Is the proposed deceit claim statute barred?
70 As has already been noted, Standard & Poor's contention that the proposed cause of action in deceit was statute barred was primarily based on the limitation period applicable to the cause of action for common law fraud as a matter of New York law. For the reasons already given, the proposed claim in deceit is governed by Australian law, not New York law. It follows that the limitation period as a matter of New York law is irrelevant. It should perhaps be noted, however, that even accepting Professor Leib's opinion concerning the limitation period for a common law action in fraud as a matter of New York law, if the evidence adduced by Clurname in support of the amendment application is accepted, Clurname's action would not be statute barred as a matter of New York law. That is because the effect of Ms Banton's evidence was that the alleged fraud by Standard & Poor's was not discovered, and was not discoverable with reasonable diligence, before August 2017. Thus the limitation period would not expire until August 2019.
71 Putting to one side the position under New York law, Standard & Poor's contended that the deceit claim was statute barred by reason of s 14 of the Limitation Act 1969 (NSW), which provides that a cause of action founded on tort is not maintainable if brought after the expiration of a limitation period of six years running from the date on which the cause of action first accrues to the plaintiff. In Standard & Poor's submission, the proposed cause of action in deceit accrued when Clurname was induced to acquire the SCDO's by reason of the allegedly false representations. That was on 6 July 2006, which was more than six years before the proceeding was commenced. It is to be noted, in that regard, that Standard & Poor's has pleaded, in its defence, that the existing causes of action are statute barred on the same basis. The same six year limitation period applies to the actions under the Corporations Act and the ASIC Act: see s 1041I(2) of the Corporations Act and s 12GF(2) of the ASIC Act.
72 Clurname's response to the contention that the proposed claim in deceit was statute barred was twofold.
73 First, while Clurname accepted that the cause of action in deceit accrued when damage was suffered, it submitted that it did not suffer damage when it acquired the relevant SCDOs. Rather, it did not suffer any damage until the first date of default of the SCDOs, which was between 2 November 2009 and 23 November 2011. In that regard, it relied on a line of authorities which, in its submission, establish that damage is not sustained merely because a party is induced to enter into a disadvantageous transaction by misrepresentation; rather, there must be "actual damage, as distinct from the risk or prospect of damage or contingent damage" which is "measurable or beyond what can be regarded as negligible": Wilson v Rigg (2002) 36 MVR 451 at [23]; see also Wardley Australia Ltd v The State of Western Australia (1992) 175 CLR 514 at 527-529, 536.
74 Clurname contended that the tranches of the relevant SCDOs held by it first suffered credit events breaching the attachment point on 2 November 2009, 24 December 2009 and 9 November 2010. Each of those dates is less than six years before the date on which the proceedings were commenced. On that basis it contends that the existing claims are not statute barred. Clurname submitted, relying on Gloucester at [234]-[238] and Oztech Pty Ltd v Public Trustee of Queensland (No 2) [2015] FCA 1485 at [61], that the proposed amended pleading raising the deceit claim should take effect from the date the proceeding was commenced. Accordingly, in its submission the new deceit claim would also not be statute barred.
75 Standard & Poor's did not submit that Clurname's argument that it did not relevantly suffer loss or damage until it first suffered credit events breaching the attachment point was hopeless or not reasonably arguable. That perhaps explains, at least in part, why Standard & Poor's have not sought to strike out or seek summary dismissal of the existing claims on the basis that they are statute barred. In any event, it is open to conclude not only that Clurname has at least a reasonably arguable case that the existing claims are not statute barred, but also at least a reasonably arguable case that the proposed new deceit claim is also not statute barred for the same reason. In the case of some of the relevant SCDOs, however, that may depend on whether the date upon which the amendments were to take effect was the date that the proceeding was commenced, as opposed to the date that leave to amend was granted. More will be said concerning that issue later.
76 Second, and perhaps more significantly for present purposes, Clurname relied on s 55 of the Limitation Act, which relevantly provides as follows:
55 Fraud and Deceit
(1) Subject to subsection (3) where:
(a) there is a cause of action based on fraud or deceit, or
(b) a cause of action or the identity of a person against whom a cause of action lies is fraudulently concealed,
the time which elapses after a limitation period fixed by or under this Act for the cause of action commences to run and before the date on which a person having (either solely or with other persons) the cause of action first discovers, or may with reasonable diligence discover, the fraud deceit or concealment, as the case may be, does not count in the reckoning of the limitation period for an action on the cause of action by the person or by a person claiming through the person against a person answerable for the fraud deceit or concealment.
