Relief from Non-Compliance (Discretion)
60 In the present case, the auditors became aware of the existence of this proceeding by no later than 16 October 2013. They also obtained copies of the OA and SC by no later than that date. I infer that Allens, on behalf of the auditors, diligently monitored the progress of this proceeding and knew the precise terms of each of the orders made by each of the two relevant docket judges in the period from and including 18 October 2013 to and including 16 December 2015. Of course, from and including 5 November 2014, each listing of this proceeding took place in open Court at a time when the auditors had Counsel present in Court. There is no doubt that the auditors had notice of the existence of this proceeding very soon after it was commenced and were aware at all relevant times thereafter of the listings before the Court and of what occurred at or in relation to each of those listings.
61 In the period from 5 November 2014 to 1 March 2016, Counsel was usually present in Court in order to appear for the auditors in proceeding NSD 2028 of 2013 and to observe the exchanges between bench and bar as to the progress of this proceeding.
62 In effect, the auditors allowed Equititrust to proceed as it did, seeking multiple adjournments of listings before the Court, always, of course, with the knowledge and approval of the docket judge, without comment or objection on their part until late 2015 and without ever drawing to the attention of Equititrust (or, for that matter, the Court) that, at some future point in time, they intended to seek to rely upon Equititrust's failure to comply with r 8.06 FCR as a basis for seeking the summary termination of the whole of the proceeding. They never attempted to reserve their position in relation to the point. The first time that the auditors revealed that they proposed to advance such a contention was on 8 March 2016 when they lodged their IA with the Registry for filing. Although the auditors were not required to take any steps in this proceeding until they were properly served with the OA and the SC and until at some point thereafter they were ordered by the Court to take some step, it was not appropriate for the auditors to sit by and not inform the Court or Equititrust that, in due course, they proposed to argue that the delay in service of the Initiating Process was a basis for summarily terminating this proceeding.
63 Initially, SPB informed the Court that this proceeding had been filed in order to protect Equititrust against the possible expiration of a relevant limitation period and that it was desirable for the first return date of this proceeding to be adjourned because the receivers and managers of the EPF were endeavouring to negotiate an appropriate funding agreement with a litigation funder. The Court was informed that obtaining litigation funding was likely to take some time.
64 On 5 November 2014, which was the first occasion that this proceeding was listed before me, I was informed by the legal representative of Equititrust who appeared before me on that day that there was a prospect that the receivers and managers of the EPF would retire and that, if those receivers and managers retired as expected, the proceeding would come under the complete control of the liquidators of Equititrust. I was told that the liquidators would then need time to decide whether they wished to proceed with this proceeding and in order to enable them to secure funding for it.
65 On 11 February 2015, I was informed that the receivers and managers had decided to retire, as previously foreshadowed. I was also informed on that occasion that the liquidators were currently in negotiations with a potential litigation funder.
66 The question of whether the liquidators would press on with this proceeding was not resolved until October 2015. On 16 October 2015, I was informed that the liquidators intended to proceed but that they wished to amend the SC. In light of this information, on 16 October 2015, I ordered Equititrust to file and serve any Amended Statement of Claim by 4 December 2015. At the same time, I listed the matter for further case management on 16 December 2015. It was understood by everyone at the time that Equititrust intended to rely upon r 16.51(1) when making its amendments to the SC. No objection to that course was made by the auditors at that time.
67 As already mentioned, the ASC was lodged with the Court on 4 December 2015 and accepted for filing on 7 December 2015. It was sent to Allens on 7 December 2015.
68 On 16 December 2015, I made the following notes and orders:
THE COURT:
1. NOTES that, in accordance with the indication given in the letter from Squire Patton Boggs, the solicitors for the plaintiff, to Allens dated 7 December 2015, further particulars will be provided by the close of business today (16 December 2015) of the allegations made in pars 235, 258, 281, 282 and 295 of the Amended Statement of Claim filed on 4 December 2015 (Amended Statement of Claim).
2. Upon the assumption that the further particulars referred to in par 1 above are provided by the close of business today (16 December 2015), ORDERS that, by 4 March 2016, the fifth and sixth defendants file and serve their Defence to the Amended Statement of Claim.
