FEDERAL COURT OF AUSTRALIA

Tamaya Resources Limited (in liq) v Deloitte Touche Tohmatsu (A Firm), in the matter of Tamaya Resources Limited (in liq) [2015] FCA 1098

IN THE MATTER OF TAMAYA RESOURCES LIMITED (IN LIQUIDATION) ACN 071 349 249

THE COURT ORDERS THAT:

1.    The plaintiff’s interlocutory application dated 31 July 2015 for leave to file an amended originating application and a further amended statement of claim be dismissed.

2.    The plaintiff pay the defendants’ costs of the interlocutory application.

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

IN THE MATTER OF TAMAYA RESOURCES LIMITED (IN LIQUIDATION) ACN 071 349 249

THE COURT ORDERS THAT:

1.    The plaintiffs have leave to file, within seven days of the date of this order, a further amended originating application referring to the second further amended statement of claim.

2.    Otherwise, leave to file a further amended originating application in the form annexed to the interlocutory application dated 31 July 2015 is refused.

3.    The plaintiffs have leave to file, within seven days of the date of this order, a second further amended statement of claim incorporating amendments in the form annexed to the interlocutory application dated 31 July 2015, to the extent that the defendants have not opposed those amendments.

4.    Otherwise, leave to file a second further amended statement of claim incorporating amendments in the form annexed to the interlocutory application dated 31 July 2015 be refused.

5.    The plaintiffs pay the defendants’ costs thrown away by reason of the amendments referred to in orders 1 and 3.

6.    The plaintiffs pay the defendants’ costs of the interlocutory application.

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

IN THE MATTER OF TAMAYA RESOURCES LIMITED (IN LIQUIDATION) ACN 071 349 249

IN THE MATTER OF TAMAYA RESOURCES LIMITED (IN LIQUIDATION) ACN 071 349 249

REASONS FOR JUDGMENT

1    The plaintiff in NSD327/2014 (“Deloitte proceeding”) and the plaintiffs in NSD328/2014 (“new directors’ proceeding”) seek leave to file various amended pleadings pursuant to rules 8.21(1) and 16.53 of the Federal Court Rules 2011 (Cth) (“Rules”).

2    The application in the Deloitte proceeding is opposed in its entirety. The application in the new directors’ proceeding is opposed to varying extents by the various defendants.

3    The amendments are opposed for several reasons including that:

(1)    certain of the proposed amendments do not adequately disclose a proper cause of action;

(2)    the defendants will be unfairly prejudiced if the amendments are permitted; and

(3)    the plaintiffs have not provided an adequate explanation for their delay in bringing the applications.

4    The Court’s powers to grant leave to amend are broad, and require that parties are given a proper opportunity to plead their case. Even so, a just resolution of proceedings does not require that a party be permitted to raise any arguable case at any point in the proceeding, on payment of costs: cf. Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175 (“Aon”) at [98]. For the reasons set out below, I have concluded that the plaintiffs should not be granted leave to amend except to the extent that the amendments are not opposed.

Current scope of proceedings

5    The proceedings concern the circumstances leading to the collapse of Tamaya Resources Limited (in liquidation) (“Tamaya”) in September 2008. Tamaya was an Australian Stock Exchange-listed mining and resource company. The proceedings are complex. They have been case managed with two other proceedings: NSD185/2013 (“original directors proceeding”) and NSD529/2014 (“shareholders class action”), and the four proceedings will be heard together.

Original directors’ proceeding

6    The original directors’ proceeding was commenced in February 2013. The defendants to the proceeding are ten former directors of Tamaya.

7    The original directors’ proceeding concerns the acquisition by Tamaya of shares in a company called Iberian Resources Limited (“Iberian”). The directors’ decision to acquire those shares was made on 27 February 2007. The plaintiff, Tamaya, alleges that the company’s primary motivation for acquiring Iberian was to own a Soviet era gold mine in Southern Armenia, known as “Lichkvaz”. It alleges that the characteristics of the Lichkvaz mine were such that it would have been virtually impossible for a company of Tamaya’s size to develop “Lichkvaz” into a commercially viable mine. Accordingly, it is alleged that the acquisition of the shares in Iberian proceeded without adequate due diligence.

8    Tamaya seeks to recover losses arising out of the acquisition.

9    On 12 March 2014, Foster J granted leave to Tamaya to file and serve an amended statement of claim in the original directors’ proceeding. On 31 July 2015, Tamaya sought to file a further amended statement of claim, which amends the claim in minor respects. Those amendments were not opposed and on 21 September 2015, I granted leave to file that further amended statement of claim.

Shareholder class action

10    The shareholder class action is a representative action brought under Part IVA of the Federal Court of Australia Act 1976 (Cth) (“Federal Court Act”), claiming damages against Tamaya, various directors of Tamaya, Deloitte Touche Tohmatsu (“Deloitte”) and Mr Biggs, Deloitte’s signing partner for Tamaya’s 2007 half-year financial review report and 2007 annual audit report.

11    The class action was commenced on 28 May 2014. An amended statement of claim was filed on 29 October 2014.

12    On 19 May 2015, Foster J heard the representative plaintiffs’ application for leave to proceed against Tamaya pursuant to s 500(2) of the Corporations Act 2001 (Cth) (“Corporations Act”). His Honour’s decision is reserved.

13    As currently pleaded, the representative plaintiffs allege that they and the group members suffered loss and damage because of one or more of the following:

(1)    Material misrepresentations contained in a share purchase plan and sophisticated investors placement announced by Tamaya on 1 May 2008;

(2)    Tamaya’s 2007 financial statements did not give a true or fair view of Tamaya’s financial position. Principally, it is alleged that the 2007 financial statements:

(i)    Should have recognised a substantial impairment of Tamaya’s non-current assets and did not; and

(ii)    Should not have been prepared on the basis that Tamaya was a going concern; and

(3)    By reason of the misstatements in the financial statements, the market price for shares in Tamaya was substantially greater than their true value, or the market price that would have prevailed but for the misstatements.

14    The representative plaintiffs in the shareholder class action have also sought leave to file an amended originating application and a further amended statement of claim, raising matters broadly similar to the matters the subject of the applications now under consideration in the new directors’ proceeding and the Deloitte proceeding.

15    These reasons do not address the amendment application in the shareholder class action because the parties agreed that it would be convenient to determine the amendment applications in the new directors’ proceeding and the Deloitte proceeding first, in the expectation that the extent of any amendments to the pleadings in the shareholder class action could be agreed on the basis of that determination.

Deloitte proceeding and new directors’ proceeding

16    These two proceedings, in which the applications for leave to amend are made, concern the circumstances leading to the publication, on 31 March 2008, of Tamaya’s audited financial statements for the year ended 31 December 2007 (“Tamaya’s 2007 financial statements”). For convenience, I will refer to the plaintiffs in each of these proceedings as “Tamaya”.

17    The defendants to the Deloitte proceeding (“Deloitte parties”) are Deloitte (a partnership), and three individual members of that partnership. Mr Biggs, mentioned above, is the second defendant. Mr Harris, the third defendant, oversaw the review of Tamaya’s 2007 half-year financial report and was the signing partner for Iberian’s 2007 annual audit report. Mr Leotta, the fourth defendant, performed work on the review of Tamaya’s 2007 half-year financial report, the audit of Tamaya’s 31 December 2007 financial accounts and the audit of Iberian’s 31 December 2007 financial accounts (“audit”).

18    The defendants in the new directors’ proceeding comprise eight former directors of Tamaya, including five of the defendants to the original directors’ proceeding.

19    As summarised in the written submissions filed on behalf of Tamaya, the case in the Deloitte proceeding is based on Deloitte’s provision of an unqualified audit report and representations by Deloitte that the 2007 annual audit report had been prepared in accordance with Australian auditing standards and with reasonable care, skill and diligence and that the Tamaya 2007 accounts complied with applicable legislative requirements including accounting standards.

20    The principal case in the new directors’ proceeding is based on directors’ representations in the Tamaya 2007 annual report that the Tamaya 2007 financial statements gave a true and fair view of Tamaya’s financial position as at 31 December 2007 and of the company’s performance for the year ended on that date, that the financial statements complied with relevant accounting standards and regulations and implied representations that the directors had exercised reasonable care, skill and diligence in making the representations in the Tamaya 2007 annual report.

21    Tamaya alleges that the representations made by the directors and Deloitte were false and misleading, in that the Tamaya 2007 financial statements did not comply with accounting standards, were not free from material misstatement, and did not give a true and fair view of the financial position and performance of Tamaya as at 31 December 2007.

22    As summarised in Tamaya’s written submissions, in the new directors’ proceeding, Tamaya seeks to recover loss and damage from Tamaya’s former directors who signed off on the Tamaya 2007 accounts, and who are alleged to have failed to exercise due care, skill and diligence in that they had actual or constructive knowledge of factual matters that made the presentation of the Tamaya accounts misleading, and made misleading statements to Deloitte in connection with Deloitte’s conduct of the audit, and did not make adequate disclosures to Deloitte about matters critical to the conduct of the audit.

23    For example, as currently pleaded, it is alleged that the first defendant, Mr Callaghan, knew or ought to have known of facts allegedly constituting breaches of accounting standards pleaded in paragraph 66 of the further amended statement of claim. Paragraph 66 identifies the following six alleged breaches of accounting standards in connection with the Tamaya 2007 financial statements:

(1)    Overstatement of the value of Tamaya’s development properties and exploration properties;

(2)    Omission of a provision for bad and doubtful debts owed to Tamaya as a standalone entity by Iberian;

(3)    Overstatement of the fair value of the net identifiable assets acquired by the purchase of Iberian;

(4)    Failure to impair unspecified assets;

(5)    Failure to recognise impairment losses in respect of the net identifiable assets acquired by the purchase of Iberian, well in excess of the amounts reported; and

(6)    The use of the going concern assumption, which should not have been used in light of the “Lichkvaz Processing Information”.

24    Mr Callaghan’s alleged knowledge of misleading statements made to Deloitte is pleaded at paragraph 69J of the further amended statement of claim and concerns the “representation letter” to Deloitte dated 31 March 2008. The alleged failure to make adequate disclosures concerns the alleged non-disclosure of five reports, all of which appear to concern the Lichkvaz mine, and/or the “Lichkvaz Processing Information”.

25    In the Deloitte proceeding, Tamaya seeks to recover its loss and damages from the auditors on the basis that their conduct of the audit and the audit report were not the product of reasonable skill, care and diligence and therefore constituted:

(a)    A breach of the audit retainer contract between Tamaya and Deloitte;

(b)    A breach of Deloitte’s duty of care to Tamaya; and

(c)    Misleading and deceptive conduct in contravention of various legislative standards.

26    Tamaya alleges that it relied upon the Tamaya 2007 accounts in raising substantial funds from investors. As a result of this fund raising exercise, Tamaya has been exposed to the shareholder class action. Tamaya alleges that, had the various contraventions by the directors and Deloitte not occurred, the fund raising exercise could also never have occurred.

27    As currently particularised in each of the new directors’ proceeding and the Deloitte proceeding, the loss and damage in respect of which relief is sought includes:

(a)    Losses suffered after 31 March 2008 being the difference between:

(iii)    The net asset surplus or net asset deficiency (or net realisable value) of Tamaya as at that date; and

(iv)    The net asset surplus or net asset deficiency (or net realisable value) as at the date of Tamaya’s administration or liquidation;

(b)    Expenditure and liabilities incurred, including the “Iberian Advances”, which would not have been expended or incurred had Tamaya been placed into administration or liquidation shortly after 31 March 2008.

