Federal Court of Australia

YAF Master v S&P Global, Inc (Applications for Leave) [2025] FCA 333

ORDERS

THE COURT ORDERS THAT:

1.    The parties are to provide to the Associate to Shariff J consent or competing short minutes of order reflecting these reasons by 5pm on 11 April 2025.

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

REASONS FOR JUDGMENT

SHARIFF J:

1.    INTRODUCTION

1    In proceedings NSD 73 of 2021 (Basis Proceedings), the applicants (Basis Applicants) seek leave to file and serve amendments to the Amended Statement of Claim (ASOC) by way of a proposed Further Amended Statement of Claim (Proposed FASOC) and to serve and rely upon further evidence including an outline of Mr Stuart Fowler (Fowler Outline) and an affidavit of Mr Herbert Woo (Woo Affidavit). These reasons concern my determination of that application and assume familiarity with the background to this complex piece of litigation which I have set out in brief in previous decisions: see ACN 117 641 004 Pty Ltd (in liq) v S&P Global, Inc (No 3) [2024] FCA 1238 and ACN 117 641 004 Pty Ltd (in liq) v S&P Global, Inc (No 4) [2025] FCA 72 (Advance Ruling Decision).

2    The Basis Proceedings relate to the collapse in the value of subprime loans and other securities that occurred prior to the Global Financial Crisis in or about mid-2007. Specifically, the Basis Proceedings relate to the ratings that the respondents (S&P) issued in respect of particular securities including “Collateral CDOs” being residential mortgage-backed securities (RMBS) including a substantial proportion of “Subprime RMBS” and other asset backed securities (ABS). The relevant ratings at issue in the Basis Proceedings were determined by S&P by the use of a computerised simulation model known as the “Loan Evaluation and Estimate Loss of System” (LEVELS). The Basis Proceedings also incorporate aspects of related proceedings that have been concurrently case managed, being NSD 881 of 2020 (Vale Proceedings). The central (though not the only) cause of action pleaded in both proceedings is the tort of deceit. There is no dispute that both proceedings involve allegations of fraud as against S&P.

3    The interlocutory application filed by the Basis Applicants on 1 April 2025 arises in circumstances where the Basis and Vale Proceedings are listed for a concurrent eight-week final hearing due to commence in less than 12 weeks on 30 June 2025. The proceedings were listed for final hearing in December 2023.

4    S&P opposes some but not all of the application made by the Basis Applicants and seeks its costs thrown away by reason of any amendments to which it has consented and those which are granted by my leave (if any). Outside of the areas in respect of which there is either consent or non-opposition, the matters that fall for determination are whether the Basis Applicants should be granted leave to:

(a)    amend the particulars to [341] of the ASOC, together with consequential references to those particulars in other paragraphs of the ASOC;

(b)    amend [349.5]-[349.6] of the ASOC;

(c)    amend the particulars to [422]–[425] of the ASOC; and

(d)    rely upon the Fowler Outline and Woo Affidavit.

5    In view of the impending final hearing, I have attended to these reasons as quickly as the competing priorities of my docket have enabled. For the reasons that follow, I am satisfied that leave should be granted to the Basis Applicants to amend the ASOC as set out at [349.5]-[349.6] of the Proposed FASOC. I am also satisfied that leave should be granted to the Basis Applicants to rely upon the Fowler Outline and to amend the particulars to [422]-[425] of the ASOC in which they seek to refer to that Outline subject to the condition that the Basis Applicants produce relevant documents requested by S&P within a short time of approximately seven days. However, leave should otherwise be refused in respect of the balance of the matters that were in dispute between the parties arising from the Basis Applicants’ interlocutory application dated 1 April 2025.

2.    RELEVANT BACKGROUND

6    The immediate context that informs the application made by the Basis Applicants is the hearing and determination of S&P’s application under s 192A of the Evidence Act 1995 (Cth) (the 192A Application) in respect of the admissibility of, amongst other things, expert evidence sought to be relied upon by the Basis Applicants. Before turning to that context, it is necessary to set out in brief the history that preceded it.

7    The Basis Proceedings were commenced in February 2021. For reasons that will become apparent later, it is convenient at this juncture to set out aspects of the original statement of claim (SOC) filed by the Basis Applicants on 30 March 2021. They are as follows:

(a)    “Part 11” of the SOC was entitled “Causation and Reliance”. It relevantly included the following pleadings:

(A)     Investment strategy

304.     The Plaintiffs’ investment objective and strategy was to generate stable, superior risk adjusted returns for its investors by way of a diversified and low volatility exposure to international credit arbitrage and relative value instruments.

(B)     Investment decisions

305.     The Plaintiffs’ investments in CDOs were made on their behalf by the “Structured Credit Group” of BCFM, which was based in Sydney.

306.     The Structured Credit Group was headed by Stuart Fowler, Managing Director of the Investment Group.

307.     Potential CDO investments were investigated by Mr Fowler and John Murphy, an employee of BCFM with the title “Director”.

308.     In all cases, Mr Fowler made the ultimate decision to invest in CDOs.

(b)    thereafter, the SOC at [309]-[319] pleaded facts relevant to the receipt of S&P’s ratings and, inter alia, the way in which the Basis Applicants relied upon them in respect of particular investment strategies;

(c)    the SOC at [320]-[323] pleaded a particular counterfactual as to “no investment” and further matters relevant to reliance, as follows:

(H)     No investment

320.     The Plaintiffs would not have invested in the Claim CDOs had they known that S&P’s credit ratings did not represent S&P’s true, current opinion as to the credit quality of the CDO or of its collateral or reference entities or that its ratings opinions lacked reasonable grounds or there were any other matters that meant S&P’s ratings could not be relied upon as a reliable, independent indicator of the creditworthiness of the Claim CDOs.

321.     The Plaintiffs would not have invested in the Claim CDOs had they known that the credit quality of the collateral or reference entities was not as represented by their ratings, or those ratings could not be relied upon.

322.     The Plaintiffs would not have invested in subprime RMBS or CDOs that invested substantially in subprime RMBS had they known of the matters pleaded in Part 9(C).

(I)     Reliance on Independence Representation

323.     If the Plaintiffs had known that S&P’s credit ratings were unreliable and/or influenced by business considerations, then they would not have relied on CDOE and its outputs, including the Ratings, in the ways described above or at all.

