FEDERAL COURT OF AUSTRALIA

Equititrust Limited (In Liq) (Receiver Appointed) (Receivers and Managers Appointed) (Trustee) v Equititrust Limited (In Liq) (Receiver Appointed) (Receivers and Managers Appointed); In the Matter of Equititrust Limited (In Liq) (Receiver Appointed) (Receivers and Managers Appointed) (No 1) [2018] FCA 39

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to r 1.34 of the Federal Court Rules 2011 (FCR), the requirement in r 8.06 FCR that the Application and Statement of Claim filed in this proceeding on 27 September 2013 be served upon the fifth and sixth defendants not less than five (5) days before the date appointed for the first return of this proceeding before the Court be dispensed with.

2.    The Amended Statement of Claim filed by the plaintiff on 7 December 2015 be struck out.

3.    The plaintiff have leave to amend its Statement of Claim so as to include therein all allegations previously made by it in the Amended Statement of Claim filed on 7 December 2015 other than those which relate solely to its proposed case against the sixth defendant pursuant to s 1041E of the Corporations Act 2001 (Cth).

4.    The date upon which the amendments authorised by Order 3 above are to take effect be reserved to the trial judge to be determined at trial or in the judgment.

5.    By 19 February 2018, the plaintiff serve upon the sixth defendant and lodge with the Associate to Foster J a draft of its proposed Amended Statement of Claim in which it sets out those amendments which are authorised by Order 3 above and in which it incorporates the final text of the amendments which it will seek to make to its Statement of Claim filed on 27 September 2013 in order to introduce into its pleaded claims a cause of action against the sixth defendant pursuant to s 1041E of the Corporations Act 2001 (Cth).

6.    Further consideration of the question whether the plaintiff should be granted leave to plead a case based upon s 1041E of the Corporations Act 2001 (Cth) and, if so, upon what terms, be reserved to 21 February 2018.

7.    The Interlocutory Application filed by the fifth and sixth defendants on 9 March 2016 otherwise be dismissed.

8.    The Interlocutory Application filed by the plaintiff on 27 April 2016 otherwise be dismissed.

9.    All questions of costs of and incidental to the said Interlocutory Applications be reserved.

10.    The proceeding be listed for further case management at 9.30 am on 21 February 2018 before Foster J.

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

REASONS FOR JUDGMENT

FOSTER J:

1    The plaintiff, Equititrust Limited (In Liquidation) (Receiver Appointed) (Receivers and Managers Appointed) (Equititrust) was the manager and trustee of an unregistered managed investment scheme known as the Equititrust Premium Fund (EPF).

2    On 20 April 2012, Equititrust was wound up by order of the Supreme Court of Queensland. On the same day, Richard Albarran, Glen Oldham and Blair Pleash of Hall Chadwick were appointed official liquidators of Equititrust. Glen Oldham ceased being a liquidator of Equititrust on 17 July 2013.

3    On 21 February 2012, BOS International Australia Limited (BOSI), which was a secured creditor of Equititrust, in its capacity as manager and trustee of the EPF, appointed Jamie Harris, John Cronin and Joseph Hayes of McGrath Nichol as receivers and managers of Equititrust in its said capacity. Subsequently, as a result of two assignments of the securities held by BOSI, Michael Peldan and Christopher Richard Cook were appointed as joint and several receivers and managers of the EPF. At the same time, Messrs Harris, Cronin and Hayes retired as receivers and managers of that fund.

4    This proceeding was commenced by Equititrust on 27 September 2013 at the instigation of its receivers and managers but with the co-operation of its liquidators. On that day, it filed an Originating Application (OA) and Statement of Claim (SC). However, Equititrust did not serve the OA and the SC at least five days before the first return date of this proceeding as required by r 8.06 of the Federal Court Rules 2011 (FCR) and r 2.7(1) of the Federal Court (Corporations) Rules 2000 (Corps Rules). It did not, in fact, serve that process until late 2015 or early 2016. There is a dispute about the precise date. One of the matters to be determined by this judgment is whether Equititrust should be relieved from the consequences of its non-compliance with these rules of Court.

5    At the time when this proceeding was commenced, the defendants were Equititrust in its own right, Mark McIvor, Wayne McIvor, Thomas Haney, KPMG (a firm) and Paul Steer. I shall refer to KPMG and Mr Steer together as “the auditors”. Equititrust has not yet obtained the leave of the Court to proceed against itself in its own right. Because Equititrust has now abandoned its case against itself, in its own right, this no longer matters. The second, third and fourth defendants were the directors of Equititrust at all relevant times. Mark McIvor is said to have been the controlling mind of Equititrust. I understand that Mark McIvor is bankrupt. Mark McIvor and his family owned or controlled all of the issued capital of Equititrust.

6    KPMG was retained to carry out the audit of the EPF’s financial statements and reports for each of the years 2007, 2008, 2009 and 2010.

7    Mr Steer was the KPMG partner in charge of the above audits throughout the relevant period.

8    In the SC, Equititrust claimed that the auditors failed to perform those audits as required by the statutory, general law, contractual and equitable duties owed by them to it. In particular, Equititrust claimed that the auditors failed to detect and report to it the fact that four groups of imprudent loans were likely to become impaired and also failed to take steps to report to it the improper accrual and capitalisation of interest in respect of the said loans, improper cash advances made to the borrowers under the said loans and the improper accrual of management fees as a result of those loans remaining in place.

9    By three Notices of Discontinuance, each of which was filed on 14 March 2016, Equititrust discontinued all of its claims against the former directors of Equititrust upon the basis that there would be no orders as to the costs of the proceeding insofar as those claims were concerned. In addition, on 16 December 2015, Equititrust informed the Court that it had abandoned its case against itself in its own right but it has not yet formalised that state of affairs. As a result of Equititrust’s abandoning its case against itself and against its former directors, the only defendants remaining in this proceeding are KPMG and Mr Steer.

10    In the meantime, on 7 December 2015, Equititrust filed an Amended Statement of Claim (ASC) in which it deleted paragraphs 1 to 123 of the SC and added paragraphs 124 to 340. By this means, Equititrust deleted from its pleading all of the allegations made in the SC and replaced those allegations with fresh allegations which were confined to its case against the auditors. It made no allegations in the ASC against itself in its own right nor did it take any steps to amend its OA.

11    The case pleaded against the auditors in the SC was recast and embellished in the ASC although Equititrust abandoned its complaints about the 2007 audit when it filed the ASC. With one notable exception, the causes of action relied upon by Equititrust in the ASC were the same as those which had been relied upon by it in the OA and the SC as against the auditors. The exception was the inclusion in the ASC of an entirely new case based upon s 1041E of the Corporations Act 2001 (Cth) (the Act). There is a dispute as to whether the amendments made by the ASC should be allowed to stand. The auditors seek an order disallowing those amendments and Equititrust seeks to maintain them.

12    Equititrust is also the plaintiff in a proceeding which it commenced on the same day as it commenced this proceeding (viz on 27 September 2013) (proceeding NSD 2028 of 2013). In that proceeding, the defendants are Equititrust, in its own right, Mark McIvor, Wayne McIvor, KPMG and Mr Steer.

13    On 17 January 2018, I delivered a judgment in that proceeding by which I determined Equititrust’s application for leave to amend its Amended Statement of Claim (Equititrust Limited (In Liq) (Receiver Appointed) (Receivers and Managers Appointed) (Responsible Entity) v Equititrust Limited (In Liq) (Receiver Appointed) (Receivers and Managers Appointed); In the Matter of Equititrust Limited (In Liq) (Receiver Appointed) (Receivers and Managers Appointed) (No 5) [2018] FCA 11) (the 2028 judgment). That application was opposed by the auditors. The main point of contention in that case was whether Equititrust should be given leave to include within its pleading a cause of action based upon s 1041E of the Act. The auditors argued that leave to amend to include such a cause of action should be refused because, as pleaded, it was fatally flawed. They also argued that leave to amend should be refused on discretionary grounds.

