge" and that "[a]s of the moment the document is not available for me to attach" (emphasis added).  The respondents submitted that these events and statements pointed to the board not having approved any particular text of a proposed announcement.

94. Two other points made by the respondents about the alterations to the 7.24 draft announcement should be examined at this point but may then be dismissed from further consideration.

95. Some of the respondents sought to recast a point which they had lost at trial and upon which the Court of Appeal did not rely.  At trial, Mr Morley gave evidence that he had seen Mr Robb write the word "anticipated" on a form of press release in the early hours of 16 February when Mr Morley was working in Mr Robb's office on the proposed Deed of Covenant and Indemnity.  At trial, the respondents submitted[87] that this evidence, taken with other matters, prevented the primary judge from finding that, as ASIC had alleged, Mr Baxter took the 7.24 draft announcement to the February board meeting.  The primary judge found[88] that Mr Morley "was mistaken as to the timing of this event" and rejected[89] the respondents' argument.  (As noted earlier, both the primary judge and the Court of Appeal found that Mr Baxter took the 7.24 draft announcement to the board meeting.)

    [87](2009) 256 ALR 199 at 240‑243 [198]‑[218].

    [88](2009) 256 ALR 199 at 243 [218].

    [89](2009) 256 ALR 199 at 241 [200], 243 [219].

96. In this Court, some of the respondents submitted that Mr Morley's evidence of Mr Robb's annotating a press release (coupled with Mr Morley's lack of reaction to that being done) was inconsistent with the board having approved the draft announcement.  Mr Robb considered himself to be free to change the draft and Mr Morley did not think that, in doing that, Mr Robb was acting inconsistently with the board's decision.  But recast in this way, the argument was no more than a particular example given in support of the more general proposition that the making of changes to the announcement was inconsistent with its having been approved.  Mr Morley's evidence in this respect (even if accepted) did not advance the respondents' case.

97. The respondents also referred to a statement which Mr Peter Cameron of Allens had given to the Special Commission of Inquiry into the Medical Research and Compensation Foundation established by the New South Wales Government in February 2004.  What was said in that statement, if accepted, would demonstrate that before the February board meeting began Mr Cameron and Mr Robb spoke by telephone with Mr Macdonald and Mr Shafron about the accuracy of the claims data which underpinned the Trowbridge actuarial report.  The respondents submitted, and the Court of Appeal accepted[90], that, as a result of the conversation, Mr Cameron and Mr Robb "must" have gone into the board meeting uncertain of whether the reports upon which the board was being asked to act (or at least the report from Trowbridge) provided a sound footing for decision about the separation proposal.  The respondents submitted that it followed that it was "most unlikely" that Mr Cameron or Mr Robb would have allowed the meeting to approve the 7.24 draft announcement without one of them interrupting proceedings and pointing out that he (or they) entertained these uncertainties.

    [90](2010) 274 ALR 205 at 274 [343].

98. The respondents pointed to that part of Mr Cameron's statement in which he said that he had told Mr Macdonald and Mr Shafron:

    "With the Board meeting so soon, I am simply not in a position to absorb and assess the detail of what has happened."

    But as the Court of Appeal recorded[91], Mr Cameron's account of his conversation continued.  According to Mr Cameron, he continued by saying to Mr Macdonald and Mr Shafron:

    "My primary concern is whether this information has any impact on the key conclusions in the proposals going to the Board and the financial models which are based on the Trowbridge report.  In short, I need to understand the bottom line before we talk to the Board.  Is there any reason to depart from the view that the Foundation will be fully funded?"  (emphasis added) 

    Mr Cameron stated that Mr Macdonald replied:  "Absolutely not."  And as the Court of Appeal also recorded[92], a file note taken by Mr Robb of this conversation included, at the end:

    "PC [Mr Cameron] — had been concerned to confirm position

    PMac [Mr Macdonald] — they are the most recent full set of numbers — last quarter is higher

    PC — no reason to depart from view that fully funded?

    PMac — yes that is the case."  (emphasis added)

    [91](2010) 274 ALR 205 at 274 [341].

    [92](2010) 274 ALR 205 at 274 [342].