PARTICULARS

Particulars of the Plaintiffs’ reliance on the credit ratings of the collateral assets will be provided with the Plaintiffs’ evidence.

(d)    Finally, the SOC at [324] pleaded the Basis Applicants’ case as to loss, as follows:

12.     LOSSES SUSTAINED BY PLAINTIFFS

324.     As a result of their investment in the Claim CDOs, the Plaintiffs have sustained losses, including but not limited to:

324.1     loss of the whole of or a substantial portion of the value of their investment in the Claim CDOs; and/or

324.2     loss of the opportunity to invest the sums invested in the Claim CDOs in other interest-bearing investments;

or

24.3     alternatively, losses arising from a decrease in the market value of the Claim CDOs; and/or

or

324.4     further or alternatively, loss in the form of overpaying for the Claim CDOs.

PARTICULARS

Particulars of the losses sustained by the Plaintiffs will be provided with the Plaintiffs’ evidence.

8    It is thus apparent that from the commencement of the Basis Proceedings that the Basis Applicants were propounding a “no investment” or “no transaction” case. It is also apparent that from the outset the Basis Applicants’ case as to loss included a claim for the “loss of an opportunity” to invest the sums invested in the “Claim CDOs” in “other interest-bearing investments”, ie, an “alternative investments” case. By their particulars to [324], the Basis Applicants stated that they would provide particulars of their losses with their evidence.

9    By orders made by the Court requiring the filing and service of lay evidence upon which they relied, the Basis Applicants filed and served a single affidavit, being the affidavit of Mr Stuart Fowler dated 23 November 2021 (2021 Fowler Affidavit). Relevantly to the question of reliance and loss, in that Affidavit Mr Fowler deposed as follows:

136.     If I had known that S&P was not independent and its ratings were not the product of rigorous analytical processes, or that business considerations impacted upon S&P’s analysis, then I could not and would not have relied upon the ratings.

137.     That is, if I had known that certain of the key inputs into S&P's rating models were chosen, not based on sound analysis, but rather to further S&P’s business interests (including to prevent downgrades of existing rated products), then I would not have relied on those ratings. If I had known that all CDO ratings during the relevant period were affected by these issues described, then I would have stopped investing in CDOs until I was satisfied those issues were resolved. I would instead have pursued alternative investment opportunities or, at a minimum, reallocated the capital invested in CDOs into other products in which the Basis Funds were concurrently investing, such as CLOs, high yield bonds, convertible or hybrid securities.

138.     In fact, if it were generally known that S&P’s rating processes were unreliable or influenced by business considerations, then the entire market for these securities would have been in question, our valuations on the existing portfolio would have been negatively affected and liquidity would have dried up. This is because the ratings were the whole basis on which the securitisation market was premised. If I knew and other participants in the market knew they could not be relied on then the confidence of what was a trillion-dollar marketplace would have been fundamentally undermined.

10    Between 12 and 13 April 2022, S&P filed and served nine affidavits in both the Basis and Vale Proceedings.

11    The Basis Applicants did not file and serve any lay evidence in reply.

12    On or about 25 July 2023, Lee J granted the applicants in both the Basis and Vale Proceedings leave to amend their respective pleadings (despite the objections raised by S&P that the amendments gave rise to a substantially different case). At that time, Lee J also made other case management orders including that the applicants in both proceedings file consolidated particulars of their respective deceit claims and that they file and serve any additional outlines of lay evidence on which they intended to rely by 9 February 2024. S&P was ordered to file and serve any additional outlines of lay evidence in reply by 30 April 2024.

13    By reason of the leave granted by Lee J, the Basis Applicants filed the ASOC on or about 29 August 2023. As I will return to below, the ASOC amended the Basis Applicants’ case as to reliance and loss, though essential elements of that case remained substantially the same.

14    On 12 December 2023, Lee J made orders extending the date by which the applicants were to file and serve any additional outlines of lay evidence and their consolidated particulars of knowledge to 12 April 2024. It was at this time that Lee J listed the matter for final hearing to commence in late June 2025.

15    The Basis Applicants did not file any additional outlines of lay evidence.

16    By 15 August 2024, both the proceedings had been transferred to my docket. On that date, I made orders that S&P file any outlines of lay evidence on which they proposed to rely by 20 September 2024. I also made orders that the applicants in both proceedings file and serve any expert evidence on or by 25 October 2024.

17    By 8 October 2024, S&P had filed seven outlines of lay evidence in reply.

18    On 21 October 2024, I extended the time for the service of the Basis Applicants’ expert evidence, save for any evidence on loss, to 29 November 2024. The Basis Applicants then filed three expert reports relating to “technical matters” and one expert report concerning loss. S&P claims that all of these expert reports were filed and served later than they should have been. It appears that the service of the Basis Applicants’ expert evidence did not conclude until 23 December 2024, with reports being filed on 25 October 2024 (as to loss) and on 4 and 13 December 2024 respectively.

19    On 3 and 4 February 2025, I heard the 192A Application. As set out in the Advance Ruling Decision, in part my reason for dismissing the 192A Application was that I considered that I was not in a position to resolve substantial controversies between the parties as to pleading points. During the hearing of the 192A Application and in my reasons, I alerted the Basis Applicants to the reality that in view of the pleading points that were being taken by S&P, and that would continue to be taken by S&P, it was a matter for the Basis Applicants as to whether they wished to seek further amendments to their pleadings by consent, and if no consent was obtained, by an application made to the Court. I indicated that the same position would apply in respect of any further lay and/or expert evidence that the Basis Applicants wished to rely upon. To give effect to these matters, I made orders that included the following:

1.    By 28 February 2025 the applicants in proceeding NSD73/2021 (the Basis proceeding) are to provide the respondents with any proposed amendments to their Amended Statement of Claim and/or their Consolidated Particulars of Knowledge.

…

2.    By 14 March 2025, the applicants in the Basis proceeding are to file and serve any supplementary lay and/or expert evidence concerning any matters arising from any proposed amendments to their pleadings in accordance with order 1 of these orders.

…

6.     By 28 March 2025, the respondents in the Basis proceeding are to advise the applicants in the Basis proceeding if they oppose leave for them to amend their pleadings or rely on any further lay or expert evidence served by the applicants.