14    Equititrust’s application for leave to amend in proceeding NSD 2028 of 2013 was heard at the same time as the applications to be determined by me by this judgment (as to which, see [23] and [24] below). As far as Equititrust’s attempt to introduce a s 1041E claim into each proceeding is concerned, there is substantial identity between the points raised by the auditors in opposition to Equititrust’s attempt to introduce such a claim into proceeding NSD 2028 of 2013 and those raised by the auditors in their endeavours to have the proposed s 1041E case excluded from this proceeding. For this reason, subject to any particular pleading points which might arise in one proceeding but not the other, the Court’s determination of the question of whether such a claim should be allowed should be the same in each proceeding. This proposition was accepted by the parties and reflected in their submissions.

15    In the 2028 judgment, I decided that:

(a)    The auditors’ argument that the proposed s 1041E case is bad in law because, to some extent, Equititrust proposes to rely upon constructive knowledge should be rejected;

(b)    The auditors’ criticisms of the way in which Equititrust presently intends to plead the requisite element of knowledge for the purposes of the s 1041E case should be accepted;

(c)    The auditors’ argument that the current iteration of the Further Amended Statement of Claim does not adequately address, from a pleading point of view, the question of inducement should be rejected; and

(d)    All discretionary arguments advanced by the auditors for refusal of leave to amend should be rejected.

16    It will be necessary to refer to the 2028 judgment when dealing with the amendment issues raised by the parties in the present case.

17    On 7 December 2015, the solicitors for Equititrust, Squire Patton Boggs (SPB), sent a copy of the ASC to Allens by email. Allens were then, and remain, the lawyers representing the auditors in relation to this proceeding and in relation to proceeding NSD 2028 of 2013. SPB did not send to Allens at that time a copy of the OA or the SC. This was understandable as Allens already had a copy of each of those documents, having obtained those copies, I infer, soon after this proceeding was commenced (see [32]–[35] below).

18    By letter dated 14 December 2015, Allens informed SPB that they had instructions to accept service of the initiating process in this proceeding on behalf of the auditors. As at 7 December 2015, Allens had not communicated to SPB the fact that they had instructions to accept service of this proceeding on behalf of the auditors. It appears that, on or about 14 December 2015, Allens informed SPB that, in their opinion, service had not been validly effected on the auditors on 7 December 2015. It appears that the point then being taken was that, as at 7 December 2015, Allens did not have instructions to accept service of the relevant process (the OA and the ASC and possibly the SC) on behalf of the auditors. They adopted the position that Equititrust had to formally serve those documents upon Allens after 14 December 2015, being the date upon which they had indicated to SPB that they had instructions to accept service. Formal service, in the sense in which I have described, was later effected under cover of a letter from SPB to Allens dated 10 March 2016. Allens and the auditors also took the point that service of the relevant process had not been effected by the date ordered by the Court (4 December 2015). The ASC had been lodged with the Court after 4.30 pm on 4 December 2015 (which was a Friday) and was not regarded as filed until the following Monday (7 December 2015). This delay in the document being formally filed was the result of the automatic application of r 2.25(3)(b) FCR.

19    The contest between the parties as to whether service was effected on 7 December 2015 or on 10 March 2016 is an arid one. In the present case, no consequence of any substance depends upon the Court deciding whether service was formally effected on 7 December 2015 or on 10 March 2016. Indeed, by the time that the matter came before me for argument, the auditors did not suggest otherwise (see, for example, par 5 of their Written Submissions dated 19 April 2016).

20    In the circumstances, I do not think that I need to resolve the dispute between the parties as to whether or not the auditors were validly served on 7 December 2015 or on 10 March 2016. I intend to proceed upon the basis that, subject to the Court excusing Equititrust from its failure to serve the OA and the SC by 14 October 2013, as required by the relevant rules of Court, the auditors were validly served with the relevant process on 10 March 2016 and that, subject to the same qualification, the auditors accept that they were validly served with the relevant process on that day.

21    Equititrust did not seek the leave of the Court to file the ASC prior to filing that document. Rather, it purported to avail itself of the one-off “free” right of amendment afforded to a party by r 16.51(1) FCR which provides that a party may amend his, her or its pleading once, at any time before the pleadings close, without the leave of the Court. As between an applicant and a respondent (or, as here, a plaintiff and two defendants), pleadings are to be taken as closed at the end of the time fixed by the FCR for the filing of a Defence (r 16.12(1) FCR). The time for the filing of a Defence, as fixed by the FCR, is 28 days after service of the Statement of Claim (r 16.32 FCR). Rule 16.54 FCR provides that an amendment of a pleading that is made under r 16.51 takes effect on the date when the amendment is made. If a party amends a pleading under r 16.51(1) FCR, another party may apply to the Court for an order disallowing the amendments (r 16.52(1)). However, the disallowance applicant must apply by interlocutory application filed within 14 days after the date upon which the amended pleading was served upon that party (r 16.52(3)).

22    Here, the auditors seek an order pursuant to r 16.52(1) FCR disallowing the amendments to the SC made by means of the ASC. If service of the ASC was effected on 10 March 2016 rather than on 7 December 2015, then the auditors’ disallowance application was made within the time stipulated in r 16.52(3) FCR. Equititrust did not take any point to the effect that the auditors’ disallowance application was not made within time.

23    On 9 March 2016, the auditors filed an Interlocutory Application (auditors’ IA) in which they sought the following relief, namely:

1.    Pursuant to Federal Court Rules 1.32 and 13.01 and ss 21 and 23 of the Federal Court of Australia Act 1976 (Cth):

(a)    a declaration that the Originating Application filed 27 September 2013 (the OA) has not been duly served on the Fifth and Sixth Respondents as required by Federal Court Rule 8.06; and

(b)    an order setting aside the OA.

2.    Alternatively, pursuant to Federal Court Rule 16.21, the Amended Statement of Claim filed 7 December 2015 (the ASOC) be struck out in its entirety on the basis that the ASOC:

(a)    is likely to cause prejudice, embarrassment or delay in the proceeding; and

(b)    is otherwise an abuse of the process of the Court.

3.    Alternatively, pursuant to Federal Court Rule 16.52, the amendments contained in the ASOC be disallowed on the basis that:

(a)    the amendments are likely to cause substantial further delay to the proceedings, and costs and prejudice to the fifth and sixth respondents;

(b)    the amendments are time-barred, in whole or part; and

(c)    no explanation has been given for the delay in making the amendments or the necessity of the amendments.

4.    Alternatively, pursuant to Federal Court Rule 26.01, judgment be given against the Applicant on the basis that the proceeding is an abuse of the process of the Court.

5.    The proceedings against the Fifth and Sixth Respondents be dismissed.

6.    The Applicant pay the Fifth and Sixth Respondents’ costs of and incidental to the proceedings, including the costs of this application.

24    In order to address some of the issues raised by the auditors’ IA, Equititrust filed an Interlocutory Application on 27 April 2016 (Equititrust’s IA) in which it sought the following relief:

1.    An order pursuant to Rule 1.34 of the Rules that compliance with Rule 8.06 of the Rules is dispensed with.

2.    In the alternative to item 1 above, an order pursuant to Rule 1.39 of the Rules that the time for service of the Originating Application be extended to 10 March 2016.

3.    An order pursuant to Rule 1.39 of the Rules that the time for service of the Amended Statement of Claim (ASOC) be extended to 10 March 2016.

4.    An order pursuant to Rule 1.35 of the Rules that, notwithstanding Rule 16.54 of the Rules, the amendments in the ASOC take effect from 27 September 2013.

5.    Such other orders as the court deems fit.

25    By these Reasons for Judgment, I determine the claims for relief made by each of the auditors and Equititrust respectively in their Interlocutory Applications referred to above.

The Consequences of Equititrust’s Non-Compliance with Rule 8.06 FCR and Rule 2.7 of the Corps Rules

26    In September and October 2013, and at all relevant times thereafter, r 8.06 FCR was in the following terms:

8.06    Service of originating documents

The applicant must, at least 5 days before the return date fixed by the Registrar, serve a copy of the originating application and the statement of claim or accompanying affidavit personally on each respondent named in the originating application.

Note 1:     The Court may extend or shorten the time for service—see rule 1.39.

Note 2:     For the manner of service of a document personally on individuals, corporations, associations, partnerships and business names, see Part 10.