99. Far from requiring the conclusion that the representatives of Allens entered the board meeting uncertain about whether the Trowbridge report supported an assertion that the MRCF would be "fully funded", the evidence of Mr Cameron's statement pointed firmly towards the conclusion that Messrs Cameron and Robb had been assured by Mr Macdonald, in the hearing of Mr Shafron, that the report did support what was said both in the 7.24 draft announcement and the final ASX announcement about the MRCF being "fully funded".  The Court of Appeal was wrong to conclude that Messrs Cameron and Robb "must have gone to the meeting uncertain about whether … a surplus was the most likely outcome"[93] (emphasis added).  This evidence did not establish the premise for the respondents' submission that Mr Cameron or Mr Robb would not have allowed the board to approve the 7.24 draft announcement without one of them interrupting the meeting.  Nor did this evidence support the more general proposition advanced by the respondents that the alterations made to the 7.24 draft announcement showed that that announcement was neither tabled nor approved at the board meeting.

    [93](2010) 274 ALR 205 at 274 [343].

284. These submissions fail.  As already noted, under Mr Brown's questioning regarding an impending public announcement, the Chief Executive Officer said at the meeting that he was "sure" there would be sufficient funds in the Foundation[253].  No-one disagreed.  The trial judge found that Mr Brown was dissatisfied with the communications strategy stated in the 15 February 2001 meeting papers, as he had been in relation to the proposed questions and answers and the draft ASX press release provided with the 17 January 2001 meeting papers.  He was dissatisfied because they did not convey certainty of funding.  Accordingly, as the trial judge found, Mr Brown welcomed the proposed communications to the market, including an announcement to the ASX, which did indicate certainty of funding.  The significance of Mr Cameron's and Mr Robb's silence at the meeting was discussed above[254]. 

     [253]Australian Securities and Investments Commission v Macdonald (No 11) (2009) 256 ALR 199 at 234 [149]-[150].

     [254]See above at [281]-[282].

     "Correlation evidence"

285. The Hellicar respondents submitted that while Mr Brown gave evidence that "messages" suitable for dispatch to the market were discussed and approved in general terms, they were messages which management could implement as it thought fit.  The board's approval of the messages did not amount to approval of an announcement along the lines of the 7.24am Draft Announcement. 

286. Mr Brown testified that the Chief Executive Officer gave an assurance at the meeting that the Foundation would be fully funded and that any announcement would communicate that message.  He also testified that part of the communication to the market would be an announcement to the ASX.  He also testified that it was "likely" that the Chief Executive Officer or Mr Baxter stated that various messages would be communicated.  Each message corresponded with part of the 7.24am Draft Announcement.  Mr Koffel gave evidence that these statements could have been made.  On the basis of this evidence, the trial judge found that either the Chief Executive Officer or Mr Baxter had made statements to that effect at the meeting.  His Honour found there was a "strong correlation" between these statements and the 7.24am Draft Announcement[255].  The Court of Appeal overturned that finding.  It held that the correlation was only "weak"[256].  It described Mr Brown's evidence as involving speculation, not recollection.  However, the evidence does appear to have been based on recollection, even if it was not a recollection which extended to the "specific terms" of what was said.  In the last resort, what Mr Brown meant was a matter of judgment.  It is the type of judgment which turns on nuance.  Truth can lie in a nuance[257].  The trial judge saw and heard Mr Brown give evidence for five days.  His possession of that advantage makes the assessment of nuance which led to his finding preferable to the Court of Appeal's rejection of it.

     [255]Australian Securities and Investments Commission v Macdonald (No 11) (2009) 256 ALR 199 at 240 [194].

     [256]Morley v Australian Securities and Investments Commission (2010) 274 ALR 205 at 288 [420].

     [257]Biogen Inc v Medeva plc [1997] RPC 1 at 45.

287. The Court of Appeal also considered that Mr Brown's impressions may have derived not from a discussion about the 7.24am Draft Announcement, but from a slide presentation at the meeting.  Mr Brown excluded that possibility.  Although Mr Terry submitted to the trial judge that Mr Brown's denial was incorrect, the trial judge was entitled to accept it. 

288. The Court of Appeal also marginalised Mr Brown's evidence by questioning whether management would address the meeting by reference to the 7.24am Draft Announcement when the same points were made in the slides.  But why could it not do so?  Mr Baxter had distributed the 7.24am Draft Announcement.  What was to be said to the ASX and the market had been a matter on which the 17 January 2001 proposal had foundered.  It was legally necessary and commercially fundamental that something be said.  It was urgent that something be said.  Mr Brown regarded the messages in the slides as insufficient to remove shareholder concern about sufficiency of funding.  Further, Mr Brown remembered the management speech as using the phrases "fully funded" and "certainty".  He said they were "much clearer" than the phrases used in the slide presentation ("effectively resolved its asbestos liability", "expects to have enough funds", "much greater certainty"). 

