71 The applicant's reply to Mr Spalvins' defence addressed his claimed reasonable belief in pars 49 (the Jomet loan), 63 (the Gourlay loan), 73 (the Camberley loan) and par 86 (the Buckley and Nunn loan investment), to the effect that subsidiary companies had net assets of substantial value, by pleading that the applicant:
"is not able to plead to the allegations "(in the relevant sub-paragraphs)" as they are vague, general and embarrassing (and should be struck out unless adequately particularised) and refers to its request for particulars dated 14 September 1994."
72 The second aspect of the reply to Mr Spalvins' defence to which reference need be made is that dealing with the wider plea in par 225. That was the paragraph that referred to the availability of "sufficient distributable profits and reserves in Adsteam and in the Adsteam Group" out of which to pay the dividends. The reply commenced with a denial of each allegation, followed by an assertion that the allegations were "vague, general and embarrassing".
73 The reply, in par 11, continued by alleging that there were "no distributable profits in Adsteam" but, even if there were, Mr Spalvins would be unable to rely on any purported existence of reserves because of the failures on the part of the former directors to make all necessary appropriations.
74 The applicant also raised further issues that, so it claimed, would have prevented access to reserves (if indeed, there were available reserves). Four observations of significance may be made about the applicant's reply to Mr Spalvins' defence:
· in the first place, it claimed an inability to plead appropriately because, so it was claimed, the relevant pleadings were vague, general and embarrassing;
· secondly, it joined issue with Mr Spalvins about the availability of distributable profits - but only by denying their existence in Adsteam; it did not deny their existence in the Adsteam Group;
· thirdly, as an alternative plea, it argued that if (which was denied) there were distributable profits or available reserves in Adsteam then because of failures to attend to procedural matters or because of the contents of articles of association or because of accounting principles, Adsteam could not use those profits or those reserves;
· finally, the reply asserted that Mr Spalvins "could not reasonable have determined" (inter alia) that it was prudent, or in the best interests of Adsteam, to fund or support the dividends. (Again, no reference was made to the Adsteam Group).
75 In par 12 of the reply to Mr Spalvins' defence, the question of the Adsteam Group is then addressed. It started with the assertion that Mr Spalvins "cannot rely upon the purported existence of profits or amounts standing to the credit of reserves in the subsidiaries of Adsteam" to source the dividends. In subpar 12.1, the reasons that were advanced for that alleged inability were mainly procedural. For example, it was alleged that there had been no attempt to appropriate any amount standing to the credit of a reserve to the profit and loss account of the relevant subsidiary and no "determination" had been made to fund the payment of the dividends from the reserves of subsidiaries.
76 In subpar 12.2, it is then pleaded as follows: "even if (which is denied) there were sufficient amounts standing to the credit of subsidiaries of Adsteam's reserves" to fund the dividends, the amounts that stood to the credit of the share premium reserve and the capital redemption reserve were not distributable because of nominated statutory provisions and the amount standing to the credit of the foreign currency translation reserve was not distributable "as it comprised the value of foreign exchange currency translation differences."
77 The references in the reply to the value of the subsidiary companies in the Adsteam Group had, to this stage of the pleadings, been merely incidental to the basic assertions that procedural failures and statutory prohibitions denied access to the profits and reserves of the subsidiaries.
78 It was only in subpar 12.4 that the applicant directly addressed the wider issue when it pleaded in further answer to the allegations in par 225 of Mr Spalvins' defence:
"that dividends were payable by Adsteam only out of the profits of Adsteam and not out of the profits or reserves of its subsidiaries."
79 The presence of the word "only" in subpar 12.4 indicated that the applicant was challenging the right of any respondent to have recourse to the wider Adsteam Group. However, the challenge that the applicant now wishes to raise in its proposed further amended statement of claim goes a stage further. Its effect is to say, not only is it impermissible for the directors to have regard to the assets of subsidiary companies in the Adsteam Group, but, even if regard were to be had to them, they did not have the worth to fund the interim and the final dividends.
80 Whilst I acknowledge that this is an expansion on what was contained in the reply to Mr Spalvins' defence, I do not regard it as exceptional or unexpected or unfair in any sense. That conclusion can, I think, be tested in this manner. If Mr Spalvins wishes to assert that Adsteam was entitled to have recourse to its subsidiary companies so that it might meet its obligations to its shareholders when the time came to pay out the interim and the final dividends, there would be an evidentiary onus on Mr Spalvins to lead evidence pointing to the existence of the assets (be they accumulated profits, available reserves or whatever) of a size sufficient to source the dividends. It would not be sufficient for him to satisfy the Court that, as a matter of law, recourse could be had to the subsidiaries unless the Court was also satisfied, as a matter of fact, that the subsidiaries had the financial ability to meet the financial demands that would be placed on them. Whether there would be an evidentiary onus on Mr Spalvins to adduce that evidence, as I have propounded, or a switching onus on the applicant to negate the defence, is not really material at this interlocutory stage for either way, it would mean that evidence would have to be lead so that the Court could adjudicate on the worth of the subsidiary companies.