27    Strictly speaking, the present case is governed by the Corps Rules to the extent that those rules contain provisions which purport to cover matters relevant to the present applications. This is because the claims made by Equititrust are, in the main, claims made under the Act and under the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) (see r 1.3 of the Corps Rules). Notwithstanding these circumstances, no party relied upon the Corps Rules at the hearing before me. All parties proceeded upon the basis that the only relevant rules of Court were the FCR. Indeed, Equititrust proceeded under the FCR when it commenced this proceeding and did not follow the Corps Rules when doing so.

28    Rule 2.7(1) of the Corps Rules provides:

2.7    Service of originating process or interlocutory process and supporting affidavit

(1)    As soon as practicable after filing an originating process and, in any case, at least 5 days before the date fixed for hearing, the plaintiff must serve a copy of the originating process and any supporting affidavit on:

(a)    each defendant (if any) to the proceeding; and

(b)    if the corporation to which the proceeding relates is not a party to the proceeding—the corporation.

29    The obligation imposed upon Equititrust by r 2.7(1) of the Corps Rules is essentially the same obligation as was imposed upon it by r 8.06 FCR.

30    The first return date of this proceeding specified in the OA was Tuesday, 22 October 2013. That first return date was never altered or amended by the Court (as to which, see r 8.07 FCR). Therefore, in order to comply with r 8.06 FCR and r 2.7(1) of the Corps Rules, Equititrust was obliged to serve the OA and the SC upon all defendants by no later than 14 October 2013. Days in the weekend do not count as days for this purpose (as to which, see r 1.61(3) FCR). Rule 1.9 of the Corps Rules does not affect or alter this.

31    Equititrust made a deliberate decision not to serve the OA and the SC by 14 October 2013. As a result, it failed to comply with r 8.06 FCR and failed to comply with r 2.7(1) of the Corps Rules. It did not seek any order remedying its default until it filed its IA on 27 April 2016. Nonetheless, it contended before me that it effected service of the OA, the SC and the ASC by 10 March 2016, at the latest.

32    In the period from 27 September 2013 to the end of 2015, the proceeding was listed before a judge of the Court on thirteen occasions. On the first five occasions, the matter was dealt with by the docket judge in Chambers. On all subsequent occasions, commencing with the Directions Hearing held on 8 July 2014, the matter has been dealt with in open Court.

33    I am satisfied that the auditors became aware of the existence of this proceeding soon after it was commenced.

34    On or shortly before 14 October 2013, an employee of Allens made an application to the Court for permission to inspect and photocopy the OA and the SC. Allens’ application to inspect and photocopy the OA and the SC was approved by a Registry officer on 14 October 2013 and subsequently by the docket judge on 16 October 2013. That application was supported by a letter dated 15 October 2013 from KPMG, signed by the firm’s General Counsel, in which the author said, after noting that neither this proceeding nor proceeding NSD 2028 of 2013 had by then been served upon KPMG or Mr Steer:

Until the proceedings have been served and KPMG can file a formal appearance we authorise Richard Harris, of Allens, to act as our solicitor and, in particular, to obtain all documents filed in the above proceedings on our behalf.

That letter was emailed to the Chambers of the docket judge on 15 October 2013.

35    I infer that an employee of Allens did, in fact, inspect and photocopy the OA and the SC on 16 October 2013 or shortly thereafter. I also infer that the auditors obtained a copy of those documents on 16 October 2013 or soon thereafter.

36    On all occasions when the proceeding was before the Court on and after the listing on 5 November 2014, up to the end of 2015, the proceeding was listed at the same time as proceeding NSD 2028 of 2013. Counsel appeared for the auditors in proceeding NSD 2028 of 2013 on each of those occasions. Allens had filed a Notice of Address for Service in proceeding NSD 2028 of 2013 on 19 November 2014 and have been the solicitors on the record for the auditors in that proceeding at all times thereafter. On each of the occasions when both matters were before the Court on and after 5 November 2014, Counsel for the auditors observed and, from time to time, participated in, exchanges between the legal representative of Equititrust and me in respect of this proceeding. On 5 November 2014, he even went so far as to announce an appearance for the auditors in this proceeding. At all of the listings which took place on and after the listing on 11 March 2016, the auditors were represented by the same Counsel.

37    I have no doubt that the auditors were well aware of what occurred on every occasion when this matter was before the Court in the period from 27 September 2013 to 11 March 2016 and indeed thereafter.

38    On or about 18 October 2013, SPB approached the docket judge and requested an adjournment to 19 November 2013 of the Directions Hearing appointed for 22 October 2013. His Honour was asked to make that order because the OA and the SC had not yet been served upon the defendants. An order giving effect to that request was made on 18 October 2013 in Chambers. As a consequence, the listing on 22 October 2013 was vacated. The docket judge had power to make an order in those terms and to do so in Chambers (see s 17(2) of the Federal Court of Australia Act 1976 (Cth) (FCA Act) and r 1.36 and r 5.05 FCR). No doubt, given the fact that they were monitoring this proceeding, the auditors became aware of the adjournment on or around 18 October 2013.

39    The docket judge was not asked to make and did not make an order altering the first return date of this proceeding as specified in the OA. The Court has never been asked to make such an order.

40    Equititrust’s non-compliance with the requirements of r. 8.06 FCR and r 2.7(1) of the Corps Rules did not render this proceeding a nullity or invalid. That non-compliance was a procedural irregularity (MBD Management Pty Ltd v Butcher [2010] FCA 1071 (MBD) at [43] and at [92] per Edmonds J; see also Sheldon v Brown Bayley’s Steel Works Ltd and Dawnays Ltd [1953] 2 QB 393 (Sheldon) at 400 per Singleton LJ and at 401–402 per Denning LJ and Protec Pacific Pty Ltd v Steuler Industriewerke GmbH [2007] VSC 93 (Protec) at [45] per Hansen J).

41    In MBD, Edmonds J was dealing with O 4 r 11 of the Federal Court Rules in force prior to the FCR. The requirement as to service specified in that rule was the same as the requirement specified in r 8.06 FCR and r 2.7(1) of the Corps Rules.

42    Section 51 of the FCA Act provides that:

51    Formal defects not to invalidate

(1)    No proceedings in the Court are invalidated by a formal defect or an irregularity, unless the Court is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of the Court.

(2)    The Court or a Judge may, on such conditions (if any) as the Court or Judge thinks fit, make an order declaring that the proceeding is not invalid by reason of a defect that it or he or she considers to be formal, or by reason of an irregularity.

43    The auditors did not rely upon s 51(1) of the FCA Act in their IA nor did they refer to or rely upon that section in their submissions in support of the orders which they seek in that IA and in answer to the claims for relief made by Equititrust in its IA. The auditors were content to approach the matter upon the basis that Equititrust had chosen not to comply with r 8.06 FCR and had not made good its claim for an extension of the time for service of the OA and the SC or its claim that compliance with r 8.06 FCR should be dispensed with in the present case. Notwithstanding the stance adopted by the auditors, Equititrust did address some very brief submissions to the considerations raised by s 51(1). It was submitted on behalf of Equititrust that s 51(1) provides a useful guide to the Court as to when it should exercise its undoubted power to relieve Equititrust from the consequences of its failure to comply with r 8.06 FCR. Equititrust argued that relief of that kind would only be refused if to do so would cause a substantial injustice to the auditors and, in all the circumstances, that injustice could not be remedied by an order of the Court. I do not think that s 51(1) operates to circumscribe the undoubted discretion which I have to relieve Equititrust from the consequences of its failure to comply with r 8.06. There is a question as to whether it applies at all in the present case. I prefer to rest my decision on the Court’s powers in this regard on r 1.34 FCR and r 1.39 FCR and on its inherent power to control its own procedures.