…

11.     Both proceedings be listed on Wednesday 2 April 2025 at 9.30am for case management and the Vale proceeding be listed for further case management hearing on Friday 4 April 2025, if necessary, to determine any directions for hearing any disputes concerning the applicants’ proposed pleading amendments and/or proposed further evidence.

20    It was apparent from the above orders that, absent consent, any amendments to the pleadings and/or reliance upon further evidence would not be as a matter of right. Putting to one side slippages in complying with these orders, the Basis Applicants have taken up the opportunity to seek leave to amend their pleadings and file further lay evidence which has brought about the present dispute between the parties.

3.    APPLICABLE PRINCIPLES

21    In relation to leave to amend, the principles are well settled. Amendments at this stage of proceedings is not of right, even if a new claim is arguable: Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175 at [96]. An explanation is required and the exercise of the Court’s discretion to grant or refuse leave to amend is to be exercised having regard to the cogency of the explanation and the effects, including the prejudicial effects, of the amendments if they are allowed. Those effects include delay, cost and other inconvenience and are to be considered by reference to the overarching purpose in ss 37M and 37N of the Federal Court of Australia Act 1976 (Cth) (FCA Act): Aon at [102]-[103], [111]-[112]; Cement Australia Pty Limited v ACCC (2010) 187 FCR 261 at [38]-[46] (Keane CJ, Gilmour and Logan JJ); Dye v Commonwealth Securities (No 2) [2010] FCAFC 118 at [19]-[22] (Marshall, Rares and Flick JJ).

22    In this Court, the factors to be considered in light of ss 37M and 37N were summarised by Gleeson J in Tamaya Resources Ltd (in liq) v Deloitte Touche Tohmatsu (A Firm), in the matter of Tamaya Resources Ltd (in liq) [2015] FCA 1098 at [127] being a passage which on appeal in Tamaya Resources Ltd (in liq) v Deloitte Touche Tohmatsu (a firm) [2016] FCAFC 2; 332 ALR 199, the Full Court (Gilmour, Perram and Beach JJ) stated at [125] were “correctly set out”. The considerations which Gleeson J identified were as follows:

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

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

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

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

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

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

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

23    S&P submitted, and the Basis Applicants did not dispute, that the same considerations, particularly the imperatives of ss 37M and 37N of the FCA Act, were relevant to the issue of whether a party should be permitted to rely on late-served evidence.

24    S&P further submitted that the extent of the delay alone may make amendment inappropriate: citing Aon at [94]-[96]. It was submitted that there is “presumptive prejudice if the delay is likely to have resulted in a further deterioration in the recollection and ability to give evidence of potential witnesses”: citing Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 at 551. S&P contended that these considerations were applicable to the Basis Proceedings as they related to events from approximately 20 years ago, and involving allegations of fraud: relying upon Ensham Resources Pty Ltd v AIOI Insurance Company Ltd [2012] FCA 537 at [15] (Emmett J) and Bishopsgate Insurance Australia Ltd v Deloitte Haskins & Sells [1999] 3 VR 863 at [60] (Tadgell and Ormiston JJ, Brooking J agreeing).

25    I accept that the abovementioned considerations are relevant to the exercise of discretion in determining whether to grant the Basis Applicants leave to amend and to rely upon late served evidence by way of the Fowler Outline and the Woo Affidavit. I now turn to consider each of these matters.

4.    AMENDMENTS TO THE PARTICULARS AT [341] OF THE ASOC

26    During the hearing of the application made by the Basis Applicants, I indicated that I was not persuaded to grant leave in respect of the amendments to the particulars at [341] of the ASOC. My reasons for not being so satisfied may be briefly stated.

27    The Basis Applicants sought to amend the particulars at [341] of the ASOC in answer to a criticism made by S&P during the 192A Application as to parts of the first report of Dr Youngblood. Dr Youngblood is an expert who has been retained by the Basis Applicants. As part of the 192A Application, S&P objected to parts of Dr Youngblood’s report on the basis that they expressed opinions that were not relevant to the pleaded case. The Basis Applicants did not accept that criticism and, in the result, S&P elected not to press their relevance objection as part of the 192A Application but did not abandon that objection altogether. In response to this, the Basis Applicants considered it appropriate to amend the particulars at [341] of the ASOC to put the matter beyond doubt and to ensure that S&P had procedural fairness in this regard.

28    S&P opposed the inclusion of the particulars because (consistently with the position it advanced in the 192A Application) S&P submits that the particulars do not accord with the specific factual premises pleaded for the purposes of [341] of the ASOC. In this regard, it pointed to the fact that the pleading at [341] of the ASOC is based on each of the factual premises pleaded at [321] to [337] and [340] of the ASOC. S&P submits that the particulars that the Basis Applicants wish to now include at [341] of the ASOC extend beyond the factual premises that have already been pleaded.

29    The question as to whether the relevant parts of Dr Youngblood’s opinions fall within the parameters of the existing pleaded case – specifically, the factual premises pleaded for the purpose of [341] of the ASOC - will require resolution at the trial irrespective of whether the particulars are amended or not. The Basis Applicants have made their position clear that they consider Dr Youngblood’s evidence is relevant to the case they have already pleaded and S&P has made its position clear that it does not agree with that position. Even if I granted leave to the Basis Applicants to amend the particulars, a dispute would remain as to whether the particulars strayed beyond the factual allegations made in the body of [341] of the ASOC and the factual premises upon which those allegations are based. In the determination of the proceedings, ultimately, I will be required to accept or reject the assertion made in the body of [341] of the ASOC.

30    In light of these matters, I was not persuaded that leave should be granted to amend the particulars. Each of the parties know the position of the other. In expressing this conclusion, I observe again (as I did during the hearing of the application) that I have formed no view at present as to the outer limits of the case that the Basis Applicants have pleaded. At this stage, I neither accept nor reject S&P’s contentions that the pleading at [341] of the ASOC is confined in the way that S&P propounds. It is a matter for S&P to make the choices it wishes to make about the forensic course it wishes to take in light of this observation.