(2) Subsection (1) has effect whether the limitation period for the cause of action would, but for this section, expire before or after the date mentioned in that subsection.
(3) For the purposes of subsection (1), a person is answerable for fraud deceit or concealment if, but only if:
(a) the person is a party to the fraud deceit or concealment, or
(b) the person is, in relation to the cause of action, a successor of a party to the fraud deceit or concealment under a devolution from the party occurring after the date on which the fraud deceit or concealment first occurs.
(4) Where property is, after the first occurrence of fraud deceit or concealment, purchased for valuable consideration by a person who is not a party to the fraud deceit or concealment and does not, at the time of the purchase, know or have reason to believe that the fraud deceit or concealment has occurred, subsection (1) does not, in relation to that fraud deceit or concealment, apply to a limitation period for a cause of action against the purchaser or a person claiming through the purchaser.
77 There could be little doubt that the proposed new claim in deceit falls within s 55(1)(a) of the Limitation Act. Accordingly, the six year limitation period, which would otherwise commence to run when the cause of action accrued, would be postponed until the time that Clurname first discovered, or should with reasonable diligence have discovered, the alleged fraud or deceit. It should be noted that Clurname also relied on s 55(1)(b) and contended that the causes of action it had against Standard & Poor's were fraudulently concealed. For present purposes, however, it is sufficient to consider the potential application of s 55(1)(a).
78 A person can be said to have relevantly discovered a fraud if they know the facts capable of proving a prima facie case: Feiglin v Ainsworth [2014] VSC 376. It would follow that it can be concluded that a person should, with reasonable diligence, have discovered a fraud if the person would have discovered facts capable of proving a prima facie case if they had exercised reasonable diligence.
79 What reasonable diligence would require must be evaluated by reference to the particular facts and circumstances of the case. Ordinarily, before a person could reasonably be expected to pursue an inquiry with a view to ascertaining whether a fraud has been perpetrated, something must have put the person on notice, or raised a suspicion, in respect of that matter: CE Heath Underwriting & Insurance (Australia) Pty Ltd v Daraway Constructions Pty Ltd (unreported, Supreme Court of Victoria, Batt J, 3 August 1995) at 121-2; Clark v Clark (1882) 8 VLR (E) 303 at 328. Even then, the person might not reasonably be expected to do everything possible using all means at their disposal: Peco Arts Inc v Hazlitt Gallery Ltd [1983] 1 WLR 1315 at 1322-3. The type of enquiry that might be expected must be assessed having regard to how a person carrying on a business of the relevant kind would act if they had "adequate but not unlimited staff and resources and were motivated by a reasonable but not excessive sense of urgency": Paragon Finance plc v D B Thakerar & Co [1999] 1 All ER 400 at 418. And the enquiry that might be expected must be one that, if made, would have led to the discovery of the facts revealing the fraud: CE Heath at 121-2.
80 Clurname contended that it did not discover, and could not with reasonable diligence have discovered, the alleged deceit by Standard & Poor's until August 2017. It relied in that regard on Ms Banton's evidence. Standard & Poor's contended that Ms Banton should with reasonable diligence have discovered the deceit claim at some earlier time, though it is unclear precisely when it was said she should have discovered the claim. Much of the questioning of Ms Banton was directed to the period from August 2015, when these proceedings were commenced. Most of Standard & Poor's submissions were also directed to that date.
81 Ms Banton's evidence was that she did not discover the alleged deceit by Standard & Poor's until August 2017, or thereabouts. In very short terms, Ms Banton's evidence was that she did not have a reasonable basis to file (or seek leave to file) an amended pleading including the proposed deceit claim until she, counsel briefed by her, and expert witnesses retained by her, had fully considered the documents discovered by Standard & Poor's in this proceeding. Despite being ordered to give specific discovery in September and October 2016, and standard discovery by March 2017, a number of documents that are important to the proposed deceit pleading were not discovered until "supplementary" discovery was provided in June 2017. Other important documents, in particular copies of depositions taken in proceedings in the United States, were also not discovered in an unredacted form until May and June 2017.