28    In each case, the current statement of claim foreshadows that further particulars of loss and damage will be provided following discovery, inspection and expert evidence.

29    In the new directors’ proceeding, Tamaya also brings insolvent trading claims against those of Tamaya’s former directors who caused it to incur debts from 31 March 2008.

Proposed amendments

30    Tamaya seeks leave to file:

(a)    In the Deloitte proceeding, an amended originating application and a further amended statement of claim (“FASOC”);

(b)    In the new directors’ proceeding, a further amended originating application and a second further amended statement of claim (“SFASOC”).

31    Tamaya acknowledges that the proposed amendments would “certainly increase the scope and complexity of the proceedings”. However, it says that the most of the amendments now sought are intended to bring the pleadings into line with their evidence which was served in March and April 2015. In particular, Tamaya says that the amendments address issues identified by an independent expert auditor, Mr Basford, who has prepared a report dated 11 March 2015 (“Basford report”). Tamaya contends that the amendments are:

(1)    necessary and important to ensure that the real issues in dispute are before the Court;

(2)    made in good faith and with a sufficient explanation of the timing of the application;

(3)    able to be addressed by the defendants, with appropriate case management.

32    The losses now sought to be recovered are:

(1)    Avoidable cash outflows of approximately $17.9 million, incurred between 31 March 2008 and 28 October 2008, when Tamaya was placed into voluntary liquidation;

(2)    Additional liabilities of approximately $2 million, incurred between 31 March 2008 and 28 October 2008; and

(3)    Any liability that Tamaya has in or as a result of the shareholders class action.

33    None of the defendants suggested that these claimed losses are beyond the scope of what had previously been particularised as Tamaya’s losses.

Proposed further amended originating application in Deloitte proceeding

34    The proposed amended originating application seeks to rely on the grounds stated in the proposed FASOC for the relief previously sought.

35    Secondly, it seeks a new declaration, to the effect that each of the Deloitte parties contravened s 1041E of the Corporations Act. However, in oral submissions, senior counsel for Tamaya, Mr Hutley SC, said that the proposed new declaration was unnecessary.

36    Thirdly, it seeks declaratory relief on the basis of an alternative case based on admission of proofs of debt by the liquidator, and a claim for contribution. These amendments will only be necessary if Foster J refuses to grant leave to proceed against Tamaya in the shareholder class action. In those circumstances, Tamaya submitted that the Court should defer dealing with this amendment (and the corresponding amendments to the FASOC) until the decision on the application for leave to proceed is known. Mr McHugh SC submitted that the Court should dismiss this part of the application, but without prejudice to the plaintiff’s rights to re-agitate the question in the event that leave to proceed is not granted.

Proposed further amended originating application in new directors’ proceeding

37    The proposed further amended originating application seeks to rely on the grounds stated in the proposed SFASOC for the relief previously sought.

38    In addition, it seeks to include, relevantly:

(1)    a claim for compensation pursuant to s 1041I of the Corporations Act; and

(2)    declarations that each of the first to sixth defendants engaged in conduct in contravention of ss 1041E and 1041H of the Corporations Act.

39    The declarations are comparable to the declaration which Mr Hutley SC acknowledged to be unnecessary in the Deloitte proceeding.

40    As in the Deloitte proceeding, the proposed further amended originating application seeks declaratory relief based on admission of proofs of debt by the liquidator, and a claim for contribution. Those aspects of the application (and the corresponding paragraphs of the SFASOC) should be addressed in the same way as the analogous claims for relief in the Deloitte proceeding.

Proposed FASOC in Deloitte proceeding

41    The current amended statement of claim is 94 pages. The proposed FASOC is 134 pages.

42    The proposed amendments include additional bases on which the conduct of the audit is impugned, namely:

(1)    Impairment of the value attributable to the “Portuguese mines”;

(2)    Impairment of the value attributable to the “Chilean mine”;

(3)    Issues relating to the recoverability of loans in respect of the enterprise associated with the “Chilean mine”;

(4)    Impairment of the value attributable to “Charters Towers”;

(5)    Issues relating to the treatment of deferred tax liabilities;

(6)    Issues relating to Tamaya’s gearing ratio; and

(7)    Issues relating to Tamaya’s liquidity risk and capital management (“additional audit issues”).

43    According to Tamaya’s written submissions, the amendments concerning the “Chilean Mine Deficiencies” are of primary importance. They are said to relate to the finances, management, control, cash-flow and performance of Tamaya’s only operating cash-producing asset, being a copper mine located at Punitaqui in Chile.

44    The proposed amendments include what is described, in the affidavit of Shaan Palmer sworn 8 September 2015 at paragraph 17, as the provision of “further particulars of the allegation that Deloitte and the director defendants breached their respective duties and accounting standards in respect of Tamaya’s 2007 accounts, by failing to impair Tamaya’s Chilean assets to a value of $17.6 million or failing to disclose the key estimates and judgements associated with the carrying value of the Chilean assets”. Ms Palmer noted that Mr Basford did not adjust Tamaya’s financial statements by the $17.6 million impairment value (which was the value that Tamaya impaired the assets by in the half year accounts ending June 2008) as he had insufficient information to assess that value because Deloitte’s audit file for the 2008 half year does not reveal the basis for the calculation of this impairment value.

45    Consistently with the proposed further amended originating application, facts are pleaded in support of a claim that each of the Deloitte parties contravened s 1041E of the Corporations Act. Section 1041E proscribes the making or statements or the dissemination of information if, relevantly:

(a)    the statement or information is false in a material particular or is materially misleading; and

(b)    the statement or information is likely:

(i)    to induce persons in this jurisdiction to apply for financial products; or

(ii)    to induce persons in this jurisdiction to dispose of or acquire financial products; or

(iii)    to have the effect of increasing, reducing, maintaining or stabilising the price for trading in financial products on a financial market operated in this jurisdiction; and

(c)    when the person makes the statement, or disseminates the information that person knew or ought reasonably to have known, that the statement or information is false in a material particular or is materially misleading.

46    The alleged statements made or information disseminated are the provision of the Tamaya 2007 annual audit report to Tamaya, and the making of the “Tamaya 2007 Financial Report Representations” and the “Tamaya 2007 Conduct of Audit Representations”. Tamaya accepts that this is a new claim but says that it involves “very little by way of new matters of fact”.

Proposed SFASOC in new directors’ proceeding

47    The current further amended statement of claim is 117 pages. The proposed SFASOC is 171 pages.

48    There are some amendments to the proposed SFASOC which are consented to by all defendants. Leave will be granted to file an SFASOC incorporating these amendments.

49    The proposed amendments broadly correspond to the amendments made in the Deloitte proceeding, as well as amendments to allege contraventions of ss 1041E and 1041H against the first to sixth defendants. Mr Cameron, the solicitor for the fifth defendant, Mr Kondo, gave evidence (which was unchallenged and which I accept) that the proposed amendments raise substantial previously unpleaded issues concerning matters such as:

(a)    Whether certain of Tamaya’s Chilean mining assets should have been impaired in the Tamaya 2007 annual report;

(b)    Whether Tamaya was a going concern at the time when Tamaya issued its 2007 annual report because of matters relating to Tamaya’s Chilean operations; and

(c)    Whether Tamaya’s Australian mining assets ought to have been impaired in its 2007 annual report.

50    Mr Cameron gave the following evidence concerning the proposed amendments relating to the “Chilean mine” operations:

60.    The allegations made concerning the “Chilean Mine” (as that term is used in the [proposed SFASOC] are broad ranging. For example, proposed paragraph 57 alleges that a number of difficulties affected the Chilean Mines (sic) by no later than 28 February 2008 (which are described as the “Chilean Mine deficiencies”), including:

(a)    a lack of finance controls, reporting and management (described as the "Poor Chilean Financial Management and Control") (57.1);

(b)    performance and management deficiencies with senior staff (57.2);

(c)    that production and profit levels were low and below those forecast and budgeted (57.3); and

(d)    cash flow was restricted (57.4).

61.    It is alleged at proposed paragraph 65AE.5 that the Chilean Mine Deficiencies had effects including that:

(a)    the Chilean Mine was Tamaya's only source of operating cash flows and those cashflows were forecast to be insufficient to cover interest commitments (65AE.5(a));

(b)    the Chilean Mine was performing below budgeted and forecast production and profit levels (65AE.5(b));

(c)    the Chilean Mine was placing a financial strain on Tamaya (65AE.5(c));

(d)    Tamaya had terminated senior staff employed at the Chilean Mine (65AE.5(d));

(e)    Tamaya had an inability to monitor operating and capital expenditure an identify and address operating issues arising in relation to the Chilean Mine (65AE.5(e)); and

(f)    Tamaya's Chilean subsidiaries' assets (including the Chilean Mine) and what are referred to as the "Chilean Loans" should have been tested for impairment (65AE.5(f)).

62.    At paragraph 65AHE, the plaintiffs propose amending to include allegations that Tamaya should not have been described as a going concern in the 2007 Annual Report because of alleged difficulties which the plaintiffs describe as “Going Concern Indicators” including:

(a)    that Tamaya lacked a history of profits and/or strong cash flow (65AHE.2);

(b)    the Poor Chilean Financial Management and Control (65AHE.3);

(c)    the Chilean Mine Deficiencies and the effect of those deficiencies (65AHE.4);

(d)    the fact that the Chilean Mine was the only source of operating cashflow for Tamaya (65AHE.5); and

(e)    the fact that Tamaya's ability to continue as a going concern was dependent upon its ability to raise capital or further debt finance (65AHE.11).

51    The proposed case based on ss 1041E and 1041H is, in summary, that these provisions were contravened by the relevant directors’ conduct in “approving, permitting and/or causing the Tamaya 2007 annual report to be published” (paragraphs 65AAA and 74B of the proposed SFASOC).

52    There are also proposed amendments to the insolvent trading case. Instead of from 31 March 2008, it is alleged that Tamaya was insolvent from at least 31 July 2008. The other proposed amendments to the insolvent trading case appear to be consequential upon the proposed amendments to the balance of the statement of claim.

Procedural history

Deloitte proceeding

53    The Deloitte proceeding was commenced on 28 March 2014 and the originating process was served on the Deloitte parties on or about 9 May 2014. The first directions hearing was on 14 May 2014.

54    The proceeding adjourned over June and July 2014, so that public examinations could be conducted of certain employees and partners of Deloitte.

55    Following the conduct of the public examinations, Tamaya served its amended statement of claim on 8 September 2014.

56    The defence was filed on 5 December 2014 and Tamaya filed its reply on 19 February 2015.

New directors’ proceeding

57    The new directors’ proceeding was commenced on 28 March 2014.

58    An amended statement of claim was filed on 22 August 2014. The further amended statement of claim was filed on 27 November 2014. The defences were filed between 19 December 2014 and 2 February 2015.

June 2014: First trial listing

59    On 12 June 2014, the old directors’ proceeding, the Deloitte proceeding and the new directors’ proceeding were fixed for hearing for four weeks plus commencing 1 June 2015.

