FEDERAL COURT OF AUSTRALIA
Sadie Ville Pty Ltd v Deloitte Touche Tohmatsu (A Firm) [2017] FCA 1202
ORDERS
DATE OF ORDER: |
THE COURT ORDERS THAT:
1. The applicant’s oral application for leave to amend its amended statement of claim to the form of the proposed second amended statement of claim that was before the Court at the hearing on 15 September 2017, be dismissed.
2. Paragraphs [94]-[97] and [114] of the amended statement of claim be struck out.
3. The respondents’ interlocutory application dated 8 September 2017 otherwise be dismissed.
4. Within 28 days, the applicant file and serve a proposed second amended statement of claim.
5. The matter be listed for a case management hearing on a date to be fixed.
6. The costs of the respondents’ interlocutory application be reserved.
7. There be liberty to apply.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
MOSHINSKY J:
Introduction
1 The applicant, Sadie Ville Pty Ltd (as trustee for the Sadie Ville Superannuation Fund) (Sadie Ville) purchased shares in Hastie Group Limited (Hastie) at various dates between 14 June 2011 and 21 February 2012 (the Relevant Period). Hastie subsequently went into liquidation. Sadie Ville brings this proceeding on its own behalf, and as a representative party pursuant to Pt IVA of the Federal Court of Australia Act 1976 (Cth) of certain other persons who acquired shares in Hastie during the Relevant Period, against the first respondent, Deloitte Touche Tohmatsu (DTT), a firm, and the second respondent, Deloitte Corporate Finance Pty Limited (DCF), a wholly-owned subsidiary of the firm (together, the Deloitte parties). Sadie Ville alleges that DTT and DCF engaged in misleading or deceptive conduct, and other like conduct, in contravention of provisions of the Corporations Act 2001 (Cth), the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) and the Australian Consumer Law (Victoria) (ACLV), being the Australian Consumer Law text as applied by the Fair Trading Act 1999 (Vic) as amended by the Fair Trading Amendment (Australian Consumer Law) Act 2010 (Vic), in relation to:
(a) DTT’s audit of Hastie’s financial statements for the financial year ended 30 June 2010 (FY2010);
(b) DTT’s review of Hastie’s financial statements for the half-year ended 31 December 2010 (1H2011);
(c) DTT’s draft investigating accountants’ report for a draft prospectus released by Hastie on 14 June 2011 (the Pathfinder);
(d) DCF’s draft report on directors’ forecasts for the Pathfinder;
(e) DTT’s investigating accountants’ report for a prospectus released by Hastie on 17 June 2011 (the Prospectus);
(f) DCF’s report on directors’ forecasts for the Prospectus; and
(g) DTT’s audit of Hastie’s financial statements for the financial year ended 30 June 2011 (FY2011).
2 Hastie’s financial statements (including the audit report) for FY2010 were published on or about 25 August 2010. Hastie’s results for 1H2011 (including the review report) were published on or about 11 April 2011. Hastie’s financial statements for FY2011 (including the audit report) were published on or about 29 August 2011.
3 The persons represented by Sadie Ville in the proceeding are described in the amended statement of claim as persons who:
(a) acquired an interest in ordinary shares in Hastie during the Relevant Period;
(b) are alleged to have suffered loss or damage by reason of the matters set out in the statement of claim; and
(c) entered into a litigation funding agreement with IMF Bentham Limited in relation to this proceeding on or before 9 June 2017 (provided that the agreement had not been terminated as at 9 June 2017),
and Mr Peter Rubinstein and ValueAdmin.com Pty Ltd.
4 In broad terms, Sadie Ville alleges that, by reason of the Deloitte parties’ contraventions of the Corporations Act, the ASIC Act and the ACLV in relation to the FY2010 audit, the 1H2011 review, the draft reports in the Pathfinder, the reports in the Prospectus, and the FY2011 audit, Sadie Ville and the persons it represents (together, the Claimants) have suffered loss or damage.
5 It is important to note that the claimant group is limited to those who acquired shares in Hastie during the Relevant Period, namely 14 June 2011 to 21 February 2012. This period commences with the release of the Pathfinder. The last day in the period is the day before Hastie announced to the market, on 22 February 2012, that or to the effect that: Hastie would be recording a loss of approximately $146 million for 1H2012; and the loss was attributable to, among other things, a normalised EBIT loss of $4 million, Middle East and International Division write-offs of $88 million, restructuring costs of $44 million, and a charge of $10 million being raised against certain assets. Thus, although the amended statement of claim alleges numerous contraventions by DTT in relation to the FY2010 audit and the 1H2011 review, the claim is not based on share purchases that took place in the period immediately following the publication of these results (on 25 August 2010 and 11 April 2011 respectively). Rather, the claim is based on purchases of Hastie shares after 14 June 2011, the date on which the Pathfinder was released.
6 Sadie Ville alleges that the contraventions by the Deloitte parties caused the Claimants to suffer loss or damage. One of the ways in which this is put is that, but for the contraventions, an equity raising in June 2011 would not have been instituted. Another way in which causation is put is that, but for the contraventions, Hastie securities would not have been restored to trading on the ASX on 17 June 2011 (trading in the securities having been halted on 14 June 2011) or at all. It is contended that, but for the contraventions, the Claimants would not have acquired Hastie securities pursuant to the Pathfinder or the Prospectus or at all. In the alternative, Sadie Ville alleges that, at all material times from 17 June 2011, the price at which Hastie securities traded on the ASX was inflated by reason of the alleged representations, and some of the Claimants (the Market Claimants) acquired Hastie securities in a market inflated by the representations.
7 Sadie Ville’s claims are set out in a detailed amended statement of claim of 106 pages. Although styled the “amended statement of claim”, only one, relatively minor amendment has been made to the statement of claim as filed at the commencement of the proceeding. This was to adjust the definition of the group members to add two named persons (whose names appear at the end of [3] above).
8 A defence has not yet been filed.
9 The Deloitte parties have filed an interlocutory application dated 8 September 2017 seeking, pursuant to s 23 of the Federal Court of Australia Act or r 16.21 of the Federal Court Rules 2011, an order that the amended statement of claim be struck out in whole or in part. Specifically, the Deloitte parties contend that the amended statement of claim should be struck out because: it is likely to cause embarrassment in the proceeding (r 16.21(1)(d)); and it fails to plead material facts and therefore fails to disclose a reasonable cause of action (r 16.21(1)(e)). Although the interlocutory application also seeks summary dismissal, this part of the application is not pressed. However, the Deloitte parties do contend that, if the amended statement of claim is struck out, leave to replead should not be granted.
10 In support of the interlocutory application, the Deloitte parties rely heavily on a judgment of Ward CJ in Eq in Hastie Group Ltd (in liq) v Bourne [2017] NSWSC 709 (Hastie Group). That decision concerned two proceedings commenced in the Supreme Court of New South Wales. In each proceeding, the plaintiffs are companies in the Hastie group of companies (the Hastie Group) that are now in liquidation. The proceedings were commenced by the liquidators of the companies. The first of the proceedings, referred to in the judgment as the Directors’ Proceeding, involved claims against various individuals who occupied executive, non-executive or managerial roles in one or more of the companies forming part of the Hastie Group. The second of the proceedings, referred to in the judgment as the Auditors’ Proceeding, involved claims against the partners at relevant times of DTT (referred to in the judgment as Deloitte). In each proceeding, the plaintiffs sought leave to amend their commercial list statement. There was substantial overlap in the allegations made in the respective proceedings and, as a result, the amendment applications were heard together. It was these applications that were dealt with in Hastie Group. As commenced, the Auditors’ Proceeding was confined to claims in respect of the audits of the Hastie Group in respect of FY2010; by the proposed amendment to the pleading, the plaintiffs sought to introduce similar claims for FY2011. Each application for leave to amend was opposed and the defendants in both proceedings sought orders, if leave to amend was not granted, for the dismissal of the respective proceedings on the basis of conceded deficiencies in the existing filed commercial list statements. Ward CJ concluded that leave should not be granted for the filing of the respective proposed amended commercial list statements, but that a further opportunity should be allowed to the plaintiffs to rectify the deficiencies identified in the existing commercial list statement in each proceeding, limited (in the case of the Auditors’ Proceeding) to claims in relation to the FY2011 audit period and (in the case of the Directors’ Proceeding) to claims that would not be statute-barred if now commenced. Notably, for present purposes, Ward CJ did not give the plaintiffs in the Auditors’ Proceeding leave to replead in relation to the FY2010 audit.
11 Two distinctions should be noted between the Auditors’ Proceeding considered in Hastie Group and the present proceeding. First, the Auditors’ Proceeding was brought by the companies in the Hastie Group (through the liquidators appointed to them), whereas the present proceeding is brought by persons who acquired shares in Hastie. This has a significant bearing on the way in which a claim can be formulated, in particular in relation to causation and loss or damage. Secondly, in the case of the Auditors’ Proceeding, the liquidators had access to the companies’ books and records, access to DTT’s audit files, and the benefit of expert analysis of those audit files. In the present case, in contrast, Sadie Ville has not had access to those materials or the benefit of expert analysis of the audit files. It appears that the information available to Sadie Ville at this stage is essentially confined to a report prepared by the administrators of Hastie in January 2013 (the PPB Report) and the transcripts of the public examinations of certain Hastie executives and DTT personnel. It should also be noted that the form of the pleading in the present proceeding is quite different from that in the Auditors’ Proceeding. There is no suggestion that the pleading in the Auditors’ Proceeding has been used as the template for the pleading in the current proceeding.