81 The conclusion that I have therefore reached is that the wider valuation issue has been raised in the defence of Mr Spalvins and the applicant has joined issue with it in its reply.
82 This conclusion therefore refutes any suggestion that the applicant has engaged in any forensic manoeuvre that might be called improper conduct, or an "ambush", or a withholding of the true nature of its case.
83 That defence and the reply to it has established the presence in the pleadings of the wider valuation issue. Even though, at the other end of the spectrum, the auditors did not raise the other value question as a defence, they are caught up in the larger litigious process. As a result of leave being given to the applicant to file and serve a further amended statement of claim which will plead the wider valuation issue, they and the other respondents will be able to file and serve an amended defence in which they will be able to respond to the insertion of the allegations that deal with that issue in such manner as they may be advised.
84 Counsel for Messrs Russell and Gregg was critical of the conduct of the applicant with respect to its replies as first filed. He submitted that further and better particulars of the replies could have been and should have been provided at a much earlier stage and that there was a failure on the part of counsel for the applicant, at various directions hearings, to disclose the applicant's intention to rely upon the wider matters relating to the valuation issue; he submitted that there was no acceptable explanation for these omissions and delays.
85 I do not consider that these complaints are justified. There is no warrant for the exercise of the Court's discretionary powers in a manner that would be unfavourable to the applicant. It must have been apparent to all respondents that the applicant would be forced to address the valuation issue in detail. That could not have come as a surprise.
86 The replies contained complaints that certain allegations in the defences were vague and the ASIC took the view that, because of a lack of particularity in the defences, it was impossible to plead with appropriate particularity in the replies. Argument about the adequacy of the particularity in the defences was listed for hearing, based on the applicant's notices of motion, on 30 January 1995. That also was the time for the respondents to act if they then felt, as they now submit, that there were inadequacies in the replies.
87 However, on 16 January 1995, Lindgren J delivered his judgment in the auditor's judicial review proceedings in which he indicated that if the proceedings were amended to attack the appropriate decision he would set it aside as an improper exercise of power. The applicant submitted that the practical effect of the judgment of Lindgren J was that there was, with the concurrence of all parties, a procedural moratorium in all interlocutory steps pending the final determination of the judicial review proceedings and the subsequent appeal processes.
88 Mr Gray QC submitted, on behalf of the applicant, that because new facts may be set up in an applicant's reply, where they are raised solely to meet a particular defence, it was not incumbent upon an applicant "to anticipate a defence which may never be made": Hall v Eve (1876) 4 ChD 341 at 348 per Bramwell JA: see also Cairns' Australian Civil Procedure 3rd Ed p 200; Bullen and Leake and Jacob's Precedents of Pleadings 12 Ed p 71 and Odgers' Principles of Pleading and Practice, 21 Ed p 91. That argument, which in my opinion, must be correct, was accepted by Perry J in The Duke Group Ltd (In liquidation) v Arthur Young (unreported: judgment delivered 26 June 1991).
89 Once it becomes evident that the question of other value will find its way into the pleadings via the replies, as it must in the pleadings in this litigation, one is left wondering why the respondents have expended so much time and energy in a debate in which, if they are successful, the question of other value will still be ventilated in the trial. In this limited issue (because there are doubtless many more issues to be canvassed) the contest between the parties which the trial judge will have to resolve, is whether there were or were not lawful sources available to Adsteam out of which certain dividends could be declared. The applicant commenced the litigation by pointing to four transactions, saying of them, that their worth was so diminished that no profits were available to the applicant out of which to declare a dividend. The first three respondents seek to defend themselves by saying that there was other value to which Adsteam could have had recourse so as to source those dividends. It quite escapes me how the first three respondents consider that they can avoid a full inquiry into and argument on the merits of their defence. No forensic manoeuvres, distinguishing between the limited contents of a reply and the more general assertions that can be made in a statement of claim, can be called in aid to avoid or restrict a proper assessment of the valuation issue. As to this, no proper assessment can be made without the benefit of fully articulated pleadings from the applicants.
90 Furthermore, it has been submitted on behalf of the ASIC that additional information has come into its possession subsequent to the filing of its replies; that information was generally identified as some analysts' reports, some information with respect to bankers' meetings and some knowledge of cross shareholdings. This material was not the subject of direct evidence; it came forth more by way of submissions from counsel. However, as I see it, it is not so much a matter of evidence as it is a matter of pleadings and, in such circumstances, the Court is entitled to rely on the information that counsel presents to the Court.
91 Whether that additional information comes before the Court via replies or by way of a further amended statement of claim might be, to some, an inconsequential matter. But if the applicant might, in some way, be inhibited, if it were limited to addressing the valuation issue in its replies, that would be a ground, in itself, for favouring the present application to allow the amendment to the statement of claim. The ultimate object, when this matter goes to trial is for "the true issues and the real merits, factual and legal" to be litigated; they are not to be artificially avoided: The State of Queensland v J L Holdings Pty Ltd per Kirby J at 169.
92 Counsel also alluded to the possibility that the introduction of the valuation issue into the applicant's replies might amount to it splitting its case. Order 11 r 8 provides:
"8(1) A party shall not in any pleading make an allegation of fact, or raise any ground or claim, inconsistent with a previous current pleading of his.
(2) Subrule (1) does not affect the right of a party to make allegations of fact, or raise grounds or claims, in the alternative."
93 Would it be open to the respondents to argue that the valuation issue is a new and different case and that it should not be found in a reply? Although it is not necessary to investigate the answer to that question, the fact that the question might be raised is sufficient to take steps to avoid it. Upon that premise, I consider that the applicant made the correct decision in applying to the Court for leave to file and serve the proposed further amended statement of claim rather than attempting to place the valuation issue in its replies. On the other hand, that does not mean that I am of the opinion that a mistake was made in the formulation of the first version of the statement of claim. As I have said, the applicant was not obliged to guess at what the respondents may raise by way of defence.
94 I turn now to consider the further complaints that have been raised by the respondents. The first of them is the applicant's delay.
Delay
95 It was necessary for the applicant to address the reasons for the delay in making this application; it carries the onus of satisfying the Court that the granting of this application will not prejudice the respondents: see The State of Queensland v J H Holdings Pty Ltd at 152 per Dawson, Gaudron and McHugh JJ; see also Interior Projects v Players Ltd (unreported: Lander J; judgment delivered 19 June 1997). For reasons which are developed later in these reasons, I am satisfied that it has.
96 In Interior Projects v Players there had been a last-minute request by a party to make a substantial amendment to a pleading - an amendment that had been suggested by the Court many months before. In the circumstances, the amendment was allowed because his Honour was satisfied that the fault was that of the solicitors and not of the party and because none of the other parties could raise an issue of prejudice that could not be compensated with a costs order. In coming to this conclusion his Honour was, of course, operating under the approach of the High court in The State of Queensland v J L Holdings Pty Ltd.
97 Whilst it is true to say that the applicant bears the responsibility of satisfying the Court that allowing the filing and serving of a fresh statement of claim will not cause the respondents prejudice (which cannot be cured by an order for costs), it still remains necessary for the respondents to identify the possible prejudice. It is not a case of the respondents standing by mute, leaving it to the applicant to progress through a series of possibilities or probabilities, raising hypothetical issues not knowing whether they are relevant to the circumstances of the respondents or not. Standing back and assessing the matter objectively, there is no doubt that there has been delay in this matter. But the delay has been occasioned by both sides - i.e. the applicant on the one hand and one or other of the respondents on the other. When one compares the applicant's delay as against the respondents' delay, it is, in my opinion, appropriate to find that the applicant's delay, whilst substantial, has not been of such a nature as to warrant the Court refusing it leave to file and serve the fresh statement of claim.
98 Notwithstanding the delay that had been brought about by the judicial review proceedings, Messrs Phillips Fox, the solicitors for the fourth and fifth respondents, Messrs Russell and Gregg, throughout the greater part of 1995, repeatedly wrote the ASIC seeking further and better particulars of the applicant's replies to their defences. The witness, Mrs Rigney, a partner in the firm of Messrs Phillips Fox, was the legal practitioner who had the care and conduct of this matter on their behalf. On 22 December 1994, Mrs Rigney had caused a member of her staff to write to the ASIC requesting further and better particulars of its replies; that letter was not answered. Thereafter, like letters were written by Messrs Phillips Fox at (roughly) monthly intervals throughout 1995; they were not answered. Finally, in their letter of 9 October 1995 to the ASIC, Messrs Phillips Fox forwarded a copy of a notice of motion in which orders were sought that the applicant provide answers to the requests for particulars of its replies. Curiously, in light of the arguments that were advanced in this hearing, the letter stated:
"… we propose to have the notice of motion lie on a (sic) table, along with the other notices of motion for argument at the next directions hearing, whenever that may be."