Delay prior to the commencement of the proceeding
161 There could be no doubt that the proceeding was commenced at the very end of the limitation period, and even then was not, at least initially, vigorously pursued. The Palladin notes are alleged to have failed in October 2008. The proceeding was commenced on 1 October 2014. No steps were taken to serve Fitch until May 2015. Why was that so? And does it matter?
162 Gloucester, or its advisers, plainly considered that the pre-commencement and pre-service history of the matter was of some relevance. As has already been outlined, Ms Banton swore two affidavits which together provided a detailed chronology of the investigation and prosecution of the action against Fitch. Voluminous documentary evidence was also tendered in support of the chronology. That evidence sought to explain the delays in commencing and prosecuting the action, and the apparent delay in bringing the amendment application. Ms Banton was subjected to extensive and at times vigorous cross-examination. Fitch ultimately submitted that her evidence should not be accepted on any contested issue. Before addressing the challenge to Ms Banton's credibility, the basic chronology of events referred to in her evidence should be summarised.
163 Gloucester and a number of other persons who had acquired certain financial products from the Commonwealth Bank, including the Palladin notes, first contacted Ms Banton at her previous firm in February 2009. Over the following year Ms Banton and other solicitors at her firm investigated the claims and identified other potential claimants. CCMF contacted Ms Banton in March 2010. Around that time, Ms Banton sought litigation funding for a potential representative proceeding. That funding was refused in August 2010. Further detailed investigations were then conducted into the claims of the thirteen individual claimants who had retained Ms Banton.
164 In October 2011, Ms Banton wrote to the Commonwealth Bank on behalf of those claimants demanding that the bank make good their losses. The Commonwealth Bank engaged with Ms Banton in relation to the demand, however by February 2012 it became apparent to Ms Banton that the demand would not be resolved unless and until proceedings were commenced. A representative proceeding was commenced against the Commonwealth Bank on 4 June 2012. Gloucester was one of the representative applicants. The financial products the subject of the claim included the Palladin notes.
165 The Commonwealth Bank was not, however, immediately served. Ms Banton was instructed to propose mediation to the Commonwealth Bank prior to formal service. The Commonwealth Bank agreed. Between late 2012 and late 2014, without prejudice discussions and a number of mediations took place between the parties and their respective lawyers. In the meantime, in November 2012, Ms Banton secured litigation funding in respect of the representative proceedings against the Commonwealth Bank. That funding extended to making claims against other parties if Ms Banton recommended, and the funder agreed to, their joinder.
166 During the period that Ms Banton was engaging with the Commonwealth Bank in respect of the claims made by Gloucester and others, she also acted for a number of local government bodies in a representative action against a local government financial service provider, Local Government Financial Services Pty Ltd. Those proceedings concerned losses that the councils had suffered as a result of investing in highly leveraged financial products known as constant proportion debt obligations, or CPDOs. Importantly, in July 2010 the ratings agency that had assigned AAA ratings to the CPDOs acquired by the councils, Standard & Poor's, was joined to the proceedings. Local Government Financial Services alleged, amongst other things, that Standard & Poor's was a concurrent wrongdoer arising from their rating of the CPDOs.
167 The claim against Standard & Poor's was successful. In November 2012 the Court found, amongst other things, that Standard & Poor's acted negligently and engaged in misleading and deceptive conduct, in assigning a AAA rating to the relevant CPDOs: Bathurst Regional Council v Local Government Financial Services Pty Ltd (No 5) [2012] FCA 1200. An appeal against that decision was dismissed by the Full Court of the Federal Court of Australia in June 2014: ABN AMRO Bank NV v Bathurst Regional Council [2014] FCAFC 65.
168 No doubt encouraged by the findings that had been made against Standard & Poor's, Ms Banton caused investigations to be undertaken into the ratings methodology utilised by the ratings agencies who assigned ratings to the financial products the subject of the proceedings against the Commonwealth Bank. As already indicated, those financial products included the Palladin notes which were rated by Fitch. It was, however, unclear from Ms Banton's evidence exactly when those investigations commenced and what they involved. All that Ms Banton said was that the investigations were undertaken in the context of her "dealings" with the Commonwealth Bank.