12 Prior to bringing the interlocutory application in the present proceeding, on 28 July 2017 the Deloitte parties’ solicitors wrote to Sadie Ville’s solicitors outlining the complaints regarding the amended statement of claim. This letter followed a first case management hearing before me on 14 July 2017 at which I had ordered that the Deloitte parties write to Sadie Ville setting out their complaints regarding the adequacy of the statement of claim. Correspondence was exchanged between the parties in which Sadie Ville’s solicitors complained about a lack of detail in the complaint letter. Little by way of further detail was provided. Nevertheless, on 27 August 2017, Sadie Ville provided a proposed amended pleading, styled the “proposed second amended statement of claim” (PSASOC), which evidently sought to address some of the criticisms that had been made of the amended statement of claim. Subsequently, by letter dated 31 August 2017, Sadie Ville’s solicitors communicated some minor corrections to that document. I will treat the corrections set out in that letter as having been made.
13 In these circumstances, the Deloitte parties, in their written and oral submissions in relation to the interlocutory application, addressed the PSASOC rather than the amended statement of claim. The Deloitte parties contended that the PSASOC failed to remedy the deficiencies with the amended statement of claim. Further, at the hearing of the interlocutory application, Sadie Ville made an oral application to amend its pleading to the form of the PSASOC. Consistently with the approach taken by the parties, these reasons will primarily address the PSASOC rather than the amended statement of claim.
14 In summary, my conclusions in relation to the issues raised by the interlocutory application and the application for leave to amend are as follows:
(a) There are deficiencies with the causation pleadings in the PSASOC. In particular, I consider the causation pleadings to be deficient because they do not relate particular alleged contraventions to particular consequences, but rather ‘roll up’ a large number of alleged contraventions as giving rise to a large number of alleged consequences. Substantially the same deficiencies attend the relevant paragraphs ([94]-[97] and [114]) of the amended statement of claim. It is appropriate that the alleged causal consequences of each set of contraventions be pleaded separately so that the discrete allegations can be responded to separately. Further, the causation pleadings result in a bewildering number of combinations of contraventions and consequences. It is appropriate, as a matter of case management, for Sadie Ville to review whether it wishes to pursue each of these combinations.
(b) In two respects, I would require the provision of further and better particulars.
(c) Apart from the matters referred to in (a) and (b), I would reject the challenges to the pleading (having regard to the PSASOC rather than the amended statement of claim).
(d) In light of my conclusion in (a) above, it would not be appropriate to grant Sadie Ville leave to amend the amended statement of claim to the form of the PSASOC. In the circumstances, I consider the appropriate course to be to strike out the causation pleadings in the amended statement of claim, and to provide for Sadie Ville to file and serve a revised proposed second amended statement of claim. As the deficiencies relate to only one specific aspect of the pleading, and given the nature of the deficiencies, I do not consider it necessary to strike out the whole of the amended statement of claim.
Applicable principles
15 Rule 16.21(1) of the Federal Court Rules relevantly provides:
A party may apply to the Court for an order that all or part of a pleading be struck out on the ground that the pleading:
…
(d) is likely to cause prejudice, embarrassment or delay in the proceeding; or
(e) fails to disclose a reasonable cause of action or defence or other case appropriate to the nature of the pleading; …
16 It is also relevant to note that, under r 16.02(1), a pleading must:
(b) be as brief as the nature of the case permits; and
…
(d) state the material facts on which a party relies that are necessary to give the opposing party fair notice of the case to be made against that party at trial, but not the evidence by which the material facts are to be proved; …
17 In McGuirk v The University of New South Wales [2009] NSWSC 1424, Johnson J set out relevant principles concerning pleadings at [21]-[39]. As noted at [21], the function of pleadings is to state with sufficient clarity the case that must be met by a defendant; in this way, pleadings serve to define the issues for decision and ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her: Banque Commerciale SA (in liq) v Akhil Holdings Ltd (1990) 169 CLR 279 at 286, 296, 302-303. It was also noted that the issues defined in the pleadings provide the basis upon which evidence may be ruled admissible or inadmissible at trial upon the ground of relevance: Dare v Pulham (1982) 148 CLR 658 at 664; Banque Commerciale at 296. Johnson J stated, at [24], that proper pleading is of fundamental importance in assisting courts to achieve the overriding purpose of facilitating the just, quick and cheap resolution of the real issues in the proceeding, citing s 56 of the Civil Procedure Act 2005 (NSW). This is also true, in my view, in relation to ss 37M and 37N of the Federal Court of Australia Act.
18 It has been said that a pleading is “embarrassing” where it is “unintelligible, vague or too general, so as to embarrass the opposite party who does not know what is alleged against him”: Meckiff v Simpson [1968] VR 62 at 70; McGuirk at [30]; Crowley v WorleyParsons Limited [2017] FCA 3 at [59]-[60]. In Shelton v National Roads and Motorists’ Association Ltd (2004) 51 ACSR 278, Tamberlin J said in connection with pleadings (at [18]):
“Embarrassment” in this context refers to a pleading that is susceptible to various meanings, or contains inconsistent allegations, or in which alternatives are confusingly intermixed, or in which irrelevant allegations are made that tend to increase expense. This is not an exhaustive list of situations in which a pleading may be embarrassing: see Bartlett v Swan Television & Radio Broadcasters Pty Ltd (1995) ATPR 41-434.
19 In McKellar v Container Terminal Management Services Ltd (1999) 165 ALR 409, Weinberg J discussed the principles applicable to pleadings, including the requirement to plead material facts. Although the discussion related to the pleadings provisions of the Federal Court Rules 1979, those provisions were relevantly in substantially the same terms as the current provisions. Weinberg J said at [23]-[26]:
23 A number of authorities support the proposition that a statement of claim must contain material facts, being the facts necessary for the purpose of formulating a complete cause of action, and that it is not sufficient simply to plead a conclusion drawn from unstated facts: see, for example, Trade Practices Commission v David Jones (Australia) Pty Ltd (1985) 7 FCR 109 at 114–15 per Fisher J; H 1976 Nominees Pty Ltd v Galli (1979) 30 ALR 181; 40 FLR 242 at 246–7 per Northrop J; Pioneer Electronics Australia Pty Ltd v Edge Technology Pty Ltd [1999] FCA 142 at [7] per Kenny J. A statement of claim which simply repeats the language of a provision of the Act, and then baldly asserts a contravention of that provision, without more, will be struck out.
24 In Pridmore v Magenta Nominees Pty Ltd (1999) 161 ALR 458 RD Nicholson J stated (at 462–3):
The motion for strike out is brought pursuant to O 20 r 2 and/or O 11 r 16 of the Federal Court Rules. The grounds relied upon are that the pleadings referred to disclose no reasonable cause of action, are scandalous, frivolous and/or vexatious and may prejudice, embarrass or delay the fair trial of the action.
A cause of action is every allegation of fact which the plaintiff must prove to establish the right to the relief claimed … A “reasonable cause of action” means a cause of action with some chance of success, when considering the allegations of fact contained in the challenged pleading alone. The terms “vexatious” and “frivolous” have been used interchangeably … “Frivolous” has been held to be apt to describe proceedings in which the plaintiff’s claim is so obviously untenable that it cannot possibly succeed … “Vexatious” has been held to be apt to describe an action which is a sham and which cannot possibly succeed …
25 For a statement of claim to disclose a cause of action it must set out the material facts which give rise to the cause of action. A cause of action for misleading and deceptive conduct is not established unless the statement of claim sets out the circumstances which gave the representation its deceptive and misleading character at the time it was made. Mere non-fulfilment of a statement as to a future matter does not establish that the statement was relevantly misleading and deceptive: Pioneer Electronics Australia Pty Ltd v Edge Technology Pty Ltd.
26 When a claim is made under s 82 of the [Trade Practices Act 1974 (Cth)], the gist of the cause of action being damage, the statement of claim must allege the damage suffered, and that it was suffered by reason of the contravention of the Act. Material facts must be pleaded which show the required causal link between any alleged contravention of the Act, and any damage to the applicant. A deficient pleading, namely one that does not plead relevant material facts, cannot be saved by particulars. It is not sufficient simply to allege loss and damage as a result of alleged contraventions of the Act; it is necessary to identify a causal connection between the impugned conduct and such loss as is said to have been suffered by the applicants: Bond Corp Pty Ltd v Thiess Contractors Pty Ltd (1987) 14 FCR 215 at 222; 71 ALR 125 per French J, cited with approval by Burchett J in Multigroup Distribution Services Pty Ltd and by Goldberg J in Mitanis.
20 Weinberg J in McKellar noted, at [29], that it had been said that some revision of the strictness with which the rules governing pleadings should be approached may be justified in the light of the ever increasing complexity of modern commercial litigation. His Honour then set out passages from the judgment of Drummond J in State of Queensland v Pioneer Concrete (Qld) Pty Ltd [1999] ATPR 41-691; [1999] FCA 499. In that case, Drummond J said (at [18]-[22]):
18 While, prima facie, the Court’s rules with respect to pleadings must be complied with, compliance is enforced by the invocation of the Court’s discretion to strike out non-conforming pleadings. Consistently with the comments in [Beach] Petroleum, judges of this Court have dealt with challenges to the adequacy of pleadings in a more flexible way than would be required by a strict application of those rules. This is an approach that reflects the discretionary nature of the Court’s power to control pleadings and the objective of the Court’s case management system, provided for by O 10 r 1, of achieving efficient and economical use of the resources of all the parties, as well as those of the Court. Australian Competition and Consumer Commission v Golden West Network Pty Ltd (Federal Court of Australia, 19 August 1997, unreported) provides an example. There Lockhart J said:
“It is important that I say something about motions to strike out statements of claim in the conduct of modern litigation. Today, courts are playing an increasingly active role in case management. Motions to strike out pleadings are matters of practice and procedure. In its role of case management, courts devise various procedures to overcome deficiencies in pleadings other than by simply ordering that the offending paragraphs be struck out. Sometimes it is appropriate to strike them out, sometimes not. On some occasions it is better for the court to direct the applicant, whose statement of claim is under challenge, to furnish particulars or to file and serve affidavits to show that there really are facts which can be proved and which, if proved, would support the general statements made in the statement of claim. [...] This is not, of course, intended to be a substitute for a defective pleading in every case because, as is well known, pleadings must assert basic or constitutive facts, not the evidence by which they are to be proved. But case management is a sensible and flexible thing. It must not be unduly circumscribed.”