March and April 2015: Service of Tamaya’s evidence in all proceedings and discovery

60    According to Tamaya, all of its evidence was served between 11 March and 24 April 2015, including:

(1)    the Basford report;

(2)    expert report of Mr James Searby dated 11 March 2015 ;

(3)    affidavit of Mr Jonathan Trollip dated 16 April 2015;

(4)    affidavit of Mr Carl Peterson dated 16 April 2015; and

(5)    a narrative statement of facts.

61    This submission was qualified at the hearing of the amendment applications by Mr Hutley SC, who said there was the possibility of one small piece of evidence concerning the impairment of Tamaya’s Chilean assets to a value of $17.6 million. That evidence was said to be dependent upon getting access to an electronic sub-audit file.

62    Tamaya gave discovery of approximately 8,161 documents in two tranches on 12 and 20 March 2015.

13 March 2015 directions hearing

63    On 13 March 2015, the June 2015 trial was vacated.

64    Early in the directions hearing, Mr McHugh SC, senior counsel for the Deloitte parties, said:

…probably the most important issue is that, - and, your Honour, I can explain this and it may take me a while to do it, but probably the single most important issue is the expansion and the change in the case that is proposed, which as far as I can see looks as though it’s outside the pleading, to bring in a whole lot of issues that we haven’t looked at yet, to do with operations in Chile.

65    Tamaya submitted that the vacation occurred following the service of evidence and at the request of a number of defendants. In her affidavit sworn 31 July 2015, Ms Palmer said that the Deloitte parties sought an adjournment to address the Chilean issues. Neither of these two propositions is completely accurate. Firstly, as at 13 March 2015, Tamaya had not yet served a substantial part of its evidence, as appears from paragraph 60 above. Secondly, Mr McHugh SC said this, when asked by Foster J whether the trial could commence on 15 June:

MR MCHUGH: There is, your Honour, and it’s this: my audit expert is a man called John O’Connor. Until two years ago he was the signing partner for Rio Tinto’s audit. He has been retained since last year. He has had a copy of Mr Basford’s report that was served two days ago. He has given it a preliminary review. It’s 140-odd pages without annexures. His position, in light of the issues that it raises, is that he can’t complete his report until the end of June, for various reasons that are explained in an affidavit of Ms Goodman, not the least of which is that, although we have briefed him about all kinds of things, there is a whole new different issue, your Honour, that he will have to confront.

And your Honour, he has been asked to form a genuine view about this, and that’s the position. The other difficulty with it is that the number of things that we now have to do are all things which would ordinarily be sequenced. For example, there are 6,000 documents that were apparently discovered this week. There’s a problem with the disk, so we can’t yet access them properly. The estimate in Ms Banton’s affidavit is there will be another 750-odd. 7,000 documents have to be reviewed, and in the ordinary course one would want to do that before one got one’s witnesses out in order to add to the efficiency. So the difficulty that we have is that a whole lot of things which would ordinarily be sequenced now will have to be done simultaneously.

66    After hearing further submissions, Foster J concluded (at T18/39) that he was not going to force the parties on in June 2015. Then, after counsel for Tamaya, Mr Botsman, made a reference to the going concern assumption section of the pleading, there was the following exchange:

HIS HONOUR: Do you want to amend? Do you want to amend?

MR BOTSMAN: If that will preserve the trial date and make it easier for the defendants to address the issues - - -

HIS HONOUR: Do you want to amend, Mr Botsman?

MR BOTSMAN: -- - that will cure the problem, yes, your Honour.

HIS HONOUR: You haven't told me that before now.

MR BOTSMAN : Well, my point is that there's no need to amend the --

67    Tamaya submitted that the amendments now sought to be made were first “foreshadowed (by senior counsel for Deloitte)” at the directions hearing on 13 March 2015. This is a strange way of characterising what happened. It was no part of Mr McHugh SC’s role to foreshadow amendments on behalf of Tamaya. On my reading of the transcript, Mr McHugh SC identified an apparent need for amended pleadings, which need was rejected by Mr Botsman.

68    In vacating the trial, Foster J said “you have to accept, Mr Botsman, that your client is the main reason why it has to be vacated”. His Honour re-listed the trial to commence on 12 October 2015 with an estimate of five weeks.

69    On 27 March 2015, amended narrative statements of fact were served.

70    On 6 May 2015, the parties participated in a mediation which was unsuccessful.

19 May 2015 application by plaintiffs in shareholder class action

71    As previously noted, on 19 May 2015, Foster J heard the representative plaintiffs’ application for leave to proceed against Tamaya. His Honour’s decision is reserved.

June 2015: notification of Tamaya’s intention to seek to amend pleadings

72    By letter dated 15 June 2015, Tamaya gave notice to the Deloitte parties that it was in the process of preparing the proposed FASOC. On 18 June 2015, Tamaya gave notice to the defendants in the new directors’ proceeding that it was in the process of preparing the proposed SFASOC.

73    On 1 July 2015, the parties participated in a further unsuccessful mediation.

31 July 2015 directions hearing

74    At the directions hearing on 31 July 2015, counsel for Tamaya, Mr Withers, informed Foster J that proposed amendments to the pleadings had been served, and that an interlocutory application would be filed “in due course to have that matter determined”. Mr Withers sought a hearing date for the amendment application.

75    On behalf of Mr Kondo, Mr Jones SC said that, even if the amendments were refused, his client’s evidence would not be prepared until the end of September. “If these amendments come in, there is no chance of even getting it done”. On behalf of Messrs Callaghan, Squire, Lyne, Evans and Brodie, Mr Wood submitted that there was no realism in maintaining the October date until the scope of the allegations made by Tamaya, including in the shareholder class action, was resolved. Mr Lockhart SC, on behalf of Messrs Fisher, Lindsay, Hartley and Davidson, adopted the same position and noted that the proposed amendments were “vast”.

76    Mr Rich SC, on behalf of Mr Palmer and Mr Hick, proposed a timetable to maintain the October 2015 hearing date, on the basis that no leave to amend would be granted, but accepted that the hearing could not be ready if the amendments were allowed. His position was supported by Mr Ng on behalf of Mr Walker.

77    The Deloitte parties resisted the vacation of the October 2015 trial date. Relevant to the additional audit issues, Mr McHugh SC said that he did not “assert prejudice in relation to Mr Basford”. He said that the expert engaged to respond to Mr Basford was “substantially ready to go”.

78    Mr Henry SC, on behalf of Tamaya in the shareholder class action, said that his client had not been served with a proposed pleading to join it to the action, and he thought that that it was most unlikely that Tamaya could be ready for a hearing in October 2015.

79    Foster J vacated the October 2015 hearing. Mr Jones SC raised a question about how long the trial might take and his Honour decided to list the matter for a hearing of six weeks’ duration, recognising that he would adjust the precise duration of the hearing in the course of case management.

80    Tamaya noted that, at the hearing on 31 July 2015, no judgment had been given on whether the plaintiffs in the shareholders class action would be given leave to proceed against Tamaya.

Current position

81    The four proceedings are currently listed for a six week final hearing commencing 16 May 2016.

82    The various parties to the four proceedings are now represented by 11 sets of lawyers. The proceedings have already presented logistical difficulties for the Court. In order to list the matter to commence on 16 May 2016, being a date convenient to all parties, Foster J was made unavailable for half of the May 2016 Full Court sittings.

Discovery in relation to proposed amendments

83    By letter dated 24 July 2015, Deloitte’s lawyers sought confirmation that Tamaya had provided discovery in relation to the issues raised in the proposed FASOC. There was evidence that, on receipt of the 24 July 2015 letter, steps were taken to provide supplementary discovery. I infer from this evidence that no significant steps had been taken to give discovery on the additional audit issues prior to 24 July 2015.

84    Shortly before the hearing of the amendment applications, Tamaya gave discovery of 5,824 additional documents.

Explanation for delay in seeking amendments

85    The events the subject of the proposed amendments occurred in 2007 and 2008.

86    Tamaya’s liquidator was appointed on 17 December 2008. The liquidator has had access to Deloitte’s hard copy audit file since mid-2010. Public examinations of the directors occurred in July and October 2010. As previously noted, officers of Deloitte were publicly examined in July 2014. Tamaya then amended its pleading, twice explaining the delay in serving the amended pleading because it was waiting for expert advice, apparently from an auditor.

87    Tamaya’s liquidator did not give evidence in support of the applications. Nor was there any evidence about the work done by the expert who apparently assisted in the formulation of earlier pleadings.

88    Tamaya’s lawyers are Squire Patton Boggs. Ms Amanda Banton is the partner of Squire Patton Boggs who has the overall conduct of the Deloitte proceeding and the new directors’ proceeding on behalf of Tamaya. Ms Shaan Palmer is a solicitor at Squire Patton Boggs who has had the day-to-day carriage of the proceedings since mid-May 2015. She was also involved in the conduct of the original directors’ proceeding between February 2013 and January 2014, when she went on maternity leave. Ms Palmer became involved in the proceedings again in about mid-December 2014.

89    Ms Banton and Ms Palmer gave affidavit evidence to explain the delay and were cross-examined by Mr McHugh SC.

90    I accept the submission made on behalf of the Deloitte parties that Tamaya has had ample opportunity to identify the issues now sought to be raised. That opportunity included the powers available to be exercised by the liquidator, including the power to obtain documents (including the Deloitte audit file) and to conduct public examinations before commencing proceedings.

91    It was faintly suggested that Tamaya could not have identified the additional audit issues earlier, by reference to the fact that Mr Basford relied on Deloitte’s electronic files, received in January and February 2015 this year, to prepare his expert report. However, I was not taken to Mr Basford’s report and it was not otherwise demonstrated that the additional audit issues could not have been identified without the electronic files, or that the electronic files could not have been obtained earlier.

92    In Tamaya’s written submissions, the following two matters are said to explain the timing of the applications for leave to amend:

(1)    At the directions hearing on 13 March 2015, some of the defendants pointed out that the plaintiffs’ evidence served on 11 March 2015 was not within the scope of the case currently pleaded;

(2)    the High Court’s decision in Selig v Wealthsure Pty Ltd [2015] HCA 18; (2015) 320 ALR 47 (“Selig”) on 13 May 2015.

93    Having considered the evidence of Ms Banton and Ms Palmer, and evidence read and tendered by the various defendants, I make the following findings.

Decision to seek to plead additional audit issues

94    The additional audit issues were identified by Mr Basford, who was first retained by Tamaya’s lawyers on behalf of Tamaya on 24 November 2014. Mr Basford’s initial letter of instruction did not include matters relating to the additional audit issues because Ms Banton was unaware of those issues or did not appreciate their significance at the time of instructing Mr Basford.

95    The evidence does not reveal when the liquidator became aware of the additional audit issues. It is not obvious that the liquidator was dependent upon his lawyers to identify the issues. The evidence does not explain why the proceedings focussed on the Lichkvaz mine until Mr Basford identified the additional audit issues.

96    Ms Palmer had the initial discussions with Mr Basford after he was retained. Those discussions occurred between about 17 December 2014 and mid-February 2015. Mr Basford received electronic audit files produced by Deloitte on 14 January and 6 February 2015.

97    After securing access to the audit laptop and associated software, Ms Palmer had discussions with Mr Basford in which he relayed his preliminary views of the deficiencies of the audit to her. Mr Basford referred to myriad issues including the potential impact of deficiencies in Tamaya’s Chilean operations on Tamaya’s ability to continue as a going concern. Mr Basford also referred to the impairment of Tamaya’s Charters Towers asset.