169 Ms Banton's evidence was that by September 2014 she was aware from the investigations that had been conducted that there was a potential claim against Fitch. In her second affidavit, Ms Banton provided more detail in relation to the formulation and timing of her opinion that there was a potential claim against Fitch. She deposed as follows (at paragraphs 9-10):
To clarify the above, in my view, the first possible limitation period for any claim against the Fitch Respondents did not expire until at least October 2014 and that the Applicants would have until then to commence any claim. The analysis and investigations that were undertaken which enabled me to conclude that the Fitch Leads had a claim against the Fitch Respondents with reasonable prospects sufficient to warrant its institution were not complete until September 2014. I did not hold the view any earlier than September 2014 that proceedings could and should be commenced against the Fitch Respondents. Further, for much of the time prior to commencement of the Fitch Proceedings, I was focussed upon settling the CBA claim. The negotiation and resolution of the CBA claim was the most protracted and complicated settlement process that I have ever been involved in.
While I had caused the investigation and formulation of claims against S & P in relation to other kinds of SCDOs in 2013, that was far simpler because I was aware of and understood S & P's ratings processes because of my understanding of the expert evidence given in the LGFS Proceedings. I did not have that background in relation to the Fitch Respondents' ratings methodologies.
170 That evidence, in particular, prompted Fitch's call for the production of documents. As detailed earlier, Ms Banton claimed privilege in respect of the documents the subject of the call. Fitch's contention that privilege had been waived was rejected, and the privilege claim was upheld.
171 Ms Banton's evidence that it was not until September 2014 that she came to hold the view that proceedings could or should be commenced against Fitch was the subject of significant challenge in cross-examination.
172 Ms Banton's evidence was that she initially intended to join the ratings agencies, including Fitch, to the proceedings that had been commenced against the Commonwealth Bank. That did not occur because an in principle settlement agreement was reached with the Commonwealth Bank in September 2014. This proceeding was ultimately commenced on 1 October 2014 because Ms Banton was aware that the Commonwealth Bank proceedings were not likely to continue and "in view of potential upcoming limitation dates".
173 Despite the fact that, on any view, the proceeding was commenced at the very end of the limitation period, no immediate steps were taken to serve Fitch. Ms Banton wrote to the Court on a number of occasions seeking an adjournment of the initial directions hearing. The reasons for the adjournment requests included: that Fitch had not been served; that Ms Banton wanted to seek instructions to engage in pre-service mediation; that Ms Banton wanted to seek instructions concerning the consolidation of the proceeding with the Commonwealth Bank proceeding; that a decision could not be made as to whether the proceedings should be consolidated until the settlement of the Commonwealth Bank proceedings had been finalised and approved by the Court; and that further time was required to enable an application to be made to serve Fitch outside Australia. The first case management hearing was adjourned on no less than seven occasions.
174 The final terms of settlement of the Commonwealth Bank proceedings were agreed in mid-December 2014. The application to approve the settlement was heard on 7 and 13 May 2015.
175 It was not until 22 May 2015 that Ms Banton wrote to Fitch requesting it to indicate whether it would instruct Australian lawyers to accept service. On 2 June 2015, Fitch advised that it would not instruct Australian lawyers to accept service in Australia. Ms Banton then took steps to apply for leave to serve Fitch outside Australia. Leave was granted on 15 July 2015.
176 Thus, while this proceeding was commenced on 1 October 2014, no significant steps were taken to prosecute the proceeding for a further nine months. The progress of the proceeding from July 2015 up to the hearing of the amendment application is considered later.
177 As already indicated, much of Ms Banton's evidence concerning the chronology of events leading up to the decision to commence proceedings against Fitch was vigorously challenged in cross-examination. Fitch ultimately submitted that Ms Banton's evidence should not be accepted on any contested issue. The basis of that submission was said to be that Ms Banton's evidence took the form of a series of assertions without any documentary support; that in cross-examination Ms Banton was evasive, argumentative and failed to make appropriate concessions; that Ms Banton was vague on some matters when pressed; and that some of her evidence was nonsensical. Fitch's written submissions gave specific examples of those parts of Ms Banton's evidence that, in its submission, made good those particular contentions.
178 The submission that Ms Banton's evidence should not be accepted on any contested issue is rejected. That is not to say that Ms Banton's evidence was entirely satisfactory and above reproach. It cannot be gainsaid that there were some occasions where Ms Banton's responses to questions during cross examination were somewhat non-responsive, argumentative, vague and in some cases not entirely plausible. It does not follow that her evidence about contested matters should be rejected in its entirety. The fact that some aspects of a witness's evidence may be found to be wanting in some respects does not mean that the credibility and reliability of the witness' evidence as a whole must be doubted.