19 When it is said that a pleading is so bad that it should be struck out, the outcome, in my opinion, is now to be governed not just by whether the pleading fails to comply with one or other of the rules of pleading. The Court will take into account whether the defects are of substance, ie, whether, notwithstanding any deficiencies in the pleading, the fundamental function of pleading is still served. The Court will also take into account how these objectives can best be achieved, where a pleading does not do that: striking out may be appropriate in some cases while an order for particulars or directions under O 10 r 1(2), including directions of the kind referred to by Lockhart J, may be appropriate in others.
20 In any event, that a pleading alleges conclusions does not mean it is necessarily bad. The requirement of O 11 r 2 to plead the material facts, is subject to the established qualification to rules in this form that allows, in appropriate cases, pleading at a level of generality which excuses the failure to plead every fact material to the cause of action sued upon: Charlie Carter Pty Ltd v SDAEA (WA) (1987) ATPR (Digest) ¶46-021; (1987) 13 FCR 413 at 417. In Kernel Holdings Pty Ltd v Rothmans of Pall Mall (Australia) Pty Ltd (Federal Court of Australia, 3 September 1991, unreported) French J, in dealing with a complaint that a statement of claim alleging contraventions of s 45 of the [Trade Practices Act 1974 (Cth)] pleaded conclusions in terms of the section, rather than the material facts underlying them, said:
“I do not accept that the pleading of something which can be described as a conclusion cannot also be a pleading of a material fact. The real issue in a case where such an objection is raised is whether the facts are pleaded at too great a level of generality. In my opinion, the level of generality of the statement of claim in this case is too great for Rothmans to know with any precision what case it has to meet.”
21 The modern approach to litigation in this Court is not to strike out or order further particulars of a conclusionary pleading, if it appears that that is unnecessary in the circumstances of the particular case to achieve the object of pleadings. See also Multigroup Distribution Services Pty Ltd v TNT Australia Pty Ltd (1996) ATPR ¶41-552 at 42,679.
22 It is, in my opinion, a legitimate and necessary exercise of the controlling discretion the Court has over pleadings to utilise that power to ensure that a party is not required to incur the expense of providing masses of information in its pleadings that can be seen to be unnecessary for the proper disposition of the case, even though the prima facie obligation of a party to plead all material facts necessary to make out its cause of action could be said to require that. This is not to suggest that clarity in pleading is not important. The need to focus on pleadings being used to identify the matters really in issue is particularly pressing in a complex case. But the rules of pleading do not now provide the only means for achieving this. And above all, those rules are not now intended to be an arsenal for litigation by attrition.
21 In McKellar, Weinberg J (at [32]) considered that the criticisms that had been levelled at the pleading before him should be considered in the light of the above observations. Similarly, I consider it appropriate to approach the challenge to the pleading in the present proceeding in light of the above observations. In my opinion, the approach outlined by Drummond J and endorsed by Weinberg J is consistent with, indeed reinforced by, the overarching purpose in s 37M of the Federal Court of Australia Act.
Overview of the PSASOC
22 Before addressing the specific challenges, I provide an overview of the PSASOC. Part A contains a note as to terminology. Part B concerns the parties to the proceeding. This Part includes a description of the group members, Hastie and the Deloitte parties. Part C deals with financial reporting and sets out allegations concerning: Hastie’s financial reporting obligations; the engagement of DTT as Hastie’s auditor; relevant auditing standards; the engagement of DTT to prepare an investigating accountants’ report for the Pathfinder and the Prospectus; and the engagement of DCF to prepare a report on directors’ forecasts for the Pathfinder and the Prospectus.
23 Part D concerns Hastie’s full year results for FY2010. First, in [25], certain statements contained in Hastie’s financial statements for FY2010 are set out. These are described as “Hastie’s August 2010 Representations”. Next, in [26], allegations are made concerning Hastie’s actual position by 30 June 2010, alternatively by no later than 25 August 2010 (being the date on which the financial statements were released). This is a lengthy paragraph, setting out a number of facts and matters contrary to the position set out in the financial statements. For example, [26.1](a) contains the allegation that Hastie’s new businesses, including the Rotary division and the Middle East businesses, “were generating earnings materially lower than had been anticipated by Hastie at the time the businesses were acquired”. By way of further example, [26.2] contains the allegation that Hastie’s revenue and EBIT recorded in its FY2010 financial statements: materially overstated the economic benefits that were probable to flow to Hastie; materially overstated the amounts that were recoverable in respect of Hastie’s construction contracts; and had not expensed amounts earlier recognised in Hastie’s revenue that had become “uncollectable or improbable”. The facts and matters referred to in [26] are defined, together and severally, as the “August 2010 Information”. In simple terms, as senior counsel for the Deloitte parties put it in the course of submissions before me, this label describes the alleged deficiencies in the FY2010 financial statements.
24 Paragraph [27] contains allegations that the August 2010 Information: was material to the accuracy of the representation of Hastie’s financial position and financial performance conveyed by its FY2010 financial statements; was information that ought reasonably to have been detected and reported by a professional company auditor exercising due skill and care to conduct the audit of Hastie’s FY2010 financial statements in accordance with DTT’s statutory audit obligations; and was not disclosed in Hastie’s FY2010 financial statements.
25 In [28] of the PSASOC, it is alleged that Hastie’s FY2010 financial report included DTT’s audit report in respect of Hastie’s FY2010 financial statements. Paragraph [29] of the PSASOC sets out the representations alleged to have been made by DTT by way of the audit report:
29. By the DTT FY2010 Audit Report, DTT:
29.1 stated that in its opinion, Hastie’s FY2010 Financial Report:
(a) was released in accordance with the Corporations Act;
(b) gave a true and fair view of the financial position of Hastie as at 30 June 2010 and of the financial performance of Hastie for FY2010;
(c) complied with the Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations; and
(d) complied with International Financial Reporting Standards (as disclosed in Note 1 of the FY2010 Financial Report);
29.2 further stated that:
(a) DTT had conducted its audit in accordance with the Auditing Standards;
(b) DTT had obtained sufficient and appropriate audit evidence to provide a basis for its audit opinion; and
29.3 represented to the market that DTT:
(a) had exercised the skill and care to be expected of a competent professional company auditor in the conduct of its audit of Hastie’s FY2010 Financial Statements,;
(b) as a result of that exercise of skill and care, had reasonable grounds for each opinion and statement referred to in paragraphs 29.1 and 29.2 above.
(together, the DTT FY2010 Audit Representations).
Particulars
The statements in paragraphs 29.1 and 29.2 were stated expressly in the DTT FY2010 Audit Report.
The representation in paragraph 29.3 was implied by the conduct of DTT in and the issuing of the DTT FY2010 Audit Report.
26 Paragraph [30] of the PSASOC contains allegations to the effect that these representations were: made in trade or commerce; made in relation to a financial product within the meaning of certain provisions and, in the premises, made in relation to financial services within the meaning of certain provisions; representations that the audit service was of a particular standard or quality; statements or information likely to induce persons to apply for, dispose or acquire Hastie’s securities; and information that a reasonable person would expect to have a material effect on the price or value of Hastie securities. The allegations in that paragraph evidently seek to establish elements of the contravention provisions relied upon later in the proposed pleading. Then, at [31], the PSASOC sets out particular alleged shortcomings in the conduct of the FY2010 audit. For example, in [31.1] it is alleged that, in planning, performing and reporting the audit, DTT:
did not or not adequately obtain an understanding of Hastie’s internal controls sufficient to identify and assess the risks of material misstatement, including:
(a) an evaluation of Hastie’s management and management oversight over its businesses, in particular the New Businesses; and
(b) Hastie’s processes for identifying business risks, estimating the significance of its risks, assessing the likelihood of the risks occurring and deciding about the actions to be taken to address those risks.
27 By way of further example, in [31.2] it is alleged that in planning, performing and reporting the audit, DTT:
did not or not adequately identify the significance of the risks associated with the August 2010 Information, including the impact of the economic climate on the Rotary division and the Middle East businesses, which required specific attention;
28 The list of alleged shortcomings of the audit continues through to [31.13]. It is fair to say that the allegations are pitched at a high level of generality and, in combination, amount to an attack on the whole conduct of the audit. Paragraph [32] contains allegations to the effect that, in the premises of the earlier paragraphs, DTT: had not conducted the audit in accordance with the Auditing Standards; had not obtained sufficient and appropriate audit evidence to provide a basis for its audit opinion in respect of Hastie’s FY2010 financial statements; had not exercised the skill and care to be expected of a competent professional company auditor in the conduct of the audit; and did not have reasonable grounds for the audit opinion or the representations in [29.3]. These matters are defined as the “DTT FY2010 Audit Breaches”.
29 Paragraph [33] contains an allegation to the effect that, in the premises, DTT disseminated information that was “false in a material particular or materially misleading”. Paragraph [34] contains an allegation that DTT ought reasonably to have known: the August 2010 Information; the DTT FY2010 Audit Breaches; and the matters referred to in [33]. These paragraphs evidently seek to establish elements of the contravention provisions relied upon.
30 The part of the PSASOC dealing with the FY2010 audit culminates in paragraphs [35]-[37], which set out the specific contraventions of the Corporations Act, the ASIC Act and the ACLV alleged against DTT in relation to that audit. In summary, it is alleged that DTT contravened the following provisions (which, in very general terms, concern false or misleading statements, and misleading or deceptive conduct):
(a) s 1041E of the Corporations Act;
(b) s 12DB of the ASIC Act or s 29 of the ACLV; and
(c) s 12DA of the ASIC Act, s 1041H of the Corporations Act or s 18 of the ACLV.