44    The Court has the power to extend the time for the service of the OA and the SC in order to remedy Equititrust’s non-compliance with the requirements of r 8.06 FCR and r 2.7(1) of the Corps Rules (see r 1.39 FCR and r 1.10 of the Corps Rules) or to dispense with compliance with the requirements of r 8.06 FCR and r 2.7(1) of the Corps Rules (see r 1.34 FCR). In the present case, Equititrust seeks an order dispensing with compliance with r 8.06 FCR and, in the alternative, orders relevantly extending the time for service of the OA and the ASC to 10 March 2016. If the Court were minded to grant either of those claims for relief, the irregularity as to service about which complaint is made by the auditors would be remedied. In that event, there would be no need for the Court to consider making an order under s 51(2) of the FCA Act. For completeness, I note that Equititrust does not seek such an order.

45    The auditors oppose all of the relief sought by Equititrust in its IA. They also seek an order setting aside the OA pursuant to r 13.01 FCR and s 21 and s 23 of the FCA Act on account of Equititrust’s failure to serve the OA as required by r 8.06 FCR. In addition, they seek summary relief striking out the whole of the ASC or, alternatively, disallowing the amendments contained in the ASC (which would mean disallowing the whole of ASC) or, alternatively, dismissing the proceeding as against them. Various grounds are relied upon in support of those alternative claims for relief.

46    Because the provisions of the Corps Rules which are potentially applicable in the present case are not relevantly different from similar rules in the FCR, I propose to deal with the applications before me upon the basis that it is the FCR which apply to the present matter and that no different result would flow from applying similar relevant provisions in the Corps Rules. I will, therefore, only address the relevant provisions of the FCR.

Equititrust’s Claims for Discretionary Relief in Relation to its non-Compliance with Rule 8.06 FCR and the Auditors’ Related Claims and Contentions

Non-Compliance is a Procedural Irregularity

47    As already mentioned, Equititrust seeks to remedy its non-compliance with r 8.06 FCR by obtaining an appropriate extension of time for compliance with that rule or, alternatively, by obtaining an order dispensing with compliance with that rule. These claims require the Court to consider and determine whether it should exercise its undoubted discretionary powers to absolve Equititrust from the consequences of its failure to comply with r 8.06 FCR. The auditors argue that no such indulgence should be granted to Equititrust and that the whole of the proceeding should now be summarily terminated.

48    In MBD, Edmonds J had under consideration the question of whether he should dispense with the requirement as to service embodied in O 4 r 11 of the Federal Court Rules in circumstances where the first directions date in the proceeding before his Honour had been altered to a later date on four separate occasions resulting in that date being postponed for a period of approximately five months. Unfortunately for the applicant in MBD, the originating process was not ultimately served the requisite five clear days before the last postponed first directions date with the result that the applicant failed to comply with O 4 r 11 of the Federal Court Rules. That rule was in the following terms:

An application and affidavit or statement of claim shall, unless the court otherwise orders, be served upon the respondent named in the application in accordance with Order 7, not less than five days before the date appointed for hearing pursuant to rule 8 or rule 9 of this Order.

49    Rule 12 and r 13 of Order 4 expressly provided for the first return date to be altered in order to accommodate the need for service at least five clear days before that first return date.

50    At [40]–[43], his Honour said:

40    Order 4 rr 11 – 13 contain two relevant discretionary powers:

(a)    The power to shorten time for service on the respondents to less than five days before the first hearing (or directions) date (O 4 r 11); and

(b)    the power to alter the first directions date to a later date (O 4 rr 12 – 13).

41    Order 4 rr 11 – 13 do not specify the matters that the Court must consider when exercising the discretion conferred by those sections.

42    The High Court has held that a provision conferring judicial power upon a court should be construed liberally without the imposition of limitations not found within the legislation: CDJ v VAJ (1998) 197 CLR 172 at [110] per McHugh, Gummow and Callinan JJ. Notwithstanding this, legislation conferring a judicial discretion, such as O 4 rr 11 – 13, is to be exercised in accordance with:

(a)    The nature and purpose of the discretion: CDJ v VAJ at [108] per McHugh, Gummow and Callinan JJ; at [53] per Gaudron J.

(b)    principles developed by judicial decision relating to the exercise of the discretion: Regie Nationale des Usines Renault SA v Zhang (2002) 210 CLR 491 at [22] per Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ; and

(c)    the overarching purpose contained in s 37M of the Federal Court Act.

43    The fundamental purpose of O 4 rr 11 – 13, the purpose which informs the application of the overarching purpose contained in s 37M of the Federal Court Act, is to ensure that the respondent has sufficient notice of the first directions date. The Court has adapted a mechanism so that the first directions date is capable of being altered cheaply and with a minimum of formality. The purpose of the Rules is not, as the respondents contend, to invalidate the originating process if service does not occur five days prior to the first directions date.

51    His Honour then considered the context of O 4 rr 11–13 and comparable rules in force at the time when those rules were introduced into the Federal Court Rules. At [47], his Honour continued:

In this context, the purpose of O 4 r 11, which requires service of the originating process five days before the first directions hearing, can be readily understood. O 4 r 11 is designed to ensure that the respondent has adequate notice of the directions hearing so that it can make arrangements to attend and can comply with the various requirements imposed on it. The discretion contained in O 4 r 11 to ‘otherwise order’ is for those occasions when the Court considers it appropriate to shorten the time for service; for example, in cases of urgency.

52    At [50]–[53], his Honour said (referring to O 4 rr 11–13):

50    The Rules are noteworthy for the absence of a rule which provides that an application will be valid only if it is served within a particular time. The rules of the Supreme Court of every State and Territory in Australia contain such a rule:

(a)    In the Supreme Courts of New South Wales, South Australia and Tasmania the rule is that an originating process is valid for service for six months after the date on which it was filed: Uniform Civil Procedure Rules 2005 (NSW), r 6.2(4)(a); Supreme Court Civil Rules 2006 (SA), r 39; Supreme Court Rules 2000 (Tas), r 107(1)(b).

(b)    in the Supreme Courts of Victoria, West Australia, Queensland, Northern Territory and the ACT the rule is that an originating process is valid for service for one year after the date on which it was filed: Supreme Court (General Civil Procedure) Rules 2005 (Vic), r 5.12; Rules of the Supreme Court 1971 (WA), O 7 r 1; Uniform Civil Procedure Rules 1999 (Qld), r 24; Supreme Court Rules (NT), O 5 r 12; Court Procedure Rules 2006 (ACT), r 74.

51    The absence of such a rule in the Rules was observed by Morling J in Re BHP Trading Asia Ltd; BHP Materials Trading Pty Ltd trading as BHP International Group and John Lysaght (Australia) Ltd v Oceaname Shipping Limited [1991] FCA 438. In that case, Morling J was referred to comments made in another case where there was an obligation to serve a writ within 12 months. Relevantly at [28], Morling J observed that:

‘I do not think O 4, rule 12 should be given the same effect as a rule requiring a writ to be served within twelve months after it is issued. There is no real equivalence in the special rule applicable to service of a writ in rem and the requirements of O 4, rule 12.’

52    Relevantly at [22], his Honour said:

‘I think it would have been preferable for the matter to have been listed for a directions hearing on a reasonably proximate fixed date ... But the rules did not require the plaintiffs’ solicitors to ensure that that was done.’

53    The conclusion expressed by Morling J and quoted in [51] above is supported by reference to the Supreme Court Rules 1970 (NSW) upon which the Rules were based. It is well accepted that, when construing a statute, reference may be made to statutes in different jurisdictions if those statutes are sufficiently analogous: Pearce & Geddes, Statutory Interpretation in Australia (6th ed, LexisNexis Butterworths, 2006) at [3.36].

53    At [54]–[62], his Honour considered the form and purpose of certain rules of the Supreme Court of NSW in force at the time O 4 rr 11–13 were introduced in the Federal Court Rules and also an authority which explained the correct application of those rules (Howey & Co Pty Ltd v Creative Projects International Pty Ltd [1973] 2 NSWLR 898) and then made the following observations in relation to the proposition that authorities of the State Supreme Courts in relation to rules of Court in an entirely different form were not helpful to a proper understanding of O 4 rr 11–13. At [63]–[68], his Honour said:

63    None of the cases upon which the respondents rely (with the exception of Re BHP Trading Asia which has been already considered above) involve O 4 rr 12 – 13 or the NSW Supreme Court Rules equivalent. Most of the cases upon which the respondents rely involve court rules of the type set out in [50] above. That is, rules which provide that an originating process is not valid for service after a period of six months or one year.

