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King v Australian Securities and Investments Commission

 

[2018] QCA 352

 

SUPREME COURT OF QUEENSLAND

 

CITATION:

King & Ors v Australian Securities and Investments Commission [2018] QCA 352

PARTIES:

In Appeal No 6281 of 2017:

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
(cross-appellant)
v
DAVID MARK ANDERSON
(cross-respondent)

In Appeal No 6289 of 2017:

MARILYN ANNE WATTS
(appellant)
v
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
(respondent)

In Appeal No 6306 of 2017:

CRAIG ROBERT WHITE
(appellant/cross-respondent)
v
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
(respondent/cross-appellant)

In Appeal No 6319 of 2017:

GUY HUTCHINGS
(appellant)
v
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
(respondent)

In Appeal No 6320 of 2017:

MICHAEL CHRISTODOULOU KING
(appellant/cross-respondent)
v
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION
(respondent/cross-appellant)

FILE NOS:

Appeal No 6281 of 2017

Appeal No 6289 of 2017

Appeal No 6306 of 2017

Appeal No 6319 of 2017

Appeal No 6320 of 2017

SC No 12122 of 2009

DIVISION:

Court of Appeal

PROCEEDING:

General Civil Appeals

ORIGINATING COURT:

Supreme Court at Brisbane – [2016] QSC 109; [2017] QSC 96 (Douglas J)

DELIVERED ON:

18 December 2018

DELIVERED AT:

Brisbane

HEARING DATES:

4 – 8 June 2018; 11 – 15 June 2018; 18 June 2018; further submissions filed on 28 September 2018 and 12 October 2018

JUDGES:

Morrison and McMurdo JJA and Applegarth J

ORDERS:

In Appeal No 6281 of 2017:

Cross-appeal dismissed.

In Appeal No 6289 of 2017:

  1. Appeal dismissed.
  2. Appellant to pay the respondent’s costs of the appeal.

In Appeal No 6306 of 2017:

  1. Appeal dismissed.
  2. Cross-appeal dismissed.
  3. Appellant to pay the respondent’s costs of the appeal.

In Appeal No 6319 of 2017:

  1. Appeal dismissed.
  2. Appellant to pay the respondent’s costs of the appeal.

In Appeal No 6320 of 2017:

  1. Allow the appeal against the orders in para 7(d), (e), (f) and (g) of the orders made on 26 May 2017.
  2. Vary the orders made on that date as follows:
  1. (a)
    delete from para 6 of those orders the words:

“By permitting MFSIM to make the RBS Drawdown for the purpose of giving a benefit to related parties of MFSIM and not for the benefit of the members of PIF”;

  1. (b)
    delete the word “King” from paras 7 and 8 of those orders;
  2. (c)
    declare that King:
  1. (i)
    contravened section 601FC(5) of the Corporations Act by being knowingly concerned in the contraventions of MFSIM, the responsible entity of PIF, at paras 1(b), 1(c), 2(b) and 2(c) of the orders made on 26 May 2017;
  2. (ii)
    contravened section 601FC(5) of the Corporations Act by being knowingly concerned in the contravention by MFSIM, the responsible entity of PIF, referred to in para 3(a) of those orders;
  3. (iii)
    contravened section 209(2) of the Corporations Act by being knowingly concerned in the contravention by MFSIM, the responsible entity of PIF, of section 208(1) of the Corporations Act as modified by section 601LC of the Corporations Act, by making the MFS Payment (as it is called in the orders of 26 May 2017), which was:
  1. (A)
    a financial benefit to MFS Administration, a related party of MFSIM;
  2. (B)
    out of PIF’s scheme property; and
  3. (C)
    made without obtaining the approval of PIF’s members;
  1. (iv)
    contravened section 209(2) of the Corporations Act by being knowingly concerned in the contravention by MFSIM, the responsible entity of PIF, of section 208(1) of the Corporations Act, as modified by section 601LC of the Corporations Act, by permitting MFS Administration to make the Fortress Payment (as it is called in the orders of 26 May 2017), which was:
  1. (A)
    a financial benefit to MFS Castle Pty Ltd, MFS Limited, and MFS Financial Services Limited, each a related party of MFSIM;
  2. (B)
    out of PIF’s scheme property; and
  3. (C)
    made without obtaining the approval of PIF’s members.
  1. Direct the appellant, in the light of this judgment, to file and serve written submissions (if any) about the orders made on 26 May 2017 in paras 29, 30 and 32, by 14 February 2019.
  2. Direct the respondent file and serve written submissions (if any) in response by 7 March 2019.
  3. Any written submissions under (3) or (4) shall not exceed five pages in length.
  4. Direct each party to file and serve written submissions as to the costs of this appeal and the cross-appeal by 14 February 2019.
  5. Appeal otherwise dismissed.
  6. Cross-appeal dismissed.

CATCHWORDS:

CORPORATIONS – MANAGEMENT AND ADMINISTRATION – DUTIES AND LIABILITIES OF OFFICERS OF CORPORATION – OFFENCES – CONTRAVENTION OF PROVISIONS OF ACT – where the Australian Securities and Investments Commission (“ASIC”) commenced a civil penalty case against MFS Investment Management Ltd (“MFSIM”) and various directors, officers and employees of the MFS Group of companies – where the proceedings against MFSIM were resolved by consent but the trial proceeded against each of Mr King, Mr White, Mr Hutchings, Mr Anderson and Ms Watts – where the primary judge found that MFSIM, the responsible entity for the Premium Income Fund (“PIF”), caused payments of $130 million and $17.5 million to be made from PIF’s funds for no purpose or benefit of PIF; the payments were made for the purposes of other entities within the MFS Group; and there were no transactions which made the $130 million (to the extent of $103 million) and the $17.5 million proper payments from PIF’s funds – where the primary judge found that, in respect of the $130 million payment, each of Mr King, Mr White and Mr Anderson contravened the Corporations Act 2001 (Cth) (“the Act”) by breaching his duties as an officer of MFSIM and being involved in MFSIM’s contraventions – where the primary judge found that, in respect of the $17.5 million payment, each of Mr White, Mr Hutchings and Mr Anderson was involved in the $17.5 million payment, contravened the Act by breaching his duties as an officer of MFSIM and being involved in MFSIM’s contraventions – where the primary judge found that each of Mr White, Mr Anderson, Mr Hutchings and Ms Watts was involved in the preparation and use of false documents purporting to justify the payments as payments for the benefit of PIF, in breach of the Act – where Mr Anderson’s appeal has been dismissed by consent – where each of the other appellants appeal against those findings on a number of grounds – where ASIC cross-appealed in relation to the appeals by Mr Anderson, Mr White and Mr King – where ASIC submits that the vast amount of contemporaneous documentation was a sound evidentiary basis for the case alleged by it – whether the learned primary judge erred in finding that Ms Watts, Mr White, Mr Hutchings and Mr King contravened the Act

CORPORATIONS – MANAGEMENT AND ADMINISTRATION – OFFICERS OF CORPORATION – OFFICER – where ASIC alleged that Mr King was an officer of MFSIM and breached his duties as an officer in contravention of s 601FD of the Act – where the primary judge found that Mr King was an officer of MFSIM and had breached his duties as an officer in the manner pleaded by ASIC – where it was necessary for ASIC to prove that Mr King acted in an “office” of MFSIM – whether the evidence proved that Mr King was an officer of MFSIM

PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – PLEADINGS – DEPARTURE – where it was submitted for Mr King and Mr White that the primary judge erred in impermissibly allowing ASIC to advance a case beyond its pleading and in giving inadequate reasons when making findings in accordance with that case – where ASIC sought leave to amend its pleading during the trial, after ASIC, Mr King and Mr White had closed their cases – where the primary judge held that the case pleaded by the proposed amendments was alive and covered by the pleadings already filed – where a reply to the requisite effect had not been filed in time against Mr King but had been filed against Mr White – whether the primary judge wrongly upheld a case which ASIC had not pleaded

CORPORATIONS – MANAGEMENT AND ADMINISTRATION – DUTIES AND LIABILITIES OF OFFICERS OF CORPORATION – OFFENCES – CONTRAVENTION OF PROVISIONS OF ACT – where Mr Hutchings was one of two executive directors of MFSIM, and as CEO of MFSIM had obligations as an officer of a responsible entity in respect of large sums of money – where Mr Hutchings submitted that he had sought to obtain information from Mr White over an extended period of time and involved others in efforts to ascertain what had happened in respect of the payments, in a chaotic environment – whether Mr Hutchings was knowingly involved in the $17.5 million payment

APPEAL AND NEW TRIAL – COURTS AND JUDGES – SIGNIFICANT DELAY IN GIVING JUDGMENT – where the trial was conducted over 61 days between 4 November 2013 and 12 September 2014 – where the reasons for judgment were delivered on 23 May 2016 – where there were 20 months between when the addresses concluded and when the judgment – where it was contended on appeal by all appellants that the significant delay had led to a number of errors and omissions in the primary judge’s assessment of the evidence, his findings, and his conclusions – where the reasons for judgment contained large portions of the submissions from ASIC – whether the primary judge erred in adopting such an approach – whether the primary judge engaged with significant arguments and brought an independent judgment to bear on the decisive issues in the case

APPEAL AND NEW TRIAL – GENERAL PRINCIPLES – WHEN APPEAL LIES – ERROR OF LAW – PARTICULAR CASES INVOLVING ERROR OF LAW – FAILURE TO GIVE REASONS FOR DECISION – ADEQUACY OF REASONS – where counsel for Mr Hutchings contended that the primary judge did not set out his reasons for rejecting Mr Hutchings’ evidence as to a particular meeting – where submissions for Mr Hutchings were premised on the assumption that at that meeting, Mr Hutchings learned that PIF’s funds had been misappropriated – where following that meeting, Mr Hutchings sent an “escalation email” – where the primary judge characterised that email as alleging the misappropriation of PIF’s funds – where it was submitted that the evidence of what Mr White and Mr Anderson did after they received that email is directly inconsistent with ASIC’s case – where it was submitted on appeal that the primary judge erred in failing to consider submissions made by Mr Hutchings about his alleged involvement in the creation of false documents – where it was further submitted that the primary judge failed to address the entirety of Mr Hutchings’ evidence and submissions on multiple points and rejected Mr Hutchings’ evidence about seeking ratification of the investments detailed in the false documents in a single sentence – where there was a large volume of submissions in relation to subsidiary issues – whether the primary judge’s reasons sufficiently engaged with the submissions and provided a basic explanation for preferring one side’s submissions over the other’s

APPEAL AND NEW TRIAL – GENERAL PRINCIPLES – INTERFERENCE WITH JUDGE’S FINDINGS OF FACT – FUNCTIONS OF APPELLATE COURT – WHERE INFERENCES OF FACT INVOLVED – WHERE FACTS IN DISPUTE – where it was submitted for Mr Hutchings that the loan participation agreements and other purported transactions were valid agreements – where the primary judge concluded there was an absence of actual authority to make the investments purportedly acquired with the $130 million and those transactions had not been authorised by MFSIM – where Mr Hutchings contended that he believed those agreements were effective and enforceable and as such, he could not be said to have acted dishonestly in causing the loan participation agreements and other documents to be kept as an apparently genuine record – whether the primary judge erred in finding that the transactions were ineffective, that Mr Hutchings acted dishonestly and that the loan participation agreements were false

APPEAL AND NEW TRIAL – GENERAL PRINCIPLES – WHEN APPEAL LIES – ERROR OF LAW – PARTICULAR CASES INVOLVING ERROR OF LAW – FAILURE TO GIVE REASONS FOR DECISION – ADEQUACY OF REASONS – where at trial, Mr Hutchings contended that many aspects of his evidence were not the subject of any cross-examination – where on appeal, Mr Hutchings identified nine matters which are said to not have been the subject of any cross-examination – where ASIC submitted in response that in relation to any matters about which he was not cross-examined, it is wrong to say that the primary judge rejected his evidence – where it is contended by Mr Hutchings that the rule in Browne v Dunn has a heightened operation in a civil penalty case where dishonesty is alleged – whether the primary judge erred failing to address submissions in relation to the Browne v Dunn arguments – whether compliance with the rule in Browne v Dunn required ASIC to cross-examine Mr Hutchings about every aspect of his evidence

APPEAL AND NEW TRIAL – GENERAL PRINCIPLES – INTERFERENCE WITH JUDGE’S FINDINGS OF FACT – FUNCTIONS OF APPELLATE COURT – WHERE FINDINGS BASED ON DOCUMENTARY EVIDENCE – where Mr Hutchings, Ms Watts and Mr White were found to have been knowingly involved in creating or assisting in the creation of false documents – where the documents were backdated to reflect transactions as occurring in 2007 that did not in fact occur – where those documents were provided to banks and auditors despite being inconsistent with contemporaneous records, proposals and decisions of the relevant entities – where Mr Hutchings contended that he did not know that funds had not been used to purchase assets for PIF but had been invested in a manner in breach of PIF’s PDS, contrary to the primary judge’s finding that he did based on a particular email – where both Mr Hutchings and Ms Watts raised the argument that they never saw the final form of the documents alleged to be false – where counsel for Ms Watts contended on appeal that she drafted those documents on the understanding that some sort of investments had been made, not that there had been none – where it was also contended that as Ms Watts was in the Sydney office, she had no right of access to the financial records of MFSIM and was not knowingly concerned in providing the auditors with the false documents – where Mr Hutchings sought to challenge both the finding that the false documents were kept by MFSIM as an apparently genuine part of its books and records and the finding that he intended they be so kept because there was no evidence that Mr Hutchings was aware that the documents were supplied to auditors – whether the primary judge erred in his analysis of the evidence

Australian Securities and Investments Commission Act 2001 (Cth), s 19

Corporations Act 2001 (Cth), s 9, s 79(c), s 208(1), s 209(2), s 344, s 601FC(1)(a), s 601FC(1)(c), s 601FC(5), s 601LC, s 1317S, s 1318

Uniform Civil Procedure Rules 1999 (Qld), r 150

Agricultural Land Management Ltd v Jackson (No 2) (2014) 48 WAR 1; [2014] WASC 102, cited

Australian Communications and Media Authority v Mobilegate Ltd (No 8) (2010) 275 ALR 293; [2010] FCA 1197, cited

Australian Securities and Investments Commission v ActiveSuper Pty Ltd (in liq) (2015) 235 FCR 181; [2015] FCA 342, cited

Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 347; [2012] HCA 17, cited

Australian Securities & Investments Commission v Lewski; Australian Securities & Investments Commission v Wooldridge; Australian Securities & Investments Commission v Butler; Australian Securities & Investments Commission v Jaques; Australian Securities & Investments Commission v Clarke [2018] HCA 63, cited

Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485; [1993] HCA 15, cited

Campbell v The Queen (2008) 73 NSWLR 272; [2008] NSWCCA 214, cited

Browne v Dunn (1894) 6 R 67 (HL), cited

Cojocaru (Guardian Ad Litem) v British Columbia Women’s Hospital and Health Center (2011) 17 BCLR (5th) 253; 2011 BCCA 192, cited

Corporate Affairs Commission v Drysdale (1978) 141 CLR 236; [1978] HCA 52, cited

Crinion & Anor v IG Markets Ltd [2013] EWCA Civ 587, cited

Deputy Commissioner of Taxation v Austin (1998) 39 ATR 485; [1998] FCA 1034, cited

Expectation Pty Ltd v PRD Realty Pty Ltd (2004) 140 FCR 17; [2004] FCAFC 189, cited

Fox v Percy (2003) 214 CLR 118; [2003] HCA 22, cited

Georgianni v The Queen (1985) 156 CLR 473; [1985] HCA 29, cited

Goldsmith v Sandilands (2002) 76 ALJR 1024; (2002) 190 ALR 370; [2002] HCA 31, cited

Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6, considered

Lifeplan Australia Friendly Society Ltd v Ancient Order of Foresters in Victoria Friendly Society Ltd (2017) 250 FCR 1; [2017] FCAFC 74, cited

MM Constructions (Aust) Pty Ltd v Port Stephens Council (No 7) (2012) 191 LGERA 292; [2012] NSWCA 417, cited

Mount Lawley Pty Ltd v Western Australian Planning Commission (2004) 29 WAR 273; [2004] WASCA 149, cited

Palmer v The Queen (1998) 193 CLR 1; [1998] HCA 2, cited

Piddington v Bennett and Wood Pty Ltd (1940) 63 CLR 533; [1940] HCA 2, cited

Re Galtari Pty Ltd (in liq) [2018] NSWSC 917, cited

Shafron v Australian Securities and Investments Commission (2012) 247 CLR 465; [2012] HCA 18, cited

Trade Practices Commission v Australia Meat Holdings Pty Ltd (1988) 83 ALR 299; [1988] FCA 244, cited

Yorke v Lucas (1985) 158 CLR 661; [1985] HCA 65, cited

COUNSEL:

In Appeal No 6281 of 2017:

C George for the appellant

P L O’Shea QC, M T Brady QC and J P Moore QC, with K E Slack, for the respondent

In Appeal No 6289 of 2017:

P Freeburn QC for the appellant

P L O’Shea QC, M T Brady QC and J P Moore QC, with K E Slack, for the respondent

In Appeal No 6306 of 2017:

B Cohen (sol) for the appellant

P L O’Shea QC, M T Brady QC and J P Moore QC, with K E Slack, for the respondent

In Appeal No 6319 of 2017:

C Withers for the appellant

P L O’Shea QC, M T Brady QC and J P Moore QC, with K E Slack, for the respondent

In Appeal No 6320 of 2017:

D Clothier QC, with B Kabel, for the appellant

P L O’Shea QC, M T Brady QC and J P Moore QC, with K E Slack, for the respondent

SOLICITORS:

In Appeal No 6281 of 2017:

Dentons for the appellant

Corrs Chambers Westgarth for the respondent

In Appeal No 6289 of 2017:

James Conomos Lawyers for the appellant

Corrs Chambers Westgarth for the respondent

In Appeal No 6306 of 2017:

Bartley Cohen Litigation Lawyers for the appellant

Corrs Chambers Westgarth for the respondent

In Appeal No 6319 of 2017:

Kennedys for the appellant

Corrs Chambers Westgarth for the respondent

In Appeal No 6320 of 2017:

Tucker & Cowen Solicitors for the appellant

Corrs Chambers Westgarth for the respondent

  1. [1]
    THE COURT:

INTRODUCTION

  1. [2]
    The MFS Group began life a few decades ago as the mortgage lending business of a firm of Gold Coast solicitors.  The parent company of the Group, MFS Ltd, was listed on the ASX.  By 2007 the MFS Group comprised a multitude of companies and businesses.  They fell into two categories:
  • tourism and travel-related businesses, which formed the Stella Group; and
  • funds management and financial service businesses, including managed investment schemes.
  1. [3]
    One such scheme was the Premium Income Fund (“PIF”) of which MFS Investment Management Pty Ltd (“MFSIM”) was the responsible entity.  PIF was by far the largest managed investment scheme conducted by MFSIM and was described as its “flagship fund”.  As at 31 October 2007, it had total funds under management of approximately $787 million.  It invested retail investors’ funds in equities, debt instruments, cash and registered mortgages.  Investors would receive monthly distributions.
  2. [4]
    On 29 June 2007, MFSIM, as the responsible entity of PIF, entered into a facility with the Royal Bank of Scotland Plc (“RBS”).  Up to $200 million could be drawn down from this facility.
  3. [5]
    It should go without saying that the law required this facility to be used by MFSIM only for the purposes of PIF.  It was not available for the use of other companies in the MFS Group.
  4. [6]
    The MFS Group’s relationship with the National Australia Bank broke down early in 2007.  On 1 June 2007 it obtained a short-term loan facility of $250 million for purposes unrelated to PIF.  The facility was from Fortress Credit Corporation (Australia) II Pty Ltd (“Fortress”), through a wholly-owned subsidiary of MFS Ltd, MFS Castle Pty Ltd (“Castle”).  MFS Ltd and another wholly owned subsidiary, MFS Financial Services Pty Ltd, guaranteed the Fortress loan.  The whole of the $250 million was drawn down on 1 June 2007.  This loan was supposed to be repaid after three months (31 August 2007).  In the meantime, MFS hoped to sell the Stella Group or finalise a $450 million corporate banking facility.  But this did not happen, and the Fortress facility was extended, on new terms, to 30 November 2007.
  5. [7]
    By mid to late November 2007, MFS Ltd was in difficulty.  An anticipated agreement to sell 50 per cent of Stella did not eventuate.  Stella’s own financier, UBS Investment Bank (“UBS”), required Stella’s assets to be “ring-fenced” from the broader MFS Group.  So Stella’s assets could not be used to raise funds to repay the Fortress loan.  Castle (as borrower) and MFS Ltd and MFS Financial Services (as guarantors) did not have enough cash to repay the $250 million Fortress debt on 30 November 2007.
  6. [8]
    In late November 2007 the CEO of MFS Ltd, Mr King, negotiated terms with Fortress to defer repayment of the total amount of the loan.  An agreement was reached for the payment by 30 November 2007 of $100 million, together with an extension fee of $3 million, with the balance of $150 million to be repaid by 1 March 2008.  This eleventh hour agreement meant that MFS Ltd had to find $103 million in order to pay Fortress by 30 November 2007.

The essence of this case

  1. [9]
    This huge case is simple at heart.  MFSIM and senior individuals in the MFS Group arranged on 27 November 2007 to draw down $150 million under the RBS loan agreement.  Rather than being used for the purposes of PIF, PIF’s money was used to pay the debts of MFS companies for which PIF was not actually or contingently liable.
  2. [10]
    In broad terms, two disbursements totalling $147.5 million are in issue: one of $130 million on 30 November 2007 and another of $17.5 million on 27 December 2007.
  3. [11]
    On 30 November 2007, $130 million was paid by MFSIM (via PIF’s custodian) to MFS Administration Pty Ltd (which acted as the treasury company for the MFS Group) (“MFSA”).  MFSA, in turn, paid $103 million of the $130 million to Fortress on the same day.
  4. [12]
    By December 2007 another company in the MFS Group, MFS Pacific Finance Ltd (“PacFin”) urgently needed $16 million to meet commitments to its debenture holders.  On 27 December 2007 MFSIM as responsible entity of PIF paid $17.5 million to PacFin.
  5. [13]
    At the trial, ASIC established that MFSIM had misused the $147.5 million that belonged to PIF to pay the debts of other companies in the MFS Group.  Sums of $130 million and $17.5 million were paid away without PIF receiving anything in exchange.  At the time the payments were made, no agreement had been reached with MFSIM by which it received any consideration in exchange for the payments made by it.  There was no agreement about repayment.  PIF (and indirectly investors in that managed fund) received nothing in exchange for the payment out of $147.5 million of money which belonged to it.  PIF and its investors were thereby exposed to the risk that PIF’s money would not be restored to it, leaving PIF without even an evident promise of repayment, let alone one that was properly secured.
  6. [14]
    ASIC established at the trial that by the misuse of PIF’s $147.5 million, MFSIM breached its duties as PIF’s responsible entity and thereby contravened s 601FC(1) of the Corporations Act 2001 (Cth) (“the Act”).  The primary judge found that the appellants, Mr King and Mr White, were persons who were involved in MFSIM’s contraventions in respect of the November payments, with the consequence that each of them also contravened s 601FC.[1]  Further, Mr King and Mr White were each found to have been an officer of MFSIM as the responsible entity of PIF, and to have breached his duties as an officer in contravention of s 601FD of the Act.  Mr White and another appellant, Mr Hutchings, were found to have contravened s 601FC and s 601FD by the December payment.
  7. [15]
    A separate, but related, part of ASIC’s case was that well after the payments were made, particularly in late January and early February 2008, false documents were prepared.  They purported to record transactions that sought to justify the payments as having been made for the benefit of PIF.  The documents were backdated or otherwise made to appear as if the transactions had occurred in November or December 2007, and that necessary steps, including submissions, meetings and approvals, had occurred before the transactions.  Because the transactions, processes and approvals simply had not occurred, ASIC contended that the false documents were designed to disguise what in fact had occurred.  According to the case which ASIC successfully advanced, the false documents concealed the fact that the payments were made for the benefit of other companies in the MFS Group and without any benefit being received in exchange for the benefit of PIF and its investors.
  8. [16]
    Mr White, Mr Hutchings and another appellant, Ms Watts, were found to have been involved in different aspects of the creation, approval, signing, keeping and use of the false documents.  Each was found to have been involved, in different ways, in allowing false information in these false documents to be available to internal and external parties, including auditors and the RBS.
  9. [17]
    The lengthy trial generated over 5,000 pages of transcript and more than 5,000 exhibits totalling tens of thousands of pages.  After extensive written and oral submissions, reasons for judgment were delivered on 23 May 2016.[2]  Some supplementary factual findings were delivered on 26 May 2017 so as to clarify the bases upon which individual defendants were found to have contravened the Act so as to permit the declarations about their specific contraventions to be then made.  At the same time, the Court imposed pecuniary penalties.[3]

The parties to the four appeals

  1. [18]
    Mr King, Mr White, Mr Hutchings and Ms Watts have each prosecuted separate appeals.  Another defendant at the trial, Mr Anderson, against whom similar orders were made, abandoned his appeal.  Whilst there is a common narrative to ASIC’s case in respect of MFSIM’s contraventions, and a substantial overlap in ASIC’s case against each appellant, the case of each appellant at trial, and now, requires separate consideration.  For example, whilst Mr King was involved in the $130 million payment, he was not involved in the $17.5 million payment and was not alleged to have been involved in the creation or use of false documents in late January and early February 2008.  By way of further example, Mr Hutchings and Ms Watts were not alleged to have been involved in the making of the $130 million payment, but came to know of it and were found to have been involved in relation to the creation, keeping or use of false documents.  Mr White was found to have been involved in both payments and in respect of the false documents.  It is convenient at this point to identify the roles of the parties at the relevant times.

Mr King

  1. [19]
    Mr King had been a solicitor when he co-founded McLaughlins Financial Services in 1999.  He became the CEO and an executive director of MFS Ltd.  He ceased to be a director of MFSIM on 27 February 2007.  However, as the most senior officer within the MFS Group, he continued to have some involvement in MFSIM after he resigned as its director.  Mr King acknowledged in his evidence that as CEO of the MFS Group he had an “overall responsibility for MFSIM” and that Mr White took instructions from him with respect to “proprietary matters” of MFSIM’s business.  However, he disputed ASIC’s case that he was an “officer” of MFSIM at the relevant time because of his alleged capacity to affect significantly MFSIM’s financial standing.
  2. [20]
    In January 2008 aspects of the financial affairs of the MFS Group became public and there was a poor response to a proposed equity raising announced by Mr King.  The share price of MFS Ltd plummeted and trading in its shares was suspended.  For MFS, Friday, 18 January became known as “Black Friday”.  These events precipitated the resignation of Mr King as CEO of MFS Ltd on 21 January 2008.

Mr White

  1. [21]
    Prior to Mr King’s resignation as CEO, Mr White was Deputy CEO of MFS Ltd and had the primary day-to-day conduct of the funds management side of the MFS Group.  He became the CEO of MFS Ltd on Mr King’s resignation.
  2. [22]
    At all relevant times, Mr White was a member of the Investment Approval Committee (“IAC”) of PIF and of another relevant fund, of which MFSIM was also the responsible entity, called the Maximum Yield Fund or MYF.  He was also an executive director of MFSIM, and a director of other companies in the MFS Group, including companies involved in the relevant payments.

Mr Anderson

  1. [23]
    Although no longer an appellant, Mr Anderson’s role is significant.  He had a background in accounting before joining the MFS Group in 2002.  He was the Chief Financial Officer of MFS Ltd and had, as a result, responsibilities in relation to the treasury, financial affairs and financial reporting of the MFS Group.  He also was a director of many companies in the MFS Group, and was the company secretary of MFSIM and MFS Ltd.

Mr Hutchings

  1. [24]
    Mr Hutchings was the CEO of MFSIM after 23 May 2007.  In addition, from early in 2007 he had been the Chief Investment Officer and an executive director of MFSIM.  As CEO of MFSIM he reported on a daily basis to Mr White when Mr White was Deputy CEO of the MFS Group and also to Mr King from time to time.  Mr Hutchings was a member of the IAC for PIF at all relevant times.

Ms Watts

  1. [25]
    Ms Watts was a fund manager at MFSIM.  Importantly, she was the fund manager of PIF.  Her responsibilities required her to be aware of the assets held by funds of which she was manager, particularly PIF, and to recommend changes to the investments held by those funds.  The primary judge found that Ms Watts was also the fund manager of MYF.

The judgment under appeal

  1. [26]
    The Primary Reasons consist of 1,630 paragraphs and are 334 pages long.  A detailed summary of their contents is unnecessary at this stage.  A summary of the structure of the reasons will suffice.  After an introduction and a short history leading up to and including the impugned transactions, the primary judge identified MFSIM’s alleged contraventions concerning the $130 million payment.  The judgment also identified, at an early stage, countervailing considerations which might explain the payments as having been part of a proposal to restructure MYF through investments to be made by PIF.
  2. [27]
    The judgment outlined a chronology of relevant events in relation to the $130 million payment, and then in relation to the $17.5 million payment.  The reasons then turned to the false documents case against MFSIM.
  3. [28]
    Substantial parts of the reasons concerned events and the contents of emails and other documents about which there was no dispute.
  4. [29]
    Having considered a large number of factual matters, the primary judge expressed the following overall view of the evidence:[4]

[557] One thing that is crystal clear from this recitation of the facts is that PIF’s investors received nothing immediately in return for their payment out of $147.5 million in November and December 2007. To that extent they were left exposed to the risk that MFS would go into liquidation in circumstances where their funds had been paid out without even an explicit written promise of repayment let alone one secured on tangible property or where the money had been used to purchase valuable assets. That was hardly consistent with the duties owed to them by MFSIM and its relevant officers.”

  1. [30]
    The primary judge considered the evidence, including emails and other documents which existed in December 2007, about a proposal to restructure MYF in the first three months of 2008.  This proposal was “radically inconsistent with what later came to be recorded: the creation of a new class of units in MYF and the issue of 85 million class A units to PIF in November 2007.”[5]
  2. [31]
    The primary judge continued:[6]

[561] It is also clear that the ideas developed at the end of January were still a work in progress at that time until some time in early February.

[562] Another analysis, that may have been a likely explanation for the events, is that the payment out from PIF’s funds was conceived originally as a loan, perhaps to be repaid on the sale of Stella. Many of the contemporaneous emails are consistent with such an idea as well as some of the earlier accounting entries. That plan, if it were one, was likely to have become impossible, at least in the short term, by “Black Friday”, 18 January 2008, when MFS Limited’s share price fell significantly. The imminent arrival of the auditors and the queries from RBS would have necessitated some other approach. The need to have some other explanation in place was precipitated by those pressures and then by Mr Hutchings’ ‘escalation’ email of 21 January 2008.

[563] Some of the best evidence for this understanding of the events is the email of 22 January 2008 from Mr White to Mr Hutchings advising him that the $200 million drawn down from RBS would be paid back in the next 12 to 30 days.

[564] The false documents then produced into early February 2008 were, in my view, a product of that pressure rather than any genuine reflection of transactions that had either been made or were proposed to be made and then ratified. As will become clearer when I consider some of the legal issues, I also regard them as false in failing to record and explain the transactions correctly, contrary to s 286(1)(a) of the Act. The main focus of ASIC’s case was, however, on whether the payments were proper uses of PIF’s funds by MFSIM and whether they were paid instead for the purposes of MFS and PacFin.”

  1. [32]
    After considering an issue of whether ASIC’s case was within the pleadings, the primary judge addressed a number of legal issues.  Having done so, he considered the issue of whether ASIC had established the contraventions alleged against MFSIM.  He concluded that MFSIM as the responsible entity for PIF had contravened its pleaded obligations in respect of the $130 million payment, the $17.5 million payment and the false documents.  Its main contraventions were identified in the reasons and subsequently became the subject of declarations.
  2. [33]
    The Primary Reasons then separately considered ASIC’s cases against Mr King, Mr White, Mr Hutchings, Mr Anderson and Ms Watts in turn.  In the case of each defendant the submissions for ASIC and the submissions of each defendant were outlined and findings were made in the course of addressing those submissions.  At the end of his consideration of the case against each defendant, the primary judge expressed a number of additional conclusions.

The separate appeals

  1. [34]
    Each of the appellants challenged various findings made in respect of him or her.  It will be necessary to consider in greater detail the relevant findings made by the primary judge in respect of each appellant, including matters such as the basis upon which a particular appellant was found to have either contravened the Act or been involved in MFSIM’s contravention, as well as the relevant appellant’s challenge to those findings.
  2. [35]
    In addition, each appellant raised issues about the primary judge’s delay in the delivery of reasons and the adequacy of those reasons.
  3. [36]
    The fact finding task which the primary judge was required to undertake was summarised by him:

[10] Much of the significant evidence in the case was documentary, based on contemporaneous emails and other corporate records. Many of the essential facts are, therefore, not particularly contentious. The contentious issues arose, generally speaking, from debate about the conclusions or inferences I should draw from the events that occurred. There were also questions of credit associated with the evidence of several witnesses, including the defendants who gave evidence. Many of those questions were able to be resolved principally by reference to contemporaneous emails and other documents but also by reference to my notes taken during the hearing.”[7]

ADEQUACY OF REASONS AND DELAY

  1. [37]
    Each appellant complained about the adequacy of the primary judge’s reasons in respect of him or her, particularly the judge’s adoption of submissions by ASIC and what is said to be the reaching of conclusions without sufficient explanation or engagement with the parties’ submissions.  They also suggested that alleged inadequacies may be attributed to the lengthy delay between the conclusion of submissions and the delivery of reasons.
  2. [38]
    It will be necessary to address in due course the adequacy of the primary judge’s reasons in respect of each appellant.  At this stage it is convenient to refer to relevant principles and to identify some common themes in the appellants’ submissions and ASIC’s general response to complaints that the reasons were inadequate.

Relevant principles

  1. [39]
    As a general rule, reasons for judgment will:
  1. (a)
    refer to the evidence which was important to the determination of the matter;
  1. (b)
    set out material findings of fact and the reasons for those findings, including, where there are competing bodies of evidence, why the judge preferred one body over another; and
  1. (c)
    engage with the parties’ submissions by explaining why one case is preferred over the other.[8]

Observance of these requirements ensures rights of appeal are not rendered meaningless and that a losing party is not left with a justified sense of grievance that the case has not been properly considered.[9]  These requirements are likely to produce a more soundly-based judgment and they further judicial accountability.[10]

  1. [40]
    Reasons do not need to be lengthy and elaborate.  There is no need to refer to all of the evidence led in the proceeding.  Relevant evidence should be referred to, but not necessarily in detail.[11]  It is not incumbent upon a judge to deal with every argument and issue that might arise in the course of a case, but where an argument is substantial or an issue is significant, reasons for the rejection of the argument or the resolution of the issue should be given.
  2. [41]
    Inadequacy of reasons does not necessarily amount to an appellable error.  An appeal court will only intervene when the inadequacy is such as to give rise to a miscarriage of justice.[12]  An appellable error arising from inadequate reasons does not necessarily result in a new trial.  The appeal court is entitled to consider the matter and, if it can do so (for example, where only one conclusion is reasonably open on the available evidence) it may itself decide the matter.[13]
  3. [42]
    While it is possible to state general principles about the adequacy of reasons, they must be applied to the facts of a particular case.  A case involving a word-on-word contest between eye witnesses to an accident or between parties to a conversation is different from a case in which there is no real dispute as to what happened, and the issue is what inferences are to be drawn from facts which are not in serious dispute.  In Mitchell v Cullingral Pty Ltd,[14] Allsop P stated:

“In many cases … a judge may, in dealing with large bodies of evidence, be forced to economise in expression and approach in order to be coherent in resolving the overall controversy.  The need for coherent and tolerably workable reasons sometimes requires truncation of reference and expression.  Judgment writing should not become a process that is oppressive and that produces unnecessary prolixity.  Not every piece of evidence must be referred to.  That said, central controversies put up for resolution by the parties must be dealt with.  The competing evidence directed or relevant to such controversies must be analysed and resolved.”

  1. [43]
    Where submissions are extremely voluminous,[15] the need for coherent and tolerably workable reasons will require truncation.  As Meagher JA stated in Beale v Government Insurance Office of NSW:[16]

“[I]t may not be necessary to make findings on every argument or destroy every submission, particularly where the arguments advanced are numerous and of varying significance”.

  1. [44]
    A requirement to refer to every submission and to engage in an analysis of it and the evidence to which it refers might produce an unnecessarily long and unduly delayed judgment.  Reasons do not need to incorporate “an extended intellectual dissertation upon the chain of reasoning which authorises the judgment which is given.”[17]  The reasons should provide a “basic explanation of the fundamental reasons which led the judge to his conclusion”.[18]  Summary and evaluative choice play their part in judgment writing.[19]

Delay

  1. [45]
    Delay between the taking of evidence and the making of a decision is not, of itself, a ground of appeal.  While delay may contribute to an error, it is the error in the decision-making process or the decision that constitutes the ground of appeal.[20]
  2. [46]
    Significant delay in delivering a judgment may weaken the advantage that the trial judge often has over an appellate court.[21]  For example, resolution of a case may depend on the credibility and reliability of witnesses, and the impressions which those witnesses made upon the judge when giving evidence.  In such a case, the trial judge is obliged to give reasons for accepting or rejecting the evidence of those witnesses whose evidence played an important part in the process of fact finding.  Where there is a significant delay between seeing and hearing the witnesses and the delivery of judgment, the judge may be able to explain in the judgment that contemporaneous notes had been made of the impressions formed of the evidence given by the relevant witnesses, and in such a case confidence in the decision would be maintained, despite the delay.[22]
  3. [47]
    Some delay is inevitable in delivering a reserved judgment, and substantial delay is inevitable in certain cases:[23]

“As a practical matter, some delay is inevitable.  Indeed, a degree of delay sufficient to allow a careful reconsideration of the documentary and oral evidence in the light of final submissions may be desirable, if not essential.  Thereafter, it is necessary for a judge to balance the pressures of additional cases, some of which may have been granted expedition and others of which may involve criminal proceedings and issues of liberty of the individual.  If delay were to lead to retrial in a significant number of cases, the effect would be self-perpetuating.  Those to suffer most would be the litigants involved, not merely in the cases requiring retrial, but in all cases.  Comfortable platitudes must give way to practical reality.  The basis of discernible error in a particular case is rarely capable of transmogrification into a legal principle.”

  1. [48]
    In cases involving large corporate collapses, multiple defendants, lengthy trials and numerous issues, a substantial delay between the giving of evidence and the delivery of judgment, and between the conclusion of submissions and the delivery of judgment, is inevitable.  It is unnecessary to refer to the several examples given by ASIC of long trials which resulted in very long judgments and long delays in delivering them.
  2. [49]
    While substantial delay is to be expected in a case of this size, unnecessary delay must be avoided.  It may induce speculation and suspicion on the part of the losing party that the task may have become too much for the trial judge and that he or she had been unable, in the end, to grapple adequately with the issues.[24]  The “comfortable generalisation” that undue delay in decision-making is always to be deplored does little to “advance the task of legal analysis when it becomes necessary to examine the consequences of delay.”[25]  Appellate courts do not assume that reasons given after undue delay are infected by error because of the delay.  They should not speculate that the delay demonstrates that the judge was “unable to grapple with the issues” and therefore made the decision “which was the easiest to make”.[26]  Instead, it is for an appellant to point to aspects of the reasons that are unsatisfactory or suggestive of error.  It is only some “apparent flaw in the reasons given which could allow the appellate court to indulge in speculation as to the process of decision-making at trial”.[27]  If the reasons are flawed because of a failure to make findings on material questions of fact or to deal with substantial points which have been raised and which should be addressed in the reasons, then an appellate court might conclude that delay in giving judgment contributed to the evidence or submission being overlooked.
  3. [50]
    Where there has been significant delay in the delivery of a judgment, a judge often will be required to explain in the judgment how he or she has been able to make findings, despite the delay.

Complaints by the appellants about the adequacy of the reasons

  1. [51]
    The appellants relied upon the general structure and content of the reasons.  The primary judge’s outlines of the background to the matter and the facts were drawn largely from ASIC’s submissions.  The discussion of the case against MFSIM (which did not defend the proceeding) was also derived largely from ASIC’s submissions, after which the primary judge made various findings about its contraventions.  After dealing with issues in relation to the pleadings and numerous legal issues, the primary judge turned to the case against each appellant.  In the case of each appellant, ASIC’s submissions were set out at substantial length, followed by a summary of the submissions on behalf of that appellant, again largely drawn from that party’s submissions.  In the course of outlining either ASIC’s submissions or an appellant’s submissions, the primary judge made some express findings of fact or recorded his acceptance or not of some submissions.  To the extent ASIC’s submissions were not contested by an appellant, but were not expressly adopted by the primary judge, it might be said that many of ASIC’s uncontested submissions were implicitly adopted.  After discussing the respective party’s submissions at considerable length, the reasons then contain conclusions in respect of the case against each appellant.  Those conclusions are relatively brief and generally reflect acceptance of ASIC’s case.
  2. [52]
    The respective submissions of the appellants about the adequacy of reasons focussed on these conclusionary paragraphs and, in general, submitted that they do not contain an adequate consideration of the evidence and submissions or adequately explain the primary judge’s rejection of the appellants’ testimony (if any) and submissions.  To the extent the primary judge’s findings involve the express or implicit adoption of submissions by ASIC, the submissions of ASIC were contended by some appellants to be themselves conclusionary and lacking in analysis.
  3. [53]
    The appellants also relied upon the delay in delivering the Primary Reasons and contended that because the delay was inordinate, the reasons were required to demonstrate that the delay did not prejudice the primary judge in considering the evidence and submissions relating to the appellants’ case.

ASIC’s general response

  1. [54]
    ASIC submitted that the appellants’ criticisms of the adequacy of the reasons are unfair in that:
  1. (a)
    the issues in dispute were not about primary facts, but mainly about the inferences or conclusions that ought to be drawn from contemporaneous documents; and
  1. (b)
    the findings in relation to each appellant are not confined to the concluding paragraphs to be found at the end of the primary judge’s consideration of the case against each appellant.  Instead, relevant findings about what an appellant did and knew are to be found in different parts of the judgment.  For example, in considering the “false documents case” the judge made findings in various parts of his reasons that were relevant to an individual appellant’s involvement with the false document.
  1. [55]
    As for the delay in the delivery of the reasons, ASIC submitted that a delay of such a length is not unusual in such a large case, and a substantial delay was to be expected in a case in which the primary judge had to give attention to the case against MFSIM and the individual cases against each appellant.  The case was a large one, and 5,311 documents became exhibits at the trial.  The trial commenced on 4 November 2013 and occupied 61 sitting days which were heard over three periods: 11 November to 13 December 2013; 22 April to 9 May 2014 and 4 August to 12 September 2014.  The transcript exceeds 5,000 pages.  There was evidence from 57 witnesses, 45 of whom gave oral evidence.
  2. [56]
    Detailed written submissions totalling 1,179 pages were relied upon.  The parties then made extensive oral submissions.  The Primary Reasons were delivered on 23 May 2016, about 20 months after the completion of addresses, and about 30 months after the start of the trial.
  3. [57]
    According to ASIC, the question of whether a 20 month delay is inordinate or “operative” cannot be decided in the abstract.  In this context an inordinate or operative delay will alter the normal approach of an appellate court in assessing a trial judge’s advantage in making findings of fact, and require the judge to carry out a more detailed consideration of the relevant evidence than would normally be required so as to demonstrate that the delay has not affected the judge’s decision.[28]  This was not a case that depended on resolving word-on-word contests.  The crucial issues were whether ASIC, in reliance upon the contemporaneous documents, proved its case against each appellant, particularly insofar as its case required the primary judge to draw inferences about what an appellant knew at a particular time.  ASIC submitted that, in a case of this kind in which matters are able to be resolved by reference to contemporaneous documents, even a lengthy delay is much less likely to be “operative”.
  4. [58]
    The primary judge’s reasons address the process of fact finding and suggest that the delay did not prejudice him in considering material evidence and significant submissions.  The primary judge disclosed that he was able to resolve disputed questions of fact and reach conclusions about whether the evidence of those defendants who gave evidence should be acted upon, principally by reference to contemporaneous emails and other documents, and also by reference to notes taken during the hearing.  This included resolving questions of credit when the evidence of a witness conflicted with contemporaneous documents.

General observations

  1. [59]
    As the parties acknowledge, grounds of appeal by individual appellants in relation to the adequacy of reasons and delay cannot be resolved by dealing with these general submissions.  They require consideration of the primary judge’s reasons in respect of each appellant and specific complaints by that appellant.  Some general observations may, however, be made.
  2. [60]
    Given the nature of the case, being one in which, as the primary judge remarked, many of the essential facts were not particularly contentious, and the contentious issues related to the inferences to be drawn from the events that occurred and contemporaneous documents, it is unremarkable that the primary judge drew extensively upon submissions about those events.
  3. [61]
    The authorities highlight the tension between the need for judges to demonstrate diligence in their reasoning and analysis, and acknowledgment that time-poor trial judges may adopt counsel’s submissions where “… nothing would be gained by postponing other pressing work in order to rewrite the reasoning and conclusions in the judge’s own words.”[29]
  4. [62]
    The adoption of one party’s submissions by a judge has been described as “… one method of providing adequate reasons.”[30]  In Cojocaru (Guardian Ad Litem) v British Columbia Women’s Hospital and Health Center Smith J of the Court of Appeal of British Columbia stated:[31]

“… there is nothing inherently wrong with adopting the submissions of a party in whole or in part as reasons for judgment so long as those submissions truly and accurately reflect the judge’s own independent analysis and conclusions.”

In that case Levine and Kirkpatrick JJ considered that the trial judge’s reasons did not meet the functional requirement of public accountability and the appearance of the proper administration of justice.[32]

  1. [63]
    On appeal the Supreme Court of Canada observed that judicial copying is a long-standing and accepted practice.[33]  However, if carried to excess it raises problems and may displace the presumption of judicial integrity and impartiality.  The Court identified the issue as not so much a lack of originality or even a failure to attribute sources, but  “whether a reasonable person would conclude from the copying that the judge did not put her mind to the issues to be decided”.[34]
  2. [64]
    In Crinion & Anor v IG Markets Ltd, the English Court of Appeal emphasised that appearances matter, and the “copying and pasting” of submissions received can reflect poorly on the administration of justice.  Nevertheless, if the trial judge “did in fact carry out a proper judicial evaluation of the essential issues and did not simply surrender his responsibility to counsel, then the judgement should stand.”[35]
  3. [65]
    Reproduction of submissions is not itself an error.  Error will exist, however, where the judge fails to engage with significant arguments.
  4. [66]
    A question to be decided in respect of each appellant’s complaint about the adequacy of the reasons is whether the primary judge brought an independent judgment to bear on the decisive issues in the case.  The fact that the primary judge recited the competing submissions of ASIC and each appellant at great length does not answer that question.
  5. [67]
    As for fact finding, as the primary judge noted at the outset of his judgment, many of the essential facts were not in contention, and were proved by contemporaneous documents.  The facts which were not in contention were recited in ASIC’s submissions, and little was to be gained by the judge re-writing them.
  6. [68]
    To the extent that primary facts, as distinct from inferences to be drawn from facts, were in dispute the primary judge appears to have resolved those matters by preferring contemporaneous documents over recollections.  The real contests in the case of each appellant were the drawing of inferences from uncontested facts, particularly about an appellant’s knowledge, intention or other state of mind.  The parties’ submissions about those matters were referred to, and often were recited at great length.  A central issue in each appellant’s appeal is whether the judge’s reasons sufficiently engaged with those submissions and provided a basic explanation for preferring one side’s submissions over the other’s.

THE NOVEMBER PAYMENTS

Events before the November payments

  1. [69]
    In early 2005, MFS Ltd acquired the business known as Peppers Retreats and Resorts, which owned hotels and was involved in the leasing, franchising, operation and management of hotels.  By then, MFS Ltd had also acquired an interest in an accommodation business called “Breakfree”.  The Breakfree and Peppers businesses were merged and became the Stella Group.  Subsequently, MFS Ltd added other businesses under that name.
  2. [70]
    During 2007, the board of MFS Ltd considered ways in which at least some of the Stella Group could be sold.  The board was advised by consultants that the best course would be to seek out a private equity joint venture partner to invest in Stella, and in March 2007, MFS Ltd announced to the ASX that it had appointed UBS and Grant Samuel to identify an equity partner or investor.  A private equity investor, CVC Asia Pacific (“CVC”), was found and in May 2007, it made a non-binding proposal to acquire half of the business.
  3. [71]
    Stella was funded as part of MFS Ltd until, in June 2007, a facility of $800 million was obtained which enabled Stella to operate as a stand-alone business.  As already noted, the facility agreement with the financier (UBS) precluded the use of the property of Stella for other parts of the MFS Group.
  4. [72]
    After then, MFS Ltd continued to look for potential investors in Stella’s business although CVC remained one of them.  However, in around October 2007, the board of MFS Ltd received advice from Macquarie Group that consideration should be given to retaining Stella.  On 24 October 2007, the board discussed Macquarie’s advice and “agreed to continue to review the Stella sale process”.[36]  Negotiations with CVC continued.  On 7 November 2007, Mr King reported to the board that the partial sell-down of Stella to private equity “should have resolved by [the] end of November”.[37]  He also reported on what had emerged as an alternative proposal, which was to the ultimate end of demerging the Stella and financial services businesses of the MFS Group into separate entities, after each had been recapitalised.  On 28 November, MFS Ltd announced to the market that it was considering a separation of the two businesses into stand-alone entities.
  5. [73]
    In mid-2007, when $250 million was borrowed from Fortress, it was anticipated that the proceeds from the sale of part of the Stella business would be received in good time for the repayment of that loan.  But by late November 2007, it was apparent that another source of funds would have to be found by the end of that month to do so.
  6. [74]
    On 24 November 2007, Mr King emailed the directors of MFS Ltd saying that “[w]e have decided overnight to withdraw from the Stella Private Equity sale process”.[38]  He explained that decision by saying that the company should pursue the alternative strategy, under which Stella would first acquire certain businesses in the United Kingdom which would add to Stella’s profitability and thereby, its value.  Mr King there wrote:

“The only present issue this all presents is we have a 250 million facility due to Fortress on 1 December and I have today asked them to roll that until 1 March to allow a replacement debt facility to be put in place.  Worst case is we have to raise 250 mill of debt or hybrid or equity capital this week if they are themselves under pressure from their investors due to whatever is happening in the USA and resolve not to allow any extensions[.]”

  1. [75]
    On the same day, Mr King emailed Mr Kelleher of Fortress (copied to Mr White and Mr Anderson) informing him that MFS Ltd was withdrawing from negotiations to sell Stella to private equity investors.[39]  Mr King there recorded what he described as the “background to the MFS/Fortress position”.  He wrote that Fortress had approached MFS originally in “May/June 07”, in the expectation that an agreement would be reached for the sale of Stella by 30 June that year, and that subsequently the private equity investors had asked for the transaction to be delayed until mid-October, so that MFS was seeking the extension of the Fortress facility until 1 December “believing that the Stella process would terminate one way or another in sufficient time for your debt to be repaid or refinanced.”  He wrote that the negotiations with the private equity investors had continued until the middle of that week, when they had stalled over the price.  Consequently, Mr King wrote, MFS was withdrawing from the negotiations and “pushing the ‘go’ button on the bank refinance application”.  He told Mr Kelleher that if Fortress was to insist upon repayment in full on 1 December, MFS would be able to comply “off the back of an equity and hybrid raising”, but that this was something that MFS did not wish to do “on such short notice and before we have had a chance for the market to understand the Stella numbers”.  He wrote:

“But if you insist then that is what we will do all be it [sic] costly, inconvenient and undesirable.  You will achieve repayment in full but at great cost to us.  We are saying plainly that is your right and if that is, despite our position as explained below, your position we will act upon it and complete.”

Mr King’s email continued by making an alternative proposal under which $25 million would be paid on the due date, as a part repayment, with the balance to be repaid on 1 March 2008.  He explained that this would permit MFS to raise capital in February 2008 and allow for “[t]he CBA bank debt process to be pursued with all vigour”.