31 As noted earlier, it is not alleged that Sadie Ville or other Claimants purchased shares in Hastie in the period immediately following 25 August 2010, when the FY2010 financial statements (including the audit report) were released. Rather, the claim is based on share purchases that took place some time later, in the period between 14 June 2011 and 21 February 2012. By 17 June 2011, there had been further disclosures as to Hastie’s financial position, notably in the 1H2011 results (on 11 April 2011), the review report in relation to those results, and in the Prospectus. I note, for example, that in DTT’s review report for the 1H2011 results, there was an ‘emphasis of matter’ dealing with a material uncertainty regarding the continuation of Hastie as a going concern. This statement was reproduced quite prominently on page 2 of the investigating accountants’ report in the Prospectus. In these circumstances, there is a question as to significance of the alleged FY2010 audit representations in the Relevant Period.
32 Part E of the PSASOC deals with Hastie’s financial results for 1H2011, in respect of which DTT prepared a review report. The structure of this Part of the proposed pleading is similar to that of Part D. First, the results and representations by Hastie are set out. Next, allegations are made concerning Hastie’s actual position by 31 December 2010, alternatively by 11 April 2011 (when the 1H2011 results were released). These facts and matters are defined, together and severally, as the “April 2011 Information”. Again, in simple terms, this label describes the alleged deficiencies in the 1H2011 results. Paragraph [45] contains alleged representations by DTT, which are defined at the end of the paragraph as the “DTT 1H2011 Review Representations”. This paragraph includes, in [45.2], the allegation that, by the review report, DTT:
further stated that:
(a) DTT drew attention to the net loss of $94.1m incurred by Hastie in 1H2011 and experienced a net decrease in cash of more than $5m during 1H2011 and to the matters at paragraph 40.6 above; and
(b) DTT concluded that the matters in sub-paragraph (a) indicated the existence of a material uncertainty which may cast significant doubt about Hastie’s ability to continue as a going concern – but this uncertainty was not sufficient for DTT to qualify its conclusion in respect of Hastie’s 1H2011 Financial Report;
33 Paragraph [47] sets out the alleged shortcomings in relation to DTT’s review of Hastie’s 1H2011 results. Following a similar pattern to Part D, Part E culminates with alleged contraventions of specific provisions of the legislation in relation to DTT’s review of the 1H2011 results. In summary, it is alleged that DTT contravened the following provisions:
(a) s 1041E of the Corporations Act;
(b) s 12DB of the ASIC Act or s 29 of the ACLV; and
(c) s 12DA of the ASIC Act, s 1041H of the Corporations Act or s 18 of the ACLV.
34 Part F of the PSASOC concerns the June 2011 capital raising. This includes, at [56], the allegation that on or about 14 June 2011, Hastie announced a $160 million equity raising (defined as the “Equity Raising”). It is alleged at [57] that, on or about 14 June 2011, Hastie securities were placed in a trading halt. At [58], it is alleged that on or about 14 June 2011, DTT provided to Hastie a draft investing accountants’ report and DCF provided to Hastie a draft report on directors’ forecasts. It is alleged at [59] that DTT and DCF intended these draft reports to be included in the Pathfinder. At [60], it is alleged that on or about 14 June 2011, Hastie lodged the Pathfinder with the ASX and distributed it to prospective investors, and that the Pathfinder included the draft reports prepared by DTT and DCF. Next, the PSASOC deals with the Prospectus. It is alleged at [61] that, on or about 17 June 2011, DTT and DCF provided to Hastie final versions of their respective reports. At [62], it is alleged that DTT and DCF intended the reports to be included in the Prospectus. At [63], it is alleged that, on or about 17 June 2011, Hastie lodged the Prospectus with the ASX and distributed it to prospective investors. It is alleged at [64] that, on or about 17 June 2011, Hastie announced that it had completed: the institutional placement, raising approximately $42.8 million; and the institutional component of the retail placement, raising approximately $40.8 million. It is alleged that Hastie’s securities resumed trading on the ASX on 17 June 2011 and that, on or about 12 July 2011, Hastie announced that it had completed the retail placement, raising approximately $18 million (at [65]-[66]).
35 It is convenient to note at this point that Sadie Ville did not purchase shares in Hastie in the period between release of the Pathfinder (on 14 June 2011) and publication of the Prospectus (on 17 June 2011): see Annexure A to the PSASOC. Further, Sadie Ville did not purchase any shares in the days immediately following publication of the Prospectus. To the contrary, as indicated in Annexure A to the PSASOC, Sadie Ville’s first transaction after 17 June 2011 was to sell 58,000 shares on 28 June 2011. Subsequently, on 19 July 2011, it purchased 228,000 Hastie shares. It may also be noted, based on the share prices set out in Annexure A, that the Hastie share price appears to have fallen dramatically by the commencement of the Relevant Period. While the share price was $1.53 (and $1.55) as at 26 October 2010, it was only $0.13 as at 28 June 2011, being the first date within the Relevant Period appearing in Annexure A.
36 Part G of the PSASOC is headed “Prospectus Representations” but in fact contains allegations concerning both the Pathfinder and the Prospectus. In circumstances where the Pathfinder is expressed to be a draft, Sadie Ville did not purchase any Hastie shares in the period between the Pathfinder and the Prospectus, and the Prospectus was published three days after the Pathfinder, there is a question as to the significance of the Pathfinder allegations in Sadie Ville’s case. In [67], it is alleged that Hastie made certain representations by the Pathfinder and the Prospectus. In [68], it is alleged that by the draft investigating accountants’ report in the Pathfinder and the investigating accountants’ report in the Prospectus, DTT made certain representations:
68. By the DTT Pathfinder Report and the DTT Prospectus Report, DTT:
68.1 stated that:
(a) it had conducted the DTT Prospectus Retainer in accordance with ASRE 2405;
(b) in DTT’s opinion, nothing had come to its attention which caused it to believe that the:
1. Historical Information was not presented fairly in accordance with the basis for preparation as disclosed in section 5.2 of the Pathfinder and Prospectus; or
2. the Pro Forma Information was not presented fairly;
(c) in relation to Hastie’s FY2010 Financial Report:
1. DTT had conducted an audit of Hastie’s FY2010 Financial Report;
2. in the conduct of the audit DTT had complied with Australian Auditing Standards;
3. the audit was unqualified;
(d) in relation to Hastie’s 1H2011 Financial Report:
1. DTT had conducted a review of Hastie’s 1H2011 Financial Report;
2. the review had complied with the applicable Auditing Standards;
3. during the review nothing came to DTT’s attention to indicate that the 1H2011 Financial Report was not free from material misstatement;
68.2 by the conduct in paragraph 68.1(c) above, repeated and affirmed the DTT FY2010 Audit Representations;
68.3 by the conduct in paragraph 68.1(d) above, repeated and affirmed the DTT 1H2011 Review Representations;
68.4 represented to the Market that in relation to its review the subject of the DTT Pathfinder Report and DTT Prospectus Report:
(a) DTT had complied with ASRE 2405;
(b) DTT had exercised the skill and care to be expected of a competent accountant in the conduct of a review of the Financial Information; and
(c) as a result of that exercise of skill and care, had reasonable grounds for each opinion, statement and affirmation referred to in paragraphs 68.1, 68.2 and 68.3 above;
(together, the DTT Prospectus Representations).
Particulars
DTT’s representations were partly written and partly implied.
To the extent that the representations were written, they were contained in DTT’s Pathfinder Report and DTT’s Prospectus Report.
To the extent that the representations were implied, they were implied by DTT’s conduct in relation to ostensibly complying with the terms of DTT’s Prospectus Retainer and DTT issuing its report without qualification.
37 Paragraph [70] contains alleged representations by DCF in connection with the draft report on directors’ forecasts in the Pathfinder and the report on directors’ forecasts in the Prospectus. These are defined as the “DCF Prospectus Representations”.
38 Part H is headed “Prospectus Contraventions”, but through the operation of the earlier definitions picks up representations pertaining to the Pathfinder as well as the Prospectus. Paragraph [72] contains allegations concerning Hastie’s actual position as at 14 June 2011 and in the period after that date. It alleges that, by reason of certain inadequacies in Hastie’s financial reporting in the lead up to this period, there was uncertainty as to Hastie’s true financial position. These matters are defined, together and severally, as the “June 2011 Information”. Paragraph [74] alleges that, in the premises, representations made by Hastie in the Pathfinder and Prospectus were misleading or deceptive, and Hastie contravened s 728 of the Corporations Act (which, in general terms, proscribes the offering of securities under a disclosure document if it contains a misleading or deceptive statement).
39 Paragraph [76] sets out alleged shortcomings in DTT’s performance of its retainer in connection with the Pathfinder and the Prospectus. These are defined, together and severally, as the “DTT Prospectus Review Breaches”. In [77], it is alleged that, in the premises of matters there set out, the DTT Prospectus Representations were misleading or deceptive within the meaning of s 728(1) of the Corporations Act. At [78], it is alleged that, pursuant to s 729(1) of the Corporations Act, the Claimants may recover from DTT the amount of the loss or damage suffered by the Claimants by the inclusion of the DTT Prospectus Representations in the Pathfinder or the Prospectus (defined as the “DTT s.728 Contraventions”). There is a question as to the appropriateness of the label “DTT s.728 Contraventions” as it does not appear to be alleged that DTT itself contravened s 728 (which, as noted above, proscribes the offering of securities under a disclosure document if there is a misleading or deceptive statement in the document). Rather, it appears that Sadie Ville relies on s 729(1) as providing a right to compensation from DTT in circumstances where it was a person named in the disclosure document with its consent as having made a statement: that is included in the disclosure document; or on which a statement made in the disclosure document is based.