5.    AMENDMENTS AT [349] OF THE PROPOSED FASOC

31    The proposed amendments to [349] of the ASOC fall into a different category.

32    The document at the centre of the pleadings at [347]-[349] of the ASOC is an excel spreadsheet that has been defined as the “November 2006 Subprime Trouble Spreadsheet”. The specific allegations at [349] relate to particular data contained in the November 2006 Subprime Trouble Spreadsheet. As it stands, the ASOC at [349.1] to [349.4] contain assertions as to what the Basis Applicants say is “demonstrated” by or from this data. The proposed amendments at [349.5]-[349.8] of the Proposed FASOC seek to add further assertions as to what the Basis Applicants say is “demonstrated” by or from this data.

33    For present purposes, there is no dispute between the parties that these additional allegations are drawn from the first report of Dr Youngblood dated 12 December 2004 (First Youngblood Report). However, S&P has maintained that those additional allegations do not fall within the scope of the case that has been pleaded by the Basis Applicants. Again, during the 192A Application, S&P objected to the parts of the First Youngblood Report which addresses the matters that are not the subject of the proposed amendments at [349.5]-[349.8] of the Proposed FASOC. S&P submits that these allegations are new and would require substantial additional work to be performed by S&P in order to respond to them by way of a defence and in obtaining evidence. S&P relies on the evidence of its solicitor, Mr Mavrakis, who deposes that substantial additional work will be required including the need to confer with lay and expert witnesses based on data and related matters relating to events that occurred over 20 years ago.

34    The Basis Applicants’ rejoinder to this is that S&P have had notice of the specific allegations for some time. They point to the fact that the additional allegations are drawn from the First Youngblood Report and that this report was served on or about 12 December 2024. S&P accepts that it has known of the allegations since on or about 12 December 2024 when the First Youngblood Report was served, but submits that it had taken objection to those parts of this Report on the basis that they did not fall within the scope of the case pleaded at [349]. Its contention is that it has no obligation to respond to irrelevant matters and has made its position clear including by and during the hearing of the 192A Application. S&P further submits that there has been no explanation for the delay in seeking the amendments at [349.5]-[349.8] of the Proposed FASOC.

35    I am satisfied that leave should be granted for the inclusion of the amendments proposed at [349.5]-[349.8] of the Proposed FASOC. Whilst I accept that there has been no explanation for the delay in seeking these amendments, I can readily infer from the materials before me that they have arisen because in the course of expressing his opinions as to the “November 2006 Subprime Trouble Spreadsheet” Dr Youngblood identified additional matters that (in his opinion) are demonstrated by the data contained in that spreadsheet. I accept that S&P has maintained an objection to these parts of the First Youngblood Report, but it has done so by making a choice to do so. I have carefully examined the evidence of Mr Mavrakis as to the prejudice that would arise from the proposed amendments to [349] of the ASOC. It is necessary to refer to the totality of this evidence which was as follows:

89.    The new factual matters that will need to be addressed in any defence filed by S&P include:

(a)    new allegations of defects in S&P's LEVELS model (Basis FASOC at [341] and [342]);

(b)    new allegations of knowledge of those new defects by S&P employees (Basis FASOC [341]-[342]);

(c)    allegations regarding the August 2004 Vermont SFLT meeting and the abandonment of the time and place of the meeting (Basis FASOC at [345]); and

(d)    new allegations regarding the accuracy of S&P's LEVELS model and consequentially S&P's RMBS ratings in the period late 2006 to mid-2007 (Basis FASOC at [349] and [367]-[368]) and allegations that S&P should have taken steps to replace the LEVELS model with alternative models and methodology.

90.    In the event that the Basis applicants are granted leave to rely on these amendments, I consider it will be necessary for S&P's legal representatives to devote very significant time and effort to undertake factual enquiries into the new allegations.

91.    As these matters have not previously been the subject of any pleaded allegations in the Proceedings, there has been little or no consideration of the factual matters that they give rise to. To the extent that these matters have been considered at all, it has been in an ancillary way, and not by reason of any allegations having been made in relation to them.

92.    Accordingly, the first step that would be necessary to carry out would be that S&P's legal representatives would need to gain a proper understanding of the factual matters alleged, so as to prepare an amended defence responding to the amendments and new claims.

93.    As I have explained above, there is a large number of documents that relate to the matters in issue in this case. Moreover, the matters that are the subject of the allegations in the Basis Proceeding relate to events approximately 18-25 years ago. As such, I expect that carrying out investigations into the factual matters underlying the allegations I have referred to above would be time-consuming.

94.    By way of example, the new allegations as to knowledge of the new alleged defects in the LEVELS model would require an interrogation of events that occurred more than 20 years ago to determine the state of knowledge of persons at the time. In order to carry out such a task, it would be necessary to first collate a set of documents relating to that subject matter. There would then be a process of reviewing such documents to determine the factual state of affairs that existed. Based on my experience in the Proceedings, I consider that such a task is likely to be complicated as it will involve attempting to discern the meaning of technical documents and communications in order to piece together the true state of affairs.

95.    Following the factual enquiries outlined above, I consider it will also be necessary for S&P to review its defence in the Basis Proceeding in detail and make necessary amendments to respond to the Basis FASOC and Basis ACPK.

36    As will be apparent from the above evidence, Mr Mavrakis sought to address the prejudice arising from the amendments proposed at [341], [342], [345], [349] and [367]-[368] of the Proposed FASOC. This evidence did not distinguish as between the particular prejudice that would arise from the specific amendments at [349.5]-[349.8] of the Proposed FASOC and the other paragraphs to which Mr Mavrakis referred. I have inferred that Mr Mavrakis’ more specific evidence in this regard is that contained at [94] of his affidavit as to the new allegations relating to the defects in the LEVELS model. I accept as Mr Mavrakis says in that paragraph that the task in responding to the allegations will be complicated and involve reviewing documents and conferring with lay and expert witnesses about data relating to alleged defects in LEVELS from over 20 years ago. However, consistent with his careful professional assessment as expressed throughout the affidavit based on his considerable general experience as a commercial litigator and his more specific experience of this litigation, Mr Mavrakis’ evidence stops short of saying that the task cannot be achieved in time.