  1. [76]
    The primary judge treated this email as evidence that it was possible for MFS Ltd to raise, by going to the market, the amount required for a full repayment by the due date.[40]  If that was so, it was also evidence that, at least in Mr King’s mind, it was a possibility to be avoided.  The email was also evidence that negotiations between MFS and the CBA were not at a stage by which funds could have been expected from that source by the end of the month.
  2. [77]
    Mr Kelleher’s response was to make a counter-offer under which Fortress would be paid $100 million as a part payment by the due date.  Mr Kelleher testified that Mr King then “agreed in principle … without any hesitation”.[41]  Mr King and Mr Kelleher promptly concluded their negotiations for a variation of the terms of the Fortress loan, under which $100 million was to be paid by Friday 30 November 2007, together with an extension fee of $3 million, with the balance of the $150 million to be repaid by 1 March 2008.
  3. [78]
    There is no evidence to suggest that Mr King, Mr White or Mr Anderson then considered any alternative source of funds for the $103 million to be paid to Fortress, other than a drawdown on the RBS facility.
  4. [79]
    In the days preceding Mr King’s email to Mr Kelleher of 24 November, steps had been taken by others within MFS to draw on the RBS facility.  On Wednesday, 21 November 2007, Ms Howard, the Head of Business Analysis and Governance Funds Management of MFSIM, had emailed Ms Watts and Mr Hutchings providing “Key Details” of the steps required to draw funds from that facility.[42]  She advised that having regard to the relevant gearing ratio of “20 % of FUM” (funds under management), “we have approx $155m max to draw on”,  and that the funds would be paid by the RBS into PIF’s account within two business days of the required forms being lodged with the bank.  On Friday 23 November, Ms Watts had emailed Ms Howard (copied to Mr Hutchings) asking her to “start the process for a draw-down by PIF next week from the RBS facility”, because PIF would have to “fund some anticipated investments late next week and the current (and anticipated) cash balance will be insufficient.”[43]  Ms Watts added that “[t]he amount of the draw-down and the period for which it will be required has not yet finalised, but I will have a better idea on Monday.”
  5. [80]
    On the morning of Monday, 26 November, Mr White emailed Mr Hutchings under the subject “per conversations this morning”, saying:[44]

“have had a think, am across the cash flow.  all good and thanks for turn around … can you please put in motion drawdown of $150m.  see if we can aim for thursday, with Friday fall back. i will be back to you with work up fo [sic] all details. at this stage i don’t think any one will breach the $50m. any issues let me know.”

It was ASIC’s case that Mr White was giving this instruction, with the specific requirement that the funds be available on Thursday or, at the latest, Friday of that week, with the intention that most of the money would be applied in paying the amount to Fortress which Mr King and Mr Kelleher had agreed over the weekend.

  1. [81]
    As to any funds which PIF itself required by the end of that week, the evidence included an email which Mr Hutchings received at about 11 am on that same morning from Mr Parker, a fund analyst of MFS Ltd, attaching what Mr Parker described as the “[m]ost up to date cash flow” for PIF.[45]  That document showed no projected “cash outflows” on 28 or 29 November and outflows of approximately $7 million on 30 November.  It showed no acquisitions within that week, except amounts totalling approximately $10 million, on 26, 27 and 30 November, against the description “Loans to be funded”.  It projected a cash balance on 30 November of approximately $9 million.  In short, this cash projection showed no need for funds to be drawn down for PIF by Thursday or Friday of that week.  Mr White had some other purpose in mind for the funds.  His case at the trial, unsupported by any evidence from him, was that it should be inferred that he had in mind the application of PIF’s funds for investments in entities or businesses within the MFS Group, including an investment in another managed investment scheme for which MFSIM was the responsible entity, the fund called Maximum Yield Fund or MYF.
  2. [82]
    Mr White’s instruction to draw down $150 million from the RBS was immediately forwarded by Mr Hutchings to Ms Watts and Ms Howard, saying “[l]et’s implement [Mr White]’s request”.[46]
  3. [83]
    At this stage, Mr King, Mr White and Mr Anderson were involved in arranging for the provision of financial information about MFS to Fortress, as it had requested in an email from Mr Kelleher to Mr King (copied to Mr White and Mr Anderson) at about 1.35 pm that day.[47]  At 5.49 pm that day, Mr King emailed Mr White and Mr Anderson, attaching emails from others within MFS as to MFS’s progress in obtaining finance from the CBA.[48]  Mr King said to Mr White and Mr Anderson that the attached emails showed the “status of our application to CBA to re finance Fortress …”.  About an hour later, Mr Anderson emailed Mr King and Mr White saying:[49]

“Although not involved in the CBA process my guess is that even if this all goes very well we are a number of weeks away from funds[.]”

Those emails showed that consideration had been given to obtaining the funds to pay Fortress from the CBA, but that Mr King and Mr White realised that the funds would have to be found elsewhere.

  1. [84]
    On the following day, Tuesday 27 November, Ms Watts emailed Ms Howard instructing her to draw down $150 million from the RBS for PIF “for repayment on 31st December 2007”.[50]  Also on that date, Mr White emailed Mr Kelleher, asking for the account details into which the payment to Fortress was to be made.[51]  Later that day he received a reply from Fortress which provided those details, which Mr White then forwarded to Mr King and Mr Anderson on the same afternoon.[52]
  2. [85]
    On Wednesday 28 November, the RBS advised that it had sent $150 million, which Ms Watts passed on to Mr Hutchings and Mr White, and which Mr White copied to Mr King.[53]  By an email sent that morning to Mr White, Mr Hutchings and Ms Watts, Ms Howard said that the $150 million from the RBS should hit the PIF operating account that day or first thing the following morning and that “we can then organise RTGS to fund investment”.[54]  RTGS stood for Real Time Gross Settlement, which was the manner in which Fortress was paid $103 million.  At about 5.16 pm, Mr White emailed Mr King saying “I have the $150m in our account ready to transfer to MFS A tomorrow if need be”.[55]  By “MFS A”, Mr White was referring to MFSA which, as we have noted earlier, was MFS Administration Pty Ltd, a subsidiary of MFS Ltd which was used by the MFS Group as its treasury company.  Mr King immediately responded by this email to Mr White:[56]

“You the man. Definitely the man. Thank you very very much.

Let’s talk tomorrow.”

  1. [86]
    On Thursday, 29 November, Mr King rang Mr Kelleher at Fortress to confirm that he had the $100 million for payment on the following day.

The November payments

  1. [87]
    On Friday, 30 November 2007, $130 million was transferred from a PIF account to MFSA.[57]  On the same day, $103 million was paid from the MFSA account to Fortress.
  2. [88]
    Clearly then, $130 million of PIF’s money was paid for the principal purpose of enabling $103 million to be paid to Fortress.  The amount of $103 million was owing by Castle and (contingently) by MFS Ltd and MFS Financial Services Pty Ltd as its guarantors.  In no sense was the payment to Fortress, or the payment of the sum of $130 million to MFSA, one which was for the apparent benefit of PIF and its unitholders.
  3. [89]
    There is not a single document which existed at the time of these payments which evidenced any agreed consideration for the use of PIF’s money, or even an understanding as to what PIF would or might receive for it.  Nor was there any document which evidenced any agreed date for any repayment to PIF.
  4. [90]
    At the trial, there was no evidence from Mr King or Mr Anderson of any consideration which was then given, or agreed to be given, for the payments.  The effect of Mr King’s evidence was that he knew that Fortress was being paid from funds borrowed from RBS by MFSIM as the responsible entity for PIF, but that he had left it to others to agree upon the terms for the use of those funds.  His evidence was that he trusted Mr White to see that something would be put in place to provide a proper consideration for the payments.  Mr White was then the deputy CEO of MFS Ltd and an executive director of MFSIM.  Mr White gave no evidence at the trial.
  5. [91]
    Mr Hutchings was then the CEO of MFSIM.  According to his affidavit evidence, on 26 November 2007 he was told by Mr White that he would like to draw down on the RBS facility, because PIF “needs some new investments … like the ones we have talked about a lot in recent months” and which, Mr White said, were “well known within the group”.[58]  Mr Hutchings said that his discussion with Mr White was “in line with earlier discussions we had had and MFSIM’s desire to source new investments for PIF”.[59]  The effect of this evidence was that he believed that the purpose of the drawdown on the RBS facility was to fund investments by PIF, rather than to pay Fortress.  On that evidence, the CEO of MFSIM had no knowledge of the use of at least $103 million of its funds.
  6. [92]
    There could have been no suggestion that this was a loan by PIF to Castle, because of the restrictions, which had statutory force, upon the use of the funds of PIF in respect of related parties of MFSIM as the responsible entity.  By s 601EA of the Act, the registration of a managed investment scheme requires the lodgement with ASIC of, amongst other things, a copy of the scheme’s compliance plan.  The content of a compliance plan is prescribed by s 601HA, which requires, amongst other things, a plan which sets out adequate measures that the responsible entity is to apply to ensure that all scheme property is held separately from property of the responsible entity (and the property of any other scheme) and that adequate records of the scheme’s operations are kept.  By s 601FC(1)(g) and (h), it is the duty of the responsible entity to ensure that the scheme’s compliance plan meets the requirements of s 601HA and to comply with that plan.  By s 601FD, it is the duty of an officer of the responsible entity to take all steps that a reasonable person would take to ensure that the responsible entity complies with, amongst other things, the compliance plan.
  7. [93]
    Section 228 of the Act, which is contained within Chapter 2E, defines a related party of a public company.  Section 601LA of the Act modifies the related party provisions of Chapter 2E in the context of a registered managed investment scheme.  It provides that Chapter 2E applies as if references to a public company were instead references to the responsible entity of the scheme.  Consequently, each of Castle, MFS Ltd and MFS Financial Services was a related party of MFSIM.[60]
  8. [94]
    On page 37 of the compliance plan for PIF, there was a section headed “Related Parties”.[61]  It required the scheme manager to ensure that a related party transaction was in the best interests of the members of the scheme, on commercial terms and properly documented.  It also required the scheme manager to ensure that related party transactions received the approval of members of the scheme as required by the Act.
  9. [95]
    The compliance plan also required the scheme manager to ensure that scheme assets were invested in accordance with what was defined as the Disclosure Document.[62]  On page 19 of that document, under a heading “How do we manage conflicts of interest and related party transactions?”, it was disclosed that:[63]

“from time to time, we invest in or lend to investment schemes managed by Related Parties, or we invest in investments issued by Related Parties.  Whenever we do any of these, MFSIM adopts an ‘arms length’ commercial approach to assessment of transactions.  Investments by the Fund will be based on commercial terms whether they are related party transactions or not.  The MFS Conflicts and Related Party Investments Committee has independent representation in its members.”

The statement continued:

“MFSIM has set the following limits in relation to Related Party Transactions within the Fund:

the Fund will not lend [to] or invest in MFS majority owned entities”.

  1. [96]
    Consequently, MFSIM could not have lent these monies to MFS, Castle or MFS Financial Services, except by contravening s 601FC(1)(h) and provisions within Chapter 2E of the Act.

The pleaded case against MFSIM about the November payments

  1. [97]
    ASIC’s pleaded case may be summarised as follows, by reference to paragraph numbers of the Statement of Claim:[64]
    1. (a)
      MFSIM, as the responsible entity for PIF, made the $130 million payment for the purpose, or a purpose, of enabling MFSA to make the $103 million payment (para 44(b));
    2. (b)
      The $103 million payment was of money belonging to MFSIM as the responsible entity for PIF, and was a financial benefit to a related party or parties given out of scheme property within the meaning of s 208(1) of the Act as modified by s 601LC (paras 45 and 47);
    3. (c)
      There was no approval given by the members of PIF for the November payments (paras 48 and 49);
    4. (d)
      The $103 million payment was made solely for the benefit of Castle, MFS Ltd and MFS Financial Services and not for the benefit of PIF (para 50);
    5. (e)
      There was no approval for the investment of the funds obtained from the drawdown of $150 million, either by the board of directors of MFSIM, or relevant committees within that company, in its role as the responsible entity of PIF (paras 50A, 50B and 50C);
    6. (f)
      There were no documents recording any transaction for the benefit of MFSIM as the responsible entity for PIF, or which provided for the payment of any consideration or reward, for the making of the $103 million payment (para 50D);
    7. (g)
      MFSIM as the responsible entity for PIF received no benefit or consideration in return for the payment of $103 million (para 52);
    8. (h)
      The payment of $103 million was not an authorised investment within the meaning of cl 15.1 of PIF’s constitution, which provided that PIF’s funds would be invested in “Authorised Investments” (paras 31(b) and 53);
    9. (i)
      In drawing down the $150 million, making the $130 million payment and permitting $103 million of PIF’s money to be paid to Fortress, MFSIM as the responsible entity for PIF contravened s 601FC(1)(a) of the Act by not acting honestly, s 601FC(1)(b) by failing to exercise the degree of care of diligence that a reasonable person would exercise in MFSIM’s position, s 601FC(1)(c) by not acting in the best interest of the members of PIF, and s 601FC(1)(k) by failing to ensure that the $103 million payment was made in accordance with PIF’s constitution (para 54);
    10. (j)
      In making the $130 million payment and in permitting the $103 million payment, MFSIM contravened s 208(1) of the Act (as modified by s 601LC of the Act) because there was a financial benefit given by MFSIM out of the scheme property to Castle, MFS Ltd, MFS Financial Services and MFSA (related parties of MFSIM) (para 55);
    11. (k)
      The contraventions of s 601FC of the Act were of a corporation/scheme civil penalty provision as defined in s 1317DA of the Act and materially prejudiced the interests of PIF and its members, within the meaning of s 1317G(1)(b)(i), in that MFSIM, as the responsible entity for PIF, suffered a loss in the amount of $103 million, plus interest and fees paid to the RBS and stamp duty (para 55A(a)(b));
    12. (l)
      Those contraventions were serious within the meaning of s 1317G(1)(b)(iii) (para 55A(c)).
  2. [98]
    Section 601FC of the Act relevantly provides:

“(1) In exercising its powers and carrying out its duties, the responsible entity of a registered scheme must:

  1. (a)
    act honestly; and
  1. (b)
    exercise the degree of care and diligence that a reasonable person would exercise if they were in the responsible entity’s position; and
  1. (c)
    act in the best interests of the members and, if there is a conflict between the members’ interests and its own interests, give priority to the members’ interests; and

  1. (h)
    comply with the scheme's compliance plan; and

(k) ensure that all payments out of the scheme property are made in accordance with the scheme's constitution and this Act; and

  1. (2)
    The responsible entity holds scheme property on trust for scheme members.

  1. (5)
    A responsible entity who contravenes subsection (1), and any person who is involved in a responsible entity's contravention of that subsection, contravenes this subsection.”

The primary judge’s findings on the pleaded case against MFSIM about the November payments

  1. [99]
    MFSIM was a party to the proceeding, although it was not an active participant.  It was necessary for ASIC to establish a contravention of the Act by MFSIM, not only as against it, but also as against any other defendant who was alleged to have been a party to that contravention.
  2. [100]
    The primary judge was satisfied that MFSIM contravened its pleaded obligations in respect of the November payments and, as we will discuss later, the $17.5 million payment and the production and use of false documents.  For the moment, we will deal with the primary judge’s findings in relation to the November payments.
  3. [101]
    The primary judge described “the main MFSIM contraventions established” as follows:[65]

 A reasonable person in MFSIM’s position would have prevented the making of the $130 million payment and the $103 million payment until satisfied that they were for investments which were authorised under PIF's constitution and for the benefit of PIF and its members. MFSIM did not do that.

 In permitting $103 million of PIF’s money to be paid to Fortress, MFSIM as responsible entity for PIF, contravened s 601FC(5) of the Act:

  1. (a)
    by not acting honestly in breach of s 601FC(1)(a) of the Act;
  1. (b)
    by failing to exercise the degree of care and diligence that a reasonable person would exercise if they were in MFSIM’s position in breach of s 601FC(1)(b) of the Act;
  1. (c)
    by not acting in the best interests of the members of PIF in breach of s 601FC(1)(c) of the Act; and
  1. (d)
    by failing to ensure that the $130 million payment, to the extent of the $103 million payment, was made in accordance with PIF’s constitution in breach of s 601FC(1)(k) of the Act.

 In making the $130 million payment to the extent of the $103 million payment and in permitting $103 million of PIF's money to be paid to Fortress, MFSIM contravened s 208(1) of the Act, as modified by s 601LC of the Act, because there was a financial benefit given by MFSIM, as responsible entity for PIF, out of scheme property to MFS Administration, a related party of MFSIM.”

  1. [102]
    In the orders annexed to his Pecuniary Penalty Reasons (“the Orders”), the primary judge made declarations that MFSIM had contravened the Act in certain respects.  In those declarations certain terms were given defined meanings.  The “RBS Drawdown” was the amount drawn down by PIF from the RBS on 27 November 2007, to the extent of $103 million.  The “MFS Payment” was defined to mean the payment by MFSIM, as the responsible entity of PIF, to MFSA on 30 November 2007, again to the extent of $103 million.  And the “Fortress Payment” was defined to mean the payment made to Fortress on that date.
  2. [103]
    The declarations of contraventions by MFSIM, in relation to the November payments, were as follows:

“1. MFSIM, the responsible entity of PIF, contravened section 601FC(1)(a) and therefore section 601FC(5) of the Corporations Act by not acting honestly in:

  1. (a)
    making the RBS Drawdown for the purpose of making the Fortress Payment, which was for the benefit of related parties of MFSIM and not for the benefit of the members of PIF;
  1. (b)
    making the MFS Payment from PIF’s scheme property to a related party of MFSIM for the purpose of making the Fortress Payment, which was for the benefit of related parties of MFSIM and not for the benefit of the members of PIF;
  1. (c)
    permitting the Fortress Payment, which was from PIF’s scheme property and for the benefit of related parties of MFSIM and not for the benefit of the members of PIF; and

  1. MFSIM, the responsible entity of PIF, contravened section 601FC(1)(c) and therefore section 601FC(5) of the Corporations Act by not acting in the best interests of the members of PIF in:
  1. (a)
    making the RBS Drawdown for the purpose of making the Fortress Payment, which was for the benefit of related parties of MFSIM and not for the benefit of the members of PIF;
  1. (b)
    making the MFS Payment from PIF’s scheme property to a related party of MFSIM for the purpose of making the Fortress Payment, which was for the benefit of related parties of MFSIM and not for the benefit of the members of PIF;
  1. (c)
    permitting the Fortress Payment, which was from PIF’s scheme property and for the benefit of related parties of MFSIM and not for the benefit of the members of PIF; and

  1. MFSIM, the responsible entity of PIF, contravened section 601FC(1)(k) and therefore section 601FC(5) of the Corporations Act by not ensuring that all payments out of PIF’s scheme property were made in accordance with PIF’s constitution in:
  1. (a)
    making the MFS Payment from PIF’s scheme property to a related party of MFSIM for the purpose of making the Fortress Payment, which was not an authorised investment under PIF’s constitution[.]”

The challenge to those findings

  1. [104]
    Of the appellants only Mr King and Mr White were alleged to have been involved in the contraventions by MFSIM in relation to the November payments.  Mr White appears to make no challenge to the primary judge’s findings which we have just set out.  Mr King appears to make one challenge, which was the subject of his fourteenth ground of appeal, namely the finding that the payment of $103 million was made in breach of PIF’s constitution.
  2. [105]
    That finding was not critical to the outcome at the trial against any defendant and is not critical to the outcome of any of the appeals.  But it was said to be relevant also as an indicator of the effect of delay on the Primary Reasons,[66] and at least for that reason it should be discussed.
  3. [106]
    Clause 15 of the PIF constitution[67] required the responsible entity to invest the funds of PIF in “Authorised Investments”, which were defined to include the following:[68]
  • mortgage investments, being a loan secured by a registered mortgage of land;
  • bank deposits or call deposits;
  • bills of exchange (including commercial bills) issued, drawn, accepted or endorsed by any bank or negotiable certificates of deposit issued by any bank;
  • any registered investment schemes, including those of which MFSIM was the responsible entity; and
  • any investment authorised under s 21 of the Trusts Act 1973 (Qld), which the responsible entity considered a prudent investment for PIF.
  1. [107]
    Section 21 of the Trusts Act 1973 (Qld) provides that a trustee may, unless expressly forbidden by the trust instrument, invest trust funds in “any form of investment”.
  2. [108]
    For Ms Watts, it was submitted at the trial that ASIC had not explained the alleged unconstitutionality of those investments, having regard to the broad terms of cl 15 of the constitution and s 21 of the Trusts Act.  For Mr King, it is argued that in finding that there was a contravention of s 601FC(1)(k), the primary judge accepted ASIC’s argument without considering that point raised by the submission for Ms Watts.  That argument for ASIC, it is said, was the one referred to in [1504] of the Primary Reasons, namely that the November and December payments had been made “without the making of any investment at all which was clearly a breach of the constitution”.
  3. [109]
    In our view the judge was clearly correct to accept ASIC’s submission.  The argument for Ms Watts, adopted by Mr King at the trial and in this Court, misunderstands the case advanced by ASIC.[69]  Focussing for the moment upon the November payments, ASIC alleged that because there was nothing in the nature of an investment of PIF’s funds which was made at the time of these payments, they were not an application of PIF’s funds which was authorised by cl 15.  It did not matter whether there had been actual investments as were later represented by the documents created in 2008, nor whether those investments would have been authorised by cl 15.  Consequently there is no force in this criticism of the judge’s reasoning and of his finding of a contravention by MFSIM in that respect.
  4. [110]
    Each of the other contraventions by MFSIM, as found by the primary judge, was well established by evidence which could not have been controversial.  The judge’s finding that MFSIM did not act honestly did not require an identification of the person or persons whose state of mind constituted that of the company.  MFSIM decided to pay $103 million of PIF’s money to Fortress, in the circumstances which we have described, when within the company it was known that this was a payment to benefit Castle and its guarantors, with nothing in place for the benefit of PIF.  MFSIM was a trustee and PIF’s members had no interest in the payment of Castle’s debts.  The payment left PIF exposed to the risk of a permanent loss of all of the money paid.

The case against Mr King

  1. [111]
    As we have outlined earlier, the case against Mr King was in two parts.  Firstly, ASIC alleged that he was involved in the contraventions by MFSIM to which we have referred above at [97] (“the s 79 case”).  Secondly, it alleged that Mr King was an officer of MFSIM, who breached the duties imposed by s 601FD of the Act upon an officer of a responsible entity (“the officer case”).
  2. [112]
    The scope of the pleading against Mr King is in question.  It was argued, as it was at the trial, that the case ultimately advanced by ASIC against Mr King was different to that which it had pleaded.  It is necessary then to discuss in some detail ASIC’s pleading.
  3. [113]
    That first part of ASIC’s case was made on the basis of s 79 of the Act, which is as follows:

“A person is involved in a contravention if, and only if, the person:

  1. (a)
    has aided, abetted, counselled or procured the contravention; or
  1. (b)
    has induced, whether by threats or promises or otherwise, the contravention; or
  1. (c)
    has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention; or
  1. (d)
    has conspired with others to effect the contravention.”

In particular, ASIC relied upon s 79(c), alleging that Mr King had been knowingly concerned in the MFSIM contraventions.  That required ASIC to plead and prove that Mr King had actual knowledge of the facts constituting the contravention,[70] although it is unnecessary that a person with knowledge of those elements also know that the elements amount to a contravention.[71]  The controversy about the scope of ASIC’s pleading was about the allegations of what Mr King knew.

  1. [114]
    This case was pleaded in para 56 of the Statement of Claim, where it was alleged that Mr King knew of the RBS loan agreement and knew that funds drawn down pursuant to it belonged to PIF and knew that they should be used only in accordance with PIF’s constitution.[72]  It was pleaded that Mr King was told by Mr White, by no later than 26 November 2007, that Mr White “would be able effect a transaction which would result in $100 million becoming available to pay Fortress”.[73]  It was further pleaded that after receiving that information from Mr White, Mr King:[74]

“(i) did not know of any source of $100 million available to White other than monies drawn down pursuant to the RBS Loan Agreement;

  1. (ii)
    knew there was no transaction or transactions which were in fact undertaken which would make the use of monies drawn under the RBS Loan Agreement to repay Fortress … a proper investment on behalf of PIF[.]”
  1. [115]
    The critical part of para 56 in the argument for Mr King, was this sub-para:

“(n) [Mr King] knew of no benefit, consideration or reward which MFSIM as Responsible Entity for PIF could, or would in fact, gain from the $103 million Payment.”

  1. [116]
    It was argued that the case pleaded in sub-para (n) was to the effect that “the $130 million payment made by MFSIM was part of a sham”.[75]  It is said that ASIC should not have been permitted to argue for a finding that Mr King knew that at the time of the payment, there was no benefit, consideration or reward which was then being given for the payment.
  2. [117]
    The scope of ASIC’s case in this respect was argued during the trial when ASIC sought leave to amend its Statement of Claim.  The proposed amendments were relevant, in the same way, to the cases pleaded against Mr White and Mr Anderson.  Paragraph 58(i)(iii) of the Statement of Claim pleaded a case against Mr White in identical terms to that pleaded against Mr King in para 56(n).
  3. [118]
    The application to amend arose in this way.  ASIC had opened its case upon the basis that the transactions which were purportedly recorded by the allegedly false documents did not happen and that “the whole thing was a sham”.[76]  It was apparent from the conduct of the case for Mr Anderson at the trial that, on his argument, there was a complete answer to that case, which was that the subject documents, once they were signed in 2008, did have a legal effect such that the transactions which they purported to record became transactions which had happened.  On day 44 of the trial, in opening his client’s case, Senior Counsel for Mr Anderson said, in effect, that because the transactions purportedly recorded by the documents had been ratified by the board of MFSIM, ASIC’s case must fail because it was based on an essential premise that the documents had no legal effect.  Senior Counsel for Mr Anderson said that ASIC had not made any alternative case.  That prompted ASIC to apply for leave to file a sixth further amended statement of claim.  By that stage, Mr King, Mr White and Mr Hutchings (as well as ASIC) had closed their cases.
  4. [119]
    The proposed amendments against Mr King were relevantly these changes to para 56(h) and (n):

“(h) at all times after receiving the information from White pleaded at sub-para (f), he:

  1. (ii)
    knew there was no transaction or transactions which were in fact undertaken at the time of the $130 Million Payment which would make the use of monies drawn under the RBS Loan Agreement to repay Fortress in accordance with the Agreement of 26 November 2007, a proper investment on behalf of PIF.

(n) he knew of no benefit consideration or reward which MFSIM as Responsible Entity for PIF could, or would in fact, gain from the $103 Million Payment at the time of the $130 Million Payment.”

An identical amendment was proposed for the cases pleaded against Mr White and Mr Anderson.

  1. [120]
    ASIC argued to the primary judge that these amendments would merely clarify what had always been its case.  The defendants argued that the amendments would result in a new case, markedly different from the case pleaded and opened by ASIC, at a stage of the trial where almost all of the evidence had been received.
  2. [121]
    The primary judge said that it was at least arguable that the case pleaded by the proposed amendments was within the case pleaded in the existing statement of claim.  The judge said that the scope of the existing pleading could be argued in final submissions.  He noted that ASIC had filed replies to some of the defences which had pleaded that no consideration was provided to PIF “at the time of and in exchange for the $130 million payment.”  But a reply to that effect had not been filed within time against Mr King.  Given the content of the other replies, the judge ruled that the same pleading by a reply could be made against Mr King.
  3. [122]
    At the end of the trial the primary judge heard further submissions on the question and, in the Primary Reasons, concluded that “the issue whether any consideration was received for the payments at the time was also alive and covered by the pleadings, including the replies”, in addition to a “question whether any inchoate hope or expectation the defendants had that some consideration would eventually be paid for the funds taken from PIF met their fiduciary obligations”.[77]  The judge said that it was his understanding “of the primary focus of ASIC’s case” that “the payments, when made, were not made for a legitimate purpose of MFSIM as responsible entity for PIF but for the purposes of MFS and PacFin”.  He said that “[t]he false documents case was also based on that premise and upon allegations that they had been created to obscure the illegitimacy of the two payments totalling $147.5 million.”
  4. [123]
    For Mr King, it was argued that the primary judge erred in reasoning, in effect, that a reply can be capable of amending allegations in a statement of claim.  As a general proposition, that must be accepted.  But if there was an ambiguity in the Statement of Claim, any procedural unfairness to the defendant might have been avoided by the content of a reply if it was received in sufficient time to avoid a material prejudice in the conduct of the defendant’s case.
  5. [124]
    It was argued that the primary judge’s ultimate reasoning on this point “failed to grapple with the materially different character of the new case”.[78]  In our view, that argument cannot be accepted, because there was no new case of a materially different character, as we will now explain.
  6. [125]
    It is necessary to keep in mind that the subject allegations against Mr King were parts of the plea, in para 56, that he was knowingly concerned in certain contraventions by MFSIM, so that the scope of the case pleaded against him was necessarily a function of the content of the pleaded case of the MFSIM contraventions.  Under that pleaded case, the contraventions consisted of acts and omissions by MFSIM at the time, or times, of the November payments.
  7. [126]
    One of the material facts pleaded about the case of the contraventions by MFSIM was that:

“MFSIM as Responsible Entity for PIF received no benefit or consideration in return for the $130 Million Payment to the extent of the $103 Million Payment”.[79]

As particulars of that allegation, ASIC referred to other parts of the Statement of Claim which, with one exception, referred to what had not occurred by the time of the November payments, namely the approvals of relevant committees of PIF and the board of directors of MFSIM, and the preparation of any document recording any transaction for the benefit of PIF or providing for any consideration or reward for the payments.[80]  The one exception was that in the allegation that no documents were prepared, it was said that “no documents were prepared in November or December 2007 which recorded any transaction …”.  Nevertheless, in our view it was clear that ASIC alleged that MFSIM contravened the Act by drawing down the funds from the RBS and dispersing (most of) them in the week ending 30 November 2007.  By alleging, in para 52 of the Statement of Claim, that PIF received no benefit or consideration “in return” for the payments, ASIC was referring to the non-receipt of any benefit or consideration (including any enforceable promise) at the time of the payments.  The circumstance of the non-receipt of any benefit or consideration was an essential element of MFSIM’s contraventions, so that it was a circumstance which, ASIC alleged, existed at the time of the contraventions.

  1. [127]
    If, as at least some of the defendants argued at the trial, the allegedly false documents did have legal effect, such that their purported “ratification” by the board of directors of MFSIM meant that some benefit was later received by PIF, that did not matter for the case which ASIC presented.  Under its case, the conduct of MFSIM had to be assessed by what it did, and did not do, in November 2007 in the circumstances which then existed, because it was at that point in time that MFSIM was said to have contravened the Act.
  2. [128]
    In turn, the case pleaded against (relevantly here) Mr King and Mr White was an involvement in those contraventions.  Any ambiguity in the scope of the cases pleaded against them was to be resolved by reference to the case pleaded about the contraventions by MFSIM.  We are inclined to accept, as was argued for Mr King and Mr White, that the allegations in paras 56(n) and 58(i)(iii), that the defendant knew that there was no benefit, consideration or reward which could come from the $103 million payment, went further than the case pleaded in para 52 about MFSIM’s contravention.  But if so, that meant only that the case against them was to be limited to (relevantly) an alleged knowledge that PIF received no benefit or consideration in return for the payment, meaning something received at the time of the payments.  That was a case which was already pleaded against Mr King in para 56(h)(ii) and against Mr White in para 58(i)(ii).  We cannot accept that these appellants should have been under any misunderstanding about the essence of ASIC’s case, namely that $103 million of PIF’s money was applied to pay the debt of another entity without it then receiving anything in return, even in the nature of an enforceable promise.
  3. [129]
    The second part of ASIC’s case against Mr King, the officer case, largely repeated the allegations which were pleaded for the s 79 case against him.  But under this part of ASIC’s case, Mr King might have contravened the Act by himself failing to exercise a reasonable degree of care and diligence and, more generally, by not acting in certain ways in the interests of PIF.  As we will discuss, there was and remains a substantial contest about whether Mr King was an officer of MFSIM.

The primary judge’s findings and conclusions against Mr King

  1. [130]
    As to what Mr King knew of the absence of any transaction which could justify the payment of $103 million or any benefit, consideration or reward in return for it, the primary judge made these findings:
    1. (a)
      Mr King knew that the $130 million payment was made for the purpose of the MFS Group repaying $103 million to Fortress, not for PIF’s purposes;[81]
    2. (b)
      Mr King knew that there was no transaction which had been “implemented at the time of the payment” which made the payment a proper one from PIF’s funds;[82]
    3. (c)
      It was irrelevant that Mr King “may have had in contemplation some transaction by which PIF’s funds could have been used to purchase MFS assets … He either knew that no such transaction had then been entered into or was indifferent to whether it had been effected by the time the funds were transferred”;[83]
    4. (d)
      “Even if Mr King was genuinely ignorant of what, if anything, was proposed as a quid pro quo for the investors, he was on notice, from his training and experience, that some return for them was required.  In other words he had been exposed to the obvious, to use the language of Wilson, Deane and Dawson JJ in Georgianni v The Queen”;[84]
    5. (e)
      “The strong inference … is that he was either told by Mr White that there was no transaction currently on foot to reimburse PIF or that he studiously avoided asking such a question, knowing that it was not likely that something could be put in place at such short notice to justify the payment [from which it is to be inferred] that he knew that the money was then being paid for no legitimate purpose of PIF but rather to alleviate MFS Limited’s difficulties with its financier”;[85]
    6. (f)
      If Mr King “abstained from making an inquiry about what purpose of PIF existed for the payment … he did so because he knew there was none, the true purpose being the repayment of part of the Fortress Loan”;[86]
    7. (g)
      If Mr King “were to have acted honestly he should have made inquiries about what was proposed and have ensured that something was in place for PIF’s investors before the money was taken from MFSIM as PIF’s responsible entity”;[87] and
    8. (h)
      Mr King must have known that the payments provided financial benefits to related parties in the MFS Group in breach of s 208(1) of the Act, as modified by s 601LC, and known that no steps had been taken to observe the requirements of that section.[88]
  2. [131]
    The primary judge returned to the first of those findings in the Pecuniary Penalty Reasons, where he said that ASIC had submitted that he could make some “supplementary factual findings to clarify the reasons why I found that a number of declarations of contraventions should be made”.[89]  The primary judge recorded that counsel for ASIC “were concerned that some of my decisions in relation to the declarations that should be made were not sufficiently buttressed by unambiguous or explicit factual findings.”[90]  Over the objections of the defendants, his Honour made further findings.  In Mr King’s case his Honour said this:

[6] At [845] of my reasons I said of Mr King that I was:

‘… satisfied that it has been established that, in late November 2007, Mr King approved and authorised the use of the money drawn down under the RBS Loan Agreement to make the $130 million payment and the $103 million payment.  I am also satisfied that at the time of the approval and authorization of the draw down and $103 million payment, Mr King knew that the $130 million payment was made from funds managed by MFSIM as responsible entity of PIF and that the $130 million payment was made for the purpose of the MFS Group repaying $103 million to Fortress, not for PIF’s purposes.’

[7] ASIC’s submission was that it was not entirely clear what I found about Mr King’s involvement in that contravention.  On reviewing my discussion of Mr King’s involvement, set out at [761]-[858] of my reasons, I have accepted the evidence and factual submissions by ASIC in general, including the evidence and submissions summarised at [769]-[782], and have expressed my acceptance of the evidence and submissions at [850]-[853] in particular.

[8] It is on that basis that I concluded that a declaration should be made that Mr King permitted MFSIM to make the RBS drawdown for the purpose of giving a benefit to related parties of MFSIM and not for the benefit of the members of PIF, thus contravening s 601FC(5) of the Corporations Act by being knowingly concerned in MFSIM’s contraventions.”

  1. [132]
    The primary judge referred there to the evidence and submissions which he had summarised at [769] – [782] of the Primary Reasons, to which we shall return in discussing the evidence in Mr King’s case.
  2. [133]
    The primary judge held that Mr King “approved and authorised” the use of the money drawn down from the RBS to make the November payments.[91]  His Honour concluded that Mr King had participated in the MFSIM contraventions and was involved in them,[92] and that he should make declarations of contraventions as ASIC had sought.[93]
  3. [134]
    As to the officer case, the primary judge found that Mr King had breached his duties as an officer of MFSIM “by not acting honestly, or alternatively failing to exercise the required degree of care and diligence and not acting in the best interests of the members of PIF”.[94]  The primary judge found that Mr King “made improper use of his position as an officer of MFSIM by failing to take steps that a reasonable person would take in his position to ensure MFSIM as responsible entity for PIF complied with its constitution.”[95]
  4. [135]
    The primary judge found that although Mr King was not a director of MFSIM at any relevant time for the November payments (having resigned from its board in February 2007) he was an officer of MFSIM according to the definition of that term in s 9 of the Act, which was as follows:

Officer of a corporation means:

  1. (a)
    a director or secretary of the corporation; or
  1. (b)
    a person:
  1. (i)
    who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the corporation; or
  1. (ii)
    who has the capacity to affect significantly the corporation’s financial standing; or
  1. (iii)
    in accordance with whose instructions or wishes the directors of the corporation are accustomed to act (excluding advice given by the person in the proper performance of functions attaching to the person’s professional capacity or their business relationship with the directors or the corporation); or
  1. (c)
    a receiver, or receiver and manager, of the property of the corporation; or
  1. (d)
    an administrator of the corporation; or
  1. (e)
    an administrator of a deed of company arrangement executed by the corporation; or
  1. (f)
    a liquidator of the corporation; or
  1. (g)
    a trustee or other person administering a compromise or arrangement made between the corporation and someone else.”
  1. [136]
    The primary judge concluded that having regard to the “frequent interactions between Mr King and Mr White, including Mr King’s admissions about the nature of his role as the overall boss of the MFS Group”, it was established that Mr King “participated in the making of decisions that affected the whole or a substantial part of MFSIM’s business and had the capacity to affect significantly its financial standing.”[96]  It thereby appears that he was held to be an officer upon the basis that he was within para (b)(i) and (ii) of the definition.  That was said to have been a departure from ASIC’s pleaded case, which was that Mr King was an officer because Mr White customarily acted in accordance with Mr King’s instructions and wishes and Mr King had “overall responsibility for the operations of MFSIM”, with the consequence that Mr King “had the capacity to affect significantly the financial standing of MFSIM”.[97]  We will discuss below the findings in this respect in more detail when considering Mr King’s arguments.

The arguments for Mr King

The s 79 case

  1. [137]
    The primary judge’s conclusions on this part of ASIC’s case are the subject of several grounds of appeal.  In essence, the arguments were as follows:
    1. (a)
      ASIC did not plead or prove that Mr King knew of the essential matters constituting the contraventions by MFSIM (Ground 10 in Mr King’s Notice of Appeal);
    2. (b)
      the primary judge erred in finding that Mr King approved and authorised the payments and the Primary Reasons revealed no analysis leading to that conclusion (Ground 11);
    3. (c)
      the primary judge erred in finding that Mr King had the knowledge and other states of mind which we have summarised above at [130] (Ground 12);
    4. (d)
      the primary judge erred in relying on certain evidence, namely minutes of a meeting of the MFS Finance and Investment Committee (“the FIC”) meeting held on 29 November 2007, to support a finding that Mr King knew that there had been no transaction which made the payments proper in the interests of PIF (Ground 13);
    5. (e)
      the primary judge erred in ruling that the payment was not an authorised investment under PIF’s constitution (Ground 14).
  2. [138]
    In Yorke v Lucas,[98] the High Court considered the terms of s 75B of the Trade Practices Act 1974 (Cth), which was relevantly identical to s 79 of the Act.  In relation to s 75B(c), Mason ACJ, Wilson, Deane and Dawson JJ said:[99]

“There can be no question that a person cannot be knowingly concerned in a contravention unless he has knowledge of the essential facts constituting the contravention.

In our view, the proper construction of par. (c) requires a party to a contravention to be an intentional participant, the necessary intent being based upon knowledge of the essential elements of the contravention.”

  1. [139]
    Those statements have been consistently applied to s 79(c) of the Act: see the discussion by White J in Australian Securities and Investments Commission v ActiveSuper Pty Ltd (in liq),[100] together with, for example, Lifeplan Australia Friendly Society Ltd v Ancient Order of Foresters in Victoria Friendly Society Ltd,[101] Re Galtari Pty Ltd (in liq)[102] and, most recently, Australian Securities & Investments Commission v Lewski; Australian Securities & Investments Commission v Wooldridge; Australian Securities & Investments Commission v Butler; Australian Securities & Investments Commission v Jaques; Australian Securities & Investments Commission v Clarke.[103]
  2. [140]
    The submissions for Mr King identified several paras of the Statement of Claim[104] which are said to have pleaded “essential matters constituting the contraventions of MFSIM”.  It was submitted that ASIC’s case was bound to fail, because ASIC had not pleaded that Mr King had actual knowledge of the facts pleaded in those paras.  The argument emphasises two allegations within them, which ASIC had not pleaded were known to Mr King, namely:
    1. (a)
      that none of PIF’s IAC, the MFSIM Conflicts and Related Party Committee (“CRPC”) and the MFSIM board approved any investment of the funds obtained from the $150 million drawdown from the RBS facility;[105]
    2. (b)
      that no documents were prepared in November or December 2007 recording any transaction for the benefit of PIF or providing for the payment of any consideration or reward to PIF for the November payment or payments.[106]
  3. [141]
    Those submissions were made to the primary judge, as recorded in the Primary Reasons at [801] – [803].  The primary judge also referred to ASIC’s submissions in reply to them in the Primary Reasons at [804] – [806].  But it was argued that the primary judge did not expressly rule on this question and gave no reasons for rejecting the submissions for Mr King.  Instead, his Honour merely referred to the decision of Logan J in Australian Communications and Media Authority v Mobilegate Ltd (No 8)[107] as authority for the proposition that it is not necessary to establish a knowledge “of every factual detail that made up the contravention”.[108]
  4. [142]
    The derivation of s 79 (like that of s 75B of the Trade Practices Act 1974 (Cth)) is to be found in the criminal law.[109]  The essential elements of a contravention, which must be known by a participant under s 79(c), are those facts which have to be proved to establish the contravention.  There is a clear difference in principle between the essential elements of an offence or contravention and other facts which are not essential in that sense, although they are facts which contribute to the proof of what is essential.
  5. [143]
    It is not unknown for a pleading to allege matters which, upon a proper characterisation, are evidence rather than material facts.  And further, ASIC was obliged to plead any fact which, if unpleaded, could cause surprise,[110] as well as any fact from which any fraud or illegality was to be inferred.[111]  Consequently, it does not follow from the pleading of a fact in the Statement of Claim that it is an essential element of an alleged cause of action, or in the present case, of an alleged contravention.
  6. [144]
    What were the essential elements of MFSIM’s contraventions?  We have set out above at [103] the declarations which were made as to contraventions by MFSIM in respect of the November payments.  They did not include a declaration that MFSIM contravened s 208 of the Act.  We will return to the orders which were made about a breach of that provision.
  7. [145]
    By para 1 of the Orders made, it was declared that as the responsible entity of PIF, MFSIM contravened s 601FC(1)(a) by not acting honestly in drawing down $150 million (to the extent of $103 million), making the $130 million payment (again to the extent of $103 million) and permitting the payment to Fortress.  In each case, it was declared that MFSIM acted dishonestly because that payment was not for the benefit of the members of PIF, but was for the benefit of related parties of MFSIM.  In paras 6, 7(a) and 8(a) of the Orders, it was declared that Mr King (along with Mr White) was involved in those contraventions by being knowingly concerned in them.
  8. [146]
    The effect of the declarations as against Mr King (along with Mr White) was that he knew that the RBS Drawdown, the MFS Payment and the Fortress Payment were for the benefit of related parties of MFSIM and not for the benefit of the members of PIF.  That was the mental element of Mr King’s participation in MFSIM’s breach of its duty to act honestly.  That mental element was pleaded against Mr King.  In particular, it was alleged in para 56(h) that Mr King knew of no source of funds to pay Fortress other than monies drawn down pursuant to the RBS Loan Agreement and knew that there was no transaction which was in fact undertaken which would have made the use of monies drawn down under the RBS Loan Agreement to repay Fortress a proper investment on behalf of PIF.
  9. [147]
    By para 2 of the Orders,[112] it was declared that MFSIM contravened s 601FC(1)(c) by not acting in the best interests of the members of PIF in making the RBS Drawdown, making the MFS Payment and permitting the Fortress Payment for the benefit of related parties of MFSIM and not for the benefit of the members of PIF.  By paras 6, 7(a) and 8(a) of the Orders, Mr King and Mr White were declared to have been knowingly concerned in those contraventions.  The mental element which was relevant was effectively the same as that for their involvement in MFSIM’s breach of its duty to act honestly.  Again, the case which the Court upheld was sufficiently pleaded.
  10. [148]
    By para 3(a) of the Orders, it was declared that MFSIM contravened s 601FC(1)(k), by not ensuring that all payments out of PIF’s scheme property were made in accordance with PIF’s constitution and by making the MFS Payment to a related party of MFSIM for the purpose of making the Fortress Payment, which was not an authorised investment under PIF’s constitution.
  11. [149]
    Mr King and Mr White were declared to have been knowingly concerned in that contravention, by permitting MFSIM to make the payment “without being satisfied the MFS Payment was for the purpose of an authorised investment under PIF’s constitution” (para 7(b) of the Orders).
  12. [150]
    As we have discussed, the case that MFSIM contravened s 601FC(1)(k) was upon the basis that the MFS Payment involved no “investment” of PIF’s funds.  That fact was the consequence of the absence of any transaction between MFSIM and any other entity which would have made this a proper use of PIF’s money.  Mr King was alleged to have known that in para 56(h) of the Statement of Claim.  Again, the case which was established had been pleaded.
  13. [151]
    We return to the contravention by MFSIM of s 208.  This was the subject of a declaration in these terms:

“8. By permitting MFS Administration to make the Fortress Payment, each of King, White, and Anderson:

  1. (a)
  1. (b)
    contravened section 209(2) of the Corporations Act by being knowingly concerned in the contravention by MFSIM, the responsible entity of PIF, of section 208(1) of the Corporations Act as modified by section 601LC of the Corporations Act, by permitting MFS Administration to make the Fortress Payment, which was:
  1. (i)
    a financial benefit to MFS Castle, MFS Limited, and MFS Financial Services, each a related party of MFSIM;
  1. (ii)
    out of PIF’s scheme property; and
  1. (iii)
    made without obtaining the approval of PIF’s members.”
  1. [152]
    A person contravenes s 209(2) if they are involved in a contravention of s 208.  The meaning of involvement (again) comes from s 79.
  2. [153]
    ASIC pleaded that Mr King knew that the Fortress Payment was made out of PIF’s funds and provided a financial benefit to Castle, MFS Ltd and MFS Financial Services.
  3. [154]
    It was not specifically pleaded that Mr King knew that those companies were related parties of MFSIM.  But it was pleaded that Mr King was the CEO of the MFS Group, which included MFSIM, MFS Ltd, Castle and MFS Financial Services.[113]
  4. [155]
    It was not specifically pleaded that Mr King knew that the Fortress Payment was made “without obtaining the approval of PIF’s members.”  But that was implicit in what was pleaded, namely that he knew that there was no transaction which would have made the Fortress Payment a proper use of PIF’s money.  Knowing that, Mr King would have known that there was nothing which could have been presented to the members of PIF for approval.  Again therefore, the case which was made out was one which was sufficiently pleaded.
  5. [156]
    It follows that Ground 10 must be rejected.
  6. [157]
    The primary judge’s findings about the s 79 case are the subject of Grounds 11, 12 and 13 of Mr King’s appeal.

Ground 11

  1. [158]
    Ground 11 contends that the primary judge erred in finding that Mr King approved and authorised the use of money drawn down from the RBS, because that was not a reasonable and definite inference or otherwise a proper conclusion on the evidence.  It was argued that the finding does not identify how Mr King did approve and authorise the payments and that the finding was not supported by any analysis in the Primary Reasons.  As we have said earlier, in the Pecuniary Penalty Reasons, the primary judge added that he had “accepted the evidence and factual submissions by ASIC in general, including the evidence and submissions summarised at [769] – [782].”[114]  It is necessary then to go to them, which appeared in the judgment under the heading “Submissions for ASIC”.
  2. [159]
    In that part of the Primary Reasons, the primary judge noted that in his evidence, Mr King had agreed that he was aware that “the $150 million that was coming across was money that PIF held in trust, effectively, for its investors.”[115]  His Honour said that probably Mr King had probably known of this fact by the morning of 28 November 2007.  The primary judge there referred to an email from Mr White to Mr King, which had forwarded Ms Howard’s email to Mr Hutchings, Ms Watts and Mr White earlier that morning, advising that:[116]

“RBS is in train.  Funding of $150m should hit PIF operating account today or first thing tomorrow morning.”

As we have noted above at [85], later that day the RBS advised that it had sent the funds and this advice was passed on to Mr King.

  1. [160]
    Indeed Mr King’s case at the trial accepted that he knew that the source of the funds used for the Fortress Payment was a drawdown upon PIF’s facility with the RBS which was made in that week.  But the challenge is to the primary judge’s finding that Mr King approved and authorised the use of that money.
  2. [161]
    For Mr King, it was submitted that this finding was influenced by the primary judge’s conclusion that Mr King was an officer of MFSIM.  We consider the correctness of that conclusion below, but at this point something should be said about the primary judge’s reasoning on that issue because of its relevance to the present question.
  3. [162]
    As already noted, the primary judge said that on his “analysis of the evidence of the frequent interactions between Mr King and Mr White, including Mr King’s admissions about the nature of his role as the overall boss of the MFS Group”, Mr King had participated in decisions affecting the whole or a substantial part of MFSIM’s business and had the capacity to affect significantly its financial standing.[117]  At [665], the primary judge referred to some of the evidence about Mr King’s position as follows:[118]

“Mr King was the co-founder of the MFS business and in 2007 received the highest remuneration paid by the MFS Group.  He said in his s 19 examination that, as the CEO of the MFS Group, he had overall responsibility for MFSIM.  Mr King said Mr White was in charge of PIF and that Mr White, together with the group around him, were responsible for the ‘day to day operational decisions’.  Mr White reported to Mr King and would take instructions from him.  Mr King would talk to Mr White at least daily ‘in some way, shape or form’.”

His Honour continued:[119]

“Mr King conceded that Mr White took instructions from him with respect to the proprietary matters of the business.  However, Mr King was unable to recall any instance where Mr White refused to take a direction from him with respect to the funds management side of the business.  On 8 May 2014, Mr King gave evidence that Mr White had refused to get Mr Kennedy off the IAC.  However, when taken to the relevant emails in cross-examination on 4 August 2014 he withdrew that contention and was unable to recall any example of a refusal.”

  1. [163]
    In our view, the primary judge thereby explained the basis for his finding, at [845] of the Primary Reasons, that Mr King not only knew that money drawn down from the RBS was to be used in this way, but “approved and authorised” that use.  Inevitably, the evidence which was the basis for that finding would also be relevant to the primary judge’s finding that Mr King was an officer of MFSIM.  But, contrary to Mr King’s argument, the primary judge did not find that Mr King approved and authorised the use of the funds by reasoning that this followed from Mr King’s being an officer.  In essence, his Honour reasoned that in the hierarchy of the MFS Group, it was to be inferred that Mr White would not have caused PIF’s money to be used in this way without the imprimatur of Mr King.  There was no error in that reasoning.
  2. [164]
    In any event, on this part of the case against Mr King the question was not whether Mr King approved and authorised the use of PIF’s money, but whether he was knowingly concerned in MFSIM’s contraventions.  As we have discussed, that required an actual knowledge by Mr King of the essential elements of those contraventions.  It also required some conduct on the part of Mr King, in that it was necessary to show that he was a participant in those contraventions rather than a knowledgeable bystander.  In Yorke v Lucas, Mason ACJ, Wilson, Deane and Dawson JJ said that upon its proper construction, s 75B(1)(c) of the Trade Practices Act 1974 (Cth) required a party to a contravention to be an “intentional participant”.[120]
  3. [165]
    In Trade Practices Commission v Australia Meat Holdings Pty Ltd,[121] Wilcox J described the nature of conduct by which a party might be knowingly concerned in a contravention of the Trade Practices Act:

“However, leaving aside any question of fact, it seems to me to be erroneous to read s 75B as being limited to conduct without which the relevant contravention could not have occurred. The words ‘knowingly concerned’ are commonly found in statutory provisions creating criminal offences. In that context the word ‘concerned’ has been read as requiring facts connecting the accused with the commission of the relevant offence: see R v Goldie; Ex parte Picklum (1937) 59 CLR 254; Ashbury v Reid [1961] WAR 49; R v Hussain [1969] 2 QB 567; R v Kelly (1975) 24 FLR 441; R v Tannous (1987) 10 NSWLR 303; 81 ALR 403. In Ashbury v Reid the Full Court of the Supreme Court of Western Australia, after quoting the Oxford Dictionary definition of ‘concerned’, said (at 51): ‘The question which a court should ask itself in determining whether an act or omission on the part of an individual comes within the terms of s 54 is whether on the facts it can reasonably be said that the act or omission shown to have been done or neglected to be done by the defendant does in truth implicate or involve him in the offence, whether it does show a practical connection between him and the offence.’”