     The significance of the changes to the announcement

289. As the 7.24am Draft Announcement evolved into the 9.35am Draft Announcement and then eventually into the Final ASX Announcement, management made changes, in consultation, to some extent, with Mr Cameron and Mr Robb[258]. 

     [258]See above at [17] and [82].

290. The respondents relied on the extent of the changes as evidence that no resolution had been passed.  It is sufficient to say that most of them concerned trivial matters involving variations of expression and the correction of minor errors.  The stated value of the Foundation's assets changed from $284 million to $293 million.  This was not de minimis, but it was not significant.  As the trial judge found, the Financial Controller of James Hardie Industries Ltd made the change in order to ensure that the amount corresponded with the extraordinary loss to be entered in the books of that company, which had to be determined at a risk-free discount rate.  Another change centred on the introduction of the word "anticipated".  Thus the 7.24am Draft Announcement said:  "The Foundation will have sufficient funds to meet all legitimate compensation claims".  The Final ASX Announcement said:  "The Foundation has sufficient funds to meet all legitimate compensation claims anticipated" (emphasis added).  Contrary to what Mr Baxter thought, this did not change the meaning of the paragraph and it was not significant.  Each version spoke of the future, but using different words.  The net effect of the changes was neutral.  The same is true of another change of that kind to the eleventh paragraph.  The 7.24am Draft Announcement and the Final ASX Announcement contained the same misrepresentations.  Some of the changes concerned those misrepresentations, but they did not alter the fundamental meaning of what was said. 

291. Mr Baxter's evidence was that it was open to management or to Mr Robb's firm to make changes to the announcement, so long as the Chief Executive Officer was consulted, and that he would expect the Chief Executive Officer to consult the Chairman, who would decide whether to consult the rest of the board.  It was not clear whether the respondents' argument was that the making of any change to the 7.24am Draft Announcement showed that no resolution approving it had been passed.  If so, it was unrealistic.  Changes which were not substantial could be permissible, unless there were evidence of a contrary practice within James Hardie Industries Ltd.  Too substantial a departure from the letter of a resolution might attract later criticism and censure by members of the board.  But even that would not negate the proposition that the resolution approving the 7.24am Draft Announcement had been passed.  And it would not negate the proposition that the misrepresentations in the Final ASX Announcement had thereby been approved. 

     "Work in progress"

292. Mr Shafron and the Hellicar respondents relied on the Court of Appeal's characterisation of the 7.24am Draft Announcement as "a work in progress, with subsequent changes of significance", including those made by Mr Robb and his firm[259].  One flaw in this argument is that the changes were not relevantly significant.  Another is that the submission attributes an inconsistency to the directors.  They placed the full force of their testimony behind an absence or shortage of discussion.  It is inconsistent to accept that there was substantial discussion, but only of a work in progress, particularly since the work in question had to be completed within the next 24 hours.  Thirdly, the minutes are completely inconsistent with there being no more than indecisive discussion of a work in progress.  Fourthly, there is in fact no testimonial support for the submission. 

     [259]Morley v Australian Securities and Investments Commission (2010) 274 ALR 205 at 350 [792].

293. Mr Shafron relied on various items of his own conduct as capable of supporting the inference that he did not believe the board had approved the 7.24am Draft Announcement.  The items in question are at best ambiguous.  Mr Shafron's state of mind might more convincingly have been established by direct testimony.  But he did not testify.  And there is other conduct on his part pointing strongly against any belief that the board treated the matter as a work in progress only.  He received drafts of the minutes recording the relevant resolution before the meeting, and they did not speak of a "work in progress".  He circulated a draft of the minutes after the meeting, still recording the resolution in that form.  He supervised the sending of that draft to the directors.  And he was present when the directors approved it as correct at the 3-4 April 2001 meeting. 

     Errors in the minutes

294. The Court of Appeal accepted submissions by the respondents that there were errors in the minutes of the 15 February 2001 meeting, both in relation to the separation proposal and in relation to other matters.  Those errors were certainly numerous.  But they lack importance in these appeals.  They do not suggest that the minute recording the tabling and approval of the 7.24am Draft Announcement was false.  As ASIC submitted, the errors are qualitatively different from the wholesale inclusion of a resolution that never was.  The former were points of detail which might escape attention on a re-reading of the draft minutes.  The latter would be glaringly obvious to any reader – and to at least one of the Chairman, the Chief Executive Officer, Mr Morley, the non-executive directors, Mr Shafron and Mr Robb. 