40 Paragraph [80] contains an allegation to the effect that the DTT Prospectus Representations were false in a material particular or materially misleading. Paragraph [81] alleges that those representations were information likely to: induce persons to apply for or acquire Hastie securities; or have the effect of increasing, reducing, maintaining or stabilising the price for trading in Hastie securities on the ASX, within the meaning of s 1041E of the Corporations Act. Paragraph [82] alleges that DTT ought reasonably to have known: the June 2011 Information; the DTT Prospectus Review Breaches; and the matters set out in [77]. Specific alleged contraventions in connection with DTT’s reports in the Pathfinder and the Prospectus are then set out in [83], [83A] and [84]. It is alleged that DTT contravened the following provisions:
(a) s 1041E of the Corporations Act ([83]);
(b) in connection with the Pathfinder – s 12DA of the ASIC Act, s 1041H of the Corporations Act or s 18 of the ACLV ([83A]); and
(c) s 12DB of the ASIC Act or s 29 of the ACLV ([84]).
The contraventions alleged in [83] and [83A] are defined, together and severally, as the “DTT Prospectus Misleading Conduct”. As presently drafted, the definition does not pick up the contraventions alleged in [84].
41 Paragraph [85] sets out alleged shortcomings in DCF’s performance of its retainer in connection with the Pathfinder and Prospectus. These are defined, together and severally, as the “DCF Prospectus Review Breaches”. Paragraph [86] contains the allegation that, in the premises of matters there set out, the DCF Prospectus Representations were misleading or deceptive within the meaning of s 728(1) of the Corporations Act. Then, at [87], it is alleged that, pursuant to s 729(1) of the Corporations Act, the Claimants may recover from DCF the amount of the loss or damage suffered by the Claimants that was caused by the inclusion of the DCF Prospectus Representations in the Pathfinder or the Prospectus (defined as the “DCF s.728 Contraventions”). I refer to and repeat the observations I made in [39] above regarding the comparable allegations concerning DTT.
42 It is then alleged, in [89], that the DCF Prospectus Representations were false in a material particular or materially misleading. After making further allegations, comparable to those referred to above in connection with DTT, specific allegations are made in [92], [92A] and [93] against DCF in connection with its reports in the Pathfinder and the Prospectus. It is alleged that DCF contravened the following provisions:
(a) s 1041E of the Corporations Act ([92]);
(b) in connection with the Pathfinder – s 12DA of the ASIC Act, s 1041H of the Corporations Act or s 18 of the ACLV ([92A]); and
(c) s 12DB of the ASIC Act or s 29 of the ACLV ([93]).
The contraventions alleged in [92] and [92A] are defined, together and severally, as the “DCF Prospectus Misleading Conduct”.
43 The next section of the PSASOC, comprising [94]-[97], is headed “Prospectus Contraventions – Causation”. Paragraph [94] (omitting the particulars, and without reproducing the mark-up against the amended statement of claim) is in the following terms:
94. The:
94.1 DTT FY2010 Audit Representations;
94.2 DTT 1H2011 Review Representations;
94.3 DTT s.728 Contraventions;
94.4 [deleted]
94.5 DTT Prospectus Misleading Conduct;
94.6 DCF s.728 Contraventions; further or alternatively
94.7 [deleted]
94.8 DCF Prospectus Misleading Conduct;
(together and severally, Deloitte’s Contraventions) were a cause of:
(a) Lazard agreeing to act or continue as cornerstone investor;
(b) Hastie’s Lenders continuing the Standstill Agreement;
(c) Hastie and its Lenders calculating the amount required to be raised in the Equity Raising;
(d) the Equity Raising being instituted in the terms it was instituted, or at all;
(e) Hastie Securities being offered under the Equity Raising upon the terms at which they were offered (Offer Prices);
(f) the Equity Raising being successfully completed, so as to enable Hastie to meet the requirements of its Lenders (including the Lender Requirement);
(g) Hastie being able to continue to trade;
(h) Hastie Securities being restored to trading on the ASX on or about 17 June 2011 or at all.
44 It is convenient to make some observations about [94] of the PSASOC at this stage. First, although the six matters identified in [94.1] to [94.8] are defined as the “Deloitte’s Contraventions”, the first two matters are not alleged contraventions but rather alleged representations. Secondly, as noted above, the labels “DTT s.728 Contraventions” and “DCF s.728 Contraventions” appear to be inapposite as it is not alleged that DTT or DCF contravened s 728. Thirdly, the six matters identified in [94.1] to [94.8] are defined “together and severally” as the “Deloitte’s Contraventions”, indicating that each of them is relied on individually as being a cause of each of the matters set out in (a) to (h). Fourthly, there appears to be a logical impossibility in some of the alleged contraventions causing some of the alleged consequences, as the consequences took place earlier in time. For example, the alleged contraventions in relation to the Pathfinder and the Prospectus are said to have been made on or about 14 June 2011 and 17 June 2011 respectively. Yet they are alleged to have been a cause of “Lazard agreeing to act … as cornerstone investor”, which took place on or about 20 May 2011 (see PSASOC, [54]), and Hastie and its lenders “calculating the amount required to be raised in the Equity Raising”, which presumably took place before 14 June 2011.
45 The PSASOC continues, at [95]-[97], as follows (again, omitting particulars, and without reproducing the mark-up):
95. But for:
95.1 the Deloitte’s Contraventions;
95.2 [deleted]
95.3 [deleted]
it was probable that:
(a) Lazard would not have agreed to act or continue as cornerstone investor;
(b) Hastie’s Lenders would not have agreed to continue the Standstill Agreement;
(c) the Equity Raising in the terms it was instituted would not have been sufficient to enable Hastie to meet its Lenders’ requirements;
(d) the Equity Raising:
1. would not have been instituted at all; alternatively
2. would not have been successfully completed upon the terms it was completed or upon any terms likely to satisfy Hastie’s Lenders’ requirements;
(e) Hastie or its Lenders would have caused Hastie to enter receivership or external administration;
(f) Hastie Securities would have been:
1. priced for the purposes of the Equity Raising; further or alternatively
2. valued by potential investors in Hastie Securities;
at nil or negligible value, alternatively a value materially less than the Offer Prices;
(g) Hastie Securities would not have been restored to trading on the ASX on or about 17 June 2011 or at all; and
(h) the Claimants would not have acquired Hastie Securities pursuant to:
1. the Pathfinder; further or alternatively
2. the Prospectus;
or at all.
96. Some or all of the Claimants acquired interests in Hastie Securities:
96.1 under or pursuant to:
(a) the Pathfinder; further or alternatively
(b) the Prospectus; and
96.2 where, in the premises in paragraph 95, but for the contraventions referred to therein:
(a) the Equity Raising would not have been undertaken;
(b) the Securities would not have been available for acquisition; alternatively
(c) the Securities would not have been available for acquisition at the Offer Prices.
96A. Further or alternatively, some or all of the Claimants acquired interests in Hastie Securities under the Prospectus as a result of:
96A.1 holding and acting upon the assumption, being an assumption generally made in the Market for Hastie Securities and on which they were entitled to act, that absent very prominent warnings in the Pathfinder or the Prospectus (as the case may be) that the financial information therein had not been prepared in accordance with applicable accounting standards and not been tested for the purpose of the Limited Assurance Opinion and the Negative Assurance Opinion in accordance with the application standards, the financial information did so comply and had been so tested; further or alternatively
96A.2 in reliance upon the DTT Prospectus Representations and/or the DCF Prospectus Representations.
97. By reason of the matters set out in:
97.1 paragraphs 95 or 96; alternatively
97.2 paragraph 96A.1, alternatively 96A.2,
the Applicant and some or all of the Group Members suffered loss or damage.
46 Part I of the PSASOC is headed “Post-Prospectus Conduct”. Paragraph [99] contains an allegation that at all material times from 17 June 2011 until not earlier than 29 August 2011 (which is when the FY2011 financial statements were released), the DTT FY2010 Audit Representations, the DTT 1H2011 Review Representations, the DTT Prospectus Representations, further or alternatively the DCF Prospectus Representations were continuing. Each of these matters is defined, together and severally, as the “June Secondary Market Representations”. Next, at [100], it is alleged that, on 29 August 2011, Hastie made certain representations in connection with its FY2011 financial statements. At [101], it is alleged that Hastie’s FY2011 financial report included DTT’s audit report, defined as the “DTT FY2011 Audit Report”. A number of representations are alleged, at [102], to have been made by that report. These are defined as the “DTT FY2011 Audit Representations”. Paragraph [104] contains allegations about Hastie’s actual position by 30 June 2011, alternatively by no later than 29 August 2011, and deficiencies in Hastie’s financial reporting up to this point in time. Following the format of the earlier sections, these matters are defined, together and severally, as the “August 2011 Information”. It is then alleged, at [106], that there were a number of shortcomings in DTT’s audit of the financial statements. At [107], various matters are alleged, which are then defined, together and severally, as the “DTT FY2011 Audit Breaches”. Specific contraventions are pleaded in connection with DTT’s audit of the FY2011 financial statements at [110]-[112], namely that DTT contravened the following provisions:
(a) s 1041E of the Corporations Act;
(b) s 12DB of the ASIC Act or s 29 of the ACLV;
(c) s 12DA of the ASIC Act, s 1041H of the Corporations Act or s 18 of the ACLV.
47 It is then pleaded at [113] that, in the alternative to the matters set out in Part H:
at all material times from not later than 17 June 2011 (Trading Period) the price at which Hastie Securities traded on the ASX (traded price) was, or was likely to be, affected by information disclosed to the Market concerning Hastie’s financial performance or position.