37    Rather, the effect of Mr Mavrakis’ evidence is as to presumptive prejudice from the general delay in light of events that transpired over 20 years ago and the difficult task that lies ahead in dealing with further allegations relative to those events. However, that evidence needs to be weighed against the fact that, as the Basis Applicants point out, S&P has to date served lay evidence, including that of Ms Susan Barnes in an outline of evidence dated 23 September 2024 and an earlier affidavit dated 11 April 2022. The Basis Applicants emphasise, and I accept for present purposes, that Ms Barnes’ evidence and proposed evidence touches upon the matters that are the subject of the “November 2006 Subprime Trouble Spreadsheet”.

38    The decision whether to grant leave requires an exercise of discretion based on my judgment of where things stand. Whilst I am satisfied that there is a general and presumptive prejudice that arises as outlined by Mr Mavrakis, I am not satisfied that this outweighs the considerations as to the “just resolution of disputes” and the “just determination” of all the proceedings before the Court as called for by s 37M(1) and (2)(a) of the FCA Act. S&P has had the First Youngblood Report since on or about 12 December 2024. It has made a forensic choice to take issue with the relevance of Dr Youngblood’s relevant opinions, as opposed to dealing with their substance. I am not satisfied on the evidence that S&P will not be in a position to deal with the allegations at [349.5]-[349.8] of the Proposed FASOC in time. I would be prepared to grant such extra time as is needed to S&P. The result is that the Basis Applicants will have to take less time to digest any such response. This too reflects forensic choices but ones that the Basis Applicants have made.

39    It is not lost on me that the amendments are late and will occasion some prejudice to S&P. However, in exercising my discretion, I have balanced those matters as against seeking to deal with these matters as quickly and efficiently as the dictates of case management provide. In this regard, I am guided by the overall dictates in s 37M(1) of the FCA Act.

6.    AMENDMENTS AT [421]-[425] OF THE PROPOSED FASOC AND THE LATE SERVED EVIDENCE

40    The final issues relate to the proposed amendments to the particulars at [421]-[425] of the ASOC and whether leave should be granted to the Basis Applicants to rely upon the Fowler Outline and the Woo Affidavit. These two matters are linked. S&P oppose the proposed amendments and reliance upon the Woo Affidavit because they assert that (a) they substantially expand the pleaded and evidentiary case that the Basis Applicants have to date relied upon beyond a “no transaction case”, (b) in other respects they seek to rely upon further data and information which has not previously been relied upon, and (c) each of these matters is exacerbated by the fact that the Basis Applicants have failed to give full discovery to date despite repeated complaints being made by S&P in this regard.

41    In order to make sense of the proposed amendments and the reliance upon the further evidence, it is necessary to examine what they involve in the context of the Basis Applicants’ case as pleaded in the ASOC.

42    The existing pleading at [421] of the ASOC is as follows:

(C)    RELIANCE

421.     Each of the Claim CDOs had a material exposure to:

421.1     one or more RMBS products placed on CreditWatch negative by the 10 July 2007 CreditWatch Announcement (Affected RMBS); and/or

421.2     one or more collateral CDOs (Affected Collateral CDOs) with material exposure to Affected RMBS.

43    The particulars to this paragraph identified the “Affected RMBS” and the “Affected Collateral CDOs”. By the amendments in the Proposed FASOC, the Basis Applicants seek to add a particular that refers to and relies upon the Woo Affidavit.

44    The existing pleadings at [422]-[423] of the ASOC provide as follows:

422.     The Plaintiffs relied on the CDO Ratings Reliability Representation, the CDO Ratings Independence Representations, RMBS Ratings Reliability Representations and the RMBS Ratings Independence Representations in deciding to invest in the Claim CDOs.

…

423.     Further and in the alternative, one or a combination of those representations materially contributed to the Plaintiffs’ decision to invest in the Claim CDOs.

45    The particulars to [422] of the ASOC presently identify the relevantly affected Claim CDOs. They also include reference to the 2021 Fowler Affidavit at [123]-[138]. The particulars to [423] repeat the particulars to [422] of the ASOC. Relevantly for the purposes of the present dispute, by the Proposed FASOC the Basis Applicants seek to add a particular to [422] that refers to and relies upon the Fowler Outline.

46    The existing pleading at [424] of the ASOC is as follows:

(D)    NO TRANSACTION CASE

424.     Further and in the alternative to the matters pleaded and particularised in the previous paragraph, had S&P not engaged in the conduct contravening s 1041F and s 1041G of the Corporations Act pleaded in paragraphs 386 to 394 and/or the unconscionable conduct contraventions pleaded in Part 15:

424.1     S&P would not have issued some or all of the Ratings and, as a result, the Claim CDOs would not have been issued in the same form or at all

424.2     the Plaintiffs would not have invested in the Claim CDOs;

424.3    the issuers of the Claim CDOs would have refunded any consideration already paid by the Plaintiffs for the Claim CDOs due to the non-fulfillment of the terms of the CDO offerings and the Plaintiffs would have reinvested any refunded consideration in alternative investments; and

424.4     the Plaintiffs would have invested their capital in alternative investments.

47    The particulars to [424] of the ASOC repeat the particulars at [422] and also rely upon the expert report of Dr Gregory. Relevantly for the purposes of the present dispute, by the Proposed FASOC, the Basis Applicants seek to add a particular to [424] that refers to and relies upon the Fowler Outline.

48    The current pleading at [425] of ASOC is as follows:

17.    LOSS AND DAMAGE

425.     In the premises of the matters pleaded and particularised in Parts 13 to 16 above, the Plaintiffs have suffered losses by S&P’s contraventions:

425.1     loss of capital investment;

425.2     loss of the opportunity to retain or invest the sums invested in the Claim CDOs in other interest-bearing investments; and/or

425.3     further or alternatively, the difference between the price paid for the Claim CDOs and their true value as at the dates of each purchase.

PARTICULARS

A.     The Plaintiffs repeat the matters pleaded at paragraphs 402 to 424 and the particulars to those paragraphs.

B.     Particulars as to the true value of the Claim CDOs at the time of purchase and/or the Plaintiffs’ opportunity losses will be provided with expert evidence.

49    Relevantly for the purposes of the present dispute, the Basis Applicants seek to amend the particulars to rely upon both the Fowler Outline and the Woo Affidavit.