64    Typically, in those cases, the plaintiff has failed to serve the originating process within the prescribed time and then applies for a ‘renewal’ of the originating process.

65    As observed by Morling J in Re BHP Trading Asia (see [51] above), those rules should not be equated with O 4 rr 11 – 13. With respect, Morling J was clearly right for at least two reasons.

66    First, the text of O 4 rr 11 – 13 is entirely different from the rules which provide that an originating process is not valid for service after a period of six months or one year. O 4 rr 11 – 13 do not state that the originating process is invalid for service if service is not carried out in accordance with those rules. Indeed, s 51 of the Federal Court Act provides that no proceedings in the Court are invalidated by an irregularity, unless the Court is of the opinion that substantial injustice has been caused by the irregularity and that the injustice cannot be remedied by an order of the Court.

67    Secondly, if O 4 r 11 was equated with the rules in other jurisdictions providing that an originating process was invalid for service after a prescribed period of time, the result would be that the Rules would be unduly harsh compared to other jurisdictions. This is because the time period until the first return date in the Federal Court is typically about one month. If the respondents’ interpretation were correct, an originating process would be set aside as invalid for service if service was not carried out in that time unless ‘good reason’ was shown. In every other jurisdiction in Australia, a plaintiff has at least six months (and in some jurisdictions one year) to serve an originating process. These matters provide context in which the relevant judicial discretion is exercised. It is inherently unlikely that the exercise of a discretion to alter hearing dates for a period less than the minimum period for validity of a writ in all other jurisdictions, is an inappropriate exercise of judicial discretion.

68    The result is that most of the cases relied upon by the respondents are not helpful in the construction of O 4 rr 11 – 13.

54    His Honour then moved to consider the way in which s 37M of the FCA Act might assist in interpreting and applying O 4 rr 11–13. At [72], his Honour expressed his ultimate conclusions in the following terms:

O 4 rule 11 is designed to ensure that the respondent has adequate notice of the directions hearing so that it can make arrangements to attend and can comply with the various requirements imposed on it. O 4 rr 12 and 13 are complementary to O 4 r 11. That is, those rules are designed to ensure that the respondent has adequate notice of the first directions hearing and also to avoid unnecessary court hearings. To achieve this aim, rr 12 and 13 provide for a simple, cheap means of altering the first directions hearing.

55    At [92], his Honour held that non-compliance with O 4 r 11 was a procedural irregularity and did not render the whole of the proceeding a nullity. At [93], his Honour noted that, in the matter before him, he was not dealing with an application to renew or reinstate an invalid writ but rather was being asked to remedy a procedural irregularity consisting of a failure by the applicant to comply with the requirement as to service embodied in O 4 r 11.

56    His Honour dispensed with the requirement as to service provided for in O 4 r 11.

57    I agree with the analysis made by Edmonds J in MBD of O 4 r 11 of the Federal Court Rules and of the consequences of a failure to comply with that rule. I also agree generally with his Honour’s approach to the question of whether that rule should be dispensed with in any particular case. I consider that his Honour’s reasoning is apt to be applied in the present case.

58    Accordingly, as I have already held, a failure to comply with r 8.06 FCR is a procedural irregularity and does not render the whole of the proceeding a nullity. The purpose of requiring service in accordance with r 8.06 FCR is to bring to the attention of the respondent parties the existence of the proceeding and the date and time of the first return date. That purpose, in turn, is designed to ensure that, at the first return before the Court, the respondent parties are able to inform the Court of the substance of their defence to the applicant’s claims (if any) and of their attitude to the case management directions and orders suggested by the applicant and/or propounded by the docket judge herself.

59    I therefore refuse to set aside the OA as sought by the auditors in par 1(b) of the claims for relief made by them in their IA. Because I intend to relieve Equititrust from the consequences of its non-compliance with r 8.06 FCR, there is no utility in making a declaration in the terms of the declaration sought by the auditors in par 1(a) of the claims for relief made by them in their IA. There are other reasons why I would not make a declaration in those terms but I need not discuss them here.

Relief from Non-Compliance (Discretion)

60    In the present case, the auditors became aware of the existence of this proceeding by no later than 16 October 2013. They also obtained copies of the OA and SC by no later than that date. I infer that Allens, on behalf of the auditors, diligently monitored the progress of this proceeding and knew the precise terms of each of the orders made by each of the two relevant docket judges in the period from and including 18 October 2013 to and including 16 December 2015. Of course, from and including 5 November 2014, each listing of this proceeding took place in open Court at a time when the auditors had Counsel present in Court. There is no doubt that the auditors had notice of the existence of this proceeding very soon after it was commenced and were aware at all relevant times thereafter of the listings before the Court and of what occurred at or in relation to each of those listings.

61    In the period from 5 November 2014 to 1 March 2016, Counsel was usually present in Court in order to appear for the auditors in proceeding NSD 2028 of 2013 and to observe the exchanges between bench and bar as to the progress of this proceeding.

62    In effect, the auditors allowed Equititrust to proceed as it did, seeking multiple adjournments of listings before the Court, always, of course, with the knowledge and approval of the docket judge, without comment or objection on their part until late 2015 and without ever drawing to the attention of Equititrust (or, for that matter, the Court) that, at some future point in time, they intended to seek to rely upon Equititrust’s failure to comply with r 8.06 FCR as a basis for seeking the summary termination of the whole of the proceeding. They never attempted to reserve their position in relation to the point. The first time that the auditors revealed that they proposed to advance such a contention was on 8 March 2016 when they lodged their IA with the Registry for filing. Although the auditors were not required to take any steps in this proceeding until they were properly served with the OA and the SC and until at some point thereafter they were ordered by the Court to take some step, it was not appropriate for the auditors to sit by and not inform the Court or Equititrust that, in due course, they proposed to argue that the delay in service of the Initiating Process was a basis for summarily terminating this proceeding.

63    Initially, SPB informed the Court that this proceeding had been filed in order to protect Equititrust against the possible expiration of a relevant limitation period and that it was desirable for the first return date of this proceeding to be adjourned because the receivers and managers of the EPF were endeavouring to negotiate an appropriate funding agreement with a litigation funder. The Court was informed that obtaining litigation funding was likely to take some time.

64    On 5 November 2014, which was the first occasion that this proceeding was listed before me, I was informed by the legal representative of Equititrust who appeared before me on that day that there was a prospect that the receivers and managers of the EPF would retire and that, if those receivers and managers retired as expected, the proceeding would come under the complete control of the liquidators of Equititrust. I was told that the liquidators would then need time to decide whether they wished to proceed with this proceeding and in order to enable them to secure funding for it.

65    On 11 February 2015, I was informed that the receivers and managers had decided to retire, as previously foreshadowed. I was also informed on that occasion that the liquidators were currently in negotiations with a potential litigation funder.

66    The question of whether the liquidators would press on with this proceeding was not resolved until October 2015. On 16 October 2015, I was informed that the liquidators intended to proceed but that they wished to amend the SC. In light of this information, on 16 October 2015, I ordered Equititrust to file and serve any Amended Statement of Claim by 4 December 2015. At the same time, I listed the matter for further case management on 16 December 2015. It was understood by everyone at the time that Equititrust intended to rely upon r 16.51(1) when making its amendments to the SC. No objection to that course was made by the auditors at that time.

67    As already mentioned, the ASC was lodged with the Court on 4 December 2015 and accepted for filing on 7 December 2015. It was sent to Allens on 7 December 2015.

68    On 16 December 2015, I made the following notes and orders:

THE COURT:

1.    NOTES that, in accordance with the indication given in the letter from Squire Patton Boggs, the solicitors for the plaintiff, to Allens dated 7 December 2015, further particulars will be provided by the close of business today (16 December 2015) of the allegations made in pars 235, 258, 281, 282 and 295 of the Amended Statement of Claim filed on 4 December 2015 (Amended Statement of Claim).

2.    Upon the assumption that the further particulars referred to in par 1 above are provided by the close of business today (16 December 2015), ORDERS that, by 4 March 2016, the fifth and sixth defendants file and serve their Defence to the Amended Statement of Claim.

