Application to strike out paragraphs of the defence of EY and Mr Lang
16 In very broad terms, the factual claim made by Fuji Xerox is that, in 2017, FXA and FXF each lodged statutory financial reports for the financial year ending 31 March 2017 which corrected errors in the 2015 and 2016 financial reports, that the extent of the errors were very substantial and that they occurred because of substantial accounting irregularities.
17 The case as pleaded in respect of each of FXA and FXF begins with a claim that the 2017 statutory financial report had the effect of correcting errors in the earlier reports. As to those pleas, EY and Mr Lang plead in their defence that they admit the reports but otherwise deny the allegation.
18 EY and Mr Lang submit that the pleas in the amended statement of claim are bundled up and conclusionary. It is said that a properly drawn plea by Fuji Xerox would have articulated each and every respect in which there were alleged errors in the earlier accounts. They say that any problem arises from the form of the pleading by Fuji Xerox because the case advanced in the amended statement of claim fails to specify the errors that are said to have been corrected and in those circumstances it is meaningless to respond to the plea. They say further that the allegation does not appear to be connected with the ultimate bases upon which EY and Mr Lang are alleged to be liable to Fuji Xerox.
19 It was accepted for Fuji Xerox that the plea as to the effect of the 2017 reports was not a claim as to their sole effect. It was a claim that an effect of the reports was to correct errors in the earlier reports. However, the errors themselves were not identified. It follows that an admission or denial of the allegation would be of little utility because it would not be known what errors were the subject of the responsive plea.
20 It is relevant to note that the amended statement of claim goes on to plead specific respects in which the 2015 and 2016 reports are said to have been defective. Therefore, detail as to the nature of the case alleged as to those matters is provided. In that context, the nature and extent of the allegation as to the alleged effect of the 2017 reports is vague and uncertain. It is not clear whether the errors that are alleged to have been corrected in 2017 were those pleaded in subsequent paragraphs. The parties are joined as to the issues raised by the subsequent paragraphs concerning defects in the 2015 and 2016 reports. In those circumstances, it is difficult to see why it is necessary in order for Fuji Xerox to know the nature of the defence being advanced by EY and Mr Lang to have a specific response to the overall generalised allegation about the case as to alleged correction of errors.
21 In those circumstances, EY and Mr Lang could have proceeded to strike out the plea. Instead they have simply maintained, in effect, that it is a plea made in a form to which a meaningful response cannot be pleaded beyond a general denial. I accept the position of EY and Mr Lang.
22 Later the amended statement of claim alleges that the statutory financial reports of FXA and FXF for the 2015 and 2016 financial years 'did not give a true and fair view of the financial position'. Particulars are given of the extent of the reduction in revenue and net profit that was effected by the 2017 reports. The allegations are denied. It is said that the denials of the negative allegations actually articulate an affirmative case. It is well established that a negative pleading by way of defence that conceals an affirmative case will not be able to stand without particularisation: Pinson v Lloyds and National Provincial Foreign Bank Ltd [1941] 2 KB 72 at 83-84. In this case, senior counsel for FXA and FXF maintains that there is no affirmative case.
23 It is my view that in the pleading as it presently stands, the defence is not pregnant with an affirmative case. This is not a case where an applicant says that something did not happen and that allegation is denied with the consequence that the defence, in substance, alleges that the particular event did happen. Rather, the pleading is a formulation of words that describes something that actually exists, namely the character and quality of the reports. It is said that, in fact, their content did not meet the required standard. A pleading of that kind will require Fuji Xerox to establish by affirmative evidence the particularised case that there was an understatement of revenue and profit in the reports. It is not a case that will be established by evidence that something did not happen.
24 As matters presently stand the response from EY and Mr Lang is a bare denial that the accounts were of the character alleged. They advance no particular matter in answer to the characterisation that Fuji Xerox alleges. The pleas in the defence are not a claim that the reports were true and fair. Rather, the pleas put Fuji Xerox to proof of their case that the 2015 and 2016 reports overstated the revenue and net profit to the extent particularised. If EY and Mr Lang wish to advance an affirmative case as to any matters that answer the claim as to the character and quality of the reports then they will need to expressly plead such a case. At present they do not do so.
25 A respondent will not be allowed to raise a positive case where the pleaded case is a bare denial. The respondent must plead the positive case: O'Brien v Komesaroff (1982) 150 CLR 310 at 318. Further, the Court may in appropriate circumstances require by case management direction a party to state which aspects of a case are admitted or denied: Fieldturf Inc v Balsam Pacific Pty Ltd [2003] FCA 809. In my view, the manner in which EY and Mr Lang have pleaded to the contentious paragraphs of the amended statement of claim the subject of the present application would foreclose any positive case being advanced in response to those allegations without leave to amend being sought and obtained.
26 In those circumstances, no basis has been demonstrated for the application to strike out the paragraphs in the defence.
27 I note that the view has been expressed that where a denial or putting to the proof would be inconsistent with the facts with which the pleader is instructed the pleader should admit the allegation in question: Unioil International Pty Ltd v Deloitte Touche Tohmatsu (a firm) (No 2) (1997) 18 WAR 190 at 193, applied in Gill v Ethicon Sarl (No 7) [2020] FCA 700 (Katzmann J). In any event, there is a duty upon counsel to expose the real issues and to carry out instructions to defend consistently with the performance of that duty: Dyczynski v Gibson [2020] FCAFC 120 at [214]-[220] (Murphy and Colvin JJ). I do not wish to be taken to be expressing a concern as to whether these duties are being performed in this case. There was no indication that they were not. However, having regard to the concerns that appear to have motivated the application by Fuji Xerox and the fact that Mr Bell, EY and Mr Lang propose to bring in minutes of proposed amended pleadings it is well that there be no ambiguity as to what is required.
28 As matters presently stand, the application against EY and Mr Lang should be dismissed. As I have indicated, EY and Mr Lang have foreshadowed that amendments will be sought to their defence. It is their position that the amendments will deal with issues that are unrelated to the present application. However, in circumstances where the final form of the pleadings is not yet settled I propose to reserve the costs on the application as against EY and Mr Lang.
I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Colvin.