Federal Court of Australia

Australian Securities and Investments Commission v Wilson (No 3) [2023] FCA 1009

ORDERS

THE COURT ORDERS THAT:

1.    By 4.00 pm on Monday, 4 September 2023 the parties must submit a consent minute concerning the disposal or further conduct of the proceeding (including as to costs), or if necessary, competing minutes.

2.    Today's hearing is adjourned to 2.15 pm AWST on Wednesday, 6 September 2023.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Table of Contents

REASONS FOR JUDGMENT

JACKSON J:

1    The plaintiff (ASIC) claims that the respondent, Frank Cullity Wilson, contravened s 180(1) of the Corporations Act 2001 (Cth), which imposes statutory obligations of care and diligence on directors and other officers of corporations. ASIC alleges that Mr Wilson breached those obligations when he was Managing Director of a then publicly listed company, Quintis Limited (now called ACN 092 200 854 Ltd) (Quintis). In broad terms, ASIC claims that Mr Wilson failed to tell the board of directors of Quintis (Board) that certain material agreements were going to be terminated, and then that they had been terminated. ASIC also alleges that Mr Wilson failed to ensure that Quintis did not mislead the market about the termination of the agreements. These alleged failures are said to have exposed Quintis to various adverse consequences, including a risk of breaching continuous disclosure requirements. ASIC alleges that in this way, Mr Wilson failed to exercise his powers and discharge his duties with the requisite degree of care.

2    ASIC seeks declarations that Mr Wilson contravened s 180(1), a pecuniary penalty order in respect of all but one of the alleged contraventions, and an order disqualifying Mr Wilson from managing corporations for a period that the court considers appropriate. Mr Wilson defends the proceeding, and denies that he has breached the Corporations Act and denies that ASIC is entitled to any relief.

3    The question of whether Mr Wilson did breach s 180(1) was tried in August, September and October 2021 over 13 days. Also part of that trial was a question that must be answered in the affirmative if the Court is to have power to impose civil penalties: whether any breaches materially prejudiced the interests of Quintis or its members, or were serious, for the purposes of s 1317G of the Corporations Act. But due to an order for a separate question made on 29 October 2020 the question of what penalties or disqualification orders, if any, should be imposed were not part of that trial.

4    In any event, for the following reasons, I have determined that ASIC has not made out any of the contraventions of s 180 alleged against Mr Wilson.

I.    BACKGROUND

5    It is helpful to describe the facts that are relatively uncontentious, in order to provide a framework for the many issues that are contentious.

6    Quintis listed on the Australian Securities Exchange (ASX) on 21 December 2004 and remained listed until it was suspended from official quotation on 17 May 2017. For almost all of that time, it was called TFS Corporation Limited. Its name changed to Quintis Limited on 22 March 2017. In what follows I will refer to it as Quintis, but I will not amend references to it in quotations from the evidence or submissions, where 'TFS' or 'Quintis' may be used interchangeably.

7    Quintis was engaged in the business of the cultivation, sale, distribution, management and ownership of plantations of sandalwood trees. Many of those trees were owned by investors through investment schemes which Quintis managed, and from which it earned management and performance fees. But Quintis also managed and operated its own plantations (through subsidiaries) and extracted sandalwood oil from wood that it harvested. Quintis derived part of its income from the sale of pharmaceutical grade East Indian sandalwood oil (EISO).

8    Mr Wilson was a director of Quintis between 2000 and 2011 and then from 2012 until his resignation on 27 March 2017. He was Executive Chairman from December 2006 to November 2011 and Managing Director from at least September 2015 until 27 March 2017. He was also Quintis's largest shareholder, through his family trust, which during the period material to this proceeding held approximately 13.5% of the issued ordinary shares in the company. Mr Wilson also held over a million Quintis performance rights during the relevant period.

9    Throughout the period relevant to this claim, the Non-Executive Chairman of the Board of Quintis was Dalton Gooding. Other Board members were Julius Matthys, Giovanni (John) Groppoli, Gillian Franklin and Michael Kay. Alistair Stevens was the Chief Financial Officer (CFO). Each of those people gave evidence at the trial.

10    The material agreements I have mentioned were between two American companies that became subsidiaries of Quintis, and Galderma SA, a global dermatology company which is wholly owned by Nestlé. The Quintis subsidiaries were based in Texas; one was called Santalis Pharmaceuticals Inc (Santalis) and the other, ViroXis Corporation (later renamed Santalis Healthcare Corporation) (ViroXis).

11    ViroXis was founded by Paul Castella and his business partner Ian Clements in 2006, originally to commercialise a particular pharmaceutical use of sandalwood oil. Dr Castella was the Chief Executive Officer (CEO) of ViroXis. Santalis was formed in 2010 as a 50/50 joint venture between Quintis and ViroXis for the purpose of commercialising other pharmaceutical and healthcare applications for sandalwood oil.

12    In December 2011, each of Santalis and ViroXis entered into licence and supply agreements with Galderma. There were further iterations of those agreements, the last of which were each styled 'Definitive Supply Agreement' and dated 20 February 2014 (Galderma Agreements). Each of the Galderma Agreements was effectively backed by a further agreement under which Quintis would supply EISO to Santalis or ViroXis for on-supply to Galderma. It was contemplated that Galderma would use the EISO in products with prescription (Rx) or over the counter (OTC) pharmaceutical applications, in particular for the treatment of acne.

13    Towards the end of 2014, Galderma launched a product range branded 'Benzac Acne Solutions'. EISO obtained under the Galderma Agreements was an ingredient in the products. It is not in dispute that Quintis referred to the Galderma Agreements and the Benzac product range in numerous releases to the ASX between February 2014 and February 2017, although the significance of those references is in dispute.

14    On 16 December 2016, Galderma entered into an agreement with Santalis and ViroXis terminating the Galderma Agreements, with effect as of 1 January 2017 (albeit with an option until 1 July 2017 for Galderma to reinstate the agreements) (Termination Agreement).

15    On 22 March 2017, Glaucus Research Group California LLC (Glaucus), a self-described short seller, published a report that was highly critical of Quintis (Glaucus Report). That appears to have led to a drop in Quintis's share price which prompted the ASX to ask Quintis, among other things, whether it was aware of any information concerning it that had not been announced to the market which, if known by some in the market, could explain the recent trading in its shares. Quintis responded referring to the Glaucus Report and its response led to a further query from the ASX dated 24 March 2017 asking, among other things, for the names and any material information about buyers who had been referred to in previous Quintis announcements.

16    On 27 March 2017, Quintis gave a response to the ASX which included a list that was said to be of 'customers Quintis has supplied wood or oil to under multi-year contracts' (27 March Response). Details referable to the Galderma Agreements were included in the list, including a price of US$4,500 per kg and a term of 20 years starting in 2014. On the same day, Mr Wilson resigned as a director and Managing Director.

17    On 9 May 2017, a journalist from the Australian Financial Review called FTI Consulting, a firm managing Quintis's corporate communications, to say that Nestlé had told her they had 'cancelled' the Galderma Agreements. On 10 May 2017, before the market opened, Quintis made an announcement to the ASX which disclosed the termination of those agreements as having taken place on 16 December 2016. Its shares had closed the evening before the announcement at AU$1.07. When the market opened they were quoted at AU$0.85. By the close for the day they were at AU$0.60.

18    On 6 June 2017, Quintis made an announcement to the ASX which included a statement to the effect that it would need to write off an intangible asset of AU$7.9 million relating to the Galderma Agreements which had formed part of a larger balance for intangible assets and goodwill that had been in the company's half year results as at 31 December 2016.

19    In September and November of 2017, representative proceedings were commenced against Quintis in this court (NSD 1568 of 2017 and NSD 1983 of 2017) alleging that the company contravened s 674 of the Corporations Act, which imposes continuous disclosure obligations on listed companies.

20    The Board appointed administrators to Quintis under Part 5.3A of the Corporations Act on 20 January 2018 and receivers and managers were appointed on 23 January 2018.

II.    THE ISSUES

The pleadings and particulars

21    The case that ASIC makes within that framework of uncontentious facts was ultimately pleaded in a Fourth Further Amended Statement of Claim filed on 17 September 2021 (SOC). Mr Wilson initially filed a defence in which he admitted a few uncontentious introductory allegations and relied on the privilege against exposure to penalties so as to avoid pleading to anything else. Pursuant to his claim of privilege, he did not put on any written evidence or notice of evidence before trial. But after ASIC closed its case at trial, Mr Wilson elected to go into evidence and, in accordance with the directions of the court, on 15 September 2021 filed a substituted defence (Defence). The issues that arise from the SOC and the Defence are as follows.

Mr Wilson's duties and responsibilities

22    The SOC sets out certain matters which ASIC says were among Mr Wilson's duties and responsibilities as Managing Director of Quintis. In broad terms these pertain to keeping the Board informed, monitoring matters affecting Santalis's commercial position, prospects and performance and informing the Board of those things, approving public statements and ensuring that they are not misleading, and ensuring that Quintis complies with its disclosure obligations under the Corporations Act and the ASX Listing Rules. Mr Wilson does not admit these duties. Particulars of the bases on which these duties are said to have arisen were provided. ASIC relies on:

(a)    the fact that Mr Wilson was a senior executive officer within Quintis;

(b)    his skills and experience as a director of an ASX listed company, as a businessman and, before that, as managing partner of a law firm specialising in taxation, property and commercial law (these are also pleaded in the SOC but not admitted);

(c)    the monthly written reports to the Board which Mr Wilson gave (providing a basis for the monitoring and reporting duties pleaded);

(d)    the fact that Mr Wilson was one of only two people who were directors of both Quintis and Santalis, and as Managing Director of Quintis received reports directly from Dr Castella as CEO of Santalis (also providing a basis for the monitoring and reporting duties);

(e)    the fact that Mr Wilson had been represented in, at least, Quintis's 2016 Annual Report as being among the company's 'Key Management Personnel' (also providing a basis for the monitoring and reporting duties);

(f)    the fact that Mr Wilson effectively owned approximately 13.5% of the shares in Quintis (providing, for reasons that are not explained, a basis for the duty of selecting matters to be brought to the attention of the Board and of informing the Board of matters affecting the company's commercial position, prospects and performance); and

(g)    the fact that Mr Wilson signed and authorised and approved ASX market announcements (providing a basis for the duties pleaded in relation to market disclosure).

23    The SOC then effectively pleads that Mr Wilson was subject to the obligations of care and diligence in s 180(1) of the Corporations Act. Mr Wilson admits this in so far as it applies to his powers and duties as a director of Quintis.

The Galderma Agreements and Benzac

24    After setting out the relevant terms of the Galderma Agreements, and the fact that Galderma launched the Benzac range in November or December 2014, both of which are largely admitted, the SOC alleges that from 26 February 2014 to 27 March 2017, Quintis made 84 announcements to the ASX which referred to the Galderma Agreements and/or Benzac. Quintis also referred to those things in its annual reports and financial statements for FYE 2014, 2015 and 2016 (this judgment will use the convention 'FYE' to designate financial year ending on 30 June in the relevant year). ASIC alleges that by those various public references, 'Quintis represented to the market that the Galderma Agreements were significant agreements for Quintis and to the long-term value of its business' (SOC para 14B). Mr Wilson does not admit any of these allegations. ASIC has also provided further particulars of the announcements and what they are said to have conveyed. The particulars include a detailed schedule giving particulars of each of the 84 announcements and the passages in them that mentioned Galderma.

25    As to the making of the announcements, and whether they referred to the Galderma Agreements and/or Benzac, I understand Mr Wilson to be putting ASIC to proof. The announcements and reports are matters of public record and, as will be seen, there were frequent references in them to the Galderma Agreements and/or Benzac. But what exactly was conveyed by those public statements, and what significance the asserted representations about Galderma had, were more contentious issues at trial. Mr Wilson's case was based, in part, on the contention that by the time of the termination of the Galderma Agreements in December 2016, and also by the time of the ASX announcement of late March 2017, the Galderma Agreements were not material to Quintis, particularly in light of the fact that no oil sales had been made under the agreements since June 2015. In other words, according to Mr Wilson, whatever the ASX announcements may have said, the reality was that the Galderma Agreements were not very important to Quintis by at least the end of 2016.