179 In the particular circumstances of this case, it is neither necessary nor desirable to identify, or dwell at length on, those parts of Ms Banton's evidence during cross-examination that were open to the criticisms levelled by Fitch. Suffice it to say that the deficiencies in, or problems with, specific aspects of Ms Banton's evidence were not such as to warrant the wholesale rejection of all her evidence concerning contested matters. In that regard, allowance must also be made for the fact that Ms Banton was cross-examined over the course of two days. The questioning concerned not only her involvement in this matter, but also her involvement in three other substantial and very complex class actions over a six year period. The questioning on those topics occurred in circumstances where Ms Banton was plainly conscious of the need not to inadvertently waive privilege. In those circumstances, it is perhaps not surprising that Ms Banton's evidence at times appeared to be somewhat vague and uncertain, or to lack clarity and specificity. It is equally not difficult to understand why at times Ms Banton may have appeared somewhat defensive, if not combative, when her recollection about her knowledge of, or involvement in, aspects of these major actions was questioned during cross-examination.
180 In any event, it is unnecessary to make specific findings about all of the many parts of Ms Banton's evidence that were challenged during cross examination or were otherwise contested. That is because, despite the submission that Ms Banton's evidence should not be accepted on any contested issue, Fitch ultimately only submitted that Ms Banton's evidence about two specific matters concerning the events leading up to the commencement of the proceeding should be rejected.
181 First, Fitch submitted that the Court should not accept Ms Banton's evidence that she believed she did not have sufficient information in order to bring a claim against Fitch until September 2014. It submitted that the strong inference that should be drawn from Ms Banton's involvement in the proceedings against Local Government Financial Services and Standard & Poor's was that Ms Banton had access to sufficient information to commence proceedings against Fitch well before September 2014. In that regard, Fitch relied in particular on the fact that the statement of claim originally filed in this proceeding appeared to have been "cut and pasted" from a pleading that was filed in proceedings against Standard & Poor's that were commenced in April 2013. Fitch also pointed to evidence that indicated that Ms Banton was aware from some time in 2012 that the Commonwealth Bank was claiming that it had relied on the ratings agency.
182 Second, Fitch submitted that the Court should not accept Ms Banton's "suggestion" that the claim was not pursued against Fitch before September 2014 because of a belief that the Commonwealth Bank would join Fitch in the proceedings commenced against it. It was, in Fitch's submission, hard to see how Ms Banton could reasonably have been believed that the Commonwealth Bank had a cross claim against Fitch, and there was in any event no evidence that the Commonwealth Bank ever asserted that it had such a claim. The fact that the Commonwealth Bank had told Ms Banton that it relied on Fitch's rating may reasonably have led Ms Banton to believe that the Commonwealth Bank might rely on a defence of proportionate liability, but it provided no basis for her to believe that the Commonwealth Bank intended to file a cross claim. Moreover, Fitch pointed out that the Commonwealth Bank was never served. Unless and until it was served, the Commonwealth Bank was in no position to join Fitch.
183 Fitch submitted that the clear inference that should be drawn was that Ms Banton had decided to pursue the claim against the Commonwealth Bank and put the possible claim against Fitch on the "back-burner". There were, in Fitch's submission, obvious forensic and commercial reasons why such a course may have been considered to be advantageous, particularly to the litigation funder. Fitch also went so far as to submit that, once commenced, the Fitch proceeding was not vigorously pursued because it was perceived or believed to be a weak case.
184 There is, on balance, no proper or sufficient basis to disbelieve Ms Banton's evidence that she did not have enough information or material in order to bring a claim against Fitch until September 2014. It may be accepted that the proceeding against Fitch was not commenced before that date at least in part because Ms Banton had not satisfied herself from the information available to her that there was a proper basis to commence the proceedings.