3.    ORDERS that the listing on 12 February 2016 be vacated.

4.    GRANTS liberty to all parties to apply on three (3) days’ notice or on such shorter notice as a Judge might allow.

5.    ORDERS that the proceeding be listed for further case management at 9.30 am on 11 March 2016 before Foster J.

6.    NOTES that the plaintiff intends to proceed only against the fifth and sixth defendants in this proceeding and abandons its claims against the first to fourth defendants.

69    Subsequently, on 15 March 2016, I vacated Order 2 made by me on 16 December 2015 requiring the auditors to file a Defence and made an order that, until the determination of the auditors’ IA, or until earlier further order, the auditors be excused from any requirement under the Rules to file a Defence.

70    On 16 December 2015, Counsel for the auditors was present in Court. He appeared formally in proceeding NSD 2028 of 2013 on that day but did not announce an appearance in this proceeding even though both proceedings were listed at the same time and even though they were dealt with one after the other. On this occasion, Counsel for the auditors informed the Court that the auditors intended to argue that, as at 16 December 2015, they had not been formally served with the Initiating Process in this proceeding. He did accept, however, that Allens had a copy of the ASC. I informed the auditors’ Counsel that I intended to order them to file a Defence to the ASC. Counsel did not submit to me on this occasion that his client should not be compelled to file a Defence at all but rather argued that, in light of the fact that the ASC had only recently been sent to Allens and taking into account the auditors’ argument that the proceeding had not yet formally been served upon them, he was not in a position to assist the Court as to how long the auditors needed to file their Defence. In light of these remarks, I gave the auditors until 4 March 2016 to file their Defence and made Order 2 which I have extracted at [68] above.

71    No submission was made to me at any time up to and including 16 December 2015 that I should not make orders requiring the auditors to take steps in the present proceeding because they wished to contend that the proceeding should be wholly dismissed by reason of Equititrust’s failure to comply with r 8.06 FCR and by reason of its continuing failure to serve the relevant Initiating Process.

72    At the hearing of the auditors’ IA and Equititrust’s IA before me, the auditors raised a number of arguments as to why the Court should not now dispense with compliance with r 8.06 FCR or, alternatively, extend the time for compliance with that rule up to and including 10 March 2016.

73    First, the auditors argued that Equititrust had not satisfactorily explained its non-compliance with r 8.06. This submission is fatuous. Regularly, throughout the period from 14 October 2013 until 16 December 2015, the legal representative of Equititrust who appeared in Court or who communicated with the Chambers of the docket judge informed the Court of the reasons why Equititrust was seeking from time to time to adjourn the listings before the Court. I have summarised the explanations given from time to time at [63]–[65] above. The auditors do not suggest that these explanations were untruthful or incomplete. On each occasion, the docket judge evaluated all of the relevant circumstances and made a decision as to whether Equititrust’s adjournment application should be granted or whether the parties should be required to progress the proceeding. The docket judge was satisfied that an adjournment without any orders being made was warranted on each occasion. It is neither necessary nor desirable for me at this point in time to explain or second guess the reasons why the docket judge on each occasion acceded to Equititrust’s application. However, one obvious reason is the Court’s desire to minimise the costs of litigation in circumstances where there was a very real prospect that the proceeding would not be pressed at all. For so long as negotiations for litigation funding were proceeding reasonably, there was good reason to save the parties from the expense of having to take steps in the litigation which may turn out to have been a complete waste of time. In any event, on every occasion, an explanation was given and the docket judge made a decision to approve the requested adjournment.

74    This is not a case where the Court was left in ignorance of what was occurring within Equititrust’s camp. Rather, it is a case where each and every adjournment and thus the overall delay was sanctioned by the Court. This case is quite different from the circumstances that obtained in Arthur Andersen Corporate Finance Pty Ltd v Buzzle Operations Pty Ltd (in Liq) [2009] NSWCA 104 and Weston v Publishing and Broadcasting Ltd (2011) 83 ACSR 206; [2011] NSWSC 433. In each of those proceedings, there was significant delay not the subject of the Court’s approval which was subsequently sought to be explained by the fact that negotiations with a litigation funder were being undertaken and had occupied a significant amount of time. Understandably, the Court took the view that, bearing in mind that the rules of Court applicable to those cases required service of the Initiating Process within a specified time period, a plaintiff should not be permitted to “sleep on its rights”. In Tolcher v Gordon [2005] NSWCA 135, (2005) 53 ACSR 442, Tobias JA, at 467–468 [126], expressed the view that, in the circumstances of that case, a decision to delay service until litigation funding was in place was appropriate, prudent and responsible. Hodgson and Ipp JJA agreed with Tobias JA.

75    Next, it was argued that the Court should assume prejudice even if proof of actual prejudice had not been established. The auditors then pointed to actual prejudice in the form of the difficulties caused to them by the introduction of the new claim pursuant to s 1041E of the Act because that claim is not apportionable, is not subject to the limitation of liability imposed by the Professional Standards Scheme and is not subject to a claim of contributory negligence. That claim was introduced into this proceeding without first having to pass muster on an application for leave to amend because, and as a result of Equititrust’s delay in serving the OA and the SC, Equititrust became entitled to proceed under r 16.51(1) FCR and to amend its SC without first obtaining the leave of the Court. The auditors argued that this caused them real prejudice.

76    The auditors argued before me that, if the s 1041E claim had been in the SC from the start, the auditors would have had an appropriate basis for a cross-claim against Equititrust for breach of the audit contract because Equititrust breached its contractual obligations to the auditors in respect of the four loan transactions impugned in the ASC. This contractual cross-claim by the auditors against Equititrust would have been founded upon certain obligations imposed upon Equititrust by KPMG’s engagement letters for each of the 2008, 2009 and 2010 years which required Equititrust to provide all information that may reasonably be required by the auditors for the purpose of carrying out the relevant audits, to advise the auditors of any inaccurate or misleading information previously given to them and to apprise them of any contentious material issues. The auditors argued that they have lost the capacity to cross-claim against Equititrust because their claims would now definitely be statute barred. This last contention is based upon the proposition that, in contract at least, time began to run very shortly after the audit opinions were issued in respect of the relevant years (2008 and 2009). This argument is also relied upon in relation to the auditors’ application for an order disallowing the amendments made by the ASC.

77    The auditors also argued that the actual prejudice likely to be suffered by them included the usual prejudice occasioned by the passage of time, namely, that memories fade, records are lost and evidence gathering becomes difficult or impossible.

78    At par 39 of their Written Submissions dated 19 April 2016, the auditors said:

This means that the KPMG Parties face actual prejudice if the claim in its current form is allowed to proceed. By their delays in negotiating litigation funding and preparing amendments designed to circumvent various limitations on liability, Equititrust has sought, unilaterally and without the approval of the Court, to achieve an extension in the limitation periods that would otherwise have barred it from commencing this claim and, at the same time, been able to insulate itself from a cross-claim based on the contractual provisions that it agreed to at the time of the 2008 and 2009 audits by allowing the limitation periods on those claims to pass before service was effected.

79    This passage fairly captures the essence of the auditors’ complaints concerning actual prejudice which will be suffered by them if the case is allowed to proceed with the allegations in the ASC constituting the matters relied upon to establish the claims for relief made by Equititrust in the OA.

80    As submitted on behalf of Equititrust, there is an air of unreality about the auditors’ submissions directed to delay and the prejudice occasioned thereby. If they had been truly concerned about any of the matters now addressed in their arguments, they should have raised these concerns much earlier than they did. Had they done so at the earliest opportunity, I have no doubt that the Court would have dispensed with compliance with r 8.06 FCR or extended the time for compliance with that rule to an appropriate date. The fact that Equititrust now seeks such orders at a much later date is a matter for which the auditors must bear significant responsibility. The adjournments which were granted by the Court were not done secretly or in the absence of knowledge on the part of the auditors. They were well aware of the fact of each adjournment and aware of the reasons given to the Court for each adjournment.

81    More importantly, the Court specifically sanctioned each adjournment in circumstances where, on each occasion, Equititrust offered to the Court an explanation for its request that the matter be adjourned and in circumstances where the auditors made no complaint about any of the adjournments at the time.