3. ORDERS that the listing on 12 February 2016 be vacated.
4. GRANTS liberty to all parties to apply on three (3) days' notice or on such shorter notice as a Judge might allow.
5. ORDERS that the proceeding be listed for further case management at 9.30 am on 11 March 2016 before Foster J.
6. NOTES that the plaintiff intends to proceed only against the fifth and sixth defendants in this proceeding and abandons its claims against the first to fourth defendants.
69 Subsequently, on 15 March 2016, I vacated Order 2 made by me on 16 December 2015 requiring the auditors to file a Defence and made an order that, until the determination of the auditors' IA, or until earlier further order, the auditors be excused from any requirement under the Rules to file a Defence.
70 On 16 December 2015, Counsel for the auditors was present in Court. He appeared formally in proceeding NSD 2028 of 2013 on that day but did not announce an appearance in this proceeding even though both proceedings were listed at the same time and even though they were dealt with one after the other. On this occasion, Counsel for the auditors informed the Court that the auditors intended to argue that, as at 16 December 2015, they had not been formally served with the Initiating Process in this proceeding. He did accept, however, that Allens had a copy of the ASC. I informed the auditors' Counsel that I intended to order them to file a Defence to the ASC. Counsel did not submit to me on this occasion that his client should not be compelled to file a Defence at all but rather argued that, in light of the fact that the ASC had only recently been sent to Allens and taking into account the auditors' argument that the proceeding had not yet formally been served upon them, he was not in a position to assist the Court as to how long the auditors needed to file their Defence. In light of these remarks, I gave the auditors until 4 March 2016 to file their Defence and made Order 2 which I have extracted at [68] above.
71 No submission was made to me at any time up to and including 16 December 2015 that I should not make orders requiring the auditors to take steps in the present proceeding because they wished to contend that the proceeding should be wholly dismissed by reason of Equititrust's failure to comply with r 8.06 FCR and by reason of its continuing failure to serve the relevant Initiating Process.
72 At the hearing of the auditors' IA and Equititrust's IA before me, the auditors raised a number of arguments as to why the Court should not now dispense with compliance with r 8.06 FCR or, alternatively, extend the time for compliance with that rule up to and including 10 March 2016.
73 First, the auditors argued that Equititrust had not satisfactorily explained its non-compliance with r 8.06. This submission is fatuous. Regularly, throughout the period from 14 October 2013 until 16 December 2015, the legal representative of Equititrust who appeared in Court or who communicated with the Chambers of the docket judge informed the Court of the reasons why Equititrust was seeking from time to time to adjourn the listings before the Court. I have summarised the explanations given from time to time at [63]-[65] above. The auditors do not suggest that these explanations were untruthful or incomplete. On each occasion, the docket judge evaluated all of the relevant circumstances and made a decision as to whether Equititrust's adjournment application should be granted or whether the parties should be required to progress the proceeding. The docket judge was satisfied that an adjournment without any orders being made was warranted on each occasion. It is neither necessary nor desirable for me at this point in time to explain or second guess the reasons why the docket judge on each occasion acceded to Equititrust's application. However, one obvious reason is the Court's desire to minimise the costs of litigation in circumstances where there was a very real prospect that the proceeding would not be pressed at all. For so long as negotiations for litigation funding were proceeding reasonably, there was good reason to save the parties from the expense of having to take steps in the litigation which may turn out to have been a complete waste of time. In any event, on every occasion, an explanation was given and the docket judge made a decision to approve the requested adjournment.
74 This is not a case where the Court was left in ignorance of what was occurring within Equititrust's camp. Rather, it is a case where each and every adjournment and thus the overall delay was sanctioned by the Court. This case is quite different from the circumstances that obtained in Arthur Andersen Corporate Finance Pty Ltd v Buzzle Operations Pty Ltd (in Liq) [2009] NSWCA 104 and Weston v Publishing and Broadcasting Ltd (2011) 83 ACSR 206; [2011] NSWSC 433. In each of those proceedings, there was significant delay not the subject of the Court's approval which was subsequently sought to be explained by the fact that negotiations with a litigation funder were being undertaken and had occupied a significant amount of time. Understandably, the Court took the view that, bearing in mind that the rules of Court applicable to those cases required service of the Initiating Process within a specified time period, a plaintiff should not be permitted to "sleep on its rights". In Tolcher v Gordon [2005] NSWCA 135, (2005) 53 ACSR 442, Tobias JA, at 467-468 [126], expressed the view that, in the circumstances of that case, a decision to delay service until litigation funding was in place was appropriate, prudent and responsible. Hodgson and Ipp JJA agreed with Tobias JA.