The termination of the Galderma Agreements and Mr Wilson's knowledge

26    The SOC goes on to allege that by no later than July 2016, Mr Wilson knew that there was a real possibility that Galderma would seek to end the Galderma Agreements. This goes, not to ASIC's primary case as to breaches of s 180, which I will soon describe, but to an alternative case. That alternative, ASIC contends, leads to the conclusion that Mr Wilson breached the section even if it is not established that he knew that the Galderma Agreements had been terminated.

27    The plea of knowledge in support of the alternative case is particularised by reference to several email chains involving Mr Wilson and reports to the Board that were sent over the course of July to September 2016. In the Defence, Mr Wilson says that by July 2016 he understood that there was a possibility that Galderma would seek to end the distribution of Benzac. He pleads that this understanding was shared by all other directors of Quintis, and otherwise denies the allegation as to his knowledge.

28    Then, the SOC alleges that on 28 November 2016, Galderma told Santalis that it wanted to terminate the Galderma Agreements. This is said to have occurred in a telephone conversation between Dr Castella and Scott McCrea (a senior executive of Galderma) on that day, and to have been followed by an email from Mr McCrea to Dr Castella on 1 December 2016. Mr Wilson does not admit this in the Defence, but did not contest it at trial.

29    What was more contentious was whether, as ASIC pleads, from early December 2016 Mr Wilson knew that Galderma wanted to terminate the Galderma Agreements and was taking steps to do so. Dr Castella is said to have informed Mr Wilson of this in a series of telephone conversations in early to mid-December which are particularised in a schedule to the SOC. The particulars also refer to an email from Dr Castella to Mr Wilson dated 5 December 2016 although, as will be seen, that email only alludes to the issue obliquely, if at all. Mr Wilson simply denies that from early December 2016, he knew that Galderma wanted and were taking steps to terminate the Galderma Agreements.

The first alleged breach of s 180

30    ASIC then pleads that a reasonable director of a corporation in Quintis's circumstances and who occupied the office of Mr Wilson, and had the same responsibilities and knowledge as Mr Wilson, acting with care and diligence as required by s 180(1) of the Corporations Act (whom I will call the hypothetical reasonable director) would have (SOC para 16A):

a.    recognised that the Board would need to:

i.    be kept informed of any steps taken by Galderma to terminate the Galderma Agreements;

ii.    consider what steps Quintis should take at that point in time, including what steps it might be able to take to avoid a termination of the Galderma Agreements; and

b.    taken all necessary steps to ensure that the Board was promptly informed that Galderma wanted and was taking steps to terminate the Galderma [A]greements.

31    In this regard, ASIC expressly relies on Mr Wilson's alleged knowledge of the ASX announcements made between February 2014 and March 2017, of the annual reports and financial statements, and of Galderma's desire and steps to terminate the Galderma Agreements. Mr Wilson's plea to this is to refer to his previous responses to those allegations and to otherwise deny that the hypothetical reasonable director would have recognised the matters and taken the steps that ASIC pleads.

32    The SOC alleges that Mr Wilson failed to inform the Board in early December or at all that Galderma wanted to terminate the Galderma Agreements and was taking steps to do so. Once again, Mr Wilson refers to his previous pleas to the allegations of his knowledge, and to otherwise deny that he failed to inform the Board. ASIC alleges that by reason of the alleged failure to inform, the Board lost the opportunity to take the steps mentioned in the paragraph quoted above. Mr Wilson denies this.

33    Thus is placed in issue the first alleged breach of s 180(1), which is said to have taken place before the Galderma Agreements were actually terminated. ASIC does not, however, seek any civil penalty for this alleged breach. The sole remedy sought is a declaration of contravention.

The second alleged breach of s 180

34    The termination of the Galderma Agreements is alleged to have occurred on 16 December 2016 and is pleaded to have been effective as of 1 January 2017. Mr Wilson does not admit that termination. But at trial he did not contest that the Termination Agreement had been entered into. While he suggested in evidence that Dr Castella (and presumably Mr Clements) entered into it without authority of the board of directors of Santalis (and presumably the board of ViroXis), his case did not rely on that alleged lack of authority, or any assertion that the Termination Agreement was legally ineffective for any other reason.

35    ASIC then alleges that Mr Wilson knew of this termination by February 2017 at the latest. The particulars given for this plea are telephone conversations between Mr Wilson and Dr Castella on 8 December and 15 December 2016, and an allegation that in February 2017, Dr Castella delivered a copy of the Termination Agreement to Mr Wilson prior to a meeting of 'the Board' in Perth. This appears to be referring to the Board of Quintis although, as will be seen, there was also a potentially relevant meeting of the board of directors of Santalis which took place in Perth at around the same time. Mr Wilson denies all this.

36    ASIC then pleads that the hypothetical reasonable director would have (SOC para 19):

a.    recognised that:

i.    the Board would need to determine whether in order to comply with its continuous disclosure obligations it needed to inform the market of the existence of the Galderma Termination Agreement, and to do so in a timely manner;

ii.    if the Board failed to comply with its continuous disclosure obligations in a timely manner it would harm Quintis' reputation, jeopardise market perceptions of Quintis and expose it to the risk of legal and regulatory proceedings being brought against it, including for contravention of section 674(2) of the Corporations Act; and

b.    taken all necessary steps to ensure that the Board was promptly made aware of the execution of the Galderma Termination Agreement.

37    Section 674(2) of the Corporations Act contains an obligation for companies such as Quintis to make continuous disclosure of price sensitive information to the market. Once again, Mr Wilson pleads to this by referring back to his pleaded position on ASIC's allegations as to his state of knowledge and otherwise denying it.

38    ASIC alleges that Mr Wilson did not inform the Board of the execution of the Termination Agreement in February 2017 or at all. Mr Wilson admits this, of course in the context where he denies knowing about the Termination Agreement himself at that time. ASIC alleges that the Board thereby lost the opportunity to determine whether, in order to comply with its continuous disclosure obligations, it needed to inform the market of the existence of the Termination Agreement in a timely manner. Mr Wilson denies this. So arises the issue of the second alleged breach of s 180(1) by Mr Wilson, for which a civil penalty order is sought.

39    It is worth noting that nowhere does ASIC plead that Quintis did breach its continuous disclosure obligations. The allegation is that Quintis's Board lost an opportunity to determine whether it needed to disclose the existence of the Termination Agreement to the market. The question of whether it is open to ASIC to put its case this way - that is, to allege a contravention of s 180 by a director associated with breach of the law by the company without also pleading and proving the company's breach - is addressed later in these reasons. But assuming that it is open, an issue is nevertheless raised as to how likely it is that the continuous disclosure obligations would be breached in these circumstances.

40    It is raised because it is inherent in the plea that the hypothetical reasonable director would have recognised that if the Board (that is, Quintis) failed to comply with its continuous disclosure obligations in a timely manner, it would lead to the pleaded adverse consequences for Quintis. As an abstract proposition that is hardly contentious: if a company fails to comply with the continuous disclosure obligations that are imposed by the Corporations Act and the ASX Listing Rules, and monitored and enforced by ASX and ASIC, the company is exposed to a risk of consequences from the failure to comply. But there can be no breach of a director's duties of care and diligence in particular circumstances if the possibility of a breach of the continuous disclosure obligations in those circumstances is far-fetched or remote. The hypothetical reasonable director will see no need to raise a possibility of that kind with the board. So it is necessary to make, if not a finding of breach of the continuous disclosure obligations, at least an assessment of the seriousness of the risk of breach if the Termination Agreement was not disclosed. While ASIC has made no plea as to how serious the risk must be before the duty of care and diligence is breached, Mr Wilson did not claim to be prejudiced by that. He fought the matter on the basis that there was no breach of the continuous disclosure obligation (specifically, because ASIC had not established that the termination of the Galderma Agreements was price sensitive).

41    It may be that ASIC chose to avoid the need to prove that Quintis breached s 674 because it thought that this would make its case easier, but with respect, any such choice would be problematic. For one thing, it has substituted a well-established standard - that of breach of s 674(2) - for a less defined criterion (indeed, in the way the case is pleaded, an implicit one). But setting that aside, let it be supposed that, by setting the bar for itself lower than proof of an actual breach of s 674, ASIC has made it easier to prove that Mr Wilson breached s 180. Even so, whatever ASIC has thus gained is then lost by the need to assess, not just whether Mr Wilson has breached his duties under s 180, but also the consequences of the breach. Those consequences may be relevant at two points. They are relevant first in determining whether the breach of s 180 was serious or materially prejudicial, so as to meet the criteria for civil penalties imposed by s 1317G. And the second point at which they may be relevant in is determining penalty. The problem is that by eschewing any allegation of actual breach, ASIC removes the Court's ability to proceed on the basis that a breach occurred, even if the elements of a breach were otherwise established. It would not be fair to Mr Wilson if the Court were to make no finding that Quintis did breach s 674, but nevertheless to proceed for the purposes of s 1317G and any later assessment of penalty as if such a breach is established.

42    That conundrum would face the Court in this case (were it to decide that Mr Wilson had the pleaded knowledge). Despite avoiding any allegation of breach of s 674, in its particulars of why the alleged contraventions of s 180 were serious for the purposes of s 1317G, ASIC says that the information that Mr Wilson failed to disclose was 'significant' and that the failure to disclose the existence of the Termination Agreement in a timely manner 'denied the market accurate information' and 'had a distorting effect on the market for Quintis shares' (ASIC particulars 17 September 2021 paras 15(b)(i)(1), 15(c)(ii)(3), 15(d)(ii)(2)). So the Court is invited to make a finding of serious market-distorting consequences by reason of non-disclosure of significant information, and yet cannot proceed on the basis that s 674 is breached. While other findings I have made mean it will not be necessary to grapple fully with these involutions in ASIC's case, they are liable to make the Court's task harder.

The third, fourth and fifth alleged breaches (the 27 March Response)

43    Next, the SOC turns to the 27 March Response which Quintis made to the ASX queries which followed the Glaucus Report. It is alleged that Mr Wilson authorised and approved that response to be sent to the ASX for publication. Mr Wilson admits that Quintis made the 27 March Response and admits that he approved it (it took the form of a letter from him as Managing Director). But, he pleads, all the other directors approved it too. The Defence otherwise denies these allegations, although it is not clear what is left to deny.

44    ASIC pleads that by the 27 March Response, Quintis represented to actual and potential investors that as at 27 March 2017, Galderma was one of its customers, and that it would continue to sell EISO to Galderma at US$4,500 per kg until 2034 (plus CPI capped at 3%). Mr Wilson denies this. Therefore the question of what the 27 March Response conveyed is in dispute.

45    ASIC alleges that the publication by Quintis of the 27 March Response on the ASX announcements platform was conduct 'in relation to a financial product' within the meaning of s 1041H of the Corporations Act, which prohibits misleading or deceptive conduct in relation to a financial product or a financial service. Mr Wilson does not admit this but it was not seriously in dispute at trial. Then ASIC pleads that because Galderma had informed Santalis that it wanted to terminate the Galderma Agreements, and because the Termination Agreement had been executed, the making of the alleged representations 'was conduct that was potentially misleading or deceptive or likely to mislead or deceive' in contravention of s 1041H (SOC para 26). ASIC also pleads (SOC para 27) that the making of a representation that Quintis would continue to sell EISO to Galderma at US$4,500 per kg until 2034 was conduct that was 'potentially misleading or deceptive or likely to mislead or deceive' in contravention of s 1041H because, in essence, the termination of the Galderma Agreements meant that there was no reasonable basis for the representation. Mr Wilson denies all these allegations.

46    I pause to note that the word 'potentially' appears in each of the pleas of misleading or deceptive conduct. As with the continuous disclosure breaches, it is expressly not part of ASIC's case that the 27 March Response was misleading or deceptive (or likely to mislead or deceive) in contravention of s 1041H. ASIC submits that it is sufficient for its case that Mr Wilson breached his duties of care and diligence under s 180(1) if the Court finds that the conduct was only potentially misleading. It follows that I cannot make a finding that the 27 March Response was misleading and then find that Mr Wilson breached his duties by reason of his involvement in that. ASIC did not contend otherwise.