82 As discussed in more detail later in the context of discretionary considerations, Standard & Poor's has not given any, or any adequate, explanation or justification for the late discovery. Some of the documents that were not discovered until June 2017 are self-evidently relevant to Clurname's existing claims. So much so appeared to be conceded by Mr Grave when cross-examined about Standard & Poor's discovery.
83 More importantly, it also could not be gainsaid that some of the documents that were not discovered until June 2017 are relevant to the proposed deceit claim. It suffices to give two examples, both of which are documents created in early December 2005, shortly before CDO Evaluator version 3 was rolled out.
84 As noted earlier, Clurname's proposed deceit case is based in part on the allegation that Standard & Poor's knew that its ratings lacked reasonable grounds because: it used correlation assumptions in its CDO Evaluator model version 3 which it knew were lower than historical averages and did so to avoid the negative effects of using higher correlation estimates; it was aware that CDO Evaluator version 3 used a static correlation assumption in circumstances where it was incorrect and wrong to do so; it was aware that there was significant uncertainty as to the soundness of the model assumptions used by the CDO Evaluator; and it was aware that business considerations had influenced Standard & Poor's ratings methodology.
85 One of the documents not produced until June 2017 was an email from Mr Inglis to Mr Gilkes, which forwarded an email from Mr Fabienne Michaux to colleagues within Standard and Poor's (Exhibit A19). In the forwarded email, Mr Michaux makes a case for elements of the CDO Evaluator model version 3, roughly a week before its release, which appears to paraphrase comments made by Mr Gilkes. Among other things, Mr Michaux talks of the importance of striking a balance between the desire not to "grandfather" Standard & Poor's' credit decisions, while at the same time "managing the impact of the model changes". Mr Michaux goes state that the number one "franchise" issue, which Mr Grave accepted in cross examination to mean Standard & Poor's' business, arising out of the new CDO evaluator model was "rating something AAA one day and dumping it to bare investment grade the next - especially anything rated after knowledge of [CDO Evaluator version 3]". In cross-examination, Mr Grave accepted that the email suggested that at that time Standard & Poor's was discussing the concern that different versions of the CDO Evaluator model would produce different ratings outcomes. Despite this concession, Mr Grave gave no convincing explanation for why the document was not discovered before June 2017.
86 A second document, an internal Standard & Poor's PowerPoint presentation titled 'CDO Product & Infrastructure Steering Committee Kick-off Meeting' (Exhibit A20), stated that the Steering Committee's charter included to "ensure that the development [of] CDO product[s] and infrastructure are aligned to CDO business strategy". Relevantly, Mr Gilkes was named as a member of the Steering Committee.
87 It is not difficult to see the potential relevance of these two documents to Clurname's proposed claim in deceit. No satisfactory explanation has been given for why they were not discovered until mid-2017. There were other documents about which the same could be said.
88 Standard & Poor's has also provided no satisfactory explanation for some of the redactions that were initially made to some of the discovered documents. It again cannot be gainsaid that some of the previously redacted material is highly relevant to the proposed deceit claim. Again, two examples suffice to demonstrate that point.
89 Amongst the material initially discovered by Standard & Poor's in 2016 was a heavily redacted transcript of a deposition of Mr Gugliada. That deposition was taken for the purposes of a civil action against Standard & Poor's in the United States. It would be fair to say that the only part of the deposition that was not blacked out when first discovered to Clurname was a short passage of Mr Gugliada's evidence, some 41 lines from over 240 pages of transcript, that was obviously favourable to Standard & Poor's. An unredacted copy of the deposition which was eventually discovered in mid-2017 included the following passages that had previously been blacked-out:
Q. Throughout your employment at S&P, did you ever observe an instance in which ratings criteria were relaxed in order to maintain market share?
A. I don't recall the exact year, but I do recall we were losing market share in specific products and we were asked to go back and reevaluate criteria on those specific products.