48 Paragraph [114] (omitting particulars and without mark-up) is in the following terms:
114. The:
114.1 [deleted]
114.2 [deleted]
114.3 June Secondary Market Representations; further or alternatively
114.4 the DTT FY2011 Audit Representations;
were, together and in any combination, a cause of:
(a) Hastie Securities being permitted by its Board, its Lenders, the Australian Securities and Investments Commission (ASIC) or the ASX to continue to trade on the ASX;
(b) Hastie being permitted by its Board or Lenders to continue to trade other than under receivership or in external administration; further or alternatively
(c) the traded prices for Hastie Securities during the period from the making of the said Representations being materially higher (inflated) than the prices would have been if the truth of the said Representations had been disclosed to the market.
49 Paragraph [115] contains an allegation that some of the Claimants, defined (as noted above) as “Market Claimants”, acquired Hastie securities via trading on the ASX in the Trading Period (which appears, by virtue of the corrections letter dated 31 August 2017, to refer to the period from 17 June 2011) and, in the premises, in a market inflated by the said Representations. Paragraph [116] contains an allegation that the Market Claimants acquired their interests in Hastie securities as a result of holding and acting upon an assumption to the effect that the price at which they acquired the interest represented the market price in a market in which Hastie’s auditors “had not made any statements or representations that were likely to influence persons who commonly invest in securities in deciding whether to acquire or dispose of Hastie Securities, but that were misleading or deceptive”. Paragraph [117] contains the allegation that Sadie Ville retained, and some or all of the group members retained or acquired, Hastie securities during the Trading Period in reliance upon one or more of the said Representations. (I take this to be a reference to the June Secondary Market Representations and the DTT FY2011 Audit Representations, referred to in [114] of the PSASOC.) In the particulars under [117] it is said that Mr John Golden of Sadie Ville read and relied upon the Prospectus and ASX statements released by Hastie. In particular, it is said that he read and relied upon the DTT and DCF reports in the Prospectus. It is then said that, in reliance on these matters, Sadie Ville acquired Hastie securities “as part of the Equity Raising and subsequently” as particularised in Annexure A to the PSASOC.
50 Part J of the PSASOC concerns corrective disclosures and the collapse of Hastie. It is alleged that various disclosures were made on 3 November 2011 ([118]), 19 December 2011 ([119]) and 22 February 2012 ([120]). As the Relevant Period extends from 14 June 2011 to 21 February 2012, the claim encompasses share purchases that took place after the 3 November 2011 and 19 December 2011 disclosures.
51 Part K of the PSASOC is headed “Loss and Damage”. It comprises paragraph [125], which is in the following terms (as corrected in the letter dated 31 August 2017 from Sadie Ville’s solicitors, and without mark-up):
125. By reason of the matters set out in:
125.1 paragraph 99;
125.3 paragraphs 108-112;
and the matters set out in paragraph 115, 116 and 117 (as the case may be), the Claimants suffered loss and damage.
Particulars
As to Claimants other than the Market Claimants, the Applicant refers to and repeats the particulars set out under paragraphs 96 and 97 above.
The Market Claimants suffered loss of the whole of the trading price paid by them to acquire their interest(s) in Hastie Securities.
Further particulars of the Applicant’s loss will be provided prior to trial. Particulars of loss for individual Group Members will be provided following the trial of common questions.
52 Part L of the PSASOC sets out the common questions said to arise. Apart from the question of liability under s 729(1) of the Corporations Act, the only common questions relating to causation and loss and damage are:
126.10 Whether any and if so which contraventions alleged against the respondents or either of them was a cause of any and if so what consequences alleged in:
(a) paragraph 94 of the Statement of Claim;
(b) paragraph 95 of the Statement of Claim.
126.11 If any contravention was a cause of a consequence referred to in 126.10, what is the measure of the loss and damage recoverable by a person in respect of any such contravention?
Thus, the common questions do not appear to pick up the causation allegations in [114] of the PSASOC.
Consideration
53 It will be convenient to address the various challenges to the PSASOC under the following headings:
(a) Allegations concerning the conduct of the audits and other engagements.
(b) Alleged contraventions of s 12DB of the ASIC Act and s 29 of the ACLV.
(c) Alleged contraventions of s 1041E of the Corporations Act.
(d) Pathfinder allegations.
(e) Causation.
Allegations concerning the conduct of the audits and other engagements
54 The approach taken by the parties was to focus on the allegations concerning the conduct of the FY2010 audit and rely (generally) on the same submissions in relation to the other engagements referred to in the pleading. I will generally adopt the same approach, but note that, as indicated above, there is a question as to the significance of the alleged contraventions pertaining to the FY2010 audit in relation to Sadie Ville’s case as a whole. It would seem to me that the alleged contraventions in relation to the Prospectus and the FY2011 audit have more significance given that the case is based on share purchases during the Relevant Period, namely the period 14 June 2011 to 21 February 2012.
55 In relation to the FY2010 audit, the allegations concerning the conduct of the audit are set out at [25]-[32] of the PSASOC. These paragraphs have been described above.
56 In relation to this part of the pleading, the Deloitte parties’ submissions can be summarised as follows.
(a) The Deloitte parties contend that a fundamental vice of the PSASOC is that the allegations of audit wrongdoing, by which the various alleged representations are impugned, are inadequate and deficient. They submit that “[n]o material facts are pleaded in respect of this matter” and that the issue of audit wrongdoing is improperly dealt with by way of particulars. It is submitted that those particulars are “largely conclusory and pitched at a high level of generality which does not properly articulate a case of audit wrongdoing”. The Deloitte parties rely on the conclusions reached by Ward CJ in Hastie Group, particularly at [234], [248]-[250] and [253] (see also [158], [160], [164]-[167]). They also rely on Young Investments Group Pty Ltd v Mann (2012) 293 ALR 537 at [7].
(b) In relation to the pleadings concerning Hastie’s actual financial position (see, eg, [26] of the PSASOC), the Deloitte parties submit, in summary, that: it is apparent that, central to the allegations, is the suggestion that EBIT, revenue, trade receivables and goodwill should have been lower than as recorded, specifically arising from Hastie’s business in the Middle East and the Rotary division in the United Kingdom; and fundamental to this is the suggestion that revenue attributed to construction contracts was overstated because the recovery of amounts in relation to work in progress for supposed contract variations was unlikely to be recovered. They then submit that what is masked in the particulars is that this case involves multiple un-pleaded building and construction cases.
(c) In relation to the pleadings at [27]-[32] of the PSASOC, it is submitted that [27] of the PSASOC contains a “sweeping and conclusory allegation” and that it is “patently embarrassing”. The Deloitte parties submit that the paragraph is “devoid of any material facts as to what a professional company auditor exercising due skill and care would have done, by reference to any specific Auditing Standards, such that they would have detected and reported the disparate information which is together and severally defined as the August 2010 Information”. This vice is said to infect every allegation of contravention in respect of the FY2010 audit.
(d) In relation to [31] of the PSASOC, the Deloitte parties submit that this paragraph, being the central allegation as to DTT’s audit wrongdoing in respect of the FY2010 audit, “alleges high-level and generalised failings in conclusory terms”. It is submitted that the allegations in [31] are not tied to the allegations in respect of the supposed variances between the FY2010 financial report and Hastie’s actual position. Yet, relevantly, what is audited are the balances. It is submitted that the PSASOC does not allege that a balance was incorrect and then assert some audit wrongdoing in respect of the audit of that balance such that a reasonably competent auditor would have detected it. Further, it is submitted that the issue is particularly egregious as it is apparent that the substantive complaints relate to Hastie’s overseas operations, with audit work in respect of those operations carried out by another audit firm. The Deloitte parties state in their submissions that, here, the other auditors were Deloitte Dubai (an affiliated firm) and PwC. After referring to [14], [16] and [17] of Auditing Standard ASA 600, the Deloitte parties pose the question: “[W]hat are the procedures that a reasonably competent auditor would have applied to the work of Deloitte Dubai and PwC that [DTT] did not perform as required by relevant Auditing Standards?”
57 In my view, the allegations concerning the conduct of the FY2010 audit do state material facts. As stated by French J (as his Honour then was) in Kernel Holdings Pty Ltd v Rothmans of Pall Mall (Australia) Pty Ltd [1991] FCA 557, as quoted by Drummond J in State of Queensland v Pioneer Concrete (Qld) Pty Ltd (see above), it is not the case that the pleading of a conclusion cannot also be the pleading of a material fact. In relation to the FY2010 audit, [25] of the PSASOC sets out matters that are said to have been represented by Hastie in relation to the FY2010 financial statements. These are material facts. Paragraph [26] then sets out what is said to be Hastie’s actual position at the relevant time or times. For example, it is alleged in [26.1](a) that Hastie’s New Businesses “were generating earnings materially lower than had been anticipated by Hastie at the time the businesses were acquired”. Paragraph [26.1](b) alleges that those businesses “were subject to inadequate management and financial controls”, including various matters as there set out. Paragraph [26.1](c) alleges that those businesses “had conducted and were conducting substantial amounts of work as variations to contracts, that were unlikely to be approved and/or paid by customers”. Although these may be described as conclusions, I consider that they can also be described as material facts. The same reasoning applies, in my view, to the balance of [26]. It seems to me that the real issue for present purposes is that identified by French J in Kernel Holdings, namely whether the facts are pleaded at too great a level of generality. In my view, the allegations as to Hastie’s actual position in [26.1] to [26.7] are not pleaded at too great a level of generality. They convey the substance of the facts and matters relied upon by Sadie Ville to contend (in [26.8]) that Hastie’s FY2010 financial report: was not in accordance with the Corporations Act; did not comply with the Australian Accounting Standards; and did not give a true and fair view of the financial position of Hastie as at 30 June 2010. While, no doubt, further and better particulars will be required, at an appropriate stage, in respect of the allegations in [26.1] to [26.7], that is a different matter from that presently under consideration.