75 Next, it was argued that the Court should assume prejudice even if proof of actual prejudice had not been established. The auditors then pointed to actual prejudice in the form of the difficulties caused to them by the introduction of the new claim pursuant to s 1041E of the Act because that claim is not apportionable, is not subject to the limitation of liability imposed by the Professional Standards Scheme and is not subject to a claim of contributory negligence. That claim was introduced into this proceeding without first having to pass muster on an application for leave to amend because, and as a result of Equititrust's delay in serving the OA and the SC, Equititrust became entitled to proceed under r 16.51(1) FCR and to amend its SC without first obtaining the leave of the Court. The auditors argued that this caused them real prejudice.
76 The auditors argued before me that, if the s 1041E claim had been in the SC from the start, the auditors would have had an appropriate basis for a cross-claim against Equititrust for breach of the audit contract because Equititrust breached its contractual obligations to the auditors in respect of the four loan transactions impugned in the ASC. This contractual cross-claim by the auditors against Equititrust would have been founded upon certain obligations imposed upon Equititrust by KPMG's engagement letters for each of the 2008, 2009 and 2010 years which required Equititrust to provide all information that may reasonably be required by the auditors for the purpose of carrying out the relevant audits, to advise the auditors of any inaccurate or misleading information previously given to them and to apprise them of any contentious material issues. The auditors argued that they have lost the capacity to cross-claim against Equititrust because their claims would now definitely be statute barred. This last contention is based upon the proposition that, in contract at least, time began to run very shortly after the audit opinions were issued in respect of the relevant years (2008 and 2009). This argument is also relied upon in relation to the auditors' application for an order disallowing the amendments made by the ASC.
77 The auditors also argued that the actual prejudice likely to be suffered by them included the usual prejudice occasioned by the passage of time, namely, that memories fade, records are lost and evidence gathering becomes difficult or impossible.
78 At par 39 of their Written Submissions dated 19 April 2016, the auditors said:
This means that the KPMG Parties face actual prejudice if the claim in its current form is allowed to proceed. By their delays in negotiating litigation funding and preparing amendments designed to circumvent various limitations on liability, Equititrust has sought, unilaterally and without the approval of the Court, to achieve an extension in the limitation periods that would otherwise have barred it from commencing this claim and, at the same time, been able to insulate itself from a cross-claim based on the contractual provisions that it agreed to at the time of the 2008 and 2009 audits by allowing the limitation periods on those claims to pass before service was effected.
79 This passage fairly captures the essence of the auditors' complaints concerning actual prejudice which will be suffered by them if the case is allowed to proceed with the allegations in the ASC constituting the matters relied upon to establish the claims for relief made by Equititrust in the OA.
80 As submitted on behalf of Equititrust, there is an air of unreality about the auditors' submissions directed to delay and the prejudice occasioned thereby. If they had been truly concerned about any of the matters now addressed in their arguments, they should have raised these concerns much earlier than they did. Had they done so at the earliest opportunity, I have no doubt that the Court would have dispensed with compliance with r 8.06 FCR or extended the time for compliance with that rule to an appropriate date. The fact that Equititrust now seeks such orders at a much later date is a matter for which the auditors must bear significant responsibility. The adjournments which were granted by the Court were not done secretly or in the absence of knowledge on the part of the auditors. They were well aware of the fact of each adjournment and aware of the reasons given to the Court for each adjournment.
81 More importantly, the Court specifically sanctioned each adjournment in circumstances where, on each occasion, Equititrust offered to the Court an explanation for its request that the matter be adjourned and in circumstances where the auditors made no complaint about any of the adjournments at the time.
82 In addition, I made an order on 16 October 2015 expressly requiring Equititrust to serve its Amended SC by 4 December 2015. In substance, that order was an order extending the time for service of that process to 4 December 2015. The auditors did not object to my making that order. As already mentioned, Equititrust lodged the ASC with the Court on 4 December 2015 (within the time limited by my order) but the document was not regarded as filed until the following Monday (7 December 2015). This technical non-compliance with my order was of an inconsequential character and caused no additional prejudice to the auditors.