  1. [166]
    More recently, in Agricultural Land Management Ltd v Jackson (No 2),[122] Edelman J said that a person has a “concern in” the contravention if there is a “practical connection” between that person’s act or omission and the contravention.
  2. [167]
    The expression “knowingly concerned”, as it had operated in s 5 of the Crimes Act 1914 (Cth) and other legislation, was discussed by Weinberg AJA, sitting in the New South Wales Court of Criminal Appeal, in Campbell v The Queen.[123]  His Honour there referred to the Review of Commonwealth Criminal Law by a committee chaired by Sir Harry Gibbs and to its report entitled “Principles of Criminal Responsibility and Others Matters” published in 1990.  As Weinberg AJA discussed, the Gibbs Committee cited a number of cases, including Trade Practices Commission v Australia Meat Holdings Pty Ltd, and regarded these decisions as “having established that the act or omission of the accused had to implicate or involve him or her in the offence.”[124]  It was the view of the Gibbs Committee that the words “knowingly concerned” had “the merit of ensuring that circumstances amounting to knowing involvement in an offence which do not amount to participation as a principal, and to which the expressions “aid, abet, counsel or procure” (or whatever equivalents are used) are not obviously apt, are nevertheless within the reach of the provision”.[125]  That view was endorsed by Weinberg AJA, with whom Spigelman CJ and Simpson J agreed.  Therefore the scope of the potential operation of s 79(c) is broad, and likely to be broader than those of the other paras in s 79.
  3. [168]
    Consequently, Mr King might have been knowingly concerned in MFSIM’s contravention by some conduct on his part although it was not causative of the contravention, in the sense that the contravention would not have occurred but for his conduct.  More specifically, it was unnecessary for ASIC to prove that the contravention occurred because Mr King approved or authorised it.  It was sufficient that there was some conduct which implicated or involved him in the contravention.
  4. [169]
    We discuss below the question of whether Mr King had the requisite knowledge of the essential elements of these contraventions.  But clearly he was involved or implicated in the contraventions.  He negotiated the variation to the agreement with Fortress, under which the $103 million payment was made.  He was in frequent contact with others within MFS, most importantly Mr White, about the progress of Mr White’s efforts to procure finance by which that payment could be made.  His effusive reaction to the advice from Mr White, late on 28 November 2007, that the RBS funds had been drawn down, demonstrated his encouragement of (to say nothing of any direction to) Mr White and others to obtain the RBS funds for the purpose of the Fortress Payment.
  5. [170]
    For these reasons Ground 11 must be rejected.

Mr King’s state of mind – Grounds 12 and 13

  1. [171]
    By Ground 12 of his appeal, Mr King challenges the primary judge’s findings that he had the requisite state of mind to have been knowingly concerned in MFSIM’s contraventions.  Ground 12 is expressed in two parts, the first of which is a repetition of Ground 10.
  2. [172]
    The second argument under Ground 12 was that the primary judge’s findings as to Mr King’s state or states of mind were unreasonable and involved improper inferences on the whole of the evidence.  Before going to the evidence, it is necessary to discuss further the primary judge’s findings in this respect, because it was said that they are internally inconsistent and illustrate the effect of the delay in the delivery of the judgment.
  3. [173]
    We have set out the relevant findings above at [130].  Many of those statements were findings of what was actually known: namely that he knew that the $130 million payment was made for the purposes of the MFS Group and not for those of PIF, he knew that there was no transaction which had been implemented at the time of the payment which made the payment a proper one and that he abstained from making an inquiry about what purpose of PIF existed for the payment, because he knew that there was no such purpose.  He knew that the payments provided financial benefits to related parties and that no steps were taken as required by s 208.  On those findings, the requisite state of mind of Mr King was established.
  4. [174]
    At one point, the primary judge said that Mr King either knew that no transaction had been entered into at the time of the payments “or was indifferent as to whether it had been effected by the time the funds were transferred”.[126]  His Honour said that even if Mr King was genuinely ignorant of what was proposed as a quid pro quo for the investors, he was on notice that some return for them was required so that he had been “exposed to the obvious, to use the language of Wilson, Deane and Dawson JJ in Georgianni v The Queen”.[127]  His Honour inferred that Mr King was either told by Mr White that there was no transaction currently on foot to reimburse PIF or that Mr King “studiously avoided asking such a question”.[128]  If he did avoid asking the question, “he did so because he knew that there was none”.[129]
  5. [175]
    Some of those findings were expressed as, in effect, a wilful blindness as to the truth.  As we have discussed, what ASIC had to prove was an actual knowledge.  But as the primary judge’s reference to Georgianni v The Queen confirms, his Honour had in mind an actual knowledge which can be inferred from a deliberate avoidance of the obvious.  In the passage from that case cited by the primary judge, Wilson, Deane and Dawson JJ said:[130]

“The fact of exposure to the obvious may warrant the inference of knowledge.  The shutting of one’s eyes to the obvious is not, however, an alternative to the actual knowledge which is required as the basis of intent to aid, abet, counsel or procure.”

  1. [176]
    A little earlier in the Primary Reasons, the primary judge adopted the extensive discussion of the authorities on this requirement for knowledge of the essential facts by White J in Australian Securities and Investments Commission v ActiveSuper Pty Ltd (in liq).[131]  Citing the judgment of the High Court in Pereira v Director of Public Prosecutions,[132] White J said this about a case of wilful blindness:[133]

“Proof that a person had actual knowledge of each of the essential elements making up the contravention may be derived from direct evidence but more commonly will be a matter of inference from all the circumstances found to be proved.  In some cases, actual knowledge can be inferred from the combination of a defendant’s knowledge of suspicious circumstances and the decision by the defendant not to make inquiries to remove those suspicions.

Any difference in approach [amongst the judgments] in Georgianni in these passages appears to have been resolved by the unanimous judgment in Pereira … It means that only actual knowledge of the essential matters will be sufficient but that that knowledge may be able to be inferred from a defendant’s knowledge of matters raising suspicion, together with a deliberate failure to make the enquiries which may have confirmed those suspicions.”

White J observed that “[i]t is necessary to keep in mind that it may not be every deliberate failure to make inquiry which will support the inference of actual knowledge.”[134]  He quoted a passage from the advice of Lord Sumner in The Zamora (No 2),[135] in which there were noted the “two senses in which persons may be said not to know something because they do not wish to know it”,[136] which White J described as follows:

“In the former circumstance described by Lord Sumner, the person will not have actual knowledge of the matter.  In the latter circumstance, the person does have that knowledge but deliberately refrains from asking questions or seeking further information in order to maintain a state of apparent ignorance.  That is not a circumstance of constructive or imputed knowledge, but of actual knowledge reduced to a minimum by the person’s wilful conduct: Richardson & Wrench[[137]] at 694 (Burchett J)”.[138]

  1. [177]
    Consequently, the primary judge’s references to studiously avoiding asking the questions and abstaining from making inquiries were not inconsistent with the findings of an actual knowledge of relevant matters.
  2. [178]
    There was one finding, however, which was in a different category.  At [847] of the Primary Reasons, the judge said:[139]

“In any event, it does not seem to me to be relevant that [Mr King] may have had in contemplation some transaction by which PIF’s funds could have been used to purchase MFS assets to seed the MYF fund with further capital.  He either knew that no such transaction had then been entered into or was indifferent to whether it had been effected by the time the funds were transferred.”

If Mr King’s state of mind was a mere indifference, he could not have been knowingly concerned in MFSIM’s contraventions.  The primary judge’s reasoning at [847] is not easily reconciled with his Honour’s findings that Mr King knew that there was no transaction which had been implemented at the time of the payment[140] and that he knew that “the money was then being paid for no legitimate purpose of PIF”.[141]  Possibly, what was said in [847] was intended to apply to the officer case against Mr King.  The various findings set out by the primary judge under the heading “Conclusions from submissions for Mr King”, for the most part, did not distinguish between the two parts of ASIC’s case.

  1. [179]
    In our view, this apparent tension in the primary judge’s findings does not detract from his Honour’s unambiguous statements that Mr King had the requisite knowledge.  As we read [847], it was a statement of an alternative state of mind, if the primary judge was wrong in concluding that the requisite knowledge was established.
  2. [180]
    We go then to the evidence.  We preface this discussion by saying that some of this evidence, which relates to a meeting of the MFS FIC on 28 November 2007, was used by the primary judge, it was said, inconsistently with his rulings about it during the trial.  We shall return to that point, and explain why we reject it.
  3. [181]
    There was no direct evidence that Mr King knew that there was no transaction which had been implemented at the time of the November payments, by which PIF received consideration for the use of its money.  By his evidence, Mr King denied that he had this knowledge.  ASIC had to prove otherwise, by a process of inference.
  4. [182]
    Mr King was the CEO of MFS Ltd and the most senior officer within the MFS Group.[142]  His role as CEO of MFS Ltd meant that he was effectively the CEO of the entire MFS Group.[143]  He was also an executive director of MFS Ltd.
  5. [183]
    Mr King had been a director of MFSIM until February 2007.  After then, he retained what he saw as an “overall responsibility” for that company.  In the Primary Reasons at [14], his Honour extracted this evidence which Mr King had given in his examination under s 19 of the Australian Securities and Investments Commission Act 2001 (Cth) (“ASIC Act”):

“Q. … Octaviar Investment Management Limited [MFSIM] was one of the companies and you had a role, direct role for a period of time up until early 2007. What was your role in relation to that company post you, post ceasing as a director?

A. In what it did and how it operated nothing; in worrying about the general activities of the MFS Group, yes, I was always peripherally involved. I mean, I couldn’t be the CEO of the group and not be concerned about what was going on in any company … from when I resigned the idea was that that was [Mr White’s] baby and that, you know, that was one of his areas of responsibility, but of course I had the responsibility.

Q. You had an overall responsibility?

A. Yes.”

  1. [184]
    Mr White reported to Mr King and would take instructions from him and they would talk at least daily “in some way, shape or form”.[144]  Mr King conceded in cross-examination that Mr White took instructions from him with respect to the “proprietary matters” of the funds management business.[145]  By this, Mr King meant “the fees and revenue generated from managing that money”.[146]  Mr King distinguished that from decisions involving “the use or application of the managed money or the clients’ money … its application, its use, its investment, the transactions concerning it”.[147]  That evidence was relevant to the question, which we will discuss, of whether Mr King was an officer of MFSIM.  For present purposes, it is relevant because although he was no longer a director of that company, and may not have been an officer, as he saw things he retained an overall responsibility for the company as part of the MFS group and gave instructions to Mr White, on some subjects, for the conduct of its business.
  2. [185]
    Mr King, of course, knew that MFSIM was the responsible entity for PIF and was aware of the distinction between the interests of PIF and its investors on the one hand, and those of MFS and its subsidiaries on the other.  For this transaction, by 28 November 2007 he was aware that the funds of PIF were being used to make a payment of more than $100 million in partial discharge of a debt owing by one of those subsidiaries, which had been guaranteed by another of them and MFS itself.  In his evidence, he accepted that this made it necessary for PIF to receive an appropriate reward for the use of its funds and by a transaction which was in place by the time Fortress was paid.[148]  And he accepted that as a matter of law, any conflict between the interests of the unitholders of PIF and the interests of MFS was to be resolved in favour of the unitholders.[149]
  3. [186]
    Mr King conceded that he had been involved in no negotiation, or even discussion, as to what quid pro quo PIF was to receive.  That was remarkable, because of Mr King’s position as the most senior officer in the MFS Group.  He may not have given instructions as to how PIF’s funds were to be invested, but this was no routine investment decision to be made by MFSIM as the trustee.  Given the size of the sums involved, it was to be expected that Mr King would have been interested to know something of the nature of the transaction, which he said he believed had been put in place, for PIF to be appropriately rewarded for the use of its funds.
  4. [187]
    Mr King’s evidence was that he assumed that there was a transaction which had come from dealings between Mr White for MFSIM and Mr Anderson for MFS.  Remarkably, Mr King admitted that he had had no conversations with Mr Anderson on the subject, so that Mr Anderson’s authority to negotiate such a transaction must have come by an implication.  Mr Anderson’s evidence was that he did not understand that this had been his role.
  5. [188]
    Mr Anderson was the Chief Financial Officer of MFS Ltd and effectively the CFO for the entire MFS Group.  He was the secretary of a number of companies in the group including MFSIM, MFS Ltd and MFSA.  He was a director of Castle, but he was not a director of MFS Ltd.[150]
  6. [189]
    Mr King’s evidence was that there were assets within the MFS Group which could have been transferred to PIF in return for the November payments, and that he assumed that Mr Anderson would see to it that sufficient in value of these assets would be transferred.  He said that as at 28 November 2007, he believed that Mr Anderson would identify the appropriate assets to be transferred and negotiate with Mr White what was the “best deal possible for … PIF”.[151]  Mr King could not explain this belief upon the basis of any conversation with Mr Anderson, because he said that there had not been one on the matter.  But as justification for his belief that this was occurring, he referred to “a transaction of a similar nature [which] was done six weeks previously”.[152]
  7. [190]
    Mr King was there referring to a payment of $108 million by PIF to MFS in September 2007.  The relevant circumstances of that payment were as follows.  MFS required about $96 million to pay its declared dividend.  On 16 September 2007, Mr Anderson emailed Mr White, referring to a possible assignment of four loans in consideration of a payment by PIF to MFS for that purpose.[153]  However, as that email described, there were complications with the proposal which put in doubt the prospect of obtaining the necessary funds in order to pay the dividend which was due for payment on 1 October 2007.  A few days later, Mr Anderson emailed Mr Hutchings, suggesting that $108 million be paid as a “deposit” for the purchase of all four loans.[154]  On 20 September, Mr Hutchings emailed (amongst others) Mr White and Mr Anderson saying that he was yet to speak to Mr Anderson on “some aspects of the transaction”, but that two of those loans (of a total value of $42 million) would have to be discussed because “these are not for PIF”, and that Mr Hutchings had “some suggestions in this regard.”[155]  Notwithstanding those reservations, the $108 million “deposit” was paid by PIF to MFSA on the same day.  Mr Hutchings considered that the two other loans (of a total value of $66 million) should be acquired by PIF, and recommended their acquisition by his submission to PIF’s IAC on 19 September 2007.  But the acquisition of the loans of $42 million was not proposed by Mr Hutchings until 1 October 2007, and not approved until the IAC’s meeting in January 2008.
  8. [191]
    Consequently, the previous transaction to which Mr King referred in his evidence was one in which a similar amount of money had been paid by PIF to MFSA, to meet an urgent need by MFS; but in that case also, there had been no agreed transaction at the time when the payment, the so called “deposit”, was made.
  9. [192]
    In November 2007, Mr King may have considered that no harm would come from appropriate assets being identified and transferred only after the use of PIF’s funds, because PIF could still be compensated and in time for when MFSIM would have to report upon PIF’s position.  But it is another thing to say that Mr King believed that at the time that the November payments were made, there was a transaction under which PIF had received, or was contractually entitled to receive, a certain consideration.
  10. [193]
    Mr King’s evidence, that he believed that Mr Anderson would negotiate a transfer of assets to PIF, was markedly at odds with the evidence of Mr Anderson.  When asked to comment on the proposition that he had the task of negotiating such a transaction on behalf of MFS, Mr Anderson said that the suggestion was “absolute nonsense”.  There was then this question and answer:[156]

“And what do you say that if there was an asset transfer involving the passing of consideration that it was you who was – who should have been responsible for ensuring that consideration passed? --- No, I – again, I reject that and I point you to, amongst other things, the Recyclable Capital project which gave – allocated responsibility to a whole raft of people, not me.”

  1. [194]
    Mr Anderson had explained the “Recyclable Capital Project” in his evidence in chief.[157]  He said that in May 2007, following discussions with Mr King and Mr White, he developed a list of assets held within the MFS Group which were, in effect, surplus to its requirements.  He said that after he discussed that list with Mr King, the process became a more formal one “whereby there were specific people given identifiable roles to sell certain assets” and “[t]here was a committee put in place which I wasn’t involved in.”[158]  He identified the members of the Recyclable Capital Project Committee by reference to an eight page document which was amongst the papers for the meeting of the MFS FIC on 29 November 2007.  The members of the Recyclable Capital Project Committee were Mr King, Mr White, Mr Gannon and a Mr Richmond.  We will refer to that document as the “Recycling Report”.[159]
  2. [195]
    Of course, Mr Anderson had every reason in his testimony to disassociate himself from the absence of any consideration being provided for the use of PIF’s funds in making the Fortress Payment.  Nevertheless his evidence in this respect was well supported by the fact that the Recyclable Capital Project was the responsibility of a group of people which did not include Mr Anderson, but did include Mr King.
  3. [196]
    As we have said, the Recycling Report was within the Agenda Papers for the meeting of the FIC on 29 November 2007.  It was circulated to FIC members, including Mr King, by Ms Kercher on 28 November.[160]  It was entitled “Balance Sheet Items Recyclable Capital Project Objectives List”.  It contained a table which was described as detailing “the objectives for each asset identified as immediately recyclable”.  The assets were then identified in the table, and against each asset, there were entries under the headings “Responsibility”, “Key contact”, “Objectives”, “Deadline” and “Status”.  In only one case, which involved an asset described as an investment in “Golden Circle”, did the word “Done” appear under “Status”.  The table thereby indicated that none of the other assets had been “recycled”.
  4. [197]
    In the column headed “Responsibility”, the name of a member of the Recyclable Capital Project committee appeared against an asset.  Mr King was shown as having the responsibility in respect of two assets, neither of which is presently relevant.  In the column headed “Contact”, there were names which included some members of that committee, but not Mr Anderson.
  5. [198]
    One of the assets was described as “<$1m loans outstanding”, for which the person with the “Responsibility” and the “Key Contact” was Mr White and the “Deadline” was shown as “31-Nov-2007”.  The “Objective” was described as:

“Transfer to PIF or other entity”.

We have emphasised that reference to another entity because it is inconsistent with a possibility that, by the time of the distribution of the Recycling Report, it had been decided to transfer loans to PIF for the use of its funds.

  1. [199]
    The Recycling Report also contained tables showing certain shares as available for recycling, as well as certain assets described as “Gersh & Other Property Assets”, which need not be discussed.  Those tables had similar columns and again, in no place there was Mr Anderson mentioned.  His name appeared only once in the report, which was as the contact for a certain investment under which the words “Maintain stake” appeared.
  2. [200]
    The FIC met by a teleconference on 29 November 2007.  The minutes of that meeting were in evidence.[161]  We will return to the limited basis upon which they were admitted.  But their content was relevantly as follows.  Mr King, together with other members of the FIC, Mr Cronin and Mr Manka, were recorded as participating.  Mr Anderson and Ms Kercher, who was the company secretary of MFSIM and other entities in the MFS Group, were recorded as present by invitation.[162]  Against the subject “Capital Allocation”, the minutes recorded that the committee “discussed material included in the papers” and that Mr King “provided an outline as to each internal committee’s function & purpose.”  Against the subject “Fundraising Initiatives”, it was recorded that the committee “discussed at length”, amongst other things, the Fortress facility, the repayment of $100 million under that facility with an extension of the date for repayment of the balance to 1 March 2007 and the “key terms – interest rate & fees” of that extension.
  3. [201]
    There is nothing in the minutes about the source of the funds for the Fortress Payment.  More particularly, there is nothing in the minutes about any consideration for that payment passing to PIF, under the Recyclable Capital Project or otherwise.  This meeting occurred, of course, at a time when $150 million had been drawn down from the RBS and on the eve of the payments of $130 million and $103 million.
  4. [202]
    These minutes, on their face, were strong evidence that there was no transaction, in place or proposed, for PIF to receive a benefit for the use of its money, and that Mr King knew it.  However, as we will discuss, the submissions for Mr King, both at the trial and in this Court, challenged the use of the minutes in that way.
  5. [203]
    Mr Cronin and Ms Kercher were called by ASIC, and in their affidavits gave evidence about this meeting of 29 November 2007, with that evidence being admitted upon a limited basis under which it could not be relied upon by ASIC to prove Mr King’s knowledge.[163]  Neither gave any evidence about the Recycling Report.  Indeed at that stage, the Recycling Report had not come to light, and it emerged only after Mr King’s case had been closed.
  6. [204]
    Mr King was cross-examined on the minutes, when it was suggested that they were inconsistent with his professed belief that at the time there was a transaction by which PIF received consideration for the use of its money.  The minutes are dated Monday 29 November 2007, although that date was a Thursday.  Mr King was uncertain about whether the meeting occurred on the Monday or the Thursday of that week.  At that stage the email from Ms Kercher, which had included the Report amongst the agenda papers for the FIC meeting, had not been disclosed.  That email was dated 28 November and referred to “tomorrow’s meeting”.  Clearly enough the meeting occurred on Thursday 29 November 2007.
  7. [205]
    In this part of his cross-examination, Mr King agreed that the purpose of the FIC was to “keep in touch with and approve transactions, particularly substantial transactions of MFS Limited”.[164]  He agreed that there was no mention in the minutes of a transaction by which consideration would be provided for the funds provided by MFSIM.[165]  He could not recall whether there was any discussion on the subject at the meeting.[166]  He said that if there “was a significant transaction involving MFS’s balance sheet above the thresholds relevant to this committee it should have been reported to this committee”.[167]  Mr King could not recall what the threshold was but he did not suggest that it was higher than the amount of the Fortress Payment.
  8. [206]
    The Recycling Report was tendered during the examination in chief of Mr Anderson.  He gave evidence explaining its contents.  He was asked “to what extent did you have responsibility for selling any of these assets or investments?”, and answered that he had no responsibility unless he was shown in the document as having it, and that save for the one reference to him, the responsibility for the sale of an asset was that of somebody else, and not his as CFO.[168]
  9. [207]
    Mr Anderson was asked about the Recycling Report when he was cross-examined by counsel for Mr King.  The cross-examiner evidently considered that the document was favourable to Mr King’s case.  He suggested to Mr Anderson that “the important [thing] …. is that that document … was headed for the FIC meeting on the 29th”,[169] to which Mr Anderson agreed.  He then took Mr Anderson to the minutes of the FIC meeting, and to where they referred to the papers which had been distributed to the FIC ahead of the meeting.  Mr Anderson agreed that one of those papers was the Recycling Report and that the report was discussed at the meeting.  Counsel pointed out also that one of the “internal committees” referred to in the minutes was the Recyclable Capital Project Committee.[170]  Counsel then suggested that “there’s nothing on the face of these minutes to suggest that there was any dissent to the notion that those assets would be sold in accordance with the papers that had been distributed”, to which Mr Anderson agreed, as he did to the next suggestion that “we can take it then that the FIC committee has effectively approved the strategy which was set out in [the report to the FIC]”.[171]
  10. [208]
    Early in the trial, the primary judge upheld an objection to the minutes being received on any issue in ASIC’s case against Mr King.  The primary judge accepted that ASIC should be held to the facts and circumstances which it had particularised as the bases for an inference that Mr King had the requisite knowledge and those particulars did not include this meeting.  His Honour ruled that the minutes could be admitted, but only as relevant to Mr King’s credibility.
  11. [209]
    In his written submissions at the conclusion of the trial, Senior Counsel for Mr King relied upon the Recycling Report and the minutes of the FIC meeting as proof that Mr King knew that “MFS had assets which were available to be immediately ‘recycled’” and that “the strategies and objectives for recycling those assets included to sell some of them to [PIF]”.[172]  It was submitted that “those matters were the subject of a report to, and discussion by, the Finance and Investment Committee on 29 November 2007 (i.e. the same meeting at which the extension of the Fortress loan was discussed and approved) and there was no disapproval of the strategy”.[173]  And it was submitted that the Recycling Report was “accordingly highly destructive of the knowledge case ASIC pleads against Mr King”.[174]  The submissions pointed out that the Recycling Report, and Ms Kercher’s email which sent that report to the members of the FIC, had not been put to Mr King in cross-examination or disclosed by ASIC at that stage of the trial.  But it was contended that “their significance is obvious”.[175]
  12. [210]
    By those submissions to the primary judge Mr King was arguing that the minutes of the FIC meeting and the Recycling Report were relevant to a fact in issue, in that they were evidence from which it could be inferred that Mr King believed that an adequate consideration was being provided for the use of PIF’s funds.
  13. [211]
    At the same time however, it was submitted for Mr King that this evidence could not be used as relevant to that issue in a way which was unfavourable to Mr King’s case, namely as evidence from which it could be inferred that Mr King knew that there was no consideration which had been provided.  In those submissions, counsel for Mr King maintained that ASIC was to be held to its concession that the minutes, and therefore the Recycling Report, were to be used only to assess Mr King’s credibility.[176]
  14. [212]
    In ASIC’s final written submissions at the trial, it was argued that “there was no report [at MFS FIC and Board meetings] about the deal between MFS Limited and PIF” and that this fact was consistent with the proposition that Mr King knew that no consideration had been provided.[177]  In written submissions in reply, and in oral submissions to the trial judge, that use of the evidence was challenged by Mr King on the basis that the evidence had not been pleaded as something from which Mr King’s alleged knowledge could be inferred.  In its oral submissions to the primary judge, ASIC accepted that the FIC minutes went to Mr King’s credibility, rather than the issue of Mr King’s alleged knowledge.[178]
  15. [213]
    The effect of these submissions to the primary judge was that if the evidence was thought to be favourable to Mr King’s case, it could be used as relevant to the fact in issue, but not if it was interpreted the other way.
  16. [214]
    It was with those submissions in mind, that in the Primary Reasons at [846], his Honour said this:

“I am also satisfied that there was no transaction then on foot which made the $130 million payment to the extent of the $103 million payment a proper payment from PIF’s funds. I conclude from the evidence that Mr King knew that no such transaction had been implemented at the time of the payment. The MFS FIC meeting minute of 29 November 2007 is significant in helping me to reach the conclusion that his evidence about the possibility of assets being recycled is not sufficient to explain his behaviour here. It does go to his credit on that point.”

  1. [215]
    By ground 13 of his appeal, Mr King contended that there were two errors within that passage.  One is said to have been that the minutes did not support an adverse view of the credit of Mr King.  But as we have discussed, they were strong evidence that Mr King was not to be believed in his professed belief at the time that, by Mr Anderson, something was in place by which PIF was adequately compensated for the use of its money.  There was no demonstrated error in his Honour’s rejection of Mr King’s evidence, based in part on the minutes.  The second error, which we are about to discuss, was said to have been that the judge treated this evidence as “adding positively to [ASIC’s] case”, when the evidence was admitted only as to credit.
  2. [216]
    As McHugh J said in Palmer v The Queen,[179] “the line between evidence relevant to credit and evidence relevant to a fact-in-issue is often indistinct and unhelpful.”  In the case of this evidence, that line was especially difficult to draw, essentially because of the subject matter of the evidence which, as we have explained, was immediately relevant to a fact in issue.  Once the evidence was admitted and interpreted as it was by the primary judge, its relevance for the probability of ASIC’s case about Mr King’s state of mind was clear.
  3. [217]
    The facts in issue in a civil case emerge from the pleadings.  The primary rule of evidence is that a court will receive, and will only receive, evidence that is relevant to the facts in issue, which it will be “if it could rationally affect, directly or indirectly, the assessment of the probability of the existence of a fact in issue in the proceeding”.[180]  Evidence may indirectly affect the probability of the existence of a fact in issue if it tends to prove something which “is so related to that fact that, according to the ordinary course of events, either by itself or in connection with other facts, it proves or makes probable the past, present or future existence or non-existence of the other fact”.[181]
  4. [218]
    The facts in issue and the facts relevant to them are distinguished from collateral facts, that is to say “facts not constituting the matters directly in dispute between the parties”.[182]  An example of a collateral fact is one which affects only the credibility of a witness.[183]  In general, evidence of a collateral fact which affects only the credibility of a witness will be inadmissible and a cross-examiner will be bound by the answer to a question that goes only to credit.[184]  In many cases, it will be clear that a fact which affects the credibility of a witness will be a collateral fact only.  In other cases, questions of degree will arise.  Depending upon the subject matter of the evidence, it may affect the credibility of a witness and, at the same time, affect, directly or indirectly, the assessment of the probability of the existence of a fact in issue.
  5. [219]
    The relevant fact in issue here was the knowledge by Mr King of the absence of a consideration provided for the use of PIF’s money.  The evidence of what was presented to and discussed at the FIC meeting was evidence which tended to prove (or on Mr King’s argument, disprove) a fact in issue, or perhaps more precisely a fact relevant to a fact in issue, namely whether on 29 November 2007 there had been a decision by representatives of MFSIM and the MFS Group that a certain consideration would be provided by an entity within the group to PIF for the use of its money.  That was not a collateral fact.
  6. [220]
    The credibility of Mr King was to be assessed against the objective evidence constituted by these documents.  But whether it diminished or fortified Mr King’s credibility in his testimony about his own state of mind at the time, logically the evidence also affected the probability or improbability of a fact in issue.  This presented a practical difficulty for the primary judge, given his ruling that the evidence would be admitted only for Mr King’s credibility, but one which his Honour met without error or unfairness.
  7. [221]
    As best he could, the primary judge expressed his reasoning in a way which confined his use of the evidence to the limited purpose for which the evidence had been tendered.  His Honour used the evidence to find what was not Mr King’s state of mind.  His Honour inferred that Mr King had the requisite knowledge from other evidence together with his rejection of Mr King’s evidence.
  8. [222]
    Therefore we reject the argument for Mr King that the primary judge used this evidence inconsistently with the limited basis upon which it was tendered.  But we would add that had the primary judge used the evidence as probative of a knowledge that no consideration had been provided, there could have been no unfairness to Mr King, having regard to the way in which the trial was conducted.  It was not Mr King’s argument at the trial that this evidence was to be disregarded entirely.  As we have discussed, he sought to use the evidence in his favour as relevant to the fact in issue.
  9. [223]
    Counsel for ASIC submitted to this Court that the evidence should be considered on the same limited basis, as it was tendered at the trial.  Therefore we have confined our use of the evidence in the way that the primary judge did.  In our view it disproved Mr King’s testimony that he understood that Mr Anderson had arranged adequate consideration for the use of PIF’s funds.
  10. [224]
    Before going to the other matters affecting the fact in issue, namely whether Mr King knew that no consideration had been provided, something should be said about the case against Mr Anderson.  In his Honour’s consideration of the case against Mr Anderson, the primary judge referred to a submission for Mr Anderson as to why his evidence should be preferred over that of Mr King, on the question of whether Mr Anderson was impliedly responsible for effecting a transaction by which PIF would receive benefit for the use of its money.[185]  In his conclusions on the case against Mr Anderson, the primary judge did not specifically resolve that inconsistency.  But clearly from his conclusions against Mr King, his Honour rejected Mr King’s evidence in that respect.
  11. [225]
    Mr Anderson was found to have been involved in the contraventions by MFSIM, including those in relation to the November payments.  Something should be said about the primary judge’s findings against Mr Anderson which, at first sight, might appear to be consistent with Mr King’s case that it was Mr Anderson who was to effect that transaction.  At [1477] of the Primary Reasons, his Honour concluded that “[i]n [Mr Anderson’s] role as CFO for the MFS Group it was incumbent on him to ensure that there was a transaction in place for the payment out from PIF’s funds to protect the interests of its investors.”  At [1479], the primary judge found that Mr Anderson “should have made inquiries about what was proposed and have ensured that something was in place for PIF’s investors before the money was taken from MFSIM as PIF’s responsible entity.”
  12. [226]
    However, when read in context, these were not findings that Mr Anderson was responsible for putting in place such a transaction.  Instead, these were the findings that as the Chief Financial Officer, Mr Anderson’s responsibility was to satisfy himself that a transaction had been put in place.  Again, it was Mr Anderson’s knowledge that there was no transaction in place which was critical to the finding that he was knowingly concerned in MFSIM’s contravention.
  13. [227]
    We return to the question of whether the primary judge’s findings about Mr King’s knowledge should stand.  As we have discussed, there was ample evidence for rejecting Mr King’s evidence on the question.  Other than Mr King’s evidence, there was no indication in the evidence that Mr Anderson had the responsibility which Mr King’s evidence attributed to him.  The lack of credibility of Mr King’s evidence was demonstrated by the FIC meeting and the Recycling Report.
  14. [228]
    Once Mr King’s evidence was rejected, there was a strong basis to infer that he had the requisite knowledge of the absence of a transaction by which a benefit would pass to PIF by the time of the payments.  It was Mr King who had negotiated with Fortress and who had been in constant contact with Mr White during the events leading up to the payment to it.  It was Mr King who, as the CEO of the MFS Group and a member of the FIC and the Recyclable Capital Committee, was the likely decision maker about what would be provided to PIF in return for its funds, especially given the scale of these payments.  Even if he was not the decision-maker, Mr King as CEO of the MFS Group had to be able to inform the Board of MFS, and to answer any inquiry from outside the MFS Group, about the assets, if any, which MFS or another entity had provided to PIF for the use of its money.  Apart from Mr King’s evidence, there was nothing which indicated any real likelihood that he believed that something may have been put in place for the protection of PIF.  The inference is compelling that, more probably than not, he knew that there was then no consideration provided to PIF.
  15. [229]
    Consequently, the primary judge was correct to find that ASIC had proved the requisite knowledge by Mr King of the essential elements of MFSIM’s contraventions of s 601FC and s 208 of the Act.  The declarations which were made against Mr King, that he was knowingly concerned in MFSIM’s contraventions in respect of the November payments, should stand.

The officer case against Mr King

  1. [230]
    The allegation that Mr King was an officer of MFSIM was pleaded as follows:

“5 The fourth defendant (King):

  1. (e)
    from 28 February 2007 until 21 January 2008, was an officer of MFSIM within the meaning of s 9 of the Act because:
  1. (i)
    White reported directly and frequently (on a daily or near-daily basis) to King in the performance of his role in MFSIM, and customarily acted in accordance with King's instructions and wishes in that role;
  1. (ii)
    King had overall responsibility for the operations of MFSIM,

so that King had the capacity to affect significantly the financial standing of MFSIM.

Particulars of para 5(e)

  1. (a)
    White and King spoke on a daily, or almost daily basis, whether in the Gold Coast or Sydney offices of MFSIM, or elsewhere, such as the Qantas Club Lounge, about the affairs of MFS Limited and its subsidiaries, including MFSIM.
  1. (b)
    ASIC does not rely upon any specific action, in any specific period, but says that the allegation made is that the relationship between King and White was such that in practical terms King took overall responsibility for the major decisions of MFSIM and, as between the two men, ‘was the boss’ and in this regard ASIC relies upon the evidence of King in King's s 19 examination pursuant at pp 10-17.
  1. (c)
    ASIC relies upon the following facts:
  1. (i)
    King was the CEO of MFS Limited from 4 February 2004 until 21 January 2008;
  1. (ii)
    King was a director of MFS Administration from 21 June 2002 to 25 June 2007;
  1. (iii)
    King was a director of MFSIM from 8 August 2002 to 27 February 2007;
  1. (iv)
    King acted as CEO of the group of MFS companies, which group included MFSIM, MFS Limited, MFS Castle, MFS Financial Services and MFS Administration;
  1. (v)
    King had overall responsibility for the management of the MFS group of companies, including MFSIM;
  1. (vi)
    White was deputy CEO of MFS Limited from 23 May 2007 to 21 January 2008;
  1. (vii)
    White acted as deputy CEO of the group of MFS companies, which group included MFSIM, MFS Limited, MFS Castle, MFS Financial Services and MFS Administration from 23 May 2007 to 21 January 2008;
  1. (viii)
    King as CEO of the MFS Group and White as deputy CEO of the MFS Group, until 21 January 2008 controlled the affairs of MFSIM.”
  1. [231]
    In the Primary Reasons, his Honour expressed the conclusion that Mr King was an officer of the company as follows:

[677] I have formed the view, for similar reasons to those discussed by me in respect of Mr Anderson, that the statutory definition of ‘officer of a corporation’ also applies to a person who can properly be described as an executive officer of the responsible entity of a managed investment scheme. The statutory history and the cases support such a conclusion and the converse would be impractical and artificial.

[678] Was Mr King covered by that meaning in respect of his activities with MFSIM? Mr King’s counsel submitted that ASIC had not pleaded or proven facts that could establish that Mr White customarily acted in accordance with Mr King’s instructions and wishes nor had it established a proper evidentiary basis for characterising Mr White’s conduct in reporting to Mr King, or in acting in accordance with Mr King’s instructions and wishes, as being ‘in the performance of his role in MFSIM’. Nor had they established that he had the capacity to affect MFSIM’s financial standing significantly.

[679] On my analysis of the evidence of the frequent interactions between Mr King and Mr White, including Mr King’s admissions about the nature of his role as the overall boss of the MFS group, I have concluded that the evidence is sufficient to establish at least that he participated in the making of decisions that affected the whole or a substantial part of MFSIM’s business and had the capacity to affect significantly its financial standing. ASIC also assembled a significant number of examples in its written submissions showing his capacity to affect decisions within MFSIM in particular or as part of the MFS Group.489 Therefore he was an officer of MFSIM.”

In footnote 489 in that passage, the judge referred to a para of ASIC’s written submissions and added:

“Some of these were criticised in Mr King’s written submissions … at para 200, but not sufficiently strongly in my view to offset their overall effect.”

  1. [232]
    We have set out above the definition of “officer” in s 9 of the Act (at [135] above).  The case which was pleaded against Mr King alleged that he fell within para (b)(ii) of that definition because he was a person who had the capacity to affect significantly the financial standing of the company.  It was alleged that this capacity came from Mr King’s overall responsibility for the operations of MFSIM and from the fact that Mr White reported directly and frequently to Mr King in the performance of Mr White’s role in MFSIM, and customarily acted in accordance with Mr King’s instructions and wishes in that role.  The second part of that allegation suggested a reliance also upon para (b)(iii) of the definition.  However the case as pleaded, on its proper characterisation, was one in reliance upon para (b)(ii).
  2. [233]
    There was and remains an issue about the effect of para (b) of the particulars, in which ASIC stated that it did not rely upon any specific action, in any specific period, in its case that there was that relationship between Mr King and Mr White.  In order to understand that part of the particulars, it is necessary to refer to the request in response to which those particulars were provided.  Mr King sought particulars of para 5(e)(i) in a number of respects, but relevantly as follows:

“Insofar as it is alleged that White customarily acted in accordance with King’s instructions and wishes in that role specify with particularity the actions of White in that role from 1 November 2007 to 15th December 2007 which are alleged to be in accordance with King’s instructions and wishes”.

  1. [234]
    When read as a response to the request, para (b) of the particulars was a statement by ASIC that it was not part of its case that there was any specific act by Mr White, within that period and in his role in MFSIM, which was in accordance with Mr King’s instructions and wishes.  Consequently, ASIC was not precluded from relying on an act of Mr King within that period, or an act of Mr King or Mr White outside that period.  To the extent that Mr King argues otherwise, the argument should be rejected.
  2. [235]
    At [679] of the Primary Reasons, his Honour concluded that Mr King “participated in the making of decisions that affected the whole or a substantial part of MFSIM’s business”.  Unambiguously, that was a finding that Mr King was a person within para (b)(i) of the definition of “officer”.  However that was not ASIC’s pleaded case.
  3. [236]
    In [679], the primary judge also concluded that Mr King had the capacity to affect significantly the company’s financial standing.  That was ASIC’s pleaded case.  That conclusion was not preceded by specific findings in terms of para 5(e)(i) and (ii) of the pleading.  There was no specific finding that Mr White reported directly and frequently to Mr King in the performance of his role in MFSIM, and customarily acted in accordance with Mr King’s instructions.  Nor was there a specific finding that Mr King had overall responsibility for the operations of MFSIM.
  4. [237]
    Earlier in the Primary Reasons, his Honour considered a number of arguments, mostly advanced by Senior Counsel for Mr Anderson, about the proper construction of the definition of “officer” in s 9.  Two of those arguments were specifically disavowed by Senior Counsel for Mr King in this appeal.  The first of them was that the term “officer of the responsible entity” in s 601FD refers only to an officer actually involved in the management of the scheme.  Mr Anderson, having been the secretary of MFSIM at relevant times so that he was within para (a) of the definition of “officer”, was driven to an argument that although he was an officer of the corporation, he was not an officer involved in the management of the scheme.  The second of those arguments was that para (b)(ii) of the definition in s 9 did not apply at all to corporations which were responsible entities.
  5. [238]
    Mr King argued that he did not have a capacity to affect MFSIM’s financial standing within the meaning of s 9(b)(ii) because he did not act in an office or position within that company.  The argument was based upon the judgment of the Full Court of the Federal Court in Grimaldi v Chameleon Mining NL (No 2) (“Grimaldi”).[186]
  6. [239]
    In that case the Full Federal Court (Finn, Stone and Perram JJ) extensively discussed para (b) of the definition of “officer” in s 9, as well as the term “director” in that definition.  The Court referred to the statutory predecessors of the Act and to the leading cases on them.  In particular, the Court referred to the observations of Mason J in Corporate Affairs Commission v Drysdale,[187] where there was an issue as to the interpretation of s 5 of the Companies Act 1961 (Vic), which defined a “director” to include:

“… any person occupying the position of director of a corporation by whatever name called and includes a person in accordance with whose directions or instructions the directors of the corporations are accustomed to act.”

Referring to the first part of that definition, Mason J said:[188]

“The words of s. 124(1) assume that the person in question occupies an office (‘his office’) and that there are functions (‘duties’) attaching to that office which he is discharging. I say ‘occupies’ rather than ‘holds’ because the first part of the definition of ‘director’ makes it clear that a director is a person who occupies rather than holds an office … To say that a person occupies a position or office is to say something more than that he holds the position or office. The first statement denotes one who acts in the position, with or without lawful authority; the second denotes one who is the lawful holder of the office.”

  1. [240]
    Mason J referred, with apparent approval, to the observation by Lindley LJ in In re Western Counties Steam Bakeries & Milling Co that “to be an officer there must be an office.”[189]  Referring to that observation, the Full Court in Grimaldi described an office in this context as “a recognised position with rights and duties attached to it”.[190]
  2. [241]
    Under the heading “Applicable legal principles”, the Full Court in Grimaldi said this about para (b) of the definition of “officer” in s 9:[191]

“Because the definition of ‘officer’ includes a person (s 9(b)(i)) who, though not a director, ‘makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the corporation’ or (s 9(b)(ii)) ‘who has the capacity to affect significantly the corporation’s financial standing’, proof that a person exercises senior management functions, while ordinarily ‘a necessary condition of acting as a director’ (to use Madgwick J’s words in Austin,[[192]] at 342) will not necessarily be a sufficient condition … We would note, in relation to this, first, that the Corporations Act’s s 9 definition of ‘senior manager’ mirrors exactly that part of the ‘officer’ definition given above; and, secondly, in many cases … the application of ss 180 to 183 to a ‘director or officer’ can eliminate the need to differentiate between a de facto director and an officer (de facto or not) who is not a director[.]

[W]e would emphasise the following about the s 9 definition.  First, though the Corporation Act’s functional definitions do not refer explicitly to the person acting in an ‘office’ of the corporation, this in our view is implicit in them and is made explicit in other provisions of the Act, eg s 180(1).  This said, a person who otherwise satisfies either of the requirements of subparas (b)(i) or (b)(ii) of the definition is likely as a rule to be acting in an office (or position) of the corporation for the purposes of the Act irrespective of whether he or she has been formally appointed to a position in it (ie the person can be a de facto officer) or has been engaged as a ‘consultant’ to perform the functions in question.

[T]he sub-para (b)(ii) requirement that a person has the capacity to affect significantly the corporation’s financial standing refers to the character properly to be attributed to that person’s capacity in the circumstances.  It may arise from the extent of that person’s participation in investment decisions or financial commitments made, from the dimensions of a decision or decisions, from the nature of that person’s participation in the control and direction of the affairs of the corporation, etc: cf Australian Securities and Investments Commission v Adler (2002) 168 FLR 253 at [74] … The question again is one of fact.”

  1. [242]
    At the trial and in this Court, the argument for Mr King focussed upon the proposition in that passage that to be an “officer” within s 9(b)(i), the person must be acting in an “office” of the corporation.  It was argued that Mr King was not proved to have acted in an office at MFSIM and the argument pointed out that ASIC’s pleading did not make an allegation in those terms.
  2. [243]
    The primary judge referred to this argument for Mr King at [672] of the Primary Reasons.  He noted an argument for Mr King that ASIC’s pleading could be said to conform to that proposition from Grimaldi, only upon the basis that ASIC would have to prove that Mr King was an officer of MFSIM because he was essentially performing Mr White’s role.  His Honour noted the argument for Mr King that, if Mr White had reported “daily or near daily” to Mr King, ASIC had not established that Mr White did so in the performance of his role in MFSIM, rather than as the Deputy CEO of the MFS Group as a whole.[193]
  3. [244]
    The primary judge rejected these arguments because he considered that they were inconsistent with the obiter dicta of the High Court in Shafron v Australian Securities and Investments Commission.[194]  His Honour said:[195]

“It seems to me, however, that the High Court’s decision in Shafron justifies a broader application of the section than was contended for by counsel for Mr King. The cases about shadow directors focus on the meaning to be given to the definition of ‘officer’ in para 9(b)(iii) and whether the directors are accustomed to act in accordance with the instructions or wishes of the shadow director. But the decision in Shafron discusses the other definitions in para 9(b)(i) and para 9(b)(ii) as relating to what the persons do (sub-para (i)), and what capacity they have (sub-para (ii)), in determining whether they are officers.”

  1. [245]
    Grimaldi was decided after the argument but before the judgment in Shafron, and was not cited in the High Court’s judgment.  The relevant passages in Shafron were as follows:[196]

[23] Several points should be made about the proper construction and application of para (b)(i) of the definition of ‘officer’. First, the inquiry required by this paragraph of the definition must be directed to what role the person in question plays in the corporation. It is not an inquiry that is confined to the role that the person played in relation to the particular issue in respect of which it is alleged that there was a breach of duty. Thus in this case the inquiry to be made about Mr Shafron’s role was not confined to what he did in connection with the separation proposal. Of course, the role he played in connection with the separation proposal may itself demonstrate that he made or participated in making decisions of the requisite character, but that need not be the only material to which attention may be directed.

[24] Secondly, in a case like the present, where the breaches of duty alleged were omissions to provide advice, it is evident that determining how a reasonable person occupying the same office and having the same responsibilities would exercise the powers and discharge the duties of that office may be assisted by consideration of how the officer in question acted on occasions other than the one which is alleged to give rise to a breach of the duties imposed by s 180(1). It was, therefore, relevant for the Court of Appeal to notice what Mr Shafron had done at JHIL in connection with matters other than the separation proposal and, contrary to Mr Shafron’s submission, there was no denial of natural justice in its doing so.

[25] Thirdly, each of the three classes of persons described in para (b) of the definition of ‘officer’ is evidently different from (and a wider class than) the persons identified in the other paragraphs of the definition. Persons identified in the other paras of the definition all hold a named office in or in relation to the company; those identified in para (b) do not. Persons identified in the other paragraphs all hold offices for which the legislation prescribes certain duties and functions; those identified in para (b) do not. Persons identified in the other paragraphs of the definition are bound by the legislation to make certain decisions and do certain acts for or on behalf of the corporation; those identified in para (b) are identified by what they do (subpara (i)), what capacity they have (subpara (ii)) or what influence on the directors they have had and continue to have (subpara (iii)). There being these differences between para (b) of the definition and the other paragraphs (especially para (a)), it is not to be supposed that persons falling within para (b)(i) must be in substantially the same position as directors: those to whom the management and direction of the business of the company is usually, and in relation to JHIL was, given.”

  1. [246]
    We are unable to agree with the primary judge that there is any tension between what was said in Shafron and the passage from Grimaldi which we have set out.  The core proposition from that passage in Grimaldi was that an “officer” must act in an “office”.  In Shafron, the High Court distinguished between persons holding a named office, being an office for which the legislation prescribes certain duties and functions, and officers within the wider class as described in para (b) of the definition.[197]  But it is another thing to say, as in our view the High Court did not say, that persons within para (b) need not be persons who act in some office of the corporation, not in the sense of an office named in the Act, but in the sense of “a recognised position with rights and duties attached to it”.  As we have said, Grimaldi was not cited by the High Court.  And the issues in Shafron would not have required the High Court to consider the analysis in Grimaldi.
  2. [247]
    This Court should follow Grimaldi unless it is persuaded that the judgment, in the relevant respects, is plainly wrong.[198]  In our view the reasoning in Grimaldi is persuasive and we agree with it.  Para (b) of the definition cannot be applied literally, for otherwise a person who is, on any realistic view, unrelated to the management of a corporation could be subjected to the burdens of the provisions of the Act with respect to officers.  The constraint (according to Grimaldi) upon a literal interpretation avoids consequences of that kind.  And it is a constraint which is suggested by several provisions of the Act which apply to officers.  Section 180(1) requires an officer of a corporation to exercise his or her powers and discharge his or her duties with a care and diligence that a reasonable person would exercise if he or she “occupied the office held by, and have the same responsibilities within the corporation as, the director or officer.”  Section 182 provides that a director, secretary, other officer or employee of the corporation must not improperly use their position in certain ways.  And s 601FD(1)(e) refers to a person’s “position as an officer”.
  3. [248]
    The primary judge concluded that a person might be within the definition of “officer of a corporation” in s 9 if he or she could “properly be described as an executive officer of the responsible entity of a managed investment scheme”.[199]  The term “executive officer” is not used in the Act.[200]  As the Full Court discussed in Grimaldi,[201] the Companies Act 1981 (Cth) contained a definition of “executive officer” which was as follows:[202]

“… any person by whatever name called and whether or not he is a director of the corporation, who was concerned, or takes part, in the management of the corporation.”

The Full Court noted that this definition was retained in the Corporations Law before the use of the term was discontinued in the Act.[203]  In our respectful view, the meaning of “officer” in the Act is not affected by the meaning of “executive officer” in previous legislation.

  1. [249]
    In our conclusion it was necessary for ASIC to prove that Mr King acted in an “office” of MFSIM.  The primary judge made no finding as to whether ASIC had proved that fact.  The findings which his Honour made did not, of themselves, support his conclusion that Mr King was an officer of the company.  The issue for this Court is whether the evidence proved that he was an officer, according to what we have concluded was the correct interpretation of that term.  We go then to that evidence.
  2. [250]
    In the particulars of ASIC’s case there was a reliance upon evidence given by Mr King when examined under s 19 of the ASIC Act which was conducted on 14 August 2008 when Mr King was asked about his resignation as a director of MFSIM in early 2007.  He was asked what had led him to cease to be a director, and he answered that this was part of an “underlying strategy of separating managed funds from the – we’ll call it the proprietary and investment limited company operations … to separate … the funds management away from proprietary activities of MFS Limited”.[204]  He was asked about his position as CEO of the MFS Group and whether this was the “primary role” which he had, from June 2007 to December 2007.  He answered as follows:[205]

“So I really separated the business … of the MFS group of companies into two subsections.  One was funds management and one was Stella Resorts and Tourism and I had what probably – I don’t even know if they were correctly called this but two deputy CEOs.  Craig White ran MFS Funds Management and Rolf Krecklenberg who ran the Stella group of companies.  I probably had 10 other reports in what you might call indirect lines, so there would be guys like David Anderson who was a CFO who was a direct report.”

  1. [251]
    The examiner returned to the subject of MFSIM and asked what Mr King’s role in relation to that company had been after he ceased to be a director.  Mr King answered:[206]

“In what it did and how it operated nothing; in worrying about the general activities of the MFS Group, yes, I was always peripherally involved.  I mean, I couldn’t be the CEO of the group and not be concerned about what was going on in any company but … [w]e spent two or three years trying to separate the roles and directorships and executive teams of the subsidiary funds and make them self accountable and self responsible.  … [B]ut from when I resigned the idea was that that was [Mr White]’s baby and that … that was one of his areas of responsibility, but of course I had the responsibility.”

He was then asked whether he had “an overall responsibility” to which he answered “yes”.  He was asked about the “day-to-day operational decisions” and answered that “[e]ither [Mr White] and the group of people around [Mr White] and the investment committees and approval committees that were set up to create [a] decision making process”.

  1. [252]
    He was asked to give his understanding as to what MFSIM did, to which he answered that he knew it was the responsible entity of PIF, and it may have been the responsible entity of “some of the other smaller managed funds and possibly even some dormant ones”.[207]  He was then asked to identify the decision makers, apart from Mr White, “in relation to [MFSIM] as the responsible entity” and he answered that:[208]

“[I]n the last six months of my being the CEO, it was [Mr] White down to [Mr] Hutchings down to [Ms] Watts.  That was the senior executive team in that order … There was a board of directors of the investment management company headed by a fellow whose name I can’t even remember at the moment  … There was an investment approval committee of that group and a loans management and asset management group in there.”