50    For completeness it should be noted that there are other amendments that the Basis Applicants have sought to [422]-[425] of the ASOC, but those are the subject of consent between the parties. The maters in dispute are the ones I have identified which seek to refer to and rely upon the Fowler Outline and/or the Woo Affidavit. As noted above, S&P opposes all of these amendments and the application made by the Basis Applicants to rely upon the Fowler Outline and the Woo Affidavit on the basis that they are tantamount to a late attempt by the Basis Applicants to introduce a substantial “alternative investment” case that they had never previously properly pleaded or addressed in the lay and expert evidence filed and served by the Basis Applicants. S&P accepts that the Basis Applicants have advanced a “no transaction” case, which was pleaded on the basis that they had (a) relied upon the alleged representations in deciding to invest in the “Claim CDOs”, (b) that had S&P not engaged in the relevant conduct, S&P would not have issued the Claim CDOs at all and/or the Basis Applicants would not have invested in them and the issuers of the Claim CDOs would have refunded the relevant consideration. However, S&P submits that, other than the bare assertions at [424.4] and [425.2] of the ASOC, the Basis Applicants have never properly particularised or articulated their alleged case as to “alternative investments”.

51    In further aid of these submissions, S&P drew attention to the fact that the 2021 Fowler Affidavit only briefly touched upon the subject of “alternative investments” and did so only as a foundational basis to support the “no transaction case”. In this regard, S&P drew attention to the passages of the 2021 Fowler Affidavit that I have set out above.

52    S&P further submits that the only expert evidence as to loss and quantification that has been served by the Basis Applicants is that of Ms Dawna Wright, which is entirely directed to the “no transaction case”. Accordingly, it is contended that the late service of the Fowler Outline and the Woo Affidavit are belated attempts to address a case that has never been addressed and that aspects of the Woo Affidavit are an attempt to adduce expert evidence as to the existence and loss of opportunity of the “alternative investments” and their quantification. S&P submits that with less than 12 weeks left to the commencement of the trial, substantial prejudice will be occasioned in that they will first need substantial discovery (in circumstances where the Basis Applicants’ present discovery is incomplete), then they will need to review those documents as they pertain to the alternative investment case and then will need to confer with experts and prepare expert reports, together with any lay evidence which may be necessary to address this new evidentiary case.

53    In response, the Basis Applicants contend that the further evidence they seek to rely upon is, essentially, supplementary to the evidence that has already been filed. As to the Fowler Outline, the Basis Applicants submit that the 2021 Fowler Affidavit (which S&P has had since November 2021) “squarely addressed the investments in which the Basis Applicants would have invested had it not been for S&P’s impugned conduct”. It is submitted the Fowler Outline gives clarity and content to the evidence already contained in the 2021 Fowler Affidavit as to this counterfactual and “does not expand or materially change Basis’ case as articulated by the Fowler Affidavit (and as pleaded at Basis FASOC [424.2] and [424.4])”. The Basis Applicants accept that “the [2021] Fowler Affidavit may have been improved by further detail prior to service on S&P”, but submit that it does not follow that they are seeking to expand the case by providing such greater clarity and detail now. They submit that the:

…essence of Mr Fowler’s evidence as to the posited counterfactual remains the same: that is, S&P has known since November 2021 that Basis’ alleged counterfactual involved it investing in CLOs, high yield bonds, and convertible or hybrid securities. It has sought and been provided with discovery on this issue and S&P has not complained as to the adequacy of that discovery.

54    As to the Woo Affidavit, the Basis Applicants say that Mr Woo was, between July 2007 and August 2014, a quantitative analyst employed within Basis Capital Funds Management Limited. Mr Woo’s responsibilities at the time included monitoring the risk and performance metrics of the CDO investments and, in that role, was familiar with the business records relevant to those activities. It is said that based on his experience, Mr Woo has done two things, as follows:

(a)     provided a summary of a series of internal reports and records in order to quantify the collateral composition of the Claim CDOs, and the extent to which that collateral was impacted by the first of S&P’s RMBS downgrades announced in and from July 2007; and

(b)     summarised data quantifying the performance of the investments in which Basis says it would have invested in (comprising the non-CDO portfolio at around the time it invested in the Claim CDOs).

55    As to the relevance of these matters, the Basis Applicants submitted as follows:

The relevance of the matters summarised in (a) is the allegation made at paragraph 421 of the Proposed FASOC, which was unaffected by any amendments: that each of the Claim CDOs had a material exposure to RMBS impacted by S&P’s announced downgrades.

The relevance of the matters summarised in (b) is made plain by paragraph 425 of the Proposed FASOC, by which Basis alleges that it has suffered losses including loss of capital investment and loss of opportunity to invest its capital in non-loss making investments. This has always been part of Basis’ case and evidence of that case {see, in this regard, Fowler Affidavit at [137]}. S&P’s suggestion that Basis’ counterfactual case was limited to the non-issuance of the Claim CDOs is wrong.

56    The Basis Applicants submit that S&P’s complaints as to prejudice are overstated, including S&P’s submissions about further discovery being required. The Basis Applicants submit that Mr Mavrakis’ evidence to this effect in his affidavit is no more than “mere assertion” and that it is notable that Mr Mavrakis “does not contend that expert evidence will be required” and that the “highest Mr Mavrakis’ evidence goes is that such evidence “may also be required”…[and] that it is difficult to be definitive in the absence of discovered documents”. It is submitted that this evidence does not give rise to credible evidence that S&P or its experts would be incapable of serving evidence in reply.

57    In addition, the Basis Applicants submit that during the 192A Application, S&P, through its Senior Counsel, had offered a “gift” which they have taken up. In this regard, the Basis Applicants drew attention to the following exchange that occurred during the 192A Application:

MR SHEAHAN: And we would oppose it. This is my little gift to our learned friends, your Honour, my little gift to them.

MR DICK: He doesn’t often give them, your Honour.

HIS HONOUR: No.

MR DICK: So I’m taking it. I will make an application now.

…

MR SHEAHAN: And the gift is that they should be promptly seeking to amend their claim for loss and seeking leave to supplement their damages evidence.

HIS HONOUR: All right.

MR SHEAHAN: Without such amendments and changes, this evidence is simply irrelevant and inadmissible.