Q. What specific products are you referring to?
A. Principally mortgages.
Q. Sorry?
A. Principally mortgage-backed securities, it had to be then 2003, 2004.
Q. Who asked you to reevaluate criteria?
A. Not me; Frank Raiter, who was running the group at the time, was asked to reevaluate that.
…
Q. When we broke I was asking you whether, while at S&P, you had ever observed an instance in which ratings criteria were relaxed in order to maintain market share. Do you recall that question?
A. Yes.
Q. You told me that you had, is that right?
A. Not on individual transactions. As I said, ratings criteria was relaxed because of good reasons, any one of three reasons, internal research developing out of additional data, externally provided data that suggested our criteria needed modification, and No. 3, on occasion peer pressure.
Q. What do you mean by peer pressure?
A. Significant decline in market penetration in a specific product.
Q. Who were the peers that put pressure on you to relax criteria?
A. Moody's and Fitch.
Q. Why did they put pressure on you, what you mean by that?
A. If they changed criteria, relaxing it, what would happen in certain products, not all products, but certain products was issuers would then gravitate towards the rating agency that had the most relaxed criteria and avoid those that had the highest - the most stringent, strictest, criteria.
Q. How did that put pressure on S&P?
A. Up until 2004 area, it didn't really matter. The vast majority of structured finance securities are issued with triple-A ratings, most investors require both Moody's and S&P to be on triple-A rated securities, so it really didn't matter whether we had a little bit higher or a little bit lower criteria, both Moody's and S&P and quite often Fitch were on every single triple-A rated security, give or take, in the neighbourhood of, you know, mid 90 percent market penetration. Fitch was a bit lower, but they were the new kid on the block. What happened in 2004 was the creation of CDOs backed by mortgage-backed securities, that changed the playing field. Up until 2004, based upon the pricing policies of all the ratings agencies, not just S&P, issuers paid on a percentage of rated securities; since the vast majority of every security is triple-A rated, 90 to 95 percent of the fees are earned by rating the triple-A security. Both Moody's and S&P were on virtually all of them, so they both had very close market penetrations, it didn't matter. But the CDOs of mortgage backs, particularly S&P's policies on mortgage backs, made them less competitive on mortgage-backed securities subordinate tranches, particularly the single A and triple-B rated tranches. S&P in 2004 had very low market penetration, somewhere, if I recall correctly, somewhere in the neighbourhood of 35 percent, whereas Moody's was significantly higher. That created a big problem for S&P; the big problem was since you require ratings on each instrument that goes into a CDO in order to evaluate its individual credit and then to produce the credit analysis for the CDO itself, you had to have a very strong feel for every security that went into it. S&P, because it had such low market penetration, was not only losing all the CDO of mortgage-backed security business, but we were also starting to lose significantly more of the mortgage-backed business. And so the Department all got together, all the department heads got together, and decided that our mortgage back subordinate rating criteria had to change if we were to maintain market presence in both of those markets.
Q: You mentioned S&P's policies made them less competitive?
A: Criteria, not policies, criteria.
(Objections omitted)
90 It is difficult to see how these passages could reasonably have been redacted on the basis of relevance when first discovered. They are plainly relevant to Clurname's case in relation to the falsity of the S&P Independence Representation. As noted earlier, the issue concerning redactions in discovered documents purportedly based on relevance had been agitated as early as August 2015 in the Swan proceedings. Ms Banton, as solicitor for the applicants in the Swan proceedings, had been pressing for discovery of unredacted versions of the deposition transcripts since that time. It is worth noting that the unredacted transcripts were never discovered in the Swan proceedings because the matter settled before the redaction dispute was resolved. Clurname had also been pressing for discovery of unredacted versions of the transcripts. In his evidence, Mr Grave ultimately effectively accepted, albeit in hindsight, that these passages of the depositions were relevant and should not have been redacted when the depositions were first discovered.
91 Similarly, Standard & Poor's initially discovered a heavily redacted deposition of Mr Gugliada taken for the purposes of proceedings commenced against Standard & Poor's by the State of Connecticut in the United States. When the unredacted transcript was finally produced in June 2017, it contained the following passage that had previously been blacked-out:
Q. So because Moody's criteria on the synthetic CDOs out of London was less stringent than S&P's, S&P was losing business on those synthetic CDOs, you weren't getting the ratings?