  1. [253]
    There was then this exchange:[209]

“Q. What sort of day-to-day management contact would you have had with [Mr] White in relation to [MFSIM] and the funds management business?

A. … I would have spoken to [Mr White] every day for sure.  Whether I spoke to him about [MFSIM] on any particular day would depend on really what he chose to raise with me.  I mean, it was more just the CEO talking to the deputy CEO about whatever challenges he had in front of him on a particular day.

Q. You were both situated in the same office at that stage?

A. Yes … my average week would consist of two to three days on the Gold Coast and two to three days in Sydney.  [Mr White]’s average week would consist probably of the same but … [d]efinitely not the same days.”

  1. [254]
    A little further on, Mr King was asked:

“Aside from your overall CEO role, did you have any involvement in the funds management side of the business or did you leave that predominately to [Mr White] to deal with?”

Mr King answered:[210]

“In as far as we’ll call it funds management or wealth management, there was a lot of separate funds and a lot of separate business activities.  Some of those were very mature.  An example of maturity was PIF Fund … So you had a group of funds which were mature and then you had a group of funds which I would say were very immature … where I would put most of my interest would be in new funds or new development areas … The stuff that was up and running there was mature CEOs in charge of those.  So you had [Mr White] in charge of PIF and most of the wealth management group that was established … So my level of involvement in those was less than, for example, the Alternate Asset Group which was new and emerging, so I was more heavily involved in that.”

  1. [255]
    Those passages support the particulars in para (a) in ASIC’s pleading, that Mr King and Mr White spoke on a daily or almost daily basis about the affairs of MFS Limited and its subsidiaries, including MFSIM.  They also support the particulars in (b), namely that Mr King was “the boss”.  He had an “overall responsibility” for MFSIM.  But Mr King also said in those passages that his involvement in MFSIM was peripheral, in that he was always worrying about the general activities of each member of the MFS Group.  And he explained that his involvement in the business of MFSIM was relatively small owing to what he described as the maturity of that business.
  2. [256]
    At [666] of the Primary Reasons, the primary judge noted that Mr King had been unable to recall any instance where Mr White had refused to take a direction from him with respect to the funds management side of the business of MFSIM.  That may be so, but that evidence did not prove that there was any substantial practice under which Mr King gave directions of that kind to Mr White.
  3. [257]
    At [667] of the Primary Reasons, the primary judge referred to a submission by ASIC that “the evidence confirmed, within the MFSIM Group, that Mr King was the single most powerful person such that Mr White would describe him as the ‘charismatic leader’ and the ‘puppet master’”.  Those descriptions did not substantially assist ASIC’s case.  Further, they had to be put in context.  They came from an email from Mr White to Mr King on 5 December 2007 which was entitled “Issues from Saturday”.  Mr White there wrote:

“MFS is a company going from small company to large company.  It’s going from the charismatic leader model, where one person is the puppet master to one far less autocratic with responsibility and accountability pushed down the management hierarchy.

This is an absolutely necessary process if we are to continue to grow, evolve and deliver on the eps growth that is the ultimate goal for the group.”

If anything, this email would indicate that Mr King’s position in the group had been diminished from the time at which he was the charismatic leader or puppet master.  Undoubtedly there had been a change in the structure for the governance of MFSIM.  Three independent, non-executive directors had been appointed in February 2007 when Mr King left the board.

  1. [258]
    As we have noted, at [679] of the Primary Reasons, his Honour observed that ASIC had “assembled a significant number of examples in its written submission showing [Mr King’s] capacity to affect decisions within MFSIM in particular or as part of the MFS Group.”  As we have also noted, there was no discussion by the primary judge of those examples, save in a footnote in which his Honour said that the “overall effect” of them was favourable to ASIC’s case that Mr King had a capacity to affect decisions within MFSIM.  In this Court, the arguments addressed each of those examples, to which we now turn.
  2. [259]
    The first of them was an instruction given by Mr King that the MFS Group should terminate its borrowing arrangements with the NAB and his exchanges with Mr White about PIF’s facility with that bank.  In his examination under s 19,[211] Mr King described his dealings with the NAB in early 2007, which induced him to issue “a directive right across the group” which was “we should replace all our NAB facilities with other facilities”, which he said was a process which was then “put in place”.  Mr King was asked: “So each of the CEOs of the other businesses that had facilities [with NAB] then went out and made arrangements [with another bank]”, to which he agreed.  In his evidence at the trial, Mr King confirmed the accuracy of that evidence under s 19.[212]  And he agreed that at one stage he had sent an email to Mr White, on the subject of “NAB out of PIF”, in which Mr King asked “where are we up to with this?”.
  3. [260]
    As the submissions for Mr King at the trial pointed out, it was before Mr King’s resignation as a director of MFSIM, on 27 February 2007, that he issued the directive to replace the NAB facilities.  ASIC adduced evidence from a Mr Kyling that when he was CEO of MFSIM in late 2006 and early 2007, he instructed the staff of the company to “initiate an open market review for a liquidity management facility for PIF”, and that ultimately, MFSIM as the responsible entity for PIF entered into the RBS facility in June 2007.[213]  The emails sent by Mr King to Mr Kyling and Mr White in March[214] and June 2007,[215] upon which ASIC relied, sought updates on the progress of a process which was in place when Mr King was a director of MFSIM.  That Mr King was setting about replacing NAB prior to 27 February 2007 is demonstrated by, in particular, his email correspondence with NAB representatives (which he copied to, amongst others, Mr White, Mr Anderson and Mr Krecklenberg within MFS) on 7 February 2007, in which he explained the decision to terminate the facilities within NAB.[216]
  4. [261]
    Nevertheless this example indicates the particular influence which Mr King still had across the MFS Group.  Although the decision by MFSIM to change from NAB to the RBS was made by the board of directors of MFSIM, that does not negate the fact that Mr King was apparently able to influence such a major decision across the entire group.  The fact that this occurred prior to Mr King’s departure from the board of MFSIM does not make it irrelevant to the question of whether he had a role, and if so what, within MFSIM in November 2007.  His influence in early 2007, as demonstrated by this directive and its implementation, is unlikely to have diminished significantly over the course of the year.  He remained the most senior executive within the MFS Group.
  5. [262]
    The second example on which ASIC relied was an instruction which Mr King gave in an email dated 12 October 2007, which was addressed to three individuals within MFS (including Mr Krecklenberg) and which was copied to Mr White.[217]  Under the heading “Decision”, Mr King wrote that:

“In future we will only debt and/or equity finance a Hotel or Serviced Apartment project in the leisure or corporate sectors[.]

[I]f Stella approves it AND is granted the management of it (or waives the management of it) AND is paid a fee to provide its brand to the Hotel[.]

In summary we don’t fund competition to our Stella business and if we do we make money out of the financing as well as all the other angles[.]

If they want our money them [sic] the rules”.

  1. [263]
    On 10 December 2007, Mr White forwarded that email to others, including Mr Hutchings and a Ms Bennett, saying that:[218]

“This needs to be formalised into policy and tabled at Pac Fin and PIF IAC[.]”

  1. [264]
    ASIC tendered a memorandum from Ms Bennett to the IAC for PIF on this subject.[219]  The memorandum was dated 6 November 2007.  Ms Bennett was not called to give evidence and ASIC did not adduce evidence about the document from any witness who was a member of PIF’s IAC.  Ms Bennett was described in the document as the Head of Loans Management.  The memorandum attached what were described as “amended MFSIM 2007 Lending Guidelines for consideration and confirmation by IAC”.[220]  It described the amendments as incorporating “the recent request by [Mr] White that IAC will only consider funding proposals for Hotels or Serviced Apartments if the proposal has been offered to Stella and MFS Australian Resort Trust …”.  The attached amended Lending Guidelines Policy provided that PIF would not fund any Hotel, Serviced Apartment or Resort Operation, except on the conditions which Mr King had prescribed in his email.  However, as the submissions for Mr King pointed out, these were guidelines only, and the document stated that proposals which did not meet the guidelines would still be considered by the IAC, on a case by case basis, provided the proposal represented a sound investment for PIF.
  2. [265]
    Although ASIC tendered several sets of minutes of meetings of the IAC of PIF, no minute was tendered which recorded a discussion or adoption of this amended Lending Guidelines Policy.  Nor did ASIC tender any evidence that these amendments were approved by the Board of MFSIM.
  3. [266]
    Mr King’s email was in the terms of an unqualified direction which prohibited the use of funds, including the funds of PIF, except upon the conditions which he there expressed.  In turn, Mr White appears to have followed that direction.  The proposed Guidelines were not in the form of a complete prohibition, and nor should they have been in those terms, because PIF’s interests were different from those of the MFS Group.  But given the terms of Mr King’s email and Mr White’s response to it, there is a basis to infer that, in practical terms, this was an absolute prohibition as far as Mr White was concerned.  In our view, these events further demonstrate an influence which Mr King had over Mr White, and in that way they are relevant to ASIC’s case that Mr King was an officer of MFSIM.  But this example does not prove that Mr King acted in an office or position of MFSIM.  Notably, the direction which he issued was across the entire MFS Group.
  4. [267]
    The third example involved dealings with an entity called Mariner Bridge, in which it had proposed a joint venture with the MFS Group to establish a new investment fund.  ASIC alleged that, during these negotiations from September to December 2007, Mr King “closely directed” Mr White.  The relevant evidence was adduced by ASIC in its cross-examination of Mr King.[221]  We accept that this is another piece of evidence which shows the influence which Mr King had over Mr White.  However this proposal was not for a joint venture between Mariner Bridge and PIF.  The proposal was for a new investment fund, in which the joint venture partner would be another MFS company, and for which PIF’s involvement would be that it would invest in the fund.  Mr King explained that the MFS Group would contribute equity and staffing to the venture, whilst PIF would invest in the new fund.[222]  Consequently, this was not simply a proposal for the investment of PIF’s money: it was a proposal which involved the use of the resources of the MFS Group.  That affects the characterisation of Mr King’s role in respect of the proposal.  This example did not advance ASIC’s case that Mr King was an officer.
  5. [268]
    The fourth example actually consisted of three events, the first of which was an email from Mr King to Ms McBain of MFS Ltd and Mr White on 2 December 2007.  The subject matter was a proposed financing of a property development by PIF.  PIF’s IAC had approved the proposed lending, but on the condition that the developer’s presales be at least 30 per cent of the debt.  Ms McBain was unhappy with that condition, and emailed Mr King on that date, saying that the condition had been imposed for no other reason than that IAC’s Lending Guidelines suggested 30 per cent, rather than 15 per cent as she proposed.[223]  Mr King’s email was in response to hers and was primarily addressed to Mr White.  He wrote:

“[Ms McBain] has agreement from a quorum of the committee … and from you and from me … that is more than enough[.]

It is approved[.]

Make it happen please[.]

[N]ot going back to any more committees if they won’t answer in a timely and appropriate manner[.]

[Ms McBain] … consider it approved at the 15% level[.]”

  1. [269]
    On the following day, the minutes of a meeting of the IAC for PIF record that Ms McBain’s proposal was considered and approved.  Neither Mr King nor Mr White was present.  For Mr King, it was argued that the evidence did not establish that Mr King’s email influenced those members of the IAC who attended.  Indeed there was no evidence that Mr King’s email was forwarded to those attendees.  A number of them gave evidence but ASIC did not ask them about this decision.  ASIC cross-examined Mr Hutchings about the email, but did not suggest to him that it was influential.
  2. [270]
    The documents, on their face, indicate a probability that Mr King was able to direct the outcome in the IAC.  The difficulty for ASIC in now relying upon this example is that the point was not taken up by ASIC with the relevant witnesses.  Nevertheless, we consider that ASIC proved that Mr King was influential on this occasion.  His position of influence in the MFS Group is illustrated by the fact that Ms McBain saw fit to go to him to arrange an approval of finance on the more lenient terms which she was proposing.  Mr King seems to have had no doubt that this was properly a matter for his decision.  Further, this event is at odds with Mr King’s claim that he was concerned only with what he described as the proprietary side of MFSIM, and not with the decision making for how it should apply the funds of schemes for which it was the responsible entity.  Mr White was not present at the IAC meeting, but that is not to say that Mr King’s influence over him was of no consequence for the outcome.
  3. [271]
    The next event which was relied upon by ASIC also involved emails of 2 December 2007, initiated by Ms McBain.  She emailed him on the subject of financing a project called “Seachange Developments”.  She attached a summary of alternative proposals, one of which, she wrote, would “have a better chance of approval through the committees as we could sell it to them as an interest in an asset class that would be attractive to one of the funds or someone like MFT considering the yields.”  It appears from her email that the developer had been offered finance from a combination of funding from PIF, PacFin and a “MFS equity loan”.  Ms McBain wrote that “we already have PIF and PAC loans approved”, it appears that she was seeking Mr King’s direction for the third component, the MFS equity loan.
  4. [272]
    Mr King’s email in reply, which was copied to Mr White, was as follows:[224]

“I have decided to utilise my right to overrule the committees with this one[.]

It is approved on either basis as proposed by [Ms McBain.]”

  1. [273]
    As is submitted for Mr King, on this occasion the committee which was being overruled was not a committee of MFSIM, but was a committee of MFS Ltd.  In the general sense, the evidence was a further illustration of Mr King’s influence.  But as the decision here was not one for MFSIM, it provides little support for ASIC’s case that Mr King was an officer of MFSIM.
  2. [274]
    The third event of 2 December 2007 concerned the position of a Mr Kennedy on the IAC for PIF.  Mr King emailed Ms McBain and Mr White on the subject, saying to Mr White that he wanted him to change the IACs for PIF and PacFin by removing Mr Kennedy and so that a quorum should exist only if Mr King or Mr White was present.[225]  Mr King wrote that “in this way we can get back to deal making and making money and not get tied down in … arguments”.  In the same email, Mr King told Ms McBain that, in effect, if she encountered problems with Mr Kennedy, she should email Mr King and Mr White straight away.
  3. [275]
    However Mr White did not agree with Mr King’s proposal to remove Mr Kennedy.  He set out his reasons in an email to Mr King of 5 December 2007, in which he argued that it was not in the best interests of the company that Mr Kennedy be removed.[226]  At [666] of the Primary Reasons, his Honour referred to evidence which Mr King had given that Mr White had refused to remove Mr Kennedy from the IAC, and observed that Mr King had withdrawn that contention when cross-examined on the email from Mr White of 5 December 2007.[227]  That was correct but Mr White’s email was still significant.  What counsel for ASIC then put to Mr King was that “Mr White didn’t say no to you; he simply persuaded you that it wasn’t in the best interests of the company for it to occur”[228] and Mr King agreed with that suggestion, withdrawing his earlier claim that Mr White had refused to remove Mr Kennedy, and saying that instead Mr White had persuaded him to abandon what he described as “my silly idea”.
  4. [276]
    In our view, the terms of Mr White’s response demonstrated that, at least on this issue, Mr White exercised his own judgment and did not simply follow the instructions of Mr King.  This example did not assist ASIC’s case to any real extent.
  5. [277]
    The next example offered by ASIC was Mr King’s email to Mr White, Ms Watts, Mr Hutchings and another of 19 December 2007 on the subject of “PIF, Wholesale PIF and opportunities in NZ and other places”.[229]  In that email, Mr King referred to newspaper reports that competitors were “advertising … heavily” high interest rates for investments in managed funds.  He wrote:

“I think at the MFS level I am prepared to fund from early January for 6 months a huge marketing campaign to steal back market share[.]

We should talk tomorrow sometime to develop some basic strategies in that area[.]

I would like to see PIF at 1.5 billion by 30 June next year”.

For Mr King, it was submitted that ASIC did not prove that MFS did fund such an advertising campaign, or that if it did so, that Mr King was the relevant decision-maker for MFS.  Of course this email was sent in late December 2007, only a few weeks before the events which marked the commencement (at least publicly) of the demise of the MFS Group.

  1. [278]
    The proposed advertising was to be funded by MFS Ltd, but this was a suggestion being made by Mr King as to how MFSIM should conduct its business.  Whilst the evidence is relevant in that way, of itself it provides little assistance to ASIC’s case, because it does not demonstrate that others, Mr White in particular, acted on Mr King’s say-so.
  2. [279]
    The next example was based upon the minutes of the MFSIM Investment Management Meeting held on 7 January 2008.  None of the appellants, save for Ms Watts, was present.  One of the items which was recorded as having been discussed was as follows:[230]

“[Mr] King directive at present is that no new investment transactions will be settled at the very earliest until at least late January.”

That meeting occurred after an email was sent by Mr King to Mr White, Mr Anderson, Mr Hutchings and others, dated 18 December 2007, on the subject of “Property Lending”.[231]  Mr King there wrote:

“You are all aware of the Centro issue [the collapse of the Centro Group in December 2007].  This has now flowed thru [sic] to the whole listed property market and I think right across the board property values could come under real pressure as people are forced to sell property assets sooner than they would want and in a rather disorderly way.

As of now and for the remainder of the calendar year I do not want to settle any property lending/invest transactions.

As of now all of you need to put your thinking caps on as to how to defer the completion of any of these transactions until mid January when we have some idea how this is all going to pan out a little better[.]

It would be easy for me to turn a blind eye to this challenge but we need to confront it and head on for the long term good of MFS.

I am not saying we are not going to do the deals but as a risk management issue we need to see how things pan out a little better[.]”

This email was not restricted to the business of MFSIM.  It was written by Mr King in his role of CEO of the MFS Group.

  1. [280]
    It was submitted for Mr King that the email was inconsequential because ASIC did not adduce evidence of the deferral or cancellation of any settlements by MFSIM and that the minutes of that meeting merely showed that the email was raised for discussion.  Nevertheless these documents do illustrate the preparedness of Mr King to intervene in the business of MFSIM (and other companies) and by something in the nature of a directive rather than an advice.
  2. [281]
    The next of the matters relied upon by ASIC involved a launch of PIF into New Zealand.  Mr Jason Maywald emailed Mr King on 30 November 2007 as follows:[232]

“For a little while I’ve been trying to convince PIF to sell their product through our distributions team in NZ.  I’m emailing you about it now because your support for that idea might overcome PIF’s reluctance to make the changes we think they need to [make] in order to make the product sell here [New Zealand].

My view is that from an MFS corporate perspective there are lots of reasons to have PIF here, and I think those reasons should override the concerns of PIF team in regard to the specific product issues.”

Mr King responded to Mr Maywald, by an email which he copied to Mr White, as follows:

“So does it all come down to me convincing them to offer 9.75% in NZ?”

Mr Maywald replied:

“Basically yes”.

Mr King replied:

“[W]e are on to it[.]

When could we launch it[?]”

  1. [282]
    On 2 December 2007, Mr King emailed Mr White and Mr Hutchings asking for their thoughts about PIF offering potential investors in New Zealand certain interest rates.[233]  There followed a series of emails in which Mr King was involved in pursuing the launch of PIF into the New Zealand market.
  2. [283]
    For Mr King, it was submitted that ASIC did not prove that he was the relevant decision maker on this proposal and it was pointed out that ASIC did not lead evidence on the subject from other directors of MFS Ltd and any of the directors of MFSIM.  Nevertheless these emails demonstrate a participation by Mr King in the business of MFSIM and thereby provide some support for ASIC’s case that he was an officer of the company.
  3. [284]
    The next of these events was Mr King’s instruction, in January 2008, to Mr Anderson, Mr Maywald and Mr White, to limit certain redemptions.  There was a series of emails in early January between Mr King and Mr Maywald and others on the subject, upon which Mr King was cross-examined.[234]  But the subject matter here was the business of PacFin.  It was unrelated to MFSIM so that the evidence does not support ASIC’s case that Mr King was an officer of that company.
  4. [285]
    The last of the examples assembled by ASIC involved instructions given by Mr King, in August 2007, “about how the PIF applications and redemptions numbers should be presented at least for the purposes of an MFS Ltd presentation”.[235]  This was a presentation which was made to promote MFS Ltd.  Mr King gave instructions to amend references, in a document to be used in a presentation to investors, to the quantity of redemptions on PIF which had occurred in July 2007.  Because those redemptions were to be funded by the MFS Group, Mr King’s motivation, it would appear, was to present a more favourable picture of the liquidity of the MFS Group.  His conduct in that respect may or may not have been proper, but that is not the present question.  What matters is that in this event, he was not acting for MFSIM.  The evidence does not support ASIC’s case that he was an officer of that company.
  5. [286]
    Of the nine examples offered by ASIC’s submissions, it can be seen then that many of them did not involve Mr King performing a role which could be characterised as one from his acting in an office or position within MFSIM.  In some cases however, Mr King saw fit to intervene in the business of MFSIM and to issue directives as to how things should be done.
  6. [287]
    But the question is whether ASIC proved that Mr King was an officer upon the basis which ASIC had pleaded, namely that Mr King had the capacity to affect significantly the corporation’s financial standing.  Further, as we have concluded above, ASIC had to prove that Mr King had that capacity by acting in an “office” of MFSIM.  As already discussed, ASIC’s pleaded case was not one in reliance on para (b)(i) of the definition, namely that Mr King made or participated in making decisions affecting the whole or a substantial part of the business of the company.
  7. [288]
    On our review of the evidence, we are not persuaded that ASIC proved that Mr King had the capacity to affect significantly the financial standing of MFSIM on the basis particularised by it.  Further, any capacity which he did have to affect that matter was one which derived from his position of CEO of the MFS Group and was exercised by him in that role, rather than from acting in an office or position within MFSIM.  We accept that Mr King’s influence over Mr White and some others within MFSIM was substantial; but MFSIM had a board of directors, the majority of which was independent, and Mr King’s influence may not have given him a capacity to significantly affect the company’s financial standing.
  8. [289]
    Consequently, Mr King’s challenge to the conclusion that he was an officer succeeds.  He should not have been held to have contravened the duties prescribed by s 601FD.  Should it matter, it should be clear from our findings about the s 79 case against Mr King that had we concluded that he was an officer of MFSIM, we would have concluded that he breached his duties under that provision.

Conclusions in the case against Mr King

  1. [290]
    Mr King’s appeal will be therefore allowed, to the extent that declarations were made against him as an officer.
  2. [291]
    In our view it is also necessary to vary the declarations which were made about his involvement in the contraventions by MFSIM.  The reason is that in each case, it was declared that Mr King was knowingly concerned in MFSIM’s contravention by “permitting” MFSIM to make the draw down or payment.  We have discussed the conduct of Mr King by which he was involved in MFSIM’s contraventions.[236]  In our view, the characterisation of Mr King’s involvement as granting permission for the payment is too limited a description of his conduct, and the declarations against Mr King should be amended accordingly.
  3. [292]
    ASIC filed a cross-appeal, some of which was not pressed at the hearing, and the rest of which was conditional, in the sense that it sought alternative declarations in the event that this Court set aside the findings of dishonesty against Mr King.  Consequently there is no need to consider the cross-appeal.
  4. [293]
    By Ground 16 of Mr King’s appeal, it was sought to challenge the primary judge’s finding that it was inappropriate to grant relief from liability for Mr King’s conduct pursuant to s 1317S and s 1318 of the Act.  That ground was not pursued by Mr King, in the event that the findings of his dishonesty were not disturbed.
  5. [294]
    The primary judge made further orders against Mr King as follows:

“29 Under section 206C of the Corporations Act, King be disqualified from managing any corporation for 20 years from the date of these orders.

30 Under section 1317G of the Corporations Act, King pay the Commonwealth of Australia a pecuniary penalty of $300,000.

31 Under section 1317H of the Corporations Act, King pay compensation to PIF in the amount of $177,017,084.

32 King pay 60% of ASIC’s costs of and incidental to the proceeding on the standard basis.”

Of those orders, that which was made for compensation to be paid to PIF would be unaffected by our conclusion that Mr King did not contravene s 601FD of the Act.  But conceivably, the other orders might have been affected by the judge’s conclusion that he had contravened that provision.  This Court heard no argument on the question, but Mr King should have an opportunity to make written submissions.

  1. [295]
    The orders in Mr King’s case, CA 6320/17, will be as follows:
    1. Allow the appeal against the orders in para 7(d), (e), (f) and (g) of the orders made on 26 May 2017.
    2. Vary the orders made on that date as follows:
      1. (i)
        delete from para 6 of those orders the words:

“By permitting MFSIM to make the RBS Drawdown for the purpose of giving a benefit to related parties of MFSIM and not for the benefit of the members of PIF”;

  1. (ii)
    delete the word “King” from paras 7 and 8 of those orders;
  2. (iii)
    declare that King:
  1. (i)
    contravened section 601FC(5) of the Corporations Act by being knowingly concerned in the contraventions of MFSIM, the responsible entity of PIF, at paras 1(b), 1(c), 2(b) and 2(c) of the orders made on 26 May 2017;
  2. (ii)
    contravened section 601FC(5) of the Corporations Act by being knowingly concerned in the contravention by MFSIM, the responsible entity of PIF, referred to in para 3(a) of those orders;
  3. (iii)
    contravened section 209(2) of the Corporations Act by being knowingly concerned in the contravention by MFSIM, the responsible entity of PIF, of section 208(1) of the Corporations Act as modified by section 601LC of the Corporations Act, by making the MFS Payment (as it is called in the orders of 26 May 2017), which was:
  1. (A)
    a financial benefit to MFS Administration, a related party of MFSIM;
  2. (B)
    out of PIF’s scheme property; and
  3. (C)
    made without obtaining the approval of PIF’s members;
  1. (iv)
    contravened section 209(2) of the Corporations Act by being knowingly concerned in the contravention by MFSIM, the responsible entity of PIF, of section 208(1) of the Corporations Act, as modified by section 601LC of the Corporations Act, by permitting MFS Administration to make the Fortress Payment (as it is called in the orders of 26 May 2017), which was:
  1. (A)
    a financial benefit to MFS Castle Pty Ltd, MFS Limited, and MFS Financial Services Limited, each a related party of MFSIM;
  2. (B)
    out of PIF’s scheme property; and
  3. (C)
    made without obtaining the approval of PIF’s members.
    1. Direct the appellant, in the light of this judgment, to file and serve written submissions (if any) about the orders made on 26 May 2017 in paras 29, 30 and 32, by 14 February 2019.
    2. Direct the respondent file and serve written submissions (if any) in response by 7 March 2019.
    3. Any written submission under (3) or (4) shall not exceed five pages in length.
    4. Direct each party to file and serve written submissions as to the costs of this appeal and the cross-appeal by 14 February 2019.
    5. Appeal otherwise dismissed.
    6. Cross-appeal dismissed.

Mr White and the November payments

  1. [296]
    In respect of the November payments, the primary judge made declarations against Mr White in terms which were identical to those against Mr King.  He was found to have been knowingly concerned in MFSIM’s contraventions in respect of the RBS Drawdown, the MFS Payment and the Fortress Payment and to have breached his duties as an officer of MFSIM by not acting honestly, not acting in the best interests of the members of PIF, making improper use of his position as an officer and failing to take all steps that a reasonable person would take if they were in his position to ensure that MFSIM complied with PIF’s constitution.
  2. [297]
    Mr White’s Notice of Appeal lists some 18 grounds, but as his outline of submissions explains, they are variants of but two grounds, namely that the judge erred in impermissibly allowing ASIC to advance a case beyond its pleading and in finding against Mr White in accordance with that case, and that the reasons of the judge were inadequate.
  3. [298]
    Mr White did not testify at the trial.  The facts, as we have outlined earlier, were not significantly contested on his behalf, although there were arguments advanced about what should be made of them in the light of other facts which we will discuss.
  4. [299]
    Mr White’s arguments about the scope of the pleading are largely those which we have rejected above, when discussing Mr King’s appeal.[237]  In para 58(i)(iii) of its Statement of Claim, ASIC alleged that Mr White:

“knew there was no benefit, consideration or reward which MFSIM as Responsible Entity for PIF could, or would in fact, gain from the $130 Million Payment to the extent of the $103 Million Payment[.]”

We have accepted that this allegation went further than the case pleaded in para 52 about MFSIM’s contravention.  But, that meant only that the case against Mr White was to be limited to an alleged knowledge that PIF received no benefit or consideration at the time of the payments, and, as we have said earlier, that was the case pleaded against Mr White in para 58(i)(ii).  Mr White should not have been under any misunderstanding about the essence of ASIC’s case, namely that $103 million of PIF’s money was applied to pay the debt of another entity without PIF then receiving anything in return, even in the form of an enforceable promise.[238]

  1. [300]
    As we have discussed, the content of ASIC’s pleading became the subject of argument when, relatively late in the trial, ASIC applied to amend its Statement of Claim.  Without then ruling on the question, the primary judge noted that ASIC had filed replies (to some of the defences) which had pleaded that no consideration was provided to PIF “at the time and in exchange for the $103 million payment.”  A reply in those terms had been filed against Mr White so that the allegation was already part of ASIC’s pleaded case against him.  This made Mr White’s complaint about ASIC’s pleading against him even less persuasive than Mr King’s complaint.
  2. [301]
    In para 8(g) of the submissions for Mr White in this Court, reference was made to ASIC’s case pleaded in para 58(i)(ii) that “at all material times” Mr White:[239]

“knew there was no transaction or transactions which were in fact undertaken or which would make the use of monies drawn under the RBS Loan Agreement to repay Fortress in accordance with the Agreement [with Fortress] of 26 November 2007, a proper investment on behalf of PIF[.]”

  1. [302]
    In that submission, it was said that ASIC there alleged that Mr White knew of that matter and others “at all material times being from 26 November 2007 to 31 March 2008”.[240]  The submission was made upon the basis of what was pleaded in para 1A of the Statement of Claim and what was said about that paragraph in [569] of the Primary Reasons.  By para 1A, ASIC pleaded that:

“All references in this pleading to ‘material times’ are, unless the contrary intention is pleaded, references to all times between 1 October 2007 and 31 March 2008”.

At [569] of the Primary Reasons, when ruling upon the issue of the content of ASIC’s pleaded case, the primary judge accepted that this definition of “material times” applied to, amongst others, paras 52, 56(h)(ii), 56(n) and (relevantly for Mr White) 58(i)(ii) and (iii).  We are unable to agree with that interpretation of the pleading.  The definition in para 1A could not be applied in the case of contraventions which were alleged to have occurred at, or by the time, of a particular payment, whether it be any of the November payments or the $17.5 million payment in December 2007.  The material times in para 58 were necessarily limited to when MFSIM’s contraventions occurred, which was when the drawdown or payment was made.  An allegation that Mr King or Mr White knew that there was no transaction which would make the use of PIF’s monies a proper investment on behalf of PIF was one which was necessarily confined to the time at which there occurred the contravention in which he was involved.

  1. [303]
    We note at this point that Mr White advanced similar arguments about the scope of ASIC’s pleading in relation to the payment of $17.5 million of PIF’s funds in December 2007.  We discuss that below,[241] and reject it for essentially the same reasons.
  2. [304]
    ASIC alleged that Mr White was aware of the agreement with Fortress of 26 November 2007, having been copied to the email correspondence between Mr King and Mr Kelleher of 24, 25 and 26 November 2007.  It was alleged he knew that as at 26 November 2007, MFS Ltd, Castle and MFS Financial Services had insufficient funds from their own resources, without recourse to debt or capital raisings, to pay Fortress $103 million by 30 November 2007.  It was alleged that he knew of the RBS Loan Agreement and that funds drawn pursuant to it belonged to PIF and were to be used only in accordance with PIF’s constitution.  It was alleged that on and from 26 November 2007, Mr White planned to use funds drawn under the RBS Loan Agreement to pay Fortress.
  3. [305]
    It was further alleged that at all material times from 26 November 2007, he knew that the relevant committees of PIF and the Board of MFSIM had not approved any investment of funds obtained from the $150 million drawdown and that no documents were prepared in November or December 2007 which recorded any transaction for the benefit of MFSIM as the responsible entity for PIF, or provided for the payment of any consideration or reward for the making of the $130 million payment to the extent of the $103 million payment.
  4. [306]
    In the Primary Reasons, the primary judge summarised the respective arguments for ASIC and Mr White, before expressing his conclusions upon the entirety of the case against Mr White at [952] – [960].  At this point we will discuss only the reasons about the November payments.  But as the primary judge said in [952], some of his findings appeared also in his discussion of submissions for Mr White.
  5. [307]
    One of those submissions was that MFSIM and MFSA were not related parties in respect of the $130 million payment.  The primary judge referred to his reasoning earlier in the judgment in which he had concluded that those entities were related parties, as were MFSIM and PacFin in respect of the $17.5 million payment.[242]  That reasoning was not challenged in Mr White’s appeal.
  6. [308]
    At the trial, the principal argument for Mr White was premised upon the content of ASIC’s pleaded case being that there was never to be any benefit to PIF from the use of its money.  The primary judge rejected that argument as follows:[243]

[952] … [Counsel for Mr White] submitted that the real issue raised on the pleadings was whether his client knew at the time he ordered the $150 million drawdown from the RBS loan that there would be no benefit to PIF. That was said to be based on a proper understanding, in particular, of para 58(i)(iii) of the statement of claim’s allegation that he knew that there was no benefit, consideration or reward which MFSIM, as responsible entity for PIF, could or would in fact gain, for example, from the $130 million payment to the extent of the $103 million payment. He submitted that the evidence of his intention to restructure MYF argued against any conclusion that he decided to misappropriate or steal the money. Rather, I should conclude that there was no such intention and that the failure to document the transactions did not evidence dishonesty but inefficiency. One might expect a bank officer to have made sure that the transactions were properly documented and in place before money was paid over but Mr White was not in such a position.

[953] The problem with that submission seems to me, however, to be the uncertainty associated with the transactions said to have been in Mr White’s contemplation and his inability to identify them to other employees until well after the payments were made. Nor do they square with his express reference to the money drawn down being paid back ‘in the next 12-30 days’ as late as his email of 22 January 2008. The only rational inference I draw from those facts is that the funds were illegitimately ‘borrowed’ or taken in the short term rather than as part of some planned scheme to make investments with the funds. His behaviour equates to dishonesty more than just carelessness so as to establish liability as alleged under para 59(a) as well as under paras 59(b), 59(c) and 59(d) of the statement of claim.”

  1. [309]
    Because we have rejected Mr White’s complaint about the pleading, there is little which was argued in this Court which suggested that Mr White did not contravene the Act in respect of the November payments in the ways which were declared by the primary judge.  Mr White knew of the 26 November agreement with Fortress and knew that MFS needed to find $103 million to be paid to Fortress by 30 November 2007.  He knew that the funds could not be obtained by them from the CBA.  He knew that PIF’s money obtained from drawing on its RBS facility was to be, and was being, used to make that payment.  Indeed Mr White gave instructions to Mr Hutchings, on the morning of 26 November, to “put in motion” a drawdown of $150 million, with the aim that those funds would be available on Thursday, with a fallback of Friday, in that week.  Clearly he was aware that the money was to be paid, and was paid to Fortress without any benefit being provided in return for the use of PIF’s money, even in the nature of an agreement by which MFSIM as the responsible entity would have an enforceable right to a benefit.
  2. [310]
    Nevertheless, it was argued for Mr White that the primary judge should have concluded, upon the basis of evidence which, it was said, was not considered by the primary judge, that this use of PIF’s funds was not contrary to its interests.
  3. [311]
    Despite the absence of evidence from Mr White, it was argued that the evidence revealed that he:[244]
    1. (a)
      knew that PIF had assets maturing in the short term of the value of about $140 million;
    2. (b)
      intended, together with Mr Hutchings, that MYF be restructured and that PIF invest in the asset backed sector through MYF ahead of the relaunch of that scheme to the public in early 2008;
    3. (c)
      knew that MFSA was owed significant sums of money by a company called MFS PacInvest Pty Ltd (“PIC”);
    4. (d)
      as a member of the Recyclable Capital Project Committee, knew that he had been tasked with recycling certain assets owned by the MFS Group and with “redeeming” the loan owed by PIC;
    5. (e)
      knew that there were other assets held by the MFS Group which he considered suitable for investment by PIF; and
    6. (f)
      intended that PIF undertake investments with the $150 million drawdown, by investing in certain businesses or entities within the MFS Group.
  4. [312]
    We accept that there was evidence that in November 2007, consideration was being given by some within MFSIM to the use of PIF’s funds to invest in a restructured MYF.  We also accept that there was evidence that the MFS Group, through the Recyclable Capital Project, was looking to divest itself of assets and that it was not unprecedented that PIF’s funds would be used to invest in MFS entities or assets.  Further, we accept that there was evidence that steps were being taken towards drawing down on the RBS facility in the week preceding Mr King’s negotiations with Mr Kelleher.  From all of that, it could be accepted that some within MFSIM, including Mr White, had it in mind that at some stage funds would be drawn down on the RBS facility to invest in assets or entities which were within the MFS Group, and that one possibility was an investment in a restructured MYF.
  5. [313]
    However, those matters provided no answer to ASIC’s case.  When Mr White instructed Mr Hutchings to draw down on the RBS facility, he intended that $103 million of those funds would be used to pay Fortress.  At the same time, he knew that nothing had been put in place, nor would be put in place by the time Fortress was paid, which would provide a benefit for the use of PIF’s money.  No particular investment or investments had been decided upon within MFSIM, let alone made the subject of any enforceable agreement.  Just how the beneficiaries of the Fortress Payment (MFS Ltd, Castle and MFS Financial Services Pty Ltd) were to be involved in these investments by PIF was not apparent.
  6. [314]
    Mr White’s state of mind is demonstrated by his inability to explain to others, over the ensuing weeks, what had been or what would be the benefits which would be provided to PIF.  As the primary judge said, the problem with this argument for Mr White is “the uncertainty associated with the transactions said to have been in Mr White’s contemplation and his inability to identify them to other employees until well after the payments were made.”[245]  Contrary to the submissions for Mr White, the primary judge did consider this argument.  In our view, his Honour correctly rejected it.
  7. [315]
    As we have said about Mr King in considering his appeal,[246] Mr White may have considered that PIF could be compensated ultimately by assets being later identified and transferred to it.  But that did not answer ASIC’s case that Mr White acted dishonestly and not in the best interests of the members of PIF.  The funds which were used to pay Fortress were trust funds and funds which could only be used according to the Act and the compliance plan for PIF.  The investments which, it was said, Mr White had in mind would have been related party transactions.  And the payments of 30 November 2007 were themselves related party transactions.  Mr White must have known that they required the approval of members of the scheme.  As the CEO of MFSIM, he must have known that there had been no proper consideration to whether this use of PIF’s funds was in the best interest of PIF’s members; indeed, without a particular investment in mind there could have been no such consideration.  The evidence overwhelmingly proved that Mr White acted dishonestly and against the best interests of members of the scheme, contrary to his duties as an officer of the responsible entity, and that he was knowingly concerned in the entity’s breaches of its duties.  His challenge to the Orders about the November payments must be rejected.
  8. [316]
    The reasons we have given on this part of Mr White’s appeal generally correspond with those of the Primary Judge.  In our respectful opinion his Honour’s reasons in this respect were adequate, and in any event, the inferences about Mr White’s state of mind were compelling on what were uncontroversial facts.

THE DECEMBER PAYMENT

  1. [317]
    The MFS Group had businesses in New Zealand, including PacFin.  PacFin raised money in New Zealand from retail investors to whom it issued notes or debentures, and those funds were invested predominantly in loans and securities.  About 40 per cent of PacFin was owned by MFS Ltd.  MFSA had a management agreement with PacFin whereby it managed PacFin’s business from MFS’s headquarters in Southport, Queensland.  In practice, MFS Ltd and MFSA controlled PacFin, with the local New Zealand management of PacFin receiving instructions and directions from Mr White, Mr Anderson and Mr King.  Mr White and Mr Anderson were directors of PacFin, and MFSA managed PacFin’s cashflow.  MFS Ltd had entered into an agreement with PacFin, the effect of which was that MFS Ltd would pay PacFin the value of any loss on a loan or investment up to the value of $50 million.  In addition, Mr King had assured PacFin’s CEO, Mr Maywald, that the money would always be there for PacFin to meet its obligations.
  2. [318]
    By late 2007, funding from investors and other income into PacFin had diminished.  In the last three months of 2007, monthly redemptions exceeded money flowing into PacFin.
  3. [319]
    By December 2007, the MFS Group as a whole was experiencing cashflow problems.  The extent of its problems is apparent from emails in mid-December 2007, and involved further drawdowns on PIF’s RBS facility.  On 17 December 2007, Mr Hutchings advised Mr White that the balance of the $150 million drawdown (after the $130 million had been paid) went to fund a deal and $5 million “went to general funding”.[247]
  4. [320]
    On 18 December 2007 a further drawdown of $25 million was received from the RBS into PIF’s account.[248]  On the same day, Mr King directed that property lending and investment transactions not settle.
  5. [321]
    On 19 December 2007, Mr Anderson emailed officers of PacFin for advice about the position with redemptions for PacFin and, in particular, when the “cut-off” for redemptions was in December.  Mr Maywald responded that the cut-off date was Thursday, 20 December and that redemptions for December currently stood at $14.2 million.[249]  On 24 December 2007, Mr Anderson emailed Mr White, and told him that he was keen to discuss with him the logistics of “the remaining A$17.5m to be provided”.  He explained that this was the balance of the “original $20 million” after an allowance for $2.5 million to be used for a certain purpose.[250]  In a further email to Mr White on that date, Mr Anderson explained that to enable the funds to be in the correct account for payments to PacFin debenture and note holders, “clear funds” were required by 11 am on Friday, 28 December 2007.[251]  Rather than the funds being transferred by the usual MFSA account, on this occasion the funds were to go directly to PacFin’s account.
  6. [322]
    Ms Brown, who was Financial Controller of MFS New Zealand, gave evidence that, according to cashflow worksheets, “PacFin was looking at MFSA to provide $20 million in funds on 28 December 2007”.[252]  This was an approximate amount which she entered into the cashflow spreadsheet because Mr Anderson had told her that the payment would be made.  However, just before Christmas Mr Anderson told her that a payment of $17.5 million (and not $20 million) would now be made by PIF, and not by MFSA, to PacFin on 28 December 2007 and that she would be required to arrange for the money to be transferred to PacFin so that it could make its distributions and redemptions.[253]  Mr Anderson told her that he had arranged for PIF to send the funds straight to PacFin on this occasion due to the urgency with which PacFin required the funds.[254]
  7. [323]
    Mr Hutchings became involved in the $17.5 million payment.  At 12.31 pm on 27 December 2007 Mr White forwarded him Mr Anderson’s email of 24 December 2007 about the logistics for the payment to PacFin to enable it to have clear funds to pay debenture and note holders.  The email which Mr White sent Mr Hutchings that afternoon stated “17.5m”.[255]  This email indicates that Mr Hutchings was aware on 27 December 2007 of the proposed payment of $17.5 million to PacFin and the urgency associated with the payment.  Although when giving his evidence on 11 August 2014, Mr Hutchings could not recall having received the email, he accepted that it is likely that he read it at the time, and that it was quite possible he was having discussions with Mr White throughout that period.[256]
  8. [324]
    The payment by PIF of $17.5 million to PacFin required a “Proper Instruction” (“PI”) to the fund’s Custodian to be signed on behalf of PIF.  At 2.21 pm on 27 November Mr Hutchings received an email attaching such a document for his approval.  Ms Ring (a Fund Administrator with MFSIM) sent the document under an email which asked Mr Hutchings “Would you please sign and email/fax back to me as soon as possible”.  In another email sent at 2.28 pm she proposed another means by which the PI could be made, when she wrote “Or I can put your electronic signature on the bottom with your approval”.  At 2.33 pm Mr Hutchings replied to the first email “Agree”.[257]  A few seconds later he responded to Ms Ring’s proposal about approving the use of his electronic signature with the word “Agree”.[258]
  9. [325]
    Later that afternoon there was a flurry of emails involving Mr Anderson, Ms Ring and others about the transmission of the funds, the PI from Mr Hutchings having been sent through.[259]  At 10.47 am on 28 December 2007 Ms Howard said PacFin confirmed receipt of the $17.5 million.[260]
  10. [326]
    ASIC’s case, which was supported by the contemporaneous emails and the evidence of Ms Brown, was that it was apparent that the $17.5 million payment was for the purpose of allowing PacFin to access funds to enable it to pay redemptions, rather than for some benefit to PIF.  ASIC’s case was supported by the fact that the contemporaneous documents showed that PIF had no intention of making significant acquisitions in late December 2007, and certainly had no intention of making acquisitions from PacFin.  The evidence included minutes of MFSIM management team meetings in December 2007 which did not disclose any proposed acquisitions by PIF that would explain the $17.5 million payment.  Minutes of a meeting on 17 December 2007 did not record any discussion of such an investment or loan, and the cashflow forecasts in December 2007 did not make any provision for payment by PIF to PacFin of $17.5 million in late December 2007.  No mention was made by the IAC of PIF of any transactions in respect of the $17.5 million payment.  Also, there was no reference to any such transaction by the CRPC of MFSIM.
  11. [327]
    In short, PIF had not anticipated making the payment and had not included the payment in its cashflow.  In addition, PacFin had not anticipated any transaction with PIF or receiving a payment from it.
  12. [328]
    The timing of the $17.5 million payment also supported ASIC’s case that it was made for the purpose of allowing PacFin to pay redemptions, rather than to benefit PIF.  The payment was made when PacFin urgently needed the funds to pay redemptions.
  13. [329]
    There was no contemporaneous consideration of any transactions by which PIF would obtain a benefit in return for the payment to PacFin.  No contemporaneous documents recorded any such transaction.
  14. [330]
    In those circumstances it is unsurprising that employees of MFSIM and MFS Ltd could not understand, after they learned of the payment of $17.5 million, what PIF had obtained in return.  For example, on 2 January 2008, Ms Brown received an email inquiry about the terms upon which the $17.5 million payment had been made.  She replied that she would speak with Mr Anderson and that she thought that Mr White must have organised the payment.[261]  Although employees anticipated details would be forthcoming from Mr White and Mr Hutchings, this did not happen.  On 4 January 2008 a PIF holding report noted “Other loans” of $17.5 million to be confirmed by Mr White.[262]
  15. [331]
    As with the $130 million payment, there were no contemporaneous accounts of PIF or any other entity which documented in late December 2007 or early January 2008 any investment or other transaction which would justify the payment of $17.5 million on 27 December 2007.  Instead, alleged transactions reflecting payments totalling $147.5 million were not formulated until late in January or early February 2008.
  16. [332]
    The contemporaneous documents amply supported ASIC’s case in relation to the $17.5 million payment, namely that:
  • the payment was made because PacFin had an urgent need for funds;
  • the payment was made without any consideration being given by the IAC of MFSIM about what PIF would receive in return for the payment;
  • there was no consideration given on the PIF side of the payment as to what PIF would receive for the payment of $17.5 million;
  • there was no consideration given on the PIF side of the payment as to whether it was genuinely in PIF’s interests to make the payment to PacFin;
  • none of the staff of MFSIM had any appreciation of what, if anything, PIF received for the payment; and
  • to the extent that the payment later came to be explained by the creation of documents in late January and early February 2008, those transactions were not devised or agreed before about 23 January 2008.

The case against MFSIM about the December payment

  1. [333]
    The evidence supported the conclusion that MFSIM contravened the Act in relation to the $17.5 million payment in that:
  • MFSIM failed to act honestly in breach of s 601FC(1)(a).  Instead, it acted without proper regard for the interests of PIF’s members and paid the money away in order to support another part of the corporate group financially;
  • MFSIM failed to act in the best interests of the members of PIF in breach of s 601FC(1)(c);
  • MFSIM failed to ensure that all payments out of scheme property were made in accordance with PIF’s constitution in breach of s 601FC(1)(k); and
  • MFSIM and PacFin were related parties in respect of the $17.5 million payment for the purposes of s 208 of the Act.
  1. [334]
    ASIC pleaded that the money received by PacFin was spent by it in ways which did not benefit PIF.[263]  It alleged that MFSIM, as the responsible entity for PIF, made the payment with the purpose that it was to be spent by PacFin in ways which did not benefit PIF, and for no purpose or benefit to PIF.[264]  And by para 67 of its Statement of Claim, ASIC pleaded:

“MFSIM as Responsible Entity for PIF received no benefit, consideration or reward in return for the $17.5M Payment.”

  1. [335]
    ASIC alleged that in those premises, the December payment was not an authorised investment within the meaning of cl 15.1 of PIF’s constitution.[265]  It further alleged that the payment was made out of scheme property to a related party within the meaning of s 208(1), as modified by s 601LC, of the Act without any approval having been given by the members of PIF to that payment.[266]
  2. [336]
    It alleged that MFSIM, in making the December payment, contravened s 601FC(1)(a) of the Act by failing to act honestly, s 601FC(1)(c) by failing to act in the best interests of the members of PIF, s 601C(1)(k) by failing to ensure that all payments out of scheme property were made in accordance with PIF’s constitution and s 208(1).[267]
  3. [337]
    The primary judge found each of those contraventions was proved and made declarations accordingly,[268] except he did not make a declaration against MFSIM that it had breached s 208.[269]

The case against Mr White about the December payment

  1. [338]
    ASIC pleaded[270] that Mr White was involved in the contraventions of MFSIM, by being knowingly concerned in these contraventions within the meaning of s 79(c), because:
    1. (a)
      he knew that PacFin needed the December payment to pay its debenture and noteholders on 28 December 2007, as evidenced by Mr Anderson’s email to Mr White on 24 December 2007;
    2. (b)
      he instructed Mr Hutchings to make the December payment by his email to Mr Hutchings on 27 December 2007; and
    3. (c)
      he knew “there was no transaction which made the [December payment] a proper payment from PIF’s Operating Account, or provided any consideration, benefit or reward to MFSIM as Responsible Entity for PIF in return for the [December payment].”
  2. [339]
    Notably, there was no pleading against Mr White about the December payment which corresponded with the particular paragraph pleaded against him on the November payments[271] and upon which much of his argument about the pleading depends.  In other words, there was no pleading for the December payment that he knew that there was no benefit, consideration or reward which MFSIM as responsible entity for PIF “could, or would in fact, gain from the [payment]”.[272]  Instead, what was pleaded corresponded with the allegation in para 58(i)(ii) about the November payments.
  3. [340]
    The particulars of the allegation that Mr White knew that there was no transaction which made the December payment a proper one included the facts that:
  • there was no meeting of the IAC of MFSIM as responsible entity for PIF which approved the payment, which Mr White knew as a member of that committee; and
  • there was no meeting of the CRPC of MFSIM as responsible entity for PIF which approved the payment, which Mr White knew as a director of MFSIM.
  1. [341]
    By para 73A of the Statement of Claim, ASIC alleged that a reasonable person in Mr White’s position would have prevented the making of the December payment until satisfied that it was for an investment which was authorised under PIF’s constitution and was for the benefit of PIF and its members.  By para 73B, it was alleged that Mr White did not satisfy himself of those matters and prevent the making of the payment.
  2. [342]
    The primary judge found that each of those allegations was proved and made declarations that Mr White contravened s 601FC(5) (by being knowingly concerned in the contraventions by MFSIM of s 601FC) and s 601FD (by, as an officer of MFSIM, not acting honestly and, in the best interests of PIF, making improper use of his position as an officer, and not ensuring that all payments out of PIF’s scheme property were made in accordance with PIF’s constitution).  It was further declared that by permitting the December payment to be made, Mr White contravened s 209(2), by being knowingly concerned of the contravention by MFSIM of s 208(1).
  3. [343]
    In the Pecuniary Penalty Reasons, the primary judge added this about the case against Mr White at [9]:

“In respect of Mr White, it was submitted that I could clarify how he caused or permitted the PacFin payment and how he was involved in that contravention.  It seems clear to me that I accepted the evidence summarised at [875] of my reasons and ASIC’s submissions about that issue.”

At [875] of the Primary Reasons the judge referred to the evidence of Mr Anderson’s email to Mr White of 24 December 2007 asking for funds to be transferred, and to Mr White’s email to Mr Hutchings on 27 December 2007.