185 That is not to say, however, that Ms Banton provided an entirely adequate or convincing explanation for why the proceeding against Fitch were not commenced until shortly before the expiry of the limitation period. There could be little doubt that Ms Banton was aware of the possibility of a claim against Fitch from as early as 2012. She knew that the Commonwealth Bank was claiming that it had relied on Fitch's rating. She was involved in the successful proceeding against Standard & Poor's that arose in not dissimilar circumstances and involved the rating of a similar species of financial product. While there may have been some material differences between the case against Standard & Poor's and the potential claim against Fitch, including potential differences between the respective ratings methodologies of Standard & Poor's and Fitch, it is extremely difficult to see why, if Ms Banton had acted with due diligence and dispatch, it would have taken her until September 2014 to obtain sufficient information to satisfy herself that there was an arguable or viable case against Fitch.
186 Ms Banton's evidence concerning the investigations into the claim against Fitch and, perhaps more importantly, when they commenced, was unfortunately very vague and lacking in detail. In her affidavit, she said only that the investigations into a potential claim against Fitch were made in the context of her "dealings" with the Commonwealth Bank. During cross-examination, she was unable to say when she commenced her investigations. The best she could do was to say that it was a "significant period of time" before September 2014. When pressed, she agreed that it was "at least months", but was unwilling to say that it was years. At one stage, Ms Banton appeared to accept that the investigations by her or her team may have commenced as early as the first half of 2012, however exactly how much investigating was done at that time remained entirely unclear.
187 Ms Banton's evidence was even more vague and general when it came to describing the nature, scope and results of her investigations. The evidence rose no higher than the general assertion that the investigations involved obtaining information from certain experts and other unspecified sources. It may well be the case, as Gloucester effectively submitted, that Ms Banton's evidence about these matters was vague and general because she was concerned not to waive privilege over any documents recording the investigations or the information obtained as a result of them. Nevertheless, it was Ms Banton's election to maintain the privilege claim and the Court can only act on the evidence she ultimately gave: cf. Giannelli v Wraith (1990-1991) 171 CLR 592 at 605.
188 Ultimately, it is not possible to be satisfied, on the available evidence, that Ms Banton investigated the potential claim against Fitch with due diligence and dispatch, or with any sense of urgency or haste.
189 It does not necessarily follow, however, that it can be inferred that this was the result of a conscious decision to put the matter on the "back-burner". There are a number of possible competing available inferences, including that Ms Banton and her staff were preoccupied with other matters, including, perhaps, the appeal in the matter involving Standard & Poor's and, perhaps more significantly, the proceeding against the Commonwealth Bank. Indeed, that inference was supported by Ms Banton's own evidence. In her second affidavit, Ms Banton said that during much of the time prior to commencing the proceedings against Fitch, she was focussed on settling the case against the Commonwealth Bank, which she indicated was the most protracted and complicated settlement process she had ever been involved in.
190 It may also be inferred that the apparent delay in investigating and commencing the potential claim against Fitch may have been due in part to Ms Banton's belief that Fitch may in some way have been drawn into the proceedings against the Commonwealth Bank. That, indeed, was the general tenor of Ms Banton's evidence. The belief that the Commonwealth Bank may have joined Fitch perhaps led Ms Banton to give less priority to the investigation into the potential claim against Fitch. She may, in those circumstances, have effectively thought that she could leave any detailed investigations into the prospective claim against Fitch to the Commonwealth Bank, at least until it became apparent to her in or around September 2014 that the Commonwealth Bank may not in fact join Fitch.
191 While it may be the case, as Fitch effectively submitted, that Ms Banton had no sound or reasonable basis for believing that the Commonwealth Bank had an available cross-claim against Fitch, or actually intended to file a cross-claim against Fitch, there is no sound basis to disbelieve her evidence that she thought that Fitch would or might be joined. Ms Banton's belief in that regard appeared to be based on what had happened in the proceedings commenced against Local Government Financial Services, combined with the fact that the Commonwealth Bank had told her that it relied on Fitch's ratings. In those circumstances, it is perhaps not surprising that Ms Banton may have formed an initial belief that, if the Commonwealth Bank was eventually served, it might seek to join Fitch. What is somewhat surprising, and was not fully explained in Ms Banton's evidence, is exactly what, if anything, she did to ascertain whether the Commonwealth Bank did in fact intend to file a cross-claim against Fitch and why it apparently took until September 2014 or thereabouts for her to realise that this was not going to happen. The available inference, consistent with other findings that have been made concerning Ms Banton's investigation of the potential claim against Fitch, is that, at least before September 2014, Ms Banton did not give careful or considered thought to whether there was any real and reasonable prospect that Fitch would be joined by the Commonwealth Bank.