A. Correct.
Q. And in order to attempt to recoup that business, S&P attempted to update its default tables for CDO Evaluator, start?
A. We spent two years while I was running that group attempting to find the solution that everybody could be comfortable with, but we never found one during my tenure.
Q. My question was - I think slightly different, which is, the reason - strike the question. Part of the reason you were attempting to update your default tables was in order to win back some of the business on synthetic CDOs out of London because Moody's had more competitive criteria than S&P; is that true?
A. That's true. In part, yes. There were other reasons.
92 Ms Banton was cross-examined at some length concerning her evidence that she did not have a reasonable basis to file a pleading alleging deceit against Standard & Poor's until August 2017. The general thrust of the cross-examination was that Ms Banton could have discovered the deceit claim in August 2015 because she had by that time seen, in her capacity as solicitor on the record for the applicants in the Swan proceedings, documents discovered by Standard & Poor's in the Swan proceedings in May 2015, she was aware of allegations made against Standard & Poor's in proceedings brought in the United States, and she had read and considered the Report of the United States Senate Permanent Subcommittee dated 13 April 2011 which was titled "Wall Street and the Financial Crisis: Anatomy of a Financial Collapse" (US Senate Report).
93 The submission that Clurname or Ms Banton could have discovered and pleaded the deceit claim against Standard & Poor's by August 2015on the basis of the discovery in the Swan proceedings, the allegations made in the United States proceedings, and the findings in the US Senate report is rejected. That is so for a number of reasons.
94 First, a number of the documents that are referred to in the particulars to the proposed deceit claim were not included in the Swan discovery. According to Mr Grave's slightly more generous analysis, the particulars to the proposed deceit claim refer to some 90 documents. Of those 90 documents, 60 were discovered in the Swan proceedings and 19 were said to be publicly available, at least by the time the proposed pleading was drafted. For what it is worth, Ms Banton said it was actually 75 documents, 71 of which came from the Standard & Poor's discovery. Ms Banton ultimately asserted that this left 11 documents that were not discovered by Standard & Poor's until it provided supplementary discovery in June 2017. In any event, Standard & Poor's did not take the Court to any documents that were included in the Swan discovery that, considered individually or collectively, disclosed, or were capable of disclosing, the alleged deceit. And as discussed later, it did not seek to demonstrate, by reference to the contents of the documents not discovered until June 2017, that Clurname's proposed claim in deceit could have been properly pleaded or particularised without reference to those documents.
95 Second, and in any event, Ms Banton and the counsel retained by her would not have been able to use the documents discovered in the Swan proceedings to plead Clurname's case without breaching the implied undertaking not to use documents produced pursuant to a court process for a purpose outside those proceedings without leave of the court: Hearne v Street (2008) 235 CLR 125 at [96], [103], [106]; Harman v Secretary of State for Home Department [1983] 1 AC 280. Reasonable diligence did not necessarily require Ms Banton to apply to be released from the implied undertaking. It is by no means certain that Standard & Poor's would have consented to releasing Ms Banton and her legal team from the implied undertaking and, in any event, release of the implied undertaking would most likely not have resulted in the production of the documents produced in response to the order for standard discovery on 22 December 2016, nor those that were produced in the so-called supplementary discovery in June 2017. The same can be said concerning Standard & Poor's contention that it would have been open to Ms Banton to apply for preliminary discovery in the Clurname proceedings in August 2015 or thereabouts. Standard & Poor's did not demonstrate that it would have been reasonable, in the circumstances, for Ms Banton to make such an application. It may be inferred that, if Ms Banton had made an application for preliminary discovery on behalf of Clurname, the application almost certainly would have been opposed. More significantly, even if preliminary discovery had been ordered, it is highly unlikely that Standard & Poor's would have discovered the documents that were ultimately discovered in the supplementary discovery provided in June 2017.
96 Third, Ms Banton would not have discovered the alleged fraud simply as a result of being aware of the proceedings that had been commenced in the United States, and the allegations made against Standard & Poor's in them. There were two sets of relevant proceedings in the United States. The first was an action commenced by the Department of Justice: United States of America v McGraw-Hill Companies Inc and Standard & Poor's Financial Services LLC Case No. CV 13-0779, C.D. Cal, filed 4 February 2013. The second was a class action commenced by a private litigant: Abu Dhabi Commercial Bank v Morgan Stanley & Co Incorporated 88 FSupp 2D 431 (SDNY 2012)
97 The important point to note about both sets of proceedings in the United States is that, as Standard & Poor's itself contended, the allegations made in the United States proceedings were not precisely the same as, and were different in important respects from, the allegations made in Clurname's proposed deceit pleading. The United States' proceedings concerned different financial products and apparently different ratings processes. That appears to have been one of the reasons that Standard & Poor's initially gave for redacting the deposition transcripts.