58 I note for completeness that one of the particular challenges to [26.2](a) to [26.2](c) of the PSASOC is that the allegations rely on matters reported in later financial statements to impugn the earlier financial statements. This is said to be illogical. However, this submission fails to have regard to the whole of the particulars under [26.2](a) to [26.2](c). These particulars state that the matters in (a) to (c) are to be inferred from the circumstances set out in paragraphs 1 to 4 of the particulars. While paragraph 1 states that, in its financial accounts for 1H2012, Hastie recorded provisions totalling $88.2 million for estimated losses to completion and non-recoverable receivables in the Middle East and International businesses, paragraph 2 states that “[i]n the PPB Report, the Administrators stated that they ‘consider that the adjustments made in the 1H2012 financial statements in relation to goodwill, trade receivables and construction WIP should have been reported in the FY2010 or 1H2011 financial statements’.” Thus, the basis for the inference is not simply the fact that the matter was reported in the later financial statements, but the opinion of the Administrators that it should have been reported earlier. Of course, the particulars will need to be supplemented following discovery.
59 Turning to [27] of the PSASOC, the focus of the challenge was [27.2], which alleges that the August 2010 Information was “information that ought reasonably to have been detected and reported by a professional company auditor exercising due skill and care to conduct the audit of Hastie’s FY2010 Financial Statements in accordance with DTT’s Statutory Audit Obligations”. There is some force in the criticism of this paragraph made by the Deloitte parties to the effect that the basis upon which it is said that the August 2010 Information “ought reasonably to have been detected and reported” is not disclosed. I consider it appropriate that Sadie Ville provide, at least by way of particulars, an explanation of the basis for this allegation. This is something that can be incorporated into the revised proposed second amended statement of claim that I propose to order Sadie Ville to file and serve. The same applies to the comparable paragraphs elsewhere in the PSASOC.
60 Paragraph [29] of the PSASOC sets out representations alleged to have been made by way of the audit report. This paragraph alleges material facts.
61 Paragraph [30] of the PSASOC sets out various allegations, evidently designed to establish elements of the various statutory contraventions that are relied upon later in the pleading. The allegations amount to material facts, in my view.
62 Paragraph [31] sets out what may be described as the alleged shortcomings in the conduct of the FY2010 audit. This paragraph is critical because it forms the basis of the allegation that the alleged representations regarding the audit were false or misleading, or involved conduct that was misleading or deceptive or likely to mislead or deceive. For example, [31.1] contains the allegation that, in planning, performing and reporting the audit, DTT “did not or not adequately obtain an understanding of Hastie’s internal controls sufficient to identify and assess the risks of material misstatement”, including various matters there set out such as (in (a)) “an evaluation of Hastie’s management and management oversight over its businesses, in particular the New Businesses” and (in (b)) “Hastie’s processes for identifying business risks, estimating the significance of its risks, assessing the likelihood of the risks occurring and deciding about the actions to be taken to address those risks”. I refer also to [31.2], which has been set out above. Although I have not set out the balance of [31], I have had regard to each of the allegations made in this paragraph. While it is true that the allegations in [31] may be described as conclusions, in my view they do state material facts. Put another way, they do not “simply” plead a conclusion: see Young Investments Group Pty Ltd v Mann at [7]. Again, it seems to me that the real issue for present purposes is whether the facts are pleaded at too great a level of generality. In my view, they are not, as they convey the substance of the challenge to DTT’s conduct of the FY2010 audit.
63 Paragraph [32] of the PSASOC is based upon the earlier paragraphs of the pleading. It was not the focus of separate challenge. It sets out in clear terms that what is said to flow from the shortcomings alleged in [31].
64 It is true that the particulars under the paragraphs of the PSASOC discussed above provide only limited detail as to the allegations. However, in circumstances where discovery has not yet taken place, and Sadie Ville has not otherwise had access to the audit files, other than in the specific instances referred to in these reasons, it is appropriate to defer requiring Sadie Ville to provide further and better particulars of these paragraphs until after discovery has taken place.
65 The allegations set out in the PSASOC in relation to the FY2010 audit are expressed in clear and logical terms, and set out the elements that need to be established by Sadie Ville to make good the contraventions it relies upon. Whether these propositions are established at trial is, of course, another matter. But this is not a case where, for example, there is a want of logic, or the pleader has failed to allege an element of the cause of action.
66 Further, from a case management perspective, and consistently with the overarching purpose set out in s 37M of the Federal Court of Australia Act, the pleading is, in my view, expressed in terms which are conducive to the orderly conduct of the proceeding, including its pre-trial processes. One is able to see the overall structure of the case that is sought to be made. The pleading, while long, is a manageable length. In the context of this case, including the nature of the claims that are made, and subject to the matters discussed in these reasons, the PSASOC provides a satisfactory basis for the conduct of the proceeding, at least at this stage. If, following discovery and the delivery of further particulars, there is any lack of clarity about the case to be met, or any other deficiency (eg, a want of logic) in the pleading, that is a matter that can, of course, be raised at that time.
67 As indicated above, the Deloitte parties rely heavily on the judgment of Ward CJ in Hastie Group. But there are material differences between the proposed amended commercial list statement (in relation to the Auditors’ Proceeding) considered by Ward CJ and the PSASOC in the present case, and I do not consider it productive to undertake a detailed comparison of the proposed amended commercial list statement and the PSASOC. I note that one of the substantial defects of the proposed pleading in that case related to causation. The issue of causation is materially different in a case where the plaintiffs are companies in liquidation suing the auditors of the companies, compared with a claim by a shareholder in a company against the auditors of the company.
68 For these reasons, I do not consider the parts of the PSASOC containing alleged contraventions in connection with the conduct of the FY2010 audit to be embarrassing or to fail to disclose a reasonable course of action.
69 The reasons set out above concerning the FY2010 audit apply also to the comparable parts of the PSASOC concerning the 1H2011 review, the Pathfinder, the Prospectus and the FY2011 audit. The Deloitte parties, while relying generally on their submissions in relation to the FY2010 audit for the purposes of their challenges to the allegations concerning the other engagements, submitted that the points made “apply with even greater force in respect of the review and negative assurance engagements”. I do not accept this submission. I consider the above reasoning to be applicable also to the allegations concerning the review and negative assurance engagements, notwithstanding the difference in the nature of those engagements. While it is true that the nature of the engagement affects the representations made, and the reliance that may or may not have been placed on the representations, I consider these to be matters for trial.
Alleged contraventions of s 12DB of the ASIC Act and s 29 of the ACLV
70 The parties’ submissions focussed, by way of example, on the allegations in relation to the FY2010 audit, and I will adopt the same approach. The key relevant paragraphs of the PSASOC are [30.3] and [36] (in relation to the FY2010 audit). Paragraph [30.3] alleges that the DTT FY2010 Audit Representations, so far as they were made in relation to DTT’s FY2010 audit, were: (a) “representations that the audit service was of a particular standard or quality”; and (b) “made in relation to or in connection with: … services within the meaning of section 12DB of the ASIC Act, further or alternatively section 29 of the ACLV”. The particulars under [30.3](a) refer back to the representations as set out in [29.1](c), [29.1](d), [29.2](a) and [29.3](a). Paragraph [36] (omitting particulars) is in the following terms:
36. Further or alternatively, by issuing the DTT FY2010 Audit Report DTT:
36.1 falsely represented that its FY2010 Audit of Hastie:
(a) was in accordance with the DTT FY2010 Audit Representations; and
(b) in the premises, was of a particular standard or quality; and
36.2 in the premises in paragraphs 30.1 to 30.3 and 36.1, contravened:
(a) section 12DB of the ASIC Act; further or alternatively
(b) section 29 of the ACLV.
71 The Deloitte parties’ submissions can be summarised as follows:
(a) Contraventions of s 12DB of the ASIC Act and s 29 of the ACLV are alleged in respect of each of the areas of impugned conduct, and follow the same conclusory form. The particulars under [36.1] merely repeat the particulars under [30.3](a). Those particulars simply identify the representations relied upon.
(b) The conclusory manner in which these alleged contraventions are pleaded is embarrassing. It is first necessary to identify the particular standard or the particularly quality in respect of the service, and then plead material facts as to how the service departed from the particular standard or the particular quality. That is not done. The vice is particularly egregious given the content of the four representations relied upon to support the alleged contraventions.
(c) As to the first two representations, it is said that, in the relevant audit report, DTT “stated that in its opinion, Hastie’s FY2010 Financial Report: ... (c) complied with the Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations; and (d) complied with International Financial Reporting Standards (as disclosed in Note 1 of the FY2010 Financial Report)” ([29.1](c) and [29.1](d)). Those are said to be statements that a service was of a particular standard or of a particular quality. That is not so. Rather, in terms, they are representations that DTT held particular opinions. It is then alleged that these representations were falsely made ([36.1]). To allege that a representation that a person held a particular opinion is false, is to allege that the person did not hold the opinion they represented they held. Of course, to allege that a professional gave an opinion which they did not actually hold would be a serious matter. It would be tantamount to fraud.
(d) As to the next two alleged representations relied upon, it is said that DTT stated it “had conducted its audit in accordance with the Auditing Standards” ([29.2](a)) and represented that it “had exercised the skill and care to be expected of a competent professional company auditor in the conduct of its audit of Hastie’s FY2010 Financial Statements” ([29.3](a)). Again, those representations are alleged to have been falsely made ([36.1]). In this context, as to the first of those representations, it would need to be identified with specificity what particular Auditing Standards are relied upon and how it is that the audit was conducted otherwise than in accordance with those particular standards. This is not done. As to the second of those representations, it involves the proposition that DTT did not exercise the skill and care to be expected of a competent professional company auditor in the conduct of the relevant audit. This involves the need to plead a complete negligence case.