  1. [344]
    Save for one matter, Mr White’s challenges to the judgment about the December payment were also those which he made to the judgment about the November payments.  His principal submission was that the primary judge wrongly upheld a case which ASIC had not pleaded.  In our view, the content of ASIC’s pleaded case was, in all relevant respects, identical to what we have held to have been its case about the November payments, except that, as just noted, Mr White’s complaint in relation to the case about the December payment has even less force because of the absence of an equivalent of para 58(i)(iii).
  2. [345]
    Again, Mr White submitted that there was nothing dishonest or improper by this payment because, it should be inferred from the evidence, he expected that PIF would be properly compensated for the use of its money.  But again, that argument must be rejected for the same reasons as we have given above at [314][316].
  3. [346]
    Ground 17 of Mr White’s appeal raised a point about the December payment which has no equivalent in relation to the November payments.  By Ground 17, it was claimed that the judge erred in law in holding that paras 72 and 73 of the Statement of Claim contained the allegations necessary to support a finding that Mr White was involved in the contraventions pleaded at paras 71 and 72.  The written submissions for Mr White referred to [909] and [912] of the Primary Reasons for this ground of appeal.
  4. [347]
    At [909], the judge recorded a submission from Mr White that ASIC had not pleaded facts which comprised a contravention by MFSIM in making a payment to a related party, and a further argument that it had not been pleaded that there had been no members’ approval for the payment or that Mr White knew of the absence of such an approval.  It was by para 72 of its Statement of Claim that ASIC pleaded that MFSIM contravened s 208(1) by making the December payment.  That was on the basis that, as ASIC had pleaded in paras 69 and 70, the December payment was a payment out of scheme property to a related party within the meaning of s 208(1) and it was not approved by the members of PIF.  At [912], the primary judge expressed his view that paras 72 and 73 of the Statement of Claim “made the relevant allegations that Mr White was involved in MFSIM’s related party contravention in respect of the payment of $17.5 million to PacFin, contrary to the submission made for Mr White”.  It was argued that the primary judge did not address Mr White’s submission which he had recorded at [909].
  5. [348]
    In our view, ASIC clearly pleaded a contravention by MFSIM of s 208(1) in relation to this payment.  In para 73, ASIC clearly alleged that Mr White was involved in that contravention.  At para 73(c), ASIC alleged that there was no transaction which made this payment a proper one or provided any consideration, benefit or reward to PIF.  It is true that there was no specific allegation that Mr White knew that no approval had been given by the members of PIF to the December payment.  But of course in the absence of any transaction, consideration, benefit or reward, nothing could have been put to the members of PIF.  Para 73 of the pleading sufficiently informed Mr White of ASIC’s case in this respect.  Ground 17 of the appeal should be rejected.
  6. [349]
    It follows that Mr White’s challenges to the orders made against him in respect of the December payment must be rejected.

The case against Mr Hutchings about the December payment

  1. [350]
    Mr Hutchings was CEO of MFSIM from 23 May 2007 to 2 May 2008, and oversaw the operations and investments of various managed funds, including PIF.  The circumstances under which PIF paid PacFin $17.5 million on 27 December 2007 have been outlined.  Matters of particular relevance to Mr Hutchings’ involvement in the making of that payment are that:
  • PIF did not anticipate making any payment to PacFin that day, and a cashflow spreadsheet which Mr Hutchings forwarded by email to Mr White on 27 December 2007 made no mention of any such payment;
  • that day, Mr Hutchings told Mr White that PIF had $31 million available in its operating account;
  • at 12.31 pm, Mr White sent Mr Hutchings an email which forwarded an email from Mr Anderson which advised that clear funds had to be paid into PacFin’s bank account by 11 am on 28 December 2007 “in order to pay redemptions”;
  • Mr White’s email to Mr Hutchings indicated that $17.5 million was needed;
  • steps were then taken by PIF to make the required payment;
  • in two emails sent to Mr Hutchings by Ms Ring, he was asked about the signing of a direction for the payment and in response to each email he wrote “Agree”; and
  • on 28 December 2007 Ms Howard emailed Mr Hutchings confirming that PacFin had received the $17.5 million.
  1. [351]
    ASIC’s case was that it was clear that Mr Hutchings approved the urgent payment of $17.5 million from PIF to PacFin, having been told by Mr White of the need for the payment to be made and its urgency.  His approval of the payment was evidenced by responding “Agree” to Ms Ring’s emails.
  2. [352]
    Mr Hutchings submitted to the primary judge that he did not approve the payment of $17.5 million to PacFin on 27 December 2007.  He denied that his email stating “Agree” to Ms Ring was an authorisation of any payment to be made.  Instead, he argued that it was his agreement that she could insert his electronic signature on the relevant written instruction (PI) once he had reviewed the supporting documentation and had approved the transaction.[273]
  3. [353]
    The primary judge rejected this submission and concluded that Mr Hutchings expressed his assent with the use of the word “Agree” to a proposal that he approve a PI or that Ms Ring put his electronic signature on it with his approval.  The primary judge found:[274]

“That Ms Ring interpreted this to mean that she could attach his electronic signature was hardly surprising.  If he wanted to qualify his agreement by asking for the supporting documentation it was up to him to make that clear.”

The primary judge also expressed the view that Mr Hutchings’ submission reflected poorly on his credit.

  1. [354]
    Mr Hutchings also submitted to the primary judge that if MFSIM contravened the Act in relation to the $17.5 million, then Mr Hutchings did not have actual knowledge of that contravention at the time, so that ASIC had not established his knowing involvement in the contravention.[275]  The primary judge accepted ASIC’s submission that Mr Hutchings had clearly agreed to the payment of the $17.5 million, as was apparent from the terms of the emails, but was seeking to resile from it.[276]
  2. [355]
    In his appeal, Mr Hutchings challenged the primary judge’s finding that he approved the $17.5 million payment and the primary judge’s rejection of his submissions in relation to that matter.[277]  He also challenged the adequacy of the primary judge’s reasons in respect of ASIC’s case against him, both in respect of the $17.5 million payment and the false documents part of ASIC’s case.

The appeal against the finding that Mr Hutchings approved the December payment

  1. [356]
    Ground 18 of Mr Hutchings’ Amended Notice of Appeal complained that the primary judge did not make findings about the facts summarised at [1084], including the usual procedure that a PI authorising a payment would usually include supporting documentation which would explain the purpose for which the funds were to be paid.  Mr Hutchings argued that these facts demonstrated that Ms Ring was careless and misinterpreted Mr Hutchings’ email as authority to transmit the funds, when she should have known that authorisation could only be given if supporting documentation was attached to a PI.  He also challenged the primary judge’s finding that if Mr Hutchings “wanted to qualify his agreement by asking for the supporting document it was up to him to make it clear”.  The circumstances were said to demonstrate (at the highest) a “miscommunication” by Mr Hutchings because there were two competing interpretations of the “Agree” email.  In his submissions Mr Hutchings complained that the primary judge failed to apply the Briginshaw standard when there was an innocent explanation for the email.  Finally, Mr Hutchings submitted that the primary judge erroneously concluded that Mr Hutchings’ submissions reflected poorly on his credit, and says that the primary judge’s reasoning was “circular”.
  2. [357]
    ASIC responded that the primary judge’s findings about Mr Hutchings’ approval of the payment are entirely consistent with the evidence and that Mr Hutchings’ submission that “Agree” meant something quite different from “Agree” was rightly rejected.  Mr Hutchings’ denial of what was obvious did reflect badly on Mr Hutchings’ credit and did not involve circularity of reasoning.
  3. [358]
    The essential issue on this ground of appeal is whether the primary judge erred in rejecting Mr Hutchings’ case that, despite writing “Agree” twice in response to emails about signing his name on the PI, he did not mean that his signature could be placed on it, and intended that his signature could only be placed on it once further documentation was supplied.
  4. [359]
    The resolution of that issue centres on contemporaneous documents, particularly emails to which Mr Hutchings was party on 27 December 2007 that indicated that the $17.5 million payment had to be made urgently by PIF to PacFin.  The issue also stands to be resolved in context, including the fact that Mr Hutchings knew of no transaction which PIF was contemplating with PacFin and knew that PIF had not approved any payment to PacFin or investment in it.  No such investment had been recommended by him or Ms Watts, and it had not been approved by any committee or meeting.  The payment had not been anticipated by PIF.  No process had been undertaken by which the nature and purpose of any payment to PacFin was assessed.  Instead, another company in the MFS Group had an urgent need for funds in order to pay redemptions, PIF had money and Mr White’s email to Mr Hutchings on 27 December 2007 showed the urgency of transferring $17.5 million to PacFin that day.
  5. [360]
    The primary judge’s conclusion that Mr Hutchings approved the payment was compelling when regard is had to the contemporaneous documents, including what they told Mr Hutchings about the urgent need for the payment, the plain meaning of his email instructions “Agree”, and the absence of any qualification to the effect that his signature could only be placed upon the PI once further documentation was supplied.
  6. [361]
    The primary judge had regard to the evidence and Mr Hutchings’ submission about the usual procedure whereby a PI authorising a payment was accompanied by supporting documentation which explained the purpose for which the funds were to be paid.[278]  However, evidence of that usual practice did not assist Mr Hutchings in respect of what was an urgent payment in circumstances in which Mr Hutchings was not aware of any recommendation, let alone approval for the payment, and the payment by PIF had been unanticipated.  He had no reason to suppose that the required approval processes could be urgently completed and documented by PIF so as to allow the urgent payment to be made.  Contrary to Mr Hutchings’ appeal submissions, the facts which the primary judge summarised did not demonstrate that Ms Ring was careless and misinterpreted Mr Hutchings’ email as authority to transmit the funds.  Ms Ring did what she was told by Mr Hutchings, namely use his electronic signature on a PI in respect of the payment of $17.5 million by PIF to PacFin.  Mr Hutchings’ approval was given in circumstances in which Mr Hutchings and other parties involved in the payment appreciated the urgency.  The relevant emails were marked “Urgent”.
  7. [362]
    The primary judge’s conclusion that if Mr Hutchings wanted to qualify his agreement to his electronic signature being used, then it was up to him to do so, was sound.  In the circumstances of an urgent payment, “Agree” meant what it said.  Mr Hutchings’ submissions to the primary judge that the evidence only proved there was a miscommunication between Mr Hutchings and Ms Ring was correctly rejected, and it was open to the primary judge to conclude that Mr Hutchings’s persistence in contending that he did not agree to his signature authorising the payment reflected poorly on Mr Hutchings’ credit.
  8. [363]
    In summary, Mr Hutchings has not established that the primary judge erred in rejecting Mr Hutchings’ submissions about whether he approved the payment of $17.5 million to PacFin on 27 December 2007.

The adequacy of the primary judge’s reasons in respect of the December payment

  1. [364]
    In his appeal, Mr Hutchings made specific criticisms of the primary judge’s rejection of his submissions about whether he approved the payment of $17.5 million and alleged that the primary judge did not make findings about the facts summarised at [1084] which were said to demonstrate that Ms Ring was careless and misinterpreted Mr Hutchings’ email.  In paras 1 and 2 of his Amended Notice of Appeal and in his written submissions, Mr Hutchings made more general criticisms about the adequacy of the primary judge’s reasons, including his alleged failure to make findings on material disputed questions of fact and to address Mr Hutchings’ submissions.  The primary judge was said to have failed to provide detailed reasons for rejecting Mr Hutchings’ evidence and, whilst reciting some (but not all) of the competing submissions for ASIC and Mr Hutchings over 51 pages of the judgment, was said to have reached most of his conclusions about the case against Mr Hutchings in only a few pages.
  2. [365]
    The primary judge’s reasoning in relation to ASIC’s case against Mr Hutchings was not confined to the few pages in which [1210] – [1221] appear.  Those conclusionary paragraphs were complemented by findings in other parts of the Primary Reasons.
  3. [366]
    As to the $17.5 million payment, the facts in relation to that matter were drawn principally from contemporaneous documents and evidence which was not contradicted and are set out at [332] – [379] of the Primary Reasons.  In dealing with ASIC’s case against Mr Hutchings in respect of the $17.5 million payment, the primary judge referred to the evidence which was important to the determination of that matter at [985] – [989] and to the evidence upon which Mr Hutchings relied at [1084].  Mr Hutchings’ submissions that Ms Ring could not reasonably have interpreted Mr Hutchings’ “Agree” emails as authorising the payment were engaged with at [1086] – [1088] and [1115].  The reasons were adequate to explain the primary judge’s reason for rejecting Mr Hutchings’ submissions about the $17.5 million payment.  Reference was made by the primary judge to Ms Ring’s evidence that she interpreted the word “Agree” to mean that she could attach his electronic signature.[279]  Having referred to the evidence about the usual procedure in dealing with PI payment directions and the submissions about Ms Ring’s understanding of Mr Hutchings’ use of the word “Agree”, the primary judge rejected the submission that Ms Ring could not reasonably have interpreted the word “Agree” as authorising the payment.  In rejecting Mr Hutchings’ submissions in this regard, the primary judge implicitly made findings that Ms Ring reasonably interpreted Mr Hutchings’ emails and was not careless in acting upon them.  There was no need for a detailed consideration by the primary judge about the usual procedure in relation to payment directions.  There was no contest about that practice and that it was not followed on this occasion.
  4. [367]
    The primary judge was able to resolve an issue of credit concerning Mr Hutchings’ evidence about what he meant by the word “Agree” by reference to contemporaneous documents and what Mr Hutchings knew.  The contemporaneous documents and other evidence established that Mr Hutchings knew that PacFin urgently needed $17.5 million to meet its own obligations.  Mr Hutchings’ denial that he intended to authorise the payment was not believable when weighed against the contemporaneous documents.  The relevant credit finding did not turn on a word-on-word contest, but was able to be resolved by reference to contemporaneous documents, the meaning of the word “Agree” and the absence of any qualification by Mr Hutchings to the effect that his electronic signature could only be used once he had reviewed the supporting documentation and had approved the transaction.  Having regard to the evidence in relation to the $17.5 million payment and Mr Hutchings’ involvement in it to which the primary judge referred, the reasons in relation to the $17.5 million payment were adequate to explain why Mr Hutchings’ submissions reflected poorly on his credit.
  5. [368]
    Mr Hutchings’ criticisms of the primary judge’s reasons extended beyond his reasons in relation to Mr Hutchings’ involvement in the $17.5 million payment.  It will be necessary to return to them in the context of findings against Mr Hutchings in respect of the false documents case.  Particular reliance is placed by Mr Hutchings upon an error at [1219] of the Primary Reasons.  That is a conclusionary paragraph in the context of Mr Hutchings’ defence which sought to rely upon s 1317S or s 1318 that he had acted honestly and, having regard to the circumstances of the case, ought be excused from any contraventions.  At [1219] the primary judge stated:

His agreement to the payments away of $130 million and $17.5 million without ensuring the investors in PIF were provided with a quid pro quo was inexcusable and dishonest.”

  1. [369]
    The use of the word “agreement” in the context of the $130 million payment was inaccurate.  ASIC did not allege against Mr Hutchings that he contravened the Act by authorising the $130 million payment or by being knowingly involved in it.  In his introduction to ASIC’s case against Mr Hutchings, the primary judge stated that Mr Hutchings “is not alleged by ASIC to have contravened the Act in respect of the $150 million drawdown, the $130 million payment or the $103 million payment, but that background is relevant to ASIC’s case against him in relation to the false documents”.[280]
  2. [370]
    In his appeal, Mr Hutchings argued that the error in [1219] demonstrated that the primary judge had lost an appreciation of the contested issues in the case insofar as they pertained to Mr Hutchings by the time he came to draw the conclusions that he did at [1210] – [1221] of the judgment.  ASIC submitted that the reference to Mr Hutchings’ “agreement to the payments away of $130 million” (as opposed to the $17.5 million payment) was simply an error when read in the light of the judgment as a whole, and that the primary judge was clearly cognisant of the nature of ASIC’s case against Mr Hutchings.  The error was not reflected in any of the declarations which the primary judge proposed to make in relation to Mr Hutchings’ conduct.
  3. [371]
    The error in [1219] in using the word “agreement” in the context of the $130 million payment reflects an earlier error at [1051] where the primary judge sought to summarise ASIC’s submissions as to why Mr Hutchings should not be excused under ss 1317S or 1318.  At [1051] the primary judge states:

“Although no contraventions were alleged against him in respect of the $130 million payment, ASIC alleged that it was remarkable that he could have agreed to the drawdown of $150 million of a facility for PIF and to the payment away of $130 million without having any clear understanding of what it was that PIF was going to acquire for that payment.  The belief that Mr White and his team had investments in mind was so far from the standard that one would expect of an executive director and CEO of a responsible entity that I could not be persuaded that he ought to be excused.”

  1. [372]
    The use of the word “agreed” in the third line of that para was misplaced, and did not reflect ASIC’s submissions, which in response to Mr Hutchings’ case that he should be excused, relevantly stated:[281]

“… it is remarkable that the CEO of MFSIM could have agreed to the drawdown of $150 million on a facility for PIF (which was not a leveraged fund) and knew of the payment away of $130 million, without having any clear understanding of what it was the PIF was going to acquire for that significant payment. To simply say that he believed that White ‘and his team had investments in mind’ is so far from the standard that one would expect of an executive director and CEO of a responsible entity that it is hardly a matter that would assist the Court in concluding that Hutchings ought to be excused. To know that the payment was made, to know that the proper processes had not been applied (ie IAC consideration and Board approval) but simply to leave it up to what White and his team “had in mind” is not something that suggests that Hutchings was acting reasonably to acquit his obligations as a senior officer of a responsible entity in respect of such a large sum of money.”

  1. [373]
    The primary judge’s use of the word “agreed” in respect of the $130 million payment was inaccurate in this way.  Mr Hutchings did not agree in advance to the payment away of $130 million without knowing what PIF had obtained in return.  Instead, knowing of the drawdown and of the $130 million payment, he acquiesced in the matter and did not demand that PIF be repaid its money, particularly after Mr White was unable to explain to Mr Hutchings the nature and purpose of the $130 million payment.  The primary judge should not have used the word “agreed” in [1051] in respect of the $130 million payment.  The words “acquiesced to the payment away of $130 million” would have been appropriate.  However, the error in [1051] was carried forward to [1219].
  2. [374]
    The error is unfortunate.  There is much to be said for the view that it was a slip which could have been avoided by referring to Mr Hutchings’ acquiescence to the payment away of $130 million after he learned of it and when he had no understanding of what PIF had acquired in return.  The Primary Reasons as a whole show that the primary judge appreciated that ASIC did not allege that Mr Hutchings had contravened the Act by agreeing in advance to the payment away of $130 million.  It relied upon his knowledge of that unauthorised payment, his knowledge of the misuse of PIF’s money (as reflected in his “escalation email” of 21 January 2007) and his involvement in the creation and use of false documents as reasons why his contraventions should not be excused.
  3. [375]
    Mr Hutchings contended that it is impossible for this Court to conclude that the error in [1219] did not affect the balance of the primary judge’s findings about Mr Hutchings’ conduct, his credibility and his honesty.
  4. [376]
    While it is possible that delay in the delivery of the reasons contributed to the error in [1219], it is also possible that the error was simply a poor choice of words in summarising ASIC’s submissions about excusal of contraventions and that the error at [1051] in that regard was carried over to an acceptance of that submission at [1219].  The nature of the error is not such as to suggest that the primary judge misunderstood the nature of ASIC’s case against Mr Hutchings.  He correctly stated it at the outset.  There is no other finding in the lengthy reasons that Mr Hutchings agreed in advance to the payment away of $130 million.
  5. [377]
    In summary, having regard to the reasons as a whole, the primary judge did not err in his understanding of the nature of ASIC’s case against Mr Hutchings or misunderstand that ASIC alleged that Mr Hutchings was party to an agreement in respect of the making of the $130 million payment.  Mr Hutchings has not established that the error in [1219] affected the primary judge’s assessment of issues with respect to the $17.5 million payment, including whether Mr Hutchings’ evidence and his defence of his conduct with respect to that payment merited acceptance.  However, in the light of Mr Hutchings’ concern that the error in [1219] may have affected the primary judge’s assessment of his credibility and honesty in respect of the $17.5 million payment and other matters, it is appropriate to reconsider more fully the evidence and arguments in relation to the $17.5 million payment and, in particular, what Mr Hutchings meant when he twice wrote “Agree”.

Reconsideration of the case against Mr Hutchings over the December payment

  1. [378]
    Mr Hutchings’ case that, despite twice writing “Agree” in emails to Ms Ring about signing a payment direction, he did not approve the payment being made on 27 December 2007, needs to be viewed in the context of:
  1. (a)
    the documents he was sent that day;
  1. (b)
    his recent dealings in relation to the use of PIF funds by Mr White and others; and
  1. (c)
    his conduct on 28 December 2007, when he learned that the $17.5 million payment had been made by PIF to PacFin, and thereafter.

The first matter has been already canvassed.  As to his recent dealings in relation to payments of PIF’s funds, by 27 December 2007 Mr Hutchings knew that $130 million of PIF’s funds had been transferred to MFSA, and he still did not know what, if anything, PIF had received in return.  He knew that there had been a failure to follow the investment approval process.

  1. [379]
    A month earlier, on 28 November 2007, Mr Hutchings knew of the $150 million drawdown from the RBS and when told that day that the money had been paid into PIF’s operating account, he responded “Excellent, thanks”.  There is evidence that at a business meeting in Sydney on 30 November 2007 he discussed the $130 million payment.  Ms Howard’s evidence was that there had been a discussion about the $130 million that had been paid to MFSA.  According to Ms Howard, it struck her as unusual that Mr Hutchings did not know what the $130 million was to be used for and he told her “not to worry about it because the funds will be back in three weeks”.  Mr Hutchings denied making that statement and said he did not know at that time that the $130 million had been paid from PIF into an MFSA account.
  2. [380]
    It is unnecessary to resolve that conflict of evidence because Mr Hutchings in [189] of his affidavit said that it was in the first week of December 2007 that he found out that $130 million of the $150 million drawn down from the RBS had been utilised by Mr White.  He could not recall how he found out.  However, he said that he began to ask Mr White how the funds had been invested.  Despite requests for information, Mr Hutchings still did not know how the funds had been used by Mr White.  According to Mr Hutchings, over the course of the following three weeks and to the end of December, he did not receive any information from Mr White or his team about the use of the RBS funds, despite asking Mr White about two to three times a week for the information.  Mr Hutchings’ evidence was that he was concerned about this delay in providing information.  He says that on 18 December 2007 he received an email from Ms Howard advising him that Mr White would talk to him about the $130 million the following Thursday and, at this point in time “I was becoming more concerned about the lack of information around the use of the drawdown moneys.”
  3. [381]
    Significantly, by the time of the $17.5 million payment by PIF to PacFin, Mr Hutchings still had not received any documentation associated with the approval of any investment of the $130 million used of PIF’s assets.
  4. [382]
    The relevance of this background to the $17.5 million payment is that, on Mr Hutchings’ case, throughout December he had growing concerns about the failure to follow processes in the use of $130 million of PIF’s money and, despite repeated inquiries, he was unable to ascertain what investment had been made.  He knew any investment had not been approved and authorised, as required.  He was unable to obtain any documents about those matters.  Against that background, Mr Hutchings would be expected to ensure that no further payment of PIF’s money was made without the proper identification of the investment, approval processes being followed and proper documentation of what PIF was to obtain in return for its money.
  5. [383]
    The immediate context to Mr Hutchings’ involvement in the $17.5 million payment is that prior to 27 December 2007, MFSIM did not anticipate any payment to PacFin that day or in the immediate future.  The cashflow spreadsheet which Mr Hutchings received from Ms Watts at 10 am did not provide for such a payment.  At 12.22 pm Mr Hutchings confirmed to Mr White that PIF had $31 million available in its operating account.  The email that Mr White sent to Mr Hutchings at 12.31 pm simply said “$17.5 m”, and the forwarded email below it from Mr Anderson indicated the need for clear funds to be in PacFin’s bank account by 11 am on 28 December 2007 to enable payments to debenture and note holders.  Mr Hutchings’ affidavit accepted that it is likely that he read the email, and subsequent events show that he must have done so because of his instructions in relation to the payment of $17.5 million from PIF’s account.
  6. [384]
    Mr Hutchings could not recall any conversation with Mr White around that time in relation to the transfer of $17.5 million to PacFin.  Mr White gave no evidence about any such conversation.  In any event, whether or not Mr Hutchings spoke to Mr White about the $17.5 million payment on 27 December 2007 is unimportant because Mr White’s email of 12.31 pm was sufficient to inform Mr Hutchings of PacFin’s urgent need to receive $17.5 million in clear funds.  The email told Mr Hutchings of the purpose of the payment and of the urgency.
  7. [385]
    The urgency of making the payment was also conveyed by the subject matter line of the emails which Ms Ring sent to Mr Hutchings at 2.21 pm and 2.28 pm on 27 December 2007, both of which were marked “Urgent”.  Mr Hutchings responded to both emails at 2.33 pm with the word “Agree”.  The clear and unqualified terms of his response was that he was approving the use of his electronic signature on a PI for the payment of $17.5 million to PacFin.  The payment was required as a matter of urgency, and Mr Hutchings, having read the 12.31 pm email from Mr White, understood that the payment related to the $17.5 million payment that Mr White had asked him to make.
  8. [386]
    As against the obvious interpretation which would be placed upon Mr Hutchings’ use of the word “Agree” to Ms Ring’s request about whether she could use his electronic signature on the PI, Mr Hutchings’ affidavit evidence was that neither of the emails which he sent to Ms Ring at 2.33 pm (11 seconds apart) “reflected my intention to approve a payment of $17.5 million to PacFin, or to approve the payment reflected in the PI without first being provided with detail about what PIF would receive in return for those funds.”[282]  In his oral evidence Mr Hutchings said that he approved the use of his electronic signature by Ms Ring and that when he wrote “Agree” he was saying that “following a review of the documentation that that would be okay, she [Ring] could build that into her planning if necessary.”[283]
  9. [387]
    The evidence from Mr Hutchings and from Ms Ring that it was the usual procedure for PIs to be supported with documents that would explain the purpose for which the funds were to be paid.  In addition, a PI authorising a payment would only be signed by him once supporting documentation was provided.[284] This evidence does not negate the conclusion that he authorised the payment of $17.5 million on 27 December without supporting documentation and contrary to usual practice.  His email responses clearly approved the use of his electronic signature when he was unaware of the existence of any documentation.  He did not qualify his agreement to the use of his signature with words such as “once we’ve seen the documentation”.  He knew that the payment was required urgently because of what he had told in Mr White’s email and from the heading to Ms Ring’s emails.  In circumstances in which Mr Hutchings knew that an urgent payment was required so that PacFin could have $17.5 million in clear funds the following morning, the overwhelming inference is that Mr Hutchings approved the payment and agreed to his signature being placed upon the PI so that PIF’s custodian could act upon the instruction and make the payment into PacFin’s account forthwith.
  10. [388]
    This conclusion is fortified by Mr Hutchings’ conduct after the payment was made.  According to para 273 of his affidavit, he found out the following day, 28 December 2007, that the $17.5 million of PIF’s funds had been transferred to PacFin.  Although he cannot recall when he found this out, he received an email from Ms Howard at 10.47 am on 28 December 2007 confirming that PacFin had received the $17.5 million.  Mr Hutchings’ affidavit says that when he found out the $17.5 million had been transferred he was “irritated because the approval processes had not been followed”.  However, he does not say to whom, if anyone, he conveyed his irritation.  For example, he did not respond to Ms Howard’s email by saying that the payment had been made without his approval.  He does not say that he took any steps to retrieve an unauthorised payment of $17.5 million of PIF’s money.  His conduct on 28 December 2007 in not protesting about the unauthorised payment and in not seeking immediate recovery of the $17.5 million is consistent with his having in fact approved, and having intended to approve, the payment that was made on 27 December.
  11. [389]
    It is unnecessary to address other aspects of his subsequent conduct after 28 December 2007 in failing to retrieve the $17.5 million which, on his case, was made without his authority or approval.  However, for reasons to be canvassed in connection with the false documents case, it is notable that the $17.5 million payment was bundled up with the earlier $130 million payment in an attempt to identify investments totalling $147.5 million which PIF allegedly made.
  12. [390]
    In summary, the contemporaneous documents on 27 December 2007 convincingly prove that Mr Hutchings was aware of PacFin’s urgent need for $17.5 million and approved such a payment on the afternoon of 27 December 2007.  He did so at the behest of Mr White so as to enable PacFin to meet redemptions.  The contemporaneous documents and the terms of his emails to Ms Ring that afternoon convincingly prove that he intended the payment to be made as a matter of urgency.  Significantly, it was not Mr Hutchings’ defence that he believed that necessary approvals had been obtained so as to make the $17.5 million payment to PacFin an authorised investment.  Instead, his case was that he was unaware of any approval process having been undertaken in respect of the $17.5 million, did not know what PIF would obtain in return for its $17.5 million and despite writing “Agree” so that his signature could be placed on a PI so as to facilitate the $17.5 million, he did not approve the payment.
  13. [391]
    If the conclusion had been reached that the primary judge’s reasons with respect to Mr Hutchings’ involvement in the $17.5 million payment were inadequate, either in their own terms or because the error in [1219] may have affected his assessment of Mr Hutchings’ credibility, we would not have ordered a new trial in relation to Mr Hutchings’ alleged contraventions in respect of the $17.5 million payment.  As stated by the Western Australian Court of Appeal in Mount Lawley,[285] an appellable error arising from inadequate reasons does not necessarily result in a new trial.  The right and duty of this Court is to rehear the matter and, if it can do so, decide the matter.[286]  Having considered the evidence and submissions of ASIC and Mr Hutchings, both at the trial and on appeal in relation to the $17.5 million, the only conclusion which is reasonably open on the evidence is that Mr Hutchings approved the $17.5 million payment and intended on the afternoon of 27 December 2007 that $17.5 million be paid urgently to PacFin.
  14. [392]
    Contrary to Ground 18(b) of Mr Hutchings’ appeal, his submission at trial that he did not agree to the payment and that Ms Ring was careless in acting upon his two “Agree” emails reflected poorly on his credit.  Even without seeing Mr Hutchings give evidence, and assuming in his favour that his oral evidence was given confidently, the contemporaneous documents speak for themselves and convincingly prove that he approved the $17.5 million payment and that Ms Ring acted in accordance with his wishes on the afternoon of 27 December 2007 in making an urgent payment.

Conclusions on alleged contraventions by Mr Hutchings over the December payment

  1. [393]
    Having considered the evidence relied upon by Mr Hutchings and by ASIC for the purpose of the appeal, including Mr Hutchings’ affidavit and relevant parts of his oral evidence, together with the contemporaneous documents which illuminate what he did and knew on 27 December 2007, the evidence establishes that Mr Hutchings was knowingly concerned in MFSIM’s contraventions in respect of the $17.5 million payment, and also contravened his obligations as an officer of MFSIM.  ASIC’s case against him, as pleaded in paras 75 – 76A of its pleading, was established.  He knew that PacFin urgently needed the $17.5 million payment to pay its debenture and note holders by 11 am on 28 December 2007.  He acted on Mr White’s instruction sent by email at 12.31 pm on 27 December to pay $17.5 million.  At 2.33 pm he approved his signature being used on a payment instruction.  He knew there was no transaction which made the $17.5 million payment a proper payment by PIF or which provided any consideration, benefit or reward to PIF in return for the payment.  A reasonable person in his position as CEO of the responsible entity for PIF would have prevented the payment being made until he was satisfied that it was for an investment which was authorised under PIF’s constitution and for the benefit of PIF and its members.  He did not act to satisfy himself of that matter or to prevent the payment.  He simply approved the payment.  His conduct in facilitating the payment and his knowledge of the essential elements of MFSIM’s contravention means that he was knowingly concerned in its contraventions.
  2. [394]
    As to his alleged contraventions as an officer, a conclusion that he did not act honestly is not to be made lightly.  It is a conclusion or inference that depends upon clear proof and reaching a state of actual satisfaction about such a serious matter.  However, the evidence which demonstrates Mr Hutchings’ knowing involvement in MFSIM’s breach of its duty to act honestly also justifies the conclusion that he did not act honestly or in the best interests of the members of PIF in relation to the PacFin payment.  Mr Hutchings’ evidence was that Mr White played a dominant role in MFSIM and had an authoritarian and controlling management style.  However, Mr Hutchings was MFSIM’s CEO and an officer with important statutory duties which required him to act in the best interests of members of PIF.
  3. [395]
    Critically, Mr Hutchings’ defence of his role in the $17.5 million payment was not to the effect that he approved the payment when he erroneously believed that it was in respect of an authorised investment which would benefit the members of PIF and that, when he approved the payment, he believed that essential processes had been followed which authorised the investment of $17.5 million of PIF’s funds.  Rather than saying that he approved the payment in error, his defence was that he did not approve the payment.  However, his conduct on 27 December 2007, particularly his agreement to his signature being used for the payment direction, convincingly shows that he approved the payment.  His conduct on 28 December 2007 in not complaining that the payment had been made, confirms that he approved the payment, being a payment which benefited another company in the MFS Group, but which gave no benefit in return to PIF.  His conduct established that he contravened his duties as an officer under s 601FD(1)(a), (c) and (e).  In addition, by failing to take all steps that a reasonable person would take, he contravened s 601FD(1)(f).
  4. [396]
    The contraventions that were found against Mr Hutchings in respect of the $17.5 million payment were established.  Ground 18 of his appeal and those parts of Grounds 1 and 2 which relate to the $17.5 million payment lack merit.

THE FALSE DOCUMENTS CASE

  1. [397]
    At trial ASIC established that MFSIM contravened s 601FC in February 2008 in creating and keeping certain false documents, which were known to be false in material respects, in order to hide unauthorised payments totalling $147.5 million from PIF’s scheme property.
  2. [398]
    ASIC’s case was that well after the payments were made, particularly in late January and early February 2008, false documents were prepared.  They purported to record transactions that sought to justify the payments as having been made for the benefit of PIF.  The documents were backdated or otherwise made to appear as if the transactions had occurred in November, and that required processes, including submissions, meetings and approvals, had occurred before the transactions.  Because the transactions, processes and approvals had not occurred, ASIC contended that the false documents were designed to disguise what in fact had occurred.  According to the case which ASIC successfully advanced, the false documents concealed the fact that the payments were made for the benefit of other companies in the MFS Group and without any benefit being received in exchange for the benefit of PIF and its investors.
  3. [399]
    Mr White, Mr Anderson, Mr Hutchings, and Ms Watts were found to have been involved in different aspects of the creation, approval, signing, keeping and use of the false documents.  Each was found to have been involved, in different ways, in allowing false information in these false documents to be available to internal and external parties, including auditors and the RBS.
  4. [400]
    It will be necessary to address in greater detail the evidence in relation to the role which Mr White, Mr Hutchings and Ms Watts respectively played in the creation, keeping and use of particular documents, and the basis upon which each was found to have been knowingly concerned in MFSIM’s contraventions in relation to the false documents.  This section provides an overview of events and the key findings made by the primary judge in relation to MFSIM’s contraventions.
  5. [401]
    After becoming aware of the payment of $130 million of PIF’s funds, Mr Hutchings, Ms Watts and others made repeated requests for information during December 2007 about the use of PIF’s money and how it should be accounted for.  They received no satisfactory answers from Mr White, and so were unaware of any investments which had been made with PIF’s money.  They were aware that no processes had been undertaken by which any such investment had been recommended by them and approved by the IAC to PIF.
  6. [402]
    By early January Mr Hutchings and Ms Watts were aware that the payments of PIF’s money now totalled $147.5 million.  From time to time the payments were recorded in accounts as loans.  Mr White was again requested to provide information about what had been done with PIF’s money.  On 14 January 2008 Ms Howard asked Mr Hutchings about whether he had received any word from Mr White about a draft IAC paper which Mr Hutchings had prepared.  The draft IAC paper, dated 28 November 2007, stated:[287]

“• The purpose of this paper is to seek approval for a proposal to invest in the following loan assets with a combined value of $147.5 million:

  •  
  •  
  •  
  • The opportunity to invest in the loans has arisen ahead of the impending maturity of approximately $130m of ABS assets held by the MFS Premium Income Fund.”

The blank spaces in the draft showed that Mr Hutchings did not know how the $147.5 million of PIF’s funds had been used, and, in particular, had no idea of any “loan assets” into which the funds had been invested.

  1. [403]
    Ms Howard advised Mr Hutchings that she wanted to finalise the accounts as the auditors would be wanting the files before they arrived the following week.  On 15 January 2008 Mr White made some comments about Mr Hutchings’ draft IAC paper and the same day Mr Hutchings sought Mr White’s assistance.  Mr Hutchings’ request prompted Mr White to write to Mr Anderson in what became known in this case as the “creative brain” email.  It stated:[288]

Need your creative brain

Attached it [sic] shte [sic] IAC paper for the creation/restructure of the Max Yeild [sic] to the MFS Mexx veheicle [sic].

Basivally [sic] I am sure you can work out what the $147.5 went to

I want to allocate as $30m against Q Deck + $100m against the Pac loan + ??? $12.5m to get this allocated.

Also need names that deal with these assets/loans/Q dEck easy – others??”

  1. [404]
    After Black Friday the problems associated with PIF promptly recovering its $147.5 million or explaining to auditors, the RBS and others what had been obtained in return for the payments became acute.  Eventually, on 23 January 2008, a list of loans was produced totalling approximately $147.5 million.  The list was changed at different times over the following few days.  Leaving aside the changes in the loans and their totals, the documents are markedly inconsistent with the transactions ultimately documented, but which were purportedly made in November 2007, whereby PIF was said to have acquired 85 million new Class A units in MYF.
  2. [405]
    MFSIM’s board was not told at its board meeting on 23 January 2008, or at all, of the concerns which Mr Hutchings had communicated to Mr White in Mr Hutchings’ “escalation email” of 21 January 2008.  That email is quoted and considered more fully in relation to Mr Hutchings’ involvement in the false documents [539].  In short, it stated Mr Hutchings’ understanding that the money drawn from the RBS had not been used to purchase assets.  The fact of unauthorised payments totalling $147.5 million was not reported to the MFSIM board on 23 January 2008, or at all.
  3. [406]
    On 27 January 2008 Ms Platts, a corporate advisor with MFS Ltd, emailed Mr Hutchings and Ms Watts with the subject “Updated List of Investments and IAC Papers”.  Her email contained a new version of “the split of investments” so that they were “within all Asset Allocation Thresholds and Related Party 20% Threshold.”
  4. [407]
    The documents which ASIC relied upon as the “false documents” were revised in late January and early February 2008.
  5. [408]
    On 11 February 2008 Mr Hutchings emailed the board of MFSIM with a proposed Board Circular Resolution for the issuing of 100 million additional units in MYF, and also attached an Information Memorandum.  He told the Board:[289]

“Hello everyone,

Please find attached a Board proposal to the [sic] ratify a decision to issue 100 million additional Class A units through an update information memorandum dated 23 November 2007 as the first step in the restructuring of maximum Yield Fund (MYF).

The issue of units and information memorandum should have been presented to the board for approval in November and this oversight has only now been identified. …”

  1. [409]
    The various false documents prepared in late January and early February 2008 will need to be considered individually.  Importantly, there is no real issue that the documents contain falsities.  For example, they purport to record an IAC submission dated 20 November 2007 recommending that MYF issue up to 100 million Class A units, and another submission that day recommending PIF enter into a “Loan Participation Agreement” with PacFin which involved MFSIM advancing $62.5 million to PacFin.  There were, of course, no such submissions or proposals at the time.  The documents include information memoranda and minutes of meetings of the IAC for MYF and the IAC for PIF which never occurred.
  2. [410]
    As the primary judge found, the purported transactions in late November 2007 were inconsistent with documents which did exist at the time.  For example, on 6 December 2007, the IAC for MYF accepted a proposal to restructure MYF in the first three months of 2008 and, in the meantime, to invest the $2.1 million of its assets in PacFin.  That was radically inconsistent with what came to be recorded in the false documents.  As noted in [561] of the primary judge’s reasons, which are quoted in [31] above, it is clear that ideas developed at the end of January, and were then still “a work in progress” until some time in early February.  The primary judge found that the false documents produced into early February 2008 were a product of the pressure that was felt, particularly after “Black Friday”, with the imminent arrival of auditors and questions from the RBS.  They were not a genuine reflection of transactions that had either been made or were proposed to be made and then ratified.[290]
  3. [411]
    Notably, the false documents did not record transactions or agreements which were to be entered into in early February 2008 and which, by the agreement of the parties to any such agreement, were said to have legal effect between those parties from an earlier date.  Instead, they purported to reflect recommendations which were made in November 2007, and meetings, resolutions and transactions in November 2007 which simply had not occurred.
  4. [412]
    The primary judge addressed ASIC’s false documents case against MFSIM in detail between [380] and [555] of the Primary Reasons.  The evidence established contraventions by MFSIM in creating and keeping the false documents for the purpose of hiding unauthorised payments.  It also established contraventions by MFSIM which occurred between January and April 2008 when, in contravention of s 601FC(1)(a), MFSIM provided false financial information to its auditors, to the RBS, to its compliance officers, to external lawyers and in its half-yearly report lodged with ASIC.  It also contravened s 601FC(1)(l) by failing to report breaches of the Act relating to PIF to ASIC in circumstances where those breaches had or were likely to have a material adverse effect on the interests of the members of PIF.

Summary of false documents

  1. [413]
    The separate appeals by Mr White, Mr Hutchings and Ms Watts in relation to ASIC’s false documents case against each individual raise a number of issues.  Each appeal requires separate consideration of the respects in which each appellant was found to have engaged in conduct with respect to particular false documents and also whether the appellant knew of the falsity of the documents and other essential aspects of MFSIM’s contraventions.
  2. [414]
    It is convenient to outline in a tabular form the relevant documents that were pleaded by ASIC and to refer to them, as the parties and the primary judge did, by number 109, 110 and so on.  These numbers are the paragraph numbers in ASIC’s pleading in relation to the documents.  By the conclusion of the trial, ASIC did not press its allegations in respect of two of the 17 documents (Documents 109 and 118).

False document

Created

Signed

Sent

Received

Reviewed/

Approved

  1. Board proposal dated 31 October 2007.

 

Proposal to the MFSIM Board dated

31 October 2007 recommending MYF offer to a select group of investors the opportunity to purchase 100M Class A units.

 

ASC 109 OCT.0001.0001.0038

 

Watts

 

First drafted ̴ 27 Jan 2008

Hutchings

 

On ̴  1 Feb 2008

-

-

-

  1. IAC (MYF) submission dated 20 November 2007.

 

Submission to IAC of MFSIM as RE for MYF recommending that MYF issue up to 100M Class A units at $1 per unit.

 

ASC 110 WIM.0002.0004.0201

 

Watts

 

On ̴  6

Feb 2008

Watts

 

On 6

Feb 2008

Platts

 

On 6

Feb 2008

Hutchings

 

Watts

Hutchings

 

Watts

  1. IAC (PIF submission dated 20 November 2007).

 

Submission to IAC of MFSIM as RE for MYF recommending PIF enter into a Loan Participation Agreement with PacFin which involved MFSIM advancing $62.5M to PacFin.

 

ASC 111 WIM.0002.0004.0139

 

Watts & Platts

 

First drafted 31 Jan 2008

Watts

 

On 6 Feb 2008

Platts

 

On 31

Jan 2008, 5 Feb 2008

Hutchings

 

Watts

Hutchings

 

On – 6 Feb 2008

  1. IAC (MYF) minute of meeting dated 21 November 2007.

 

Minutes of IAC for MFSIM as RE for MYF, purporting to record that IAC approves the issue of 100M Class A units in MYF.

 

ASC 112 WIM.0002.0004.0199

 

Watts

 

 

On 6 Feb 2008

Hutchings

 

 

On 6 Feb 2008

Platts

 

 

On 6 Feb 2008

Hutchings

 

 

Watts

Hutchings

 

 

Watts

  1. Information Memorandum dated 23 November 2007.

 

Memorandum offers information to potential investors in respect of Class A units in MYF (100M at $1 each).

 

ASC 113 OCA.0002.0004.0108

 

Gavras- Moffat or Stride and Platts

 

First drafted 31 Jan 2008

-

Platts

 

On 6 Feb 2008

Hutchings

 

Watts

Hutchings

  1. IAC (PIF) minute of meeting dated 23 November 2007.

 

Minutes of a meeting of the IAC for MFSIM as Responsible Entity for PIF, approving PIF advancing $62.5M to PacFin pursuant to Loan Participation Agreements.

 

ASC 114 WIM.0002.0004.0137

 

Platts and Watts

 

First drafted 31 Jan 2008

Hutchings

 

On 6 Feb 2008

 

Platts

 

On 6 Feb 2008

Hutchings

 

Watts

Hutchings

 

On 6 Feb 2008

  1. IAC (MYF) submission dated 27 November 2007.

 

Submission to the IAC of MFSIM as RE for MYF recommending that MYF enter into a Loan Participation Agreement with PacFin, involving MFSIM advancing $55M to PacFin.

 

ASC 115 WIM.0002.0004.0077

 

Platts and Watts

 

First drafted 23 Jan 2008

Watts

 

On 6 Feb 2008

Platts

 

On 6 Feb 2008

Hutchings

 

Watts

Hutchings

 

Watts

  1. IAC (MYF) memorandum dated 28 November 2007.

 

Memorandum the IAC of MFSIM as RE for MYF recommending that MYF lend Sunleisure $30M to allow it to repay MFS.

 

ASC 116  OCA.0002.0004.0284

 

Platts and Watts

 

First drafted 5 Feb 2008

Watts

 

On 6 Feb 2008

Platts

 

On 6 Feb 2008

Hutchings

 

Watts

Hutchings

 

Watts

  1. IAC (MYF) minute of meeting dated 28 November 2007.

 

Minutes of a meeting of the IAC for MFSIM as Responsible Entity for MYF approving MFSIM as Responsible Entity for MYF advancing $55M to PacFin by way of Loan Participation Agreements and lending Sunleisure $30M (subject to the sale of 85M in Class A units).

 

ASC 117 WIM.0002.0004.0075

 

Platts and Watts

 

First drafted 5 Feb 2008

Hutchings

 

On 6 Feb 2008

Platts

 

On 6 Feb 2008

Hutchings

 

Watts

Hutchings

 

Watts

  1. CRPC request for approval dated 28 November 2007.

 

Request for approval from the Related Party and Conflicts Committee of MFSIM as RE for PIF to PIF purchasing 85M Class A units in MYF.

 

ASC 118 OCA.0002.0009.0002

 

Platts and Watts

 

First drafted 31 Jan 2008

Hutchings

 

Watts

 

On 6 Feb 2008

Platts

Hutchings

 

Watts

Hutchings

 

Watts

  1. Participate Agreement – MYF and PacFin.

 

Participation Agreement between MYF and PacFin.  MYF to advance $55M to PacFin in return for which MYF was entitled to receive from PacFin certain payments of principal and interest if paid to PacFin by its debtors.

 

ASC 119 OPI.0002.0001.0079

 

Stride and Gavras-Moffat

 

On ̴   4 Feb 2008

White

(PacFin)

 

White and Hutchings (MFSIM)

 

On ̴  5 Feb 2008

-

-

White

 

Hutchings

  1. Participation Agreement – PIF and PacFin.

 

Participation Agreement between PIF and PacFin.  PIF to advance $662.5M to PacFin in return for which PIF was entitled to receive from PacFin certain payments of principal and interest if paid to PacFin by its debtors.

 

ASC 120 OPI.0002.0001.0126

 

Stride and Gavras-Moffat

 

On ̴ 5 Feb 2008

White (PacFin)

 

White and Hutchings

(MFSIM)

 

On ̴  5 Feb 2008

Platts

 

On 5 Feb 2008

Watts

White

 

Hutchings

  1. Application for 67.5M Class A units.

 

Application by PIF for 67.5M Class A units in MYF.

 

ASC 121 WIM.0006.0001.0138

 

Gavras-Moffat

 

On 31 Jan 2008

White

 

Hutchings

 

B/w 31 Jan & 6 Feb 2008

 

-

-

-

  1. Certificate of unit holding dated 20 November 2007.

 

Certificate of unitholding in MYF in the name of the MFSIM as RE for PIF for 67.5M units.

 

ASC 122 WIM.0006.0001.0140

 

Gavras-Moffat

 

On 5 Feb 2008

White

 

Hutchings

-

-

-

  1. Application for 17.5M Class A units.

 

Application by MFSIM as RE for PIF for 17.5M Class A units in MYF at a price of $17.5M.

 

ASC 123 WIM.0006.0001.0135

 

Gavras-Moffat

 

On 1 Jan 2008

White

 

Hutchings

 

On 5 Feb 2008

-

-

-

  1. Certificate of unit holding dated 27 December 2007.

 

Certificate of unitholding in MYF in the name of the MFSIM as Responsible Entity for PIF for 17.5M units.

 

ASC 124 WIM.0006.0001.0137

 

Gavras-Moffatt

 

On ̴  5 Feb 2008

White

 

Hutchings

 

On ̴  5 Feb 2008

-

-

-

  1. New Loan Agreement dated 31 December 2007.

 

New Loan Agreement amending the terms of the Participation Agreement between PacFin and PIF, by changing some of the relevant underlying loans.

 

ASC 125 OIM.0001.0001.0324

 

On – 5 Feb 2008

White

 

Hutchings

 

On ̴  5 Feb 2008

-

-

White

  1. [415]
    As noted, there is no real issue that the documents contain falsities.  The evidence established that MFSIM contravened the Act in creating and keeping them, and also in providing them to internal and external parties in order to hide the fact that unauthorised payments had been made in November and December 2007.
  2. [416]
    The issues with respect to ASIC’s case against the individual appellants, and the primary judge’s findings that Mr White, Mr Hutchings and Ms Watts were knowingly concerned in MFSIM’s contraventions (and that Mr White and Mr Hutchings also contravened their duties as directors in respect of the false documents) centre on two broad issues.  The first is what each appellant did with respect to certain documents.  For instance, issues arise as to what an appellant did in terms of approving the creation of a false document or approving the keeping of the document so that it appeared to be a genuine record of a recommendation or meeting which occurred before the unauthorised payments were made.  The second broad issue is what each appellant knew at the time of such conduct with respect to certain matters.  For instance, the issue of knowledge relates to whether the appellant knew that:
  1. (a)
    submissions had not been made to the IAC in November 2007 (either on the dates recorded on the documents or at all);
  1. (b)
    meetings of the IAC or the CRPC approving the purported transactions had not occurred on the dates stated in the documents (or at any other time) before the relevant payments were made; and
  1. (c)
    no agreements, transactions or investments of the kind recorded in the information memoranda, submissions, minutes and Participation Agreements had occurred in 2007.
  1. [417]
    Before dealing with the appeals of Mr White, Mr Hutchings and Ms Watts respectively in relation to the false documents and their challenges to findings by the primary judge about what he or she did, or about what he or she knew with respect to the false documents, the chronology of events in relation to their creation and use should be addressed in some greater detail.  The following chronology is not as detailed as the primary judge’s account of events and communications.[291]  Nor is it necessary to summarise in any detail the respects in which each document was alleged and proven to be false.  The falsity of each document, commencing with Document 110 and concluding with Document 125, is discussed at [448] – [524] of the Primary Reasons.

The chronology of events relating to the creation and use of the false documents

  1. [418]
    On 3 December 2007 at a MFSIM management team meeting it was noted that “$130m was drawn down from RBS facility on 29 November, so fund size will spike; for repayment in 3 weeks time (in Dec 07)”.[292]
  2. [419]
    On 6 December 2007 a Holdings Report for PIF sent to, amongst others, Mr Hutchings and Ms Watts, recorded a $130 million asset under a heading “Asset Backed Investments” as “Other Loan”.  The covering email said: “There will be a little more detail to come on the ‘other loan’ …”.[293]
  3. [420]
    An email to Ms Watts on 7 December 2007 referred to “170M of loans that have yet to be classified”.[294]
  4. [421]
    On 11 December 2007 the belief amongst MFS employees that the $130 million was a short-term loan was confirmed in an email which Ms Watts received that morning which included the $130 million payment to MFSA under a list headed “Possible assets to mature by 31/12/2007”.  Ms Watts forwarded that email to Mr Hutchings saying:[295]

“We will definitely require some and preferably all of the loans maturing on by [sic] 31st December to be repaid by that date”.

  1. [422]
    Ms Howard had responsibility for MFSIM’s custodial obligations and did not know of anything which PIF had obtained in return for the $130 million payment.  On 18 December 2007 she pointedly said to Mr White: “Give me back my money”, to which Mr White replied “It’s all right, its all been sorted.  I’ll talk to Hutchings.  Don’t worry”.[296]  At the trial, counsel for Mr White sought to characterise the exchange between Ms Howard and Mr White as a joke.  However, the primary judge did not perceive the matter that way.[297]  After Ms Howard’s exchange with Mr White, she wrote an email to Mr Hutchings, with a copy to Ms Watts, in which she advised “Just had a quick chat to [Mr White].  He will talk to you about the $130 on Thursday in your meeting”.[298]
  2. [423]
    By late December the lack of information about the $130 million led to a delay in producing the December Monthly Investment Report, and Ms Watts blamed Mr White for this lack of information.
  3. [424]
    On 28 December 2007 Mr Hutchings provided the MFSIM Board with a Monthly Operational Board Report for November 2007.  Notably, his report said nothing about the alleged transactions which later came to be documented.  Instead, he explained to the MFSIM Board that the $150 million drawdown was for “a short term cashflow mismatch”.  His report to the Board stated:[299]

“The Fund drew down $150m from its Royal Bank of Scotland (RBS) leverage facility on 28th November.  This was to facilitate a short term cash flow mismatch between new commercial loans and investments due to settle at the end of November and other loans in the Fund which are due to be repaid in December.  The facility will be repaid during January 2008.”