47    At first blush, it appeared (once again) that ASIC may have considered that it would be easier to prove that the 27 March Response was potentially misleading than that it was actually misleading. But ASIC nevertheless does go on to allege that Mr Wilson's alleged conduct in relation to the 27 March Response 'denied the market accurate information by publishing misleading information'. Only, it makes that allegation, not in relation to whether there were breaches of s 180, but in the particulars it gives of why the breaches were serious for the purposes of s 1317G. The Court may still, therefore, be required to make a finding as to whether the 27 March Response was 'misleading' (there is no apparent difference between that and the phrase used in s 1041H, 'misleading or deceptive or likely to mislead or deceive': see Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 198 (Gibbs CJ); Australian Competition and Consumer Commission v SMS Global Pty Ltd [2011] FCA 855 at [31]-[32] (Murphy J)). But it if it does make that finding, the Court will be in the artificial position of being unable to apply it for the purposes of determining whether s 180 has been breached. ASIC has pleaded all the elements of a misleading and deceptive conduct case without pleading that the prohibition on such conduct was contravened. Once again, these intricacies are liable to make the Court's task harder.

48    To return to the survey of the pleadings, ASIC goes on to allege that when Mr Wilson authorised and approved the 27 March Response, he knew that Galderma wanted to terminate the Galderma Agreements, was taking steps to terminate them, and had executed the Termination Agreement. That is based on the earlier allegations that Dr Castella told Mr Wilson of these things in December 2016 and had given him a copy of the Termination Agreement in February 2017. Mr Wilson denies this knowledge.

49    So, ASIC pleads, the hypothetical reasonable director would have (SOC para 29):

a.    taken all necessary steps to ensure that the Board was promptly informed of the execution of the Galderma Termination Agreement prior to the publication of the [27 March] Response to ASX Query; and

b.    would not have authorised and approved the [27 March] Response to ASX Query without also taking all necessary steps to ensure that the execution of the Galderma Termination Agreement was disclosed to the market prior to, or at the same time as, the publication of the [27 March] Response to ASX Query.

50    Once again, it is inherent in this that the potentiality that the 27 March Response was misleading or deceptive was sufficiently serious to have prompted the hypothetical reasonable director to take the pleaded steps to inform the Board and the market.

51    In failing to do these things, ASIC pleads, Mr Wilson engaged in two contraventions of the Corporations Act. First, he authorised and approved the 27 March Response when it was potentially misleading in that it conveyed that Galderma was still one of Quintis's customers. Second, he authorised and approved the 27 March Response which was potentially misleading in that it conveyed that Quintis would continue to sell EISO to Galderma at US$4,500 per kg until 2034. Thus arise the issues about the third and fourth alleged contraventions of s 180(1).

52    At this point ASIC also pleads its alternative case of breach which, it says, can proceed even if the Court does not find that Mr Wilson knew about the Termination Agreement. The alternative case is that the hypothetical reasonable director, with knowledge of the numerous ASX announcements and annual reports and financial statements referring to the Galderma Agreements and Benzac, and knowledge that there was a real possibility that Galderma would seek to end the Galderma Agreements, 'would have taken steps to inform himself as to whether the Galderma Agreements remained on foot before he authorised and approved' the 27 March Response. It is said that Mr Wilson ought to have made enquiries of officers or employees of Santalis, including Dr Castella. Under this alternative case, that is something Mr Wilson did not do, which is the fifth and final alleged breach of s 180(1) of the Corporations Act. Mr Wilson's response to this in the Defence is to repeat his prior pleas about his state of knowledge and to otherwise deny.

The consequences of the alleged conduct

53    ASIC then pleads, and Mr Wilson admits, that Quintis's Board first became aware of the Termination Agreement on 9 May 2017. He also admits the disclosure to the market on 10 May 2017. ASIC pleads the effect of that on the share price, which Mr Wilson does not admit. Mr Wilson similarly admits a subsequent announcement that Quintis made on 6 June 2017 of the write off of AU$7.9 million in an intangible asset relating to the Galderma Agreements in the company's accounts.

54    ASIC's claim in relation to the 27 March Response is then stated to be that the making of the representations said to be contained in it 'exposed Quintis [to] the risk of … legal proceedings being brought against it' (SOC para 36). Mr Wilson does not admit this. ASIC then pleads that by failing to inform the Board of the Termination Agreement and by authorising and approving the 27 March Response, 'Mr Wilson harmed Quintis' reputation, jeopardised market perceptions of Quintis and exposed Quintis to the risk of legal and regulatory proceedings being brought against it, including for contraventions of s 674 of the Corporations Act' (SOC para 36A). Mr Wilson denies this. ASIC relies by way of particulars on alleged adverse market reaction to the announcement of 10 May 2017 and on the fact that two representative proceedings have been commenced against Quintis in this Court for alleged contraventions of s 674.

55    The place that these pleas as to consequences have in ASIC's case is not clear. Paragraph 36, which pleads a consequence of the making of alleged representations, appears to concern the alleged potential breach of s 1041H. Paragraph 36A, which refers to s 674, appears to concern the alleged failures to ensure continuous disclosure, or to give the Board the opportunity to do so. But it is unclear whether these pleas form part of the allegation of breach, or are only part of the alleged consequences of breach for the purposes of s 1317G and assessment of penalty. It will be necessary to return to this in Section VII(9) below.

56    In sum, then, there are five alleged contraventions: one that arose in the lead up to the termination of the Galderma Agreements; one that arose after the agreements were terminated and before the 27 March Response to the ASX; and three that arose as a result of the 27 March Response, one of which is put in the alternative to the other two. ASIC seeks declarations under s 1317E(1) of the Corporations Act in respect of each of these contraventions. That section provides that if the court is satisfied that a person has contravened a civil penalty provision, which s 180(1) is (see s 1317E(3)(a) and first item in the table to the subsection), the court must make a declaration of contravention.

57    There are pleas that each of the alleged contraventions, other than the first (failure to inform the Board that Galderma wanted and was taking steps to terminate the Galderma Agreements), materially prejudiced the interests of Quintis or its members for the purposes of s 1317G(1)(b)(i) of the Corporations Act and was serious for the purposes of s 1317G(1)(b)(iii). Mr Wilson denies those pleas. ASIC has also provided further particulars of these matters, as follows:

(1)    The first alleged breach where a civil penalty is sought - the alleged failure to tell the Board that Galderma had terminated the Galderma Agreements - materially prejudiced the interests of Quintis and its members and was serious because the nature of the information that was not disclosed was significant. This significance is said to be demonstrated by the numerous ASX announcements that Quintis made referring to Galderma and Benzac and by the AU$7.9 million write off on intangible assets after the termination was disclosed. Also, ASIC contends, the 'failure to provide the information left the Board to make their decisions based on incomplete information and deprived the Board of the opportunity to take any appropriate steps', including to determine whether it needed to inform the market of the termination in a timely manner. ASIC alleges that the Board would have announced the status of the Galderma Agreements to the ASX had it been made aware of the Termination Agreement. Once again, inherent in all this is an allegation that the possibility of a breach of s 674 was sufficiently serious to require consideration by the Board.

(2)    ASIC further alleges that this breach of s 180 materially prejudiced the interests of Quintis and its members and was serious because the failure to make timely public disclosure exposed Quintis to legal proceedings for breach of s 674 (the continuous disclosure action) including the two class actions brought in this Court. The breach is also said to have been serious because the failure to make timely disclosure denied the market accurate information and had a distorting effect on the market for Quintis's shares, as evidenced by the 44% fall in the price when the termination was disclosed.

(3)    In relation to the breaches alleged in ASIC's primary (not alternative) case about the 27 March Response, these are said to have materially prejudiced the interests of Quintis and its members and were serious because they potentially exposed Quintis to legal proceedings for misleading conduct, giving false information, and similar breaches of the Corporations Act and the Australian Securities and Investment Commission Act 2001 (Cth) (ASIC Act) in relation to financial products. They are said to have been serious because: the representations contained in the 27 March Response were in response to a written query from ASX; Mr Wilson's actions were deliberate and intentional, because he knew that Galderma intended to terminate the Galderma Agreements or that they had been terminated; and Mr Wilson's actions denied the market accurate information by publishing misleading information.

(4)    Finally, the breach alleged in ASIC's alternative case is said to have materially prejudiced the interests of Quintis and its members and was serious because it exposed Quintis to legal proceedings for the same misleading conduct and similar breaches. It is said to have been serious because the 27 March Response was in response to a written query from ASX and Mr Wilson's actions denied the market accurate information by publishing misleading information.

Outline of the issues

58    The main issues that emerge from the pleadings as just described can be stated as follows:

(1)    What were Mr Wilson's duties and responsibilities as Managing Director of Quintis? That is a question of fact concerning the specific kinds of things Mr Wilson was required to do by reason of holding that office. These duties and responsibilities are not the same as the statutory duty of care and diligence which s 180 of the Corporations Act imposes, and which Mr Wilson admits. But as will be seen they do provide necessary context for assessing whether that statutory duty was breached.

(2)    What was conveyed by the 84 ASX announcements from 2014 to 2017 which mentioned the Galderma Agreements or Benzac, as well as the financial statements and annual reports that mentioned them? That too is a question of fact.

(3)    By December 2016, how important were the Galderma Agreements to Quintis? On ASIC's case, this depends in part on the outcome of the previous issue, because the tenor of that case is that Quintis inflated market expectations by its many announcements, so that any puncturing of those expectations by news of termination of the Galderma Agreements was likely to have a material adverse effect on Quintis's share price. The tenor of Mr Wilson's case on this point, on the other hand, was that by December 2016, the Galderma Agreements were in fact not material to Quintis's commercial position and prospects.

(4)    Did Mr Wilson know by July 2016 that there was a real possibility that Galderma would seek to end the Galderma Agreements? That is against the background that Mr Wilson admits that by July 2016 he and all the other members of the Board did understand that there was a possibility that Galderma would seek to end the distribution of Benzac. It appears that this issue is relevant to ASIC's alternative case, that Mr Wilson breached s 180 of the Corporations Act by authorising and approving the 27 March Response to the ASX without satisfying himself that the Galderma Agreements remained on foot, even if he did not know of Galderma's firm intention to terminate, or of the actual termination.

(5)    Did Mr Wilson find out before the execution of the Termination Agreement that Galderma had told Santalis that it did want to terminate the Galderma Agreements, and was taking steps to do so? This depends on the written and oral communications that Mr Wilson and Dr Castella had in early December 2016. It is common ground that they did communicate during that period, including by telephone, but the content of those communications was a matter of hot dispute.

(6)    Assuming that it is established that Mr Wilson did know of Galderma's intention, would the hypothetical reasonable director with that knowledge have told the Board about that intention, in order that it could consider what Quintis should do at that time, that is, before the Galderma Agreements were actually terminated? Within that issue is the question of what opportunity, if any, the Board lost. Since ASIC is not seeking a civil penalty in relation to the omission to tell the Board about the prospective termination of the Galderma Agreements, no question of material prejudice or seriousness arises.

(7)    By when did Mr Wilson know that the Galderma Agreements had been terminated? Was it by the time of the board meeting in Perth in February 2017 when, according to ASIC, Dr Castella gave Mr Wilson a copy of the Termination Agreement? ASIC alleges that this is the latest that he found out. The SOC also provides particulars of other occasions in which, it appears, it is alleged that he was told. But as will be seen when I come to consider this issue below, those occasions did not end up as part of ASIC's case.

(8)    How likely is it that Quintis would have breached its continuous disclosure obligations, if it had been aware of the termination of the Galderma Agreements and failed to disclose them to the market in a timely manner? That question goes both to the following issue, about what the hypothetical reasonable director would have done, and to the issues about material prejudice and seriousness that arise in the civil penalty context. Given the way ASIC has put its case, if there are gradations of certainty about the answer to this question, that needs to be taken into account. It is not necessarily going to have a clear cut answer informed by binary findings of fact on the balance of probabilities.

(9)    What would the hypothetical reasonable director with knowledge of the execution of the Termination Agreement have done? In particular, would he (this is how the parties referred to the hypothetical reasonable director and so I will do the same) have informed the Board of the termination so that it could consider whether and how it needed to disclose that to the ASX, so that Quintis could fulfil its continuous disclosure obligations? This issue arises in the context of the plea that Dr Castella gave Mr Wilson a copy of the Termination Agreement before a board meeting in February 2017, so the question is what the hypothetical reasonable director would have done upon being informed at that time.