98    Between mid-February and 25 February 2015, counsel retained on behalf of Tamaya was in charge of assisting Mr Basford to prepare his report, and Ms Palmer was attending to other aspects of preparation of the case. The “first clear indication” to Ms Palmer of the way in which the additional audit issues interacted with the claims in the proceedings was the first draft of Mr Basford’s report, provided on 25 February 2015.

99    A revised letter of instructions was issued to Mr Basford on 3 March 2015 in response to the fact that Mr Basford had identified errors in the audit outside of those that were the subject of the original letter of instruction.

100    A detailed analysis of the pleadings against Mr Basford’s report was not conducted until after Mr Basford’s report was served on 11 March 2015.

101    Ms Palmer personally became aware of the potential need to amend the pleadings when she read the transcript of the hearing before Foster J on 13 March 2015. With hindsight, Ms Palmer appreciates that Mr Basford’s comments “would become the subject of the proposed amendments” however she did not turn her mind to the possible need to amend before 13 March 2015.

102    In cross-examination, Ms Palmer accepted that it was obvious to her in March 2015, at the latest, that the new issues were outside the existing pleading.

103    Unfortunately, the evidence suggests that the lawyers acting for Tamaya did not reach a consensus about the need to amend until well after Ms Palmer had come to that realisation. There is no satisfactory explanation for this. It should have been obvious to anyone who was aware of the content of the Basford report at the time that it was served on 11 March 2015 that substantial amendments to the pleading would be required.

104    The evidence does not explain why Mr Botsman submitted to Foster J on 13 March 2015 that amendments were unnecessary. Assuming that he made that submission on instructions, those instructions should have been based on an informed consideration of whether or not amendments were necessary. Ms Palmer’s evidence indicates that she had not given informed consideration to the issue before 13 March 2015. There was no evidence that Ms Banton or any other lawyer at Squire Patton Boggs had given careful consideration to the issue before 13 March 2015. It has not been explained to me how anyone who was aware of the content of the Basford report could reasonably have concluded that amendments were not necessary.

105    Foster J should have been told on 13 March 2015 that Tamaya needed to seek leave to amend its pleadings to raise the additional audit issues identified in the Basford report, or at least that Tamaya needed to consider whether it needed to seek that leave. He should also have been told that the additional audit issues identified in the Basford report gave rise to the need for further discovery, or at least that Tamaya’s lawyers needed to consider whether there was a need for further discovery. Foster J should also have been told on 13 March 2015 by counsel for Tamaya that the additional audit issues identified in the Basford report significantly increased the scope and complexity of the proceedings. In saying this, I am not intending any criticism of Mr Botsman because I do not know the basis on which he made his submissions to Foster J.

106    As it turns out, the evidence and Tamaya’s submissions suggest that the proposed amendments did not result from a recognition of the need for leave to plead issues raised by Tamaya’s evidence but rather, was responsive to criticisms made by the Deloitte parties in court on 13 March 2015 and by letters dated 1 and 15 April 2015 from Ashurst lawyers on behalf of the Deloitte parties, and by Johnson Winter & Slattery lawyers, then acting on behalf of Mr Callaghan and Mr Squire on 15 May 2015.

107    On 1 April 2015, Ashurst sent a letter to Squire Patton Boggs saying that significant portions of the amended narrative statement and the Basford report were outside Tamaya’s pleaded case which raised doubt as to the case Deloitte was required to answer and requested Squire Patton Boggs to indicate as soon as possible whether Tamaya proposed to seek leave to amend its pleading.

108    On 15 April 2015, Ashurst sent a further letter to Squire Patton Boggs indicating that, having received no response to its earlier correspondence, Deloitte was proceeding on the basis that no application to amend the amended statement of claim would be made and the defendants would oppose Tamaya leading evidence outside the pleaded case.

109    On 17 April 2015, Squire Patton Boggs sent a letter stating that the amended narrative statement was a complete summary of Tamaya’s case and that it proposed to rely on the entirety of the Basford report. The letter went on to state:

The parties have agreed to attend at (sic) mediation on 6 May 2015. Our clients will be preparing for that mediation on the basis that all the allegations summarised in the narrative statement are pressed and all the evidence in the Basford report is in issue. We suggest that your clients should do the same.

As to whether the ASOC requires amendment, we have not yet made a final determination of this. We currently contemplate that no amendments will be needed, but that some further particularisation may be appropriate (which would essentially be along the lines of the narrative statement)....

110    This letter suggests a view that no leave was required to add further particulars (as opposed to allegations of material facts) to the statements of claim to identify the various issues raised by the Basford report. If that view was held, it was mistaken. Rule 16.02 of the Rules explains the required content of a pleading. The pleadings must identify the issues that Tamaya wants the Court to resolve: see rule 16.02(1)(c).Whether leave to amend the pleadings is required is not determined solely by reference to whether the issues raised by the Basford report are material facts or particulars. In any event, rule 16.41 requires a party to state in a pleading, or in a document filed and served with the pleading, the necessary particulars of each claim, defence or other matter pleaded by the party.

111    Ms Palmer said that the Deloitte parties agreed that it was not practical to amend the pleadings prior to the mediation fixed for 6 May 2015 and Tamaya’s lawyers agreed to reconsider the question of amendment after the mediation. The evidence concerning the Deloitte parties’ agreement appears to be Ms Palmer’s interpretation of a letter from Ashurst dated 29 April 2015.

112    The letter stated relevantly:

Our clients accept that it is not practical to your clients to amend their pleading prior to the mediation.

Beyond that, however, it is completely unacceptable for our clients to be expected to prepare their evidence, let alone defend the case at trial, based on a narrative statement and evidence which are outside your client's pleaded case. ...

In those circumstances if your client’s case is now that Deloitte’s audit report was misleading for reasons relating to Chile and going concern, those alleged contraventions will need to be properly pleaded so that our clients can understand the case put against them and the Court can understand the issues it is being asked to resolve.

…

If your client proposes to seek such leave, please let us know as soon as possible after the mediation on 6 May 2015 and in any event by 11 May 2015. Please also provide us with an explanation of the circumstances said to justify leave in a draft of the amended pleading as soon as possible so that we can let you know our clients’ position in relation to it and also consider it in preparing. For avoidance of doubt, our clients’ position in respect of any application for leave to amend is strictly reserved.

Otherwise as noted previously, on the basis of the current pleading, our clients will oppose your client leading Mr Basford’s evidence or any other evidence which falls outside the ASOC and will object to reliance in paragraphs in the Amended Narrative Statement of Facts which fall outside the ASOC. Our clients will otherwise hold your client strictly to its pleaded case.

113    If the lawyers at Squire Patton Boggs formed the view that they were entitled to rely on an agreement made on behalf of the Deloitte parties to explain any delay in seeking to amend the pleadings, that view was mistaken except as to the very short period from 29 April 2015 to 6 May 2015.

114    Ms Palmer gave the following evidence:

In mid-May, in view of the Selig decision and the complaints made earlier by the Deloitte Defendants, our agreement to reconsider the issue of amendments after the mediation and the complaints of those director defendants represented by JWS on 15 May 2015, Ms Banton, my colleague Paul Springthorpe and I considered whether to amend the Tamaya Proceedings.

After the consideration referred to above, instructions were provided to Counsel to assist with the drafting of amended pleadings in each of the Tamaya Proceedings in May 2015.

115    The evidence does not reveal precisely when Tamaya decided to seek leave to amend the pleadings. If it is correct to infer that the decision was made when counsel was briefed to assist with drafting amended pleadings (as opposed to being briefed to advise on whether amendments should be sought), then it would be unsatisfactory that the defendants were not informed of Tamaya’s decision to seek until mid-June 2015. The decision should have been made as soon as practicable after the unsuccessful mediation. Tamaya should have informed Foster J that it intended to seek leave to file amended pleadings when the shareholders class action was listed before him on 19 May 2015, so that he could have made appropriate directions to case manage the necessary application for leave to amend.

Decision to seek to plead alleged contraventions of s 1041E

116    Although Ms Banton was involved in ABN AMRO Bank NV v Bathurst Regional Council [2014] FCAFC 65; (2014) 224 FCR 1, a very large matter in which s 1041E was successfully deployed by Ms Banton’s clients, she did not turn her mind to whether to add a s 1041E claim until early May 2015, around the time of a mediation of the proceedings on 6 May 2015. I accept the submission that it is surprising that Ms Banton did not turn her mind to the possibility of pleading s 1041E earlier, in the light of her involvement in the ABN Amro case. However, in the absence of any evidence to the contrary, I accept that she did not do so.

117    Counsel newly retained to act for Tamaya in about May 2015 identified the possible contraventions of s 1041E.

118    The decision to seek to plead alleged contraventions of s 1041E was made immediately following the High Court’s decision in Selig on 13 May 2015. The decision was made because the High Court decided in that case that damages arising out of a contravention of s 1041E are not apportionable and because amendments to the pleadings were being prepared.

Time taken to prepare amended pleadings

119    The work to prepare the amended pleadings ultimately took approximately two months (from mid-May to mid-July), which a very long time to complete this work, even taking into account the size of the proposed amendments. The proposed FASOC in the Deloitte proceeding was served on 10 July 2015. The proposed SFASOC in the new directors’ proceeding was served on 27 July 2015.

Legal principles concerning amendments

Statutory framework

120    Section 37M of the Federal Court Act provides:

(1)    The overarching purpose of the civil practice and procedure provisions is to facilitate the just resolution of disputes:

(a)    according to law; and

(b)    as quickly, inexpensively and efficiently as possible.

(2)    Without limiting the generality of subsection (1), the overarching purpose includes the following objectives:

(a)    the just determination of all proceedings before the Court;

(b)    the efficient use of the judicial and administrative resources available for the purposes of the Court;

(c)    the efficient disposal of the Court's overall caseload;

(d)    the disposal of all proceedings in a timely manner;

(e)    the resolution of disputes at a cost that is proportionate to the importance and complexity of the matters in dispute.

(3)    The civil practice and procedure provisions must be interpreted and applied, and any power conferred or duty imposed by them (including the power to make Rules of Court) must be exercised or carried out, in the way that best promotes the overarching purpose.

(4)    The civil practice and procedure provisions are the following, so far as they apply in relation to civil proceedings:

(a)    the Rules of Court made under this Act;

(b)    any other provision made by or under this Act or any other Act with respect to the practice and procedure of the Court.

121    Section 37N of the Federal Court Act provides:

(1)    The parties to a civil proceeding before the Court must conduct the proceeding (including negotiations for settlement of the dispute to which the proceeding relates) in a way that is consistent with the overarching purpose.

(2)    A party’s lawyer must, in the conduct of a civil proceeding before the Court (including negotiations for settlement) on the party's behalf:

(a)    take account of the duty imposed on the party by subsection (1); and

(b)    assist the party to comply with the duty.

122    Leave to amend an originating application is to be considered under rule 8.21 and leave to amend a statement of claim under rule 16.53.

123    Rule 8.21 of the Rules provides relevantly:

(1)    An applicant may apply to the Court for leave to amend an originating application for any reason, including:

…

(g)    to add or substitute a new claim for relief, or a new foundation in law for a claim for relief, that arises:

(i)    out of the same facts or substantially the same facts as those already pleaded to support an existing claim for relief by the applicant; or

(ii)    in whole or in part, out of facts or matters that have occurred or arisen since the start of the proceeding.

(2)      An applicant may apply to the Court for leave to amend an originating application in accordance with paragraph (1)… (g)(i) even if the application is made after the end of any relevant period of limitation applying at the date the proceeding was started.

124    By rule 16.53, unless rule 16.51 applies, a party must apply for the leave of the Court to amend a pleading. Rule 16.53(4) provides that an amendment of a pleading that is made under rule 16.51 takes effect on the date the amendment is made.

Relevant case law

125    The applicable principles are well established. The Court’s powers in rules 8.21(1) and 16.53 are broad. Consideration of whether to grant leave to amend must be undertaken in accordance with the overarching purpose set out in s 37M(1) of the Federal Court Act: Australian Competition and Consumer Commission v Jutsen (No 2) [2010] FCA 982 at [12]; Suzlon Energy Ltd v Bangad [2011] FCA 92; (2011) 196 FCR 259 at [19]; University of Sydney v ResMed Limited (No 5) [2012] FCA 232 at [14]; Bowen Energy Ltd v 2KD Drilling Pty Ltd [2012] FCA 275 at [8].

126    The onus is on the party seeking leave to amend to persuade the Court that such leave should be given: Dye v Commonwealth Securities Ltd (No 2) [2010] FCAFC 118 at [17].

127    The principles articulated by the High Court in Aon apply to matters in this Court: Cement Australia Pty Ltd v Australian Competition and Consumer Commission [2010] FCAFC 101; (2010) 187 FCR 261 (“Cement Australia”) at [43]. Relevant matters the Court is to consider include:

(1)    The nature and importance of the amendment to the party applying for it: Aon at [102];

(2)    The extent of the delay and the costs associated with the amendment: Aon at [102];

(3)    The prejudice that might be assumed to follow from the amendment, and that which is shown: Aon at [5], [100] and [102];

(4)    The explanation for any delay in applying for that leave: Aon at [108]; and

(5)    The parties’ choices to date in the litigation and the consequences of those choices: Aon at [112] and Luck v Chief Executive Officer of Centrelink [2015] FCAFC 75 (“Luck”) at [44];

(6)    The detriment to other litigants in the Court: Aon at [93], [95] and [114] and Luck at [44]; and

(7)    Potential loss of public confidence in the legal system which can arise where a court is seen to accede to applications made without adequate explanation or justification: Aon at [5], [24] and [30].

128    The weight to be given to the considerations identified in Aon, individually and in combination, and the outcome of the balancing process, may vary depending on the facts in the individual case: Cement Australia at [51].

Obligation to prosecute proceedings diligently

129    A party may have a right to institute proceedings, but it has a duty to prosecute them diligently: Hong v Liew [2014] FCA 40 at [17]. This obligation is heightened where litigation is commenced at the end of a limitation period: cf Bishopsgate Insurance Australia Ltd (in liq) v Deloitte Hoskins & Sells [1999] 3 VR 863 (“Bishopsgate”) at [31] to [32] and [52] (Tadgell and Ormiston JJ; Brooking J agreeing).

Sufficient opportunity to plead the case

130    Parties must have a sufficient opportunity to identify the issues they seek to agitate: Aon at [94], [98] and [112]. At [94] and [98], the plurality said, relevantly:

…Where a party had had a sufficient opportunity to plead his or her case, it may be necessary for the court to make a decision which may produce a sense of injustice in that party, for the sake of doing justice to the opponent and to other litigants.

…what is a “just resolution” is to be understood in light of the purposes and objectives stated. Speed and efficiency, in the sense of minimum delay and expense, are seen as essential to a just resolution of proceedings. This should not detract from a proper opportunity being given to the parties to plead their case, but it suggests that limits may be placed upon re-pleading, when delay and cost are taken into account. [Rule 21 of the Court Procedures Rules 2006 (ACT) (the equivalent to s 37M)’s] reference to the need to minimise costs implies that an order for costs may not always provide sufficient compensation and therefore achieve a just resolution. It cannot therefore be said that a just resolution requires that a party be permitted to raise any arguable case at any point in the proceedings, on payment of costs.

131    In Wotton v State of Queensland [2015] FCA 910 (“Wotton”) at [56] and [57], Mortimer J said, relevantly:

… the focus of the overarching purpose is on the just resolution of disputes. In complex, novel and seriously contested litigation … a “just” resolution invariably involves resolving tension between the competing interests of and prejudices to the parties, and tension with the interests of other litigants in the Court whose proceedings depend to a greater or lesser extent on the current proceeding being heard and determined so as to “make room” for other proceedings.

The familiar passage in Aon … at [111]- [112] is an important aspect of resolving those tensions:

An application for leave to amend a pleading should not be approached on the basis that a party is entitled to raise an arguable claim, subject to payment of costs by way of compensation. There is no such entitlement. All matters relevant to the exercise of the power to permit amendment should be weighed. The fact of substantial delay and wasted costs, the concerns of case management, will assume importance on an application for leave to amend ... A party has the right to bring proceedings. Parties have choices as to what claims are to be made and how they are to be framed. But limits will be placed upon their ability to effect changes to their pleadings, particularly if litigation is advanced. That is why, in seeking the just resolution of the dispute, reference is made to parties having a sufficient opportunity to identify the issues they seek to agitate. (Emphasis in original.)

Prejudice not compensable by costs order

132    In Richards v Cornford (No 3) [2010] NSWCA 134, Allsop P said (at [42] to [44]):

42. The litigious process is inherently stressful for any party, in particular an individual. Ms Richards embarked upon a time-consuming, stressful and potentially very expensive process. Litigation can be described as “a costly and stressful, though necessary, evil”: White v Overland [2001] FCA 1333 at [4]. The wider passage and the paragraph in which this appeared as part of the reasoning were approved by this Court in Nowlan v Marson Transport Pty Ltd [2001] NSWCA 346; 53 NSWLR 116 at [1], [28] and [39]. That stress includes the uncertainty and concern as to the effects of legal costs that can lead to bankruptcy and financial ruin. The reality of the personal strain of litigation is now clearly recognised by the Courts: Ketteman v Hansel Properties Ltd [1987] AC 189 at 220; Berowra Holdings Pty Ltd v Gordon [2006] HCA 32; 225 CLR 364 at [37]; GSA Industries Pty Ltd v NT Gas Ltd (1990) 24 NSWLR 710 at 715-716; Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; 239 CLR 175 at [100].

43. This being the nature of the process of litigation, the courts in this country in modern times, have sought to exercise control and supervision over litigation in order to see cases resolved in a relatively timely fashion. It cannot always be done. Parties, practitioners, courts and judges sometimes fall behind by reference to appropriate standards of efficiency and timeliness. Nevertheless, the need for the due despatch of the cases of litigants is ever-present and is a fundamental aim of the administration of justice.

44. To put the matter simply and bluntly, parties are entitled to expect that the costly and stressful, though necessary evil that is litigation be resolved with reasonable despatch so as to minimise, where reasonably possible, the time during which people are subjected to its rigours and strains.

133    In Bi v Mourad [2010] NSWCA 17, Allsop P said (at [47]):

Delay is a feature of litigation intended to be eliminated as far as possible by the statutory enactment of the regime in the Civil Procedure Act [2005 (NSW)]. It cannot always be done. This purpose is not through some parliamentary authoritarian or over-prescriptive view of how people should lead their lives; rather, it is through the keen recognition of the conduct of the courts, in particular in the 20th century, of the need to deal with cases expeditiously if they are to be dealt with justly. Delay and case backlog are not merely factors affecting the costs of delivering justice; they corrode the ability of the courts to provide individual justice. The reforms that have taken place under the Civil Procedure Act and the evident attempt by courts to ensure efficiency can be seen not merely to reflect worthy efforts for efficiency but also to be steps vital for the provision of timely individual justice. Views may differ of justice in any particular case; that is the nature of the term and the value-laden task of a decision-maker to do justice.

134    In Bishopsgate, Tadgell and Ormiston JJ observed at [60]:

… But the nature of the claim and the potentiality for prejudice must be looked at in light of the claims made. Where a claim is made against individuals relating to their probity or their competence, especially their professional competence, and the claim is for many millions of dollars, then it is not hard to infer that defendants against whom such allegations are made are under a heavy burden….

135     See also White v Australian Securities and Investments Commission [2013] QCA 357 and Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2004] NSWSC 1219 at [70], [75] to [76] and [95] to [97].

Amendments to originating applications

136    The Court is required to focus on the facts currently pleaded and to determine whether the new legal foundation for the claim arises out of the same, or substantially the same facts: Carter, in the matter of Spec FS NSW Pty Ltd (in liquidation) [2013] FCA 1027; (2013) 225 FCR 79 at [38]; Darcy v Medtel Pty Limited (No 3) [2004] FCA 807 at [30].

137    The question is whether the “overlap is so great that the new cause of action can fairly be said to arise out of substantially the same facts as the old cause of action”: New South Wales v Radford [2010] NSWCA 276; (2010) 79 NSWLR 327 at [69], citing Brickfield Properties Ltd v Newton [1971] 1 WLR 862 at 880 (Cross LJ).

Limitation periods

138    The Court’s power to grant leave to amend originating applications extends to adding new claims for relief arising out of the same or similar facts even if that relief is statute-barred. The power to grant leave to amend statements of claim also extends at least that far: McGrath v HNSW Pty Ltd [2014] FCA 165; (2014) 219 FCR 489 (“McGrath”) at [50] and [51]; Caason Investments Pty Limited v Cao [2014] FCA 1410; (2014) 104 ACSR 67 (“Caason”) at [34] (reversed on appeal on other grounds); Australian Securities and Investments Commission v Australian Property Custodian Holdings Ltd (receivers and managers appointed) (in liquidation) (controllers appointed) (No 2) [2013] FCA 409; (2013) 213 FCR 289 (“Australian Property Custodian”) at [16] to [19]. In Clasul Pty Ltd v Commonwealth of Australia [2014] FCA 1133 (at [31]), the parties agreed that the Court’s discretion to grant leave to amend a pleading should be exercised conformably with the requirements of rule 8.21(1)(g)(i) so that leave to amend the current statement of claim should be granted only if the Court was satisfied that the new foundation in law for the claim for relief, disclosed in the proposed amended statement of claim, arose out of the same facts as those already pleaded to support an existing claim for relief.

139    The Deloitte parties submitted, relying on rule 16.54, that any leave to amend should be on terms that the amendments take effect only from the date of the amendment. They argued that there is no warrant, given Tamaya’s conduct in the pursuit of the proceedings and the present amendments, for Tamaya to be granted any indulgence in respect of the application of any limitation period.

140    Rule 16.54 is expressed to apply to amendments made under rule 16.51, that is, without a grant of leave. Accordingly, it does not apply to this case. The Deloitte parties’ argument, presumably, is that it would be surprising if a party which must obtain leave to amend is in a better position than a party which is able to amend as of right: cf McGrath at [8]. If that is the argument, I do not accept it. In my view, rule 16.53 is broadly expressed to permit the Court to grant leave to amend on such terms as it considers fit.

141    By s 1317K of the Corporations Act, proceedings for a compensation order may be started no later than 6 years after the contravention.

Inadequate pleadings

142    The Court will also consider whether the proposed amendments disclose a reasonable cause of action, or whether they have a tendency to cause prejudice, embarrassment or delay in the proceeding: Research in Motion Ltd v Samsung Electronics Australia Pty Ltd [2009] FCA 320; (2009) 176 FCR 66 (“Research in Motion”) at [21] to [22]; Wotton at [59].

143    The Court will not grant leave to allow an amendment if it would be liable to be struck out had it appeared in the original pleading: Caason at [21]; Research in Motion at [21] to [22]; Horton v Jones (No 2) (1939) 39 SR (NSW) 305 at 310; McGuirk v University of New South Wales [2009] NSWSC 1424 at [18].

144    On behalf of Tamaya, it was submitted that amendments to a pleading which bring it “into line with the evidence” adduced by a party are routinely admitted, even after evidence is completed at the trial. In support of this proposition, Tamaya cited Leotta v Public Transport Commission (NSW) (1976) 9 ALR 437 at 440; Dare v Pulham [1982] HCA 70; (1982) 148 CLR 658 at 664 and Prowse v Rocklands Richfield Ltd [2012] NSWSC 799 (“Prowse”). The first two cases are concerned with the position after evidence has been admitted at trial, and not evidence that has merely been served. Prowse was a case in which the Court had decided to allow the plaintiffs to amend to bring the case into line with the evidence which had been served, to ensure that the real issues between the parties were tried. The reasons do not reveal the precise circumstances in which the Court decided to exercise its discretion to permit a further opportunity to amend.

Public confidence in the judicial system

145    In Aon at [5], French CJ said:

… whatever costs are ordered, there is an irreparable element of unfair prejudice in unnecessarily delaying proceedings. Moreover, the time of the court is a publicly funded resource. Inefficiencies in the use of that resource, arising from the vacation or adjournment of trials, are to be taken into account. So too is the need to maintain public confidence in the judicial system.

146    In Nowlan v Marson Transport Pty Ltd [2001] NSWCA 346; (2001) 53 NSWLR 116 at [26] Heydon JA said that modern trends in the conduct of litigation “were developed because the expense of courts to the public is so great that their use must be made as efficient as is compatible with just conclusions. Civil litigation is too important an activity to be left solely in the hands of those who conduct it”.

Consideration: Applications for leave to file amended originating applications

Deloitte proceeding

147    Having regard to Mr Hutley SC’s concession that the proposed new declaration, as to contraventions of s 1041E, is unnecessary, I will not grant leave to allow that amendment.

148    Apart from the amendments to refer to the FASOC (which will depend on the fate of that statement of claim), Tamaya submitted that the proposed amendments should be addressed after Foster J’s decision on the application for leave to proceed in the shareholder class action. I accept the submission on behalf of the Deloitte parties that I should dismiss the application to make those amendments without prejudice to Tamaya’s right to seek leave to amend once Foster J’s decision on the leave to proceed application has been delivered.

149    Mr McHugh SC made a submission to the effect that Tamaya should not be permitted to amend the originating application to make the existing claims on the grounds stated in the FASOC to the extent that the amendments to the FASOC raised new causes of action that did not meet the requirements of rule 8.21(1)(g)(i) and (2). I do not accept that submission. In my view, the form for the originating application (form 15) identifies the claims for relief “on the grounds stated in the statement of claim” being the most recent statement of claim filed in accordance with the Rules or with the Court’s leave. Accordingly, the amendments to the originating application to refer to the FASOC would be strictly unnecessary, if leave to amend were granted, in order to permit Tamaya to rely on the grounds stated in the FASOC for the relief claimed in the relevant originating application.

New directors’ proceeding

150    The same approach should apply to the proposed further amended originating application.

151    Mr Hutley SC acknowledged that Tamaya was making new allegations of fact with respect to the Chilean assets and Charters Towers. However, he argued that the essence of the case is about the deficiencies in the relevant accounts or the deficiencies in the communications with the auditors so that the similarity between the existing claims and the proposed claim is sufficient to allow this amendment to go through.

152    He also argued that, if the amendments to the statement of claim are addressed first and allowed, then the amendment to the originating application would follow “as night follows day”. I will defer consideration of this proposed amendment until I have addressed the proposed FASOC.

Consideration: Applications for leave to file amended statements of claim

Nature and importance of the proposed amendments

Additional audit issues

153    The proposed amendments are very substantial, complex and voluminous. They concern events which happened over seven years ago. As Mr Hutley SC observed, they address different aspects of the 2007 audit and 2007 financial statements which are the subject of the proceedings, as currently framed. The proposed amendments are said to be supported, almost entirely, by evidence which was served in March and April 2015.

154    There is no reason to believe that the additional audit issues could not, with reasonable diligence, have been identified before the proceeding was commenced.

155    The importance of the amendments to Tamaya’s cases was not explained in any detail, either in written or oral submissions. In reply, Mr Withers said that the Chilean amendments are critical for Tamaya but the submission was not developed. It was not suggested that Tamaya would fail if leave to amend were not granted. Nor was it explained how the amendments would have any particular value for Tamaya’s case. The relative significance of the additional audit issues, in comparison with the issues concerning the Lichkvaz mine, was not explained.

156    Mr Basford concluded, in his capacity as an expert witness, that he should draw the additional audit issues to the attention of Squire Patton Boggs. Tamaya must have given instructions for the additional audit issues to be addressed in the Basford report. I conclude from this and from the effort expended by Tamaya in causing the amendments to be prepared that Tamaya considers that the amendments would add significant value to its case.

Contraventions of sections 1041H and 1041E

157    These proposed amendments raise serious allegations against the various defendants in connection with events that occurred over seven years ago. In particular, a contravention of s 1041E is an offence, involving an element of knowledge or recklessness: see s 1311 of the Corporations Act and Selig at [36].

158    I accept the submission that the s 1041E pleadings raise a significant new issue, namely, the state of mind of the various defendants at the time of making the alleged statements or allegedly disseminating the relevant information.

159    Again, there is no reason to believe that the alleged contraventions could not, with reasonable diligence, have been identified before the proceeding was commenced, although I accept Mr Hutley SC’s submission that the potential scope of s 1041E has only gradually become more obvious.

160    Tamaya observes that the time for bringing criminal proceedings for a contravention of s 1041E has expired, except with the Minister’s consent: see s 1316 of the Corporations Act.

Statute-barred causes of action?

161    Mr Hutley SC accepted, in his oral submissions, that the proposed amendments added new facts, which could be accepted as introducing new causes of action. This concession must be taken to apply to both the FASOC in the Deloitte proceeding and the SFASOC in the new directors’ proceeding.

162    I did not detect any submission on behalf of Tamaya contrary to the Deloitte parties’ contention that any cause of action now sought to be introduced into the Deloitte proceeding is plainly statute barred. As I understood the way Tamaya put its case, it was that, to the extent that the proposed amendments introduced a new cause of action, that cause of action arose out of the same facts or substantially the same facts as those already pleaded to support existing claims for relief. Even so, the position was not so clear that I would be prepared to make findings about whether any new cause of action sought to be introduced into either the FASOC or the SFASOC would be statute-barred: cf Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514 at 533 to 534 (Mason CJ, Dawson, Gaudron and McHugh JJ).

163    On behalf of Mr Kondo, it was submitted that at least some new causes of action are sought to be introduced by way of the proposed amendments relying on an entirely new factual foundation, namely, those founded upon the newly pleaded facts concerning Tamaya’s Chilean operations. It was argued that this is, in itself, a reason to refuse leave to amend, citing Agtrack (NT) Pty Ltd t/as Spring Air v Hatfield [2003] VSCA 6; (2003) 7 VR 63 at [42] to [44] and Australian Property Custodian. The relevant passage in Agtrack supports the proposition that, ordinarily, the introduction of a new cause of action is a matter which should take effect from the date of its introduction. If the new cause of action were statute-barred, then there would be no point in allowing the amendment on this basis.

164    I do not accept that the additional audit issues are matters that arise out of the same facts or substantially the same facts as those already pleaded to support existing claims for relief. On a pragmatic level, that submission is falsified by the sheer volume of the proposed amendments. On a geographic level, the submission is falsified by the location of the relevant assets on different continents from the Lichkvaz mine. Although the cases concern, in essence, a single audit and a single set of financial statements, in my view, those matters do not overcome the diversity of the facts required to be considered such that the “story” now sought to be set up is “the same story as that set up all along”: cf Dornan v JW Ellis & Co Ltd [1962] 1 QB 583 at 593 to 594.

165    Accordingly, if it is necessary that the additional audit issues are matters that arise out of the same facts or substantially the same facts as those already pleaded to support existing claims for relief (as to which, see paragraph 140 above), then I would find that this criterion is not satisfied in relation to the additional audit issues, particularly insofar as the additional issues concern the Chilean mine and the Charters Towers asset.

166    Mr Hutley SC submitted that, if the amendments were allowed, the question of the time from which they should take effect ought to be a matter for the trial judge. I do not agree, except to the extent that the amendments do not raise new causes of action. I accept the submission, put on behalf of the Deloitte parties that there is no warrant, in the circumstances of this case, for Tamaya to be granted any indulgence in respect of the application of any limitation period.

Extent of delay and costs if amendments allowed

167    Tamaya’s then proposed applications for leave to amend were a significant factor in the vacation of the October 2015 trial. To that extent, they have already caused delay.

168    Mr Hutley SC accepted that the hearing of the proceedings could be extended by up to two weeks, or even three weeks. Two of the directors’ solicitors (Mr Ross, a partner of Johnson Winter & Slattery and Mr Cameron, a partner of Sparke Helmore lawyers) gave evidence to the effect that, in their opinion, the trial could not be completed within six weeks. Even so, Mr Hutley SC asserted that there is no basis for concluding that the trial would go off or not be ready.

169    The six week trial scheduled for May 2016 was set on the basis that two parties’ senior counsel, Mr McHugh SC and Mr Lockhart SC, would not be available after 24 June 2016. The docket judge obtained approval for the trial to commence during the May 2016 Full Court sittings to accommodate their availability. It is not suggested that the hearing could commence before 16 May 2016.

170    On behalf of Mr Kondo, it was submitted that the six week trial now set must be taken to accommodate the significant increase in the number of legal representative attending as a result of the directors no longer being represented by only two law firms.

171    Contrary to Mr Hutley SC’s submission, I conclude that there is a real risk that the May/June 2016 hearing dates will not be sufficient in the event that the amendments are granted. The six week trial was set down by the docket judge without him being informed of the extent to which the proposed amendments would affect the length of the trial.

172    I cannot form a final view about the extent of this risk. It is notoriously difficult to estimate the duration of long trials (of which this will be an example) and there are many techniques for managing that duration (which are necessarily subject to the rules of procedural fairness). However, it is a significant risk because, if it emerges that the trial will not be concluded in that timeframe, it is likely that the docket judge will conclude that the trial should not start at all because of the unfairness that could arise from having the trial conducted in two stages. In that event, the trial may not be able to be rescheduled until before 2017. This result follows from the current unavailability of two senior counsel briefed in the proceedings, from 24 June 2016 for the rest of 2016, and the current substantial commitments of the docket judge for 2016. I accept that a possible solution might be for Tamaya to pay the costs to retain new senior counsel who would be available to complete the trial in 2016.

Prejudice to the defendants

173    On behalf of Mr Callaghan, it was submitted (based on affidavit evidence of his solicitor, Mr Ross) that the following difficulties will arise for the director defendants if the proposed amendments are allowed:

(1)    Documents reviewed previously (approximately 50,000) will need to be re-reviewed, resulting in costs thrown away;

(2)    Further meetings will need to be arranged with the director defendants, which will incur significant costs;

(3)    Significant time will need to be spent by lawyers and counsel in amending and drafting a defence to the amended claims and the affidavits of the director defendants to address the new issues;

(4)    Experts who have already been instructed will need to be provided with amended instructions and further documents to consider which will require significant time and expense;

(5)    The trial is likely to take longer and therefore there is a real risk it will be unable to be completed next year; and

(6)    Further security for costs will be required.

174    The submission that tens of thousands of documents would need to be re-reviewed if the amendments are allowed was also made on behalf of Mr Palmer, Mr Kondo and Mr Fischer. Both Mr Palmer and Mr Kondo will be required to prepare their evidence for a third time, having previous done so in answer to the old directors proceeding case and the new directors’ proceeding case as currently formulated.

175    The following matters were raised on Mr Palmer’s behalf:

(a)    he has made travel arrangements to return back to Australia from New York on dates to accommodate the hearing in these proceedings which has now been vacated twice;

(b)    he will be in New York from 23 November 2015 until 23 December 2015, which will affect his ability to prepare and the ability to finalise his evidence if the amendments are allowed;

(c)    Mr Palmer has the matter hanging over his head from a reputational perspective and considers there to be a stigma attached to the proceedings which adversely impacts on his business interests;

(d)    he has found that every time he get close to finalising his evidence, after considerable effort, he is served with an amended pleading requiring him to revisit issues and matters not previously addressed;

(e)    he is placed at a significant disadvantage by the passing of time. If the amendments are allowed, Mr Palmer will be required to consider and give evidence on events occurring in 2007 and 2008;

(f)    the matters the subject of the opposed amendments were not put to Mr Palmer during his public examination, at a time that was much closer to the events in question, even though they were the subject of documents produced by Deloitte in answer to the production order.

176    On behalf of Mr Kondo, it was submitted that the width of the proposed amendments would require preparations for Mr Kondo’s affidavit largely to start again. Among other things, this will require Mr Kondo to attend Australia for a second time, resulting in wastage of travel costs. Mr Kondo’s solicitor, Mr Cameron, has assessed the costs thrown away as a consequence of the procedures undertaken (by way of document review and proofing Mr Kondo) that will need to be redone if amendments are allowed to be in the order of $100,000. Mr Cameron estimates the additional costs of defending Mr Kondo if the amendments are allowed in the order of $830,000. That figure is based on assumptions that include an increased trial length of three weeks.

177    On behalf of Mr Kondo, the Court was asked to take into account the strain of litigation on individual defendants, and to note that the size of the claim against him – in excess of $50 million – plainly imperils his solvency and professional future. The uncertainty about whether the trial can be completed in 2016 adds to that strain.

178    Mr Kondo has already been through two proofing processes, accommodating the initial case as pleaded, and the case as first amended. Amendments will necessitate a third proofing process.

179    On behalf of Mr Fischer, it was emphasised that he is currently working in Turkey. He has attended Australia in May and December 2013, January, April and November 2014, and February, June and July 2015 to prepare for the proceedings and a draft affidavit of approximately 150 pages has been created. The first set of contested amendments were received on the day that Mr Fischer returned to Turkey from Australia. It has not proven practical for Mr Fischer to review documents and progress his affidavit in Turkey.

180    On behalf of the Deloitte, the following aspects of prejudice were identified:

(a)    The strain arising from allegations of contravention of s 1041E;

(b)    Mr Biggs and Mr Harris each have a very poor recollection of the relevant events, which is unsurprising given the passage of time since the audit;

(c)    Mr Harris, in particular, is suffering a great deal of uncertainty and stress from the litigation;

(d)    The Deloitte parties may have cross claims against some of the directors, which are now statute-barred;

(e)    The Deloitte parties are insured under a policy which “continues to be eroded by the wholly unsatisfactory way that Tamaya has conducted the proceedings”;

(f)    The Deloitte parties have been denied the opportunity to rely on privilege against self-incrimination by the conduct of the proceedings to date without alleged contraventions of s 1041E;

(g)    Costs prejudice. The Deloitte parties noted that Tamaya’s previous provision of security for costs has been completely exhausted and Tamaya has not agreed to pay, nor made any offer to provide further security for costs. Tamaya’s litigation funder has not given an undertaking in relation to the Deloitte parties’ costs. The solicitor for the Deloitte parties expects that, even if further security is ordered, a substantial portion of the Deloitte parties’ actual costs will not be recoverable in the event that they are ultimately successful in defending the claims against them.

181    I accept that these various submissions identify matters of real prejudice to the various defendants.

182    I accept that the amendments, if allowed, would significantly disrupt the orderly preparation of the hearing, particularly arising from the need to re-review documents and re-proof witnesses to prepare for a significantly expanded case. Whether that is regarded as a cost of the amendment or a matter causing prejudice to the defendants, or a matter that would tend to reduce confidence in the judicial system, or all three, it is a matter to be weighed in the balance in deciding whether to allow the amendments.

183    I also accept that the amendments, if allowed, would cause significant non-compensable prejudice to the defendants by increasing the unavoidable strain of the litigation on them. That prejudice would be particularly acute because of the length of time since the events the subject of the proceedings, which exacerbates the strain of preparing a defence due to loss of recollection, and because of the large expansion of the matters in issue, including the issue of states of mind in 2007 and 2008.

184    I also accept that there is prejudice arising from the fact that no additional security for costs has been offered in respect of the proposed expanded case so that, if the amendments were allowed, the defendants would face uncertainty as to the extent to which they are at risk of irrecoverable costs in the event that they succeed in the litigation.

Adequacy of explanation for delay in applying for amendments

185    In my view, Tamaya was required to explain why the amendments were not included in the original statement of claim and why it took from March to late July 2015 to make the applications for leave to amend.

186    As to the first matter, the explanation is incomplete. Accepting that Ms Banton did not know of the additional audit issues before they were drawn to the attention of Squire Patton Boggs by Mr Basford, the evidence does not explain why she did not know of those issues. The evidence does not reveal why, the liquidator having conducted an investigation and having obtained expert assistance, the current pleadings focus on the Lichkvaz mine and not on the matters identified by Mr Basford. I cannot infer from Ms Banton’s evidence that the liquidator was not aware of the additional audit issues before Ms Banton. I cannot conclude that the liquidator did not make a deliberate decision to focus the proceedings on issues concerning the Lichkvaz mine. I cannot determine to what extent the delay in raising the additional audit issues is attributable to Tamaya’s lawyers rather than to the liquidator of Tamaya.

187    The explanation of what happened once Mr Basford identified the additional audit issues involves delay by Tamaya’s lawyers in recognising the need to amend, followed by a decision to delay drafting amendments in the hope of a successful mediation, followed by a very slow drafting process. Further, in the course of the process that led from Mr Basford’s identification of the additional audit issues until the service of the proposed amendments, the Court was not sufficiently informed by Tamaya of the breadth of the expansion that it sought to make to its case.

188    I accept the adequacy of the explanation given for the delay in deciding to allege contraventions of s 1041E.

Complaints about deficiencies of pleadings and particulars

Alleged s 1041E contraventions in Deloitte FASOC

189    Paragraph 45.4 of the FASOC alleges that, by carrying out the “Tamaya 2007 Audit Retainer” and the “Iberian Retainer” including the “Deloitte Audits” and the issuance of the “Deloitte Reports”, Deloitte made statements or disseminated information, within the meaning of s 1041E of the Corporations Act, about Tamaya and Iberian. Mr Hutley SC described this allegation as a “teaser” (rather than a pleading of a material fact). I will not grant leave to allow this proposed amendment.

190    The main allegation is at paragraph 85.3(b) of the FASOC which pleads:

85.    Further or alternatively by reason of the matters set out in paragraphs 74A to 82:

…

85.3.    in providing the Tamaya 2007 Annual Audit Report to Tamaya and making the Tamaya 2007 Financial Report Representations and the Tamaya 2007 Conduct of Audit Representations, Deloitte:

…

(b)    made statements or disseminated information that was false in a material particular or materially misleading in contravention of s 1041E of the Act in circumstances where Deloitte ought reasonably to have known that the Tamaya 2007 Financial Report Representations and the Tamaya 2007 Conduct of Audit Representations were false in a material particular or materially misleading.

191    By paragraph 26 of the FASOC, unless otherwise specified, references to Deloitte are taken to incorporate Biggs, Harris and Leotta. Mr Hutley SC did not suggest that paragraph 85.3(b) should be read as anything other than an allegation against each of the Deloitte parties. As noted above, the proposed amended originating application seeks a declaration that each of the defendants engaged in conduct in contravention of s 1041E.

192    Paragraph 73 alleges that on 31 March 2008, Deloitte issued the unqualified “Tamaya 2007 Annual Audit Report”.

193    Paragraph 74 alleges:

74.    By reason of the matters pleaded in paragraphs 71 to 73, in giving the Tamaya 2007 Annual Audit Report, Deloitte and Biggs represented to Tamaya and to the market of current and potential investors and creditors in and of Tamaya:

74.1    that in the opinion of Deloitte and Biggs:

(a)    the Tamaya 2007 Annual Report was prepared in accordance with and complied with the Act, the Regulations, and all applicable Accounting Standards and other mandatory professional requirements in Australia ;

(b)    the Tamaya 2007 Annual Report gave a true and fair view of the financial performance and position of Tamaya and its consolidated entities as at 31 December 2007; and/or

(c)    there were no circumstances requiring Biggs or the 2007 Auditor to notify ASIC of the existence of circumstances amounting to a significant contravention of the Act;

194    On a fair reading of paragraphs 73 and 74, taking into account the specific reference to Mr Biggs in paragraph 74, the references to “Deloitte” are references to the first defendant and should not be construed to imply allegations that either of Mr Harris or Mr Leotta issued the “Tamaya 2007 Annual Audit Report”.

195    On that basis, there is no allegation that either Mr Harris or Mr Leotta made any statement or disseminated any information pleaded in paragraph 85.3(b). Alternatively, the pleading does not identify with sufficient clarity how it is alleged that Mr Harris or Mr Leotta made any statement or disseminated any information pleaded in paragraph 85.3(b).

196    Further, paragraph 85.3(b) does not identify with sufficient clarity the material facts relied upon to allege that any of the Deloitte parties ought reasonably to have known that the “Tamaya 2007 Financial Report Representations” and the “Tamaya 2007 Conduct of Audit Representations” were false in a material particular or materially misleading. For each representation, there should be an identification of the facts relied upon to allege that the representation was false in a material particular or materially misleading. Then, the particular facts by which each of the Deloitte parties ought reasonably to have known of the false or misleading nature of each representation ought to be identified.