  1. [425]
    It was not only employees of MFSIM who were attempting to ascertain during December 2007 to what the $130 million payment related.  Officers of MFS who were negotiating with banks to obtain lines of credit for the MFS Group also were seeking information so they could make appropriate disclosure to the banks.  For example, Mr Gannon, MFS Corporate Finance Officer, emailed Mr Anderson on 19 December 2007 asking him for the brief terms of the loan including the term, interest rate and security.  The email was copied to Mr Cecil, Director of Investment Funding MFS Group.  Mr Anderson replied:[300]

“… this is not the case

PIF has not loaned MFS any funds

MFS has transferred to PIF the benefit of certain loans.”

  1. [426]
    Over the following weeks Mr Cecil and others pursued the matter, partly because the Commonwealth Bank of Australia had questions relating to the sale of MFS loans that reduced the Fortress loan by $100 million.  On 3 January 2007 Mr Cecil reported to Mr Gannon that he had asked Mr Anderson for information about this matter and had been “unsuccessful in [his] endeavours”.[301]
  2. [427]
    The evidence suggests that it was around 3 January 2008 when an attempt was first made to formulate retrospectively a transaction that might justify the $130 million payment.  The first formulation was of a loan by PIF to MYF which would enable it to undertake certain transactions.  However, this purported transaction is inconsistent with the purported transactions which ultimately came to be documented and, in any event, there are no contemporaneous documents to suggest that the $130 million payment which had been made in late November 2007 was a loan to MYF.  The draft document which was sent to Ms Watts and copied to Mr Hutchings on 3 January 2008 contained a draft request to the IAC of PIF and the IAC of MYF, each dated 30 November 2007.  It proposed that PIF would:

“… enter ‘into a commercial leverage facility with MFS Max Yield Fund and … may elect to call on its Royal Bank of Scotland facility in order to undertake this transaction’”.[302]

The draft proposal to the IAC of MYF stated:

“The fund has available funds of $130 million via its leverage facility with MFS Premium Income Fund.  Max Yield is now able to undertake a number of commercial transactions”.[303]

The same day, Ms Watts said that she was going to give the draft papers “a good butchering”, and later that day Mr Hutchings attached an amended draft request for approval to the IAC of MYF dated 30 November 2007.

  1. [428]
    On 4 January 2008 Mr Hutchings sent an email to Ms Watts and Ms Howard attaching a draft asset list of PIF which showed:
  • a $75 million loan to MYF; and
  • “Other Loans” $125 million with details “TBA C Mr White”.[304]
  1. [429]
    In reply, Ms Watts identified the problem that: “If we put all $200m in ASB, we go over 40 per cent limit; Would prefer ASB’s MYF exposure be $147.5m, and balance of $52.5m to go to cash sector (liquid callable deposit with MFSA?)”.[305]
  2. [430]
    On 4 January 2008 the idea that PIF might acquire MYF units was raised by Ms Watts.   By this time the $17.5 million payment was being recorded in holding reports for PIF under “Other Loans $17,500,000”.  However, after about 4 January 2008, documents began to refer to the total of $147.5 million.  On 4 January 2008 Ms Watts emailed Mr Hutchings and Ms Howard and attached what was described as a “Latest simpler version of IAC paper”.  She advised: “Now working on board paper”.[306]  The attached paper proposed PIF would “invest in a loan to XXXXXXXX XXXX to the value of $147.5 million”.  It noted that:
  • PIF would call on its RBS facility to undertake the transactions and proposes a yield of 12 per cent per annum; and
  • as the size of the proposed loan was greater than $50 million, MFSIM board approval was required.
  1. [431]
    Later that day Ms Watts sent a further email with revisions to these documents, noting that she had changed the date from 30 November to 28 November so it was consistent with the drawdown date of the RBS facility.[307]  These documents did not record a loan to MYF, and this may have been due to a concern about related party transactions.  In any case, Ms Watts sent an email on the afternoon of 4 January 2008 advising “Looks like we are now comfortably under the 20% now that the MYF units/loan is gone!”[308]
  2. [432]
    The minutes of a meeting of the MFSIM investment management committee on 7 January 2008 noted “$200m facility has been fully invested. $150m lent at 12%”.
  3. [433]
    On 7 January 2008 Mr Hutchings emailed Mr White with the subject “Draft IAC Paper”.  His email was copied to Ms Watts and Ms Howard.  The email read:[309]

“… in relation to the first step for PIF to replace $130m currently maturing asset backed investments with $147.5m asset backed investments utilising the RBS facility.

We are also assessing the opportunity for the assets to be transitioned to the Max Yield fund as part of its relaunch as step 2.”

The attached draft IAC memo, falsely dated 28 November 2007, states “The purpose of this paper is to seek approval for a proposal to invest in the following loan assets with a combined value of $147.5 million” with the identity of the loan assets left blank.[310]

  1. [434]
    At this time there was still no reference to the purported transactions which eventually appeared in the false documents, including PIF’s acquisition of 85 million units in MYF.  Instead, the MFSIM management team meeting on 7 January 2008 was still referring to a MYF restructure to be launched on 30 March 2008, being a proposal which had been earlier circulated for approval of the IAC on 6 December 2007.  It was not simply MFSIM as responsible entity for PIF which did not record the alleged transactions.  When the MFS Ltd Board met on 13 January 2008, there was no reference to any of the alleged transactions.
  2. [435]
    On Monday, 14 January 2008 Ms Watts reported to the MFSIM management team: “No new investments of any significance.  Still drawn down by $200m (expecting repayment by end of month, however still to be confirmed)”.[311]  This report is inconsistent with Ms Watts believing that PIF had made any investment with payments totalling $147.5 million.  It is also inconsistent with her believing that in November 2007 PIF had entered into the transactions that were then being drafted by her and others, being the transactions that eventually came to be documented in the false documents.
  3. [436]
    On 14 January 2008 Ms Howard sent an email to Mr Hutchings which was copied to Ms Watts.  It asked Mr Hutchings whether he had received any word from Mr White about the draft IAC paper which Mr Hutchings had sent Mr White on 7 January 2008.  Ms Howard wanted to know this because she needed to finalise accounts which the auditors would want before they arrived the following week.  After being prompted by Mr Hutchings on the afternoon of 14 January 2008 for a response, Mr White responded on 15 January 2008 in relation to the draft IAC paper:[312]

“Looks pretty good

Doesn’t really sell to iac [sic] the return and portfilio [sic] return up side as much as could though.”

On the morning of 15 January 2008, Mr Hutchings responded to Mr White in an email which stated “Need your assistance with paragraph 1 in red attached”.  The attached document in its first para contained a space for loan details to be inserted.

  1. [437]
    This prompted Mr White to write his “creative brain” email which told Mr Anderson “I am sure you can work out what the $147.5m went to”, and stated that he needed “names that deal with these assets/loans…”.[313]
  2. [438]
    On 18 January 2008 Ms James, a finance manager in the MFSIM team with responsibility for preparing accounts, wrote to Mr Hutchings about “Loan Balances” and said that she needed an answer by close of business “as I have auditors coming in first thing Monday and they will need to see accounts”.  Ms James sent a further email that afternoon, this time directly to Mr Anderson, with copies to Mr White and Mr Hutchings, about the loan balances.  She wrote:[314]

“I have just been on the phone to [Mr Hutchings] regarding the $147.5 million I still have sitting in PIF’s accounts with no allocation against it.  As I am sure you are aware, I have auditors arriving at 9am on Monday morning and this will need to be addressed before then.”

  1. [439]
    The matter of loan balances had assumed great urgency and on the morning of 20 January 2008 Ms James sent an email to Mr Hutchings and Ms Watts marked “URGENT” in which she advised that she had still not had any response from Mr Anderson or Mr White “regarding the $147.5m”.  Her email is instructive that Mr Hutchings and Ms Watts did not know what had happened to the $147.5 million.  They did not know if it had been loaned and, if so, the interest which PIF would receive for its money, or, if it had been invested, whether it had been in one or more investments.
  2. [440]
    There were problems with all of the money being invested in one investment, given the need for Board approval.  In her 20 January 2008 email, Ms James proposed a split between three investments and, in the absence of any other information, proposed a split without allocating a name.  Her email reads:[315]

“I have to get the audit folder correct to reflect the loan balances, which I am doing this morning.  I understand that this needs to be split between 3 investments, I am therefore suggesting that, in the absence of any other information, I split the $147.5m into 2 x $50m + 1 $47.5m and just not allocate a name to the lines as yet.  I will charge 12% interest (in line with the original advice when it was all for Max), do I still charge the assignment fee of $737,500 – I will remove for now and can put back in if you want?  We received $1.5m last week from MFS, $550k of which was allocated to the liability as agreed with Marilyn, the remainder $990k I will allocate against the $47.5m loan

If you could let me know if this is okay, unless you have any other ideas on what needs to be done?”

In response, with a copy to Mr Hutchings, Ms Watts agreed with the treatment and split which Ms James had recommended and advised that she still did not have any details from Mr White that she could give her.

  1. [441]
    Mr Hutchings followed up Ms James’ request for urgent information about loan balances in an email to Mr White which was copied to Mr Anderson, and Mr Anderson responded that he was going to contact the auditors and delay their arrival by a day.  As matters transpired, it was not until 5 February 2008 that documents began to be provided to the auditors and it was not until 11 February 2008 that the auditors commenced work on site.
  2. [442]
    These exchanges were occurring on the weekend immediately following “Black Friday”.  On the morning of Monday, 21 January 2008, Mr Hutchings received a request from the RBS for a list of all assets by current value, maturity date and asset class.  Mr Bailey of the RBS said he required this because of “recent press coverage and announcements within the MFS Group”.[316]  Shortly after receiving the RBS email, Mr Hutchings forwarded it to Mr White and Mr Anderson and stated: “This will also need urgent attention and I will need your assistance”.[317]  At 1.55 pm Ms Platts forwarded Mr Bailey’s email to Mr Parker and requested a list of assets in PIF.[318]
  3. [443]
    That afternoon Mr Hutchings wrote an important email to Mr White, with copies to Mr Anderson and Ms Kercher.  ASIC’s case was that the so-called “escalation email” of 21 January 2008 showed that Mr Hutchings was then aware that the money had not been used to purchase assets for PIF, had been paid in breach of rules and had been used in an unauthorised way.  The primary judge stated that Mr Hutchings’ email of 21 January 2008 was “too little too late”, and observed that it could bear “the uncharitable interpretation of having being sent by him to cover his own back after the events of Black Friday and before the advent of the auditors”.  It will be necessary to return to it when considering Mr Hutchings’ reasons for writing it and whether it discloses his knowledge of the misuse of the $147.5 million payments made by PIF.
  4. [444]
    That night, after they had received the escalation email, Mr Anderson emailed Mr White about Mr Hutchings, and stated that Mr White needed to talk to Mr Hutchings.  He continued in apparent reference to Mr Hutchings and his email:[319]

“… it could be the bomb that needs diffusing [sic].  Need (I think) to focus on what is best for the PIF investors in getting all the loans back in that deal etc”.

Mr White replied to Mr Anderson “Tomorrow you and I need to have a pretty frank conversation”, and advised that Mr White had a plan.

  1. [445]
    On 22 January 2008 at 7.04 am, Mr Hutchings received a response to his “escalation email” from Mr White which referred to discussions they had had the previous night and stated that matters would be resolved following completion of proposals to be announced by MFS to the market.  Mr White advised Mr Hutchings that he was working with Korda Mentha and the MFS Board, and was confident that issues could be worked through in the following days and weeks to protect investors.  Mr White advised Mr Hutchings, among other things, that:[320]

“the $200m RBS draw down will be paid back in the next 12-30 days.  MFS will provide guarantee to MFSIM to this effect and I am working on this as my top priority.  Do not worry about this it now becomes my responsibility in my new role, you need to concentrate on the management of the fund”.

  1. [446]
    Mr Hutchings’ evidence was that he was relieved that Korda Mentha had been retained by MFS and that Mr White’s email of 22 January 2008 gave him reassurance that his concerns about the use of funds were being properly addressed.[321]
  2. [447]
    By this time, namely 22 January 2008, PIF’s holdings report still recorded the payments as follows: “Loans $147,946,438.36 for maturity on 31 January 2008.”[322]  However, matters were in a state of flux and later that day a new report replaced the loan with four new assets described simply as “New Loans” which totalled the same figure.
  3. [448]
    Ms Platts was still trying to speak to Mr White about the information required for the RBS and asked Mr Hutchings to chase him up.  Mr Hutchings replied: “Will do.  Just spoke to David Anderson and he is confident of the way forward”.[323]
  4. [449]
    On the morning of 23 January 2008, Mr Anderson emailed to Mr White a list of six loans totalling $105 million.[324]  However, half an hour later there was a new list of 10 loans totalling $147,511,950.[325]
  5. [450]
    The Board of MFSIM met at midday on 23 January 2008.  It still was not told of the alleged transactions.  Instead, the Board papers reported that most, if not all, of the $200m drawn down from the RBS would be repaid by the end of January 2008.[326]
  6. [451]
    The Board papers of 23 January 2008 in describing PIF’s holdings represented that investments had been made in asset backed securities.  The report to the Board for PIF for the period November 2007 to December 2007 presented the following table:[327]

Asset Class

Benchmark

Actual

Overweight/(Underweight)

Commercial Loans

45%

36.9%

-8.1%

Asset Backed Investments

15%

39.4%

+24.4%

Listed & Unlisted Property

25%

8.2%

-16.8%

Fixed Interest Securities

10%

11.4%

+1.4%

Cash

5%

4.2%

-0.8%

100%

100%

  1. [452]
    It went on to make comments about specific asset classes, and in respect of Asset Backed Investments stated:[328]

Asset Backed Investments

The sector is current overweight its benchmark allocation, due to the addition of some short dated loans.  The opportunity to invest in the loans has arisen ahead of the impending maturity of approximately $200m of ABS and commercial loan assets during the March quarter 2008.”

The report to the Board stated:[329]

“PIF drew down the full $200m of its Royal Bank of Scotland (RBS) facility to fund new loans in the Asset Backed Sector, ahead of the impending maturity of other loans in that sector in January.

It is expected that most, if not all, of the $200m drawn down from RBS will be repaid by the end of January.”

  1. [453]
    Commencing 23 January 2008 the drafting of the documents which came to be described in the proceeding as the “false documents” began in earnest.  Ms Watts was involved and had been provided with a format for an IAC paper.  On the morning of 24 January 2008 there was a meeting in Mr White’s office on the Gold Coast between him, Mr Anderson and an in-house lawyer, Mr Stride, at which Mr White directed Mr Stride to prepare documentation in relation to transactions which were explained to him.
  2. [454]
    As appears in detail in the reasons of the primary judge, on 24, 25 and 26 January 2008 Mr Hutchings, Ms Watts and others were involved in a review of the PIF asset report and were told that a number of the entities noted were MFS associate entities, and therefore the matter “will need to be considered by the RPC” (a reference to the Related Party Committee).  Mr White was kept informed of the matter and was told on 26 January 2008 that Mr Hutchings was proposing to provide papers for “consideration/ratification” by circular.
  3. [455]
    The fact that ideas were still being developed at the end of January and that the transactions being devised were still “a work in progress” is illustrated by Ms Platts’ email of 27 January 2008 to Mr Hutchings and Ms Watts.  Her email headed “Updated List of Investments and IAC Papers” read:[330]

“Guy

Attached is the final version of the split of investments in relation to funds out of PIF on 30 November and 27 December.

I have attached the relevant IAC papers for your review, documentation matches to outflows.  You will note that one of the papers involves a further Related Party submission, which has to be drafted.

I can confirm that by splitting the investments as per the attached IAC papers we are within all Asset Allocation Thresholds and Related Party 20% Threshold.

Please note, I would suggest to replace Sagacious Opp Trust listing with MFS RAP Limited amount in December, (This will make more sense once you have reviewed the IAC papers as to how to do this)

Marilyn, I am happy to review final asset listings etc. that you would like to provide to RBS, to ensure we are providing a consistent message.”

As appears in this email, proposed splits in investments were being considered which would bring them within asset allocation thresholds and under the 20 per cent related party threshold.  New entities were being suggested for inclusion, with Mr Hutchings, Ms Watts and others working towards a final list of assets that would be provided to the RBS.

  1. [456]
    On 28 January 2008 Mr Hutchings provided an example of a CRPC paper, and the drafting and refinement of the papers continued over the following days.  As the contents of emails quoted in the Primary Reasons show, drafts of documents including IAC papers were circulated for consideration by Mr Hutchings and Ms Watts on various days between late January and early February.[331]  From time to time Ms Watts offered her comments on the MYF and PIF papers.[332]  An example of Ms Watts’ role in the creation and finalisation of the documents during this period is that on 1 February 2008 Mr Hutchings forwarded an email from Ms Platts from the previous day with IAC minutes dated 30 November 2007 and other documents.  At 3.26 pm on 1 February 2008 Ms Watts wrote to Ms Platts with attached documents dated 23 November 2007 and stated: “Corrected version attached.  Date should have read 23 Nov not 30 Nov.  Other minor changes for you to check”.[333]
  2. [457]
    On 5 February 2008 Ms Watts emailed Mr Bailey of the RBS, with copies to Mr Hutchings and others.  Ms Watts’s email attached the loan participation agreement between PIF and PacFin for loans totalling $62.5 million and a new loan notice effective 31 December 2007 which purported to amend the loan participation agreement by changing the identity of one of the borrowers and the amounts of some of the loans.[334]
  3. [458]
    On 5 February 2008 an unsigned unit certificate certifying PIF as the registered holder of 85 million units in MYF was sent to Ms Howard.
  4. [459]
    On the evening of 5 February 2008 and early on the morning of 6 February 2008 near-finalised copies of the papers were being circulated for final review.
  5. [460]
    At 7.40 am on 6 February 2008 Ms Watts sent to Ms Platts her comments on the MYF papers and promised that her comments in relation to the PIF documents would follow.  The documents contained handwritten amendments and comments, as did the PIF documents which Ms Watts sent to Ms Platts at 8.03 am.
  6. [461]
    What were described as “Final Papers for your review in relation to Max Yield” were sent by Ms Platts to Mr Hutchings, with a copy to Ms Watts, at 3.21 pm on 6 February 2008, and at 3.25 pm there was another email to them with the PIF papers for review.
  7. [462]
    At 6.34 pm on 6 February 2008 Mr Hutchings replied to Ms Platts’: “No changes from me” and stated:[335]

“As discussed, the papers capture the refinements required after the original transactions were approved and completed.”

  1. [463]
    At 6.43 pm Ms Watts replied to Ms Platts’ earlier email, stating: “All okay.  Many thanks”.[336]
  2. [464]
    On 8 February 2008 the various minutes and submissions for PIF and MYF variously dated 20, 21, 23, 27 and 28 November 2007 were sent to Mr Anderson and Mr Hutchings.
  3. [465]
    As previously noted, on 11 February 2008 Mr Hutchings attached a circular proposal for the Board to ratify the issue of 100 million Class A units on the basis of an information memorandum dated 23 November 2007.  Mr Hutchings told the Board that the information memorandum should have been presented to the Board for its approval in November and that this “oversight” had only now been identified.  Yet, as appears from the foregoing chronology, the issuing of 100 million additional Class A units in MYF was a matter which evolved in the course of the creation of documents in January 2008.
  4. [466]
    In short, the MFSIM Board was being asked by Mr Hutchings to ratify the prior issue of units in MYF and the failure to obtain Board approval in November 2007 was represented as an “oversight”.  However, as noted by the primary judge in his consideration of MFSIM’s contraventions relating to the false documents, it could not have been an “oversight” at all since the possibility of the transactions that ultimately came to be documented was not contemplated in November 2007.

Overview of the purported transactions contained in the false documents

  1. [467]
    The purported transactions that were recorded in the false documents were inconsistent with contemporaneous accounts of PIF and other MFS entities including PacFin, Sun Leisure and MYF.  As noted in the above chronology and as appears more fully in the Primary Reasons, at various times in December 2007 and January 2008, the payments were recorded in PIF’s documents as loans and as at 8 January 2008 were reported as loans totalling $149,261,788.07 with a 12 per cent interest rate and maturity at 31 January 2008.
  2. [468]
    The purported transactions were inconsistent with MYF’s accounts during the relevant period.  Rather than reflecting the purported transactions, its balance sheet and monthly accounts for December 2007 showed it having assets of approximately $2.1 million.  The transactions that were documented were contrary to what the IAC agreed on 6 December 2007 in respect of plans to restructure MYF in early 2008.  The “false documents” were also inconsistent with contemporaneous records concerning a possible future restructuring of MYF.  For example, on 3 December 2007 Ms Watts told Ms Howard that nothing had been done at all on MYF, and documents in December 2007 recorded a proposed interim investment of MYF’s $2.1 million in PacFin.  The purported transactions recorded in the false documents were also inconsistent with contemporaneous decisions in relation to Sun Leisure.  In November 2007 a proposal was made to the IAC of PIF that PIF lend Sun Leisure $30 million.  The proposal was declined.  Yet, according to the false documents and as recorded in a purported memorandum to the IAC of MFSIM as responsible entity of MYF on 28 November 2007, Ms Watts recommended that MYF lend Sun Leisure $30 million for the very same purpose and, according to the false minutes, on 28 November 2007 the IAC approved this loan.  As ASIC established, it was inherently unlikely that the IAC would decline a loan by PIF to Sun Leisure for $30 million because PIF and Sun Leisure were related parties, and then nine days later approve a loan to Sun Leisure for the same amount and for the same purpose.
  3. [469]
    Consideration of the contemporaneous documents, including the numerous emails between officers and employees of MFSIM and officers and employees of other MFS entities supported two conclusions urged by ASIC:
  1. The false documents were being prepared to try to provide an explanation for the payments for the purpose of the upcoming audit and also to respond to the requests from the RBS for details.  The “transactions” were only “worked out” long after the funds were paid from PIF to other entities in the MFS group.  Mr Hutchings sought guidance from Mr White as to how the payments would be explained. The creation of the false documents was part of a process of trying to explain the payments in a way that would satisfy auditors and external parties (including the RBS).
  1. The false documents were not, and could never have been, part of a ratification process.  They purported to record many things that simply never occurred.  For example, there were never any recommendations made to the IAC.  The IAC never considered the transactions.  No consideration or approval was given to the transactions by the CRPC.  There was never any re-opening of MYF.  The documents were not only backdated.  They purported to record events that simply never occurred.  They were not prepared to record actions and transactions which had occurred and that the Board was being asked to ratify.
  1. [470]
    For an extensive period, and based upon what Mr White and Mr Anderson produced by way of lists of loans commencing on 23 January 2008, it appears that Mr Hutchings and Ms Watts envisaged that PIF would take a direct interest in the listed loans.  There were no contemporaneous documents indicating that MYF would take an interest in the loans and that PIF would acquire an interest in MYF.  However, that is the manner in which the purported transactions developed and came to be documented.
  2. [471]
    The purported transactions that were refined and documented in early February 2008 were effectively finalised in exchanges of emails between Mr Hutchings, Ms Watts and Ms Platts on 6 February 2008.  Whilst minor refinements and finishing touches were put on the documents, by that stage they were effectively finalised.  Mr White’s role in relation to particular documents will be considered in the context of his appeal.  However, his direction to Mr Stride in a meeting on 24 January 2008 set in train the production of the false documents. The final version of the documents that were drafted by Mr Stride, Ms Platts and others, and reviewed and approved by Mr Hutchings and Ms Watts, were substantially based on the drafts produced by Mr Stride and Mr Gavras-Moffatt, another internal legal counsel, following Mr White’s direction on 24 January 2008.

The keeping of the false documents

  1. [472]
    The documents that were reviewed and finalised were intended to form part of MFSIM’s books and records, and the urgency which attached to their creation and finalisation coincided with the expected arrival of MFSIM’s auditors.  It will be necessary to consider in the context of Mr Hutchings’ appeal an argument as to whether he intended that the false documents be kept by MFSIM as though they were a genuine part of the financial books and records of MFSIM.  He argues that his intention was that they would only be so kept following a process of Board ratification.  Leaving aside that possible qualification, it is apparent that the documents were intended to form part of MFSIM’s records.

The use of the false documents

  1. [473]
    MFSIM provided its auditors with access to the false documents.  This fact is not contested and the evidence at the hearing established it.[337]
  2. [474]
    The false documents were also prepared so as to meet any internal compliance review.  When MFSIM’s internal compliance unit raised concerns in February 2008, Mr Anderson wrote a memorandum dated 17 February 2008 which expressed the view that there had been no statutory breach of s 1017E of the Act in respect of the purported investment in MYF by PIF of $85 million.  He referred to an issue of units in the MYF that had occurred “a few months ago”.[338]  Mr Hutchings sent the memorandum by email to MFS’ compliance section, saying that it provided “further background”.  This was found by the primary judge to involve misinformation because the memorandum falsely suggested that the issue of units took place in 2007.[339]  False information was also provided to MFSIM’s solicitors who were asked to provide advice about the same matter discussed in Mr Anderson’s memorandum.  The documents sent to the solicitors were found to contain factual statements which were known by Mr Hutchings to be false.[340]  On the basis of the false information, the solicitors gave advice that there had been no breach of the Act.
  3. [475]
    Finally, in terms of the provision of false information to internal and external parties, the RBS was provided with asset reports, listings of loans and the participation agreements, all of which falsely represented that transactions had been effected by PIF with the money it drew down from the RBS and at the time of those drawdowns.[341]

The case against Mr White over the false documents

  1. [476]
    In general terms, ASIC’s case against Mr White in relation to the false documents was that:
  1. (a)
    on 24 January 2008 he orally instructed an internal corporate legal counsel, Mr Stride, to draw documents which showed that the $130 million payment and the $17.5 million payment had been invested by MFSIM on behalf of PIF and this led to the creation of eight false documents; and
  1. (b)
    he signed seven of those false documents;

when he knew that the transactions proposed to be recorded had not actually occurred at the time of the payments, and intended to create the impression that the transactions occurred before the payments.  By engaging in the conduct, Mr White was alleged (and was found) to have been knowingly concerned in MFSIM’s contraventions in creating the eight documents, which MFSIM knew to be false in material respects, to hide the unauthorised payments from PIF’s scheme property.  By engaging in the conduct Mr White was also alleged (and was found) to have contravened duties as an officer of MFSIM.

  1. [477]
    ASIC’s case was that Mr White instructed Mr Stride, and then Mr Stride and Ms Platts orally directed Mr Gavras-Moffat to draw documents which showed that the two payments had been invested by MFSIM on behalf of PIF.  ASIC’s pleading was that in compliance with those requests, Mr Stride and Mr Gavras-Moffat drafted the documents pleaded at paras 113(b)(i), 119(b), 120(b), 121(b)(i), 122(b), 123(b)(i) and 124(b).  Reference to ASIC’s pleading in respect of the false documents in all of its detail is unnecessary.  The relevant documents have been summarised above in the table at [414] above.  Each paragraph relied upon against Mr White pleaded a document which was approved for use as a record of MFSIM, and then pleaded when and by whom the document was first created in draft and how it came to be created in final form.  For example, para 113 of ASIC’s pleading was of a document which, on its face, appeared to be an Information Memorandum dated 23 November 2007 offering information to potential investors in respect of Class A units in MYF, which offer was expressed to close on 31 January 2008.  Para 113(b) alleged that the document was created in draft on 31 January 2008 by Mr Gavras-Moffat or Mr Stride pursuant to the oral direction given to Mr Stride by Mr White and Mr Anderson on 24 January 2008.  The particulars of para 113(b) recite the details of how the draft was sent to others, such as Ms Platts, Mr Hutchings and Ms Watts at different times and finally sent by email to Mr Hutchings and Ms Watts on 6 February 2008 at 3.25 pm for their review, before being approved by Mr Hutchings in the email that he sent to Ms Platts and Ms Watts at 6.34 pm on 6 February 2008.  The other false documents relied upon in ASIC’s case against Mr White are in a similar form.
  2. [478]
    It is convenient to list the eight false documents which are relevant to the case against Mr White and which came to be described in the declarations made on 26 May 2008 as the “White False Documents”:
  1. (1)
    the 23 November 2007 MYF Information Memorandum (113);
  2. (2)
    the MYF-PacFin Loan Participation Agreement (119);
  3. (3)
    the PIF-PacFin Loan Participation Agreement (120);
  4. (4)
    the 30 November 2007 MYF Application Form (121);
  5. (5)
    the 30 November 2007 MYF Unit Certificate (122);
  6. (6)
    the 27 December 2007 MYF Application Form (123);
  7. (7)
    the 27 December 2007 MYF Unit Certificate (124);
  8. (8)
    the 31 December 2007 New Loan Notice (125).

Documents (2) – (8) were found to have been signed by Mr White and were described in those declarations as the “White Signed False Documents”.

Relevant findings in relation to the case against Mr White over the false documents

  1. [479]
    The findings of the primary judge which are of particular relevance for the purpose of this part of Mr White’s appeal may be summarised as follows.  The primary judge found that on 24 January 2008 there was a meeting in Mr White’s office between Mr White, Mr Anderson and Mr Stride.  Mr Stride was directed to prepare documentation in relation to the transactions, which were explained to him.[342]  Mr Anderson gave evidence of such a meeting and Mr Stride’s s 19 examination was tendered under s 79 of the ASIC Act.
  2. [480]
    The primary judge set out at substantial length the evidence in relation to the creation of the false documents and their recording of purported transactions.  It has been summarised in the previous section of these reasons, and the contents of the emails and other documents referred to by the primary judge are not in contest.
  3. [481]
    The real contests at trial in relation to Mr White’s involvement in the creation, keeping and use of the false documents related to ASIC’s allegations about Mr White’s knowledge and intention in relation to transactions associated with the payments, as well as the connection between Mr White’s direction to Mr Stride and documents which Mr White did not personally create.
  4. [482]
    In responding to ASIC’s false documents case against him, Mr White’s trial counsel argued that the alleged contraventions depended upon ASIC making good its case about his knowledge and intention in relation to the transactions.  The argument was that ASIC had not established that Mr White knew that no transactions had in fact occurred.  Another part of the argument was that Mr White was not alleged to have seen, been sent or even to have known about either the draft or the final version of document 113 (the Information Memorandum dated 23 November 2007) and so it was not possible to infer that he acted dishonestly in respect of the creation of that document.
  5. [483]
    The primary judge rejected those arguments, and explained they were not persuasive if one accepts the premise that Mr White knew the transactions proposed to be recorded had not actually occurred at the time the payments were made.  This was a premise which the primary judge clearly accepted.[343]  As we have discussed in relation to ASIC’s case against Mr White about the payments, his Honour found that Mr White knew that there were no transactions which had occurred before or at the time of the payments.  His Honour’s conclusion was based, in part, upon his inability to identify the transactions to other employees until well after the payments were made.  The primary judge also concluded that the funds were illegitimately taken in the short-term, rather than as part of some planned scheme to make investments with the funds.[344]  These findings, and the primary judge’s acceptance that Mr White knew the transactions which were proposed to be documented had not actually occurred at the time the payments were made, were inconsistent with Mr White’s case that his instruction to Mr Stride was to prepare documents which recorded transactions which had already occurred.
  6. [484]
    Other relevant findings were that ASIC had established the necessary connection between Mr White’s direction to Mr Stride and the creation and approval for use of the documents he signed, as well as the Information Memorandum.[345]
  7. [485]
    As for Mr White’s signing of the relevant documents and their falsity, the primary judge accepted in large measure ASIC’s submissions.
  8. [486]
    The two applications by PIF, one for 67.5 million units in MYF dated 30 November 2007 (document 121) and the other for 17.5 million units in MYF dated 27 December 2007 (document 123), were each signed by Mr White and Mr Hutchings.  The first application was dated by hand “30/11/07” immediately below each of the signatures, and the second was dated by hand “27/12/07” immediately below each signature.  The documents, on their face, suggested that they existed on the dates they were signed, which was not true.  The “applications” did not exist until 31 January 2008 and they were not signed until early February 2008.[346]
  9. [487]
    The two unit certificates, one dated 30 November 2007 (document 122) and the other dated 27 December 2007 (document 124), were found to have been created and signed in 2008 and backdated to November and December 2007 to coincide with PIF’s drawdowns from the RBS.[347]  The primary judge accepted ASIC’s case that when Mr White and Mr Hutchings signed the unit certificates they knew that the documents were being backdated to reflect a transaction in 2007 that had not occurred then.  The dating of the unit certificates was found to have been done dishonestly to disguise the fact that there was no transaction in 2007 pursuant to which PIF acquired Class A units in MYF.
  10. [488]
    The new loan notice (document 125) had its “Effective Date” written as 31 December 2007, immediately above the signatures of Mr White and Mr Hutchings.  The primary judge found that it thereby represented that, as at 31 December 2007, the PIF-PacFin loan participation agreement had already been entered into.  However, no such agreement was in existence on that date and so the new loan notice was false.  ASIC’s case, as accepted by the primary judge, was that when Mr Hutchings and Mr White signed the new loan notice at some time in 2008, they knew that there was no loan participation agreement in existence on 31 December 2007.[348]  They knew that because they also signed the loan participation agreement in early February 2008.  Their dishonesty in signing the new loan notice was found to be attributable to MFSIM.[349]
  11. [489]
    The two loan participation agreements (documents 119 and 120) were also found to have been intended to disguise the fact that no transactions were entered into in November and December 2007, making up the $147.5 million paid by PIF.[350]  Although the loan participation agreement between MYF and PacFin was not dated, it was found to suggest that the document had been signed before the funds were drawn down by PIF from the RBS because the agreement referred to a submission to the IAC dated 27 November 2007 and IAC minutes dated 28 November 2007 and the agreement was couched in language that referred to a future flow of funds.[351]

Mr White’s grounds of appeal in relation to the false documents case against him

  1. [490]
    Mr White’s appeal contained specific grounds with respect to the findings against him in relation to the false documents case.  In addition, Ground 4 of his appeal concerning the adequacy of reasons extended to the primary judge’s reasons with respect to ASIC’s case against him over the false documents.  As to Ground 4, in summary Mr White relied upon the primary judge’s extensive adoption of ASIC’s written submissions in relation to ASIC’s case against MFSIM in relation to the false documents, including the chronology of relevant events where the primary judge noted that his summary of relevant events was derived principally from ASIC’s final written submissions.[352]  Mr White argued that the primary judge’s apparent adoption of ASIC’s written submissions in its case against MFSIM in relation to the false documents suggests that the primary judge did not properly disclose his reasons for preferring one set of evidence over another and did not adequately enter into the issues canvassed before him.
  2. [491]
    As to the case against Mr White in relation to the documents, Mr White submitted that the primary judge’s conclusion that he was dishonestly involved in the creation and keeping of document 113 was disposed of in five sentences and did not sufficiently address Mr White’s submissions at trial.

The adequacy of the primary judge’s reasons in relation to the false document case against MFSIM and the false document case against Mr White

  1. [492]
    Mr White is correct that the part of the Primary Reasons dealing with the false documents case against MFSIM and the relevant events relating to the development and documentation of the purported transactions drew extensively upon ASIC’s final written submissions.  The primary judge said as much.  Viewed in context, the primary judge was to be interpreted as making findings in relation to the relevant events set out in the chronology concerning the false documents.  The express adoption of a chronology of events which were uncontroversial was reasonable.  Insofar as subsequent parts of the primary judge’s consideration of the false documents against MFSIM involved an assessment of the falsity of documents, their falsity was well-established by the evidence for the reasons explained in the primary judge’s reasons.  In simple terms, the transactions, submissions and meetings recorded in the false documents simply had not occurred.  That the documents were false in these respects was not in real controversy.  What was challenged by Mr White was whether the documents were created and kept by MFSIM in order to create the impression that the transactions occurred by the time the payments were made.  It was open to the primary judge to conclude that this was the purpose of MFSIM and we agree with that conclusion.  Having considered ASIC’s case against MFSIM in relation to the false documents, and having largely accepted ASIC’s submissions in relation to it, the primary judge, in his own words, gave his view of the evidence, culminating in his conclusion that the false documents were produced into early February 2008 as a product of the pressure that was felt with the imminent arrival of the auditors and questions from the RBS, and not as any genuine reflection of transactions that had either been made or were proposed to be made and then ratified.  The primary judge’s reasons in relation to the case against MFSIM over the false documents were adequate to identify the evidence which he accepted and the process of reasoning that led him to conclude that MFSIM had contravened the Act.
  2. [493]
    The Primary Reasons engaged with Mr White’s submission that ASIC’s case depended upon it making good its allegations about his knowledge and intention at the times the subject payments were made, and that Mr White then knew that no such transactions had in fact occurred.  The primary judge had earlier expressed and explained that conclusion, and it was unnecessary for his Honour to do more than repeat his finding that Mr White knew that the purported transactions had not in fact occurred before or at the time of the payments.  This was sufficient to dispose of the arguments noted at [913] and [915] of the Primary Reasons.
  3. [494]
    As to the adequacy of the Primary Reasons in respect of other aspects of the false documents case against Mr White, it is convenient to consider them in the context of specific grounds of appeal concerning the false documents case against him.  Those specific grounds should be dealt with in chronological order.

Mr White’s instruction to Mr Stride and its consequences (Ground 16)

  1. [495]
    As noted, the primary judge found that at a meeting in Mr White’s office on 24 January 2008, Mr Stride was instructed to prepare documents in relation to purported transactions described in that meeting.  Mr White explained the transactions in Mr Anderson’s presence and they were noted by Mr Stride in a diagram that he prepared during that meeting.[353]  The primary judge found:[354]

Mr Stride’s evidence was that Mr White told him that the transactions had not been documented because in the lead up to Christmas they were busy on other things.  He was also told that the funds had moved but that they needed him to prepare draft documentation to show what the true intention was of the earlier transactions.[355]  Mr Stride prepared documents in accordance with those instructions.  They included loan participation agreements and a new loan notice, applications for units and unit certificates.  Mr White admitted that he signed the loan participation agreements but not the date on which he signed them.  He made a similar admission in respect of the new loan notice.  ASIC’s case is that they were signed on or about 5 February 2008.”

  1. [496]
    Para 16 of Mr White’s Notice of Appeal reads:

“The learned primary judge erred in finding that Mr Stride prepared documents in accordance with the instructions the appellant was found to have given when such instructions:

  1. were found to have been to the effect that the relevant cash flows had occurred and that documentation needed to be prepared to show the true intention of the earlier transactions;
  2. did not require Mr Stride to prepare the documents other than on the basis that they be effective from the date of the relevant cash flows.”

Mr White’s written submissions suggested that the learned primary judge might be thought to have found that Mr Stride prepared documents based upon an instruction by Mr White at the 24 January 2008 meeting to disguise the fact that the $130 million payment and the $17.5 million payment had been made without any consideration, benefit or reward to PIF.  The Primary Reasons do not suggest that Mr Stride was told that the documents to be prepared were intended to disguise such a matter, or was told that transactions had not already occurred at the time the payments were made.  On the contrary, as the Primary Reasons indicate, Mr Stride was told that the documents to be prepared were to record transactions which had already occurred.

  1. [497]
    In essence, the dishonesty which the primary judge found on the part of Mr White was setting in train the creation and keeping of documents in respect of his purported past transactions when he knew the transactions proposed to be recorded in those documents had not occurred.
  2. [498]
    Ground 16 appears to be based on a misunderstanding of what the primary judge found in relation to Mr White’s instruction to Mr Stride.  The primary judge’s findings at [258] and [889] accord with the evidence that Mr Stride was instructed to prepare documents in respect of what he was told were past transactions.
  3. [499]
    Although not directly raised by Ground 16, Mr White’s submissions raised issues concerning the adequacy of the Primary Reasons with respect to the directions pleaded in para 107 of ASIC’s pleading and the creation of the document referred to in para 113 (the Information Memorandum).[356]
  4. [500]
    ASIC pleaded in para 107 that:
  1. (a)
    on 24 January 2008, Mr White and Mr Anderson orally directed Mr Stride to draw documents which showed that the $130 million payment and the $17.5 million payment had been invested by MFSIM on behalf of PIF; and
  1. (b)
    on 27 January 2008, Mr Stride and Ms Platts orally directed Mr Gavras-Moffat to draw documents which showed the same thing.
  1. [501]
    In compliance with those requests, Mr Stride and Mr Gavras-Moffat were alleged to have created the documents pleaded in several paras, including para 113.  At the trial Mr White submitted that the evidence did not permit any connection to be drawn between the 24 January meeting and the 27 January meeting at which the Information Memorandum was discussed.  This submission was not accepted, and the primary judge found that Mr White would be taken to expect Mr Stride to enrol others to complete the directions he had been given.[357]  In addition, the primary judge found that given Mr White’s direction and the subsequent direction given three days later by Mr Stride and Ms Platts, the connection between Mr White’s direction to Mr Stride and the creation and approval for use of document 113 was obvious.[358]  Mr Stride’s evidence was that there was a discussion with Mr White about loan participation agreements and that, as a result of that meeting, he met with Ms Platts and Mr Gavras-Moffat a few days later.  In his s 19 examination he referred to two separate limbs in relation to what flowed from his discussion with Mr White and Mr Anderson.  Mr Stride undertook the task of drafting a participation agreement based upon a precedent document he obtained.  His recollection was that the meeting with Ms Platts and Mr Gavras-Moffat had as its main focus the re-opening of the MYF and the Information Memorandum.
  2. [502]
    Ms Platts gave evidence that at the meeting with Mr Stride and Mr Gavras-Moffat, Mr Stride gave her and Mr Gavras-Moffat “guidance on how to go about restructuring the fund, including on the issue of a new class of units in MYF”.[359]  She asked Mr Gavras-Moffat to assist her in relation to preparing the documents necessary to re-open MYF.  As a result, there was a division of tasks in relation to the creation of documents to record the transactions about which Mr White had given instructions.  Mr Stride’s involvement related to the participation agreements.  Mr Gavras-Moffat’s related to the restructure of MYF and the Information Memorandum.[360]
  3. [503]
    Mr White did not challenge the primary judge’s finding that Mr White would be taken to expect Mr Stride to enrol others to complete the directions he had been given.  The evidence before the primary judge justified his conclusion of a connection between the directions pleaded in para 107 and the creation of documents, including document 113 (the Information Memorandum).  Mr White’s direction to Mr Stride on 24 January 2008 set in train the drafting of documents.  There was an obvious connection between Mr White’s direction on 24 January 2008 and Mr Stride’s joint direction (with Ms Platts) a few days later.  They related to the same subject matter, namely the drafting of documents in relation to a purported investment by MFSIM on behalf of PIF in respect of the two payments.  Those involved in the drafting of the Information Memorandum were acting in accordance with both Mr White’s direction of 24 January 2008 and the consequential direction given on 27 January 2008.  ASIC’s case, as pleaded in para 113(b) was that a marked up draft of the Information Memorandum was sent by Mr Gavras-Moffat to Mr Stride on  27 January 2008, and a further draft was sent by him to Ms Platts on 31 January 2008.  The final version of the Information Memorandum that was created by Ms Platts was based substantially on the draft that had been produced by Mr Gavras-Moffat at the direction of, or in consultation with, Mr Stride.  Ms Platts sent the final version back to Mr Gavras-Moffat on 8 February 2008, describing it as the “Final Info Memo”.
  4. [504]
    The connection between the creation of document 113 and the directions pleaded in para 107 of ASIC’s pleading was established by the evidence.  The primary judge was correct to reject Mr White’s submissions that there was an insufficient connection between his direction to Mr Stride on 24 January 2008 and the creation and approval for use of the document pleaded in para 113.[361]  The discussion with Mr Stride on 24 January 2008, including any discussion about loan participation agreements, MYF and related matters, led to the meeting on 27 January, and the subject matter of both meetings was the creation of documents to give effect to the purported transactions.  The loan participation agreements cannot be seen in isolation and entry into such an agreement was part of a number of transactions which necessitated the restructuring of MYF, the issuing of new units in it and the preparation of an Information Memorandum to potential investors in respect of those units.
  5. [505]
    Finally, and although it is not clear whether Mr White’s complaint in relation to the adequacy of reasons extended to the submission he made at para 70(c) of his trial submissions, the primary judge noted that submission.  It was that Mr White was not alleged to have seen, been sent or even to have known about either the draft or the final version of the Information Memorandum.  However, Mr White was not required to have seen the document in its final form or in a draft form in order to have been involved in the creation of drafts of it and the document in final form.  The Information Memorandum, in conjunction with the seven documents he came to sign, gave effect to the request he made to document transactions by which MFSIM was alleged to have invested payments totalling $147.5 million.  His direction to Mr Stride set in train the creation of the false documents, including document 113, and their being kept as records of MFSIM which purported to record transactions which Mr White told Mr Stride had occurred and needed to be documented.  The trial submission Mr White made at para 70(c) was correctly dismissed.

MFSIM’s suite of backdated documents (Ground 8)

  1. [506]
    Ground 8 of Mr White’s appeal asserted that the primary judge erred in considering the question of Mr White’s participation in contraventions in respect of false documents by reference to a “suite of backdated documents” in circumstances in which the pleaded case against him related to only some of the false documents.
  2. [507]
    This ground lacks merit.  The primary judge referred to the “suite of backdated documents” in considering ASIC’s case against MFSIM in relation to false documents.[362]  This was appropriate in that context because ASIC’s case against MFSIM was that all of the false documents were prepared to evidence events which had not occurred.
  3. [508]
    When the primary judge considered ASIC’s case against Mr White, it was in relation to the eight documents about which he was alleged to have been knowingly concerned and seven of those documents which he was alleged to have signed.

The application for units signed by Mr White (Ground 9)

  1. [509]
    Ground 9 alleged that the primary judge erred in finding that Mr White signed applications by MFSIM as the responsible entity for PIF for Class A units in MYF (documents 121 and 123) which bore the handwritten dates 30 November 2007 and 27 December 2007.  He contended that there was no evidence that the documents bore those dates when they were signed by Mr White.
  2. [510]
    The two documents were first considered by the primary judge in the context of ASIC’s case against MFSIM.  Both application forms had a typed date of 23 November 2007 on the front page.  Each was signed by Mr White and Mr Hutchings.  The first application was dated 30 November 2007 by hand and the second application was dated 27 December 2007 by hand.  Neither document existed on those dates.  The documents were not drafted until 31 January 2008 and were not signed until some time between then and 6 February 2008.[363]  The documents suggest that they existed before the time of the relevant payments and that MFSIM was applying for units which it would obtain on behalf of PIF in return for the payments.  The dating of the documents both in respect of the typed date and the handwritten dates was misleading.  The primary judge accepted ASIC’s submission in its case against MFSIM that the documents formed part of a dishonest scheme intended to suggest that specific investments had been made in 2007 with funds drawn down by PIF from the RBS facility, when in fact no such specific investments had been made.[364]
  3. [511]
    At the trial Mr White adopted a submission made by Mr Anderson that there was no evidence as to by whom the handwritten dates had been written.  The primary judge accepted ASIC’s submission in response that the absence of evidence as to who handwrote the dates on the application forms and on the associated unit certificates (to be considered in the context of Ground 10) did not prevent a finding that MFSIM was responsible for the creation of those false documents.  The documents already had typed dates on them and the primary judge accepted that the insertion of the handwritten dates was by someone who had MFSIM’s authority.  The whole point of the exercise was to backdate these and other documents.[365]
  4. [512]
    As to who wrote the dates on the documents, Ms Platts’ evidence was that she did not do so, although she filled out the earlier parts of the application form.  ASIC submitted that the primary judge should find that the dates were handwritten by either or both of Mr White and Mr Hutchings on the day they signed the forms in around the first week of February 2008.  It was unnecessary for the primary judge to make a finding about by whom the handwritten dates were written.  If it be assumed that the handwritten dates were not written when Mr White signed them, it is notable that he did not handwrite the date upon which he actually signed each application.  On this assumption he allowed others to do so, and consistent with the typewritten date on the front page of the application and the intent of those involved in the creation of the documents, each document was backdated.  Whether Mr White handwrote the dates or allowed someone else to do so, the applications were misleading and intended to mislead so as to suggest that the applications had been made in 2007.  By signing the documents and by his role in giving the direction which he did to Mr Stride on 24 January 2008, Mr White was knowingly concerned in the creation of the false documents 121 and 123.  As to Mr White’s conduct in signing these and the other false documents he was alleged to have signed, the essential point made by ASIC to the primary judge, and accepted by him, was that Mr White acted deliberately in signing the documents so as to conceal the misuse of the two payments.[366]
  5. [513]
    The primary judge’s conclusion that Mr White was involved in MFSIM’s contravention in respect of the two applications for units was open and, with respect, correct.  ASIC’s case did not depend upon proving that it was Mr White who handwrote the dates on each application.  The application forms were misleading whether he did so or allowed someone else to do so.

The unit certificates signed by Mr White (Ground 10)

  1. [514]
    Similar issues arise in respect of Mr White’s signing certificates of unit holding in MYF which bore the handwritten dates 30 November 2007 and 27 December 2007.  The case against MFSIM in respect to these documents was considered by the primary judge who found that “When Mr White and Mr Hutchings signed the unit certificates, they knew that the documents were being backdated to reflect a transaction in 2007 that did not occur then.”  Mr White’s submissions in relation to this ground of appeal challenged that conclusion, but did not address the fact that each of the documents had the year “2007” written in typeface above the signatures of Mr White and Mr Hutchings.  Again, neither Mr White nor Mr Hutchings denied signing the documents and Mr White in fact admitted signing them.  He did not correctly date them and allowed the typed year “2007” to remain beside the place where he signed.  The certificates were created and signed in February 2008.  Mr White signed each unit certificate in 2008 and was content to have the certificates bear the year 2007.  On its own, the 2007 typed date contained a falsity.  It is unnecessary to find that Mr White personally completed the certificates by writing 30 November on the first certificate and 27 December on the second certificate.  By signing each certificate when he did, knowing that the documents had been backdated to reflect a transaction in 2007 which had not occurred, he was knowingly concerned in MFSIM’s contravention by disguising the fact that units were not issued in 2007, as the certificates and the other false documents suggested.  The 2007 dates for the unit certificates were false and misleading.  Mr White did nothing to correct that falsity.  Having regard to his intentions, his instructions to Mr Stride and the implementation of his instructions, ASIC’s case against him in respect of documents 121 and 123 was established irrespective of by whom the handwritten dates were completed.  The finding that Mr White knew when he signed the unit certificates that the documents were being backdated to reflect a transaction in 2007 which did not in fact occur was sufficient to establish his contraventions.

Conclusions in the case against Mr White

  1. [515]
    It will be ordered that Mr White’s appeal be dismissed.  As in Mr King’s case, ASIC filed a cross-appeal, some of which was not pressed at the hearing, and the rest of which was conditional, in the sense that it sought alternative declarations in the event that this Court set aside the findings of dishonesty against Mr White.  Consequently there is no need to consider the cross-appeal.  It will be ordered that the cross-appeal be dismissed.