(10)    What did the 27 March Response convey to the market? Did it make representations that as at the time of the response, Galderma was one of Quintis's customers, and that Quintis would continue to sell EISO to Galderma at a certain price until 2034?

(11)    Was the 27 March Response potentially misleading or deceptive because Galderma had informed Santalis that it wanted to terminate the Galderma Agreements and because the Termination Agreement had been executed? As has been said, what is not in issue, and what the Court will not find, is that the 27 March Response was misleading or deceptive in breach of s 1041H of the Corporations Act.

(12)    In light of the resolution of the issues about Mr Wilson's knowledge that have already been described, what would the hypothetical reasonable director with that knowledge have done before authorising and approving release of the 27 March Response, including taking steps to disclose the termination of the Galderma Agreements to the market?

(13)    Returning to ASIC's alternative case, if the hypothetical reasonable director had known only that there was a real possibility that Galderma would seek to end the Galderma Agreements, what enquiries (if any) would that director have made of Santalis in order to be satisfied that the agreements were still on foot before authorising the 27 March Response?

(14)    Broadly, what adverse consequences (if any) did the alleged failure to disclose the termination of the Galderma Agreements, and the release of the 27 March Response, have for Quintis in light of the subsequent disclosure of the termination? Did it harm Quintis's reputation, jeopardise market perceptions of the company, and expose it to regulatory and other legal proceedings?

(15)    In light of the resolution of all these issues, which (if any) of Mr Wilson's five alleged contraventions of s 180 occurred, recalling that the last is put in the alternative?

(16)    Did any contraventions that are found to have occurred materially prejudice the interests of Quintis or its members, or were they serious, for the reasons alleged by ASIC in its particulars? Very broadly (and without distinguishing between the different alleged contraventions at this point) those reasons are that the information about the termination of the Galderma Agreements was significant and should have been disclosed to the market, and that the failure to disclose exposed Quintis to legal and reputational risk, and distorted the market by denying it accurate information. An allegation that Mr Wilson's actions in relation to the content of the 27 March Response were intentional and deliberate is an aspect of this.

III.    THE WITNESSES

59    I will give my general impression of the witnesses. I recorded these impressions during the trial. The content of their evidence and the findings I make about it are contained in subsequent sections.

60    This was a case where each party sought to impugn the credibility of the main witness for the other party, so it will be necessary to address the subject at some length. To be clear, when I speak of credibility in this judgment I mean the believability of the evidence. This can of course be affected by assessments of the honesty of the witness, but it is not necessarily the same thing; it can also refer to other reasons why the evidence of the witness is more or less reliable.

Paul Charles Castella

61    Dr Castella has a PhD in Cell Biology. He founded ViroXis along with his business partner Mr Clements in 2006. As has already been described, ViroXis and Quintis formed Santalis as a joint venture company owned in equal shares in 2010. Quintis acquired both ViroXis and the 50% of shares in Santalis it did not already own in June 2015. From that time on, which is the period most relevant to this proceeding, Dr Castella was employed as CEO and President of both ViroXis (renamed at this time Santalis Healthcare [Inc]) and Santalis (that is, Santalis Pharmaceuticals, Inc.).

62    Dr Castella's evidence was central to ASIC's case. It was to the effect that he told Mr Wilson about the termination of the Galderma Agreements close to the time that he learned of it, so that Mr Wilson was aware of the prospect of termination from early December 2016, and was aware that it had actually happened 'sometime' after the execution of the Termination Agreement on behalf of ViroXis and Santalis on 16 December 2016. Mr Wilson disputes that he was told about the termination. As a result, robust challenges to Dr Castella's credibility were made during cross examination.

63    Dr Castella gave his oral evidence by video link from San Antonio, Texas. It was given over four mornings in Perth, which for him were evenings. The last of those evenings was a short one; the other three ended at about 10.30 pm in San Antonio. The audio-visual quality of the link was good throughout and Dr Castella's reactions were clearly visible on large screens in court and on a screen before me. I could see those reactions better than I could see those of the witnesses who were present in person in the witness box. Despite reservations I held at the time of Australian Securities and Investments Commission v Wilson [2020] FCA 873, I did not perceive that the video link was any obstacle to the ability of senior counsel for Mr Wilson to subject Dr Castella to a rigorous cross examination. As I am about to describe, that cross examination did expose inadequacies in Dr Castella's evidence which significantly undermined ASIC's case.

64    Often, Dr Castella's recollection appeared to be imprecise and he occasionally presented as disengaged from the questions he was being asked. He frequently shuffled around and swayed backward and forward in his chair. His evidence about certain crucial conversations with Mr Wilson was adduced orally in chief and, without guidance from leading questions, was quite vague. He summarised his current impression of the overall import of the conversations, and did not remember specific things that were said. Details that could be inferred from the surrounding correspondence were lacking from his recollection, at least until he was specifically referred to that correspondence.

65    By itself, that is all unremarkable. Dr Castella was being asked to recall conversations which took place some five years previously, of which he had no contemporaneous record, and which did not have the significance for him at the time which they now have in the context of this proceeding. His shuffling and swaying could have been a product of the nerves that inevitably accompany being cross examined in court. Nevertheless, his description of the conversations often lacked conviction, and I formed the impression that he did not have a very strong recollection of them at all.

66    For other reasons, I did not find Dr Castella to be a satisfactory witness. Too often he could not give a simple and straightforward answer to the questions put to him. Rather than answer 'yes' or 'no', or say he did not know, he would respond in an equivocal way, or appear to evade the question, or embark on long and often tangential explanations. He was in the habit of answering questions calling for a yes or no answer with 'Okay'. The cross examiner would sometimes pointedly ask whether he meant to express agreement by that but, understandably, did not do that every time. I was left with the impression that answering that way often reflected Dr Castella's unwillingness to commit to an answer. He was often hesitant about doing so. The following passage from his cross examination is illustrative of his approach throughout much of it (ts 182-183):

And your evidence is, when you said that, this is what you say at 51 of your affidavit:

The mention of TFS in my email was, in fact, a reference to the understanding and general principles of TFS based on my dealings with Mr Wilson.

Is that what you say?---Okay.

Is that what you say today?---That's what's written.

In your affidavit?---Yes.

Is that your evidence?--- ..... TFS - - -

So your email - - -?---Okay, so what's the question?

Well, when you said:

TFS would prefer we buy new oil from them rather than product already sold.

You had no communication from anybody at TFS about that on 28 November or, I put to you, at any other time. Is that correct?---Well, if you're telling me I hadn't spoken to Frank at that point, I would say that was me making a presumption about TFS' interest or TFS' preference.

So you've just made this up, have you, when you say:

TFS would prefer we buy new oil from them rather than product already sold.

You are guessing that that is what TFS's position would be, are you?---I think 'guessing' is the incorrect word.

Predicting?---All right. I think it's a reasonable assumption to make that TFS would prefer oil be bought from them rather than from someone we had previously sold it to and buying it back, so however you want to phrase that.

Well, it's just obvious?---Obvious, yes. Obvious. There you go. Obvious.

All right. It's just - and so it wasn't based on an understanding of the general principles of TFS based on your dealings with Mr Wilson, was it?---I think 'obvious' is a fairly good word. I think it's consistent with all my interactions with Frank, that he would agree with - preferring me to buy oil from them. So what do you want me to say here?

Could the transcript record that there was a substantial delay prior to the provision of that answer by the witness …

67    As the cross examiner noted, Dr Castella paused for a very long time before giving the final answer in this passage. More broadly the impression given in the passage, and much of Dr Castella's other evidence, was of someone who was reconstructing the narrative as he went along, based on what was put to him or what he thought was likely, rather than someone remembering what had occurred.

68    Dr Castella also presented as someone who was unwilling to commit to that narrative. For example, he frequently responded to cross examination about details such as telephone calls by asking what the call logs showed. It is unrealistic to expect any ordinary person to remember precise details of telephone calls held several years ago, unless they were especially significant for the person. But Dr Castella purported to recall them in his affidavit, yet in his oral evidence he consistently sought to defer to written records such as logs of telephone calls made, about which calls he appeared to have no actual knowledge. On a number of occasions, Dr Castella would respond to questioning by saying, for example, 'if that's what the calls show then that's … what happened' (ts 180), or, in response to a question on whether he recalled a decision being made regarding his margin loan, '[n]ot specifically, but if you say so' (ts 277).

69    Dr Castella's cross examination also exposed inadequacies in the affidavits that had been prepared for him and that he had affirmed. For example, at paragraph 79 of his first affidavit (PC1) (which paragraph was not formally read into evidence, but came out in cross examination), Dr Castella said that he gave a hard copy of the Termination Agreement to Mr Wilson before a Quintis Board meeting in Perth, but in his oral evidence he said it was before a Santalis board meeting, also held in Perth, two days before the Quintis meeting. While nothing in particular turned on the difference, it is regrettable that Dr Castella and those drafting the affidavit were so imprecise about an occasion that was of crucial importance in his evidence.

70    Dr Castella sometimes came up with new details on important matters during cross examination that were not mentioned in the affidavits. For example, it emerged that, according to him, Mr Wilson had not only told him on 1 December 2016 that he did not want to be sent any copies of the Termination Agreement, which was in his first affidavit, but also that prior to that, Mr Wilson had somehow conveyed that he was 'circumspect' about the types of information that should be communicated to him by email about the Galderma arrangements, including a specific detail about a US$2,477 per kg rebate. That was not mentioned in his affidavits. I accept that new details can come to a person during cross examination which do not come to mind when preparing an affidavit, and I do not consider that it necessarily means that either the affidavit or the subsequent recollection is fabricated. When asked why he did not put certain material in his affidavit in 2018, Dr Castella responded that he would have 'If it had occurred to me' (ts 202). But the frequency with which Dr Castella revealed new details in oral evidence or altered the story he had presented in his affidavit reflected poorly on the reliability and completeness of the affidavits and, potentially, on the reliability of the oral evidence.

71    However Dr Castella's level of engagement with the questioning, and his level of conviction, increased markedly when he was subject to direct challenge in cross examination. It was put to him that he had concealed a number of matters from Mr Wilson. Each time he replied clearly and robustly that he had told Mr Wilson of the matters. It was put to him that he was a liar and a con man. He appeared unperturbed by those accusations and refuted them clearly. He expressed exasperation with the notion that Quintis personnel, including Mr Wilson and Mr Gooding, did not know about the termination of the Galderma Agreements before May 2017, and his exasperation appeared genuine.

72    On occasion Dr Castella was prepared to concede that he had not behaved irreproachably; for example he accepted that his failure to tell the boards of Santalis and Quintis about the rebate on EISO sold to Galderma could have resulted in those boards being misled. In general I found that candour enhanced the credibility of his evidence. He accepted that he had followed instructions from Mr Wilson which led him to conduct aspects of Santalis's business in an irregular way. While this was less than honest, it was not, in my view, the 'gross dishonesty' which senior counsel for Mr Wilson put to Dr Castella. It was a truthful account of Dr Castella's complicity in what was (in his account) the withholding of the termination of the Galderma Agreements from Quintis's Board.

73    As will be explained when I make findings below, despite these numerous reservations I have accepted Dr Castella's evidence on some key points. I do not accept Mr Wilson's attempt to paint Dr Castella as a liar and a con man. But I do accept that his evidence was unreliable, except to the extent that it was supported by the inherent objective probabilities of the situation, the evidence of other, reliable witnesses, or the documentary record. In some cases where it had such support, I have accepted Dr Castella's evidence. At other points where it has lacked that support, I have not. The difference has proved to be crucial to the outcome of the case, and it will be necessary to return to the subject of the reliability of Dr Castella's evidence below.

Gillian Anne Franklin

74    Ms Franklin is the founder and Managing Director of the Heat Group, a cosmetics and personal care manufacturer and distributor. She has 30 years' experience in that industry and is an experienced company director. She was a non-executive director of Quintis from December 2014 until her resignation on 30 June 2017.