82    In addition, I made an order on 16 October 2015 expressly requiring Equititrust to serve its Amended SC by 4 December 2015. In substance, that order was an order extending the time for service of that process to 4 December 2015. The auditors did not object to my making that order. As already mentioned, Equititrust lodged the ASC with the Court on 4 December 2015 (within the time limited by my order) but the document was not regarded as filed until the following Monday (7 December 2015). This technical non-compliance with my order was of an inconsequential character and caused no additional prejudice to the auditors.

83    Equititrust also submitted that the auditors suffered no actual prejudice by reason of the alleged delay because they were heavily engaged from 2012 onwards in collecting the relevant records and in interviewing the relevant personnel within KPMG. From that date, the auditors always expected that the liquidators would conduct examinations of those personnel and, from about the middle of 2014 onwards, they were aware that such examinations were definitely going to be conducted. Equititrust submitted that, in 2014 in particular, when the lawyers for the auditors interviewed and prepared Mr Steer and the other relevant KPMG personnel for the purpose of being examined by the liquidators under the Act, they were well aware of the existence of this proceeding and of proceeding NSD 2028 of 2013 and of the allegations then being made in each of those proceedings. Equititrust submitted that, notwithstanding that the cause of action based upon s 1041E of the Act was not then in either set of proceedings, the factual substratum relied upon by Equititrust taking into account the amendments in each of those proceedings was essentially the same as the factual substratum already relied upon by Equititrust in each of those proceedings. It was common ground at the hearing before me that the four groups of loan transactions which were the subject of the allegations made against the auditors in the SC and the ASC also form part of the case against the auditors in proceeding NSD 2028 of 2013. In this sense, it was agreed that the allegations made in this proceeding are “a subset” of the allegations made in proceeding NSD 2028 of 2013.

84    Where a defendant has knowledge of the existence and nature of the claims against it, that knowledge mitigates any prejudice that the defendant might otherwise suffer through a delay in service of the process (Agricultural and Rural Finance Pty Ltd v Kirk [2011] NSWCA 67, (2011) 82 ACSR 390 at 413 [111]–[112] and at 415 [123] per Tobias JA with whom Macfarlan JA and Sackville AJA agreed).

85    The limitation issues raised by the auditors fall into two groups: First, they argued that, quite apart from the new case based upon s 1041E of the Act, the reshaping of the allegations otherwise made against the auditors involves the introduction of new cases which are statute barred. Equititrust countered this contention by making detailed submissions including by providing to the Court a comparison schedule (Tab 4 of MFI-2) which it contended demonstrated clearly that no new cases were being introduced. Second, they argued that the s 1041E case sought to be made in the ASC is statute barred.

86    I shall address these points in a little more detail when I come to deal with the amendment issues. It is sufficient for present purposes for me to note that I agree with Equititrust’s submission as to the first group of limitation issues but consider that, nonetheless, the limitation questions (if any) arising from those amendments being allowed should be left to the trial judge to be determined at trial. I also consider that any limitation issues arising from the s 1041E case should be left to be determined by the trial judge at trial.

87    As to the auditors’ argument that they have lost the opportunity to plead a cross-claim against Equititrust itself, Equititrust submitted that this is not so. It contended that the Limitation of Actions Act 1974 (Qld) is the law governing the limitation period applicable to such a cross-claim and that, pursuant to s 42 of that Act, a claim by way of counterclaim (such as the putative cross-claim here), whenever actually commenced, shall be deemed to be a separate action and to have been commenced on the same date as the action in which the counterclaim is pleaded. Here, that date is 27 September 2013. This submission is correct and I accept it. For this reason, no prejudice constituted by the allegedly lost cross-claim will be suffered by the auditors if the case is allowed to proceed and to do so upon the basis of the allegations made in the ASC including those pleaded as the foundation for the s 1041E case.

88    For the reasons advanced on behalf of Equititrust, I consider that any prejudice which the auditors might suffer by the Court’s relieving Equititrust from the consequences of its failure to comply with r 8.06 FCR is substantially outweighed by all of the other circumstances in play. In substance, the delay in service of the Initiating Process and the ASC was the result of appropriate case management on the part of the Court and was never the subject of any objection by the auditors. Leaving aside for the moment the question of whether the amendments made by means of the ASC should be allowed, this is a strong case for ordering that the requirements of r 8.06 FCR be dispensed with. Although the Court has the option of extending the time for service to 10 or 11 March 2016 as the means of excusing Equititrust from its failure to comply with r 8.06 FCR, I think that the better option is to dispense with compliance with r 8.06 FCR altogether. In this way, any argument about the precise date of service will be avoided. I propose to make an order to that effect.

89    As I said at [59] above, given that I propose to dispense with r 8.06 insofar as it applied in the present case, there is no point making a declaration that r 8.06 FCR was not complied with and no basis for setting aside the OA, the SC or the ASC by reason of that non-compliance.

90    In addition, I do not agree that there is a basis for summarily terminating the proceeding by reason of the delay in service of the OA, the SC and the ASC. I reject the claims made by the auditors for summary dismissal of the proceeding upon that ground.

the Amendments Effected by the ASC

91    The above conclusions dispose of the claims for relief made by Equititrust in pars 1, 2 and 3 of its IA and the claim for relief made by the auditors in par 1 of their IA. The remaining issues concern the question of whether the amendments made in the ASC should be permitted to stand.

92    The auditors propound two broad challenges to those amendments. The first challenge is that those amendments which Equititrust contended did no more than recast and embellish appropriately the allegations already made in the SC nonetheless introduce material which effects such a substantial change to the existing causes of action as to be regarded as pleading new or fresh causes of action which, so it was argued, are statute barred in respect of all causes of action other than those which relate to the 2010 audits. The second proposition advanced by the auditors was that the s 1041E claim sought to be maintained by Equititrust in this proceeding is plainly statute barred in respect of those allegations made in respect of the 2008 and 2009 audits.

93    In addition, the auditors argued that I should disallow that part of the ASC which constitutes the foundation for the s 1041E case upon a number of additional grounds which may fairly be described as the same grounds upon which the introduction of a similar case based upon that section was opposed by the auditors in proceeding NSD 2028 of 2013.

94    The starting point for my consideration of the parties’ respective contentions in relation to the amendments effected by the ASC is the procedural framework within which those amendments were effected.

95    Equititrust was able to avail itself of the permission contained in r 16.51(1) FCR in December 2015 because it had not served the OA or the SC upon the auditors at that time. As I have found, by not serving that process until 7 December 2015 or 10 March 2016, Equititrust failed to comply with r 8.06 FCR. Its non-compliance with that rule also led to a state of affairs where, as at 7 December 2015 and as at 10 March 2016, pleadings in this proceeding had not yet closed. In other words, Equititrust’s ability to amend the SC pursuant to r 16.51(1) FCR arose directly from its failure to serve the OA and the SC until 7 December 2015 or 10 March 2016 and thus arose directly from its failure to comply with r 8.06 FCR.

96    Of course, as a result of proceeding as it did, the amendments effected by the ASC took effect on the date upon which the amendments were made (as to which, see r 16.54 FCR). This consequence not only had implications for the new s 1041E case sought to be introduced into this proceeding by Equititrust but also had implications for the other causes of action in the ASC which had been recast and embellished from those causes of action already pleaded in the SC.

97    Equititrust wants to be relieved from these negative consequences of its actions. It seeks an order dispensing with compliance with r 16.54 FCR. The auditors, on the other hand, seek to have the Court approach the matter upon the basis that the justice of the present circumstances requires that I disallow the amendments made in the ASC and then move to consider and determine whether Equititrust should have leave to amend the SC in accordance with the ASC. The auditors went on to submit that, should I adopt that approach, I should refuse leave to amend for a number of reasons.