The case against Mr Hutchings over the false documents

  1. [516]
    ASIC’s case against Mr Hutchings in relation to the false documents was that:
  1. (a)
    he approved, signed or allowed his electronic signature to be affixed to 12 documents (documents 111, 112, 113, 114, 115, 117, 119, 120, 121, 122, 123 and 124);[367]
  1. (b)
    his approval arose from the email he sent to Ms Platts and Ms Watts at 6.34 pm on 6 February 2008; and
  1. (c)
    he signed the documents he was alleged to have signed on or about 6 February 2008.
  1. [517]
    Mr Hutchings’ principal defence at trial was that:
  1. (a)
    he believed in the period from early December 2007 to 21 January 2008 that Mr White had invested the funds for the benefit of PIF, despite numerous requests for information about any such investment;
  1. (b)
    on 21 January 2008 he sent his “escalation email”; and
  1. (c)
    this prompted Mr White to provide information to MFSIM about how the funds had been invested.
  1. [518]
    As to the false documents, Mr Hutchings’ defence was that:
  1. (a)
    the documents were prepared, in the first instance, in order to prompt Mr White into providing information about how the funds had been used; and
  1. (b)
    after 23 January 2008 Mr Hutchings understood that the documents were being prepared for the purpose of regularising investments through a Board ratification process.
  1. [519]
    At the trial Mr Hutchings accepted that the documents were false in their description of events.  They recorded investment processes and procedures as having been followed in November and December 2007 which Mr Hutchings knew had not occurred.  Mr Hutchings’ defence was that he could not have intended that the false documents would be kept as part of the records of MFSIM, let alone that they would be supplied to outsiders, unless and until the ratification process had occurred, and that he believed the ratification process would record that investments were being approved after the fact.  He also relied upon the fact that others knew that the documents were not accurate in that they described investment approval processes as having been followed, and that Mr Hutchings had been involved in those processes, when that was not the case.  His point was that these other people would not have been involved in a dishonest representation of events which had not happened, and nor was he.
  2. [520]
    ASIC’s response was that:
  1. (a)
    Mr Hutchings could not have believed that the $147.5 million had been properly invested by Mr White;
  1. (b)
    the evolution of the false documents demonstrated that they were being prepared in response to a forthcoming audit to try to provide an explanation for the payments, and also to respond to requests by the RBS for details;
  1. (c)
    the creation of the false documents was part of a process of trying to conceal the truth and explain the payments in a way that would satisfy auditors and other parties like the RBS;
  1. (d)
    the documents were not, and never could have been, part of a ratification process because they purported to record things that simply had not occurred and, in any event, false information was being provided to parties such as the RBS well before any “ratification”;
  1. (e)
    the fact that others knew that the documents were false and played a part in their creation and use did not absolve Mr Hutchings of dishonesty over his involvement in their creation, approval, signing and use; and
  1. (f)
    to the extent Mr Hutchings told others about his concerns, he presented the matter as a failure of process and an “oversight” to obtain Board approval for the issuing of units in MYF, when he knew that the transactions being documented in the false documents simply had not occurred in November and December 2007.
  1. [521]
    As to Mr Hutchings’ alleged dishonesty, ASIC’s case was that even if Mr Hutchings was partly motivated by a desire to retrieve the situation for PIF and to obtain some value for its members in respect of the $147.5 million which had been paid away, he was also motivated by a desire to disguise the truth and save himself from being held accountable in allowing the payments to be made and in actually approving the $17.5 million payment when he did not know what, if anything, PIF would receive in return for it.  According to ASIC, irrespective of Mr Hutchings’ interest in creating the false documents as a means of obtaining something of value for PIF, he was nevertheless dishonest in being involved in a process of creating documents which he knew to be false and which disguised the fact that submissions, meetings and transactions simply had not occurred and that $147.5 million of PIF’s money had been used without any authority.

Relevant findings

  1. [522]
    The judge’s findings about the false documents and Mr Hutchings’ involvement in them are to be found in different parts of the Primary Reasons.  Some of the more important findings in relation to Mr Hutchings and the false documents are that, despite his concerns about the misuse of PIF’s money, as evidenced by his “escalation email” of 21 January 2008, he did not tell the Board of his concerns about the misuse of that money at its meeting on 23 January 2008, or at all.  On 23 January 2008 Mr White sent him an email with a list of loans.  Rather than disclose what he knew and his concerns, Mr Hutchings reported to the MFSIM Board that PIF had drawn down the full $200 million from the RBS to fund new loans in the asset backed sector, and that most, if not all, of that sum drawn down would be repaid by the end of January 2008.[368]
  2. [523]
    Mr Hutchings was found to be party to sending information to the RBS in late January 2008 which he knew was false and he knew that the investments recorded in the asset report sent to the RBS had not occurred.[369]  After the RBS was provided in late January 2008 with the list of “PIF loans sourced from the RBS facility as at 31 December 2007”, Mr Hutchings knew that the list differed from the original list of loans, that there had been no IAC consideration or approval for any of the transactions contained in the list, and that there had been no approval for those transactions by the CRPC or the MFSIM Board.  In addition, no units had been issued in MYF and no documents existed which recorded the transactions set out in the list of loans given to the RBS.[370]
  3. [524]
    The primary judge found Mr Hutchings was involved in the creation of the documents, including providing advice to others about their contents, and approved the documents that were sent to him on the afternoon of 6 February 2008.  The primary judge rejected Mr Hutchings’ evidence that his 6.24 pm email did not amount to approval of the documents.  His 6.24 pm email said that the documents captured the refinements required after the original transactions were approved and completed, when he knew that the transactions had not been approved and there had been no earlier completion of them.[371]
  4. [525]
    The primary judge rejected Mr Hutchings’ submission that the loan participation agreements did not require ratification because they were “genuine and enforceable agreements entered into on 5 February 2008”.[372]  The primary judge found that the transactions were not authorised and not properly ratified.[373]
  5. [526]
    As to his ultimate conclusions in relation to Mr Hutchings and the false documents, the primary judge found Mr Hutchings agreed to the preparation and execution of documents in late January and early February 2008 which he must have known were at odds with what had actually occurred in late November 2007.[374]
  6. [527]
    By January 2008 Mr Hutchings considered that MYF’s only investment at that stage was $2.1 million in PacFin notes.  During the period when the false documents were being prepared and finalised, Mr Hutchings was involved in the provision of misleading information to the RBS about the use of the funds drawn from its facility.[375]  His “escalation email”, sent on the Monday after “Black Friday”, was “too little too late”, and could bear the uncharitable interpretation that it had been sent by Mr Hutchings “to cover his own back after the events of Black Friday and before the advent of the auditors”.[376]
  7. [528]
    Of particular relevance in relation to Mr Hutchings’ grounds of appeal are the following conclusions:

[1214] He also knew that there had been no meeting of the IAC on 30 November 2007 recorded in the false documents or an offer of class A units in MYF dated 1 November 2007 purportedly closing on 31 January 2008. He also knew there had been no submission to the IAC for MYF or PIF proposing the issue of 100 million class A units in MYF. Similarly, he was involved in the preparation of the misleading board proposal asserting that there had been IAC approval of an investment plan for PIF to invest in MYF in November 2007 which had not occurred then.

[1215] He signed the loan participation agreements, which on their face appear to have been entered into before 31 December 2007, when no agreement had been reached before February 2008, if at all, as to what loans would be participated in and in what amounts. Those loan participation agreements together with the new loan notice conveyed a false impression of the dates the particular agreements had been reached and documented. I do not accept his case that he was seeking ratification of the transaction at that stage, 5 February 2008. Rather, the documents were drawn as if agreements had been made which were to be presented to the board in that form.”

  1. [529]
    Mr Hutchings submitted that his understanding of ratification was misguided, but not dishonest.[377]  In response, the primary judge concluded:

[1216] I do not accept that someone of his experience could not distinguish between ratification of agreements previously made and the misrepresentation of documents as previously made agreements. It was as clear as day to Mr Hutchings that there had been no such transactions before 31 December 2007 contrary to the impression the documents conveyed.  In approving the papers sent to him by Ms Platts on 6 February 2008, he must have known that they were false.

[1217] The conclusion that he intended that those documents would form an apparently genuine part of MFSIM’s financial books and records is obvious.  That they would become available to the auditors is also clear.  He must have known that, through those documents, the board was being informed that the IAC had considered and approved the transactions in November 2007 when that had not occurred.”

Mr Hutchings’ grounds of appeal in relation to the false documents case against him

  1. [530]
    Grounds 1 – 4 of Mr Hutchings’ appeal relate to the adequacy of the primary judge’s reasons (Grounds 1 and 2) and a complaint that the rule in Browne v Dunn[378] was not followed (Grounds 3 and 4).  In addition, there are numerous specific grounds of appeal which relate to the false documents case.  The principles governing the adequacy of reasons have been discussed above and applied in relation to the case against Mr Hutchings in respect of the $17.5 million payment.  It is unnecessary to repeat at this point the arguments concerning the error in [1219] in relation to the $130 million payment.  Ground 1 is a general complaint that most of the primary judge’s conclusions as to the case against Mr Hutchings and the rejection of his submissions and evidence was comprised in less than two pages, and that the primary judge failed to make findings on material disputed questions of fact and about the majority of Mr Hutchings’ submissions.  Ground 2 of Mr Hutchings’ appeal alleges that the primary judge did not provide an adequate explanation for a number of specific findings.
  2. [531]
    It is appropriate to make some preliminary observations about the adequacy of the reasons in relation to Mr Hutchings in general, and to address the adequacy of the reasons in relation to specific matters in dealing with grounds of appeal which relate to those specific matters.
  3. [532]
    As to Ground 1 concerning the adequacy of the reasons, the structure of the reasons has been addressed.  Events in relation to the creation, approval and use of the false documents, and Mr Hutchings’ involvement in those matters, were largely uncontroversial.  The submissions of the parties in respect of Mr Hutchings and the false documents were summarised by the primary judge at great length, and the primary judge engaged with those submissions in different places.  The fact that he did so and made findings in relation to matters in contention is confirmed by Ground 2 of Mr Hutchings’ appeal which challenges the adequacy of the reasons and the correctness of conclusions made at paragraphs [1022], [1088], [1101], [1103], [1111], [1128], [1132], [1137], [1138], [1152] and [1196].  Mr Hutchings’ submission that the primary judge’s findings and reasoning were essentially confined to paragraphs [1210] – [1221] is not correct.  However, the structure and form of the reasons do not make it easy to identify express findings of fact, as distinct from submissions which recited evidence and facts which were not contested and which therefore may be said to constitute implicit findings.
  4. [533]
    A related issue, which arises in connection with the Browne v Dunn ground of appeal, is the complaint that the primary judge did not give adequate reasons for rejecting aspects of Mr Hutchings’ evidence which were not challenged in cross-examination.  It will be necessary to address these matters in greater detail, including nine matters about which Mr Hutchings’ appeal submissions contend Mr Hutchings was not challenged in cross-examination and which were rejected by the primary judge.  ASIC’s case is that Mr Hutchings was in fact cross-examined on a number of these matters.  As to aspects of Mr Hutchings’ evidence which were not challenged, ASIC submits that:
  1. (a)
    it is wrong to say that the primary judge rejected this evidence, expressly or implicitly; and
  1. (b)
    Mr Hutchings’ evidence about those matters did not answer the case against him and, in that sense, was irrelevant and did not require findings of fact.
  1. [534]
    To the extent that the primary judge rejected Mr Hutchings’ evidence or his submissions about certain evidence, ASIC’s position is that, as [10] of the Primary Reasons made clear, questions of credit were resolved principally by reference to contemporaneous emails and other documents, but also by reference to the primary judge’s notes taken during the hearing.  Mr Hutchings’ conduct and what he knew about purported submissions, meetings and transactions in November and December 2007 was apparent from the contemporaneous documents.
  2. [535]
    Mr Hutchings’ complaints about the adequacy of the primary judge’s reasons, including the general complaint that the primary judge failed to make findings on material disputed questions of fact, and his complaint that inadequate explanation was given for numerous conclusions, are best addressed in relation to specific complaints about certain findings of fact.  However, by way of preliminary observation, a judge is not required to discuss evidence which is unimportant or irrelevant to the matters in dispute.  A judge is required to make findings on material, disputed questions of fact.  In the context of the case against Mr Hutchings in relation to the false documents, there was no dispute that the documents incorrectly recorded purported events and transactions which had not happened, and that Mr Hutchings knew that they were false in these respects.  Mr Hutchings accepted in cross-examination that he knew the documents were false in numerous respects.  Therefore, the primary judge was not required to make detailed findings in relation to Mr Hutchings’ knowledge.  The conclusion at [1211] that Mr Hutchings knew that the documents being prepared and executed in late January and early February 2008 were at odds with what had actually occurred in late November 2007 is uncontroversial.  Mr Hutchings’ submissions in reply on the appeal note that Mr Hutchings never denied that he knew the false documents recorded investment approval processes as having been followed in November 2007 when that had not occurred.  And he accepted at the trial that the alleged false documents purported to record processes which had not been followed and events which had not occurred.  The core of his defence was that he knew that processes had not been followed and communicated that fact to many others.
  3. [536]
    The adequacy of the primary judge’s reasons in relation to the false documents case against Mr Hutchings falls to be determined by reference to disputed questions of fact, not facts about which there was no dispute, such as the course of events in which Mr Hutchings was involved, particularly in late January and early February 2008 when the false documents were created and approved.  Similarly, the extent to which the reasons of the primary judge were adequate in engaging with the submissions of the parties depends upon the identification of submissions which were truly in dispute and relevant to the issues to be decided, not submissions which were not contested.  The extent to which the primary judge accepted or rejected submissions and the extent to which there was an adequate explanation for the conclusions which he reached, either by the adoption of submissions or in reaching conclusions expressed in his own words, cannot be discussed at a level of generality.  It requires consideration in the context of material disputed questions of fact about which the primary judge was required to make findings and contested submissions on matters of substance.
  4. [537]
    It is convenient to deal with the specific grounds of appeal contained in paragraphs 5 – 22 of Mr Hutchings’ Amended Notice of Appeal in a chronological order.

Mr Hutchings’ knowledge of the misuse of the funds (Grounds 12 and 13)

The escalation email

  1. [538]
    Ground 12 centres on Mr Hutchings’ “escalation email” sent at 5.13 pm on 21 January 2008, and the primary judge’s finding at [997] that “one could conclude from it that Mr Hutchings was told in the afternoon of 21 January 2008 that the majority of approximately $200 million of PIF’s funds drawn down from the RBS had not been used to purchase assets for PIF and instead had been invested in a manner in breach of PIF’s PDS.”  Ground 12 contends that the primary judge erred in reaching this conclusion in circumstances where Mr Hutchings gave evidence that he did not have that knowledge, and gave evidence as to his reasons for sending the email (to ensure that the Head of Governance at MFSIM was aware of his concerns).  Ground 12 additionally contends that the primary judge erred in making that finding because he did not “set out any reasons for rejecting Mr Hutchings’ evidence about what occurred during the 21 January 2008 meeting and Mr Hutchings’ submissions about that meeting”.
  2. [539]
    The “escalation email” was sent to Mr White, with copies to Mr Anderson and Ms Kercher.  It read:[379]

Craig,

I have just received some information which I regard with very serious concern and which I believe requires our urgent attention.

1. Contrary to indications over recent weeks, I now understand that the majority approximately $200m drawn down by Premium Income Fund from the RBS facility has not been utilised to purchase assets to replace a similar amount of facilities that are maturing in the next month or so or for assets that would seed the Maximum Yield Fund.  I understand that it may have been invested in a manner which is in breach of the PIF PDS and related party requirements.  I understand that the MFS Board and you may not in the loop on this.

2. I understand from Sue Davis at MPY that the question of that company’s solvency is in question if they cannot draw down on the existing PIF facility over coming weeks.

Considering these issues and the illiquidity of the portfolio, I do not believe the fund will be able to meet redemptions and maintain a $1 unit price without the support of MFS Limited and the repayment of the RBS facility.

Based on this information, as directors and fund managers we genuinely need to urgently consider a course of action that is in the best interests of PIF unit holders.  I do not believe the fund can operate in [sic] this basis.

These are matters I believe need to be advised to Chairman of the MFSIM board as soon as practicable and be involved in this decision.

In the absence of any further information, I believe these may be reportable matters and we should get advice on this.

I am available at any time to discuss this …

Kind regards

Guy Hutchings”

  1. [540]
    Despite the highlighted words used by Mr Hutchings in this email, under cross-examination at the trial he denied that he knew what the email stated he knew.  He sought to explain the email by saying that he had not been told what the email stated, and that it was just a way to try to find out from Mr White what the loans were.  ASIC submitted that this was an obvious lie.  The primary judge accepted this submission, and noted that much of Mr Hutchings’ evidence “was implausible and a number of critical parts were obvious lies”.[380]  His evidence in relation to his escalation email was one such lie.
  2. [541]
    The primary judge’s conclusion in [997] that one could conclude from the email and Mr Hutchings’ cross-examination about it that he had been told on the afternoon of 21 January 2008 that PIF’s funds had not been used to purchase assets for PIF and, instead, had been invested in a manner in breach of PIF’s PDS, was a conclusion that flowed from the terms of the email itself.  That finding followed the plain meaning of the words which Mr Hutchings had used in his email.  The escalation email effectively speaks for itself and proves that by the evening of 21 January 2008 Mr Hutchings knew that PIF’s funds drawn down from the RBS had been misused.
  3. [542]
    The source of Mr Hutchings’ understanding and knowledge, as documented in the highlighted paragraph of his escalation email, is something of a secondary issue.  So is his motivation in sending the escalation email.
  4. [543]
    The primary judge found that Mr Anderson was the most likely source of the information recorded in the email, and this was consistent with “the serious and longstanding difficulties that Mr Hutchings was having obtaining information from Mr White about what had been acquired with the $147.5 million in payments”.[381]
  5. [544]
    Mr Hutchings’ evidence was that Mr Anderson had said at a meeting that afternoon that he “may not be able to make the investments whole immediately”, and that Mr Hutchings sought “concrete assurances that our investors are protected and that assets have been purchased with our funds”.[382]  Mr Hutchings said that he wanted MFS to provide a letter to Lonsec, an agency that rated MFSIM, assuring that MFS would provide all assistance to ensure all PIF redemptions would be paid when due.  According to Mr Hutchings, Mr Anderson said at the meeting that he needed to think about the implications of that.[383]  According to Mr Hutchings, his meeting with Mr Anderson that day was a catalyst for sending the escalation email.  He still had not received a satisfactory explanation about the funds had been used, despite having asked for that information since early December 2007.  He had concerns that the funds had not been used for PIF.
  6. [545]
    The fact of the meeting that afternoon and the opening words of the escalation email (“I have just received some information …”) support the primary judge’s finding that the most likely source of the information was Mr Anderson.  It is possible that Mr Anderson did not say the precise words used in the first paragraph of the escalation email.  However, the terms of the escalation email suggest that what he said led Mr Hutchings to understand that the RBS facility had not been utilised to purchase assets and instead had been used in a manner in breach of PIF’s PDS and related party requirements.  The primary judge’s finding about the likely source of the information in the escalation email was inherently probable, given the terms of the escalation email and that it followed Mr Hutchings’ meeting with Mr Anderson.
  7. [546]
    Mr Anderson’s evidence was that he did not tell Mr Hutchings that the majority of the $200 million RBS facility had not been utilised to purchase assets to replace similar amounts of facilities that were maturing.[384]  However, the primary judge was not required to accept Mr Anderson’s evidence in that regard.  Mr Hutchings’ evidence and submissions that he had not been told, and did not know, the things which his own email recorded did not command acceptance.  It is far more probable that Mr Hutchings recorded the substance of what he had been told that afternoon, than that he made such a thing up as a way to try to find out from Mr White what had happened.  The email was a contemporaneous record of what Mr Hutchings understood, namely that PIF’s funds had been used in breach of PIF’s authority.  It was sent in circumstances in which Mr Hutchings still had not been provided with any evidence that PIF funds had been used to purchase assets for PIF, despite repeated requests by him for evidence and information about such an investment.  Mr Hutchings’ evidence that Mr Anderson told him that he may not be able to make the “investments whole immediately” tended to confirm that PIF’s funds had been used without authorisation and thereby misused, since if they had been the subject of authorised investments in assets the question of returning the funds would not have arisen.
  8. [547]
    Ms Kercher did not give evidence that the escalation email misrepresented the substance of what she and Mr Hutchings had been told that afternoon.  Her evidence was that it was “just prior to or around the time of this email from Hutchings that I first heard that the funds drawn by PIF from the RBS facility may not have been used for the purposes of the PIF fund.”[385]
  9. [548]
    The primary judge’s finding which is challenged in paragraph 12(a) of the grounds of appeal was well-founded in the terms of the escalation email.  The email was compelling, contemporaneous evidence about what Mr Hutchings had been told and understood on the evening of 21 January 2008.  Mr Hutchings’ evidence that he did not know what his own email stated he knew was implausible.  It was open to the primary judge to reach the conclusion he did at [997], notwithstanding Mr Hutchings’ evidence.  It was open to the primary judge to reject Mr Hutchings’ evidence and rely instead on the plain meaning of a contemporaneous document.
  10. [549]
    The important and relevant material fact was what the escalation email revealed about Mr Hutchings’ knowledge of the misuse of PIF’s funds.  Mr Hutchings’ reasons for sending the email are a secondary issue.
  11. [550]
    Mr Hutchings’ evidence was that he sent the escalation email in order to advance PIF’s interests and to make sure “… all relevant people within the organisation, including Kercher as Head of Governance, would be informed and a formal process started to ensure that nothing improper occurred…”[386] and that if something improper had occurred, it would be reported to the appropriate regulatory body.  He stated that he chose to direct the email to Mr White, Mr Anderson and Ms Kercher and that he was attempting to draw “a line in the sand”.[387]  The primary judge was not required to find whether this evidence was an accurate or complete statement of Mr Hutchings’ purposes in sending the escalation email.  This is because it was possible for Mr Hutchings to intend that his email protect both PIF and himself.  If one accepted Mr Hutchings’ evidence as to his purpose, the email was intended to place pressure upon Mr White and Mr Anderson, and to enlist Ms Kercher’s assistance in obtaining information from them and assurances that would protect PIF’s investors.  As matters transpired, Ms Kercher thought that the escalation email “raised alarm bells” about a serious matter and a “serious governance issue”.  As a result, she spoke to some people about the matters raised in Mr Hutchings’ email.  She was assured by Mr White, by Mr Anderson and by Ms Watts that there was nothing about which to be concerned.
  12. [551]
    The escalation email also prompted Mr White and Mr Anderson into dealing with it.  Mr Anderson sent an email to Mr White at 10.12 pm on 21 January 2008 which told him that he needed to talk to Mr Hutchings because Mr Hutchings “could be the bomb that needs diffusing [sic]”.  As the primary judge found, Mr White and Mr Anderson regarded the views which Mr Hutchings had expressed as very serious and potentially devastating for the future of the corporate group.  It was apparent to them that they would have to act quickly to ensure that they developed some sort of explanation for the payments made in November and December 2007.[388]
  13. [552]
    Mr Hutchings’ submissions on this aspect of his appeal addressed the evidence which Mr Hutchings gave about events after he sent the escalation email in which Mr White reassured him and attempted to address his concerns.  This included the provision of a list of loans.  Mr Hutchings also pointed to Ms Kercher’s evidence about receiving the list of loans.  In short, she still thought that the matter needed to be investigated, but thought after receiving the list of loans that the PIF funds were still to be invested for the benefit of PIF.[389]  The extent to which either Mr Hutchings or Ms Kercher should have felt reassured by the provision of a list of loans is not a significant issue.  The more important issue is what Mr Hutchings knew about the improper use or misuse of PIF’s funds.  Importantly, Mr White did not respond to the escalation email by denying that PIF’s funds had been improperly used or that Mr Hutchings’ understanding, as stated in the escalation email, was wrong.  As the primary judge found:

[999] Mr Hutchings’ evidence was then that he was reassured that his concerns about the use of PIF’s funds were not warranted in spite of the extremely serious allegations contained in his email.  But, as ASIC submitted, his evidence discloses no response from Mr White to the central allegation in Mr Hutchings’ email that there had been, in effect, a misappropriation of PIF’s funds.  That was buttressed by the contemporaneous following emails, including one from Mr White to Mr Hutchings on 22 January at 7.04 am where Mr White said nothing to dispute Mr Hutchings’ central allegations about the misuse of PIF’s funds.  The focus was on how the RBS money would be paid back in the short term.”

Conclusion – the primary judge did not err in his finding at [997] (Ground 12(a))

  1. [553]
    The primary judge’s finding in [997] about what Mr Hutchings was told on the afternoon of 21 January 2008 was a finding which flowed from the terms of Mr Hutchings’ escalation email.  Faced with a choice between accepting a contemporaneous document in Mr Hutchings’ own words about what he had just been told and understood and Mr Hutchings’ evidence at trial in which he sought to explain that he had not been told what the email recorded, it was open to the primary judge to prefer the contemporaneous document.  The apparent source of the information was Mr Anderson.  The finding that the escalation email stated what Mr Hutchings had been told and understood necessarily involved the rejection of Mr Hutchings’ evidence to the contrary.  The primary judge did not err in reaching the finding he made at [997].

The adequacy of the reasons for rejecting Mr Hutchings’ evidence and submissions about what occurred at the 21 January 2008 meeting (Ground 12(b))

  1. [554]
    Paragraph 12(b) of Mr Hutchings’ appeal contends that the primary judge did not set out his reasons for rejecting Mr Hutchings’ evidence and submissions about what occurred during the 21 January 2008 meeting.  However, as is apparent from the reasons, the primary judge resolved this issue by reference to contemporaneous emails and the terms of the escalation email in particular.  The obligation to give reasons did not require the primary judge to address every piece of evidence about what was said at the meeting.  Paragraph [996] captured Mr Hutchings’ evidence about what he spoke to Mr Anderson about and [1195] captured Mr Hutchings’ denial that he had been told the things contained in his escalation email.  Given the volume of submissions in relation to subsidiary issues, the primary judge was not required to address each submission in detail.  The present issue was capable of being easily resolved in the manner the primary judge resolved it, by reference to a contemporaneous document and the inherent probability that an email which was sent to Mr Anderson and others captured what had been discussed between Mr Hutchings and Mr Anderson that afternoon.  If it did not, then Mr Anderson’s response surely would have been “I did not provide you with that information, who did?”  In his appeal, Mr Hutchings complains that the primary judge’s reasons did not deal with points made in his closing submissions.  The points were weak ones and it is not incumbent upon a judge to deal with every argument and issue that might arise in the course of such a case.  For completeness, the points can be briefly stated and quickly dismissed.
  2. [555]
    Mr Hutchings pointed to the evidence about what Ms Kercher did after receiving the escalation email and submits that her conduct was fatal to ASIC’s interpretation of the escalation email, as accepted by the primary judge.  He argues that if Mr Anderson had confessed at the meeting to the “misappropriation” of PIF’s funds, then Ms Kercher would not have done the things that she did and would have reported the situation to the Board and ASIC.  However, Ms Kercher did a number of things and involved a number of people after the meeting and after receiving the escalation email.  As matters transpired, she felt assured by what she was later told by Mr White in relation to Mr Hutchings’ concerns.[390]  She was led to believe that assets had been purchased with the RBS facility and her evidence was that she told the chairman of MFSIM, Mr Whateley, that investments had been made by PIF without the proper processes being followed before they were made.[391]
  3. [556]
    Mr Hutchings’ submissions in this regard are premised on the assumption that at the meeting on 21 January 2008 Mr Anderson “confessed” to a “misappropriation of PIF’s funds”.  This was not ASIC’s case and the escalation email did not record that Mr Anderson had confessed to a “misappropriation”.  Instead, the inability of Mr White or Mr Anderson to provide information in relation to what had been done with PIF’s funds, and also what Mr Anderson said, led Mr Hutchings to understand that the use of PIF’s funds had been unauthorised and in breach of PIF’s rules and related party requirements.  One can describe what he understood as involving an improper use of PIF’s funds or simply its misuse.  It is also possible to say that the funds were, in effect, misappropriated by officers of MFS from PIF in order to prop up MFS.  The issue of whether Mr Anderson “confessed” to a “misappropriation” is a distraction.  Instead, what he told Mr Hutchings on the afternoon of 21 January 2008, and what Mr Hutchings knew and did not know as a result of questions he had been asking for a number of weeks, informed or confirmed his view that PIF’s funds had not been used to purchase assets for PIF, and had been used in an unauthorised manner.
  4. [557]
    Next, Mr Hutchings submitted that the evidence of what Mr White and Mr Anderson did after receiving the escalation email, and the primary judge’s finding that the email meant they had to act quickly to ensure that they developed some sort of explanation for the payments[392], are “directly inconsistent with ASIC’s case that Anderson told him during the 21 January 2008 meeting that the funds had been misappropriated”.  Mr Hutchings argued that if that had been said there would have been no point in developing some sort of explanation for the payments.  This argument lacks merit.  There is no inconsistency between the primary judge’s findings about what Mr Hutchings was told on 21 January 2008 and the conduct of Mr White and Mr Anderson soon afterwards.  Again, the primary judge did not find in [997] that Mr Anderson confessed that afternoon to misappropriating PIF’s funds.  This confuses the finding at [997] with the primary judge’s characterisation at [999] that the email alleged, in effect, a misappropriation of PIF’s funds and that Mr White did not dispute the central allegation about a misuse of PIF’s funds.
  5. [558]
    Next, Mr Hutchings’ submissions pointed to evidence about subsequent events and the things that Mr White did to assuage the concerns expressed in the escalation email, including the provision of a “listing of loans”.  However, that evidence does not bear much upon the finding about what Mr Hutchings was told on the afternoon of 21 January 2008 and his understanding at the time that PIF’s funds had not been properly used, but instead had been used in a manner which breached the rules.  Whatever subsequent assurance Mr Hutchings received in the form of the list of loans, as the primary judge found, Mr White said nothing to dispute the central allegation in the escalation email about the misuse of PIF’s funds.  The list of loans also changed.
  6. [559]
    In summary, the evidence about what Ms Kercher, Mr White and Mr Hutchings did after the escalation email was not inconsistent with the finding at [997] about what Mr Anderson told Mr Hutchings on the afternoon of 21 January 2008.
  7. [560]
    In conclusion as to subparagraph 12(b) of Mr Hutchings’ appeal, the primary judge’s reasons for rejecting Mr Hutchings’ evidence and submissions about what occurred at the 21 January 2008 meeting were adequate, being based on the terms of Mr Hutchings’ escalation email.  The evidence of Mr Hutchings which was inconsistent with the email was properly rejected.  The arguments which Mr Hutchings says were not addressed by the primary judge were in relation to peripheral evidence which did not detract from the finding made at [997].  Mr Hutchings’ arguments before the primary judge and repeated on appeal were based upon the false premise that ASIC’s case was that Mr Anderson “confessed” to a “misappropriation”.  The substance of what Mr Anderson told Mr Hutchings or led him to understand appears in the escalation email.  The primary judge was not required to address the false issue of whether Mr Anderson confessed to a misappropriation.

The reasons for sending the escalation email (Ground 13)

  1. [561]
    As noted, the primary judge concluded at [1220] in relation to the escalation email:

“His email of 21 January 2008 was too little too late and can bear the uncharitable interpretation of having been sent by him to cover his own back after the events of Black Friday and before the advent of the auditors.”

  1. [562]
    In Ground 13 of his appeal, Mr Hutchings complains that the holding that the email could bear that uncharitable interpretation was contrary to Mr Hutchings’ evidence and the proposition was not put to him in cross-examination or by the Court.
  2. [563]
    As noted, Mr Hutchings’ reasons for sending the escalation email was a subsidiary, and relatively unimportant issue.  It is possible that Mr Hutchings was motivated in sending the escalation email to protect both himself and PIF by having Mr White and Mr Anderson address the return to PIF of funds which had been misused or to ensure that they were properly invested.  Mr Hutchings was cross-examined about the email.[393]  It was open to the primary judge to conclude that he was not simply motivated by a desire to protect PIF.  Mr Hutchings’ actions were open to the interpretation that, following Black Friday, with the RBS seeking information about what had happened to the money drawn down from its facility, and with the pending arrival of the auditors, something needed to be done urgently to explain to the RBS, the auditors and others what had happened to $147.5 million of PIF’s funds.  As CEO and an officer of MFSIM, Mr Hutchings had a responsibility to explain how he had permitted $147.5 million of investors’ funds to be paid away without anything to show for it in return.  This included the $17.5 million which had been paid with his approval on 27 December 2007, a payment which he knew by 28 December 2007 had been made without proper processes being followed.
  3. [564]
    By 21 January 2008 Mr Hutchings had been seeking information for weeks about what had been done with PIF’s funds, and he had no information or even a document which identified an investment which had been made on its behalf.  It was open to the primary judge to treat as implausible Mr Hutchings’ evidence that the email was just a way to find out from Mr White what the loans were.  Having formed an unfavourable view of Mr Hutchings’ evidence in relation to the escalation email, the primary judge was not required to accept as accurate or complete his evidence about his purposes in writing it.  The observation that the email “could bear” the uncharitable interpretation mentioned at [1220] was justified and the primary judge did not err in making it in circumstances where Mr Hutchings’ evidence did not acknowledge that there was an element of self-protection in sending it.  In circumstances in which Mr Hutchings’ conduct in sending the escalation email was the subject of cross-examination and his evidence in important respects was found to be a lie, the observation at [1220] is unremarkable.  This is particularly the case in circumstances in which Mr Hutchings’ motivations in sending the email may have been mixed and his evidence did not deny some element of self-protection.  All of the evidence pointed to an increasingly desperate effort by Mr Hutchings, Ms Watts and others to find out what had happened to the money.  It would be unreasonable to think that Mr Hutchings, in seeking action in response to his escalation email, was not seeking to protect, at that late stage, both the interests of PIF and his own interests.  If Mr Hutchings had denied some element of self-protection if the point had been specifically put to him, that denial would have been implausible.
  4. [565]
    The primary judge did not err in making the observation which he did at [1220].  Mr Hutchings has not established Grounds 12 or 13 of his appeal.

Knowledge of the Board (Ground 7)

  1. [566]
    This ground alleges that the primary judge erred in a conclusion made at [431].  That paragraph reads:

[431] The board of MFSIM was informed at a board meeting on 23 January 2008 that the full $200 million RBS facility had been drawn down to fund loans in the asset backed sector ahead of the impending maturity of other loans in that sector in January 2008.  It was stated that most if not all of the $200 million would be repaid by the end of January 2008.  Mr Hutchings did not inform the board of the concerns that he had expressed to Mr White and Mr Anderson on 21 January 2008 about the apparent misuse of the moneys drawn down under the RBS facility.”

The conclusion that Mr Hutchings did not inform the Board of the concerns he had expressed about the apparent misuse of PIF’s funds is said to have been in error because of evidence about what Mr Hutchings told Mr Whateley on 31 December 2007, and that Mr Whateley agreed he would speak to Mr White.

  1. [567]
    The evidence of Mr Hutchings was that at a lunch meeting with Mr Whateley on 31 December 2007 he told Mr Whateley that he did not know what investments Mr White had made with the funds drawn down from the RBS facility, and sought Mr Whateley’s assistance in finding out from Mr White how the funds had been used and that it was “an unsatisfactory situation”.[394]  Mr Hutchings’ argument was that he thereby informed Mr Whateley that the “investment approval process” for the use of the funds had not been followed, and that he believed, based on that conversation, that Mr Whateley understood that there had been a failure of the investment approval processes.
  2. [568]
    Mr Hutchings’ submissions about what he told Mr Whateley on 31 December 2007 do not detract from the primary judge’s finding in [431] that Mr Hutchings did not inform the Board on 23 January 2008 of the concerns he had expressed in his escalation email on 21 January 2008 about the apparent misuse of PIF’s money.  Mr Hutchings’ submissions on this point lack merit.  First, speaking to Mr Whateley cannot be equated with informing MFSIM’s Board.  Secondly, Mr Hutchings did not inform the Board when the opportunity arose on 23 January 2008 about what had occurred with respect to the unauthorised use or misuse of $147.5 million of PIF’s money.  Thirdly, what was said to the Board on 23 January 2008 did not even refer to a process failure.  The Board was given to understand that the RBS facility had been drawn down for investments in the asset backed sector.  The Board papers made no mention of the purported transactions that came to be documented, or even the list of loans that Mr White had produced on the morning of 23 January 2008.  Instead, the Board papers stated that “[i]t is expected that most, if not all, of the $200m drawn down from the RBS will be repaid by the end of January 2008”.  Fourthly, even if Mr Whateley was to be treated as some kind of proxy for the entire Board, such that telling him something in a conversation equates to informing the Board, what Mr Hutchings told Mr Whateley did not reflect the concerns expressed in the escalation email and all that Mr Hutchings knew about the apparent misuse of PIF’s money.
  3. [569]
    Mr Hutchings’ submissions about what he told Mr Whateley in their conversation on 31 December 2007, other evidence he gave about his discussions and emails with Mr White, Mr Whateley, Mr Anderson, Mr Kennedy, Mr Corolis (Chief of Risk and Compliance) and Ms Kercher at different times and his submissions about this evidence were to the effect that he believed there had been a “process failure” and told others, including Mr Whateley, about it and that efforts were being undertaken to rectify the situation.[395]  Mr Hutchings’ submissions to the primary judge and on appeal about a “process failure” are at the heart of his defence.  Therefore, it is important to distinguish, in a way which Mr Hutchings’ submissions did not, between:
  1. (a)
    a “process failure” where there has been a failure to follow a process in making an appropriate investment which was assessed to be in the best interests of PIF and its investors; and
  1. (b)
    not making an investment at all.

The misuse of PIF’s funds was in the second category, not a mere “process failure”.  Throughout the relevant period Mr Hutchings, despite repeated requests for information, had no evidence of any investment at all.  It was not simply a case of PIF having made an identified investment without certain processes being followed.

  1. [570]
    As to the extent of Mr Hutchings’ disclosure to Mr Whateley on 31 December 2007, his evidence was to the effect that he told Mr Whateley that he did not know what investments Mr White had made with the funds drawn down from the RBS.  This was, however, to suggest that investments had been made when there is no evidence that the money had been invested at all.  In addition, Mr Hutchings did not disclose to Mr Whateley his own role in approving the payment of $17.5 million of PIF’s funds which had been paid to PacFin a few days earlier.  In speaking to Mr Whateley, he did not frankly disclose his own role in the unauthorised use of PIF’s money or disclose that, so far as he was aware, PIF had obtained nothing in return.
  2. [571]
    In short, the things which Mr Hutchings told Mr Whateley on 31 December 2007 do not call into question the primary judge’s finding in [431] that Mr Hutchings did not inform the Board on 23 January 2008 of the concerns which he had expressed to Mr White and Mr Anderson two days earlier about the misuse of PIF’s funds.
  3. [572]
    There was evidence that after sending his escalation email, Mr Hutchings spoke to Mr Whateley about the email that Mr Hutchings had sent to Mr White, which Mr Hutchings told Mr Whateley raised “some issues about the lack of information about the RBS money”.[396]  Mr Whateley told him that Mr White had “filled him in”.  According to Mr Hutchings, he was relieved when Mr Whateley said he would get involved.[397]  There was evidence that Ms Kercher also told Mr Whateley that PIF’s investment approval processes had not been followed.[398]  However, this evidence falls short of proving that Mr Hutchings informed the Board of the matters contained in his escalation email, let alone all that he knew about the misuse of PIF’s funds.  Mr Hutchings’ affidavit evidence at [386] about his discussion with Mr Whateley after he sent the escalation email did not state that he told Mr Whateley that the $150 million drawn down from the RBS had been misused.  He did not give evidence that he told Mr Whateley, let alone the whole Board, what he stated in his escalation email, namely that the money drawn down had not been used to purchase assets to replace a similar amount of facilities that were maturing in the next few months, and that there had been a breach of PIF’s rules and related party requirements.  Any assurance that Mr Hutchings felt that Mr Whateley was going to “get involved” does not address the challenged finding in [431] that he did not inform the Board when the opportunity arose about what had occurred with respect to the unauthorised use of PIF’s funds.
  4. [573]
    Next, and as noted, the Board was not informed of the apparent misuse of PIF’s money, or even of a process failure, when there was a Board meeting on 23 January 2008.  These matters were not mentioned by Mr White or Mr Hutchings at that meeting.  The Board papers suggested that the RBS facility had been properly used and the amount drawn would be repaid in the next week.
  5. [574]
    The Board papers of 23 January 2008 in describing PIF’s holdings represented that investments had been made in asset backed securities.  The report to the Board for PIF for the period November 2007 to December 2007 presented the table and comments noted at [450] and [451].  The report stated that the $200m drawn from the RBS had been used “to fund new loans in the Asset Backed Sector”.  Nothing which Mr Hutchings or Mr White said to the Board meeting that day qualified that statement.  Yet, it was inconsistent with Mr Hutchings’ concern, as set out in his escalation email.  Nothing that had occurred between the sending of the escalation email and the Board meeting allowed Mr Hutchings to believe that the RBS facility would be repaid by the end of January.  Even if he held that belief, he did not inform the Board on 23 January 2008 that PIF’s funds had been used without authority, had not been used to purchase assets and therefore had been misused.
  6. [575]
    The minutes of the Board meeting held on 23 January 2008 record that the Board accepted the report, and that Mr Hutchings addressed the ability of the fund to meet redemptions.  The minutes record that he noted that “The RBS facility is used to buy assets and expect that the maturity of another asset will repay the drawn down facility in the normal course.”  Mr Hutchings disputes that he said this, and attributes these remarks to Mr White.  Which of them told the Board those things is unimportant.  The relevant point is that Mr Hutchings did not tell the Board about the apparent misuse of $147.5 million drawn upon the RBS facility.  He did not even disclose to the Board a “process failure” whereby $147.5 million of PIF’s funds had been paid away without him or other senior staff of the fund knowing what PIF had received, if anything, in return.
  7. [576]
    In summary, telling Mr Whateley on 31 December 2007 (or on any other occasion) that there had been a failure to follow investment approval processes was not to tell the MFSIM Board about the apparent misuse of $147.5 million of PIF’s money, or even what Mr Hutchings knew and believed.  Mr Hutchings did not tell the MFSIM Board on 23 January 2008 or at any other time that he had no real idea of what PIF had obtained for its money.  The list which Mr Hutchings received on the morning of 23 January 2008 was a hastily cobbled-together list of loans of uncertain value which could not have provided Mr Hutchings with any grounds to believe that the transfer of those loans to PIF would enable it to pay all or most of the RBS facility by the end of January.  The Board was misinformed that the RBS facility had been used to fund investments in the asset backed sector.  The primary judge’s conclusion that Mr Hutchings did not inform the Board of the concerns he had expressed two days earlier about the apparent misuse of $147.5 million of PIF’s money was correct and the primary judge therefore did not err in reaching the conclusion stated in the last sentence of [431].
  8. [577]
    The findings made in [431] relate to the events between 23 January and 6 February 2008.  What Mr Whateley and other members of the Board were later told is not directly relevant to the finding in [431] which is challenged.  However, Mr Hutchings’ submissions on Ground 7 about what Mr Whateley was told and Mr Whateley’s preparedness to “get involved” raise a related matter concerning Mr Hutchings’ failure to raise matters with the Board.  These are relevant to ASIC’s case against him in relation to the creation of false documents.  It is therefore convenient to note at this point that after 23 January 2008 Mr Hutchings did not subsequently inform the Board about the apparent misuse of $147.5 million of PIF’s funds.  On 11 February 2008 the Board was asked by Mr Hutchings to ratify the prior issue of units in MYF and Mr Hutchings said that this should have been presented to the Board in November 2007 for approval, but was not due to an “oversight”.  However, as the primary judge found, this could not have been an oversight as the transactions that came to be documented were not in contemplation in November 2007 and were contrary to what the IAC had agreed on 6 December 2007 were to be the plans for the restructure of MYF.
  9. [578]
    Mr Hutchings’ appeal submissions noted that Mr Whateley acknowledged in his evidence at the trial that when the Board was subsequently asked to ratify the issue of units in MYF, he knew he was being asked to ratify events and transactions after they occurred and that the proper procedures had not been followed.[399]  However, Mr Whateley’s evidence serves to highlight a fundamental problem with Mr Hutchings’ submissions about what Mr Whateley was told.  According to Mr Whateley, he was given to understand that he and the Board were being asked to ratify events and transactions after they occurred.  In fact, the Board was being asked to “ratify” events and transactions which had not occurred.
  10. [579]
    An associated complaint raised in Ground 7 of Mr Hutchings’ appeal related to the primary judge’s disposition of a submission about what should have been apparent to Mr Whateley.  At paragraph [1000], the primary judge stated:

[1000]Mr Withers for Mr Hutchings submitted, however, that it should have been apparent to Mr Whateley at that point, from his conversation with Mr Hutchings, that there was a problem because Mr Hutchings did not know how the $147.5 million had been used.  I am not sure what conclusion favourable to Mr Hutchings I should draw from that.  Emails later that day, ASIC submitted, showed that there was still no clarity about what it was that PIF was said to have acquired with the payments.”

Mr Hutchings submitted that the primary judge erred in failing to make findings about Mr Hutchings’ evidence in relation to Mr Whateley and Mr Hutchings’ submissions on that topic because the primary judge said that he did not understand why that evidence was favourable to Mr Hutchings’ case.

  1. [580]
    The primary judge was entitled to be perplexed by the submission made on behalf of Mr Hutchings about what should have been apparent to Mr Whateley on 23 January 2008.  That submission, and the like submission made on appeal, do not explain how telling some things to Mr Whateley on 31 December 2007 or on 21 January 2008 came close to informing him, let alone the whole Board, of all that Mr Hutchings knew and suspected about the misuse of $147.5 million of PIF’s funds.
  2. [581]
    Even if it was apparent to Mr Whateley that there was a process problem or some other kind of problem that led to Mr Hutchings not knowing how the $147.5 million had been used, it seemingly was not apparent to Mr Whateley from what Mr Hutchings said to him that the $147.5 million had been misused, that PIF had no investments to show for its money and that Mr Hutchings had been a party to the misuse of $17.5 million which was paid away to PacFin without anything apparently being received in return.  Irrespective of what should have been apparent to Mr Whateley at that point, it was not apparent to all of the members of the MFSIM Board as late as 11 February 2008 that $147.5 million of PIF’s funds had been misused.  Instead, Mr Hutchings’ “oversight” email to Board members was apt to mislead them into believing that certain events and transactions had occurred in November 2007 and that, through an oversight, there had been a failure to obtain Board approval to the issue of units in MYF.  In fact, none of the transactions that purportedly occurred in November 2007 had occurred.
  3. [582]
    Some of Mr Hutchings’ submissions in connection with Ground 7 raised matters in relation to the primary judge’s reasons not referring to, and not making findings in relation to, submissions made by Mr Hutchings.  This includes a submission made on behalf of Mr Hutchings and noted at [1070] that on 23 January 2008 Mr Hutchings was told by Mr White that Mr White, Ms Kercher and Mr Corolis were considering whether there were any reportable matters, and that Mr Hutchings was reassured that by then Mr Whateley was involved in the situation.  It is unnecessary to decide whether the primary judge was required to engage with and deal specifically with this submission.  The submission did not detract from the finding at [431] about Mr Hutchings’ failure to inform the Board on 23 January 2008 of his concerns about the apparent misuse of PIF’s funds.  Even if Mr Hutchings felt some assurance that Mr White, Ms Kercher and Mr Corolis were considering whether there were any reportable matters, the suspected misuse of $147.5 million of PIF’s funds was an important matter and he did not report that matter to the Board on 23 January 2008, even to the extent of informing the Board that an investigation was underway in respect of the matter.  Rather than disclose to the Board on 23 January 2008 what he suspected about the misuse of PIF’s funds or even that there had been a serious “process failure”, Mr Hutchings was party to the Board being misinformed about the use of the RBS facility and it being led to believe that the facility would be repaid within a week.  Any failure to specifically address the submission recorded at [1070] does not detract from the conclusion reached at [431].  The fact that Mr White, Ms Kercher and Mr Corolis were considering the matter was not a reason to fail to inform the Board on 23 January 2008 of the matter, and the concerns which Mr Hutchings had raised just two days earlier in his escalation email about the unauthorised use (or misuse) of PIF’s funds.
  4. [583]
    Ground 7 of Mr Hutchings’ submission should be dismissed.

Did Mr Hutchings agree to the false documents?: the “final form” issue (Grounds 8 and 9)

  1. [584]
    The primary judge described how, during the period between 23 January and 6 February 2008 the false documents referred to in the ASIC Statement of Claim were developed and finalised.  He stated “This period culminates with exchanges of emails on 6 February 2008 between Mr Hutchings, Ms Watts, and Ms Platts, where the final form of the false documents is agreed between all parties”.[400]  The relevant evidence has been surveyed earlier.  In relation to the documents which ASIC alleged Mr Hutchings approved, ASIC’s case was that his approval of them, including allowing his electronic signature to be affixed to certain documents, arose from the email he sent to Ms Platts and Ms Watts at 6.34 pm on 6 February 2008.
  2. [585]
    As already noted, ASIC’s pleading against MFSIM and its pleading against each individual defendant contained a paragraph describing a particular document.  Each paragraph pleaded how and when the document came to be created and approved.  For instance, it was alleged that Document 111 (a submission to the IAC for PIF) was approved by Mr Hutchings for use as a final financial record of MFSIM by the email he sent at 6.34 pm.  The pleading also referred to the final form of the document.  Again by reference to Document 111, paragraph 111 of ASIC’s pleading alleged that on 6 February 2008 Ms Watts signed or caused or allowed her electronic signature to be affixed to a document which bore the date 20 November 2007 and which purported to be a submission from her to the IAC.  The pleading contained a hyperlink to that document.  The contents of ASIC’s pleading are summarised in the table appearing earlier in these reasons.
  3. [586]
    In essence, ASIC’s case against Mr Hutchings in relation to the false documents relied upon against him was that Ms Platts sent him documents by email on the afternoon of 6 February 2008 marked as “Final”.  Mr Hutchings’ response at 6.34 pm was that he had no changes to them and he wrote that they “capture the refinements required after the original transactions were approved and completed.”  Leaving aside ASIC’s argument that, in fact, Mr Hutchings knew that there had been no earlier approval or completion of any transactions, its case is that he approved documents which he knew were intended to be final, and that the fact of such approval is not affected by insubstantial or immaterial changes to the documents that were made by Ms Platts and Ms Watts.  At the trial ASIC’s submissions recognised that what it described as “finishing touches” were applied by others after 6 February 2008.
  4. [587]
    Mr Hutchings raised a pleading point before the primary judge and renewed that argument on appeal.  He submitted to the primary judge that there had been no approval by him of the pleaded false documents apart from his electronic signature which, he submitted, was meaningless in the context of the case.  As for his approval which was alleged to have been given by his 6.34 pm email, he argued that ASIC’s pleading was that he “approved documents that did not exist at the time that email was sent”.[401]  The primary judge rejected this view of ASIC’s case against him, whilst noting that the documents that were approved by Mr Hutchings at 6.34 pm were subsequently amended by Ms Platts.  The primary judge accepted that the pleaded documents in respect of Mr Hutchings were the ones signed or approved by him on 6 February.[402]
  5. [588]
    Ground 8 of Mr Hutchings’ appeal argued that the primary judge erred in concluding at [443] and [1065] that “the final form of the false documents” was agreed between the parties on 6 February 2008.  The first point raised in Ground 8 was the pleading point, namely the argument that the false documents pleaded by ASIC did not exist at the time Mr Hutchings was alleged to have approved the “final form” of the documents on 6 February 2008.  Three other points were raised by Ground 8:
  1. (a)
    the documents that he saw on 6 February 2008 were said to be “plainly drafts and would not have appeared to anyone reviewing the records of MFSIM as an apparently genuine record of MFSIM’s transactions”;
  1. (b)
    there was no evidence that Mr Hutchings ever saw the final form of the documents that ASIC pleaded against him and it was not put to him that he did, and
  1. (c)
    the draft documents he saw on 6 February 2008 were never sent to any third party.

The pleading point

  1. [589]
    A reasonable interpretation of ASIC’s pleading is that the documents which Mr Hutchings “approved” were those documents sent to him by email on 6 February, and which he approved at 6.34 pm.  A reasonable interpretation of the pleading is that the documents that were sent to him and approved were then finalised, for example, in the case of Document 111 by Ms Watts signing the document which is identified in paragraph 111(a) of the pleading with a hyperlink to a document identifier.  The primary judge adopted a sensible approach to the interpretation of ASIC’s pleading.  ASIC’s pleading was not that Mr Hutchings approved a document which did not exist at the time he gave his approval, but that he approved documents described as “Final” in the subject line of the email he received.  ASIC’s case concerning the documents which Mr Hutchings was alleged to have approved on 6 February 2008 was reasonably clear from its pleading and the case it presented in its final submissions.  When Mr Hutchings raised the pleading point, the pleading might have been amended and made even more complicated than it already was so as to make abundantly clear what ASIC’s case was in relation to his approval.  Mr Hutchings does not suggest that he would have been prejudiced by an amendment in that regard.  However, the primary judge was correct to approach ASIC’s pleading on the basis he did and not to require it to amend.
  2. [590]
    The case which ASIC presented against Mr Hutchings left it open to him to argue that the documents which he approved on 6 February 2008 were materially different to the ones that were signed, kept, used or provided to third parties so that he was not knowingly concerned in MFSIM’s contraventions in relation to the false documents.