83 Equititrust also submitted that the auditors suffered no actual prejudice by reason of the alleged delay because they were heavily engaged from 2012 onwards in collecting the relevant records and in interviewing the relevant personnel within KPMG. From that date, the auditors always expected that the liquidators would conduct examinations of those personnel and, from about the middle of 2014 onwards, they were aware that such examinations were definitely going to be conducted. Equititrust submitted that, in 2014 in particular, when the lawyers for the auditors interviewed and prepared Mr Steer and the other relevant KPMG personnel for the purpose of being examined by the liquidators under the Act, they were well aware of the existence of this proceeding and of proceeding NSD 2028 of 2013 and of the allegations then being made in each of those proceedings. Equititrust submitted that, notwithstanding that the cause of action based upon s 1041E of the Act was not then in either set of proceedings, the factual substratum relied upon by Equititrust taking into account the amendments in each of those proceedings was essentially the same as the factual substratum already relied upon by Equititrust in each of those proceedings. It was common ground at the hearing before me that the four groups of loan transactions which were the subject of the allegations made against the auditors in the SC and the ASC also form part of the case against the auditors in proceeding NSD 2028 of 2013. In this sense, it was agreed that the allegations made in this proceeding are "a subset" of the allegations made in proceeding NSD 2028 of 2013.
84 Where a defendant has knowledge of the existence and nature of the claims against it, that knowledge mitigates any prejudice that the defendant might otherwise suffer through a delay in service of the process (Agricultural and Rural Finance Pty Ltd v Kirk [2011] NSWCA 67, (2011) 82 ACSR 390 at 413 [111]-[112] and at 415 [123] per Tobias JA with whom Macfarlan JA and Sackville AJA agreed).
85 The limitation issues raised by the auditors fall into two groups: First, they argued that, quite apart from the new case based upon s 1041E of the Act, the reshaping of the allegations otherwise made against the auditors involves the introduction of new cases which are statute barred. Equititrust countered this contention by making detailed submissions including by providing to the Court a comparison schedule (Tab 4 of MFI-2) which it contended demonstrated clearly that no new cases were being introduced. Second, they argued that the s 1041E case sought to be made in the ASC is statute barred.
86 I shall address these points in a little more detail when I come to deal with the amendment issues. It is sufficient for present purposes for me to note that I agree with Equititrust's submission as to the first group of limitation issues but consider that, nonetheless, the limitation questions (if any) arising from those amendments being allowed should be left to the trial judge to be determined at trial. I also consider that any limitation issues arising from the s 1041E case should be left to be determined by the trial judge at trial.
87 As to the auditors' argument that they have lost the opportunity to plead a cross-claim against Equititrust itself, Equititrust submitted that this is not so. It contended that the Limitation of Actions Act 1974 (Qld) is the law governing the limitation period applicable to such a cross-claim and that, pursuant to s 42 of that Act, a claim by way of counterclaim (such as the putative cross-claim here), whenever actually commenced, shall be deemed to be a separate action and to have been commenced on the same date as the action in which the counterclaim is pleaded. Here, that date is 27 September 2013. This submission is correct and I accept it. For this reason, no prejudice constituted by the allegedly lost cross-claim will be suffered by the auditors if the case is allowed to proceed and to do so upon the basis of the allegations made in the ASC including those pleaded as the foundation for the s 1041E case.
88 For the reasons advanced on behalf of Equititrust, I consider that any prejudice which the auditors might suffer by the Court's relieving Equititrust from the consequences of its failure to comply with r 8.06 FCR is substantially outweighed by all of the other circumstances in play. In substance, the delay in service of the Initiating Process and the ASC was the result of appropriate case management on the part of the Court and was never the subject of any objection by the auditors. Leaving aside for the moment the question of whether the amendments made by means of the ASC should be allowed, this is a strong case for ordering that the requirements of r 8.06 FCR be dispensed with. Although the Court has the option of extending the time for service to 10 or 11 March 2016 as the means of excusing Equititrust from its failure to comply with r 8.06 FCR, I think that the better option is to dispense with compliance with r 8.06 FCR altogether. In this way, any argument about the precise date of service will be avoided. I propose to make an order to that effect.
89 As I said at [59] above, given that I propose to dispense with r 8.06 insofar as it applied in the present case, there is no point making a declaration that r 8.06 FCR was not complied with and no basis for setting aside the OA, the SC or the ASC by reason of that non-compliance.
90 In addition, I do not agree that there is a basis for summarily terminating the proceeding by reason of the delay in service of the OA, the SC and the ASC. I reject the claims made by the auditors for summary dismissal of the proceeding upon that ground.