58    Based on my review of the SOC at [304]-[324] and the ASOC at [422]-[425], as well as the evidentiary case that the Basis Applicants have filed to date, I accept that the Basis Applicants have from the outset of the proceedings pleaded an “alternative investment” case in addition to a “no transaction case”. This is plain from the original SOC at [320]-[324] and especially at [324.2]. It is also plain from the ASOC at [424.4] and [425.2]. Further, it is also consistent with the contents of the 2021 Fowler Affidavit at [137].

59    I have examined the Fowler Outline. In my view, it does more than merely supplement the 2021 Fowler Affidavit. For brevity and simplicity at this stage, the Fowler Outline seeks to set out Mr Fowler’s proposed evidence in four broad categories, as follows:

(a)    first, Mr Fowler restates his “hypothetical approach” as to the likely approach he would have taken assuming the market and Mr Fowler knew that “S&P’s Ratings Lacked Independence” as at 2007 as compared to the approach he would have taken if he did not know of “S&P’s Lack of Independence” as at 2007. In relation to the first hypothetical, Mr Fowler expresses various opinions as to how this would have impacted the market and his assessment of the investments. However, critically, Mr Fowler says that whilst the funds he managed for the Basis Applicants had a “broad investment mandate”, the funds’ monies could have been retained and investors could have withdrawn their funds if they had elected to do so by way of redemptions. Mr Fowler further says that if he was only aware of a lack of S&P’s independence in respect of a subset of ratings and was unaware that this lack of independence extended to other financial products, he would “likely have caused” the relevant funds to “invest in collateralised loan obligations (CLOs) or high yield bonds”;

(b)    second, Mr Fowler addresses the second hypothetical - being what he would have done if he did not know about “S&P’s Lack of Independence” as at 2007 but only knew that that S&P’s CDO and RMBS ratings were not as represented. Mr Fowler outlines that he has considered the decisions he would have made in this counterfactual scenario with the benefit of now being briefed with the expert report of Dr Gregory dated 4 December 2020 (Gregory Report) which contains Dr Gregory’s opinions as to the relevant securities being rated at lower “notches”. With the benefit of these opinions expressed by Dr Gregory, Mr Fowler expresses various views as to whether he would have caused the relevant funds to be invested in the respective securities or, in one case, may have done so if the pricing was different;

(c)    third, Mr Fowler outlines that if he had not known of “S&P’s Lack of Independence” and assuming his response to analysis in the Gregory Report, he would not have proceeded with purchasing the “Claim CDOs” and would likely have caused the relevant fund or funds to “invest in CLOs” or “high yield bonds” based on the risk and reward profile of the relevant funds. The totality of his proposed evidence in this regard is as follows:

E. ALTERNATIVE INVESTMENTS – HIGH YIELD BONDS & CLOs

33.     As set out at paragraphs 4 and 5 above, had I known of S&P’s Lack of Independence, I would have retained the Funds’ monies and not invested them.

34.     At [52] of my First Affidavit, I explained that the Funds had a broad “value” investment mandate, which enabled the Funds to invest in products which produced superior risk-adjusted returns relative to the more highly rated assets, which included high yield bonds and CLOs.

35.     Had I not known of S&P’s Lack of Independence and assuming the analysis in the Gregory Report at sections C and D above, where I would not have proceeded with the Claim CDO purchase, I would likely have caused Basis Yield Alpha to invest in CLOs and Basis Pac-Rim to invest in high yield bonds, as Basis Pac-Rim had an existing bias to bonds. That would likely have been an investment in the existing CLOs or high yield bonds that the Funds had or were looking to acquire at that time or CLOs or high yield bonds with similar risk and pricing.

(d)    fourth, Mr Fowler updates the position in relation to a particular investment relating to “Dutch Hill” – the significance of this evidence is not presently apparent to me.

60    I accept S&P’s submission that the Fowler Outline is more than merely supplementary of the 2021 Fowler Affidavit. I also accept S&P’s submission that the Basis Applicants have provided no explanation as to the late service of this material. I do not regard the “gift” adverted to by Senior Counsel for S&P during the 192A Application as being a concession. In my view, the “gift” was no more than a submission to the effect that S&P would not press certain of its objections at that time, and it would be a matter for the Basis Applicants to seek to amend their pleadings and file further evidence, but stopped short of being a concession on the part of S&P that it would consent to any such amendments and late served evidence.

61    Although there is an absence of explanation for the delay, I can readily infer on the materials and the face of the Fowler Outline that at least one reason for the delay as to one critical aspect of the Fowler Outline is that the Gregory Report had not been obtained and served until 4 December 2024. The fact is that in the way that the case management orders made in the Basis Proceedings have come to evolve, the filing and service of expert evidence has come at the tail end of those case management orders and, therefore, the preparations for trial. Although that might be one explanation for the delay, it does not address the considerable concerns raised by S&P as to the prejudice arising by reason of the limited time that is now available to it to respond to the evidence especially in circumstances where it complains (and the Basis Applicants accept in part) that there has not been full discovery provided. I do not accept that this is a trifling matter. Although S&P’s primary concerns related to the parts of the Fowler Outline dealing with the “alternative investment case” and this was the focus of Mr Mavrakis’ evidence (especially at [96]-[99] and elsewhere), during the hearing before me, S&P’s Senior Counsel also complained about the other aspects of the Fowler Outline.

62    It is readily apparent to me that the nature of the evidence that Mr Fowler now proposes to give will require an interrogation of documents and materials relating to the operation of the respective funds, their respective investment mandates, the nature of the investors, the circumstances of rights of redemption, respective risk and reward profiles, and any number of other matters that may bear upon critically evaluating Mr Fowler’s hypothesising as to the likely counterfactuals.

63    Given the paucity of the evidence that I presently have as to the extent of the discovery that has been made by the Basis Applicants, I am unable to make an assessment as to the extent of the prejudice. I am also conscious that there is much work to be done by S&P and its legal team in preparation for defending a lengthy hearing defending two overlapping but separate proceedings which are of considerable complexity. I accept the Basis Applicants’ submission that S&P’s legal team is a large one, but it is relative to the scale of the litigation and, on my observation, not inconsistent with the legal teams assembled in the Vale and Basis Proceedings. During the hearing before me, Senior Counsel for the Basis Applicants was initially unable to provide an update on the status of the discovery, but after taking instructions helpfully conveyed that such discovery could be provided within a short time.