98    I think that the best course is for me to adopt the substance of the auditors’ submissions on this point which I have summarised at [97] above and to begin the present discussion upon a basis which treats Equititrust as presently applying for leave to amend in accordance with the ASC and to treat the auditors as opposing leave being granted on the various grounds adumbrated in their written and oral submissions before me. To allow the ASC to stand but to dispense with compliance with r 16.54 (if that were possible under r 1.34) would be quite unfair to the auditors. That would give the Court’s imprimatur to Equititrust’s taking advantage of its default in respect of service by amending the SC under r 16.51(1) without requiring it to take the consequence of doing so embodied in r 16.54. I do not think that such an approach is at all appropriate.

99    I do not propose to proceed under r 16.52(1) FCR because to do so would not satisfactorily address the question of whether any amendments which are allowed should take effect from the date upon which this proceeding was commenced or upon some later date.

100    Accordingly, I propose to make an order striking out the ASC. The only purpose in doing so is to enable me to consider the issues raised by Equititrust and by the auditors in the context of an application by Equititrust for leave to amend the SC in accordance with the allegations made in the ASC.

101    Equititrust went to considerable lengths in its written and oral submissions to satisfy the Court that the recasting in the ASC of the existing allegations made in the SC did not amount to the pleading of any new cause of action but rather did no more than add greater detail to causes of action already relied upon. As I mentioned at [85] above, Equititrust provided to the Court a schedule which provided a road map to enable the Court to compare the allegations made in the existing SC with those made in the ASC concerning all causes of action other than the cause of action founded upon s 1041E of the Act.

102    The relevant principles were gathered by Gleeson J in Clasul Pty Ltd v Commonwealth of Australia [2014] FCA 1133.

103    Equititrust submitted that the gravamen of the claims made by it in the SC may be summarised as follows:

(a)    The EPF’s 2007–2010 Annual Financial Reports were deficient in that the value of mortgage investments recorded in those reports was materially overstated, significant mortgage investments were in default in excess of the amounts reported and the EPF had assets that should have been recorded as impaired or as impaired to a greater degree than shown;

(b)    KPMG’s Audit Reports in relation to those Annual Reports did not identify or report on these deficiencies;

(c)    In context, KPMG’s Audit Reports in relation to those Annual Reports constituted representations about the accuracy of the reports, the quality of their own audits and the compliance with all relevant accounting requirements in respect of the Annual Financial Reports and the Audit Reports; and

(d)    Accordingly, KPMG breached its common law, equitable and contractual duties to Equititrust in carrying out the audits and by providing the audit reports. Its representations about the auditors’ work and those reports were misleading giving rise to an entitlement in Equititrust to damages under the ASIC Act and under various State Fair Trading Acts.

104    At par 58 of its Written Submissions, Equititrust set out in detail a submission to the effect that the gravamen of the allegations made in the ASC (leaving aside for the moment the case based upon s 1041E of the Act) was the same as the gravamen of the causes of action pleaded in the SC and that the only difference between the two pleadings was the provision of greater detail in support of those essential allegations. This submission was supported by the comparison schedule to which I have already referred. I also note that no amendments were sought to be made to the OA leaving the causes of action relied upon in that document intact. One further difference should be noted: In the ASC, Equititrust abandoned any reliance upon defects in the 2007 audit.

105    The auditors did not mount any serious opposition to the submissions made by Equititrust which I have summarised at [101]–[104] above. I am satisfied that to permit the recasting of the allegations made in the SC which are unrelated to the introduction of the s 1041E claim would not constitute the introduction into the present proceeding of fresh or new causes of action which are obviously statute barred.

106    The auditors’ example given in their Written Submissions based upon the proposition that certain improper cash advances made between April 2006 and 31 December 2010 cannot be the subject of pecuniary relief in favour of Equititrust does not withstand analysis. Equititrust submitted that the loss and damage incurred in respect of such cash advances was not suffered immediately after the monies were advanced but rather was suffered at the time when full recoupment of the monies became impossible which may, when the facts are known, have been at a much later time. That submission is correct and I accept it.

107    The auditors submitted that the s 1041E claim should be disallowed pursuant to r 16.52(1) FCR for the same reasons which they advanced in opposition to the grant of leave to amend sought by Equititrust in proceeding NSD 2028 of 2013. In that proceeding, I granted leave to amend, subject to one matter, namely, the need for Equititrust to reformulate its pleading of knowledge as against the auditors. I rejected the auditors’ argument that the proposed s 1041E case is bad in law because, to some extent, Equititrust intended to rely upon constructive knowledge. I also rejected the auditors’ argument that the current iteration of the proposed Further Amended Statement of Claim did not adequately address, from a pleading point of view, the question of inducement. Finally, I rejected all discretionary arguments advanced by the auditors in support of their opposition to leave to amend. Detailed reasons for these conclusions were provided in the 2028 judgment.

108    I note that, in proceeding NSD 2028 of 2013, Equititrust abandoned its case against KPMG based upon s 1041E and chose to proceed only against Mr Steer for relief based upon that section. I assume that Equititrust will do the same in respect of this proceeding. The orders which I propose to make will be made on that assumption.

109    The auditors also submitted that the s 1041E claim as pleaded in the ASC was necessarily out of time in respect of the 2008 and 2009 audits because, by reason of the operation of r 16.54 FCR, the amendment which brought forward that claim took effect from the date of the amendment (ie from 7 December 2015) and that that date was more than six years after the date of the 2008 and 2009 audit reports.

110    Equititrust answered this submission by seeking dispensation from r 16.54 FCR and, in the alternative, by arguing that it would not be appropriate finally to determine, at this early stage of the proceeding, whether and to what extent the s 1041E claim is statute barred. Equititrust submitted that the question of when relevant amendments should take effect should be left to the trial judge (McGraw-Hill Financial, Inc v Clurname Pty Ltd [2017] FCAFC 211). Those submissions are also correct and I also accept them. The relevant cause of action is based upon a mode of liability which involves loss or damage as a necessary element of the right of action. In respect of such a cause of action, time does not begin to run until actual loss or damage has been suffered. The damage in question must be actual damage, rather than the risk or prospect of damage, and the damage must be measurable beyond what can be regarded as negligible (Wardley Australia Limited v State of Western Australia (1992) 175 CLR 514 at 526–527 per Mason CJ, Dawson, Gaudron and McHugh JJ). In such a context, it is preferable that the Court decide all limitation questions when all of the facts are known.

111    The same considerations apply to the question of whether the s 1041E claim in the present case should be allowed to be maintained as applied to the question of whether such a claim should be the subject of leave to amend in proceeding NSD 2028 of 2013. I see no reason to depart from the conclusions which I arrived at in proceeding NSD 2028 of 2013 in respect of Equititrust’s endeavours to plead and maintain a case based upon s 1041E of the Act (as to which, see [15] above) when determining what should happen with the s 1041E case which Equititrust seeks to plead and maintain in this proceeding. I would, therefore, give effect to those conclusions in this case and do so for the same reasons as I gave in the 2028 judgment.

112    The conclusions which I have expressed at [111] above necessarily mean that Equititrust should plead its allegations of knowledge against Mr Steer in accordance with the observations which I made on that topic in the 2028 judgment. The orders which I propose to make will also reflect this decision.

Conclusions

113    For all of the above reasons, I propose to make an order pursuant to r 1.34 FCR dispensing with compliance on the part of Equititrust in this proceeding with r 8.06 FCR. I also propose to make an order striking out the whole of the ASC. I propose to give leave to Equititrust to amend its SC to include all paragraphs currently in the ASC other than those which relate specifically and only to its proposed case against Mr Steer under s 1041E of the Act. As presently drafted, it is a little difficult to identify which paragraphs are affected by that ruling as the proposed case seems to be intertwined within paragraphs 323–332 of the ASC. For this reason, it may be that the appropriate course is for Equititrust to endeavour to plead its s 1041E case in a self-contained fashion which will make it easier for the auditors and the Court to understand how that case is to be put.

114    I will otherwise dismiss all remaining claims made by the auditors in their IA and by Equititrust in its IA. I note that the auditors made no attempt to justify or support their allegation that the continued maintenance of this proceeding or its maintenance upon the basis of the allegations made in the ASC constitutes an abuse of the process of the Court. No such abuse has been demonstrated.

115    I propose to reserve the question of costs for the time being.

116    There will be orders accordingly.

Associate:

Dated:    2 February 2018