Factual issues in relation to differences between the documents that were approved by Mr Hutchings and the finalised documents

  1. [591]
    Mr Hutchings submitted that there were very significant differences between the documents that are identified in the pleading with a document identifier number and those that were sent to him and approved on 6 February 2008.  He argued that the ones that were sent to him were in draft, incomplete, contained inconsistencies and were often unsigned.  He argued that anyone looking at those documents would have known that they were not intended to be a final record of the subject transactions.  His appeal submissions referred to Document 109 which was said to have contained the date upon which the document had been prepared (27 January 2008).  However, Document 109 was not relied upon in the case against him.  He also makes the point that Document 111, a purported IAC submission dated 20 November 2007, was unsigned in the version sent to him and it envisaged approval by Ms Watts.  However, the final version contained his electronic signature and further details about the investment.  As noted, he relies upon some documents being undated and unsigned when they were sent to him.
  2. [592]
    ASIC responded to Mr Hutchings’ appeal submissions that the differences between the documents were immaterial and that their substance, and the misrepresentations they made, never altered.  It disputed that the documents were in a draft form, and pointed out that they appeared complete on their face.
  3. [593]
    The documents which Mr Hutchings received and approved were the result of a process of drafting, comment and revision, the details of which were particularised and the subject of evidence.  By the time the documents were sent to Mr Hutchings on the afternoon of 6 February 2008, they were described as “Final”.  They did not give the appearance of simply being drafts.  ASIC’s pleaded case is that the documents were created in final form that afternoon.  The present issue is not whether the documents which Mr Hutchings approved were finalised by being signed, dated or subject to inconsequential amendments which would not defeat ASIC’s case.  The issue is whether any changes were of substance or consequence.  Moreover, it would be a remarkable thing if insignificant changes to a final version of a document or the completion of the document by the affixing of a required signature meant that a party who approved the document before those finishing touches were done, and who expected or contemplated such a finalisation process, could deny being concerned in the finalised document.  The issue, then, is whether the changes are of substance.
  4. [594]
    The changes should be seen as “textual rather than substantive”.[403]  Mr Hutchings did not point to any changes of substance.  The fact that the documents were incomplete because some of them had not then been signed or dated does not mean that they were not in a final form awaiting completion.  Mr Hutchings does not contend that he did not expect them to be completed and signed.  His submission that he did not intend the finalised documents to be kept as genuine records of MFSIM is unconvincing.  The evidence supported the conclusion that he approved documents that were presented to him as “Final”.  The inference is that he expected the documents to be signed and, where necessary, dated so that the purpose which he, Ms Watts and Ms Platts had been pursuing would be achieved.  Mr Hutchings has not established that there were significant differences between the documents which he approved and the documents in their fully finalised state.  ASIC is correct that the substance of the documents and the representations they conveyed did not alter.
  5. [595]
    Mr Hutchings’ submissions emphasised how busy he was on 6 February 2008 and how he was under immense pressure at the time.  However, he does not challenge the fact that his email response of 6.34 pm expressly advised that he had no changes to make to the “final” documents and he thought that the papers captured “the refinements required”.  The fact that he was busy tends to suggest that he expected others to put any necessary finishing touches to the documents in terms of formatting, correcting errors and making inconsequential amendments.  In the circumstances, his approval carried with it that there might be those kind of changes and that the documents, in their finalised form, would be kept for their intended purposes.  The documents which Mr Hutchings approved were not, as he contends, “shambolic”.  They were not marked “draft”.  Anyone who viewed them would likely regard them as a genuine record of events and transactions, awaiting the affixing of signatures.  The fact that Mr Hutchings did not see some of the documents in their final form after having approved them is not to the point, since the documents in their final form were not materially different to the documents which he approved.

The third party point

  1. [596]
    Whether the false documents were kept will be addressed in connection with Grounds 14 – 17 of Mr Hutchings’ appeal.  In the context of Grounds 8 and 9, Mr Hutchings dealt with a related point, namely the finding at [1217] that he intended the false documents to form an apparently genuine part of MFSIM’s financial books and records.  The primary judge described this conclusion as obvious, and that it was also clear that the documents would be available to the auditors.  In [1217] the primary judge also concluded that Mr Hutchings must have known that “through those documents, the Board was being informed that the IAC had considered and approved the transactions in November 2007 when that had not occurred”.  The issues relating to Mr Hutchings’ intentions in respect of the documents are distinct from whether he approved them.  However, it is convenient to deal with Mr Hutchings’ challenge to the conclusion at [1217] that the documents would become available to the auditors.  This is because subparagraph (c) of Ground 8 is that the “final form of the false documents” that were agreed by Mr Hutchings and others on 6 February 2008 were never sent to third parties.
  2. [597]
    ASIC’s case was not that the documents in the precise form which Mr Hutchings received them on 6 February 2008 were sent to third parties, such as auditors or the RBS.  Its case was that the documents which he approved and which were finalised and signed in some instances were available to document transactions which, according to the false documents, purportedly occurred in November before or at the time of the payments.  ASIC’s case against MFSIM and against the individuals who were alleged to be knowingly concerned in the contraventions involving the false documents was that the documents were prepared so as to record events that did not occur and which would conceal the true history of events from the auditors, the RBS and others.  ASIC’s case against Mr Hutchings was not that he personally sent the documents he approved to the auditors or other third parties.
  3. [598]
    The genesis of the false documents was a concern to have documents which could be shown to the auditors whose arrival was imminent.  The primary judge’s finding in [1217] was not directly challenged by Ground 8.  However, the primary judge was correct to conclude that it was clear to Mr Hutchings the false documents would become available to the auditors.  Mr Hutchings’ affidavit evidence was that it did not occur to him at the time of Ms Platts’ email on 6 February 2008 that any of the attached documents would be sent to any third party or then form part of MFSIM’s records.[404]  However, this does not detract from the proposition that once he approved the attached documents and the documents were put into a final form they would be available to auditors and others and that, unless some disclaimer was added to them, they would purport to record the events and transactions described in them.  Mr Hutchings’ evidence also was that he was not aware until these proceedings that some of the alleged false documents were in fact provided to the auditors.  However, that evidence is not relevant to the basis upon which he was alleged to have been knowingly involved in MFSIM’s contravention.  He did not have to know that the documents were in fact provided to the auditors in order to have been knowingly concerned in MFSIM’s contraventions on the basis pleaded against him.  The course of events in relation to the creation and approval of the false documents, and Mr Hutchings’ involvement in that process, established that he played his part, with others, in their creation and finalisation, including by signing documents he was required to sign and allowing his electronic signature to be affixed to documents which he approved.  He knew the purpose of the documents was to be a record of transactions and events which had not in fact occurred.  His defence accepted that he knew the documents were false.  His case was that the false documents purported to record events, meetings and processes which had not occurred, but that he believed that the documents would not form part of MFSIM’s records unless and until they were ratified.  According to Mr Hutchings, he believed the transactions were ratified.  Therefore, he expected the documents to form, at some stage, part of MFSIM’s records where they would be available to auditors.
  4. [599]
    Proof that Mr Hutchings was knowingly concerned in MFSIM’s contraventions in respect of certain false documents did not require ASIC to prove that he knew of every factual detail making up the relevant contravention.[405]  It was sufficient to prove that he knew the essential elements of the contravention and had a “practical connection with at least one of the essential elements of the contravention”.[406]  Mr Hutchings had such a connection because of his approval of the final form of documents that were sent to him on 6 February 2008 and that he signed a number of them.
  5. [600]
    He has failed to establish that the primary judge erred in concluding that the final form of the false documents was agreed on 6 February 2008.  ASIC established its pleaded case that he approved the documents that were sent to him that day when he responded to Ms Platts by saying that he had no changes and that the documents captured the required refinements.

The primary judge’s consideration of submissions

  1. [601]
    Ground 9 of Mr Hutchings’ appeal contended that the primary judge erred in failing to consider submissions made by him about the alleged false documents at paragraphs 206 – 214 and 373 – 377 of Mr Hutchings’ closing submissions concerning the documents which were pleaded against him.  His appeal submissions note that he addressed the pleaded documents in detail and assert that his evidence established that the documents ASIC identified in its pleading were very different to those sent to him.  Insofar as those submissions related to the pleading point, it was unnecessary for the primary judge to traverse each document in detail.  The pleading point was correctly rejected.  ASIC’s case did not depend upon proving that the document in its finalised form with the relevant document identifier was in existence when Mr Hutchings gave his approval at 6.34 pm.  None of the examples of differences identified in Mr Hutchings’ appeal submissions suggest that the differences between the documents which he approved and the documents in their finalised form and given a document identifier in the pleading, were differences of substance.  The primary judge considered Mr Hutchings’ submissions on the pleading point and other submissions about the false documents.  The relevant evidence was adequately addressed.

The approval

  1. [602]
    Finally, Mr Hutchings’ appeal submissions raised a further issue about which he made submissions arising from the fact that his email of 6.34 pm responded to Ms Platts’ email of 3.25 pm which attached six documents, not the earlier email which she had sent at 3.21 pm and which attached six other documents which related to MYF.  The submission was made to the primary judge that ASIC did not plead that Mr Hutchings responded to the 3.21 pm email.  This was a weak point and the primary judge was correct to accept ASIC’s submission that he responded to both and this constituted an approval of both sets of documents.[407]  In fact, Mr Hutchings’ own affidavit gave evidence that he replied to each email from Ms Platts on the evening of 6 February 2008 at about the same time.[408]  His second email was in response to Ms Platts 3.21 pm email and said “Please see my previous email”.  Contrary to Mr Hutchings’ submission on appeal which suggests that ASIC was required to put to him in cross-examination that he responded to both emails, Mr Hutchings’ own evidence established this and the primary judge was correct to find this fact.

Conclusion (Grounds 8 and 9)

  1. [603]
    The evidence, including Mr Hutchings’ 6.34 pm email, established that he approved documents that were presented to him as “Final” and that approval was unaffected by immaterial changes to the documents which were to be expected, such as the affixing of signatures and dates.  Mr Hutchings has not demonstrated that there was any significant difference between the documents which he approved and the finalised documents.  That inconsequential changes would be made was to be expected, and, given Mr Hutchings’ evidence about the time pressures he was under and the perceived need to complete the documents, he would not have expected minor changes to occupy his time.  He approved the documents which were pleaded against him and the form of those documents was agreed by him and others on 6 February 2008.
  2. [604]
    Grounds 8 and 9 concerning Mr Hutchings’ approval of the false documents on 6 February 2008 should be dismissed.

Signing of the unit certificates (Grounds 10 and 11)

  1. [605]
    The signing of unit applications and unit certificates has been considered earlier in respect of Mr White’s appeal concerning his signing of those documents.  As for Mr Hutchings, the primary judge found that the unit applications and unit certificates were signed by him.[409]
  2. [606]
    Ground 10 asserted that the primary judge erred in so finding when that issue was in dispute and the originals of those documents were not available for inspection.  However, this ground was not developed in Mr Hutchings’ appeal submissions and is answered by ASIC’s submissions.  Whilst Mr Hutchings said in his affidavit that he could not recall signing the documents, they appeared to contain his signature.  He also said that he could not recognise the handwriting that appeared on the documents, particularly the handwritten dates.  However, in his pleadings he admitted that he signed both documents.  In any case, the primary judge was entitled to draw his own conclusions by comparing a known signature of Mr Hutchings (the one on his affidavit) and the signatures on the documents.  The primary judge found they were “certainly very similar”.[410]  In the circumstances, Ground 10 is without merit.
  3. [607]
    In Ground 11, Mr Hutchings contended that the primary judge erred in failing to address his evidence and submissions that there was no evidence that the documents were dated at the time they were signed and his submission that the handwritten date on the document was not Mr Hutchings’ handwriting.  He sought to make the point that there was no evidence that the applications for units were dated at the time they were signed by him.  The same point applies to the unit certificates.  Similar points have been considered in the context of Mr White’s appeal.
  4. [608]
    As to the application forms, each had the typed date of 23 November 2007 on its first page.  As to the unit certificates, the typed version of each document contains the year “2007”.
  5. [609]
    The critical factual finding of the primary judge, which is not specifically disputed, is that when Mr White and Mr Hutchings signed the unit certificates they “knew that the documents were being backdated to reflect a transaction in 2007 that did not occur then”.[411]  It was put to Mr Hutchings that he placed his signature on each of those documents intending to disguise the fact that no such applications were made in 2007 and that the units were not issued in 2007, as recorded in the unit certificates.[412]
  6. [610]
    The primary judge was not required to find whether it was Mr Hutchings, Mr White or someone else who wrote the handwritten dates near their signatures.  Even if it be assumed that the handwritten dates on the documents were written by someone else, Mr Hutchings’ signature on the documents which bore typed dates of 2007 and his involvement in respect of other documents which were, or were to be, backdated, amply supported the primary judge’s conclusion that he knew the documents were being backdated to reflect a transaction in 2007.  The primary judge’s reasons were not inadequate because they did not address an unimportant issue about handwritten dates on documents which Mr Hutchings and others intended to be backdated.  Ground 11 should be dismissed.

Keeping of false documents (Grounds 14 – 17)

  1. [611]
    Mr Hutchings contended that the primary judge erred in finding that:
  1. (a)
    the documents pleaded by ASIC as false documents were kept by MFSIM as an apparently genuine part of its books and records (Ground 14);
  1. (b)
    the false documents were supplied to the RBS and that he was involved in the supply of false information to the RBS and others (Grounds 14(c) and 15).

He also argues that if the false documents were kept by MFSIM as part of its records, they had to be considered with any other documents that were kept and which ASIC relied upon to prove the documents were false and which constituted a record of how the backdated documents came to be prepared (Ground 16).  Mr Hutchings also challenges the primary judge’s finding that it was obvious that he intended that such documents would form an apparently genuine part of the financial books and records of MFSIM (Ground 17).

Were the false documents kept by MFSIM? (Ground 14)

  1. [612]
    Mr Hutchings asserted that the false documents were not given to or kept by Ms Kercher, who was responsible for maintaining records of transactions, and that the evidence did not establish that the documents were kept on MFSIM’s server.  In response, ASIC pointed to evidence that many of the false documents were in fact kept by Ms Kercher in hard copy folders.  Most of the other documents were held by Mr Fitzgerald, who had obtained the documents as part of his internal audit.[413]  In reply, Mr Hutchings submitted that none of the documents he saw on 6 February 2008 were ever given to Ms Kercher.  However, this misses the point.  The relevant point is that the documents which Mr Hutchings approved were finalised and, where necessary, signed.  ASIC’s final trial submissions identified the various ways in which each false document was kept and the evidence in support of that contention.
  2. [613]
    Ground 14(b) involves a point raised at the trial that there was little or no evidence before the Court about the provenance of the documents, other than they were produced pursuant to a subpoena issued by ASIC.  However, the evidence showed that the documents were retained by MFSIM on its server and the evidence of documents being kept electronically was proved by ASIC in the schedule to its final submissions.  Mr Hutchings makes the point that insofar as documents were recovered from MFSIM’s server, there was no evidence either way as to whether the documents were kept amongst deleted records.  However, this simply means that there is no evidence that they were deleted documents.  The state of the evidence permitted the primary judge to find that the documents were kept by MFSIM as ASIC alleged.
  3. [614]
    ASIC submitted that it is clear that the documents were intended to be kept as part of MFSIM’s records, and were in fact kept either in hard copy folders or electronically.  It poses the question “What other possible reason could there have been for the documents to be prepared if they were not intended to be part of MFSIM’s books and records?”  Mr Hutchings responds that the question was answered in his case by his evidence at trial, namely that the documents were (a) an attempt to obtain information from Mr White about the use of the funds; and (b) to be used in the ratification process.  However, the first aspect does not relate to the documents in their final form, which Mr Hutchings approved and signed.  The issue of Board ratification arises in relation to a subsequent ground of appeal.  However, if Mr Hutchings intended that the documents would form part of MFSIM’s books and records once the Board had ratified certain transactions, he nonetheless intended them to be kept, subject to that proviso.

Supply of false documents and false information to the RBS and others (Grounds 14(c) and 15)

  1. [615]
    The primary judge found at [397] that on 31 January 2008 the RBS sought copies of the loan documents underlying the purported transactions and that the loan participation agreements were subsequently provided to it so as to evidence the purported loan transactions.  There is no challenge to this finding.  Instead, Mr Hutchings seeks to challenge the finding that the false documents were kept by MFSIM as an apparently genuine part of its books and records because there was no evidence that he was aware that the documents were supplied to the RBS or the auditors (Ground of appeal 14(c)).  He also contends that the primary judge erred in holding that as a consequence of Mr Hutchings’ involvement in the preparation of the false documents he was involved in their being kept by MFSIM contrary to the duty imposed by s 286 of the Act to keep financial records, and that the same applied to his involvement in information provided to the RBS, the MFSIM Board and the compliance branch of MFS.[414]
  2. [616]
    These grounds of appeal tend to confuse MFSIM’s contraventions in keeping and using documents, including making them available to auditors and the RBS, and Mr Hutchings’ involvement in those contraventions, including his intention, as found by the primary judge at [1217], that the documents would form an apparently genuine part of MFSIM’s books and records and become available to the auditors.  ASIC’s case was not that Mr Hutchings personally supplied the false documents to the RBS.  It was that he approved certain documents and signed a number of them, intending that the documents form part of MFSIM’s books and records where they would be accessible to auditors and be able to be provided, if requested, both internally to MFSIM’s Board, the compliance branch and others, and externally to the RBS.  MFSIM’s contraventions were established.  As to Mr Hutchings’ involvement and intentions, his involvement in the approval and signing of the false documents has been discussed.  As to his intentions, the documents which he approved on 6 February 2008 were presented to him as final documents.  He knew during the period that the documents were created, reviewed, approved and signed that staff of MFSIM were expecting the arrival of auditors who would require documents to explain the payments.  He knew in January 2008 that the auditors were expected because he received emails which said that they were and that they would expect the payments to be explained.  Many of the false documents were found in the auditors’ file.  The evidence established Mr Hutchings was knowingly concerned in the provision of false documents to the auditors.  As for the provision of false documents to the RBS, the documents provided to the RBS were the same, or substantially the same, as those which Mr Hutchings approved and signed.
  3. [617]
    The point made by Mr Hutchings in Ground 14(c) that he was not aware that the documents were in fact supplied to the RBS or the auditors does not engage with the point that he was knowingly involved in the false documents forming part of MFSIM’s books and records, and did so intending that such documents might be available, if requested by the auditors.  Whether and when he came to know of the actual provision of those documents is unimportant.

Mr Hutchings’ intention (Ground 17)

  1. [618]
    It is convenient at this point to turn to Ground 17 in which Mr Hutchings challenged the finding that he intended that the false documents would form an apparently genuine part of the financial books and records of MFSIM.  Part of his argument on this and other aspects of the case against him was that he would not have intended the documents to form part of MFSIM’s records and to be given to the auditors or the RBS because:
    1. others were involved in the creation of the false documents;
    2. others were aware, because he had told them, that the investment approval processes had not been followed; and
    3. they would not have assented to the RBS and the auditors being misled.

However, the fact that Mr Whateley and some individuals were told about a process failure does not alter the fact that Mr Hutchings and others were involved in creating false documents which they intended would conceal what was described to some as a process failure, and which Mr Hutchings understood to be the unauthorised use of PIF’s funds.

  1. [619]
    The fact that others were involved in the drafting and finalisation of the false documents does not alter Mr Hutchings’ involvement in the creation, keeping and use of the false documents.  Given his time constraints and the matters which he, Mr White and others were required to attend to, the task of preparing the false documents necessarily required the involvement of others.  Some individuals, like Mr Hutchings, knew that the documents were false in that they described an investment approval process as having been followed (including Mr Hutchings’ involvement in those processes) when those processes simply had not occurred.  Mr Hutchings and some others knew that the transactions documented in the false documents had not occurred when they were alleged to have occurred.  Others, including some witnesses called by ASIC, may have been aware of the falsity of the documents in different respects.  Some witnesses were instructed that the transactions had happened but had not been documented at the time.
  2. [620]
    In general, the state of knowledge of other individuals concerning the falsity of the documents is interesting, but does not shift the focus of inquiry which is Mr Hutchings’ knowledge of their falsity, his involvement in the documents being created and kept and his intentions in approving and signing the documents.  Subject to a possible proviso in relation to the Board’s expected ratification of certain transactions, Mr Hutchings clearly knew that the documents were intended to be kept as part of MFSIM’s records where they would form an apparently genuine part of its financial books and records.  He must have known that the documents would be available so that they or the information contained in them would be provided to auditors and other internal and external entities, including the RBS.  It is not to the point that Mr Hutchings did not directly supply the false documents to auditors or the RBS, or that he only found out about the fact that they were so supplied after the event.
  3. [621]
    Paragraph 17(c) of Mr Hutchings’ appeal challenged the finding that he intended that the documents would form an apparently genuine part of MFSIM’s books and records as failing to address the evidence that others knew that the investment approval process had not been followed and the evidence that Mr Hutchings reported some of his concerns to certain individuals.  However, that evidence was not inconsistent with an intention by Mr Hutchings (and others) to maintain the false documents as part of MFSIM’s books and records.  It was precisely because investment approval processes had not been followed, and Mr Hutchings understood that documents were required to explain what would otherwise appear to be a misuse of PIF’s funds, that he and others set about the exercise of creating documents and backdating them.
  4. [622]
    Next, Mr Hutchings challenged the finding that he intended that the documents would form an apparently genuine part of MFSIM’s financial books and records because of the evidence which he gave, including evidence in which he denied that this was his intention.  In reaching a conclusion about Mr Hutchings’ intention, the primary judge was required to draw reasonable inferences about it.  This included the evidence which has been canvassed at length in these reasons about the genesis of the false documents, particularly at a time when the RBS was requesting information on and after 21 January 2008, and at earlier stages in January 2008 when the arrival of auditors was expected.  It includes Mr Hutchings’ knowledge of the expected arrival of the auditors and that documents needed to exist to explain what otherwise would be unauthorised payments totalling $147.5 million.  It included the evidence of Mr Hutchings’ approval of the false documents and his signing most of them.  The evidence overwhelmingly supported the inference that he intended the documents to form an apparently genuine part of MFSIM’s financial books and records.  The conclusion drawn at [1217] that Mr Hutchings had such an intention was supported by a large body of circumstantial evidence and contemporaneous documents.  His denial of having such an intention was properly rejected.  It is apparent from what was said at [10] of the Primary Reasons and from the reasons as a whole that the conclusion which the primary judge reached at [1217] about Mr Hutchings’ intention and his rejection of Mr Hutchings’ denial of having such an intention, was resolved by reference to the contemporaneous documents and the implausibility of Mr Hutchings’ denial.  To the extent that the primary judge did not specifically explain at [1217] that this was his reason for rejecting Mr Hutchings’ evidence, any inadequacy in the reasons does not affect the conclusion reached.  The primary judge did not err in concluding that Mr Hutchings intended that the documents would form an apparently genuine part of MFSIM’s financial books and records.

The documents in conjunction argument (Ground 16)

  1. [623]
    This ground reargued a submission which was noted by the primary judge at [1073] and rejected at [1074].  Mr Hutchings’ argument at the trial was that if the false documents were maintained and kept on a computer server by MFSIM, then other documents, including the emails and other documents which ASIC relied upon to prove that the documents were false, would have been kept as well, being documents that made it clear that the false documents were prepared after the fact.  The other documents would have revealed what happened and how the false documents came to be prepared.  The complete record of documents, including the documents which ASIC relied upon to prove the documents were false, were argued to constitute a complete record available to anyone inspecting them, showing the true position and those persons would not have been misled.
  2. [624]
    This argument was correctly rejected by the primary judge, who observed that the false documents did not need to be used in conjunction with the emails showing how and when they had been created.  They could have been used in isolation, as they were when supplied to the RBS for example.  ASIC defended this finding and submitted that the evidence proved what the primary judge said at [1074].  False documents were provided to external parties without the provision of any of the emails that would have demonstrated their falsity.  Mr Hutchings’ submissions in reply at [57] did not answer this point.  Instead, they noted that the documents which Mr Hutchings approved on 6 February 2008 were not sent to anyone outside of the organisation and that, even if subsequent iterations of those documents were sent to outsiders, this was done without his knowledge and does not evidence that he intended that any of the documents would be kept.
  3. [625]
    Ground 16 is without merit and the primary judge did not err in finding that the false documents kept on the server could be used in isolation, without showing how they came to be created, and that they were in fact supplied in this manner.
  4. [626]
    In summary, the primary judge’s findings in relation to the keeping of false documents and Mr Hutchings’ intention that such documents would form an apparently genuine part of MFSIM’s books and records were not in error.

Section 344 Contravention (Ground 20)

  1. [627]
    The primary judge made declarations that Mr Hutchings contravened s 344 of the Act in that he did not take all reasonable steps to comply with or ensure compliance by MFSIM of its obligation to keep written and financial records that correctly recorded and explained the transactions of MFSIM, as required by s 286 of the Act.  Ground 20 of Mr Hutchings’ appeal is that the primary judge erred in concluding that Mr Hutchings’ contravened s 344 without explaining the basis for rejecting submissions made by Mr Hutchings which, it is argued, should have been accepted.
  2. [628]
    Section 344 provides that a director of a company contravenes the section if they fail to take all reasonable steps to comply with, or to secure compliance with, (amongst others) a provision of Part 2M.2.  That includes s 286, by which a company must keep written financial records that (amongst other things) correctly record and explain its transactions.
  3. [629]
    The disposition of the appeal in relation to the contravention of s 344 closely relates to findings of fact made by the primary judge in relation to Mr Hutchings’ involvement in the false documents, including the finding that documents which he knew to be false would form an apparently genuine part of MFSIM’s records.  ASIC argued that his failure to take all reasonable steps to ensure MFSIM’s compliance with its obligation to keep accurate financial records flows naturally from the findings in relation to his other contraventions and was, as the primary judge found in [1218], inevitable.
  4. [630]
    ASIC’s s 344 case against Mr Hutchings was that a reasonable person in his position would have refused to sign the false documents, not approved them and directed that they not form an apparently genuine part of MFSIM’s books and records.  Its pleaded case also was that he should have directed Ms Watts and Mr Anderson that the financial and written records of MFSIM were to accurately record the transactions.
  5. [631]
    Mr Hutchings’ submissions to the primary judge, as noted at [1139] – [1142], followed submissions in relation to matters which have been earlier addressed.  They include submissions that he did not know that the false documents would be given to anyone outside of MFSIM, that he did not actually know that the documents were being kept in hard copy or on the computer servers, that only some of the false documents contained his signature and that it had not been proved that he approved the false documents.  He also relied upon arguments that he was entitled to rely on others concerned with the retention of documents.  These arguments were repeated at [111] and [112] of Mr Hutchings’ appeal submissions.  The findings made by the primary judge about Mr Hutchings’ approval of the false documents, the existence of his signature on them and his intentions, effectively dispose of Mr Hutchings’ argument that he did not contravene s 344.  While he relied on others to prepare financial statements and was entitled to rely ordinarily upon the Fund Accountant (Ms James) and the Fund Manager (Ms Watts) in relation to preparing financial statements and records of the assets acquired by PIF, these were not ordinary circumstances.  Mr Hutchings was found to have been party to a plan to create false documents, and his submissions did not explain why it was reasonable for someone in his position to intend that false documents form part of MFSIM’s records (being a finding which he has not disturbed).
  6. [632]
    In further support for his argument about the reasonableness of his conduct, he pointed to the chaotic circumstances which existed at the time, his steps to obtain information, his escalation email and the fact that when he received Mr White’s list of loans email and forwarded it to Ms Kercher, he understood that Mr White’s team were going to prepare relevant documentation for ratification.  Whatever the extent of his reliance upon other people to prepare the relevant documentation, it did not reflect a simple transaction whereby certain specified loans were transferred to PIF in accordance with an agreement which was struck in November 2007.  The false documents were developed in consultation with Mr Hutchings, and falsely represented transactions and events which had never occurred.  In consequence, transactions which did occur, namely the November and December payments for no benefit to PIF, were not correctly recorded and explained, contrary to s 286.
  7. [633]
    Mr Hutchings also pointed to the fact that he was aware that Korda Mentha were considering the assets of PIF, that the transactions undertaken with the RBS funds were being investigated by an internal auditor and that Mr Whateley was discussing the matter with Mr White and others.  In short, he argued that he believed that people were addressing issues affecting MFSIM, and also believed that the use of the RBS funds would be the subject of a guarantee to come from MFS.  He argued that, in the light of those circumstances, there was nothing more that he could have done or should have done to act “reasonably”.
  8. [634]
    These submissions are unpersuasive.  Rather than disclose all he knew to auditors, Korda Mentha, the Board and others, he was party to the creation and keeping of false documents which were intended to conceal what had in fact occurred in November and December 2007.  The fact that he was busy in the middle of a corporate collapse, and belatedly tried to obtain something of value for unit holders in PIF in return for the money paid away, did not justify his approval of documents which he knew to be false, signing them and allowing them to be kept as an apparent genuine record of transactions.  Those documents were apt to mislead auditors and others.  He knew the documents were false and it was not reasonable of him to approve and sign them so that they could be used to misinform.
  9. [635]
    The primary judge’s findings of fact in relation to Mr Hutchings’ involvement in the false documents made it inevitable that he would be found to have contravened s 344.  It was unnecessary for ASIC to establish that Mr Hutchings had been dishonest in order to prove his failure to take reasonable steps to ensure that MFSIM kept records that recorded and explained its transactions, as required by s 286 of the Act.  Other findings of fact by the primary judge about Mr Hutchings’ conduct and which, amongst other things, deprived him of a basis to be excused under s 1317S, established that Mr Hutchings acted unreasonably.  The primary judge was not required to repeat earlier findings that established Mr Hutchings’ role in the improper creation and keeping of false documents.  His personal involvement in the preparation of the false documents, in approving them and signing them so as to conceal what in fact happened was completely inconsistent with his duty to take reasonable steps to ensure that MFSIM kept accurate records of its transactions.

Enforceability of agreements (Grounds 5 and 6)

  1. [636]
    At the trial a number of defendants contended that the PIF/PacFin Loan Participation Agreement and the acquisition of 67,500,000 units in MYF were valid agreements or, alternatively, that MFSIM ratified entry into them.  The primary judge considered these “validity submissions” at [681] – [693].  In essence, his Honour concluded that:
    1. there was an absence of actual authority to make the investments purportedly acquired with the $130 million, namely the 67,500,000 units in MYF and the $62.5 million loan participation agreement;
    2. both sides to the purported transactions knew they had not been authorised by MFSIM as the responsible entity for PIF;

and therefore they were ineffective.  The primary judge could not see how the issuing of units could stand when both parties to the transaction must be taken to have known that the payment purportedly made for them was unauthorised.[415]

  1. [637]
    The submissions about ratification were considered at [694] – [716].  The primary judge accepted ASIC’s submission that the Board was misinformed about fundamental matters so that it could not have ratified the transactions with full knowledge of all material circumstances.[416]  This included the failure to inform the Board of the true purpose and nature of the payments and that no consideration then passed to PIF, and allowing the Board to assume that the IAC had considered the matter.  The failure to provide true information to the Board and making material misrepresentations to it meant that the transactions could not be regarded as ones that had been ratified by it.[417]
  2. [638]
    Grounds 5 and 6 of Mr Hutchings’ appeal challenge findings about whether the Loan Participation Agreements and other purported transactions were legally effective and enforceable.  It is important to distinguish challenges to those findings from related points which are the subject of submissions by Mr Hutchings in the context of Grounds 5 and 6.  These concerned different points about whether Mr Hutchings believed that the agreements were effective and enforceable, and whether, in the light of that evidence and the evidence as a whole, he could be said to have acted dishonestly in causing the loan participation agreements and other documents to be kept as an apparently genuine record.
  3. [639]
    Mr Hutchings’ submissions in respect of Grounds 5 and 6 contended that the primary judge erred in finding that:
    1. the transactions were ineffective without ASIC proving that the agreements were “shams” in the sense that they were intended by all parties not to create legal rights.
    2. Mr Hutchings acted dishonestly and contravened the Act in causing the loan participation agreements to be kept as apparently genuine records of MFSIM.[418]
    3. the loan participation agreements, together with the new loan notice conveyed a false impression of the dates the agreements had been reached.[419]
  4. [640]
    As to the first submission, Mr Hutchings argued at the trial that ASIC had to prove that the agreements were “shams”.  The primary judge considered the argument and the meaning of “sham”, and concluded that the sham issue was a “red herring”.[420]  This was because his Honour’s conclusion about ineffectiveness rested upon a lack of actual authority.  It was not necessary to find that the agreements were “shams” in order to conclude that they were legally ineffective.  The primary judge’s finding rested upon the conclusion that the agreements and transactions were not authorised and the parties to them knew that PIF had not authorised the payments in 2007 or properly authorised the purported transactions that were later developed.  ASIC’s argument at trial and on appeal that it did not need to prove that the people later signing the Loan Participation Agreements intended them to be ineffective was correct.  Mr Hutchings’ argument that he intended the agreements to be binding did not engage with the basis upon which the primary judge found that the agreements were ineffective.
  5. [641]
    As to Mr Hutchings’ second submission about his alleged dishonesty in causing the agreements to be kept as an apparently genuine record, it is sufficient to note certain evidence given by him in this context and the arguments raised on that point, and return to them in the context of discussing six alleged flaws in ASIC’s case against him.  Mr Hutchings gave evidence that he was told by Ms Platts that the agreements had been through “legal sign-off”.  He deposed that he believed that the agreements were enforceable and that PIF could rely upon them.  Somewhat inconsistently with his principal position (that he did not intend any of the false documents to form part of the books and records of MFSIM), he agreed under cross-examination that he intended that the Loan Participation Agreements would form part of the books and records of MFSIM, which could be provided to the RBS and the auditors.  He rejected, however, the proposition that the Loan Participation Agreements were to disguise that there had been a breach of PIF’s constitution in respect of the payments.  Based on this evidence, Mr Hutchings submitted that the primary judge erred in concluding that he acted dishonestly in causing the Loan Participation Agreements to be kept as part of MFSIM’s records.  According to his submissions, he could hardly be blamed for holding the view that the agreements were enforceable when they had been drafted by lawyers and there was extensive debate at the trial about their enforceability.
  6. [642]
    ASIC relied in response upon the primary judge’s findings that the individuals involved in the false documents wanted to create documents that apparently had legal consequences, and intended that the apparent transactions should be put in place to hide what had actually occurred, namely the payment of moneys without the provision of proper consideration at the time.[421]  In that regard, the Loan Participation Agreements were drafted in a way to make it appear on their face that they had been entered into prior to 31 December 2007.  ASIC submitted that regardless of Mr Hutchings’ intention as to whether the agreements would be enforceable, he knew that they recorded a version of events that never occurred.  ASIC also relied upon the finding that he intended the documents to be kept by MFSIM.
  7. [643]
    The third of Mr Hutchings’ submissions is that the primary judge erred in finding at [1215] that the Loan Participation Agreements and the New Loan Notice conveyed a false impression of the dates the agreements had been reached and documented.  The primary judge stated that Mr Hutchings signed the Loan Participation Agreements, which “on their face appear to have been entered into before 31 December 2007, when no agreement had been reached before February 2008, if at all, as to what loans would be participated in and in what amounts”.  Mr Hutchings argued that this finding was in error because the agreements were undated.  However, the primary judge did not find that the Loan Participation Agreements were dated.  Relevantly, he found that the agreement was “couched in language that referred to a future flow of funds”.[422]  For example, it provided for PIF to advance the relevant payments on the “Commencement Date” and that was defined to mean the date of execution of the agreement, unless some other date was agreed.  The primary judge’s conclusion that the Loan Participation Agreements conveyed a false impression of the dates they had been reached was supported by the context of other documents, including the IAC paper and the IAC minutes which, as the primary judge found, were plainly calculated to show that certain events had taken place before the RBS drawdown, and that between 23 and 30 November 2007 the decision of the IAC for PIF to enter into the participation agreement and draw down the RBS facility was implemented by Mr White and Mr Hutchings executing the participation loan agreement, after which the RBS facility was drawn down.[423]
  8. [644]
    As ASIC submitted, the existence of the New Loan Notice dated 31 December 2007 is, contrary to Mr Hutchings’ submission, something which strongly suggests that the Loan Participation Agreements were executed some time before that date.  If they had been executed after that date, why was a new loan notice (making variations to the original agreement with effect from 31 December 2007) required?  As the primary judge observed, “Logically it is impossible to amend an agreement as at a particular date if the agreement was not in existence on that date”.[424]  The primary judge was correct to conclude that the new loan notice represented that, as at 31 December 2007, the Loan Participation Agreement had already been entered into.
  9. [645]
    Mr Hutchings advanced another argument as to why the primary judge’s finding at [1215] was in error.  He submitted that the agreements were structured so as to allow for changes to be made in the underlying loan portfolio, even after the Loan Participation Agreements had been signed.  However, that does not detract from the force of the primary judge’s finding at [1215].  It simply means that an agreement which appeared to have been entered into before 31 December 2007 could operate according to its terms in respect of future changes to the loan portfolio.
  10. [646]
    In summary as to Grounds 5 and 6 of Mr Hutchings’ appeal, the primary judge did not err in finding that the transactions recorded in the false documents were ineffective and unenforceable.  The primary judge also correctly concluded that, even if the individuals involved in their creation may have wanted to create documents that apparently had legal consequences, they intended that the apparent transactions should be put in place to hide what actually occurred, namely the payment of moneys without the provision of proper consideration at the time.[425]  The primary judge did not err in concluding that the Loan Participation Agreements conveyed the false impression of having been entered into before 31 December 2007.

Rejection of Mr Hutchings’ evidence about ratification (Ground 19)

  1. [647]
    An important part of Mr Hutchings’ defence was that he did not intend that the false documents would form an apparently genuine part of MFSIM’s books and records because he and others knew that they described an investment approval process which had not been followed and described his involvement in those processes.  His case was that he enlisted the help of others to address a failure of the investment approval process, and saw the solution as ratification of the transactions by the Board, and that the record of the ratification would make it clear that there had been a failure of the investment approval process.  A key argument was that the alleged false documents would not be kept as part of MFSIM’s books and records unless and until the ratification process had occurred, and this would create a record of investments being approved after the fact.
  2. [648]
    Mr Hutchings’ affidavit gave a lengthy explanation about how he thought the documents that were being prepared by Ms Platts and others would be used.  According to his evidence, he understood from an early point in time that the IAC, the Board, or both, would need to ratify the investments which had been made with the funds drawn down from the RBS facility.  He understood that they would “retrospectively approve the transactions, since they had already happened”.  Mr Hutchings’ evidence was that after he received information from Mr White about how the funds had been used, he told Mr Whateley that Mr White had provided the information required to ratify the transactions, and in discussions with Ms Kercher did not understand that there was anything wrong with MFSIM proceeding with the ratification process.  His evidence was that he understood the documents were being prepared in the format that they were in order to properly explain to the Board the actual structure of the transactions and the nature of the investments.  He accepted that (in hindsight) this did not require preparation of documents that should have been prepared at the time and that his understanding of ratification in that regard was misplaced.[426]  He denied that the documents were provided to the Board in order to mislead it into believing that the investment approval process had been followed.  His affidavit evidence was that he did not recall appreciating at the time that some of the documents sent to him by Ms Platts had been given historical dates.  He said under cross-examination that he did not focus on the dates of any documents.  His affidavit evidence was:

“I did not believe the Board was being misled and I believed that had the Board chosen to ratify the transactions, a formal record would have been made in the Board minutes or in correspondence among the directors that the Board was ratifying the transactions after the event because there had been a failure to follow the investment approval process and or administrative failures in connection with the preparation of documentation.”[427]

His evidence was that he believed that the documents required for ratification were being prepared by Mr White and his team, and did not believe that he was required to pay close attention to them.

  1. [649]
    The primary judge outlined the competing submissions of the parties in relation to Mr Hutchings’ evidence about the ratification process.  The primary judge dealt specifically with some submissions and ultimately rejected Mr Hutchings’ evidence about ratification.  An important conclusion appears at [1216]:

“I do not accept that someone of his experience could not distinguish between ratification of agreements previously made and the misrepresentation of documents as previously made agreements.  It was as clear as day to Mr Hutchings that there had been no such transactions before 31 December 2007 contrary to the impression the documents conveyed.  In approving the papers sent to him by Ms Platts on 6 February 2008, he must have known that they were false.”

  1. [650]
    Ground 19 of Mr Hutchings’ Amended Notice of Appeal contended that the primary judge erred at [1216] in rejecting his evidence about ratification of the transactions.  Grounds 1 and 2 of his appeal concerning the adequacy of reasons also arise in this context, and require consideration of Mr Hutchings’ general submission that the primary judge’s reasons do not adequately address his evidence and submissions and explain why the primary judge rejected his evidence, including his evidence about ratification.
  2. [651]
    At the trial Mr Hutchings submitted that ASIC had not “come to grips” with his argument that he would not have intended to disguise the transactions with false documents suggesting that the approval process had been followed, when it was widely known that they had not been.  This included the Board and employees concerned with compliance who knew that investment approval processes had not been followed.
  3. [652]
    At trial Mr Hutchings argued that there were six flaws with ASIC’s case.  ASIC responded to each of the alleged flaws.
  4. [653]
    The first alleged flaw was the one just noted, namely that, according to Mr Hutchings, the Board, management and compliance people knew there had been a failure to follow the investment approval processes with respect to the money.  In response, ASIC argued that none of these people were told that there had been no transaction entered into in November or December 2007.  Instead they were told, in effect, that the paperwork had not kept up with the transactions.  Mr Hutchings’ evidence was that after he received the list of loans from Mr White his position changed about what had happened to the funds and he believed that they had been used in respect of the listing of loans document.[428] ASIC’s case was that Mr Hutchings knew that there were no transactions in November and December 2007, but still went on to participate in the scheme to make it appear as if there had in fact been the transactions that were documented in the false documents.  In addition, ASIC responded that if other people within the organisation knew certain things, their information was limited and the people from compliance were operating on incorrect information about what had occurred.
  5. [654]
    The second flaw in ASIC’s case, according to Mr Hutchings, was that it had not proven that he knew that the funds had not been invested in accordance with PIF’s constitution because after 23 January 2008 and his receipt of the “listing of loans” document, he believed that investments had been made with the money, and his concerns were assuaged.  ASIC responded that Mr Hutchings knew there had been no IAC, CRPC or Board consideration or approval, and that Mr Hutchings had conceded he did not know what investments PIF was going to get for the two payments.  Mr White had almost deliberately avoided explaining what investments PIF was going to get for the two payments, and therefore Mr Hutchings knew that investments had not occurred in accordance with PIF’s constitution and that there had been no restructure of MYF in November 2007.
  6. [655]
    The third flaw contended for by Mr Hutchings in responding to ASIC’s dishonesty argument was that Mr Hutchings intended that the documents be run past the compliance officers.  Again, in response, ASIC’s case was that the compliance section was not told the whole truth and, in any event, neither Mr Kennedy nor Mr Corolis had input into the paperwork.
  7. [656]
    The fourth alleged flaw in ASIC’s dishonesty argument was that there was no benefit for Mr Hutchings to engage in that conduct, apart from a potential benefit to his reputation in not being exposed to the allegation that, as manager of the fund, he failed to ensure that there had been a return to it for the funds paid out.  ASIC’s response was that receiving a benefit was not a prerequisite to a finding of dishonesty, and that he was a man under considerable pressure to conceal the fact that $147.5 million had been paid out for no benefit to PIF at the time of payment.
  8. [657]
    The fifth alleged flaw in ASIC’s dishonesty case was that Mr Hutchings was said to have made no attempt to cover up what had occurred, and that email and other documents remained available to show what had happened.  ASIC’s response was that there was an attempt to cover up what had happened.  This was the purpose of the false documents.  Emails were obtained from a mail server and there was no evidence about whether there had been any attempts to delete them.  Any attempt to delete an email would not have led to its deletion from the archive system.  Further, ASIC argued that incorrect information was provided to the Board and to compliance officers and this was consistent with Mr Hutchings’ attempting to cover up the truth.
  9. [658]
    The final alleged flaw with ASIC’s dishonesty case was the argument that Mr Hutchings was a good witness whose concern was to protect the unit holders and their interests.  ASIC’s response was that much of Mr Hutchings’ evidence was implausible and some critical parts of it, such as his evidence about the escalation email, were obvious lies.  Another was his evidence about the $17.5 million payment and his attempt to resile from having agreed to that payment.  The primary judge accepted that this was a lie.  More generally, ASIC relied on evidence in relation to the $17.5 million payment which, rather than protecting unit holders and their interests, paid away $17.5 million to PacFin in circumstances in which Mr Hutchings did not know what, if anything, PIF was getting for it.  In addition, ASIC relied upon the objective dishonesty of preparing documents relating to substantial payments that reflected matters which Mr Hutchings knew had not occurred.
  10. [659]
    For Ground 19 of his appeal, Mr Hutchings reiterated his submission at trial that ASIC did not come to grips with his arguments recorded at [1172], including that he would not cover up transactions because he had told “everybody he did not know what happened about the use of the funds”.  His case was that at an early stage he simply believed that Mr White had invested the money properly and, after receiving the list of loans, believed that these identified the investment.

The adequacy of the primary judge’s reasons about ratification

  1. [660]
    As to the six alleged flaws in ASIC’s case and ASIC’s response to them, the primary judge’s reasons are not clear as to whether he accepted each of ASIC’s responses.  Some of his express conclusions at [1210] – [1221] are consistent with acceptance of ASIC’s submissions.  Also, the primary judge made various findings in different parts of his reasons that dealt with some of the matters raised in relation to the six alleged flaws.
  2. [661]
    It is unnecessary to repeat findings made by the primary judge in relation to other matters which have a bearing upon the ratification case.  These matters have been dealt with in the context of other specific grounds, including Ground 7 in relation to the information provided to the Board.  In short, the evidence established that Mr Hutchings did not inform the Board at its meeting on 23 January 2008 of his concerns, as expressed in his escalation email, about the misuse of PIF’s money.[429]  Mr Hutchings conceded that he knew that the documents purported to record investment processes and procedures as having been followed and that he had been involved in them, when he knew that these things had not occurred.
  3. [662]
    Mr Hutchings submitted that the primary judge rejected his evidence and extensive submissions about ratification in a single sentence in [1216] in which his Honour held that he did not accept that someone of Mr Hutchings’ experience could not distinguish between ratification of agreements previously made and the misrepresentation of documents as previously made agreements.  It is not correct to say that his evidence and submissions were rejected in a single sentence.  There were other findings.  In the immediate context of [1216] there were important findings about what Mr Hutchings knew, for example, that there had been no meeting of the IAC on 30 November 2007 and no submission to it about the issuing of 100 million units in MYF, and a finding that he was involved in the preparation of a misleading Board proposal asserting that there had been IAC approval of an investment plan for PIF to invest in MYF in November 2007, when no such thing had occurred.[430]  There were also findings concerning his knowledge that the Loan Participation Agreements conveyed a false impression about when those agreements had been reached.[431]  There was the associated finding at [1217] about his intent that the false documents would form an apparently genuine part of MFSIM’s books and records.  In addition, in other parts of the judgment there were findings that Mr Hutchings did not inform the Board of all he knew, including his concerns about the misuse of money, and his involvement in the $17.5 million payment.
  4. [663]
    On the specific issue of the adequacy of the primary judge’s reasons in relation to ratification, the first sentence of [1216] involved an acceptance of ASIC’s submission, as noted at [1190], that the argument that Mr Hutchings was unfamiliar with and misunderstood the ratification process was inconsistent with his role as an experienced fund manager and what he knew.  However, that was not the only basis upon which ASIC argued against acceptance of Mr Hutchings’ evidence and submissions about ratification.  It also relied upon what he knew the Board was being told about the transactions and the contents of his 11 February 2008 email.  ASIC’s most compelling argument about ratification was that Mr Hutchings’ advice to the Board on 11 February 2008 was actively misleading, and not simply the product of a misunderstanding of ratification.  Mr Hutchings knew that additional units in MYF had not been issued in November 2007.  He told the Board that a decision to issue units and an information memorandum, which should have been presented to the Board for its approval in November, was not presented to it at its November meeting through an “oversight”.  ASIC argued that Mr Hutchings knew that there had been no “oversight” and that the transactions had not occurred.  No information memorandum had ever been issued, whereas the date on the information memorandum sent to the Board on 11 February 2008, namely 23 November 2007, suggested that it had.  It was only prepared in February.
  5. [664]
    ASIC’s arguments in this regard, as recorded in [1190] – [1191] of the judgment were not expressly adopted by the primary judge at that point.  However, the second sentence of [1216] and the findings at [1214] that Mr Hutchings:
  • knew that there had been no submission to the IAC proposing the issue of 100 million units in MYF;
  • knew there had been no meeting of the IAC, as recorded in the false documents;
  • was involved in the preparation of a misleading Board proposal asserting that there had been IAC approval of a plan for PIF to invest in MYF in November 2007;

are consistent with an acceptance of ASIC’s case about ratification, namely that Mr Hutchings actively misled the Board into thinking that a decision had been made in November 2007 to issue 100 million additional Class A units, which the Board was now being asked to ratify.

  1. [665]
    The primary judge appears to have accepted ASIC’s arguments on ratification as recorded at [1190] – [1191].  His Honour’s acceptance of those arguments might have been clearer.  However, the findings made, particularly at [1214] and [1216], explained why those submissions were accepted and why Mr Hutchings’ case about his involvement in the Board ratification process was rejected.

Mr Hutchings’ case about ratification

  1. [666]
    Mr Hutchings’ arguments about the adequacy of the primary judge’s reasons in relation to his evidence about ratification and which, in effect, rejected his argument that he had a misguided understanding of ratification, have some force.  In the circumstances, it is appropriate to consider Mr Hutchings’ evidence and submissions about ratification, which have been outlined above, in some greater detail than the primary judge did.
  2. [667]
    A significant problem for Mr Hutchings in this context, and more generally, is his failure to distinguish between a “process failure” in respect of an investment or other transaction that occurred and a transaction that simply did not occur.  One does not need to be a lawyer, an accountant or an experienced fund manager to appreciate the difference.  It simply makes no sense to say that X ratified something that never occurred.
  3. [668]
    Mr Hutchings’ evidence and submissions also require attention to focus upon what he believed the Board was being asked to ratify.  As noted, his evidence was that after learning about the drawdown he believed that Mr White must have caused the funds to be invested and understood from that point that there would be a need for the IAC, the Board, or both, to ratify the investments, by which he meant to “retrospectively approve the transactions, since they had already happened”.[432]  By 21 January 2008 he was still waiting for the requested information about how the funds had been used and, as already discussed, his escalation email is compelling evidence that by 21 January 2008 he understood that the funds had been misused, rather than invested in accordance with PIF’s constitution and PDS.
  4. [669]
    In any case, his argument was that the belated provision of Mr White’s list of loans changed his thinking.  However, the list of loans was simply that and, at best, it suggested a decision by Mr White (and possibly others in senior positions in MFS) to transfer or assign the loans to MFSIM as responsible entity for PIF.  However, if Mr Hutchings understood that a decision of this kind had been made, and that PIF had invested or was to invest in those loans, despite a failure to follow proper processes and the lack of any authorisation to Mr White to make such an investment on behalf of PIF, then the investment and transactions which the MFSIM Board would be required to “retrospectively approve” or ratify would be the transfer of the loans contained in Mr White’s list of loans, as produced on 23 January 2008.  Instead, entirely different transactions, including the purported issuing of 100 million additional Class A units in MYF were developed and documented in the false documents.  As effectively conceded by Mr Hutchings in his appeal submissions, and as found by the primary judge at [1214] –  [1216], Mr Hutchings knew that there had not been the submissions, meetings, decision to issue 100 million units and agreements that the false documents represented.  He did not believe, and could not have believed, that those transactions had occurred.  In particular, he could not have believed that in November 2007 there had been “a decision to issue 100 million additional Class A units through an update information memorandum dated 23 November 2007” (to quote his email to the Board of 11 February 2008).
  5. [670]
    Substantial parts of the parties’ submissions to the primary judge, as recorded in the Primary Reasons, deal with factual issues that have a bearing on a number of aspects of the contraventions alleged against Mr Hutchings.  For example, Mr Hutchings’ “six flaws” arguments and ASIC’s responses to them deal with a variety of issues which are relevant to ASIC’s case that Mr Hutchings did not act honestly with respect to the false documents, particularly in terms of the purpose for which they were created and the misrepresentations that they were apt to convey, and its case that he intended that they would disguise the fact that PIF had not invested in MYF in November 2007.  The primary judge’s consideration of these submissions and his findings about Mr Hutchings’ intent with respect to the false documents are the subject of consideration and findings in numerous parts of the reasons.  The issue in relation to ratification, including whether Mr Hutchings actively misled the Board in his 11 February 2008 email about ratification, cannot be easily isolated from other aspects of ASIC’s case, and the resolution of factual issues about what he knew and believed.  The evidence and concessions about what he knew concerning the falsity of the documents, including that there had been no meetings in November 2007 proposing the issue of 100 million Class A units, is relevant both to the specific issue of ratification and other aspects of ASIC’s case.
  6. [671]
    Ground 19 of his appeal was concerned specifically with the issue of ratification and