75    Like the other directors whom I mention in the next section, Ms Franklin was not challenged on any aspect of her evidence, but I am dealing with her separately because of her specific evidence that at the Quintis Board meeting on 24 February 2017, she asked Dr Castella about EISO sales to Galderma and received an answer. The content of that evidence and its significance will be addressed below, but it is worthwhile to say at the outset that I found Ms Franklin to be a convincing witness with a clear recollection of events, so that I will give her evidence some weight.

Other lay witnesses called by ASIC

76    The evidence of the remaining lay witnesses called by ASIC was largely not contentious. They can be dealt with more briefly and together.

77    Dalton Leslie Gooding, Julius Luke Matthys, Giovanni (John) Groppoli and Michael Doveton Kay were each members of Quintis's Board during the period relevant to this proceeding. They are all experienced company directors. Mr Gooding was non-executive Chairman of Quintis's Board from November 2014 and was also a director of Santalis and ViroXis from around June 2015. Mr Matthys was initially a director of Quintis from 2003 to 2005 and again from 2011 until 2018. He took over as CEO of Quintis on 3 April 2017 following Mr Wilson's resignation as Managing Director on 27 March 2017. Mr Groppoli is an experienced lawyer and was a non-executive director of Quintis from October 2014 to June 2018. Mr Kay was a non-executive director of Quintis from February 2015 to June 2018.

78    Alistair David John Stevens is the CFO of the Quintis group of companies. He is a chartered accountant who has worked in CFO or deputy CFO roles for a number of companies in the United Kingdom and Australia. He took great care in giving his answers. Perhaps sometimes he deliberated or qualified what he said too much, but I did not form the view that he was doing so in order to be obstructive.

79    Phillip Lodewikus Coetzer is the Group Financial Controller of the Quintis group of companies, reporting to Mr Stevens. He was given certain responsibilities concerning Santalis in late 2016, the evidence as to which will be described below.

80    Of these six witnesses, only Mr Stevens was subject to any real challenge in cross examination, and not on a subject that has proved material to the outcome. Each of these witnesses gave their answers in a straightforward way. I accept them all as witnesses of truth and have no reason to doubt the reliability of their evidence.

Lee Bowers

81    Mr Bowers is the Managing Director of Fivemark Capital Pty Ltd, trading as Fivemark Partners, a corporate advisory and investor relations firm. He worked from 2003 until 2013 as a mining equities analyst. In 2013, he co-founded Fivemark Partners, where he works as a corporate adviser and equity market consultant. Mr Bowers described his role as involving impact analysis, which he said involved predicting share valuations and price movements and analysing market trading dynamics. Examples he gave of the kind of work he was engaged in included asset evaluation and valuation, investment advice, trading decision making and scenario analysis.

82    Mr Bowers gave evidence on questions which, in broad terms, concerned the extent to which the information about the Galderma Agreements allegedly withheld from the market was likely to have influenced investors in deciding whether to buy or sell shares in Quintis. ASIC sought to qualify Mr Bowers as an expert witness. Mr Wilson, however, made a comprehensive challenge to the admissibility of Mr Bowers' evidence based, in part, on his asserted areas of experience and expertise, so it will be necessary to return to those subjects in Section VI of this judgment.

83    In cross examination, Mr Bowers came across as a careful and thorough expert witness. He was occasionally loquacious and there were times when his answers veered towards advocacy rather than impartial opinion. But those times were rare; for the most part he gave his evidence in a measured and balanced way and was prepared to concede points to the cross examiner when appropriate. Senior counsel for Mr Wilson confined his questioning to Mr Bowers' reasoning process and did not seek to impugn his impartiality or otherwise suggest that he had arrived at views were not independent or not genuinely held. In broad terms I found his evidence to be helpful.

Frank Cullity Wilson

84    As I have indicated, the defendant, Mr Wilson, relied on the privilege against exposure to a penalty so as to decline to put on any evidence until ASIC closed its case. At that point, and in accordance with directions made by the court, Mr Wilson elected to go into evidence. He filed the substituted defence which I have described and relied on one affidavit (FW), sworn by him on 15 September 2021, setting out evidence about the relevant events.

85    According to Quintis's 2016 Annual Report, before becoming Quintis's founding Chairman in 2000, Mr Wilson was the Managing Partner of the legal firm Wilson & Atkinson, which at that time specialised in taxation, property and commercial law. He practised for some 15 years, and was an experienced tax and commercial lawyer. The Annual Report also said that Mr Wilson was an experienced businessman who had a long standing involvement in the forestry industry. I have already given his history as a director and executive officer of Quintis.

86    In the witness box Mr Wilson displayed a good grasp of the commercial and legal details surrounding the Galderma Agreements, but he did not profess to be proficient in technical details such as the pharmaceutical properties of Benzac or matters such as clinical trials. My impression was that he left that aspect of the dealings with Galderma to Dr Castella and Mr Clements.

87    Senior counsel for ASIC cross examined Mr Wilson for nearly 3½ days. He was generally confident and assured in the witness box. Generally, he listened to questions and answered them directly, although I will refer to some exceptions to that below. He appeared physically uncomfortable under some lines of questioning but I do not read much into that; being cross examined for over three days is bound to make anyone uncomfortable from time to time. Mr Wilson occasionally became agitated when he was confronted with allegations of dishonesty, but that quickly subsided when the questions moved to the next topic and in general he approached the questioning in a cooperative way.

88    It was not the manner in which Mr Wilson gave evidence, but the content of the evidence which gave me concern. That is because when pressed on important matters, Mr Wilson consistently retreated to implausible positions and unsubstantiated generalities. Necessarily, that broad observation will be developed in the narrative of the evidence I give below. For now I will give two examples.

89    One example concerned Mr Wilson's evidence that he was aware of a draft letter from Galderma dated 17 November 2015 which proposed significant changes to Galderma's relationship with Santalis, but not the final signed version of the letter which Galderma sent to Dr Castella on 5 February 2016. The draft letter of 17 November 2015 said that Galderma would analyse 'the long-term financial viability of Benzac and any other factors deemed appropriate by Galderma to determine Galderma's position with respect to the future of its partnership with TFS and Santalis relating to the Benzac brand'. Mr Wilson refused on several occasions to accept that this was notice that Galderma was thinking about cancelling the Galderma Agreements. He even refused to accept that it was a reading of the letter that was reasonably open. Plainly, it was at least open.

90    I also did not find plausible Mr Wilson's evidence that, although Galderma had engaged in 'commercial bullying' (ts 533), he thought a proposal of that kind was something that Quintis did not need to negotiate or respond to. This appeared designed to bolster his evidence that he did not see the final version of the letter that was sent by Mr McCrea on 5 February 2016, because he was content to let the draft proposal of 17 November 2015 fall away without response. The implausibility of this evidence was then compounded by his evidence suggesting that the letter of 5 February 2016 about Benzac was not mentioned once in a 'long and cordial' telephone conference he had, also about Benzac, with Galderma representatives on 9 February 2016 (ts 572, 574, Exh 370). At that point Mr Wilson's evidence reverted from an outright denial to saying that he could not recollect the letter being mentioned. Mr Wilson took that approach on other occasions when his evidence became improbable.

91    Another example was an exception to Mr Wilson's general willingness to answer questions directly. It occurred after senior counsel for ASIC took Mr Wilson to an ASX announcement that Quintis made on 2 September 2016 which included the following passage (Exh 495):

TFS now has multiple supply contracts in place with global customers for both wood and oil products across a breadth of markets including cosmetics, aromatherapy, pharmaceuticals, and traditional wood uses, meaning the vast majority of our harvests are now forward sold through to 2021.

92    The following exchange ensued (ts 639-640):

And you point to the breadth of markets including pharmaceuticals?---Yes.

So that's a reference to the Galderma Benzac contract?---I'm not too sure about that.

Well, what other contract did you have with a pharmaceutical company at 2 September 2016, Mr Wilson?---We - we had - - -

None?---We had a number of small - small contracts with pharmaceutical companies through Mount Romance but not, you know, not - - -

What global customer did you have in the pharmaceutical market?---I couldn't tell you their name, but I can tell you that we had several through Mount Romance.

Is your answer to this court that outside of Galderma, you had another global customer in the pharmaceutical industry?---Absolutely, yes.

Okay. And so his Honour should not understand this ASX release to be referring to Galderma. Is that your evidence?---No, no, that's not my evidence.

So, can his Honour take it that when you refer to pharmaceuticals, you are referring, with these others, to Galderma?---I have no recollection of - of this particular release but it's - Galderma was a contract we had in the pharmaceutical space. At that time, we were trying for - we had several small ones through Mount Romance and, yes. So it - I may have been referring to - I can't recall.

Well, Mr Wilson is there a reason you won't accept the obvious; Galderma was a global customer, wasn't it?---Yes.

And it was a global customer in pharmaceuticals?---Yes.

And are you telling his Honour that when you were quoted in this ASX release, when you refer to global customers for pharmaceuticals, you were not referring to Galderma?---I can't recall who I was referring to, but I was making the point that TFS - TFS didn't have, and Mount Romance didn't have five customers; we had about 150.

Who were global?---Yes, by nature, we're an export business.

93    Mr Wilson ended up accepting that the reference to global pharmaceutical customers included Galderma. This was after his senior counsel obtained confirmation that senior counsel for ASIC did not suggest that Galderma was the only such customer it referred to. But the clarification was not necessary to enable Mr Wilson to answer the question. The point of the question was clear from the outset and, anyway, it is doubtful that a global customer is the same thing as a customer located overseas, as Mr Wilson appeared to suggest. Mr Wilson was clutching at that suggestion in order to justify his denial of the obvious.

94    Another, important example of Mr Wilson's tendency to deny matters that appeared on the face of the evidence was his attempt to explain away a statement he made in an email to Mr Matthys, that he was aware because Dr Castella advised him that Galderma had entered into an agreement with Santalis that had the effect that Galderma would make a decision in July 2017 regarding the termination of 'the contract'. Also unsatisfactory were his attempts to explain away a text messages he sent to Dr Castella on 9 May 2017. These matters are addressed in Sections V and VII below.

95    As for Mr Wilson's resort to unsubstantiated generalities, on many occasions when pressed with specific instances where a matter concerning the Galderma Agreements appeared not to have been disclosed to the Board, he fell back on one excerpt from one CEO report he gave to the Board in August 2015. As will be explained below, I do not consider that this report provided adequate disclosure to the Board about the state of the relationship with Galderma in August 2015, let alone throughout the entire period to March 2017. But Mr Wilson kept coming back to it as the basis for saying such things as 'the board were fully across and aware of all the problems that we were having with Benzac and Galderma from August onwards' (ts 540), or 'I brought the general issue of a negotiation with Galderma on, you know, all those points and others to the board in August' (ts 514; see also ts 524, 532, 542, 570, 583, 596-597, 644, 645, 666, 670, 690, 710; and see also ts from Day 12).

96    Similarly, Mr Wilson asserted that 'it was widely known, amongst the institutional investor shareholders in TFS and the institutional investor world that followed TFS, that the Galderma contract or the Benzac product had not performed to expectations' (ts 614). But it transpired that the only specific information he could give as the basis of that view was a report to the Board by Mr Stevens of a conversation he had with one investor, Phil King, who referred to 'the slow progress of Benzac' (Exh 504, ts 648). Mr Wilson said 'I would have told anyone who was willing to listen to me that Benzac wasn't - wasn't performing' (ts 630, 648), but that general self-serving evidence was unsupported by any specific communications with investors.

97    For these reasons, and because of the several occasions detailed below in which I found Mr Wilson's evidence to be implausible, I did not find him to be a credible witness.

IV.    PRINCIPLES

Proof

98    This is a case which posed difficult forensic issues. Which of the two key witnesses was telling the truth, or at least accurately recollecting the key events? It is therefore worth setting out the approach that must be taken to the burden of proof, the standard of proof, and assessment of the evidence where there are robust challenges to the credibility of witnesses.

Burden and standard of proof

99    It is common ground that the burden of proof in this matter rests entirely on ASIC. Mr Wilson's defence is premised on a denial that he knew the information which, it is said, he failed to disclose to the other members of the Board, and a denial that the omission to disclose the information exposed Quintis to relevant jeopardy, to an extent that resulted in a breach of s 180(1) of the Corporations Act. Mr Wilson has not raised any affirmative defence for which he has the burden of proof.

