“It was for APRA to prove the primary facts on which the allegations of contraventions depended,” the judgement says.

“The way in which it sought to do so was fundamentally inadequate.”

“Without expressly saying so, APRA’s approach involved reliance on the doctrine of res ipsa loquitur when the one thing that is clear is that the facts of the incidents in question in this case by no means speak for themselves.”

IOOF shares were up 6.75 per cent in early trade to $5.92.

IOOF said in a statement that it welcomed the decision, and was “reviewing the written judgment in detail and expects to issue a further announcement in due course”.

Second blow to regulators

It is the second major court blow for financial regulators in the post-Hayne world.

Last month the Australian Securities and Investments Commission lost a case against Westpac alleging the bank breached responsible lending laws more than a quarter of a million times. ASIC is appealing.

APRA had described IOOF as having a “conflicted corporate and governance structure”, which “created an environment ripe for conflicts of interest and conflicts of duties to manifest”.

The regulator claimed Mr Kelaher and Mr Venardos contravened various covenants imposed on them by the SIS Act, including the requirement to exercise the “requisite degree of care, skill and diligence”, to act in the best interests of the beneficiaries of the super funds, and to give priority to the interests of the beneficiaries in the event of a conflict of interest.

These contraventions were said to have occurred in the course of five incidents dating back to 2015.

A significant element of APRA’s case involved allegations the respondents acted improperly when they reimbursed members for certain losses using what are known as “reserves”.

Justice Jagot was unconvinced.

“It is not the case that the use of the [Operational Risk Financial Reserve] without ‘exhausting other means of risk management’ is necessarily not in the best interest of beneficiaries,” the judgement says.

“This proposition appears to be central to APRA’s case yet it is not founded in the statutory scheme or any principle of trust law which APRA has identified.”

In a statement, Mr Venardos said: “I welcome the judgment delivered today by Justice Jayne Jagot in the Federal Court related to action brought by APRA against me in my role as a non-executive director of IOOF.

“This is a lengthy judgment, which my legal team and I have not yet had the chance to fully consider. I will provide an update once the judgment has been reviewed in detail.”

Tim L’Estrange of Jones Day, who acted for Mr Venardos, added: “In this highly litigious regulatory environment, boards have been under immense pressure to step into the shoes of management.

“This decision is consistent with the view that directors have an oversight role and can in appropriate circumstances continue to rely on the information and advice provided to them by management.”

APRA has not yet responded to the judgement.