64    Again, I have to balance a number of considerations here, including but not limited to the limited explanation that there is for the delay as against the prejudice. However, I do think it is important to the Basis Applicants’ case that their lay evidence addresses itself to the expert evidence of Dr Gregory and this is a factor that weighs in favour of the Basis Applicants: Aon at [102]. I am also conscious of the matters I have adverted to above about the just resolution of the dispute in a quick and efficient way. Taking all of these matters into account, I will grant leave to the Basis Applicants to rely upon the Fowler Outline subject to the condition that all further discovery and other documents sought by S&P in relation to the Fowler Outline is given within a short-time of approximately seven days from the date of these reasons. I will grant such extra and additional time as S&P needs to respond to the Fowler Outline. In coming to this conclusion, I have balanced the prejudice to S&P as against the fact that the Fowler Outline seeks to update his evidence based on the Gregory Report.

65    The late service of the Woo Affidavit falls into an entirely different category. I accept that the first part of the Woo Affidavit seeks to summarise particular documents but I also accept S&P’s criticism that it is more than a summary and professes opinions about certain matters. I will return to this matter below. The second part of the Woo Affidavit sets out “counterfactual calculations” based on Mr Woo’s extraction of data and the calculations he has performed as to the alleged returns that would have been generated if the respective funds managed by Mr Fowler had invested in collateralised loan obligations. This evidence goes much further than the Fowler Outline and the evidentiary case that the Basis Applicants have served to date. Whereas the 2021 Fowler Affidavit at [137] raised in a general way the types of investments that would have been the subject of the alternative investments, the Woo Affidavit seeks to identify particular losses of opportunity and seeks to quantify them. The Basis Applicants accept that the second part of the Woo Affidavit “summarises data quantifying the performance of the investments in which Basis says it would have invested in (comprising the non-CDO portfolio at around the time it invested in the Claim CDOs)”.

66    On my examination of the materials, the service of the Woo Affidavit is the first time in the Basis Proceedings that the Basis Applicants have attended to identifying the alternative investments and quantifying their performance or the attendant loss said to arise from them. As S&P submits, in my view, correctly, the pleading and proof of the Basis Applicant’s “…case on causation was from the outset an essential aspect of its case, not an optional or peripheral one, and not a straightforward one”. Further, as I have set out above, the “alternative investment case” was pleaded in the original SOC and maintained in the ASOC, without any evidence being served in support of it other than the 2021 Fowler Affidavit. There is no explanation as to this state of affairs and the attendant delay.

67    I do not accept the Basis Applicants’ criticism of Mr Mavrakis’ evidence as to the tasks that would lie ahead for S&P in seeking to determine a response to Mr Woo’s evidence in this regard. This is a complex piece of commercial litigation and the particular evidence in question involves scrutiny of counterfactual scenarios as to the hypothetical decision-making that would have been involved in identifying, selecting and making alternative investments, not least by reference to the investment mandates then at play and the attractiveness of those investment options having regard to the then prevailing economic and financial circumstances. As that evidence peculiarly relates to the decision-making processes of the Basis Applicants and materials within their possession, as well as perhaps other evidence from them or third parties relating to the circumstances that prevailed at the relevant time that might not be readily to hand, I am satisfied that what Mr Mavrakis says has the ring of truth to it. It may be that S&P has not yet made a forensic decision to retain or adduce expert evidence, but equally it can readily be inferred from Mr Mavrakis’ evidence that before such decisions could be made there will need to be production of documents and their review.

68    I am also troubled by the fact that having been ordered to file and serve expert evidence including as to loss, the only expert report filed by the Basis Applicants was that of Ms Wright which was directed to the no transaction case. I have been provided with no explanation as to why evidence in the nature of the Woo Affidavit or other similar evidence was not filed at that time. Whilst I accept that during the 192A Application I made comments to the effect that it would be desirable if evidence as to counterfactual scenarios were tightened and Senior Counsel for S&P referred to a “gift”, I do not regard those comments as meaning that the Basis Applicants would have leave as a matter of right. This was reflected in the orders that I made following my determination of the 192A Application.

69    In view of these matters, I am not satisfied that leave should be granted to the Basis Applicants to rely upon the Woo Affidavit.

70    None of the above is to say that the Basis Applicants have not pleaded an “alternative transaction case”. As I have already stated, I accept that they have. I also accept that the 2021 Fowler Affidavit addresses those matters. Whether the pleadings and evidence address all the matters that are necessary to make good the “alternative investment case” is a matter for trial. I well anticipate that the parties will be in strident opposition with each other as to these matters, which I will need to resolve after the benefit of receiving all of the evidence and hearing the parties’ submissions.

71    There is one further matter I need to address. To the extent that the Woo Affidavit sought to summarise complex documents in support of the no transaction case, I will look favourably upon any aide memoire that is provided at trial that seeks to summarise the relevant documents that are tendered or the receipt of a true summary of such documents that conforms with s 50 of the Evidence Act 1995. I will say no further about this matter at this stage.

72    As a result, it follows that I am satisfied that leave should be granted to the Basis Applicants to rely upon the Fowler Outline on the condition that they are able to produce documents to S&P within a short period of time of approximately seven days. It follows that I will grant leave to amend so much of the particulars to [422]-[425] of the ASOC where the Basis Applicants have sought to refer to the Fowler Outline if this condition is met.

73    However, I am not satisfied that leave should be granted to the Basis Applicants to rely upon the Woo Affidavit or amend the particulars to [422]-[425] of the ASOC to refer to that Affidavit.

7.    DISPOSITION

74    As a result of the above, I propose to grant leave to the Basis Applicants to file the Proposed FASOC containing those amendments to which no objection has been taken and the amendments proposed at [349] and the amendments to the particulars at [422]-[425] in so far as they seek to refer to the Fowler Outline. I will also grant leave to the Basis Applicants to rely upon the Fowler Outline on the condition that I have specified as to production of documents. I will otherwise dismiss the Basis Applicants’ interlocutory application. As the Basis Applicants have been successful in part, there is a mixed result here. I propose to order that the costs of the application be reserved but that the Basis Applicants pay S&P’s costs thrown away by reason of the amendments to the ASOC.

75    I will invite the parties to provide me with short minutes of order reflecting these reasons and will list the matter for further case management at a time convenient to the parties if they consider that to be necessary.

Associate:

Dated:    9 April 2025