100    The burden of proof can become particularly important when the Court decides that it is not satisfied as to the case of either of the parties. It may reject both cases. Disbelief of one does not require acceptance of the other. In that eventuality, the Court has open to it the third choice of saying that the party with the burden of proving the allegations it has made has failed to discharge that burden: see Kuligowski v Metrobus [2004] HCA 34; (2004) 220 CLR 363 at [60]. As undesirable as that may be, there are cases where the unsatisfactory state of the evidence or of other aspects of the case means that is the only just course for the Court to take: Rhesa Shipping Co SA v Edmunds (The Popi M) [1985] 2 All ER 712 at 718.

101    The standard of proof is governed by s 140 of the Evidence Act 1995 (Cth), which provides:

(1)    In a civil proceeding, the court must find the case of a party proved if it is satisfied that the case has been proved on the balance of probabilities.

(2)    Without limiting the matters that the court may take into account in deciding whether it is so satisfied, it is to take into account:

(a)    the nature of the cause of action or defence; and

(b)    the nature of the subject-matter of the proceeding; and

(c)    the gravity of the matters alleged.

102    It was also common ground that this reflects the principles that Dixon J explained in Briginshaw v Briginshaw (1938) 60 CLR 336: see Australian Securities and Investments Commission v Mitchell (No 2) [2020] FCA 1098 at [1123] (Beach J). As well-known as those principles are, they are important in this case so it is helpful to set out relevant passages here. After considering the views of academic commentators which suggested some flexibility in the statement and application of the standard of proof in civil cases, Dixon J said (at 361-362):

The truth is that, when the law requires the proof of any fact, the tribunal must feel an actual persuasion of its occurrence or existence before it can be found. It cannot be found as a result of a mere mechanical comparison of probabilities independently of any belief in its reality. No doubt an opinion that a state of facts exists may be held according to indefinite gradations of certainty; and this has led to attempts to define exactly the certainty required by the law for various purposes. Fortunately, however, at common law no third standard of persuasion was definitely developed. Except upon criminal issues to be proved by the prosecution, it is enough that the affirmative of an allegation is made out to the reasonable satisfaction of the tribunal. But reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters 'reasonable satisfaction' should not be produced by inexact proofs, indefinite testimony, or indirect inferences.

103    After explaining that even in cases involving serious allegations, some issues may not need to be proved on strong evidence, Dixon J went on to say (at 362-363, citations removed):

It is often said that such an issue as fraud must be proved 'clearly', 'unequivocally', 'strictly' or 'with certainty'. This does not mean that some standard of persuasion is fixed intermediate between the satisfaction beyond reasonable doubt required upon a criminal inquest and the reasonable satisfaction which in a civil issue may, not must, be based on a preponderance of probability. It means that the nature of the issue necessarily affects the process by which reasonable satisfaction is attained. When, in a civil proceeding, a question arises whether a crime has been committed, the standard of persuasion is, according to the better opinion, the same as upon other civil issues. But, consistently with this opinion, weight is given to the presumption of innocence and exactness of proof is expected.

104    Later, after dismissing the idea that there was some different standard of proof on the issue of adultery in divorce proceedings, Dixon J said (at 368-369):

Upon an issue of adultery in a matrimonial cause the importance and gravity of the question make it impossible to be reasonably satisfied of the truth of the allegation without the exercise of caution and unless the proofs survive a careful scrutiny and appear precise and not loose and inexact. Further, circumstantial evidence cannot satisfy a sound judgment of a state of facts if it is susceptible of some other not improbable explanation. But if the proofs adduced, when subjected to these tests, satisfy the tribunal of fact that the adultery alleged was committed, it should so find.

105    In Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 at 450, Mason CJ, Brennan, Deane and Gaudron JJ explained these principles as follows (footnotes removed):

Thus, authoritative statements have often been made to the effect that clear or cogent or strict proof is necessary 'where so serious a matter as fraud is to be found'. Statements to that effect should not, however, be understood as directed to the standard of proof. Rather, they should be understood as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct.

106    The conventional perception so described is not very helpful in this case. The allegation made against Mr Wilson is, at least in form, that he failed to exercise powers and discharge duties with the requisite degree of care and diligence. Dishonesty and criminality are not elements of the alleged breach, although the allegation that the conduct was serious because it was deliberate comes close. Views may reasonably differ as to the improbability of such a failure in the circumstances alleged here. Most importantly, though, one of the key planks of Mr Wilson's defence is that Dr Castella did engage in deliberately dishonest behaviour. While I do not suggest that there is any onus on Mr Wilson to establish that Dr Castella was dishonest, to the extent that he submits that he was, the common sense approach reflected in their Honours' 'conventional perception' points away from accepting that submission.

107    The second matter mentioned in the summary in Neat Holdings has more weight in this case. Although dishonesty is not alleged, findings adverse to Mr Wilson in the proceeding are likely to seriously affect his reputation. Also, while the proceeding is not criminal, ASIC does seek civil penalties, which is of course a serious matter. It also seeks Mr Wilson's disqualification from managing corporations. It follows that the court will only reach a state of reasonable satisfaction that Mr Wilson breached s 180(1) if there is clear proof of the kind described in Briginshaw. ASIC did not suggest otherwise.

Inferences and circumstantial proof

108    It does not follow from the conclusion just expressed that only direct evidence is capable of establishing ASIC's case. By 'direct evidence' I mean, specifically in this case, the evidence of Dr Castella that he told Mr Wilson about Galderma's intention to terminate the Galderma Agreements and that he gave a copy of the Termination Agreement to him. My doubts about the credibility of both Dr Castella and Mr Wilson mean that the question of whether other evidence may suffice to discharge ASIC's burden to the requisite standard is relevant.

109    The answer to that question is that, even if I do not find Dr Castella credible, or at least relevant aspects of his evidence reliable, I may still find that ASIC has made out its case. Inferences can be drawn from the available evidence, including the body of documentary evidence. It is permissible to draw inferences from a combination of facts: Australian Securities and Investments Commission v Big Star Energy Ltd (No 3) [2020] FCA 1442 at [30] (Banks-Smith J).

110    In Vines v Australian Securities and Investments Commission [2007] NSWCA 75; (2007) 73 NSWLR 451 at [810], Ipp JA (Spigelman CJ agreeing) emphasised that '[n]othing in Briginshaw detracts from the proposition that a serious allegation might be proved by "circumstantial evidentiary facts" and "inference and circumstance"'. In Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1 at 5-6, Dixon, Williams, Webb, Fullagar and Kitto JJ explained that process of reasoning as follows:

… you need only circumstances raising a more probable inference in favour of what is alleged … where direct proof is not available it is enough [if] the circumstances appearing in the evidence give rise to a reasonable and definite inference: they must do more than give rise to conflicting inferences of equal degree of probability so that the choice between them is [a] mere matter of conjecture … All that is necessary is that according to the course of common experience the more probable inference from the circumstances that sufficiently appear by evidence or admission, left unexplained, should be that the injury arose from the defendant's negligence. By more probable is meant no more than on the balance of probabilities such an inference might reasonably be considered to have some greater degree of likelihood.

111    Thus the Court is not authorised to choose between guesses on the ground that one seems more likely than the others. 'The facts proved must form a reasonable basis for a definite conclusion affirmatively drawn of the truth of which the tribunal of fact may reasonably be satisfied': Jones v Dunkel (1959) 101 CLR 298 at 305 (Dixon CJ, in dissent but not on this point).

112    The probative force of a combination of circumstantial facts may be cumulative and it may be an error to assess the probability of each of them individually: Australian Broadcasting Corporation v Chau Chak Wing [2019] FCAFC 125; (2019) 271 FCR 632 at [134]-[135]. Ultimately, there are no hard and fast rules. 'The inquiry is simply, taking due account of what was said in Neat Holdings … has the allegation been proved on a balance of probabilities': Palmer v Dolman [2005] NSWCA 361 at [47] (Ipp JA, Tobias and Basten JJA agreeing).

Unreliable witnesses and the objective framework

113    It is orthodox and sensible in a case like this to form views about the reliability of witnesses based not only on observations made and impressions formed about their demeanour, but also reasoning as to the plausibility of certain parts of their evidence, considered in the light of the objective factual surrounding material and the inherent commercial probabilities, together with the documentation tendered in evidence: Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd [1999] HCA 15 at [16] (Gleeson CJ, Gaudron, Kirby and Hayne JJ). Greater weight may be given to contemporaneous or near-contemporaneous documents than to fallible human memory, especially when the lapse of time between the events in question and the trial is long and especially when the witnesses have an interest in the outcome of the litigation: see Chant v Curcuruto [2021] NSWSC 751 at [269] (Hallen J) and the authorities referred to there.

114    In a case where conflicting accounts are given by witnesses who each lack credibility or reliability, to resolve the conflict by comparing the extent to which they each lacked those qualities can be a challenging task, so it is sensible to prefer, instead, to resolve it by reference to the contemporaneous objective evidence: see Krolczyk v Winner [2022] NSWCA 196 at [88], [90] (Griffiths AJA, White and Kirk JJA agreeing).

The statutory provisions

The duty of care and diligence as a civil penalty provision

115    Section 180(1) of the Corporations Act provides:

A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they:

(a)    were a director or officer of a corporation in the corporation's circumstances; and

(b)    occupied the office held by, and had the same responsibilities within the corporation as, the director or officer.

Section 180(2) and s 180(3) concern a defence known as the business judgment rule, which is not relevant here.

116    The standard in s 180(1) concerns the exercise of powers and duties, so those powers and duties need to be identified before the provision can be applied: Cassimatis v Australian Securities and Investments Commission [2020] FCAFC 52; (2020) 275 FCR 533 (Cassimatis FC) at [452] (Thawley J). In Shafron v Australian Securities and Investments Commission [2012] HCA 18; (2012) 247 CLR 465 at [18], French CJ and Gummow, Hayne, Crennan, Kiefel and Bell JJ described the standard set by s 180 as follows (emphasis in original):

The degree of care and diligence that is required by s 180(1) is fixed as an objective standard identified by reference to two relevant elements - the element identified in para (a): 'the corporation's circumstances', and the element identified in para (b): the office and the responsibilities within the corporation that the officer in question occupied and had. No doubt, those responsibilities include any responsibility that is imposed on the officer by the applicable corporations legislation. But the responsibilities referred to in s 180(1) are not confined to statutory responsibilities; they include whatever responsibilities the officer concerned had within the corporation, regardless of how or why those responsibilities came to be imposed on that officer.

117    Thus the application of s 180(1) is not confined to the powers and duties which the law attaches to a particular office: see also Australian Securities and Investments Commission v King [2020] HCA 4; (2020) 270 CLR 1 at [33] (Kiefel CJ, Gageler and Keane JJ). The inquiry must be directed to the role the person in question plays in the corporation: Shafron at [23]; King at [35]. That is inevitably a factual inquiry which depends on all the relevant circumstances. It is concerned with whether the facts show that a putative officer has played a role in the corporation and the nature and extent of that role, not with some a priori classification of their position: King at [35].

118    As to the 'corporation's circumstances', these necessarily include any breach or potential breach of law by the corporation, as well as all of the relevant commercial and other circumstances and the conduct of the corporation: Cassimatis FC at [456].

119    Directors are required to take reasonable steps to place themselves in a position to guide and monitor the management of the company, but they are entitled to rely on others, unless they know, or by the exercise of ordinary care should know, facts that indicate that they cannot so rely: Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052 at [101] (Brereton J).

120    Unlike the tort of negligence, damage is not an element of contravention of s 180(1). There is no reference to damage in the section. Actual loss to the company is not required. Nevertheless, the section will not be contravened unless the acts or omissions relied on carried with them a foreseeable risk of harm to the company. That is because if there is no such risk at the time of the acts or omissions, they will not be capable of constituting a failure to exercise powers and discharge duties with a degree of care and diligence that a reasonable person would exercise. Those duties cannot be defined without reference to the nature and extent of foreseeable risk of harm to the company that would otherwise arise. See Vrisakis v Australian Securities Commission (1993) 9 WAR 395 at 449 (Ipp J, Malcolm CJ concurring); Maxwell at [102] (Brereton J); Australian Securities and Investments Commission v Mariner Corporation Limited [2015] FCA 589; (2015) 241 FCR 502 at [447]-[449] (Beach J); Australian Securities and Investments Commission v Cassimatis (No 8) [2016] FCA 1023 (Cassimatis PJ) at [481] (Edelman J).

121    This can include a reasonably foreseeable risk that the company will be led to breach the law. In Maxwell at [104] Brereton J said:

There are cases in which it will be a contravention of their duties, owed to the company, for directors to authorise or permit the company to commit contraventions of provisions of the Corporations Act. Relevant jeopardy to the interests of the company may be found in the actual or potential exposure of the company to civil penalties or other liability under the Act, and it may no doubt be a breach of a relevant duty for a director to embark on or authorise a course which attracts the risk of that exposure, at least if the risk is clear and the countervailing potential benefits insignificant …

122    So in Cassimatis PJ at [480]-[482], Edelman J emphasised that the concept of harm inherent in the notion of foreseeable risk could be harm to any interests of the company, not just financial ones, and given the broad terms of the legislation, should not be confined narrowly. At [483] his Honour concluded (emphasis in original):

… that the foreseeable risk of harm to the corporation which falls to be considered in s 180(1) is not confined to financial harm. It includes harm to all the interests of the corporation. The interests of the corporation, including its reputation, include its interests which relate to compliance with the law.

123    This is a balancing exercise of the kind described, in relation to the tort of negligence, in the well-known dictum of Mason J in Wyong Shire Council v Shirt (1980) 146 CLR 40, in particular at 47-48:

The perception of the reasonable man's response calls for a consideration of the magnitude of the risk and the degree of the probability of its occurrence, along with the expense, difficulty and inconvenience of taking alleviating action and any other conflicting responsibilities which the defendant may have. It is only when these matters are balanced out that the tribunal of fact can confidently assert what is the standard of response to be ascribed to the reasonable man placed in the defendant's position.

See Cassimatis PJ at [486].

124    In Cassimatis PJ at [487], Edelman J went on to further describe the exercise as follows, applying to s 180 New South Wales v Fahy [2007] HCA 20; (2007) 232 CLR 486, a case also concerning the tort of negligence:

This exercise is 'forward looking' to what a reasonable person would have done, not backward looking at what would have avoided the injury: [Fahy] at [57] … (Gummow and Hayne JJ). And, as Gleeson CJ said in Fahy at [6]:

What is involved is a judgment about reasonableness, and reasonableness is not amenable to exact calculation. The metaphor of balancing, or weighing competing considerations, is commonly and appropriately used to describe a process of judgment, but the things that are being weighed are not always commensurate.

A Full Court (Greenwood, Davies and Markovic JJ) applied Edelman J's dictum in the context of s 180 in Asden Developments Pty Ltd (in liq) v Dinoris [2017] FCAFC 117 at [90].

125    In Maxwell at [110], Brereton J described the balancing exercise particular to allegations of breach of duty connected with breaches of the law by companies as follows:

Whether there were in this case breaches of the directors' duties - and, in particular, of their duty of care and diligence - depends upon an analysis of whether and to what extent the corporation's interests were jeopardised, and if they were, whether the risks obviously outweighed any potential countervailing benefits, and whether there were reasonable steps which could have been taken to avoid them.

126    Thus in determining whether the standard mandated by s 180(1) has been breached, it will be relevant to balance the foreseeable risk of harm to the company (along with the difficulty of taking alleviating action) against the benefits that could reasonably be expected to have accrued to the company from the relevant conduct: Mariner at [451]-[452]; Cassimatis FC at [458]. This is sometimes put in terms of the desirability of not dampening a director's 'entrepreneurial flair', a phrase taken from Daniels (formerly practising as Deloitte Haskins & Sells) v Anderson (1995) 37 NSWLR 438 at 494. But it is difficult to see how that can be an appropriate consideration where what is being weighed against it is a serious breach of the law: see Cassimatis PJ at [482] and the example of discharging toxic waste given at [485]. A company's failure to comply with its continuous disclosure obligations cannot be justified on the basis that to comply would be to lose a commercial opportunity: Big Star at [514]. It may be that the same cannot be said where the commercial opportunity is balanced against a potential breach of the law, as the harm against which a possible benefit must be weighed is less clear cut. To the subject of potential breaches I now turn.

Potential breaches

127    I have described in Section II how ASIC does not allege that Mr Wilson's acts or omissions resulted in Quintis actually breaching s 674 of the Corporations Act (continuous disclosure) or s 1041H (misleading or deceptive conduct in relation to a financial product). In relation to continuous disclosure, the claimed breach of duty depends, instead, on an allegation that the hypothetical reasonable director would have given the Board the opportunity to decide whether to comply with its continuous disclosure obligations by disclosing the existence of the Termination Agreement to the market, and that by not telling the Board about that agreement Mr Wilson denied the Board that opportunity, and further that the hypothetical reasonable director would have ensured that the execution of the Termination Agreement was disclosed to the market in or before the 27 March Response. In relation to misleading or deceptive conduct, the claimed breach of duty depends on a finding that Mr Wilson authorised and approved, and failed to prevent the issue of, the 27 March Response, when that was potentially misleading or deceptive.

128    Are either of these cases of breach of s 180 of the Corporations Act open as a matter of law? ASIC opened by submitting that a contravention of s 180(1) can be established without proving damage to the corporation and that the relevant assessment is whether there was a foreseeable risk of harm to the corporation and whether that risk required different conduct on the part of the director. ASIC submitted that breach can be found when the director 'embarks upon or authorises a course of action which attracts a risk of exposing the company to civil or regulatory proceedings' (opening submissions para 102). It submitted that it is not necessary for the corporation to be found to have breached the Corporations Act before a breach of s 180 by one of its officers can be found. Rather, it is enough to establish a risk to the corporation. At one point in his opening, senior counsel for ASIC put that it was 'sufficient to show in all of the circumstances that there was obviously an appreciable risk of damage to the corporation … that the corporation would be put into harm's way' (ts 64). However he then eschewed any attempt to describe the level of risk required as a 'legal standard', maintaining instead that it was a question of fact as to whether the risk is 'sufficient' or 'sufficiently apparent' to engage s 180 (ts 65). In closing, senior counsel for ASIC put it as a purely factual question as to whether the hypothetical reasonable director 'forward-looking in real time' would have seen a risk such that he or she would have done something different to what Mr Wilson in fact did (ts 804).

129    In his written closing submissions, Mr Wilson argued at some length that the law in Australia was that where ASIC alleges that a director has breached s 180 by causing the company to commit a wrong, the wrong must be an actual breach of the Corporations Act that exposed the company to a pecuniary penalty or civil liability. But in oral closing submissions, senior counsel for Mr Wilson disavowed any submission that if ASIC does not plead or prove that there was a contravention (of s 674) then ASIC's case must fail. He acknowledged that there was authority permitting ASIC to advance a case of breach of s 180 arising because Mr Wilson's conduct caused Quintis to be exposed to risk. Senior counsel accepted that as a matter of law it was open to ASIC to put such a case, and that ASIC's pleading was not liable to be struck out for failing to disclose a reasonable cause of action. The emphasis in his submissions was that if exposure to risk is alleged, it has to be proved.

130    I proceed, therefore, on the basis that Mr Wilson did not ultimately contest ASIC's submissions as to the law on this point. Nevertheless, it is necessary for the Court to assess the matter for itself; a concession on a matter of law does not relieve the Court of the obligation to determine and apply the correct law: O'Connor v O'Connor [2022] NSWCA 97 at [67]. Mr Wilson's concession means, however, that my treatment of the question can be briefer than it otherwise would be.

131    In my view, the concession is well made, based on general principles set out above. Section 180 does not stipulate that the company has suffered actual loss or damage in order for it to have been breached, let alone that the company has been led into actual contravention of any law by reason of the director's conduct. What it does require is a foreseeable risk of harm. A risk of suffering penalties for breaching the law is a risk of harm. And harm is properly understood more broadly than that as including harm to intangible interests of the corporation, such as its reputation. A risk that a company will be found to have broken the law or, conceivably, a risk that it will be perceived to have broken it, is a risk of harm, so understood. A company may run a risk of such tangible and intangible harms whether or not it is ever actually found to have contravened any law.

132    This understanding of s 180 is reinforced by the forward looking nature of the exercise; what the Court has to assess is what the hypothetical reasonable director would have done (or not done) at the time of the alleged breach in all the corporation's circumstances. Looking forward from many situations, it will not be known whether the company will actually contravene the law. It can hardly be suggested that this uncertainty alone exempts a director from weighing the risks carefully. There appears to me to be no warrant for reading some implied restriction into s 180 that only if the harm is later found to have resulted from an actual contravention of the law will the director's duties of care and diligence have been breached.

133    ASIC relied on Beach J's discussion of the question in Mariner at [456] where his Honour accepted, without much enthusiasm, that it was conceivable that where a company might be in contravention of the Corporations Act, that could cause harm to the company. But there are dicta in other cases where the possibility is embraced with a little more enthusiasm, including Maxwell at [104] and Cassimatis PJ at [5], [679]. In Cassimatis FC a majority of the Full Court upheld Cassimatis PJ, although the fact that ASIC had based its case on actual contraventions limits what can be derived for present purposes from the judgments of the majority or that of Rares J in the minority. There is support, however, in dicta of Thawley J at [463]-[464] for the general approach that a forward looking assessment of risk of the kind described above does not entail that there must (later) be proved to have been an actual breach of the law by the company for the director to have breached s 180. Again, in light of Mr Wilson's concession it is not necessary to set these various dicta out.

134    On the other hand, the standard is set by reference to what a hypothetical reasonable director would have done in circumstances where, at the time when the decision to act or not to act is made, it may not be known whether the conduct will breach the law. Decisions about disclosure to the market in particular can be difficult ones, and the directors of a company may honestly and reasonably believe that disclosure is not required where, later, a court might disagree: see Australian Securities and Investments Commission v Vocation Limited (In Liquidation) [2019] FCA 807 at [730] (Nicholas J). The question is always: faced with the risks and benefits that the director knew of, or ought reasonably to have known of, what would the hypothetical reasonable director have done, taking care and acting with diligence in the interests of the company? For that reason, I accept ASIC's submission that it is not necessary or appropriate to seek to define the level of risk of breach by the company that must exist before the director will have contravened s 180. What the hypothetical reasonable director would have done is a question of fact to be assessed objectively in all the particular circumstances of the case, and a fact intensive one at that.

135    Finally, in accepting that it is open as a matter of law to plead and prove a contravention of s 180 by a director as a result of a potential breach of the law by the company, without pleading and proving that the breach by the company actually occurred, I am not suggesting that ASIC can or should adopt, in every case, a practice of setting itself a lower bar by studiously avoiding any allegation of actual breach by the company. I have already had cause to complain of conceptual difficulties caused by ASIC's approach in this case. And several of the dicta to which I have referred acknowledge the possibility of breach of s 180 in fairly stringent terms; for example in Cassimatis PJ at [5], Edelman J posited a situation where 'a director unreasonably (within the terms of s 180(1)) and intentionally commits acts which are extremely likely to involve a serious breach of the Corporations Act perhaps even threatening the very existence of the corporation'. Even if ASIC does not have to prove actual breach by the company, that does not mean that its task will necessarily be an easy one.

Civil penalties

136    If s 180 has been breached, it may be open to the Court to impose civil penalties. Section 180(1) is a 'corporation/scheme civil penalty provision': s 1317E(3)(a) and first item in table. If the court is satisfied that a person has contravened the provision, it must make a declaration of contravention: s 1317E(1). That is not discretionary: Australian Securities and Investments Commission v Helou (No 2) [2020] FCA 1650 at [140] (Beach J). Under s 1317E(2)(a) to (e), the declaration must relevantly specify the court that made the declaration, the civil penalty provision that was contravened, the person who contravened the provision, the conduct that constituted the contravention and the corporation to which the conduct related.