192 There was other evidence that tended to suggest that careful or considered thought and attention may not have been given to the commencement of proceedings against Fitch until the potential expiry of the limitation period became an issue. That evidence concerned the manner in which the pleading in its original form was drafted and settled. The available inference is that the pleading was drafted and settled in great haste and perhaps with insufficient care.
193 As was noted earlier, it is readily apparent that the statement of claim filed in this proceeding was essentially copied from pleadings that had been filed in earlier proceedings commenced against Standard & Poor's. Ms Banton accepted that the Standard & Poor's pleading was used as a "template" when it came to drafting the pleading against Fitch. What is also readily apparent, however, is that apart from the particulars of names and dates, the Fitch pleading, as originally filed, was essentially identical to the Standard & Poor's pleading. There was essentially one minor, but undoubtedly material, change. That change related to the allegations of reliance. In the Standard & Poor's pleading it was alleged that, before investing, the applicant had become aware that Standard & Poor's had assigned a particular rating to the relevant financial product. In the pleading against Fitch, as discussed in detail earlier, it was alleged that prior to investing in the Palladin notes, Gloucester was aware only that Fitch "intended" to assign a rating. Thus, the drafter of the Fitch pleading appeared to be aware that the rating had not been assigned at the time that Gloucester decided to invest. The significance of the fact that this was known at the outset is considered later in the context of the delay in making the proposed amendment.
194 Of more immediate relevance is the fact that the pleading initially filed in this proceeding included a series of allegations concerning representations by Fitch that its credit ratings were objective, independent and uninfluenced by any conflicts of interest. Those representations were alleged to be false, misleading and deceptive. In August 2015, after Gloucester was granted leave to serve Fitch outside Australia, but before the pleading was served, Gloucester filed an amended pleading which deleted the allegations concerning the independence representations. Ms Banton was cross-examined at length concerning the inclusion, then removal, of the independence representation. It is unnecessary to detail the evidence she gave on that topic. Nor is it necessary to make any specific findings concerning Ms Banton's knowledge of, and reasons for, the inclusion and subsequent removal of the allegations concerning the independence representations. Suffice it to say that some aspects of her evidence were, on just about any view, far from convincing.
195 Putting aside the specific criticisms of Ms Banton's evidence, the main point that flows from the evidence as a whole concerning the drafting of the pleading, including the inclusion and subsequent removal of the independence representation allegations, is that it can be inferred that the pleading was prepared in considerable haste because of the approaching expiry of the limitation period. As a result, some aspects of the case against Fitch were perhaps not given the thought or attention that they deserved.
196 On the whole, Ms Banton's evidence concerning the pre-commencement history of this proceeding was neither particularly cogent nor persuasive. That is not to say that Ms Banton's evidence about any particular matter is positively disbelieved or rejected. It is just that her explanation for why the proceeding was commenced at the last minute is not particularly satisfactory, let alone compelling or convincing. In particular, it is not possible to conclude that the potential availability of a case against Fitch was investigated with any real diligence or dispatch, or with any particular sense of urgency, at least until the expiry of the limitation period approached. Even then, it is difficult to be satisfied that the prospective case was investigated and assembled with the sort of attention that one would expect ought be given to a significant and complex commercial cause. Ultimately the pleading seemed to be prepared in great haste and in circumstances where insufficient attention appeared to be given to certain important aspects of the pleaded case.
197 It is relevant to have regard to those aspects of the pre-commencement handling of the matter in considering whether leave should be granted to further amend the pleading. It tends to weigh against the grant of leave.
198 It should also perhaps be noted that, even after commencing the proceeding against Fitch, no particular sense of urgency was displayed in the prosecution of the proceeding. As stated earlier, no immediate steps were taken to serve Fitch. Prior to serving Fitch, Gloucester applied to adjourn the first return date on many occasions for various different reasons. Those applications were granted. Ultimately Fitch was not made aware of the proceeding until May 2015, and was not formally served until October 2015. Fitch contended that the claim was not vigorously pursued, even after it was commenced, because it was perceived to be a weak claim. That submission is rejected. There is no sound evidentiary basis to make such a finding. Nevertheless, the delay between commencement and service is also a relevant contextual consideration. It effectively adds to the pre-commencement delay.