295. The respondents seek to infer from the errors in the minutes as a whole that the minute recording the tabling and approval of the 7.24am Draft Announcement is false.  There is a problem in that reasoning.  If it were sound it would follow that everything else in the minutes is false and the "separation proposal" never took effect.  The respondents' enthusiasm for attacking the accuracy of the minutes in detail brought them, as Mr A J L Bannon SC, who presented ASIC's oral argument in reply, submitted, "adventurously close" to the view that the separation resolutions themselves were not passed.  Although Mr O'Brien advanced a radical submission to that effect, to be considered below[260], in the end, the other respondents did not go that far.  They challenged only the resolution approving the 7.24am Draft Announcement.  But if the separation resolutions were passed, the directors must have thought, after the Chief Executive Officer's assurance to Mr Brown, that there was sufficient funding.  And all of the directors must have appreciated the important need for a communication to the ASX satisfactory to troubled and hostile stakeholders in that respect.  The board papers were replete with references to this.  It was commercially vital.  It is thus probable that they agreed to a communication sending that message to the ASX.

     [260]See below at [296]-[303].

     The provenance of the minutes

296. The respondents submitted that because the minutes were drafted before the 15 February 2001 board meeting they could not be treated as an accurate record of what happened.  They were a prediction.  The Chairman did not use them as an aide-mémoire to guide the meeting through the business.  Hence it could not be concluded that the Chairman caused the meeting deliberately to fulfil the prediction.  And they were not the result of someone taking careful notes, minute by minute, of what was actually said and done at the meeting, which is the mundane technique of many thousands of organisations much less august than the board of James Hardie Industries Ltd.  Mr O'Brien put a more extreme submission.  He submitted that the meeting only achieved a very general consensus about separation, and that thereafter the management selected for itself one of a variety of ways of giving effect to that consensus.  Hence the purpose of the changes to the minutes was merely to ensure their conformity with decisions taken by management after the meeting, not decisions taken by the directors during it. 

297. These arguments, both in the narrower form and in Mr O'Brien's, have two flaws.   

298. One is that those who drafted the minutes before the meeting knew what had to happen at the meeting if catastrophe were to be avoided.  It would have been catastrophic to continue with non-separation when a new accounting standard was about to be introduced.  The directors knew that too.  The other is that although the minutes were drafted before the meeting, persons present at the meeting checked them afterwards – the Chief Executive Officer, the Chief Financial Officer, Mr Shafron and Mr Robb.  In the course of that process the draft minutes were changed.  Further, the gentlemen who prepared the minutes knew that the directors were supposed to check them before approving them as a correct record on 3 April 2001.  There was evidence that one director never read minutes and that other directors read them only in part, or flicked or skimmed through them.  But those who prepared the minutes did not know this.  For all they knew, failure on their part to correct what the minutes said about the resolution might attract criticism.  This guaranteed that some care would be taken by those who prepared the minutes.

299. By 21 March 2001 amendments had been made to the draft minutes in the light of what had occurred at the meeting.  One amendment referred to the tabling of a financial model.  Another concerned the tabling of counsel's advice (delivered the previous day).  If these changes were made in order to ensure that the minutes conformed to what had actually happened, why was the resolution approving the 7.24am Draft Announcement, which on the respondents' case had not happened, not removed? 

300. The following submission of the Hellicar respondents discloses the unreality of the arguments from error in the minutes and from the provenance of the minutes: 

     "[T]he final minutes adopted in April were no more than an exercise carried out by Mr Shafron or someone else at [James Hardie Industries Ltd] five weeks after the Board meeting seeking to capture what had earlier occurred.  The critical failing in what was done here was that the drafter of the minutes took as a starting point the draft which had been circulating prior to the Board meeting but which had never found its way to the Board meeting as a template against which the Board meeting was conducted.  The drafter thus assumed, erroneously, that it was appropriate to prepare minutes which broadly assumed the actual Board meeting had followed the detailed logic and structure of the pre-meeting draft minutes, whereas in fact it had never proceeded in this way.  While some changes were made to the pre-meeting draft minutes to capture certain aspects of the reality of the Board meeting, the end result was not a substantially accurate reflection of the way the Board meeting had been conducted or of the resolutions which had been adopted.  In this process, the anticipation that there might have been a resolution by the Board specifically approving an announcement which was tabled at the Board meeting was retained quite erroneously."

301. But why was it wrong for the "drafter" to assume that the actual meeting had followed the logic and structure of the pre-existing draft minutes?  All relevant persons knew, before, during and after the meeting, that separation depended on carrying out a series of complex technical steps.  Those steps were faithfully recorded in the draft minutes and in the final minutes.  The last step, as important as any that preceded it, was to comply with James Hardie Industries Ltd's obligation to make an ASX announcement.  That is why the resolution appears in the minutes. 

302. Further, the submission quoted above overlooks the following facts.  Mr Shafron considered the minutes after 15 February 2001 and he attended both that meeting and the 3-4 April 2001 meeting, as did the Chairman, the Chief Executive Officer and the Chief Financial Officer.  Mr Robb both prepared the pre-meeting drafts and considered the draft after the meeting.  It would be too great a coincidence if not one of these able and experienced people failed to notice the commission of what on the respondents' case was a glaring blunder, or worse than a blunder – recording a vitally important resolution which never took place.

303. This suggests a further unreality in the respondents' case.  If there had been no resolution approving an ASX announcement, that fact would have been known to all persons present.  The respondents' case assumes that management and Mr Robb, after seeking to comply with the ASX Listing Rules by issuing the Final ASX Announcement, realised that the board had not approved it.  Management, on that case, then fabricated a minute recording a resolution, in the sense of adopting the resolution stated in the pre-meeting draft documents which had no basis in fact.  That was an extremely risky fabrication, for it assumed that no-one on the board would read the minutes before approving them, or that all directors would forget that they had not approved one of the most important announcements in the company's history.

     Mr Gillfillan and Mr Koffel

304. Mr Gillfillan and Mr Koffel were in the United States during the meeting of 15 February 2001, but were in telephonic contact.

305. The trial judge found that by their silence Mr Gillfillan and Mr Koffel voted in favour of the resolution approving the 7.24am Draft Announcement.  The Court of Appeal declined to interfere with that finding.  Before the Court of Appeal they argued that their conduct did not manifest an intention to exercise a vote.  They argued that the board papers did not contain a draft resolution; they did not receive a draft resolution by other means; they were not provided with a copy of the 7.24am Draft Announcement and it was not read out; the "approval" came from discussion at the meeting only; they were silent; and there was no resolution or statement that silence counted as an affirmative vote.  The Court of Appeal rejected these submissions[261]:

     "Messrs Gillfillan and Koffel participated in the meeting, albeit by telephone, and the principal business of the meeting was the establishment of the foundation and all it entailed.  On the assumption that the … resolution [approving the 7.24am Draft Announcement] was passed, it cannot sensibly be concluded that they did not vote, even if by silence, in favour of establishment of the foundation, for which also there were no draft resolutions.  On the same assumption, there is no sound reason to regard announcement of the establishment of the foundation as outside their concurrence by silence.

     On the assumption of consideration and approval of the draft news release, Messrs Gillfillan and Koffel understood that [James Hardie Industries Ltd] proposed to issue an announcement, including on the contentious matter of funding, if the separation was approved.  On the same assumption, the discussion would have disclosed that the other directors had a document they did not have.  At the least they would have heard an extensive discussion, and a time would have come when, according to the practice, [the Chairman] summarised the position.  By remaining silent, they joined in the informal resolution.

     It may be added that, still on the assumption we have made, the minutes of the February meeting were relevantly a correct record, adopted by Messrs Gillfillan and Koffel among others.  The minutes did not record abstention from the ... resolution [approving the 7.24am Draft Announcement]."

     [261]Morley v Australian Securities and Investments Commission (2010) 274 ALR 205 at 364 [855]-[857].

306. In this Court, the arguments of counsel for Mr Gillfillan and Mr Koffel centred on the submission that there was a great difference between the separation proposal and the 7.24am Draft Announcement.  They had ample materials in relation to the former, and they were on clear notice that its consideration was a central purpose of the meeting.  They had no materials or notice in relation to the latter.  Counsel submitted that the evidence of what happened in the meeting was insufficient to suggest that the 7.24am Draft Announcement, which had not been sent or read out to them, was being raised for approval.  Counsel argued that the general practice at James Hardie Industries Ltd board meetings that silence meant consent applied only where what was being decided was clear to all.  The silence of Mr Gillfillan and Mr Koffel was an abstention.