98 Ms Banton's unchallenged evidence was that the precise allegations made in Clurname's proposed deceit claim have not been made in any other proceedings, including in the United States proceedings. Ms Banton was taken in cross-examination to paragraphs [179] and [180] of the proposed SFASOC, and it was put to her that the allegations regarding delay in updating the CDO Evaluator were substantially based on allegations in the complaint filed in the Department of Justice proceedings. Ms Banton claimed legal professional privilege in respect of questions relating to the extent to which reliance was placed on the complaint, but volunteered that the complaint was one of a range of materials available to Clurname. However, aside from that brief excursion, Ms Banton was not taken to or questioned concerning any specific part or passage of the complaints filed in the United States proceedings. Nor did Standard & Poor's submissions descend into any detail in relation to those parts of the complaints that it contended should have alerted Ms Banton to Clurname's deceit claim as pleaded.
99 It should also be noted in this context that Standard & Poor's reliance on the United States proceedings in the cross-examination of Ms Banton tended to reveal a somewhat contradictory position in relation to those proceedings. On the one hand, Standard & Poor's suggested that the proceeding should have alerted Ms Banton to Clurname's proposed deceit claim. On the other hand, it maintained that it would be prejudiced by the amendments because it was taken by surprise and would have to investigate the deceit allegations "from scratch", in the sense of viewing all the documentary evidence through the new lens of the deceit claim. As discussed in more detail later, in February 2015 Standard & Poor's settled the proceedings commenced by the Department of Justice. That settlement involved Standard & Poor's paying a penalty of US$1.375 billion. It might reasonably be inferred that Standard & Poor's would not have settled those proceedings for that amount unless it had thoroughly investigated all relevant aspects of the claims made against it, including any claims that may have involved suggestions of fraud or dishonesty.
100 Fourth, as was the case in respect of the United States proceedings, in cross-examination Ms Banton was not taken to any part or parts of the US Senate Report which could be said to have alerted her to the availability of a claim in deceit against Standard & Poor's. It was merely put to Ms Banton, and she accepted, that she was aware of the US Senate Report in August 2015. Nor, in submissions, did Standard & Poor's identify any part or parts of the report that, in its submission, would have alerted Ms Banton to the claim if she had acted with reasonable diligence. This topic was dealt with at a very high, and mostly unhelpful or uninformative, level of generality.
101 Fifth, it is difficult to see how it could be seriously suggested that it would have been reasonable for Ms Banton to commence proceedings on behalf of Clurname, which included a cause of action in deceit, on the basis of her knowledge of the United States proceedings, or the findings made by the United States Senate subcommittee, without access to any of the evidence that supposedly supported those allegations or findings. Or, indeed, without any ready means by which to obtain that evidence. It was not put to Ms Banton in cross-examination that she had access to, or any means to seek access to, that evidence, beyond those documents which were on the public record. Another way of putting this point is that, even if it is accepted that the United States proceedings and the US Senate Report should have put Ms Banton on inquiry of a potential deceit claim against Standard & Poor's, there is nothing to suggest that any inquiries she might reasonably have been able to conduct would have resulted in her obtaining evidence that would be capable of supporting a prima facie claim of deceit against Standard & Poor's.