137    Section 1317G(1) relevantly provides:

A Court may order a person to pay to the Commonwealth a pecuniary penalty in relation to the contravention of a civil penalty provision if:

(a)    a declaration of contravention of the civil penalty provision by the person has been made under section 1317E; and

(b)    if the contravention is of a corporation/scheme civil penalty provision, the contravention:

(i)    materially prejudices the interests of the corporation, scheme or fund, or its members; or

(ii)    materially prejudices the corporation's ability to pay its creditors; or

(iii)    is serious …

138    Given my ultimate conclusions, it is not necessary to address what is meant by material prejudice or seriousness in this context.

139    If those requirements are met, it will be open to the Court to impose penalties. The maximum pecuniary penalty applicable to a contravention of a civil penalty provision by an individual is the greater of 5,000 penalty units, which for the relevant period amounted to $900,000, and, if it can be determined, three times the benefit derived and detriment avoided because of the contravention.

140    As well as a pecuniary penalty, on application by ASIC the court may disqualify a person from managing corporations for a period that the court considers appropriate if a declaration is made under s 1317E and the court is satisfied that the disqualification is justified.

Continuous disclosure

141    Section 674 imposes obligations of continuous disclosure on a company. As has been addressed above, ASIC does not squarely allege that those obligations were breached in this case, rather, it alleges that a hypothetical reasonable director would have given the Board the opportunity to decide whether to comply with its continuous disclosure obligations and that by not telling the Board about the Termination Agreement, Mr Wilson denied the Board that opportunity. It also pleads that the hypothetical reasonable director would not have authorised and approved the 27 March Response without ensuring that the Termination Agreement had been disclosed to the market.

142    The other place s 674 seems to occupy in ASIC's case is that Mr Wilson's alleged breaches are said to have exposed Quintis to the risk of legal and regulatory proceedings being brought against it, including for contraventions of s 674 (SOC para 36A). ASIC's pleading does not say whether this only goes to the questions of material prejudice and seriousness that are addressed just above, or also goes to whether there was a breach of s 180. Mr Wilson submitted it was both.

143    It is therefore relevant to consider the principles that govern s 674, even if there is no need to find whether the section was actually breached by Quintis. It is uncontroversial that at all material times Quintis was a 'listed disclosing entity' for the purposes of s 674, and that the ASX Listing Rules required Quintis to notify ASX of information about specified events or matters as they arise for the purpose of ASX making that information available to participants in the market: s 674(1). This means that, by reason of s 674(1), s 674(2) applied to Quintis. Quintis would then breach s 674(2) if it did not notify ASX, in accordance with the ASX Listing Rules, of information that those rules required it to notify to ASX, if that information was not generally available, and was 'information that a reasonable person would expect, if it were generally available, to have a material effect on the price or value' of shares in Quintis (material information).

144    What information, then, did the ASX Listing Rules require Quintis to notify? At the relevant time, r 3.1 of the ASX Listing Rules provided:

Once an entity is or becomes aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of the entity's securities, the entity must immediately tell ASX that information.

The rule gave a non-exhaustive list of examples of the type of information that, depending on the circumstances, could require disclosure to ASX. The termination of a material agreement is one example given.

145    Returning to the Corporations Act, is it also relevant that s 677 stipulates that for the purpose of s 674:

a reasonable person would be taken to expect information to have a material effect on the price or value of ED securities of a disclosing entity if the information would, or would be likely to, influence persons who commonly invest in securities in deciding whether to acquire or dispose of the ED securities.

Shares in Quintis were ED securities. This is a deeming provision which provides a sufficient foundation for establishing the materiality requirement in s 674(2), albeit it does not impose a necessary condition: see Earglow Pty Ltd v Newcrest Mining Ltd [2015] FCA 328; (2015) 230 FCR 469 at [82].

146    These provisions are remedial or protective and they should be construed beneficially to the investing public in a manner which gives the fullest relief which the fair meaning of their language allows: Grant-Taylor v Babcock & Brown Limited (in liquidation) [2016] FCAFC 60; (2016) 245 FCR 402 (Babcock & Brown FC) at [93] (Allsop CJ, Gilmour and Beach JJ). The Corporations Act and the ASX Listing Rules are to be given a concordant operation, so that r 3.1 should be taken to embrace the concept elaborated in s 677 that 'material effect' may be established by reference to what would, or would be likely to, influence persons who commonly invest in securities in deciding whether to acquire or dispose of the relevant shares: Babcock & Brown FC at [95].

147    The inquiry is an objective and hypothetical one, which involves a question of fact: National Australia Bank v Pathway Investments [2012] VSCA 168 at [87] (Bell AJA, Bongiorno and Harper JJA agreeing); Big Star at [235]. It is to be conducted as at the time at which it is alleged that the disclosure should have occurred and involves a survey of all the relevant material: Grant-Taylor v Babcock & Brown Limited (In Liquidation) [2015] FCA 149 (Babcock & Brown PJ) at [64] (Perram J). This approach of assessing the matter as if looking forward from the time at which the alleged act or omission occurred was referred to by the Full Court on appeal as looking at the question 'through an ex ante lens': Babcock & Brown FC at [95]. This 'ex ante' approach has been accepted in several other cases: Vocation at [587]; Big Star at [239]; Australian Securities and Investments Commission v GetSwift Ltd [2021] FCA 1384 at [1094]-[1095].

148    In order to satisfy this materiality requirement, the information must be non-trivial and rise beyond information that merely might influence investors; the words of s 677 are 'would, or would be likely to': Babcock & Brown FC at [96]; Vocation at [519]. It is necessary to assess the impact of the information on decisions made by persons who commonly invest in securities as a class, which will include large or small, sophisticated and unsophisticated and frequent and infrequent investors (but not irrational investors): Babcock & Brown FC at [115]. It may also be necessary to consider the information in its broader context, including whether there is additional information which may have had an impact on the assessment of the particular information it is alleged should have been disclosed: Vocation at [566], applying Jubilee Mines v Riley [2009] WASCA 62; (2009) 40 WAR 299.

149    Evidence from large institutional or wholesale investors (including fund managers) as to their expectation of materiality may be relevant (Earglow at [84(b)]), but ASIC has not adduced any such evidence in this proceeding. What it has adduced is expert evidence. It is well established that the materiality of the information not disclosed is a matter that is appropriately addressed by evidence from suitably qualified share-trading experts: see Pathway Investments at [88]; Big Star at [240]; GetSwift at [1100]. But expert evidence will not be determinative: GetSwift at [1100]. Whether information is material is 'the Court's decision after an evaluation of the whole of the evidence. Even if there was no other evidence apart from the company's own deliberations, it remains for the trial judge to evaluate whether information is material so as to require disclosure under s 674': James Hardie Industries NV v Australian Securities and Investments Commission [2010] NSWCA 332 at [527] (Spigelman CJ, Beazley and Giles JJA). In that case, the Court of Appeal was content to uphold inferences made by the trial judge without the benefit of expert evidence: see in particular [525], [539]-[540].

150    It is permissible to examine how the market subsequently behaved when the relevant information was disclosed as a device for confirming the correctness of a conclusion already reached: Babcock & Brown PJ at [64]; see also GetSwift at [1103]. Although, Perram J criticised the logic of this because 'presumably the subsequent material is excluded from the analysis because it is not logically probative', and if that is so, 'how can it be useful as a checking mechanism?': Babcock & Brown PJ at [64]. It may be permissible to analyse information about share price movements by use of a statistical technique known as linear regression analysis which, broadly speaking, permits the elimination of other causes of price fluctuations, so as to isolate the effect of disclosure of the allegedly material information: see Earglow at [88], albeit those observations were made in the context of whether non-disclosure of information had a price-inflationary effect causative of investor loss. In any event, ASIC made no attempt to make use of that technique here.

151    In the end, the resolution of the question upon an ex ante approach is a matter of judgment, informed by commercial common sense and, if necessary, by evidence from persons who have practical experience in buying and selling shares and in the workings of the stock market: Australian Securities and Investments Commission v Fortescue Metals Group Ltd (No 5) [2009] FCA 1586 at [511] (Gilmour J), quoted with approval in GetSwift at [1101], see also [1165], [1240]. It 'demands an appreciation of the broader context, investor experience and intuitive realism': GetSwift at [1259].

152    Although the test of breach of s 674 is objective, it must be borne in mind that in this case, the ultimate question is not whether Quintis was required to disclose, but what the hypothetical reasonable director would have done faced with the risk of contravention (and with any potential commercial downside of disclosure).

Section 1041H - misleading or deceptive conduct in relation to a financial product

153    Similarly, the allegation that the 27 March Response was potentially misleading or deceptive requires consideration of s 1041H(1) of the Corporations Act, which provides that a person must not, in this jurisdiction, engage in conduct, in relation to a financial product or a financial service, that is misleading or deceptive or likely to mislead or deceive. Engaging in conduct in relation to a financial product includes publishing a notice in relation to a financial product. It is uncontroversial that shares in Quintis were financial products and that the announcement to the ASX on 27 March 2017 was a notice in relation to a financial product and so was conduct in relation to a financial product.

154    Quintis's conduct in publishing the notice would be misleading or deceptive, or likely to mislead or deceive, if there were a real and not remote possibility (which may be less than 50%) that it would lead persons into error. In the case of conduct of this kind which involved giving information to the public, or a section of it, the effect of the conduct is to be assessed by reference to the likely characteristics of the persons who comprised the relevant class of persons, and it is necessary to consider the likely effect of the conduct on ordinary or reasonable members of the class, disregarding reactions that might be regarded as extreme or fanciful: see Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2020] FCAFC 130; (2020) 278 FCR 450 at [22]. The manner in which members of the class are likely to encounter a representation can be relevant; for example, something said in a 15 second television advertisement will not be considered as carefully as something said in a share market announcement which can be expected to be read attentively by at least some reasonable members of the relevant class: see Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; (2013) 250 CLR 540 at [47] (French CJ, Crennan, Bell and Keane JJ).

V.    NARRATIVE OF THE EVIDENCE

155    This was a trial where certain issues of fact were hotly contested on the basis that one or the other of the two main witnesses was lying. It is not possible to resolve the disputed issues properly without placing them in their proper context in the narrative of relevant events. What follows is a largely chronological account of the evidence, within the framework of the uncontentious factual background that has already been set out, and with observations on some matters of dispute made along the way. After undertaking that exercise, I will analyse and resolve the issues outlined above so as to arrive at the ultimate outcome of this 'liability' phase of the trial.

Supply agreements between Quintis, ViroXis and Santalis

156    Quintis had agreed to supply EISO to ViroXis in 2009. The two companies incorporated Santalis as their 50/50 owned joint venture vehicle in 2010.

157    There were further iterations of the supply agreement between Quintis and ViroXis. On 9 May 2013 those two companies entered into a 'Definitive Supply Agreement', under which Quintis was to supply ViroXis with EISO and Western Australian sandalwood oil (WASO) (s 1.16, s 3.1). The quantities were to be set by way of binding forecasts which ViroXis was to submit to Quintis annually (s 3.1). The intent of the agreement was to provide ViroXis with supplies of EISO and WASO from Quintis exclusively, for use only in Rx or OTC products of certain specified kinds (s 1.22, s 3.6). The term of the agreement was 20 years, unless extended by agreement or terminated at ViroXis's option or for breach (s 10). The price for EISO was to be US$4,500 per kg, adjusted for inflation (s 5.3, s 5.4, Schedule B).

158    On 4 June 2013 Quintis entered into a similar Definitive Supply Agreement with Santalis. This was itself an iteration of an original supply agreement from 2011. Once again, the minimum volume was to be set by binding forecasts which Santalis was to provide to Quintis annually (s 3.1). The intention was for Quintis to provide Santalis 'with exclusive supply' of EISO and WASO for use in defined 'Healthcare Products', being products intended for human use in which sandalwood extracts (including EISO and WASO) were listed as an ingredient on the label and for which regulatory approval or similar was required to lawfully market it, whether Rx, OTC or sold direct to consumers (s 3.7, s 1.10). The term of the agreement was the later of 20 years and the date of the last agreement between Santalis and a third party to supply, distribute, manufacture or license a Healthcare Product, unless terminated earlier for breach (s 10). Once again the price of EISO was to be US$4,500 per kg, adjusted for inflation (s 5).