307. The Court of Appeal's conclusions in relation to Mr Gillfillan and Mr Koffel were correct.  Whether they read the minutes of the 15 February 2001 meeting or not, they approved them, in company with every other director save the absent Mr Willcox, on 3 April 2001.  They did not then indicate that they had abstained from voting.  The board's practice was that the Chairman could summarise a position and, unless any directors stated opposition, that was taken to be a unanimous board resolution.  In their evidence Mr Gillfillan and Mr Koffel accepted that this was the board's practice.  Further, Mr Gillfillan and Mr Koffel were on notice that a public announcement would be made at the same time as the third quarter results were announced if the 15 February 2001 meeting approved the separation proposal.  That notice came from the board papers for both the 17 January 2001 meeting and the 15 February 2001 meeting.

308. Given the activity of management and directors in the months before February 2001, it would have been as obvious to Mr Gillfillan and Mr Koffel as to any other director that the separation proposal was potentially controversial to a degree.  The vital need to communicate to the public that the Foundation would have sufficient funding to meet all legitimate claims would have been equally obvious.  During cross-examination, Mr Gillfillan and Mr Koffel each accepted that they could have heard a discussion during the meeting about the fact that there would be an announcement about separation.  They also each accepted that they knew that James Hardie Industries Ltd proposed to issue an announcement about the sufficiency of funding if the board approved the separation proposal. 

309. If the question whether a director's silence indicates a favourable vote depends on the director's intention, the circumstances permitted an inference that each of Mr Gillfillan and Mr Koffel intended to approve the announcement discussed.  If, on the other hand, the question whether a director's silence indicates a favourable vote depends on what a reasonable observer would think, taking account of what each of Mr Gillfillan and Mr Koffel must have heard of the consideration and approval given to an announcement, that observer would have taken them to be voting for approval. 

310. Counsel also submitted that even if Mr Gillfillan and Mr Koffel had voted for the resolution, they were not in breach of the duty of care and diligence that s 180(1) of the Corporations Act created. They submitted that they gave careful attention to what was before them. They submitted that they had no duty of care and diligence to attend to anything more unless the Chairman ensured that they had more.

311. The following matters are relevant to an assessment of that submission.  Mr Gillfillan and Mr Koffel appreciated that a significant announcement was to be made on the controversial subject of whether funding could be assured.  The onus was on them to be cautious when voting on the making of the announcement – either by seeking further information or by explicitly abstaining.  They gave evidence that if they had known the terms of the announcement approved, they would not have voted for it.  This does not sit well with their conduct in leaving to other directors the task of devising the announcement.  The submission must be rejected. 

     Orders

312. In ASIC's appeal in relation to Mr Brown it requests the following orders:  that the appeal be allowed with costs; that the orders of the Court of Appeal of the Supreme Court of New South Wales made on 17 December 2010 in relation to Mr Brown be set aside; that in lieu thereof his appeal to that Court against the declaration made on 27 August 2009 be dismissed; that he pay one-eighth of ASIC's costs in the Court of Appeal in relation to the resolution approving a draft ASX announcement; and that the balance of Mr Brown's grounds of appeal concerning relief from liability and penalty be remitted to the Court of Appeal for determination.  Those orders should be made. 

313. The same orders were requested in relation respectively to Mr Gillfillan, Ms Hellicar, Mr Koffel and Mr Willcox.  They should be made. 

314. The same orders were requested in relation to Mr O'Brien and Mr Terry.  They too should be made.  There should be an additional order remitting to the Court of Appeal the question of whether the costs order referred to in ground 12 of their Notices of Appeal was correct.

315. In ASIC's appeal in relation to Mr Shafron, the following orders were requested:  that the appeal be allowed with costs; that order (b) made by the Court of Appeal on 17 December 2010 in relation to Mr Shafron be set aside; that in lieu thereof Mr Shafron's appeal against declaration 1 made on 27 August 2009 against him be dismissed; that declaration 2 made against him on 27 August 2009 be set aside; that he pay one-eighth of ASIC's costs in the Court of Appeal in relation to the resolution approving a draft ASX announcement; that order 2(a)-(d) made by the Court of Appeal on 6 May 2011 in relation to Mr Shafron be set aside; and that the balance of Mr Shafron's grounds of appeal and ASIC's cross-appeal to the Court of Appeal concerning penalty be remitted to that Court for determination.  Those orders should be made.