102 Standard & Poor's also suggested that, if she did not have sufficient material to mount to deceit claim against Standard & Poor's in August 2015, Ms Banton had sufficient material to support the deceit pleading by November 2016, when the main tranche of Standard & Poor's discovery was provided in this proceeding. It was put to Ms Banton in cross-examination that only 11 of the documents produced as part of the supplementary discovery in June 2017 feature in the particulars to the proposed claim in deceit. It was also suggested that the 11 documents were not "necessary" for the deceit claim to be pleaded. The suggestion appeared to be that Ms Banton would have had a reasonable basis to plead the proposed deceit claim in its current form even if she did not have those 11 documents. Ms Banton's evidence, however, was that to answer that question, she would have to review each of the 11 documents in the context of the deceit allegations as a whole, including all of the other particularised documents. The 11 documents in question, or any one of them, could not be looked at in isolation and out of context. It was not suggested that Ms Banton was being disingenuous or evasive in responding to the questioning in that way. In any event, this submission ignores the fact that Standard & Poor's standard discovery was not due to be provided until March 2017, and Ms Banton's assertion, discussed later in the context of prejudice and delay, that the supplementary discovery nevertheless delayed the bringing of the deceit claim, because the approximately 1,500 documents had to be closely scrutinised to ascertain their relevance, if any, to a possible deceit claim.
103 Ms Banton was also questioned, during cross-examination, in relation to an application to amend the pleadings in another proceedings against Standard & Poor's, known as the Khamsin proceedings (Ceramic Fuel Cells Limited v McGraw-Hill Financial Inc, NSD 559 of 2017), to include an action in deceit against Standard & Poor's. Ms Banton acted for the applicant in that matter. The application to amend was filed on 22 June 2017. The apparent suggestion was that the deceit claim in that matter was formulated by Ms Banton based purely on publically available material, which would have been available in August 2015. The problem for Standard & Poor's, however, is that one need only look at the proposed amended pleading in the Khamsin proceedings to see that it does not demonstrate that Ms Banton had access to sufficient information and documentation in June 2017 to properly plead the deceit claim it now proposes to advance . The proposed amended pleading in the Khamsin proceedings alleges only that Standard & Poor's was reckless in making the S&P Independence Representation. It is also devoid of any meaningful particulars. Standard & Poor's had indicated that it strenuously objected to the amendments proposed in the Khamsin proceedings on that and other bases.
104 In the end result, Standard & Poor's failed to demonstrate that the 11 relevant documents that were not discovered until June 2017, and the unredacted documents provided in May and June 2017, were not important or critical to the deceit claim as it was ultimately pleaded. It did not demonstrate that Ms Banton had a reasonable basis upon which to allege deceit against Standard & Poor's in this proceeding until she, her counsel, and the experts retained by her had seen and had the opportunity to consider the 11 documents and the unredacted documents in the broader context of the other documents and facts particularised in the proposed deceit claim.
105 In the end result, Ms Banton's evidence that she did not relevantly discover that Clurname had an available case in the tort of deceit against Standard & Poor's until August 2017, and had no reasonable basis to seek to plead such a case until that time, should be, and is, accepted. Nothing that arose during cross-examination cast any doubt on her evidence in that regard.
106 It should also be noted, in this context, that while Ms Banton's evidence was couched in terms of whether she had a reasonable basis to plead a deceit claim against Standard & Poor's, it is readily apparent that what she meant by that was that she was not in possession of facts which were capable of proving a prima facie case of deceit against Standard & Poor's. Her evidence, which is accepted for the purposes of this interlocutory application, was that she was not relevantly in possession of facts capable of establishing a prima facie case of deceit against Standard & Poor's until August 2017. Equally, the effect of Ms Banton's evidence was that she exercised reasonable diligence and was nevertheless not able to ascertain, or come into possession of, facts sufficient to establish a prima facie case of deceit against Standard & Poor's until August 2017. Her evidence to that effect is accepted for the purposes of this interlocutory application. Accordingly, it may be accepted, for present purposes, that the facts capable of establishing a prima facie case of deceit against Standard & Poor's could not with reasonable diligence have been discovered by Clurname, or Ms Banton on its behalf, until August 2017.
107 What, then, are the implications of those factual findings for Standard & Poor's contention that the proposed deceit claim is statute barred?
108 The question whether the proposed deceit claim is statute barred involves, as limitation questions often do, complex questions of fact and law. It is generally not appropriate to determine limitation issues at an interlocutory stage in such circumstances, particularly where all the evidence which may be relevant to the issue has not been given or fully tested: Oztech at [54] and the cases there cited; Energex Ltd v Alstom Australia Ltd (2005) 225 ALR 504 at [63]; State of New South Wales v McCloy Hutcherson Pty Limited (1993) 43 FCR 489 at 505; Skrijel v Mengler [1998] VSC 71 at [43]-[45].