72 In my view, these submissions do not provide a basis to strike out the relevant paragraphs of the pleading. For the same reasons as given above, although the relevant allegations may be described as conclusions, they also state material facts. The matters raised by the Deloitte parties go to the substantive merits of the allegations based on s 12DB of the ASIC Act and s 29 of the ACLV, in particular whether there was in fact a representation that services were of a particular standard or quality within the meaning of the statutory provisions, rather than to the sufficiency of the pleading. It seems to me that the pleading sets out, in a clear way, the allegations that are made. It has not been shown that the allegations are untenable. Nor has it been shown that they are ambiguous or lacking in clarity such that the Deloitte parties do not know the case that they have to meet.
73 As indicated above, it will be necessary in due course for further and better particulars to be provided. This should take place after discovery. If there is any lack of clarity in these allegations following delivery of those particulars, that can of course be raised at that time.
Alleged contraventions of s 1041E of the Corporations Act
74 Section 1041E(1) of the Corporations Act is in the following terms:
A person must not (whether in this jurisdiction or elsewhere) make a statement, or disseminate information, if:
(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:
(i) the person does not care whether the statement or information is true or false; or
(ii) the person knows, or ought reasonably to have known, that the statement or information is false in a material particular or is materially misleading.
75 Taking the FY2010 audit allegations as an example, the key relevant paragraphs of the PSASOC are [30.4], [30.5], [33], [34] and [35]. Paragraph [30.4] alleges that the DTT FY2010 Audit Representations were “statements or information likely to induce persons to apply for, dispose or acquire Hastie’s Securities”. Paragraph [30.5] alleges that the DTT FY2010 Audit Representations were “information that a reasonable person would expect to have a material effect on the price or value of Hastie Securities”.
76 The Deloitte parties allege that the relevant paragraphs are expressed in a conclusory form, and fail to plead a reasonable cause of action, and therefore should be struck out. The Deloitte parties’ submissions in relation to the element in s 1041E(1)(b)(iii) can be summarised as follows:
(a) It is plain on the face of s 1041E that it is the statement or the information itself which must be likely to have the proscribed effect. What is more, it follows that the material facts exposing that the making of the statement or the dissemination of the information is likely to have the proscribed effect, need to be pleaded.
(b) One of the reasons given by Gleeson J in Tamaya Resources Limited (in liq) v Deloitte Touche Tohmatsu (A Firm), in the matter of Tamaya Resources Limited (in liq) [2015] FCA 1098 for finding that the s 1041E allegations were liable to be struck out in that case was that there was no “pleading of how the provision of [the given] 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)” (at [198]). In short, the material facts in respect of the ‘link’ need to be pleaded.
(c) As in the present case, the observation in Tamaya was made in respect of the giving of an audit report. The allegations here (at [30.4] and [30.5]) are no better. The particulars rely on the proposition that “when Hastie’s position was more accurately described in its financial statements from late 2011 and early 2012 Hastie was placed in administration …”. That is embarrassing for similar reasons to the attempt to allege impairments and provisions at an earlier time by reference to provisions and impairments made at a subsequent time.
(d) There is a particularly acute problem with the allegations in so far as they concern the so-called Pathfinder. Taking the allegations against DCF as an example, it is alleged that the “DCF Prospectus Representations” (which include those representations said to have been made by the report in the Pathfinder) “were information that was likely to induce persons to apply for or acquire Hastie Securities or have the effect of increasing, reducing, maintaining or stabilising the price for trading in Hastie Securities on the ASX” (PSASOC, [90]). The Pathfinder is said to have been issued on 14 June 2011, with the actual Prospectus released on 17 June 2011 (PSASOC, [63]). As the PSASOC makes clear (and as is routine in the institutional stage of an Accelerated Renounceable Entitlement Offer), the shares of Hastie were placed into a trading halt between 14 June 2011 to 17 June 2011 (PSASOC, [57], [66]). In those circumstances, there can be no sensible allegation that the Pathfinder could have had the effect of increasing, reducing, maintaining or stabilising the price for trading in Hastie Securities on the ASX. Certainly, no material facts are pleaded suggesting how this could be so. The particulars to [69.5] do not assist in this regard, and aspects of them are positively nonsensical.
77 In my view, the pleadings in relation to the element in s 1041E(1)(b)(iii) are adequate. While [30.4] and [30.5] are expressed in conclusory form, they do plead material facts. Some particulars of these allegations have been included, and these provide some basis for the allegations. These particulars will need to be supplemented in due course. While there is some force in the criticism of paragraph 3 of the particulars, this is but one paragraph of the particulars. I do not consider the deficiency of that paragraph to provide a basis for striking out the allegations, given the other particulars that are provided. There is also some force in the criticisms made of the Pathfinder-related allegations. However, I do not consider these criticisms to provide a basis to strike out the relevant pleadings. They are matters that go to the substantive merits of these allegations.
78 The Deloitte parties also criticise the pleading in relation to the “ought reasonably to have known” element in s 1041E(1)(c)(ii). The pleading of this element in relation to the FY2010 audit is at [34]. In my view, this paragraph does not explain the basis upon which it is alleged that DTT “ought reasonably to have known” the relevant matters. In my view, this is a matter that should be addressed by Sadie Ville by the provision of further and better particulars: see Tamaya Resources Ltd (in liq) v Deloitte Touche Tohmatsu (a firm) (2016) 332 ALR 199 at [195], [202]. These particulars should be provided in the revised proposed second amended statement of claim that I propose to order Sadie Ville to file and serve. The same applies to the comparable paragraphs elsewhere in the pleading.
Pathfinder allegations
79 The Deloitte parties challenge the allegations based on the Pathfinder. They note that the Pathfinder itself states that it is “in draft form only” and is “subject to change”. Further, it states that it “is not a prospectus under Australian law”. There seems to be force in these submissions. However, in my view they go to the substantive merit of the allegations based on the Pathfinder, and do not provide a basis to strike out these allegations. Nevertheless, it would be appropriate for Sadie Ville to consider its position in relation to the Pathfinder allegations in light of the submissions made by the Deloitte parties and the observations I have made in these reasons. This should be done in the course of preparing the revised proposed second amended statement of claim.
Causation
80 The pleadings in relation to causation are [94]-[97] and [114] of the PSASOC. These paragraphs have been reproduced above. In my view, there are deficiencies with these paragraphs. In particular, I consider the causation pleadings to be deficient because they do not relate particular alleged contraventions to particular consequences, but rather ‘roll up’ a large number of alleged contraventions as giving rise to a large number of alleged consequences. In [94] of the PSASOC, six different matters are pleaded in the first part of the paragraph (in [94.1] to [94.8]). These six matters (some of which themselves contain multiple allegations) are defined “together and severally” as the “Deloitte’s Contraventions” and said to have been a cause of the eight matters set out in sub-paragraphs (a) to (h) (some of which themselves contain alternatives within them). Based on the way this paragraph is expressed (in particular the use of the words “together and severally”), Sadie Ville would appear to allege that each of the six matters in the first part of [94] was a cause of each of the eight matters in sub-paragraphs (a)-(h). This difficulty flows through to [95]. Paragraph [114] of the PSASOC has similar problems. This paragraph relies on the “June Secondary Market Representations” (which in effect comprise a number of different sets of contraventions) and the “DTT FY2011 Audit Representations” “together and severally” as a cause of the matters set out in sub-paragraphs (a) to (c) of that paragraph. Substantially the same deficiencies apply to the relevant paragraphs ([94]-[97] and [114]) in the amended statement of claim.
81 It is appropriate that the alleged causal consequences of each set of contraventions be pleaded separately so that the discrete allegations can be responded to separately. Further, the causation pleadings result in a bewildering number of combinations of contraventions and consequences. It is appropriate, as a matter of case management, for Sadie Ville to review whether it wishes to pursue each of these combinations.
82 In light of my conclusion in relation to the causation pleadings, it would not be appropriate to grant Sadie Ville leave to amend the amended statement of claim to the form of the PSASOC. In the circumstances, I consider the appropriate course to be to strike out paragraphs [94]-[97] and [114] of the amended statement of claim, and to provide for Sadie Ville to file and serve a revised proposed second amended statement of claim. As the deficiencies relate to only one specific aspect of the pleading, and given the nature of the deficiencies (namely, ones that would appear to be capable of being remedied), I do not consider it necessary to strike out the whole of the amended statement of claim.
83 The revised proposed second amended statement of claim should also include the additional particulars indicated in the course of these reasons (namely, in relation to [27.2] and [34] and the comparable paragraphs of the PSASOC). If Sadie Ville wishes to propose other amendments, whether based on matters discussed in these reasons or otherwise, they should also be included. Given that there are a number of matters to be addressed in addition to the causation pleadings, I consider it appropriate to require Sadie Ville to file and serve a proposed pleading, rather than now giving Sadie Ville leave to amend.
84 I will schedule a case management hearing shortly after the date for delivery of that proposed pleading, at which the Deloitte parties can indicate their position in relation to the proposed pleading.
Conclusion
85 For the reasons set out above, I will make orders to the effect that: Sadie Ville’s oral application for leave to amend its amended statement of claim to the form of the PSASOC be dismissed; paragraphs [94]-[97] and [114] of the amended statement of claim be struck out; the Deloitte parties’ interlocutory application otherwise be dismissed; within 28 days, Sadie Ville file and serve a proposed second amended statement of claim; and the matter be listed for a case management hearing on a date to be fixed. In relation to costs, I will reserve the costs of the interlocutory application, at least at this stage. If either party wishes to agitate the question of costs, the party may do so at the next case management hearing.
I certify that the preceding eighty-five (85) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moshinsky. |
Associate:
