FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v Cassimatis (No 6)

[2016] FCA 622

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to r 8.21 of the Federal Court Rules 2011 (Cth), the applicant has leave to file its Second Further Amended Originating Application.

2.    Pursuant to r 16.53 of the Federal Court Rules 2011 (Cth), the applicant has leave to file its Fifth Amended Statement of Claim.

3.    Costs reserved.

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

REASONS FOR JUDGMENT

EDELMAN J:

Introduction

1    This action was commenced more than five years ago. The essence of the action concerns whether the respondents, Mr and Mrs Cassimatis (the Cassimatises), breached their duty of care and diligence under s 180(1) of the Corporations Act 2001 (Cth) by causing or permitting Storm Financial Ltd (Storm) to breach various provisions of the Corporations Act. ASIC seeks orders including orders to disqualify the Cassimatises from managing corporations for a period of time.

2    It is common ground that in late April 2016, ASIC decided to apply to amend its originating application and statement of claim. ASIC notified the Cassimatises’ solicitor of this proposed amendment in a letter on 4 May 2016 which included the draft amended statement of claim and drew attention to s 206E and the proposed amended paragraph. However, the significance of the amendment was overlooked by the solicitors and counsel for the Cassimatises until 24 May 2016, as can easily occur in the frenetic preparation for trial. On 24 May 2016 during a conversation between counsel for the parties, the significance of the amendment became clear to senior counsel for the Cassimatises and, subsequently and consequently, to the solicitors for the Cassimatises.

3    The proposed amendment, as revised, involves no new matter of fact. Its purpose is to add an alternative claim for orders under s 206E(a)(i) of the Corporations Act 2001 (Cth) disqualifying the Cassimatises from managing corporations. As a matter of law, the amendment is extremely significant for ASIC’s case. There remains a live issue, which was the subject of a summary judgment application and an appeal but not ultimately resolved, concerning whether the Cassimatises can be liable for breach of s 180(1) of the Corporations Act. An essential part of that issue involves matters of law which, if ASIC is correct, permits the disqualification orders to be made in circumstances which do not require the Cassimatises to be in breach of s 180(1) of the Corporations Act.

4    For the reasons which I explain below, ASIC should have leave to amend its originating application and statement of claim.

ASIC’s case and the background to the amendment application

5    There are several aspects of this case which, in combination, are likely to be quite unique. The first aspect is that the only contravention alleged against the directors is that of s 180 of the Corporations Act. The second aspect is that the alleged contraventions of s 180 are said to arise because the Cassimatises caused Storm to contravene various provisions of the Corporations Act (ss 945A(1)(b), 1041E(1), and 912A(1)(a)), exposing Storm to a foreseeable risk of harm. But the liability of the Cassimatises is not pleaded as an accessory liability under s 79 of the Corporations Act. The third aspect is that it appears to be common ground that at the relevant times when the Cassimatises allegedly committed the contraventions, Storm was a solvent company and the Cassimatises were the sole directors and shareholders of Storm.

6    The relief sought by ASIC is as follows:

(1)    declarations against each of Mr and Mrs Cassimatis that they have breached s 180 of the Corporations Act in relation to 36 different investors or groups of investors;

(2)    pecuniary penalties which do not exceed $200,000 for each contravention by Mr and Mrs Cassimatis (in this regard, ASIC’s pleading focuses upon five investors or groups of investors and consideration of any maximum penalty would involve those investors and any others in light of the totality principle including courses of conduct);

(3)    orders under s 206C of the Corporations Act that each of Mr and Mrs Cassimatis be disqualified from managing a corporation for a period which is appropriate;

(4)    orders under ss 1324(1) and 1324(6) of the Corporations Act restraining Mr and Mrs Cassimatis from holding and providing financial services under an Australian Financial Services Licence for a period which is appropriate; and

(5)    orders that Mr and Mrs Cassimatis pay ASIC’s costs of the proceedings.

ASIC’s application to amend

Principles concerning applications to amend

7    The pleadings in this matter have closed and ASIC requires leave to amend its originating process and statement of claim: Federal Court Rules 2011 (Cth) rr 16.51 and 16.53. ASIC relies upon r 8.21(1)(g)(i) which provides that an applicant may apply to the Court for leave to amend an originating application for any reason, including to add or substitute a new claim for relief, or a new foundation in law for a claim for relief, that arises out of the same facts or substantially the same facts as those already pleaded to support an existing claim for relief by the applicant.

8    The power of the Court to grant or refuse leave to amend must be exercised in a way that accords with the Court’s overarching purpose to facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible: Federal Court of Australia Act 1976 (Cth) s 37M(1). That overarching purpose includes, as objectives, the efficient use of the judicial and administrative resources of the Court, the efficient disposal of the Court’s overall caseload, and the disposal of proceedings in a timely manner: Federal Court of Australia Act s 37M(2).

9    The leading decision is Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175. In that case, the Australian National University applied for leave to amend its statement of claim to add a substantial new claim against the defendant on the third day of a four-week trial. The High Court considered similar principles concerning amendments in the Court Procedures Rules 2006 (ACT). The proceeding had been on foot for two years. The High Court of Australia held that the amendment should have been refused. As Gummow, Hayne, Crennan, Kiefel and Bell JJ explained, in the past, it had been more readily assumed that an order for costs occasioned by the amendment would overcome any injustice of the amendment but the modern view was that “even an order for indemnity costs may not always undo the prejudice a party suffers by late amendment” (213 [99]). The joint judgment cited for this proposition the decision of Toohey J in The Commonwealth v Verwayen [1990] HCA 39; (1990) 170 CLR 394, 464-465. There, Toohey J had quoted from Lord Griffiths in Ketteman v Hansel Properties [1987] AC 189, 220:

Whether an amendment should be granted is a matter for the discretion of the trial judge and he should be guided in the exercise of the discretion by his assessment of where justice lies. Many and diverse factors will bear upon the exercise of this discretion. I do not think it possible to enumerate them all or wise to attempt to do so. But justice cannot always be measured in terms of money and in my view a judge is entitled to weigh in the balance the strain the litigation imposes on litigants, particularly if they are personal litigants rather than business corporations, the anxieties occasioned by facing new issues, the raising of false hopes, and the legitimate expectation that the trial will determine the issues one way or the other.

10    The joint judgment in Aon Risk Services Australia Ltd then explained (at 214-215 [102]):

It is the extent of the delay and the costs associated with it, together with the prejudice which might reasonably be assumed to follow and that which is shown, which are to be weighed against the grant of permission to a party to alter its case. Much may depend upon the point the litigation has reached relative to a trial when the application to amend is made. There may be cases where it may properly be concluded that a party has had sufficient opportunity to plead their case and that it is too late for a further amendment, having regard to the other party and other litigants awaiting trial dates. Rule 21 makes it plain that the extent and the effect of delay and costs are to be regarded as important considerations in the exercise of the court's discretion. Invariably the exercise of that discretion will require an explanation to be given where there is delay in applying for amendment.

11    In deciding that the amendments should have been refused, the High Court explained that the amendments sought to introduce new and substantial claims that would result in an abandonment of the trial and would require Aon, in effect, to defend again. In most cases an explanation for delay is required. But although the issue had been identified a year earlier by the defences, Aon provided no explanation for its delay in seeking to amend. Aon did not refer to any mistake of judgement in failing to amend earlier (216 [109]).

12    In Tamaya Resources Limited (in liq) v Deloitte Touche Tohmatsu (A Firm), in the matter of Tamaya Resources Limited (in liq) [2015] FCA 1098 [127], Gleeson J summarised some of the relevant factors to be considered in this Court, deriving from Aon, as follows:

(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];

(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 [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].

13    These principles were approved by the Full Court in Tamaya Resources Limited (in liq) v Deloitte Touche Tohmatsu (A Firm) [2016] FCAFC 2 [125] (the Court).

The proposed amendments and their background

14    In its current form, ASIC’s originating application seeks orders which include an order that Mr and Mrs Cassimatis be disqualified from managing corporations for a period that the Court considers appropriate. Those orders are sought pursuant to s 206C of the Corporations Act.

15    At a directions hearing on 22 April 2016, ASIC raised the possibility that it might seek to amend its originating application and statement of claim. Order 10 of the orders I made on 22 April 2016 provided that ASIC was required to file any application for leave to amend its further amended originating application on or before the first day of trial.

16    On 4 May 2016, a solicitor for ASIC sent a letter to the solicitors for the respondent (CRTA.011.001.0428). That letter relevantly provided:

As you will see, in paragraphs 3 and 8 of the attached Second Further Amended Originating Application and paragraph 2305A of the Fifth Amended Statement of Claim, ASIC relies upon s 206E of the Corporations Act. You will see that no new facts are alleged.

In accordance with paragraph 10 of the orders of Justice Edelman dated 22 April 2016, ASIC will seek leave to make these amendments on the first day of the trial.

17    Paragraphs 3 and 8 of the originating application to which the Cassimatises solicitor’s attention was drawn added the words (with underlining) “and further or alternatively pursuant to s 206E(1)(a)(i) of the Corporations Act an order that the second respondent be disqualified from managing corporations for a period that the Court considers appropriate”.

18    As initially pleaded, proposed [2305A] of the statement of claim provided as follows:

The first respondent and the second respondent failed to take reasonable steps to prevent each of the contraventions by Storm pleaded in Parts G, H and J above.

Particulars

A reasonable person would have:

(1)    ensured that Storm did not provide advice in accordance with the Storm Model to clients or prospective clients who:

(A)    were over 50 years old;

(B)    were retired or approaching and planning for retirement;

(C)    had little or limited income;

(D)    had few assets generally comprised of:

(i)    their home;

(ii)    limited superannuation;

(iii)    limited savings; and

(E)    had little or no prospect of rebuilding their financial position in the event of suffering significant loss.

(2)    directed its employees and agents not to provide advice in accordance with the Storm Model to clients or prospective clients who were in the circumstances pleaded in the preceding subparagraph.

19    Although [2305A] did not mention s 206E(1)(a)(i), this section was mentioned in the proposed amendment to the originating application and the letter. I am satisfied that ASIC reasonably took appropriate steps to bring the amendments to the attention of the Cassimatises on 4 May 2016. At this time the solicitors for the Cassimatises should have realised that ASIC intended to rely upon s 206E(1)(a)(i).

20    Yesterday, ASIC sought leave by its interlocutory application to amend its originating application and statement of claim (by rr 8.21 and 16.53 of the Federal Court Rules 2011 (Cth) respectively). In a brief exchange during yesterday’s amendment application, I raised with senior counsel for ASIC the question of whether the proposed [2305A] raised new matters of fact, contrary to ASIC’s intention only to make this plea to address an issue of law on existing facts. Senior counsel explained that the intention of the pleading was to replicate the facts necessary for a finding of a lack of due care and diligence under s 180. I explained that my preliminary view was that, contrary to ASIC’s intention, the particulars might raise new issues which could require investigation or evidence by the Cassimatises. Senior counsel for ASIC then sought to amend further to remove this possibility.

21    Yesterday afternoon, ASIC circulated an amended proposed [2305A] as follows:

The first respondent and the second respondent failed to take reasonable steps to prevent each of the contraventions by Storm of:

(a)    section 945A of the Corporations Act, as pleaded in paragraphs 1992 to 1994 above;

(b)    section 1041E of the Corporations Act, as pleaded in paragraphs 2230 to 2235 above; and

(c)    section 912A of the Corporations Act, as pleaded in paragraphs 2292 to 2298 above.

Particulars

(1)    As pleaded in paragraphs 22, 784, 785, 2300 and 2301 above, the respondents caused and/or permitted Storm to provide advice in accordance with the Storm Model (having the features pleaded in paragraphs 1992 and 1993 above) to clients (being the Investors) who:

(A)    were over 50 years old;

(B)    were retired or approaching and planning for retirement;

(C)    had little or limited income;

(D)    had few assets, generally comprised of:

(1)    their home;

(2)    limited superannuation;

(3)    limited savings; and

(E)    had little or no prospect of rebuilding their financial position in the event of suffering significant loss.

(2)    By acting in the manner particularised in the previous paragraph, the respondents failed to take any steps to prevent Storm from providing advice in accordance with the Storm Model (having the features pleaded in paragraphs 1992 and 1993 above) to clients who.

(A)    were over 50 years old;

(B)    were retired or approaching and planning for retirement;

(C)    had little or limited income;

(D)    had few assets, generally comprised of:

(1)    their home;

(2)    limited superannuation;

(3)    limited savings; and

(E)    had little or no prospect of rebuilding their financial position in the event of suffering significant loss.

The nature and importance of the amendments

22    The effect of the amendments is to plead s 206E(1)(a)(i) of the Corporations Act as an alternative basis to s 206C (currently pleaded) for the orders that Mr and Mrs Cassimatis be disqualified from managing corporations.

23    Section 206C of the Corporations Act provides:

206C    Court power of disqualification—contravention of civil penalty provision

(1)    On application by ASIC, the Court may disqualify a person from managing corporations for a period that the Court considers appropriate if:

(a)    a declaration is made under:

(i)    section 1317E (civil penalty provision) that the person has contravened a corporation/scheme civil penalty provision; or

(ii)    section 386‑1 (civil penalty provision) of the Corporations (Aboriginal and Torres Strait Islander) Act 2006 that the person has contravened a civil penalty provision (within the meaning of that Act); and

(b)    the Court is satisfied that the disqualification is justified.

(2)    In determining whether the disqualification is justified, the Court may have regard to:

(a)    the person’s conduct in relation to the management, business or property of any corporation; and

(b)    any other matters that the Court considers appropriate.

(3)    To avoid doubt, the reference in paragraph (2)(a) to a corporation includes a reference to an Aboriginal and Torres Strait Islander corporation.

24    Section 206E of the Corporations Act, upon which ASIC seeks to rely in the alternative, provides:

206E    Court power of disqualification—repeated contraventions of Act

(1)    On application by ASIC, the Court may disqualify a person from managing corporations for the period that the Court considers appropriate if:

(a)    the person:

(i)    has at least twice been an officer of a body corporate that has contravened this Act … while they were an officer of the body corporate and each time the person has failed to take reasonable steps to prevent the contravention; or

…; and

(b)    the Court is satisfied that the disqualification is justified.

…

(2)    In determining whether the disqualification is justified, the Court may have regard to:

(a)    the person’s conduct in relation to the management, business or property of any corporation; and

(b)    any other matters that the Court considers appropriate.

…

25    ASIC seeks to rely on s 206E in support of its submission that Mr and Mrs Cassimatis failed to take reasonable steps to prevent the contraventions by Storm, and should therefore be disqualified even if they did not breach s 180 of the Corporations Act: see Australian Securities & Investments Commission v Axis International Management Pty Ltd (No 6) [2011] FCA 811; (2011) 84 ACSR 703, 704 [3] (Gilmour J).

26    The amendments are therefore directed to establish the elements of s 206E(1)(a)(i). In particular, the onus is upon ASIC to prove:

(1)    the respondents were officers of a corporation (the first element);

(2)    the body corporate has twice contravened the Corporations Act (the second element);

(3)    the respondents have failed to take reasonable steps to prevent the contraventions (the third element); and

(4)    the court is satisfied that the disqualification is justified (the fourth element).

27    The first element is admitted by the Cassimatises. The second element relies on matters that have already been pleaded and which the Cassimatises have defended in considerable detail. The fourth element is identical to the requirement in s 206C(1)(b); the facts in relation to which have already been pleaded. None of these three elements required an amendment to the statement of claim.

28    The controversy between the parties, and the amendment that ASIC seeks to make to its statement of claim, is directed towards the third element. The amendment is the inclusion of [2305A] in the statement of claim.

29    ASIC submitted that this proposed pleading was not intended to raise any new issues of fact. It was solely for the purpose of raising an independent legal basis for disqualification orders if the Cassimatises are correct in their legal submission that s 180(1) cannot be contravened by a director’s failure of due care and diligence. Very broadly expressed, one of the Cassimatises’ submissions on this point is that to allow liability under s 180(1) in these circumstances would provide a “back door” to accessory liability: Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052; (2006) 59 ACSR 373 (Brereton J).

30    However, during the course of oral submissions I indicated that my provisional view was that the drafting of the proposed [2305A] might raise new factual issues, such as the content, nature and operation of the obligation to “direct its employees and agents”. These unintended factual issues were the subject of a substantial affidavit from Mr Russell, the solicitor for the Cassimatises, which was sworn two days ago.

31    Yesterday afternoon, the applicant amended its proposed amendment to [2305A] of the fifth amended statement of claim. The new proposed [2305A] was set out above. Two points should be observed immediately about this proposed amendment.

32    First, the parties have prepared their cases, and descended to considerable detail, in relation to the current pleading that in determining whether the disqualification is justified under s 206E(2) the Court may have regard to (a) the person’s conduct in relation to the management, business or property of any corporation, and (b) any other matters that the Court considers appropriate.

33    Secondly, all of the factual matters referred to in proposed [2305A(1)] are matters contained in the current statement of claim. In particular, [2301] of the statement of claim provides:

In causing and/or permitting Storm to provide advice to the Investors in accordance with the Storm Model in a manner which caused Storm to contravene:

(a)    s 945A(1)(b) and/or 945A(1)(c) of the Corporations Act (as pleaded in Part G above);

(b)    s 1041E(1) of the Corporations Act (as pleaded in Part H above);

(c)    s 912A(1)(a) of the Corporations Act (as pleaded in Part J above),

the first respondent and the second respondent did not exercise their powers as directors of Storm with the degree of care and diligence that a reasonable person would have exercised if that person were a director of Storm in Storm’s circumstances, and occupied the office held by, and had the same responsibilities, as each of the respondents.

Particulars

A reasonable person would not have caused or permitted Storm to provide advice in accordance with the Storm Model to clients or prospective clients who:

(A)    were over 50 years old;

(B)    were retired or approaching and planning for retirement;

(C)    had little or limited income;

(D)    had few assets, generally comprised of:

(1)    their home;

(2)    limited superannuation;

(3)    limited savings; and

(E)    had little or no prospect of rebuilding their financial position in the event of suffering significant loss.

34    ASIC provided a detailed explanation of the reasons why these matters raised no new factual issue in a three-page document which explained how the proposed amendment simply borrowed from the existing facts. As ASIC explained, the pleading as already drawn, without the revised [2305A], operates as follows:

1.    Storm made the recommendations to the investors as alleged in paragraph 22.

2.    It was inappropriate to give the advice to the 31 investors because of their circumstances pleaded at paragraphs 784 and 785.

3.    The respondents were in control of Storm: 2300 and 2301.

4.    Storm breached the Corporations Act namely:

(i)    945A;

(ii)    1041E;

(iii)    912A.

5.    The allegations of breach are:

(i)    945A; paragraphs 1992-1994;

(ii)    1041E; paragraphs 2230-2235;

(iii)    912A; paragraphs 2292-2298.

6.    The respondents have breached their obligations under s 180 because:

(i)    They were in control of Storm (put briefly); paragraph 2300;

(ii)    They failed to “exercise their powers . . . with the degree of the care and diligence that a reasonable person would have exercised if that person were a director of Storm . . .” (paragraph 2301).

35    Then ASIC explained that the revised [2305A] provides as follows:

…

8.    The “contraventions” by Storm are identified: 2305A(a), (b) and (c).

…

9.    The Particulars allege that the respondents “caused or permitted” Storm to provide advice to make the investments:

(i)    To the investors who possessed the particular features identified in paragraph 784 (which features are set out in the particulars to 2305A);

(ii)    Where the advice had the features in paragraphs 1992 and 1993.

10.    The particulars identify the circumstances in which the advice was given in terms of paragraphs 22, 784, 758, 2300 and 2301.

…

12.    So the “failure to take reasonable steps to prevent the contravention” (s 206E) is the causing or permitting of the giving of the investment advice by Storm (2301) in the circumstances alleged.

36    For these reasons, no new allegation of fact is relied upon in support of ASIC’s proposed amendment. The amendments raise only a legal point which is directed towards meeting a legal submission by the Cassimatises concerning whether s 180(1) can be a source of liability in this case.

37    Senior counsel for the Cassimatises submitted that the pleading in [2305A] is defective because it does not plead the details of the element in s 206E(a)(i) of the Corporations Act that the Cassimatises “failed to take reasonable steps to prevent the contravention”. I do not accept this submission. The plea in [2305A] plainly relies on the same matters that are alleged to constitute a failure (under s 180(1) of the Corporations Act) of a director to “exercise their powers and discharge their duties with the degree of care that a reasonable person would exercise [in the circumstances described in the subparagraphs]….” In very broad terms, this can be characterised as a contravention by a particular type of “unreasonable action”. If the Court were to find that there had been this unreasonable action as described in s 180(1) then ASIC’s case is that the taking of the same actions by the Cassimatises which were pleaded in relation to s 180(1) and which constituted that breach would be a “failure to take reasonable steps to prevent the contravention”. In other words, ASIC’s case is that the taking of “unreasonable action” (as pleaded) is capable of involving a failure to take reasonable steps to prevent a contravention. I accept that ASIC is entitled to plead this case without providing any further particulars. The essential point is that this pleading involves no new facts. Its purpose, as ASIC frankly conceded and as I have explained, is solely to meet a legal submission by the Cassimatises.

38    The Cassimatises also submitted that [2035A] was defective because it did not specify the precise number of contraventions that were alleged. Senior counsel properly accepted that this is not a major point. Once again, the purpose and terms of the amendment is to plead the very same contraventions that are alleged in relation to the s 180(1) alleged contraventions. The opening words of [2305A] refer to “each of the contraventions” as already pleaded in the three provisions alleged to be contravened by Storm (ss 945A, 1041E, 912A). Plainly, the amendment refers, by cross-reference, to at least two occasions in which the Cassimatises are said to have been officers of Storm when it contravened the Corporations Act, which is said by ASIC to enliven the disqualification power in s 206E. If the precise number of alleged contraventions is sought by the Cassimatises then that can be dealt with by a request for further particulars. The number would simply involve a counting exercise based on the pleading and I do not presently see how it would be relevant until any penalty stage of the hearing.

39    There is a real possibility of prejudice to ASIC if the amendment were disallowed and ASIC was not permitted to raise this legal issue. The prejudice would arise because this short point of law might be determinative of the legal proceeding in ASIC’s favour but might not be able to be raised again. This would arise if fresh proceedings by ASIC were precluded as an abuse of process or by an “Anshun estoppel” of the nature described in Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589. In Anshun, at 597, Gibbs CJ, Mason and Aitken JJ spoke of an estoppel (in relation to a defence) in the following terms:

… there will be no estoppel unless it appears that the matter relied upon as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it.

40    ASIC referred to Australian Securities and Investments Commission v Lindberg (No 2) [2010] VSCA 19; (2010) 26 VR 355 where subsequent proceedings were permitted but this was, in part, because the new proceedings involved significant distinctions from the earlier proceedings. In contrast, the amendment in this case involve the very same facts as already pleaded and raise only a new matter of law for argument.

41    In an attempt to ameliorate the concern about abuse of process of issue estoppel, the Cassimatises provided an undertaking to the Court this morning. That undertaking provides:

UPON the respondents, by their counsel, undertaking that, in the event that the Applicant institutes further proceedings against them seeking orders for disqualification:

(a)    pursuant to section 206E of the Corporations Act 2001; and

(b)    relying on two or more findings of contraventions by Storm Financial Limited in the present proceedings;

the respondents will not raise any defence - or otherwise resist the application for such disqualification orders - on the basis that the Applicant is estopped from seeking such relief by reason of its failure to seek such relief in these proceedings…

42    Although the undertaking did not extend to abuse of process, senior counsel for the Cassimatises submitted that the Cassimatises would have no difficulty in extending the undertaking to abuse of process. The undertaking might go some way to ameliorate possible prejudice to ASIC but the doctrine of abuse of process, and the concern about relitigating matters, might not be limited to the interests of the parties. There is a public interest as part of the administration of justice which militates against the use of a court’s resources to hear a matter involving identical factual issues but one additional issue of law. Even if the rehearing proceeded upon the same findings of fact, it would require the same judge, or a new judge, to assess all of the findings of fact, potentially years later after all appeals are completed, for the purposes of a short legal argument that could have been raised at the initial trial. Indeed, in Anshun, at 609, Brennan J said:

Both public policy and the interests of the litigants require that there should be an end to litigation as to a particular subject matter once a judgment determining the rights and liabilities of the parties as to that matter has been recovered…

43    There are also difficult questions concerning how the Cassimatises would deal with any adverse findings of fact against them if they succeeded on all legal arguments concerning s 180(1). If ASIC were to commence fresh proceedings in relation to s 206E, rather than to appeal the decision, then there would be no adverse orders from which the Cassimatises could appeal. Although senior counsel for the Cassimatises appeared to accept this possibility, it would be a unjust outcome for the Cassimatises to be required to accept findings of fact, from which they might have had grounds to appeal, for the purposes of a separate hearing which might impose upon them the disqualification orders that they sought to resist in the first proceeding.

The objections by the Cassimatises

44    Mr and Mrs Cassimatis say that the reason for ASIC’s lengthy delay in making the amendment is not satisfactorily explained. And they say that the amendment has prejudiced and will prejudice their defence of the proceeding.

The delay by ASIC in making this amendment

45    As Mr and Mrs Cassimatis submit, ASIC could not suggest that it was unaware of s 206E. It is a well-known provision and it has been relied upon by ASIC in high profile cases: see, for instance, Australian Securities & Investment Commission v Adler [2002] NSWSC 483; (2002) 42 ACSR 80; Australian Securities & Investments Commission v Rich [2003] NSWSC 186; (2003) 44 ACSR 682; and Rich v Australian Securities & Investments Commission [2004] HCA 42; (2004) 220 CLR 129.

46    ASIC relies upon two affidavits of Mr Copley which were sworn several days ago and an affidavit from Mr Kingston which was sworn yesterday. Mr Copley’s position is Litigation Counsel within ASIC’s Queensland Regional Office. Mr Copley has acted as ASIC’s solicitor on record for this proceeding since December 2010. Mr Kingston is ASIC’s Chief Legal Officer.

47    An important aspect of Mr Copley’s evidence is that until 27 April 2016 he “had not given any consideration to the potential availability of relief under s 206E of the [Corporations Act] for conduct that did not amount to a breach of s 180(1)”. Similarly, Mr Kingston says that “[n]o conscious decision has ever been taken, for tactical reasons or otherwise, to exclude a claim under s 206E from ASIC’s pleaded case”. As I have explained, the issue arose at a conference on 27 April 2016 with Mr Davis QC and Mr Cooper who are counsel for ASIC in this proceeding.

48    Mr Copley’s evidence is that in the appeal from the then docket judge’s refusal to order summary judgment ASIC had referred in submissions to the availability of relief under s 206E of the Corporations Act. That reference in submissions was truly incidental. At [11] of ASIC’s written submissions it submitted that a breach of s 180(1) gave rise to a number of possible consequences including civil penalties, compensation orders, relief under s 1324, and disqualification orders under s 206C. A footnote to the latter said “See also s 206E(1)(a)(iii)”.

49    The provenance of that footnote was an email sent by Mr Kingston to Mr Copley saying the following:

One other point, which we might ask them about now (or wait for discussion of oral submissions) is whether we should refer to section 206E, which suggests Parliament thinks a director may not be doing a good job if his company is breaking the law.

50    The subsection referred to in the footnote provides for disqualification if the person “has been an officer of a body corporate and has done something that would have contravened subsection 180(1) or s 181 if the body corporate had been a corporation”. The focus was plainly upon consequences of breach of s 180(1) not upon disqualification in the absence of breach. Mr Copley also says that he recalls a discussion of this matter with ASIC’s Chief Legal Officer (Mr Kingston) concerning s 206E and conduct that “would otherwise amount to a breach of s 180(1) of the [Corporations Act]”.

51    Although the (then) senior counsel acting for ASIC at the time of the summary judgment appeal sent an email to Mr Copley noting that a reference to s 206E had been added in a footnote as Mr Kingston had suggested, this was only the incidental reference I have mentioned. Mr Kingston says, and I accept, that he did not instruct Mr Copley to make a claim under s 206E and that in hindsight he should have given further consideration to it at the time.

52    Prior to 27 April 2016, the issue concerning relief under s 206E was again raised in a conversation between Mr Copley and Mr Kingston. In early April 2016 they discussed this provision in the context of a consideration of whether the possibility of relief under s 206E (rather than s 206C) could meet the Cassimatises’ submission that the claim for breach of s 180(1) was a “backdoor” manner of visiting accessory liability upon the Cassimatises as directors of Storm. Mr Copley then raised the matter with counsel. At [10]-[11] of Mr Copley’s affidavit sworn on 26 May 2016 he says the following:

10    In or about early April 2016, I had a further discussion with Mr Kingston concerning ASIC’s preparation for the trial of the proceeding and a number of “housekeeping” issues that needed to be attended to prior to trial, including amendments to the Further Amended Originating Application (FAOA), which had been filed on 30 November 2011, to accord with the amendments to and the relief sought by ASIC’s Fourth Further Amended Statement of Claim (4th ASOC), which had been filed on 30 September 2014. During that conversation, Mr Kingston raised with me the prospect of ASIC potentially amending the FAOA to include relief under s 206E of the Act, in addition to the relief originally sought under s 206C of the Act (the 206E amendment). I indicated to Mr Kingston that I would raise the 206E amendment with Counsel. I recall agreeing with Mr Kingston, during that conversation, that the utility in pursuing the 206E amendment would largely be dictated by the extent of any consequential amendments which might be required to be made to the 4th ASOC and to whether any significant prejudice would accrue to the respondents.

11    On 12 April 2016, ASIC delivered a supplementary trial brief to Counsel. The instructions to Counsel attached to that brief are the subject of a claim of legal professional privilege by ASIC. Via that brief, counsel were instructed to draw and settle the necessary amendments to the FAOA in order that the FAOA might reflect the 4th ASOC and further, “to consider whether ASIC may add to the Originating Application, orders to disqualify the respondents pursuant to s 206E of the Act”.

53    During oral submissions it became common ground that Mr Kingston, in April 2014, thought that relief under s 206E should be considered but, through oversight, this did not occur.

54    Ultimately, I am satisfied that the explanation for why the amendment was not made at any time between 2010 and April 2016 was simply because ASIC had, by oversight, failed to consider whether relief might be available under s 206E for a contravention by Storm without a contravention by the Cassimatises. I am therefore satisfied from the evidence that, until April 2016, s 206C had come to the attention of ASIC but by error it did not further consider the possibility of orders being made under s 206E independently of any breach by the Cassimatises. I am satisfied that Mr Copley’s and Mr Kingston’s failure to consider this matter was a failure of ASIC to consider the matter.

55    I also accept Mr Kingston’s evidence that ASIC has not sought to prosecute this proceeding for the purpose of obtaining an appellate court ruling in relation to the reasons for decision in Australian Securities and Investments Commission v Maxwell.

The prejudice to Mr and Mrs Cassimatis occasioned by the amendments

56    The Cassimatises submit that the failure to make the amendments earlier had had a profound effect on the conduct, length and cost of the proceeding. They essentially make four points. First, they say that their application for summary judgment, which occupied about two and a half years, might never have been made. Secondly, they say that a mediation would have been conducted earlier and in a different atmosphere. Thirdly, they say that the litigation has caused enormous stress and distress to them. Fourthly, they say that their approach to preparation would have been different if the amendment had been made earlier.

57    I address each of these matters in turn below. However, the first three matters are mainly concerned with consequences which the Cassimatises have already suffered from the litigation. Although I accept that all of these matters are relevant to the exercise of my discretion to grant or refuse the application to amend, there is a difference between prejudice which will be suffered as a result of an amendment and prejudice which has already been suffered and which will remain having been suffered irrespective of whether the amendments are allowed or not. Common examples of prejudice which will be suffered are the need to vacate trial dates, or a party’s inability to lead evidence on matters related to the late amendment due to faded memories, death or unavailability of witnesses, or loss of documents.

58    First, as to the delay caused by ASIC in failing to make this amendment, I accept the evidence of Mr Russell (albeit given with hindsight, as he acknowledges) that he would have advised the Cassimatises against bringing their application for summary judgment if a claim had been advanced based on s 206E. I also accept the evidence from Mr and Mrs Cassimatis that each of them would have accepted that advice.

59    Mr Russell’s evidence in support of this submission is compelling. He says that he advised the Cassimatises that the summary judgment application might go to the High Court (and I have already referred to some of the unique features of this case). He also says that the presence of a claim based on s 206E would mean that a summary judgment application would not be “clean”. I take this evidence to mean that there would be real difficulty in a summary judgment or strike out application that was brought in relation to matters other than s 206E. Even if the summary judgment or strike out application were successful, the proceedings might go ahead almost in their entirety. I accept this. Mr Russell then says that the summary judgment application delayed these proceedings for two and a half years.

60    I accept, therefore, that if s 206E had been raised at a much earlier stage in the proceedings then this trial might have been heard two to three years earlier. However, one manner in which this might be ameliorated (albeit not entirely) is if the costs of that application fall within the usual order that ASIC pay the costs thrown away by the Cassimatises as a result of the amendment.

61    Secondly, as for the mediation in late 2014 being conducted in a different atmosphere, it may be that this is an implicit suggestion that the matter might have settled if the amendment had been made earlier. It seems unlikely that the submission is merely a suggestion that the mediation might have been more congenial.

62    An exercise involving consideration of whether a matter might have settled is wholly speculative, especially given the confidential, without prejudice nature of the mediation. Nevertheless, it cannot be said that the Cassimatises have lost the chance of settling the proceedings altogether (rather than having a reduced chance of an earlier settlement). If the presence of a pleading of s 206E were genuinely a matter that would significantly alter the dynamic of the parties’ settlement negotiations then there is no reason why the parties cannot continue to negotiate to resolve the proceedings either entirely or subject to a judicial determination of costs. Those negotiations could continue either by entirely confidential, without prejudice communications or by communications which are without prejudice save as to costs. It is not the case that a settlement of the matter now would merely save the parties the cost of five weeks of trial. Given the vast size of the electronic trial, there will be a delay in giving judgment. Based on Mr Russell’s evidence about the novelty of the legal points that have been raised, there would have to be a high degree of likelihood of at least one appeal, possibly two, by the unsuccessful party. The matter might still have several more years to run.

63    Thirdly, the Cassimatises have sworn affidavits deposing to the enormous stress and distress that this litigation has caused them, including in relation to specific incidents. I accept their affidavit evidence to this effect. I also accept that if this amendment had been made prior to the summary judgment application then the stress of this litigation would have been reduced because the trial would have been heard earlier.

64    Fourthly, Mr Russell says that the solicitors’ approach to preparation would have been different if the amendment had been made earlier. Mr Russell’s evidence on this point, quite properly, did not overstate the case. As senior counsel for the Cassimatises accepted, in relation to the revised amendments Mr Russell did not suggest that any specific matter would have been approached differently other than possibly interviewing some of ASIC’s witnesses. Instead, Mr Russell suggested that a “more aggressive” approach might have been taken to the pleadings of breach by Storm (rather than the breaches by the Cassimatises). An example he gave is that he might have interviewed the witnesses to be called by ASIC. I accept that this is a possibility but I consider that it is very unlikely. The Cassimatises pleading was, and is, extremely comprehensive. Their solicitor’s and counsel’s preparation of their case has been very thorough indeed. I have no doubt that ASIC’s case of breaches by Storm was considered extremely carefully as an element that ASIC sought to prove independently of the alleged breaches of s 180(1) by the Cassimatises. However, I accept senior counsel’s submission that the amendment might raise new tactical considerations such as whether the Cassimatises go into evidence and whether they make a no case submission. But those are matters which would be likely to be considered in an iterative way in any event and they can be considered during the course of the next two weeks.

65    Many of the other matters of prejudice to which Mr Russell referred in his affidavit evidence were concerned with the earlier version of the proposed amended pleading. As I have explained, the revised [2305A] makes it clear that the amendment raises no new factual matter. It is concerned only with a legal issue based on existing pleaded facts.

Conclusion

66    The decision concerning whether to grant leave to amend is finely balanced. On the one hand, the amendment has been brought more than five years after the action commenced. If it had been brought earlier then vast legal costs could have been saved and the matter might have proceeded to trial years earlier with a vast reduction in the stress, distress, and inconvenience to the Cassimatises. On the other hand, the amendment involves only a matter of law. It will not affect any of the evidence which is led. The delay in making the amendment was due to a failure by ASIC to appreciate the significance of the legal argument concerning s 206E. To be fair, the failure was also shared by the courts hearing the summary judgment application and appeal, and myself during directions hearings where the contours of the case were explored. Very shortly after the significance of this point was appreciated by ASIC, it was brought to the attention of the legal representatives of the Cassimatises, almost one month ago.

67    I also accept the submission by the Cassimatises that if leave is granted, there should be a deferral to any penalty hearing of that part of the s 206E case which relates to (i) whether disqualification is justified and, if so, (ii) the period of disqualification that the Court considers appropriate. I accept that those are matters that should be addressed at any penalty hearing in light of my reasons.

68    ASIC’s application to amend is allowed.

Associate:    

Dated:    31 May 2016