197    I have reviewed paragraphs 74A to 82 of the FASOC which span 56 pages. They are within section XA entitled “Deloitte’s conduct of the audit” (comprising section A “Work performed by Deloitte”, section B “Audit evidence”, section C “Impairment of non-current assets”, section D “Acquisition and consolidation accounting”, section E “Going concern assumption”) and section XI “Contraventions by Deloitte” (comprising section A “Breaches of accounting standards” and section B “Deloitte audit deficiencies”. The allegations travel well beyond questions of the false or the misleading nature of the relevant representations, and questions of the Deloitte parties’ state of mind concerning those matters. There are numerous allegations about what a “reasonable auditor in the position of Deloitte” would have done, but no allegations about what a person in the position of either of Mr Biggs, Mr Harris or Mr Leotta would have done or would have known.

198    Finally, there is no pleading of how the provision of Tamaya 2007 audit report involved making a representation by any of the Deloitte parties to the market of current and potential investors and creditors in and of Tamaya, as alleged in paragraph 74 of the FASOC. Nor is there a pleading of how the provision of that report involved the making of a statement, or the dissemination of information that was likely to have one of the effects specified in s 1041E(1)(b).

199    For all of these reasons, I conclude that the paragraph 85.3(b) is liable to be struck out and should not be allowed.

Alleged contraventions of sections 1041E and 1041H in new directors’ SFASOC

200    Paragraphs 37A and 37B of the SFASOC plead that, pursuant to ss 1041E and 1041H, each of the defendants owed certain obligations.

201     Paragraph 65AAA.6 pleads:

65AAA.    By approving, permitting and/or causing the Tamaya 2007 Annual Report to be published…including:

65AAA.1    issuing the Tamaya 2007 Annual Directors’ Report;

65AAA.2    issuing the Tamaya 2007 Annual Financial Statements;

65AAA.3    making the Tamaya 2007 Annual Directors’ Declaration;

65AAA.4    making the Tamaya 2007 Annual Compliance Representations pleaded at paragraph 65.1; and

65AAA.5    making the 2007 Annual Basis Representations pleaded at paragraph 65.2,

the Existing Directors (being each of the First to Sixth Respondents):

65AAA.6     made statements or disseminated information about Tamaya and Tamaya subsidiaries that were likely to induce persons to apply for, dispose of or acquire financial products (being Tamaya Shares) or were likely to have the effect of increasing, reducing, maintaining or stabilising the price for trading in Tamaya Shares, within the meaning of section 1041E of the Act; and/or

65AAA.7    engaged, in relation to a financial product, conduct within the meaning of section 1041H of the Act by publishing a notice in relation to a financial product (being Tamaya Shares).

202    Paragraph 69 alleges:

69.    Further, by reason of the matters set out in paragraphs 66 to 68, the 2007 Appendix 4E and the Tamaya 2007 Annual Report (including the Tamaya 2007 Annual Directors’ Report, the Tamaya 2007 Annual Financial Statements, the Tamaya 2007 Annual Directors’ Declaration, the Tamaya 2007 Annual Compliance Representations and the 2007 Annual Basis Representations):

…

69.3    were statements or information that were false in a material particular or materially misleading within the meaning of s 1041E of the Act, as pleaded at paragraph 37A; and/or

69.4    was conduct in relation to a financial product that was misleading or deceptive or likely to mislead or deceive within the meaning of s 1041H of the Act, as pleaded at paragraph 37B above.

203    Paragraph 66 specifies 15 respects in which the 2007 Annual Financial Statements are said to be in breach of accounting standards. Paragraph 67 has been deleted. Paragraph 68 alleges that the 2007 Annual Financial Statements did not give a true and fair view of the financial position and performance of Tamaya as at 31 December 2007.

204    Paragraph 74B alleges that each of the first to sixth defendants knew or ought to have known that the information contained in the Tamaya 2007 annual report was false in a material particular or was materially misleading. The particulars to paragraph 74B.3 state that the Tamaya 2007 annual report was materially misleading and/or false or misleading in a material particular by reason of one or more of the facts, matters and circumstances pleaded at paragraphs 66 to 69 and in relation to each of the first to sixth defendants:

(a)    Paragraph 69K in relation to Mr Callaghan;

(b)    Paragraph 69W in relation to Mr Palmer;

(c)    Paragraph 69AI in relation to Mr Fischer;

(d)    Paragraph 69AU in relation to Mr Squire;

(e)    Paragraph 69BI in relation to Mr Kondo;

(f)    Paragraph 69BT in relation to Mr Hick.

205    Taking Mr Callaghan as an example, paragraph 69K specifies certain documents in his possession and certain meetings which he attended as grounds for alleging:

…that he knew or ought to have known that the Tamaya 2007 Annual Report (including the Tamaya 2007 Annual Directors' Report, the 'Tamaya 2007 Annual Financial Statements, the Tamaya 2007 Annual Directors' Declaration. the Tamaya 2007 Annual Compliance Representations and the 2007 Annual Basis Representations) were misleading by reason of the facts constituting the breaches (including the breaches of accounting standards) pleaded in paragraphs 66 to 69 and the matters pleaded at paragraph 69K above.

206    On behalf of Mr Callaghan, it was argued that “approving, permitting and/or causing the Tamaya 2007 Annual Report to be published” could not amount to making a statement or disseminating information. Similarly, it was submitted that “approving, causing, permitting and/or acquiescing in the publication and dissemination of the Tamaya 2007 Annual Report” could not amount to conduct in relation to a financial product or financial service within the meaning of s 1041H. Although I can see the force in these points, I am not convinced that they should be resolved on the amendment application. That is, in my view, provided the amendments should otherwise be allowed, I consider that these arguments should await a final hearing.

207    I am not satisfied that the pleading of the alleged ss 1041E and 1041H contraventions would be liable to be struck out.

Particulars referring to Mr Basford’s report

208    Various of the proposed amendments to the SFASOC refer, in particulars to Mr Basford’s report. Examples are paragraph 65AHE which specifies the bases on which it is alleged that the “Going Concern Representations” were misleading, paragraph 65AJ which specifies the bases on which it is alleged that the “Representation Letter” was and paragraph 66, which specifies breaches of accounting standards by the “2007 Annual Financial Statements”. I was not taken to Mr Basford’s report and the materiality of this complaint is unclear to me. Ordinarily, I would have expected that a specification of the basis on which various statements are said to be misleading would be sufficient for the purposes of a statement of claim.

Conclusions about disputed amendments

Proposed FASOC in the Deloitte proceeding and SFASOC in the new directors’ proceeding

209    I have concluded that the Court should not grant leave to allow the disputed amendments for the following reasons:

(1)    I am not satisfied that the amendments are sufficiently important to Tamaya’s case to justify the significant disruption to the defendants and the wasted resources that would result if the amendments were allowed. Although the amendments were asserted to be critical, Tamaya did not seek to explain the impact on its case if the amendments were not allowed. I recognise the desirability of including the alleged s 1041E contraventions in the claim, on the basis of their non-apportionability. However, I am not satisfied that the amendments are necessary or appropriate “to facilitate the just resolution of” the disputes in the proceedings having regard to the matters set out below.

Tamaya emphasised that the purpose of pleading the additional audit issues was to bring the pleadings into line with the evidence. I do not consider that purpose to demonstrate the importance of the amendments to Tamaya’s case, in the absence of a clear explanation of the importance of the additional audit issues to the case;

(2)    The amendments concern events which occurred over seven years ago and travel well beyond the scope of the case currently pleaded. The defendants are likely to be disadvantaged by the requirement to defend the proposed new claims so long after the relevant events. In saying this, I acknowledge that the position may, to some extent, be mitigated by the existence of the audit file, however, I do not accept that this should be considered a complete answer to the well-recognised potential difficulties of answering claims after several years;

(3)    To allow such extensive amendments, in relation to facts that were ascertainable at the time the proceedings commenced, and after such a long time, would be to permit the proceedings to be conducted in a manner which is not “as quickly, inexpensively and efficiently as possible”. In this case, if the amendments were allowed, there would be additional costs that include re-reviewing documents and re-proofing witnesses and significant extra costs arising from the case management of the expanded case. These kinds of additional costs not only increase the expense of the proceedings but are demonstrably inefficient;

(4)    There is a significant risk that the trial may not proceed in 2016 if the amendments are allowed if the docket judge concludes that the trial cannot be heard within the six weeks currently allocated. I consider this to be a relatively low risk: having now listed the proceedings for trial on three occasions, it seems reasonable to assume that Foster J would be very determined to maintain the May 2016 trial dates. However, that determination may yield to considerations of procedural fairness. If the trial went off to 2017, in my view, that would impose an unacceptable strain on the defendants, having regard both to the length of time since the events under consideration and the degree of unnecessary disruption caused to the defendants by the inefficient manner in which Tamaya would have been permitted to conduct the proceedings;

(5)    The explanation for the delay in seeking leave to amend is deficient in the ways explained above. In particular, Tamaya did not explain why the additional audit issues did not come to Ms Banton’s attention until they were raised by Mr Basford, in circumstances where they could have been identified before the proceedings were commenced;

(6)    Tamaya has had an ample opportunity to plead its case before now and has previously been given leave to file amended pleadings in each proceeding;

(7)    Tamaya has not offered security for costs in relation to the expanded case;

(8)    In any event, the s 1041E case against the Deloitte parties should not be allowed because it is not properly pleaded;

(9)    In relation to the s 1041E case against the director defendants, that case should not be allowed for the further reason that it is unfairly prejudicial having regard to the serious nature of the case and the mental element that would be required to be addressed more than six years after the relevant events.

210    There are four matters which may lead to a conclusion that the amendments should be allowed despite the considerations set out above. They are:

(1)    The defendants have had the evidence (or substantially all of the evidence) upon which Tamaya will rely since March and April this year;

(2)    The defendants can probably be prepared for a trial on the expanded case commencing in May 2016;

(3)    Tamaya can be ordered to pay the costs thrown away by the amendment on an indemnity basis, so that it will bear the costs of the wasted resources insofar as they can be identified and quantified;

(4)    If a trial on the expanded case could be heard in May 2016, which seems likely albeit not certain, that would be a relatively quick hearing of proceedings commenced in 2013 and 2014.

211    I do not consider that these matters outweigh the factors which warrant refusing Tamaya’s application. Such an outcome would pay insufficient regard to the disruption that would be inflicted on the defendants if the amendments were allowed, particularly by the need to address a substantial new case after preparing for the substantial existing case. It would also pay insufficient regard to the concomitant strain and uncertainty for the defendants, which cannot be compensated by costs, arising from the need to defend an expanded case which has already been delayed by Tamaya’s late applications for leave to amend. It would also have insufficient regard to the extra costs to the Court of case managing complex and substantial proceedings conducted inefficiently. Finally, that outcome may diminish confidence in the judicial system, by suggesting that a party may conduct proceedings in a way which is inconsistent with the overarching purpose of the civil procedure rules, and which would cause substantial disruption, prejudice and inefficiency, provided that it pays the costs insofar as they can be calculated.

212    Leave will be granted to amend the SFASOC in the new directors’ proceeding to the extent that the amendments are not opposed by the defendants. Tamaya will be ordered to pay the costs thrown away by the amendments.

Proposed amendments to originating applications

213    It follows that leave to amend the originating application in the Deloitte proceeding will be refused.

214    Leave will be granted to amend the originating application in the new directors’ proceeding to permit reference to the SFASOC. Tamaya will be ordered to pay the costs thrown away by the amendments.

Associate:

Dated:    14 October 2015