109 Standard & Poor's contention is that the amendments introducing the new deceit claim should not be permitted because that claim would clearly be statute barred. That is tantamount to submitting that leave to appeal should be refused because the amendment would be futile because it has no reasonable prospects of success, or would be liable to be struck out as not raising a reasonable cause of action. The question, in such circumstances, is whether Clurname's case that the proposed deceit claim is not statute barred is reasonably arguable, or has reasonable prospects of success. In all the circumstances, the answer to that question is "yes".
110 It is at the very least reasonably arguable that the proposed deceit claim is not statute barred by reason of the operation of s 55(1)(a) of the Limitation Act. It is at least reasonably arguable that Clurname, through its solicitor or otherwise, did not discover the alleged claim in deceit against Standard & Poor's until August 2017, as Ms Banton claimed in her evidence. Standard & Poor's submission that Ms Banton's evidence in that respect should be disbelieved or not accepted has no merit and is rejected for the reasons already given. Equally, it is at least reasonably arguable that Ms Banton could not, with reasonable diligence, have discovered the deceit claim before that time, or at least before early to mid-2017 when Standard & Poor's provided supplementary discovery and produced unredacted versions of documents previously discovered, including the depositions. Standard & Poor's submission that the Court should find that Ms Banton could, with reasonable diligence, have discovered the deceit claim in August 2015, when these proceedings were commenced, is rejected.
111 In any event, such a finding would not assist Standard & Poor's. For Standard & Poor's to make out its contention that the deceit claim would be statute barred, it would effectively have to establish that the deceit claim was discovered, or was reasonably discoverable, as early as 2011 - more than six years before Clurname sought to amend its pleading to include the deceit claim. Standard & Poor's did not expressly or clearly advance a submission that the deceit claim was discoverable by Clurname or Ms Banton as early as 2011. In any event, there is simply no evidentiary basis for such a finding. The Department of Justice proceedings against Standard & Poor's were not commenced until 2013. They were initially defended and were not settled until February 2015. While the US Senate report is dated 13 April 2011, for the reasons already given it could not seriously be contended that Ms Banton could, with reasonable diligence, have discovered the deceit claim based on her knowledge of that report alone. It is also unclear precisely when Ms Banton became aware of the United States proceedings and the US Senate Report. It was never suggested to Ms Banton in cross-examination that she did discover, or could with reasonable diligence have discovered, the deceit claim as early as 2013, let alone 2011, by reason of the United States proceedings, the US Senate report or otherwise.
112 It follows that Standard & Poor's submission that leave to amend should be refused because the amendment would be futile, or does not plead a reasonable cause of action, because the deceit claim would be statute barred has no merit is rejected.
113 Three further points should also be noted. First, Standard & Poor's submitted, in effect, that the Court should not have regard to Clurname's response to its limitation defence based on s 55 of the Limitation Act because Clurname had not provided a draft pleading or other document that indicated the facts and matters relied upon to support the postponement of the bar by reason of s 55. That submission is entirely unmeritorious. Clurname clearly foreshadowed that, if granted leave to amend, it would file a fully particularised reply to any defence filed by Standard & Poor's alleging that the deceit claim, or any of its other claims, was statute barred. Clurname's written submissions (including the schedule thereto) clearly articulated the basis of the foreshadowed reply and reliance on s 55, including the facts and matters that will be relied on. It should also be added that Standard & Poor's limitation defence, as presently pleaded, is devoid of any meaningful particulars.
114 Second, it follows from the factual findings that have just been referred to, that even if Clurname's deceit claim was governed by New York law, it is at the very least reasonably arguable that it would not be statute barred as contended by Standard & Poor's. Accepting Professor Leib's evidence concerning the limitation period for the common law cause of action in fraud as a matter of New York law, Clurname would have until August 2019 to commence the action.
115 Third, as has already been adverted to, Standard & Poor's relied on the contention that the deceit claim was statute barred not only in support of the contention that the deceit claim was not reasonably arguable and would be liable to be struck out. It went further and contended that, because the claim was statute barred, the Court did not have power to permit the amendment. That argument was based on r 8.21 of the Rules.